2024 (12) TMI 1480 - AT - Income Tax

Reopening of assessment - information received from DG GSTI, Delhi - gross turnover declared by the assessee in its return of income and the turnover declared for the purpose of service tax are different - assessee has not submitted any supporting evidences relating to reconciliation of gross turnover - HELD THAT - Turnover declared on the Service Tax Act which is based on receipt of advances not based on completion of project. The determination of gross revenue is different from the actual turnover. On the basis of reconciliation, there will be difference between turnover declared for the purpose of service tax and the return of income. From the records submitted before us shows that assessee has submitted relevant reconciliation statement before the lower authorities along with relevant documents. The lower authorities failed to consider the same. Therefore, we do not see any reason to sustain the additions made by the AO. Accordingly, the estimated profit on the undisclosed turnover is deleted. Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily revolves around the following legal issues:

• Whether the Assessing Officer (AO) was justified in reopening the assessment based on the information received from the Directorate General of GST Intelligence (DG GSTI) regarding the alleged underreporting of gross receipts by the assessee.
• Whether the reconciliation statement provided by the assessee, explaining the differences between the turnover reported under the Income Tax Act and the Service Tax Act, was adequately considered by the AO and the Commissioner of Income Tax (Appeals) [CIT(A)].
• Whether the additions made by the AO, based on an estimated profit on the alleged undisclosed turnover, were justified in the absence of specific discrepancies in the assessee's books of accounts.
• Whether the principles of natural justice were adhered to in the assessment and appellate proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Reopening of Assessment

• Legal Framework and Precedents: The reopening of assessments is governed by Section 147 of the Income Tax Act, which allows the AO to reassess income if there is reason to believe that income has escaped assessment.
• Court's Interpretation and Reasoning: The tribunal considered whether the information from DG GSTI constituted a valid reason for reopening the assessment. The tribunal noted that the AO acted on the information without independently verifying the discrepancies.
• Key Evidence and Findings: The AO relied on the DG GSTI report indicating a difference in turnover. However, the assessee provided a reconciliation statement explaining the variance due to different accounting principles under the Income Tax and Service Tax laws.
• Application of Law to Facts: The tribunal assessed whether the AO's reliance on third-party information without adequate verification was justified under the law.
• Conclusions: The tribunal found that the reopening was not adequately substantiated by the AO, as the reconciliation provided by the assessee was not properly considered.

Issue 2: Consideration of Reconciliation Statement

• Relevant Legal Framework and Precedents: The reconciliation of accounts is a standard practice to resolve discrepancies between different financial reporting standards.
• Court's Interpretation and Reasoning: The tribunal emphasized the need for the AO and CIT(A) to thoroughly examine the reconciliation statement and supporting documents provided by the assessee.
• Key Evidence and Findings: The assessee submitted detailed reconciliation and supporting documents, which were allegedly not adequately considered by the lower authorities.
• Application of Law to Facts: The tribunal evaluated whether the reconciliation was sufficient to explain the differences in turnover.
• Conclusions: The tribunal concluded that the reconciliation was valid and should have been considered by the AO and CIT(A).

Issue 3: Justification of Additions

• Relevant Legal Framework and Precedents: Additions to income must be based on concrete evidence of undisclosed income, not on estimates or assumptions.
• Court's Interpretation and Reasoning: The tribunal criticized the AO's approach of estimating profits without pinpointing specific discrepancies in the assessee's accounts.
• Key Evidence and Findings: The AO's addition was based on an arbitrary estimate of 10% profit on the alleged undisclosed turnover.
• Application of Law to Facts: The tribunal assessed whether the AO's estimation was justified in the absence of specific evidence.
• Conclusions: The tribunal found the additions to be unjustified and deleted them.

Issue 4: Principles of Natural Justice

• Relevant Legal Framework and Precedents: The principles of natural justice require fair hearing and consideration of all evidence.
• Court's Interpretation and Reasoning: The tribunal noted procedural lapses in the consideration of evidence and submissions by the lower authorities.
• Conclusions: The tribunal concluded that the principles of natural justice were not fully adhered to.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The reconciliation provided by the assessee, supported by documentary evidence, sufficiently explains the differences in turnover reported under different statutory frameworks."
• Core Principles Established: The tribunal reaffirmed the necessity of basing income additions on concrete evidence rather than estimates, and the importance of considering reconciliation statements in tax assessments.
• Final Determinations on Each Issue: The tribunal allowed the appeal, deleting the additions made by the AO and emphasizing the need for proper consideration of reconciliation statements and adherence to natural justice.