2023 (6) TMI 1033 - AT - Income Tax

Unexplained expenditure u/s 69C - Difference in net taxable income declared and as per TRACES form 26AS TCS - assessee disclosed only an amount on account of purchase of beedi leaves in the profit and loss account, AO called for the reasons for difference - HELD THAT - On a calculation of the CGST and SGST at 9% each on the net purchase amount as pleaded by the assessee it is found that cumulative GST comes to Rs. 17,39,806/- and this amount has to be added not to the total amount of purchase as found in the profit and loss account, which includes the other expenses relating to the purchase, but to the amount which was subject to TCS. In that case, it comes to Rs. 1,12,10,164/-. This amount tallies with the invoice amount of Rs. 1,12,10,160/-. The difference of Rs. 2 lakhs, observed by the learned CIT(A), was due to the non-consideration of the contention of the assessee by CIT(A) that there are other expenses like godown rent, charges on late payment etc., to the tune of Rs. 1,95,235/-; and when that amount is considered, absolutely there is no difference and highly probablises the case of the assessee. No discrepancy in the case of the assessee. The addition is not warranted - Appeal of assessee is allowed.

Summary

Issues:
The issues involved in the judgment are related to the assessment of unexplained expenditure under section 69C of the Income Tax Act, 1961, based on the difference in purchase amounts declared by the assessee and the amount subject to Tax Collection at Source (TCS).

Assessment of Unexplained Expenditure:
The assessee, a partnership firm trading in beedi leaves, filed a return of income for the assessment year 2018-19. The Assessing Officer noted a variance between the amount disclosed by the assessee and the TCS amount collected by a cooperative union. The Assessing Officer treated the difference as unexplained expenditure under section 69C of the Act.

Appeal before CIT(A):
The assessee contended before the Commissioner of Income Tax (Appeals) that the TCS amount collected was different from the total invoice amount due to the inclusion of CGST and SGST. The CIT(A) dismissed the appeal, stating that even considering the CGST and SGST, there was still a significant difference, leading to unexplained expenditure.

Appeal before ITAT Hyderabad:
The assessee appealed before the ITAT Hyderabad, arguing that the exclusive method treatment of taxes in accounting was permissible under the law. The assessee also highlighted additional expenses not subjected to TCS but included in the purchase cost, which were not considered by the authorities. The ITAT Hyderabad analyzed the submissions and found that the difference in amounts was due to the exclusion of these other expenses.

Decision of ITAT Hyderabad:
Upon review, the ITAT Hyderabad observed that the inclusion of CGST and SGST in the invoice amount led to a discrepancy. However, after considering the net purchase amount subject to TCS and accounting for other expenses, the ITAT concluded that there was no unexplained expenditure. The ITAT directed the deletion of the addition made by the Assessing Officer, thereby allowing the appeal of the assessee.

Conclusion:
The ITAT Hyderabad ruled in favor of the assessee, highlighting the importance of considering all relevant expenses and the method of tax treatment in accounting practices. The judgment emphasized the need for a comprehensive assessment to avoid inaccuracies in determining unexplained expenditures under the Income Tax Act, 1961.