In a recent ruling, the Delhi Bench of the Income Tax Appellate Tribunal ( ITAT ) remanded a case back to the Commissioner of Income Tax (Appeals) [CIT(A)] for reconsideration noting that the CIT(A) deleted income tax additions under Income Tax Act,1961 (ITA) made by the Revenue without considering the Assessing Officer’s observations.
The dispute pertains to the assessment year 2011-12, during which the assessee declared a total income of nil in its income tax return. The case was flagged for scrutiny, and notices under Sections 143(2) and 142(1) of the tax legislature and were issued to the company. Despite multiple opportunities, the company neither appeared before the AO nor provided requisite documentation to substantiate its claims.
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In light of the non-cooperation, the AO conducted a best-judgment assessment under Section 144 of the tax statute. Based on the limited records available, the AO disallowed 20% of the company’s claimed expenses, amounting to ₹9.31 crore, citing discrepancies such as unsigned invoices and a mismatch between the expenses claimed and the supporting bills. An additional ₹4.25 crore was added on account of unexplained income, bringing the total additions to ₹13.56 crore. Penalty proceedings under Section 271(1)(c) were also initiated for concealment of income.
Challenging these findings, the assessee-company appealed to the CIT(A), who partly allowed the appeal. The CIT(A) ruled that the ad-hoc disallowance of 20% of expenses was unwarranted, as the company’s accounts had been audited and certified by a Chartered Accountant. Referring to judicial precedents, including CIT vs Paradise Holidays, the CIT(A) emphasized that the onus was on the AO to identify specific defects in the audited accounts. Since no such deficiencies were explicitly highlighted, the CIT(A) deleted the disallowance of ₹9.31 crore and directed the deletion of double additions on provisions totaling ₹2.14 crore, citing an error in the AO’s calculations.
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The Revenue, dissatisfied with the CIT(A)’s decision, appealed to the ITAT. During the hearing, the Department Representative argued that the CIT(A) had overlooked the AO’s observations, particularly regarding unsigned invoices and unsupported expenses. The ITAT bench of Mr Rifaur Rahman and Mr Sudhir Kumar concurred with the Revenue’s argument, noting that the CIT(A) had failed to provide detailed reasoning for dismissing the AO’s findings. The Tribunal stressed the need for a thorough examination of the evidence presented by both parties.
In its ruling, the ITAT remanded the matter back to the CIT(A) for fresh consideration, instructing the appellate authority to address the AO’s observations comprehensively.
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