2022 (1) TMI 963 - AT - Income Tax

Validity of reopening of assessment u/s 147 - disallowance of other reconciliation items - HELD THAT - AO has made the impugned addition for want of details. Before Ld. CIT(A), the assessee has furnished details to the extent of ₹ 159.56 crores, as against the disallowance of ₹ 167.58 crores. It has been tabulated above in the remand report. A perusal of the same would show that the details furnished for all items (except relating to 'Discount Account' and 'Other item') are more than that addition made by the AO, meaning thereby, the assessee has furnished details, even though it could not make one to one tally. In respect of 'Discount Account', the assessee could not furnish details. Similarly in respect of 'Other item', the assessee could not furnish details to the tune of ₹ 7,82,41,309/-. The total of both these amounts works out to ₹ 9,88,29,444/-. Despite furnishing details, we notice that the CIT(A) has confirmed disallowance of ₹ 167.58 crores. In our view, this is not justified. Accordingly, we are of the view that the disallowance should have been restricted to the amount for which details could not be furnished by the assessee. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue and direct the AO to restrict the addition to ₹ 9,88,29,444/- on this issue. Addition relating to accrual entries - AO noticed that the assessee company has posted accrual entries in all expenses account in order to match the ledger amount with the amount shown in the P L account - disallowance u/s. 40(a)(ia) - HELD THAT - CIT(A) has extracted the reconciliation statement with regard to the other reconciliation items (referred as 'miscellaneous accruals') which is not relevant to the present issue. Further, in paragraph 13.2, extracted above the Ld. CIT(A) has observed that the assessee has demonstrated that the above said amount has already been disallowed in determination of taxable income for assessment year 2008-09. However, it appears that the assessee has not submitted so before Ld. CIT(A). Accordingly, there was confusion in the mind of Ld. CIT(A) on this issue.Disallowance to the extent reclassification of expenditure is not justified. In respect of year end accrual adjustment, the case of the A.O. is that the same is liable for disallowance u/s. 40(a)(ia) of the Act for non-deduction of tax at source even though the assessee has submitted that it has considered the year-end accruals appropriately for disallowance u/s. 40(a)(ia) of the Act. From the computation statement filed by the assessee,we notice that the assessee has made disallowance u/s. 40(a)(i) and u/s. 40(a)(ia) of the Act. However, no details were furnished to support the claim that the yearend provisions, that attract TDS liability have been included in the above said disallowances. We noticed earlier that the Ld. CIT(A) has granted relief to the assessee on this issue without properly appreciating the facts. Accordingly, we are of the view that this issue requires examination at the end of the A.O. Accordingly, we partially confirm the order passed by Ld. CIT(A) on this issue and restore the matter relating to applicability of provisions of sec. 40(a)(ia) on the amount to the file of the A.O for examining the same in accordance with law. The relief granted by Ld. CIT(A) is sustained to the extent of ₹ 81.02 crores. - Decided partly in favour of assessee.

Issues Involved:
1. Validity of reopening of assessment
2. Direction issued by Ld. CIT(A) with regard to the pre-sale and post-sale discount
3. Disallowance of other reconciliation items ?167.58 crores
4. TDS credit
5. Addition relating to miscellaneous accrual entries amounting to ?88.01 crores

Detailed Analysis:

1. Validity of reopening of assessment:
The ground relating to the validity of reopening of the assessment was kept open as requested by the appellant's representative. No further arguments or decisions were made on this issue during the hearing.

2. Direction issued by Ld. CIT(A) with regard to the pre-sale and post-sale discount:
This issue was dismissed as not pressed by the appellant during the hearing. Hence, no detailed analysis or judgment was provided on this matter.

3. Disallowance of other reconciliation items ?167.58 crores:
The main issue under consideration was the disallowance of "other reconciliation items" amounting to ?167.58 crores. The assessee had reconciled the turnover reported in sales tax and service tax returns with the turnover reported in the income tax return, deducting ?167.58 crores from the sales turnover reported in the VAT return to arrive at the sales turnover figure as per books of account. The AO had asked for details relating to this amount, and upon the assessee's failure to furnish evidence, assessed it as income. The Ld. CIT(A) confirmed this assessment.

The assessee furnished explanations and partial details, amounting to ?159.56 crores, before the AO and Ld. CIT(A). The AO's remand report indicated a difference of ?10.21 crores, but the Ld. A.R. argued that the actual difference was ?8.02 crores due to the passage of time. The Tribunal found that the Ld. CIT(A) was not justified in confirming the entire disallowance of ?167.58 crores and directed the AO to restrict the addition to ?9,88,29,444/- for which details could not be furnished.

4. TDS credit:
This issue was also dismissed as not pressed by the appellant during the hearing. Hence, no detailed analysis or judgment was provided on this matter.

5. Addition relating to miscellaneous accrual entries amounting to ?88.01 crores:
The revenue appealed against the Ld. CIT(A)'s decision to delete the addition of ?88.01 crores relating to accrual entries. The AO had disallowed this amount, considering it contingent liabilities and noting that the assessee should have deducted tax at source under section 40(a)(ia) of the Income-tax Act. The assessee argued that ?81.02 crores out of ?88.01 crores represented reclassification of expenditure, and only ?6.98 crores related to year-end accrual adjustments.

The Ld. CIT(A) deleted the disallowance, noting that the amount had already been disallowed in the determination of taxable income for AY 2008-09, thus avoiding double disallowance. The Tribunal found that the Ld. CIT(A) did not properly appreciate the facts and partially confirmed the order, restoring the matter relating to the applicability of provisions of sec. 40(a)(ia) on ?6.98 crores to the AO for further examination. The relief granted by Ld. CIT(A) was sustained to the extent of ?81.02 crores.

Conclusion:
The appeals filed by both the assessee and the revenue were partly allowed. The Tribunal directed the AO to restrict the addition related to other reconciliation items to ?9,88,29,444/- and to re-examine the applicability of sec. 40(a)(ia) on ?6.98 crores of accrual entries. The relief granted by Ld. CIT(A) for ?81.02 crores was sustained. The issues relating to the validity of reopening of assessment and TDS credit were kept open and dismissed as not pressed, respectively.

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