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Facts
The Revenue appealed an order by the CIT(A) that granted relief to the assessee against an assessment order. The original assessment processed under Section 143(1) made two adjustments: disallowing Rs. 1000/- for penalty/fine and disallowing a contingent liability of Rs. 4,10,88,888/-.
Held
The Tribunal held that the Rs. 1000/- disallowance was not justified as the assessee had already accounted for it as a disallowance in its return, leading to a double addition. The Tribunal also held that the contingent liability was not a deductible expense and was merely a disclosure, and the CIT(A) correctly considered this. Therefore, the Revenue's appeal was dismissed.
Key Issues
Whether the CIT(A) was justified in admitting additional evidence and deciding the appeal without giving an opportunity to the AO. Whether the disallowances made by the CPC were justified.
Sections Cited
143(1), 37, 46A(2), 46A(3)
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Income Tax Appellate Tribunal, “F” BENCH MUMBAI
Before: SHRI RAHUL CHAUDHARY & SHRI GIRISH AGRAWAL
O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the Revenue is against the order of Ld. CIT(A)-2, Gurugram. vide order no. ITBA/APL/S/250/2024- 25/1065629297(1), dated 13.06.2024 passed against the assessment order by the Assistant Director of Income Tax, CPC, Bangalore, u/s. 143(1) of the Income-tax Act (hereinafter referred to as the “Act”), dated 25.12.2021 for Assessment Year 2020-21.
Grounds taken by the Revenue are reproduced as under: 1. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was justified in admitting the additional evidence submitted by the assessee during the appellate proceedings in contravention of the provisions of Rule 46A(2) of the Income Tax Rules, 1962? 2. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was justified in deciding the appeal of the assessee based on the additional evidence proceedings, without giving an opportunity to the AO as per the provisions of Rule 46A(3) of the Income Tax Rules, 1962?
In the course of hearing, ld. Counsel for the assessee submitted that assessee was partnership firm which was dissolved w.e.f. 31.03.2024. Accordingly, a revised Form 36 was filed taking into account this fact which is placed on record.
Brief facts of the case are that assessee was a partnership firm engaged in the business of manufacturing biscuits and confectionary wrappers for products of Parle Group. It filed its return of income of 15.02.2021 reporting total income at Rs.2,69,83,200/-. Return was processed by the Central Processing Centre (CPC), Bengaluru of the Department, u/s. 143(1) for which the intimation was issued dated 25.12.2021. On the said processing, following two adjustments were made to the total income which are:
i) Expenditure by way of penalty or fine for violation of any law for the time being in force u/s. 37 of the Act – Rs. 1000/- ii) Liability of contingent nature – Rs. 4,10,88,888/- 4.1. Aggrieved by this upward adjustment, assessee went in appeal before the ld. CIT(A) who allowed the said appeal granting relief to the assessee. Aggrieved, Revenue is in appeal before the Tribunal.
On the first addition of Rs.1000/-, assessee submitted that it had itself disallowed the said amount in the return of income at Part-A: OI other information – Sr. No.7(f) under ‘any other fine or penalty’. Despite this suo motto add back by the assessee for computing its total income, this amount has been added while processing the return at Sr.No.7(e) ‘expenditure by way of penalty or fine for violation of any law for the time being in force u/s. 37 of the Act” under the heading ‘amounts debited to the profit and loss account, to the extent disallowable u/s.37’.
5.1. In respect of the second addition towards liability of contingent nature, assessee submitted that this amount was reported in the audited balance sheet under Schedule 12 ‘significant accounting policies and notes on accounts’ in compliance of disclosure requirements. This amount in the nature of contingent liability is neither debited to the profit and loss account for the year under consideration nor any deduction is claimed in the return of income. It is mentioned in the notes of accounts only for disclosure purposes. Thus, when no deduction has been claimed of this amount in computing the total income, there is no question of disallowance to this effect. Assessee submitted that the tax auditor reported this amount in clause 21(g) in the tax audit report by mistake. Reference was made to the audited financial statements with specific pointer to Schedule 12 to demonstrate the disclosure made by the assessee on this account.
Ld. CIT(A) considered the submissions made by the assessee and gave his fact based finding in para – 6.2 and 6.3 of his order. On the first addition of Rs.1000/-, he noted, “Upon thorough consideration, the response provided by the assessee has been deemed acceptable. Examination of the assessee's reply, intimation order, and Income Tax Return revealed that the assessee had already accounted for a disallowance of INR 1,000 under column 7(f) on page 22 of the ITR as "Any other penalty or fine." Given that the assessee had already factored in this disallowance while filing the Income Tax Return, it would be unjust to duplicate the adjustment and impose an undue burden on the assessee. Consequently, the appeal of the assessee on this ground is upheld.”
6.1. On the second addition of Rs.4,10,88,888/-, ld. CIT(A) observed that “Upon thorough consideration, the response provided by the assessee has been deemed acceptable. Examination of the assessee's reply, intimation order, profit and loss account, and Income Tax Return revealed that the appellant did not claim the contingent liability as an expense, neither in the profit and loss account nor in the return of income nor as deduction in the computation of income. The disallowance of the contingent liability is due to an inadvertent error in reporting by the auditor in column 21(g) of the tax audit report. As the appellant did not debit this contingent liability in its profit and loss account or return of income, the adjustment of INR 4,10,88,888/- would be unjust and impose an undue burden on the assessee. Consequently, the appeal of the assessee on this ground is upheld.”
Before us, ld. Sr. DR contended that relief has been granted to the assessee by ld. CIT(A) by admitting the additional evidence and deciding the same without giving opportunity to the ld. Assessing Officer as per provisions of Rule 46A of the Income-tax Rules, 1962.
Per contra, ld. Counsel for the assessee submitted that what was furnished before the ld. CIT(A) was already uploaded by the assessee while furnishing its return of income on the portal of the Department. He submitted that when the return is uploaded along with the same, tax audit report and the financial statements are also uploaded which were always available with the Department and therefore cannot be classified as additional evidence furnished u/r. 46A.
We have heard both the parties and perused the material placed on record which includes audited financial statements and the statement showing computation of total income for the year under consideration. On the first issue of addition of Rs.1000/-, admittedly, it is a fact on record that assessee had already added back this amount while computing its total income. Accordingly, yet another disallowance made while processing the return is not justified as it amounts to double addition. We, thus do not find any infirmity in the findings arrived at by the ld. CIT(A) in this respect.
9.1. On the second issue in respect of liability of contingent nature, assessee has evidently demonstrated that this amount has been reported in its financial statements as part of its disclosure requirements and does not have any bearing on the profit and loss account to arrive at total income for the year and reported in its return. We find that ld. CIT(A) has taken note of the inadvertent error made by the tax auditor while reporting it in column 21(g) of the tax audit report. Based on his examination of the records, he has noted that assessee did not claim the contingent liability as an expense, neither in the profit and loss account nor in the return of income as a deduction while computing its total income. This is a verifiable fact from the records which were already available with the Department when the assessee filed its return of income on its portal. Considering the facts and the material on record, we do not find any infirmity in the fact based findings arrived at by ld. CIT(A) in granting relief to the assessee. Accordingly, grounds raised by the Revenue are dismissed.
In the result, appeal of the Revenue is dismissed.