INCOME TAX OFFICER-1(1)(1),MUMBAI, AAYAKAR BHAWAN vs. AMBIKA LOGISTICS PRIVATE LIMITED, THIRD FLOOR, LAWARENCE AND MAYO BLDG., FORT MUMBAI

The brief facts of the case are that the assessee, Ambica Logistics Private Limited, is a private limited company engaged in the business of providing services relating to the shipping industry and acting as a shipping agent. The assessee filed its return of income for A.Y. 2022-23 declaring total income of ₹66,77,060/-. The Assessing Officer selected the case for scrutiny under CASS on the issue that the assessee had made substantial purchases from suppliers who had either filed non-business returns or had disclosed substantially lower turnover in their returns.

During the assessment proceedings, the Assessing Officer issued notices and asked for various details from the assessee. The assessee furnished the details from time to time, including its purchase register, balance sheet and Profit and Loss Account. While examining the purchase register, the Assessing Officer observed that the total expenses recorded there were ₹43,61,50,917/-, whereas the expenses shown in the Profit and Loss Account were ₹40,95,78,000/-. The Assessing Officer treated the difference of ₹2,65,72,917/- as expenditure which had not been properly explained by the assessee and, therefore, added the same under section 69C of the Act.

Before the learned CIT(A), the assessee challenged the addition of ₹2,65,72,917/- and submitted that the Assessing Officer had compared two figures which were not on the same basis. The assessee submitted that the purchase register contained the gross amount inclusive of GST, whereas the expenses debited to the Profit and Loss Account were recorded net of GST. The assessee further explained that the assessee was required to maintain detailed registers for the purposes of GST compliance and reimbursement of expenses incurred on behalf of customers also resulted in gross amounts appearing in the records. The assessee accordingly furnished a reconciliation between the purchase register and the Profit and Loss Account and contended that the difference of ₹2,65,72,917/- was the difference arising on account of GST and was not any unexplained expenditure.

The assessee requested the learned CIT(A) to admit the reconciliation statement under Rule 46A. The learned CIT(A), however, held that the reconciliation statement did not constitute additional evidence within the meaning of Rule 46A because the assessee had already furnished the purchase register and the Profit and Loss Account before the Assessing Officer and the reconciliation merely flowed from those documents already available before the Assessing Officer.

The learned CIT(A) examined the purchase register and found merit in the assessee’s explanation that the purchase register contained amounts inclusive of GST whereas the Profit and Loss Account reflected the expenditure net of GST. The learned CIT(A) therefore held that the Assessing Officer was not justified in straightaway treating the difference between the two figures as unexplained expenditure without examining the reconciliation. The learned CIT(A) accordingly directed the Assessing Officer to examine the reconciliation statement with reference to the purchase register and the Profit and Loss Account. The learned CIT(A) further directed that, if the reconciliation explained the difference, the Assessing Officer should delete the addition of ₹2,65,72,917/-, whereas, if the reconciliation did not explain the difference, the Assessing Officer could sustain the addition. The learned CIT(A) also directed the Assessing Officer to pass a speaking order after verification and directed the assessee to furnish the relevant details. The learned CIT(A) accordingly allowed the appeal of the assessee for statistical purposes.

The Department is now in appeal before us against the aforesaid order of the learned CIT(A).

We have heard the rival contentions and perused the material on record

We are of the considered view that no useful purpose would be served by interfering with the order of the learned CIT(A), since either way the Assessing Officer would be required to examine and verify the reconciliation between the purchase register and the Profit and Loss Account before deciding whether any unexplained expenditure actually exists.

We find that the Assessing Officer made the addition of ₹2,65,72,917/- under section 69C merely on the basis of the difference between the gross expenditure of ₹43,61,50,917/- appearing in the purchase register and the expenditure of ₹40,95,78,000/- considered with reference to the Profit and Loss Account. The Assessing Officer did not specify any specific purchase or expenditure which the assessee had incurred from an unexplained source of income. The assessee, on the other hand, submitted before the learned CIT(A) that the purchase register contained the expenditure inclusive of GST whereas the Profit and Loss Account reflected the expenditure net of GST and furnished a reconciliation explaining the difference.

We further find that the learned CIT(A) has not accepted the assessee’s explanation without verification and has also not deleted the addition outright.

Even if we interfere with the order of the learned CIT(A), the matter would necessarily have to go back for the very same verification. Merely restoring the matter to the learned CIT(A) so that the learned CIT(A) may call for a remand report from the Assessing Officer would only prolong the proceedings without serving any useful purpose. The Assessing Officer, who has access to the assessment records and the relevant tax information, is in any case required to verify whether the difference of ₹2,65,72,917/- is fully reconciled on account of GST and other items forming part of the gross purchase/expense register.

Accordingly, we find no infirmity in the order of the learned CIT(A) so as to call for any interference.

Accordingly, the grounds raised by the Department are dismissed and the appeal of the Department is dismissed.