2016 (2) TMI 791 - AT - Income Tax

Addition on account of difference in debtors and creditors - information called by the AO u/s 133(6) of the Act directly from the selling/purchasing parties with respect to the account of the assessee appearing in their books of accounts - CIT(A) deleted the addition - Held that - The CIT(A) has allowed the appeal on the ground that the AO should have summoned these parties as well the assessee and recorded their statement on oath and allowed the cross-examination to the assessee before drawing adverse inference against the assessee but as per the facts as emerging from the orders of the authorities below, the assessee has not asked for the cross examination before the AO and the CIT(A) and rather the assessee has submitted before the AO that its accounts are correct.No such evidence has been brought on record by the assessee before us to substantiate that the assessee asked for the cross examination of these four purchasing/selling parties. In our considered view the interest of justice will be best served , if the matter is restored to the file of the AO to denovo determination of the issue with respect to differences in the books of accounts of the assessee with respect to sale/debtors and purchases/creditors vis- -vis balances as appearing in the books of the purchasing/selling parties , with the direction to AO to grant proper and adequate opportunity as per law , to the assessee to explain the differences in sale/debtors and purchase/creditors as appearing in the books of accounts of the assessee vis- -vis balance as appearing in the books of accounts of the purchasing/selling parties in accordance with the principles of natural justice as enshrined in doctrine of audi alteram partem. - Decided in favour of revenue for statistical purposes. Disallowance u/s. 194H r.w.s 40(a)(ia) on account of brokerage amount - CIT(A) allowed the claim - Held that - As observed from the orders of the CIT(A) that these expenses of brokerage expenses amounting to ₹ 1,19,089/- were incurred by the assessee in the preceding year and expenses were booked by the assessee in its books of accounts in the preceding year while due taxes has been deducted at source in the relevant assessment years and paid to the credit of the Revenue and the balances are appearing in Schedule G to the audited accounts as creditors as opening balance as at 01-04-2008 and the AO has merely taken the figure from schedule G that has been a schedule of Sundry Creditors . In our considered view, these brokerage expenses amounting to ₹ 1,19,089/- has already been booked as expenses in the preceding years and due TDS has been deducted by the assessee for the previous year as per the facts emerging from the orders of authorities below and hence there is no liability for deduction of TDS on these brokerage expenses of ₹ 1,19,089/- during the current year as it has already suffered due TDS in the earlier years when the same was booked as expenses in those years and in the current assessment year, the amounts are taken by the AO from the opening balance of sundry creditors as on 01-04-2008 as per schedule G to the audited accounts and hence in our considered view no disallowance is called for u/s. 40(a)(ia) of the Act read with Section 194H of the Act as these brokerage expenses of ₹ 1,19,089/- pertains to the brokerage expenses of the earlier years. We, therefore, uphold and sustain the orders of the CIT(A) in which we do not find any infirmity and order the deletion of addition of ₹ 1,19,089/- made by the AO to the income of the assessee - Decided in favour of assessee

Issues Involved:
1. Deletion of addition due to differences in debtors and creditors.
2. Acceptance of reconciliation statement by CIT(A).
3. Deletion of disallowance under Section 194H read with Section 40(a)(ia) on account of brokerage.
4. Request to set aside the CIT(A)'s order and restore the AO's order.

Issue-Wise Detailed Analysis:

1. Deletion of Addition Due to Differences in Debtors and Creditors:
The Revenue contested the deletion of Rs. 45,03,226/- by CIT(A) due to differences in debtors and creditors. The AO observed discrepancies between the balances in the assessee's books and those in the books of selling/purchasing parties, leading to the addition of Rs. 45,03,226/- to the assessee's income. The AO disallowed the amount based on differences in balances without cross-examining the third parties involved. The CIT(A) deleted the addition, noting that the AO did not allow the assessee to cross-examine the third parties, thus violating principles of natural justice. The Tribunal found that the AO should have provided the opportunity for cross-examination and remanded the matter back to the AO for a fresh examination, ensuring proper and adequate opportunity for the assessee to reconcile the differences.

2. Acceptance of Reconciliation Statement by CIT(A):
The Revenue argued that the reconciliation statement was not provided to the AO but was submitted for the first time before the CIT(A). The CIT(A) accepted the reconciliation without forwarding it to the AO for examination. The Tribunal noted that the reconciliation statements were not forwarded to the AO under Rule 46A for a remand report. The Tribunal emphasized the need for the AO to examine these reconciliations and remanded the issue back to the AO for a de novo determination.

3. Deletion of Disallowance Under Section 194H Read with Section 40(a)(ia) on Account of Brokerage:
The AO disallowed Rs. 1,19,089/- under Section 194H read with Section 40(a)(ia) for non-deduction of TDS on brokerage payments. The CIT(A) observed that the brokerage expenses were incurred in preceding years, and TDS was deducted and paid in those years. The AO had taken the figure from the opening balance of sundry creditors. The Tribunal upheld the CIT(A)'s decision, noting that the brokerage expenses pertained to earlier years and had already suffered TDS. Therefore, no disallowance was warranted under Section 40(a)(ia) for the current year.

4. Request to Set Aside the CIT(A)'s Order and Restore the AO's Order:
The Revenue requested to set aside the CIT(A)'s order and restore the AO's order. However, the Tribunal found merit in the assessee's arguments and the CIT(A)'s observations. The Tribunal upheld the deletion of the addition of Rs. 1,19,089/- and remanded the issue of Rs. 45,03,226/- back to the AO for fresh examination.

Conclusion:
The Tribunal partly allowed the Revenue's appeal. It remanded the issue of Rs. 45,03,226/- back to the AO for fresh examination, ensuring the assessee is given a proper opportunity to reconcile the differences. The Tribunal upheld the CIT(A)'s deletion of the disallowance of Rs. 1,19,089/- under Section 194H read with Section 40(a)(ia). The order was pronounced on January 18, 2016.

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