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Income Tax Appellate Tribunal, BENCH ‘A’, CHENNAI
Before: SHRI SANJAY ARORA & SHRI DUVVURU RL REDDY
आदेश /ORDER
Per Sanjay Arora, AM:
This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-3, Chennai (‘CIT(A)’ for short) dated 28.02.2017, partly allowing the assessee’s appeal contesting its assessment u/s. 143(3) r/w s. 147A of the Income Tax Act, 1961 (‘the Act’ hereinafter) for the assessment year (AY) 2008-09 vide order dated 30.03.2016.
The brief facts of the case are that the assessee, a company manufacturing metallic tips (for use in writing systems, etc.) filed its return of income for the 2 (AY 2008-09) Reynolds Pens India Pvt. Ltd. v. Dy. CIT relevant year on 30.09.2008, declaring an income of �. 745.21 lacs. A comparison of its business turnover, as reflected in the audited final accounts furnished along with its return of income (i.e., �. 4244.14lacs) with that per the Value Added Tax (VAT) return (�.4521.96 lacs), reflected a difference of �. 2,77,81,973/-. The assessee, in explanation, submitted a reconciliation (between the two figures). The same, however, did not find favour with the Assessing Officer (AO), who added the excess figure per the VAT return (i.e., �. 277.82 lacs) as income, holding as under: ‘1. Receipts as per Sales Tax Return: On perusal of the copies of the sales tax return filed by the assessee, it is found that the “Gross amount received or receivable by the dealer in respect of sales of goods” for all the 12 months works out to Rs. 45,21,96,404/- where as in the Profit & Loss Account the company has admitted sales of Rs. 42,44,14,431/-. During the instant proceedings the Authorized representative was asked to explain the same. In response to that, the A.R has produced some details with the reconciliation. But, the details produced were not in order and were without any supporting evidences. In view of the above, the difference of Rs. 2,77,81,973/- is added back with (to) the total income of the assessee.’
In appeal, the assessee again furnished the reconciliation, claiming the difference to be on account of the sale of scrap (�. 248.89 lacs), duly reflected as ‘Other Income’ in accounts, and the balance (�. 28.93 lacs) as on account of omission and commission in the VAT returns for the relevant year; the reconciliation being as under:
Amount in (Rs.) Turnover as per P & L Account 42,44,14,431 Add: Scrap Sales (grouped in other income) 2,48,88,649 Total Turnover of the company for y.e. 31.03.2008 44,93,03,080 CST Turnover as per statement 32,13,50,364 VAT Turnover as per statement 10,59,57,391 Scrap Sales 2,48,88,649 Total turnover as per VAT returns 45,21,96,404 - - - - - - - Difference in turnover between VAT and account 28,93,324 3 (AY 2008-09) Reynolds Pens India Pvt. Ltd. v. Dy. CIT - - - - - - - ANALYSIS OF DIFFERENCES Less: Sales returns not adjusted in VAT returns Credit Note No.4 dt. 28.01.2008 25,07,000 Sales returns not shown in VAT returns - 68,602 Sales returns & freight charges not shown in VAT returns - 83,789 Sales returns not shown in VAT returns -20,985 Accounting exchange rate differences not adjusted in VAT2,48,969 Sales wrongly shown in VAT returns 1,69,429 Sales twice shown in VAT returns 1,41,300 3,86,322 TOTAL - - - - - - 28,93,322 Note: Since the company is exempted from payment of VAT on finished products the non-claiming of returns under TNVAT Act, does not have impact on the VAT taxes.’ The ld. CIT(A) was, however, not impressed, and confirmed the addition, holding as under: ‘5.3 I have considered the findings of the AO and the submissions ld. A.R. During the appellate proceedings, the Annexures have been filled but the same have not been authenticated and signed. However, as is seen from the said Annexures, one can notice an admitted difference amounting to Rs.28,93,324/- between the turnover and VAT accounts. The same fact is also seen in the hand-written reconciliation wherein the appellant has attributed the said difference to omission & commission in the VAT Returns. The facts clearly indicate that there exists a difference between the Turnover shown in the Sales Tax Return and Turnover shown in the Income Tax Return. In this regard, ld. AR has also admitted difference of Rs.28,93,324/- in the revised reconciliation. 5.4 On consideration of the facts on hand with regard to the issue, AO has clearly given finding of fact as to the difference between the Sales Tax Return and the Turnover shown in the 4 ITA No.1206/Mds/2017 (AY 2008-09) Reynolds Pens India Pvt. Ltd. v. Dy. CIT Income Tax Return. It is also noticed that AO had come to this conclusion only after verification of details filed by the appellant. The details filed during the appellate proceedings are not complete with regard to Turnover shown in the Sales Tax Return. It appears that appellant had treated the Other Income shown in the P&L A/c. It had been shown as Scrap Sales to the tune of Rs. 2,48,88,649/-. On examination of the details, it appears that AO had not disturbed 'Other Income' in P&L a/c. It means that the stand taken by the ld. AR during the appellate proceedings to show-case (cause) Other Income as Scrap Sales cannot be sustained as AO had given a finding of fact on this issue. Therefore, I am not inclined to interfere into (with) the decision of the AO. Hence, the addition made by the AO is confirmed and the grounds taken on this issue are dismissed.’
