2022 (10) TMI 1139 - AT - Income Tax

Admission of the additional evidence in the form of 44AB report by the ld CIT(A) - unexplained sales - export sales value provided by the assessee is different from the FOB value - HELD THAT - A perusal of the remand report by the AO shows that the AO has not raised any objection in respect of admission of the audit report. In fact the AO in the report dated Nil has categorically mentioned that other income disclosed in the audit report not taken in the assessment order may be accepted. A perusal of the remand report shows that information provided by the Custom House Paradeep and the details provided by the assessee was compared and it was found that the total export sales of FOB value for Serajuddin Co Pvt Ltd., . and Yajdani International Pvt Ltd. is same for the assessment year 2008-09. The difference is only due to short shipment and wrongly taken for the different assessment years. Then the AO does the reconciliation and gives findings that the export sales value provided by the assessee is different from the FOB value and as per the assessee s statement realisation of sale is on the date of making invoices when ship start from the Port. The exchange rate on that date decide the export sale value. As per the invoices and exchange rate the export sale value for the assessment year 2008-09 for the assessee herein is Rs.36, 01, 28, 151/-. To this if we add the local sales as intimated by the Commercial Tax Authorities of Rs.8, 43, 40, 353/- the turnover as disclosed by the assessee in 44 AB report at Rs.44, 46, 37, 802/- is reached. As clearly the 44AB report as admitted by the ld CIT(A) and on which remand report has been called for from the AO had been examined by the AO and same has also found to be substantially correct. The AO having given a finding in the remand report that the auditor s report u/s.44AB alongwith profit and loss account and balance sheet as submitted by the assessee may be accepted for the reasons mentioned therein it no more lies in the mouth of the AO to raise a ground in the second appeal that there has been violation of the provisions of Rule 46A. The audit report having also been reconciled with the figures as arrived at by the AO on the basis of communication received from the Commercial Tax Authorities and the Asst. Commissioner Custom House. we are of the view that the ld CIT(A) has only accepted the remand report of the AO when directing that the figures in the audit report is to be considered in place of figures adopted by the AO in the assessment order. Consequently we are of the view that the findings of the ld CIT(A) are on right footing and does not call for any interference. Disallowance of the 10% of the administrative expenses and 20% of the commission charges - Admittedly neither the AO nor the ld CIT(A) has verified any of the expenses. We are live to the fact that clearly 14 years have lapsed from the relevant assessment year and restoring the issue to the file of the AO for examination may be futile. This being so in the interest of justice we reduce the disallowance under the head administrative expenses from 10% to 5% and commission expenses from 20% to 10%. .

Summary

Issues Involved:

1. Validity of the assessment order under sections 143(3)/153A/144 of the Income Tax Act, 1961.
2. Jurisdiction of the warrant of authorization under section 132 of the Act.
3. Compliance with Section 153D and principles of natural justice.
4. Disallowance of administrative and commission expenses.
5. Acceptance of audited profit and loss account and turnover figures.
6. Admission of additional evidence under Rule 46A of the IT Rules.
7. Estimated disallowance of expenses.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order:
The assessee argued that the assessment order passed under sections 143(3)/153A/144 of the Income Tax Act, 1961, was bad in law and liable to be quashed due to the lack of a valid warrant of authorization under section 132. However, the assessee did not press these grounds during the hearing, leading to their dismissal.

2. Jurisdiction of the Warrant of Authorization:
The assessee contended that the warrant of authorization issued by the Joint Director of Income Tax was beyond jurisdiction, rendering the search action and consequential proceedings illegal. This ground was also not pressed by the assessee during the hearing and was dismissed.

3. Compliance with Section 153D and Principles of Natural Justice:
The assessee claimed that no prior approval was taken as per Section 153D and that no opportunity was given for cross-examination of persons whose statements were relied upon, violating natural justice principles. These grounds were not pressed by the assessee and were dismissed.

4. Disallowance of Administrative and Commission Expenses:
The assessee challenged the disallowance of 10% of administrative expenses amounting to Rs. 15,84,251/- and 20% of commission charges amounting to Rs. 3,16,419/-, arguing that these were made on an estimation basis without pointing out any defects. The Tribunal reduced the disallowance under administrative expenses from 10% to 5% and commission expenses from 20% to 10%, considering the long lapse of time and the futility of restoring the issue for examination.

5. Acceptance of Audited Profit and Loss Account and Turnover Figures:
The revenue appealed against the CIT(A)'s direction to accept the audited profit and loss account and sales figures shown by the assessee without proper verification. The Tribunal upheld the CIT(A)'s acceptance of the audit report, noting that the Assessing Officer (AO) had reconciled the figures in the remand report and found them substantially correct.

6. Admission of Additional Evidence under Rule 46A:
The revenue argued that the CIT(A) admitted additional evidence in the form of an audit report without a speaking order under Rule 46A. The Tribunal noted that the AO did not object to the admission of the audit report in the remand report and had accepted the figures provided. Therefore, the Tribunal found no violation of Rule 46A and upheld the CIT(A)'s decision.

7. Estimated Disallowance of Expenses:
For the assessment year 2009-10, the AO estimated the income by applying a net rate of 22% and disallowed 10% of administrative expenses and 20% of commission expenses. The Tribunal upheld the CIT(A)'s acceptance of the audit report and reduced the disallowance of expenses in line with the assessment year 2008-09.

Conclusion:
The appeals of the assessee were partly allowed, reducing the disallowance of expenses, while the appeals of the revenue were dismissed. The Tribunal upheld the CIT(A)'s acceptance of the audit report and the turnover figures provided by the assessee, finding no violation of Rule 46A. The estimated disallowance of expenses was reduced considering the long lapse of time and the lack of specific defects pointed out in the accounts.