Income Tax Dept has no power to scrutinize Sales Tax Return accepted by Commercial Tax Department: ITAT deletes addition [Read Order]

The Income Tax Appellate Tribunal (ITAT) Chennai  bench held that the Income Tax Department had no power to scrutinize Sales Tax Returns accepted by the commercial tax department . Therefore the bench deleted the addition made by the assessing officer on account  of valuation of stock.

Assessee ,Aruljothi Exports Private Limited is  a resident corporate engaged in trading of cloth and job work. During the course of assessment proceedings, the AO alleged that the assessee reflected low value of closing stock and therefore, there was shortage in closing stock to the extent of Rs.197.29 Lacs

The assessee’s claim that finished cloth was damaged due to heavy rain and flood in the month of December, 2013 was not accepted since no evidence could be furnished by the assessee in support of the same.

Assessee argued that sales tax returns as filed with the  commercial department were accepted and therefore, closing stock  should be accepted as such.

It was not known when  the commercial tax authority had scrutinized the trading activity and  allowed closing stock and accordingly,impugned addition was made in  the hands of the assessee

Aggrieved by the order, the assessee filed an appeal  before the Commissioner of Income Tax (Appeal){ CIT(A)} . who Confirmed the addition of the Assessing Officer. Thereafter the assesee filed the appeal before the tribunal.

It was observed by the tribunal that  assessee has maintained proper books of accounts and the same are subjected to Tax Audit. Further  No infirmity has been pointed out by  AO in the physical stock as maintained by the assessee.

Moreover It could also be seen that the assessee is registered with the commercial tax department and filing its sales tax returns. Apparently, the trading results have been accepted by the commercial department and there is no adverse material on record.

After  analysing the material facts the two member bench of Manoj Kumar Aggarwal, (Accountant Member) and Mahavir Singh,( Vice-President) observed  that, unless the competent authority under the Sales Tax Act differs with the closing stock of the assessee, the return accepted by the Commercial Tax Department is binding on the income-tax authorities. 

Therefore the Assessing Officer has no power to scrutinize the return submitted by the assessee to the commercial tax department which has been accepted.

Thus the Assessing Officer did not have any jurisdiction to go  beyond the value of the closing stock declared by the assessee and  accepted by the Commercial Tax Department.

Therefore the bench allowed the appeal filed by the assessee

S.Sridhar, counsel appeared for assessee and D.Hema Bhupal , counsel appeared for the revenue

To Read the full text of the Order CLICK HERE

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