2022 (5) TMI 929 - AT - Income Tax

Understatement of turnover - overlapping of turnover reported in service tax return and VAT return due to comprehensive nature of AMC contracts undertaken by the assessee - HELD THAT - The assessee is in the business of sales and service of computer hardware products and the assessee has also taken AMC contracts. The comprehensive AMC contracts are liable for VAT as well as service tax at respective rates as per rules prescribed for levy of tax on turnover. Accordingly, the assessee has charged VAT and service tax on 70% basic value, which resulted in overlapping of turnover in both VAT and service tax returns. AO on the basis of returns filed by the assessee under VAT and service tax opined that the assessee has understated turnover without appreciating fact that there is overlapping of turnover in both returns. CIT(A), after considering relevant facts and also taking note of reconciliation filed by the assessee explaining turnover declared in service tax return and VAT return has rightly deleted additions made by the AO towards estimation of gross profit on difference in turnover. Assessee has filed reconciliation statement explaining turnover reported in service tax return and VAT return as well as financial statement filed for relevant assessment year. From the above, what we could notice is that there is no difference between financial statement, when compared to turnover reported in service tax return and VAT return filed for relevant assessment years. Therefore, there is no error in the reasons given by the learned CIT(A) to delete additions made by the Assessing Officer towards estimation of gross profit on turnover. Hence, we are inclined to uphold findings of the learned CIT(A) and reject grounds taken by the revenue.

Summary

Issues:
Appeal against order on understatement of turnover in income tax assessment.

Analysis:
The case involved an appeal by the Revenue against an order passed by the Commissioner of Income Tax (Appeals) concerning the assessment year 2014-15. The assessee, a company engaged in trading and services for computer hardware products, had filed its return declaring Nil total income. The assessment under section 143(3) of the Income Tax Act, 1961, determined the total income at Rs. 9,34,69,020/-, including an addition for understatement of stock amounting to Rs. 7,56,20,161/- due to alleged understatement of turnover. The Commissioner deleted these additions, prompting the Revenue to challenge the order before the Tribunal. The Tribunal initially disposed of the appeal without adjudicating on specific grounds raised by the Revenue. However, upon a recall, the present appeal focused on the challenge to the deletion of understatement of turnover.

The Revenue contended that the Commissioner erred in directing the Assessing Officer to delete the additions without proper evidence. The Revenue argued that the assessee failed to provide adequate support for the difference in sales figures between financials and returns filed under service tax/VAT, attributing it to the composite nature of services. The Revenue also highlighted contradictory statements by the assessee during proceedings regarding the treatment of comprehensive AMC charges in service tax and VAT returns.

The assessee, on the other hand, submitted a reconciliation explaining the turnover overlap in service tax and VAT returns and provided necessary details. The Commissioner, after considering the facts, deleted the additions made by the Assessing Officer, which the assessee argued should be upheld. The Tribunal analyzed the nature of the assessee's business, the treatment of comprehensive contracts, and the overlapping turnover in service tax and VAT returns. It concluded that the Assessing Officer's reasoning for the additions was flawed due to the overlapping turnover resulting from the nature of AMC contracts. The Tribunal upheld the Commissioner's decision to delete the additions, noting the reconciliation filed by the assessee and the consistency in turnover figures across financial statements and tax returns.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the Commissioner's decision to delete the additions made by the Assessing Officer. The Tribunal found no errors in the Commissioner's reasoning and rejected the grounds raised by the Revenue.

This detailed analysis of the judgment highlights the key issues, arguments presented by both parties, and the Tribunal's reasoning in deciding the appeal related to the understatement of turnover in the income tax assessment for the relevant year.