IP SOFTCOM (INDIA) P.LTD,CHENNAI vs. DCIT CORPORATE CIRCLE-2(2), CHENNAI

आयकर अपील"य अ"धकरण, ‘बी’ "यायपीठ, चे"नई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH: CHENNAI "ी एन.आर.एस. गणेशन, "या"यक सद"य एवं "ी र"मत कोचर, लेखा सद"य के सम' BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER "नधा(रण वष( /Assessment Year: 2010-11 v. M/s.IP Softcom (India) Pvt. Ltd., The Dy. Commissioner of No.18 & 19, Mahalakshmi Nagar Income Tax, Extension, Numbal Village, Company Circle-II(3), Thiruverkadu Post, (presently Corporate Circle- Chennai-600 077. 2(2)), Chennai. [PAN: AABCI5003K ] (अपीलाथ+/Appellant) (,-यथ+/Respondent) : Mr.K.Ravi, Adv. अपीलाथ+ क. ओर से/ Appellant by : Mr. A.Sundararajan, Addl.CIT ,-यथ+ क. ओर से /Respondent by : 09.12.2019 सुनवाई क. तार"ख/Date of Hearing : 09.12.2019 घोषणा क. तार"ख /Date of Pronouncement आदेश / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER:

This appeal filed by assessee is directed against appellate order dated 29.07.2019 passed by learned Commissioner of Income Tax (Appeals)-9, Chennai (hereinafter called “the CIT(A)”), in for assessment Year (ay) 2010-11, the appellate proceedings before learned CIT(A) had arisen from assessment order dated 08.02.2013 passed by learned Assessing Officer (hereinafter called “the AO”) u/s.143(3) of the Income-tax Act, 1961 (hereinafter called “the Act”). :- 2 -:

“1. The Order of the Learned Commissioner of Income Tax (Appeals) is contrary to the law, facts and circumstances of the case.

2. The Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.3,26,88,378/-, which was made by the assessing officer purely based op entries in Form 26AS, without making sufficient enquiry from the customers of the appellant and further without giving sufficient opportunity to the appellant.

3. The Commissioner of Income Tax (Appeals) having taken on record the detailed reconciliation statement, confirmation statements from customers and credit notes erred in not considering the same on the ground that application was not made for admission of new evidence.

5. The Commissioner of income Tax (Appeals) failed to exercise his power vested under Rule 46A(4) of the Income Tax Rules, 1961 thereby ignoring the duty associated with such power.

6. The Commissioner of Income Tax (Appeals) erred in holding that the appellant has not challenged the adjustment to book profit. The Commissioner of Income Tax (Appeals) failed to appreciate that, in the instant case, the adjustment to book profit is only a consequence to the addition made under normal provisions of the Income Tax Act. 7. The Commissioner of Income Tax (Appeals) failed to appreciate that the appellant has included the income as reflected in Form 26AS in its books of account. However, it has been set off by way of credit notes. Therefore, the appellant has not violated provisions of Rule 37BA.

8. The Commissioner of Income Tax (Appeals) erred in upholding the addition of Rs.3,26,88,378/- made by the assessing officer even after detailed reconciliation statements have been filed before him.

9. The addition of Rs.3,26,88,378/- to the book profit for the purpose of MAT Computation is a consequence of addition made under normal :- 3 -: provisions arid therefore for the aforesaid grounds, the consequential addition to book profit should also be deleted.

S.No. Deductor Name Income as per Income offered Difference Form 26AS by the assessee 1 HCL Infosystems Limited 2,16,68,159 1,36,30,990 80,37,169 2 Sonata Information Technology 12,56,45,854 8,87,13,327 3,69,32,527 Limited Total 4,49,69,696 Thus, the difference in the income as is reflected in books of accounts of assessee which was offered to tax in return of income filed with Revenue and in Form 26AS was to the tune of Rs. 4,49,69,696/-. The AO gave credit for government taxes payable included in aforesaid differential income viz. Service Tax/VAT/CST to the tune of 12% and brought to tax :- 4 -: remaining amount to the tune of Rs. 3,26,88,378/- by making additions to the income of the assessee, as detailed hereunder:

SNo. Deductor Form 26AS Income Add: 12% on Total of Income not Name income offered (4) treated as (4) + (5) offered ST/VAT/CST (3) – (6) (`) (`) (`) (1) (2) (3) (4) (5) (6) (7) 1 HCL 2,16,68,159 1,36,30,990 16,35,719 1,52,66,709 64,01,450 Infosystems Limited 2 Sonata 12,56,45,854 8,87,13,327 1,06,45,599 9,93,58,926 2,62,86,928 Information Technology Limited Total 3,26,88,378 The AO brought to tax aforesaid income in the hands of the assessee both under normal provisions of income-tax as well while computing book profits u/s 115JB of the 1961 Act, vide assessment order dated 08.02.2013 passed u/s.143(3) of the Act.

