2021 (1) TMI 952 - AT - Income Tax

Addition u/s 68 - main grievance of the assessee is that when the AO asked the assessee to produce the cash flow statement, though it filed the cash flow statement, there was a mistake which crept into the cash flow statement, which led to the misunderstanding and led to the addition - HELD THAT - According to the assessee, though the accounts were maintained correctly in tally system, however due to wrong classification of the entries made by the accountant while entering the same certain mix-up happened like sale in cash were wrongly classified under the credit sales etc. Realizing this mistake which crept in to the cash flow statement filed at the assessment stage, the assessee at the first appellate proceedings has filed reconciliation of the cash flow statement which has been reproduced by the Ld. CIT(A) - Rather than examining the correctness of reconciliation statement filed by the assessee, the Ld. CIT(A) has erred in confirming the action of AO and that too without even calling for a remand report from the AO. From the records, it is evident that the assessee's aforesaid submission and reconciliation is before the authorities below - We set aside the order of Ld. CIT(A) and remand the matter back to the file of AO. with a direction to verify the reconciliation statement/summary and submissions made by the assessee in this respect and in the event it is found to be correct after due verification, then no addition on this issue is warranted - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
Appeal against addition under section 68 of the Income Tax Act, 1961 for A.Y. 2016-17.

Detailed Analysis:
1. Issue of Addition under Section 68: The AO added an amount of ?17,57,341 to the total income of the assessee under section 68 of the Income Tax Act, 1961, due to discrepancies in the cash flow statement and total sales figures. The AO noted differences in the total sales amount and cash received from debtors, leading to the addition. The Ld. CIT(A) confirmed the addition, stating that the reconciliation submitted by the assessee was an afterthought. However, the assessee contended that the mistake in the cash flow statement was rectified during the appellate proceedings, and the reconciliation was filed to correct the errors. The Ld. A.R. argued that the accounts were audited, and the discrepancies were due to wrong classification of entries in the software tally, not actual suppression of sales. The Ld. Sr. DR opposed, claiming that the reconciliation was an afterthought and should not be admitted.

2. Judicial Review of CIT(A)'s Decision: The ITAT held that the Ld. CIT(A) erred in not verifying the correctness of the reconciliation submitted by the assessee and confirming the AO's decision without a remand report. The ITAT found that the reconciliation was crucial in rectifying the errors in the cash flow statement, and the AO should have verified its accuracy. Therefore, the ITAT set aside the Ld. CIT(A)'s order and remanded the matter back to the AO for proper verification of the reconciliation statement. The ITAT directed the AO to assess the issue based on the reconciliation's correctness and provide a fair opportunity to the assessee for a hearing.

3. Final Decision: The ITAT allowed the appeal of the assessee for statistical purposes, emphasizing the importance of verifying the reconciliation statement to determine the accuracy of the addition under section 68. The ITAT's decision aimed at ensuring a just assessment based on correct information and providing the assessee with a fair chance to address the discrepancies in the cash flow statement.

In conclusion, the ITAT's judgment focused on the necessity of thoroughly examining the reconciliation submitted by the assessee to rectify errors in the cash flow statement before making additions under section 68 of the Income Tax Act, 1961. The decision prioritized fair assessment practices and the assessee's right to present accurate financial information for proper evaluation.