2020 (8) TMI 200 - HC - Income Tax

Disallowing sample expenses and addition of undisclosed stocks in relevant to purchases - Tribunal remanded the matter back to the Assessing Officer to reconsider the expenditure for made-ups - Tribunal once again examined the factual position placed by the Assessee before the Assessing Officer, at the first instance when the assessment was completed, and also verified the details which were culled out during the assessment proceedings after the remand order of the Tribunal in the earlier round of litigation and dismissed the Revenue's appeal - HELD THAT - This is the second round of litigation and the first round culminated with the order of the Tribunal, remanding the matter to the Assessing Officer. The Assessing Officer has done some factual exercises. This test was corrected by the CIT(A). The CIT(A) examined the matter and rendered a finding by partly allowing the Assess's appeal. Thereafter, the matter was taken before the Tribunal in the way of appeal by the Revenue, wherein, the findings of CIT(A) was re-examined by the Tribunal, and the Tribunal, after assigning independent reasons, affirmed the order of the CIT(A). There is no question of law, much less the substantial questions of law arises in this appeal.

Summary

Issues involved:
1. Discrepancy in export sales and purchases
2. Lack of documentary evidence for stock discrepancies
3. Alleged violation of Rule 46A by not considering fresh evidence
4. Applicability of matching principle in cash method of accounting

Analysis:
1. The appeal by the Revenue under Section 260A of the Income Tax Act, 1961 challenged the order of the Income Tax Appellate Tribunal regarding the Assessment Year 2006-2007. The main issue was the discrepancy between export sales and purchases by the Assessee. The Tribunal's decision was questioned based on the assertion that the Assessee could have exported goods without any purchases, which the Assessing Officer believed was not commensurate with the opening stock and purchases.

2. Another issue raised was the lack of documentary evidence to support the stock levels and discrepancies. The Tribunal's finding was challenged as the available stock on the date of sale was less than what was reported, and the Assessee failed to provide sufficient proof to support their claims.

3. The next issue involved the alleged violation of Rule 46A, as the Revenue contended that fresh evidence was indeed presented before the Commissioner of Income Tax (Appeals), but no opportunity was granted to the department before the order was passed. The Tribunal's decision was questioned on the basis of this procedural irregularity.

4. Lastly, the issue of the applicability of the matching principle in the cash method of accounting was raised. The Tribunal was criticized for not considering that the matching principle might not apply when following the cash method of accounting, as there should be a nexus between income and expenditure for allowability, as per Sections 36 and 37 of the Income Tax Act.

In the judgment, the Court heard arguments from both sides and reviewed the history of the case, including the assessments, appeals, and remand orders. Ultimately, the Court found that there was no substantial question of law arising from the appeal. The Tribunal's decision was upheld, confirming the order passed in ITA.No.2099/Chny/2017. The Tax Case appeal was dismissed, and no costs were awarded.