4. Aggrieved by an assessment framed by the AO, the assessee filed first appeal with learned CIT(A) and the assessee claimed to have submitted reconciliation of income offered to tax vis-à-vis income as reported in AS- 26, for financial year’s 2008-09 & 2009-10 to reconcile its income as is reflected in its books of accounts/return of income with income as is reflected in data base of the Revenue in AS-26 . The assessee admittedly filed fresh evidences before learned CIT(A) to substantiate that no underreporting of income took place in impugned ay under consideration but it is claimed that Ld.CIT(A) had observed that assessee did not filed any application for admission of additional evidences under Rule 46A of the Income-tax Rules, 1962 and also learned CIT(A) rejected admission of :- 5 -: additional evidences on the ground that AO had given proper opportunity to assessee during course of assessment proceedings and there is no justification for admitting these additional evidences, wherein learned CIT(A) vide appellate order dated 29.07.2019 held as under:

"The Authorised representative stated that the reconciliation for F.Y 2008-09 and F.Y 2009-10 have been submitted during the appellate proceedings and has also filed the confirmation from the third parties and further, credit notes have also been submitted. In this regard, it is stated that these are new evidence and the authorised representative could not make out a case that the case of the appellant is covered under any of the exceptions prescribed under Rule 46A. During the appellate proceedings, the appellant has also not made an application for admission of new evidence. Further, during the assessment proceedings, the A.O had granted specific opportunity. In view of these facts, it is not a fit case for admission of new evidence under Rule 46A.

Therefore, in view of the above, the income not included in audited statement is added back to book profit "

Thereafter, as per the computation of book profit in page 4 of the assessment order, the AO has added Rs.3,26,88,378/- to the book profit. The appellant has not challenged the adjustment to the book profit u/s 115JB. In the present appeal, the appellant has only challenged the addition under normal provisions and not under the provisions of section 11SJB, Having accepted the adjustment u/s.115JB which has attained :- 6 -: finality, there is justification for the addition made under normal provisions of the Act as well.

7. The appellant has stated before the A.O that the difference is on account of service tax/VAT/CST and in this regard, the AO has already allowed an average of 12% for the same.

Thus, the Ld.CIT(A) confirmed the additions as were made by AO owing to mismatch of income as reported in books of accounts/return of income and income as reflected in income tax data base in Form No. 26AS , both under normal provisions of the 1961 Act and also under the provisions of Section 115JB while computing book profit to determine liability to minimum alternate tax., vide appellate order dated 29.07.2019 passed by learned CIT(A).

5. Aggrieved by an appellate order dated 29.07.2019 passed by learned CIT(A), the assessee has filed this appeal before the Tribunal and Ld.Counsel for the assessee, at the outset, drew out attention to the Para No.5 of Ld.CIT(A) and submitted that reconciliation of income as reported in books of accounts/return of income with income as is reflected in Form No. 26AS was submitted before Ld.CIT(A). It was stated by learned :- 7 -: counsel for the assessee that the assessee filed additional evidences by way of credit notes , confirmation from third parties etc. before learned CIT(A) for the first time as the same could not be filed before the AO during the course of assessment proceedings. It was submitted that these additional evidences go the root of the matter and should be admitted in the interest of substantial justice to resolve the dispute between rival parties. It was submitted that Ld.CIT(A) did not admitted these additional evidences filed for the first time before learned CIT(A) on the ground that these are fresh evidences and no application was moved for the admission of the additional evidences as is contemplated under Rule 46 of Income Tax Rules, 1962 . It was submitted by learned counsel for the assessee that learned CIT(A) observed that AO has given sufficient opportunity to the assessee during the course of assessment proceedings and rejected additional evidences filed by the assessee. It is prayed by learned counsel for the assessee that these additional evidences go to root of the matter and be admitted in the interest of substantial justice to resolve dispute between rival parties. It is prayed that the matter be set aside and restored to the file of AO for denovo assessment and the assessee will produce all these additional evidences before AO in denovo assessment proceedings wherein the AO can verify these additional evidences and then framed denovo assessment on merits in accordance with law. On additions being made to the book profit of the assessee u/s 115JB of the 1961 Act, of the aforesaid additions being made to income under normal provisions of the 1961 Act , it is the say of learned counsel for the :- 8 -: assessee that the said additions to compute book profit u/s 115JB of the 1961 Act is consequential in nature . The Ld.DR, on the other hand, fairly submitted that the matter can be set aside and restored back to file of AO for necessary verifications and denovo determination of the issue on merits in accordance with law. Thus, in nut-shell both the rival parties are also of the view that one more opportunity is to be granted to the assessee so that additional evidences filed by assessee for the first time before learned CIT(A) can be evaluated and verified by the AO to see whether the assessee is able to reconcile its income as is reflected in books of accounts/return of income with income as is reflected in form No. 26AS.

