2023 (6) TMI 123 - AT - Income Tax

Suppression of income - Difference between service tax return and the revenue - as per books of accounts of the Assessee wherein reversal entry has been passed - case of the Assessee that since audit was initiated at the end of 2014, the service tax return could not be revised online as 90 days period was over and as found that the assessee had also tried to file revised return by manually to the service tax department which has not been accepted - HELD THAT - There is no system of manual return filing/revised return by online due to expiry of limitation period. The assessee had tried to revise the service tax return, but the assessee was not successful in revising the service tax return. Considering the fact that the difference between service tax return and the revenue was occurred due to the wrong exchange rate applied to export income transaction while filing the service tax return, which being a genuine mistake and the Department has not alleged or proved any mens rea on the part of the assessee who has also tried to revise the service tax return. Thus, mere mistake in the service tax return does not mean that the income of the assessee has been suppressed. Decided in favour of assessee.

Issues involved:
The appeal against the order passed by the Commissioner of Income Tax Appeals for assessment year 2014-15. The grounds of appeal include errors in considering foreign revenue account, human error in revenue reporting, inability to revise service tax return, and the basis for making additions.

Grounds of Appeal:
1. The appellant challenged the order as being bad in law and against the facts of the case.
2. The Commissioner erred in treating foreign revenue account as receipts from customer account.
3. The Commissioner failed to recognize that revenue differences were due to human error, not intentional income suppression.
4. The Commissioner disregarded that the error in revenue reporting was rectified in the books of accounts post-audit, but the service tax return could not be revised due to expired time limit.
5. The Commissioner overlooked the fact that the service tax return could not be revised online.
6. The Commissioner erred in using the service tax return difference as a basis for additional assessment.
7. The appellant argued that the assessing officer's order solely based on the service tax return should have been quashed by the Commissioner.

Detailed Judgment:
The assessee declared income of Rs.3,40,45,410/-, but an addition of Rs.10,52,645/- was made under section 28 of the Act. The Commissioner dismissed the appeal against this addition, leading to the current appeal. The appellant contended that the revenue difference was due to a genuine mistake, not an attempt to suppress income. The auditor identified an exchange rate discrepancy, leading to a reversal entry in the books of account.

The appellant explained that the service tax return could not be revised due to the timing of the audit and subsequent limitations on revision. The difference between the revenue as per service tax return and financial statement was attributed to exchange rate fluctuations. Despite efforts to rectify the mistake manually, the service tax department did not accept the revised return. The Tribunal noted that the discrepancy was a result of an error in applying the exchange rate to export income, without any evidence of intentional wrongdoing.

By analyzing the books of accounts and the efforts made by the assessee to rectify the error, the Tribunal concluded that the income was not suppressed but rather a genuine mistake. As there was no mens rea established, the grounds of appeal were deemed meritorious, leading to the allowance of the appeal and setting aside of the Commissioner's order.

Result:
The appeal of the assessee was allowed, with the order pronounced on 31/05/2023.

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