2022 (5) TMI 1647 - AT - Income Tax

Addition on account of suppression of interest income - discrepancy arose from the audit report filed by the assessee - HELD THAT - Certainly the burden/duty on tax-auditor is very heavy/onerous under the 1961 Act to certify contents of tax-audit report to be true and correct and not merely true and fair . Thus, if there was an inadvertent error committed by tax-auditor as is averred by the assessee , the assessee could have always approached tax-auditor to issue addendum/revised tax-audit report to certify correct figures after due checking s /verifications by the tax-auditors, as the qualified Chartered Accountants who are appointed as tax- auditors being responsible officer/qualified professional, are expected to issue any addendum/revised tax-audit report with due care and caution with full responsibility , after thorough checking/verifications, otherwise it would call for disciplinary action from the ICAI and other consequences as provided under law. The assessee never produced the aforesaid addendum/revised tax-audit report from tax-auditor. CIT(A) deleted the additions without calling for such information from the tax-auditors and then reconciling/verifying from the books of accounts, but merely deleted the additions .Needless to say that powers of ld. CIT(A) are co-terminus with powers of the AO. It is further observed that in same Part B- Annexure-I of tax-audit report, there is a cutting/overwriting in the figure of Net Profit/(Loss) before tax which is shown at Rs. 3,78,565/- (with over-writings), and such overwriting/cutting is not countersigned / authenticated by tax-auditor, and authenticity of such overwritten figure cannot be ascertained/relied upon , which also is required to be brought on record by the tax-auditor. Thus, it will be just , fair and in the interest of justice that the appellate order of ld. CIT(A) be set aside and the matter be restored to the file of the AO for fresh determination of the issue. The assessee be directed to file revised tax-audit report/addendum to the tax-audit report and the AO to verify the same with books of accounts and other relevant evidences, to arrive at the correct income chargeable to tax. We clarify that we have not commented on the merits of the issue and all the contentions are kept open. AO is directed to pass reasoned and speaking order. The evidences /explanations submitted by the assessee shall be admitted by the AO in accordance with law and be decided on merits in accordance with law. Addition on account of payments to contractors without TDS deduction - - Payment by cheque s which stood debited to its bank account - HELD THAT - The assessee has submitted that these two persons are its employees, who were handling site for civil construction , and they have used the proceeds of these two payments for making labour payments and other charges for civil construction on behalf of the assessee, but evidences to substantiate are not filed, even their income tax returns along with computation, balance sheet, profit and loss account are not filed to substantiate its contentions. As observed that labour charges outstanding to be payable as is reflected in the ledger account was as high as Rs. 25.10 lacs at the beginning of the year, and it rose to Rs.38.70 lacs at the end of the year, while average monthly wages payable to labourer credited as high as there are outstanding of wages payable for 7 months, which is against preponderance of probabilities that the labourer are not paid for 7 months. The ld. CIT(A) deleted additions without any evidences on record. So, far as payment of Rs. 2,12,000/- is concerned , the said sum is paid through bank on 30.03.2011 , which is debited to the labour charges payable, and the assessee made the claim that these are tax payments and paid to Mr. O.P.Shukla,Client Account, no bank statement of Shri O.P.Shukla is filed and reasons / justification for debiting to Labour Charges Payable is not furnished. It will be just fair and in the interest of justice that the appellate order passed by ld. CIT(A) be set aside and the matter be restored to the file of the AO for fresh determination of the issue . We clarify that we have not commented on the merits of the issue and all the contentions are kept open. Appeal filed by the Revenue allowed for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition on account of suppression of interest income.
2. Deletion of addition on account of payments to contractors without TDS deduction.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Suppression of Interest Income:

The Revenue appealed against the deletion of an addition of Rs. 8,58,317/- made by the AO on account of suppression of interest income. The discrepancy arose from the audit report filed by the assessee, which showed Rs. 17,12,601/- as interest received in Part-B of Annexure-1 of the audit report in Form 3CD, while the Profit and Loss account reflected Rs. 8,54,284/- as interest income. The assessee failed to reconcile this discrepancy with documentary evidence during the proceedings.

The AO reopened the assessment under Section 147/148 of the Income-tax Act, 1961, based on the belief that income chargeable to tax had escaped assessment. The AO issued a Show Cause Notice (SCN) to the assessee, who did not comply, leading the AO to complete the reassessment under Section 144 read with Section 147 of the Act, adding the difference of Rs. 8,58,317/- to the total income.

The CIT(A) deleted the addition, observing that the interest income of Rs. 8,54,284/- credited in the Profit and Loss account was correct and consisted of accrued FDR interest, interest on NSC, and interest on IT refund. The CIT(A) noted that the auditor had mistakenly included hire charges in the interest income in Part-B of Form 3CD, which was separately shown in the Profit and Loss account. The CIT(A) concluded that no income had escaped assessment, and the addition was based on technical mistakes in the audit report.

The Tribunal, upon review, found that the assessee did not produce a revised audit report from the tax-auditor to clarify the correct figures of interest income and hire charges. The Tribunal set aside the CIT(A)'s order and remanded the matter to the AO for fresh determination, directing the assessee to file a revised tax-audit report and the AO to verify the same with the books of accounts and other relevant evidence.

2. Deletion of Addition on Account of Payments to Contractors Without TDS Deduction:

The AO made an addition of Rs. 11,37,000/- under Section 40(a)(ia) of the Act, on the grounds that the assessee made payments to labour contractors without deducting TDS under Section 194C. The payments were made through cheques and were reflected in the assessee's bank account. The assessee claimed these payments were made to employees, not contractors, and thus did not attract TDS provisions.

The CIT(A) deleted the addition, accepting the assessee's contention that the payments were made to employees who used the funds for labour payments and other business expenses. The CIT(A) noted that the AO did not provide material to disprove the salary account showing payments to these employees.

The Tribunal, however, found that the assessee did not provide sufficient evidence to substantiate the claim that the payments were made to employees and not contractors. The Tribunal observed discrepancies in the labour charges payable account and noted the lack of wage registers, ESI/PF records, and other supporting documents. The Tribunal set aside the CIT(A)'s order and remanded the matter to the AO for fresh determination, directing the assessee to furnish necessary evidence and the AO to verify the same.

Conclusion:

The Tribunal allowed the Revenue's appeal for statistical purposes, setting aside the CIT(A)'s order on both issues and remanding the matters to the AO for fresh determination with directions to provide adequate opportunity for the assessee to present evidence and for the AO to pass a reasoned and speaking order.