2024 (8) TMI 1586 - AT - Income Tax

Reopening of assessment u/s 147 - Addition towards CST and VAT payments - plea of the assessee is that all the relevant material was kept with the accountant who absconded himself without handing over any challans or other material - HELD THAT - The assessee produced the DCB reports in respect of CST and VAT and submits that if there is any doubt in respect of non-existence of any demand in force such a fact could be verified from the concerned departments and merely because the challans are not available with the assessee assessee cannot be fastened with huge liability. We agree with the submission of DR that DCB reports and the submissions of the assessee that non-existence of demand would only go to show that there were proper payments to the concerned department needs factual verification. We further direct the AO to take into consideration the DCB reports also and to consider the same in the light of the submissions of the assessee that non-existence of any demand for the relevant period towards CST and VAT amounts proper payment. Thus hold and direct so. Grounds are accordingly treated as allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

- Whether the reopening of assessment under section 148 of the Income Tax Act was justified based on information received regarding short payment of sales tax by the assessee.

- Whether the addition of Rs.10,11,359/- towards alleged unpaid CST and VAT payments was justified in the absence of any response or evidence from the assessee.

- Whether adverse inference under section 114 of the Evidence Act can be drawn against the assessee for failure to produce relevant documents.

- Whether the DCB (Demand, Collection, and Balance) reports and the non-existence of any outstanding demand for CST and VAT can be considered as evidence of proper payment, despite the absence of challans or other direct documentary proof.

- Whether the Assessing Officer erred in not considering the DCB reports and non-existence of demand before confirming the addition.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification for Reopening Assessment under Section 148

Relevant Legal Framework and Precedents: Section 148 permits reopening of assessment if the Assessing Officer has reason to believe that income has escaped assessment. The reopening must be based on credible information or material.

Court's Interpretation and Reasoning: The reopening was triggered by information received from the Commercial Tax Officer regarding short payment of sales tax. The Tribunal did not specifically question the validity of reopening but proceeded to examine the addition made thereafter.

Application of Law to Facts: The reopening was therefore prima facie justified on the basis of external information indicating possible non-payment of tax.

Issue 2: Validity of Addition of Rs.10,11,359/- for CST and VAT Payments

Relevant Legal Framework and Precedents: The Assessing Officer is entitled to make additions if the assessee fails to substantiate claims of payment or deductions. However, the addition must be supported by evidence or valid reasons.

Court's Interpretation and Reasoning: The Assessing Officer made the addition due to the assessee's failure to respond to notice and furnish documents. The CIT(A) upheld the addition invoking adverse inference under section 114 of the Evidence Act.

Key Evidence and Findings: The assessee failed to produce original challans or payment receipts because the accountant absconded with the records. However, the assessee produced DCB reports indicating no outstanding demand for CST and VAT.

Treatment of Competing Arguments: The Revenue argued that absence of direct evidence justified the addition, while the assessee contended that DCB reports and non-existence of demand effectively prove payment.

Application of Law to Facts: The Tribunal recognized that DCB reports are official records reflecting demand and collection status and that non-existence of demand implies payments were made. The Tribunal held that the Assessing Officer should verify these reports and consider them before confirming the addition.

Conclusion: The addition cannot be sustained merely on the basis of non-production of challans if official records show no outstanding demand. The matter requires factual verification by the Assessing Officer.

Issue 3: Drawing Adverse Inference under Section 114 of the Evidence Act

Relevant Legal Framework and Precedents: Section 114 permits courts to presume facts which are usually known to be true unless disproved. It is invoked when a party fails to produce evidence within its control.

Court's Interpretation and Reasoning: The CIT(A) drew adverse inference due to non-production of challans. However, the Tribunal noted that the absence of challans was due to the accountant absconding, which is beyond the assessee's control, and that alternative evidence (DCB reports) was produced.

Application of Law to Facts: The Tribunal held that adverse inference should not be drawn without considering the totality of evidence, including official DCB reports and the non-existence of demand.

Conclusion: Adverse inference under section 114 cannot be mechanically applied when the assessee has produced credible alternative evidence and the non-production is due to circumstances beyond its control.

Issue 4: Consideration of DCB Reports and Non-Existence of Demand as Evidence of Payment

Relevant Legal Framework and Precedents: DCB reports are official records maintained by tax authorities showing details of demand, collection, and balance. Non-existence of demand in these reports is a strong indicator of payment made or no liability outstanding.

Court's Interpretation and Reasoning: The Tribunal referred to a coordinate bench decision where similar facts led to restoration of the issue to the Assessing Officer for considering DCB reports and verifying the existence or otherwise of demand.

Key Evidence and Findings: The assessee produced DCB reports showing no outstanding demand for CST and VAT. The Tribunal accepted that these reports should be verified by the Assessing Officer to ascertain the correctness of the claim.

Application of Law to Facts: The Tribunal directed the Assessing Officer to consider the DCB reports and verify with concerned departments regarding the existence of any demand before making any addition.

Conclusion: DCB reports and non-existence of demand can be considered valid evidence of payment and must be examined before confirming any addition.

3. SIGNIFICANT HOLDINGS

- "Merely because the challans are not available with the assessee, assessee cannot be fastened with huge liability."

- "DCB reports and the submissions of the assessee that non-existence of any demand for the relevant period towards CST and VAT amounts proper payment, needs factual verification."

- The Tribunal held that the Assessing Officer is directed to take into consideration the DCB reports and consider the same in light of the submissions regarding non-existence of demand for the relevant period.

- The Tribunal treated the grounds as allowed for statistical purposes and remanded the matter for fresh consideration, emphasizing that factual verification of official records is necessary before confirming any addition.