6. We have considered rival contentions and perused the material on record. We have observed that assessee is engaged in the business of providing trading kits for software manufacturers. The assessee has filed return of income on 23.09.2010 declaring loss of Rs. 26,54,729/- . The said return of income was initially processed u/s 143(1) but later said return of income was selected by Revenue for framing scrutiny assessment u/s.143(3) of the Act. During the course of assessment proceedings, the AO observed that there is mismatch between income as is reflected in books of accounts and offered to tax by the assessee in the return of income filed with the Revenue vis-à-vis income as is reported in Form 26AS, which led to the additions to the income of the assessee to the tune of Rs. 3.27 Crs. , after giving credit for Service Tax/VAT/CST etc. component @12% included in the gross amount of alleged :- 9 -: underreporting of income to the tune of Rs. 4.50 crores. All the detailed break-ups are given by us in preceding para’s of this order and are not repeated. We have observed that the assessee has submitted additional evidences by way of credit notes, third party confirmations, reconciliation statements etc. before the Ld.CIT(A) during the course of appellate proceedings but these additional evidences were not admitted by Ld.CIT(A) on the grounds that the assessee not furnished an application for admission of these additional evidences as is contemplated u/r 46A of the 1962 Rules as also that the AO had given sufficient opportunities to the assessee during the course of assessment proceedings and no justification is forthcoming from the assessee for not producing these evidences before the AO during the course of assessment proceedings.

We have observed that the assessee on its part submitted reconciliation statement to reconcile its income as reflected in Form 26AS with the income offered to tax as is reflected in books of accounts maintained by the assessee. The assessee has filed details for FY 2008-09 & 2009-10 relevant to the assessment year 2009-10 & 2010-11 respectively before learned CIT(A). The learned CIT(A) did not admitted these additional evidences and hence these additional evidences have not stood the test of verification and enquiry by authorities below. Both the parties before us has also fairly agreed that one more opportunity is to be accorded to assessee to prove its case. We are of the considered view that there could be several reasons for mismatch between income as is reflected in Form 26AS and income offered to tax in return of income filed with :- 10 -:

Revenue which could be due to recognition of income in the preceding year or in the subsequent year by the taxpayer vis-a-vis the other party owing to stage of completion of the work, different method of accounting followed by taxpayer and other party , deficiency in rendering of services /supplies which could lead to rejection of material/services rendered , credit notes /debit notes issued by one party while the same is not accounted by other party etc. . The assessee on its part has tried to reconcile its income as offered in the books of accounts with Form 26AS but the said evidences which are critical evidences going to the root of the matter has been discarded by the Ld.CIT(A) at the threshold as the same were not admitted by learned CIT(A). No doubt, Rule 46A of the 1962 Rules give powers to Ld.CIT(A) to refuse admit additional evidences in certain circumstances as stipulated under Rule 46A but whence substantial justice is pitted against technicalities , the Courts will lean towards substantial justice. Under these circumstances, we admit the additional evidences filed by assessee before Ld.CIT(A) and restore the matter back to the file of the AO for framing fresh assessment denovo after considering entire evidences furnished by the assessee in its defense on merits in accordance with law. The AO shall admit all the evidences/explanation filed by assessee in its defense and then decide the issue in denovo assessment on merits in accordance with law. Needless to say that the AO shall give proper and adequate opportunity of being heard to the assessee in the interest of principles of natural justice in accordance with law. :- 11 -:

Thus, the matter is restored to the file of the AO for de novo assessment in accordance with law on merits. Weorder accordingly.

Order pronounced in Open Court on conclusion of hearing on this 09th day of December, 2019 in Chennai. (एन.आर.एस. गणेशन) (र"मत कोचर) (N.R.S. GANESAN) (RAMIT KOCHAR) "या"यक सद"य/JUDICIAL MEMBER लेखा सद"य/ACCOUNTANT MEMBER चे"नई/Chennai, 2दनांक/Dated: 09th December, 2019. TLN