2021 (9) TMI 690 - AT - Income Tax

Undisclosed closing stock - As argued reconciliation statement was not submitted before the Assessing Officer during the assessment proceedings and the Assessing Officer, therefore, should be given an opportunity to examine/verify the same - CIT-A allowed the claim - HELD THAT - Explanation as regards the alleged closing stock as pointed out by the AO was also made on behalf of the assessee even during the course of assessment proceedings before the AO and as rightly observed by the ld. CIT(A) in his impugned order, the same was summarily rejected by the Assessing Officer without assigning any reason. CIT(A), on the other hand, had duly considered and examined the submission of the assessee in the light of the reconciliation statement prepared and furnished by the assessee and on such examination, he found that the undisclosed 4248 bales of raw jute stock as allegedly pointed out by the Assessing Officer were already included in the closing stock as on 31/02/2008 as credited by the assessee in the profit and loss account. At the time of hearing before us, the ld. D/R has not been able to rebut or controvert this finding recorded by the ld. CIT(A) in this impugned order while deleting the addition made by the Assessing Officer on account of alleged closing stock. We, therefore find no justifiable reason to interfere with the impugned order of the ld. CIT(A) on this issue giving relief to the assessee and dismiss Ground No. 1 of the revenue's appeal. TDS u/s 194C and 194I - Disallowance u/s. 40(a)(ia) - Non deduction of TDS on payment of storage charges and freight - HELD THAT - CIT(A) in his impugned order remarked to point out that there was a failure on the part of the assessee to deduct tax at source only from the payments on account of freight and godown/storage charges as specifically pointed out by the Assessing Officer. The ld. D/R also not been able to dispute this position which is clearly evident from the remarks made by the Assessing Officer in the remand report submitted to the ld. CIT(A). We, therefore, find no infirmity in the impugned order of the ld. CIT(A) restricting the disallowance made by the Assessing Officer u/s. 40(a)(ia) of the Act to ₹ 40,25,900/- and upholding the same on this issue, we dismiss Ground No. 2 of the revenue's appeal.

Summary

Issues Involved:
1. Deletion of addition on account of alleged undisclosed closing stock.
2. Restriction of disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Deletion of Addition on Account of Alleged Undisclosed Closing Stock:

Background:
The revenue challenged the action of the CIT(A) in deleting the addition of ?86,91,408/- made by the Assessing Officer (AO) on account of alleged undisclosed closing stock. The assessee, a public sector undertaking engaged in trading raw jute, had its assessment reopened by the AO on the grounds of undisclosed closing stock and failure to deduct tax at source.

Assessee's Explanation:
The assessee explained that the 4248 bales of jute were included in the closing stock as per physical verification and were reflected in the accounts. They argued that the gain/loss in weight due to moisture in raw jute was customary and accounted for in the stock valuation.

CIT(A)'s Findings:
The CIT(A) considered the assessee's submission, including a reconciliation statement, and found that the 4248 bales were indeed included in the closing stock. The AO had summarily dismissed the explanation without proper reasoning. The CIT(A) noted that the audited accounts and the reconciliation statement supported the assessee's claim, leading to the deletion of the addition.

Tribunal's Decision:
The Tribunal upheld the CIT(A)'s decision, noting that the AO's rejection of the assessee's explanation was without assigning reasons. The CIT(A) had duly verified the reconciliation statement and found no grounds to dispute the inclusion of the 4248 bales in the closing stock. The Tribunal found no justifiable reason to interfere with the CIT(A)'s order and dismissed the revenue's appeal on this ground.

2. Restriction of Disallowance under Section 40(a)(ia):

Background:
The revenue challenged the CIT(A)'s action in restricting the disallowance of ?10,60,90,375/- made by the AO under Section 40(a)(ia) to ?40,25,900/-. The AO had disallowed the amount on the grounds of failure to deduct tax at source on payments for godown and storage charges and freight charges.

Assessee's Explanation:
The assessee argued that TDS was deducted in all applicable cases and provided necessary documents during the assessment. They explained that many storages were hired at nominal rates not subject to TDS, and the corporation had complied with TDS provisions where applicable.

CIT(A)'s Findings:
The CIT(A) forwarded the assessee's submissions and additional evidence to the AO for verification. The AO's remand report indicated that TDS was deducted in most cases, except for certain payments amounting to ?16,62,007/- on freight charges and ?23,63,893/- on godown and storage charges. The CIT(A) thus restricted the disallowance to ?40,25,900/-.

Tribunal's Decision:
The Tribunal upheld the CIT(A)'s decision, noting that the AO had summarily rejected the assessee's explanation without proper verification. The CIT(A) had provided the AO an opportunity to verify the details, and the remand report confirmed that TDS was deducted in most cases. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the revenue's appeal on this ground.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on both the deletion of the addition on account of alleged undisclosed closing stock and the restriction of disallowance under Section 40(a)(ia). The Tribunal found that the CIT(A) had appropriately considered and verified the evidence and explanations provided by the assessee.