We have heard the parties, and perused the material on record. The principal difference between the two sale (turnover) figures is stated to be sale of scrap. The same, as explained, is reflected at �.2,48,88,649/- in Schedule 14 (i.e., ‘Other Income’) to the balance sheet as on 31.03.2008 (PB pgs.13-34). Inspite such clear reflection in accounts, the Revenue has continued to include this sum as income. It is nobody’s case that the scrap sales, shown as non operating income in accounts, and which can easily be verified with reference to the corresponding sale invoices, stands excluded while returning income under the Act. How could, then, we wonder, the same be included again in computing total income, which would amount to the same income being included twice. It is a clear case of non-verification of facts by the Revenue. The assessment order under the CST Act (dated 25.06.2012) is on record (PB pgs. 38-39). The same, however, shows the sale against C-form (@ 3%) at �. 87,48,194/-, which the assessee explains as part of the scrap sales, the balance scrap sale (�. 161.40 lacs) being reported under TN VAT. Subject to the assessee thus exhibiting the turnover of �. 87.48 lacs as scrap sales, i.e., as a component of �. 248.89 lacs, we direct deletion for the latter amount, else for the difference, i.e., �. 161.40 lacs.
5 (AY 2008-09) Reynolds Pens India Pvt. Ltd. v. Dy. CIT As regards the balance difference of �. 28.93 lacs, the same is principally on account of sale returns, which are stated as not adjusted in the VAT returns. This, it is further explained, is due to the assessee being exempt under VAT, so that non-claiming of ‘goods return’ (in the sales-tax return) does not impact its tax liability under VAT. In-so-far as this difference is concerned, the same can again easily be verified from the sale account as well as the VAT returns. If the goods have been returned, the same would get included in the stock of finished goods, which would at once prove the return as well as the difference – to that extent, where not reduced, similarly, from the turnover in the VAT return/s. After all, the return of goods would only be with reference to a particular sale invoice/s. What, though, is not understood is the minus (negative) figures (aggregating to �. 1,73,376/-), claimed as sale return, in the reconciliation statement, which in fact decrease the reduction in the sale figure, on account of sale returns, from the sale reported under VAT. Where the difference is borne out by the record, duly explained, the same cannot be regarded as income, unless, being in the nature of income, has not been disclosed and already brought to tax. The balance minor differences, viz. exchange rate difference and sale being erroneously shown twice in the VAT return can again easily be verified with reference to the assessee’s accounts and the VAT return. It is unfortunate that such an exercise was not done either during the assessment or even the appellate proceedings, whereat the same could in fact also have been caused by the ld. CIT(A) through the office of the AO by seeking a report there- from. The matter with regard to the reconciliation of �. 28.93 lacs is accordingly restored back to the file of the AO to verify the assessee’s claims and issuing definite findings of fact, and after allowing a reasonable opportunity of hearing to the assessee. We decide accordingly.
6 (AY 2008-09) Reynolds Pens India Pvt. Ltd. v. Dy. CIT 5. In the result, the assessee’s appeal is partly allowed and partly allowed for statistical purposes. Order pronounced on September 15, 2017 at Chennai.