Commissioner (Appeals) Powers Coterminous with AO; Matter Remanded for De Novo Adjudication of Purchase Discrepancies

ORDER

Sandeep Singh Karhial, Judicial Member.- The assessee has filed the present appeal against the impugned order dated 24/07/2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2022-23.

2. In this appeal, the assessee has raised the following grounds: –

1. The assessment and appellate proceedings are bad in law:

1.1. The order passed by the learned Commissioner of Income Tax (Appeals) (‘CIT(A)’) under section 250 of the Income Tax Act, 1961 (‘Act’) is bad in law, contrary to facts, violative of principles of natural justice, and liable to be quashed.

1.2. The impugned order is bad in law and liable to be quashed as it has been passed in gross violation of the principles of natural justice inasmuch as the learned CIT(A) failed to grant an opportunity of being heard through video conference despite a specific request made by the Appellant.

1.3. The learned CIT(A) erred in law and on facts in confirming the assessment order passed by the Assessment Unit (‘AU’) without properly appreciating the facts, submissions, documentary evidences and reconciliations furnished by the Appellant during the appellate proceedings.

1.4. Without prejudice to the above, the learned CIT(A) erred in law and on facts in disregarding the additional evidences, reconciliations and supporting documents furnished by the Appellant and without calling for a remand report from the Assessing Officer and without undertaking any independent verification thereof.

1.5. The learned CIT(A) erred in law and on facts in disregarding the supporting documents, evidence, reconciliations, and explanations furnished by the Appellant merely on the ground that the appellate proceedings cannot be utilized to cure the deficiencies allegedly left during the assessment proceedings, as such an approach being contrary to the statutory appellate framework and the wide appellate powers vested in the learned CIT(A) under the provisions of the Act, which mandate adjudication of the appeal on the basis of all relevant material placed on record.

1.6. The learned CIT(A) erred in law and on facts in disregarding the documents, explanations, submissions, and reconciliations furnished by the Appellant solely on the ground that the Appellant had failed to furnish satisfactory reconciliations supported by contemporaneous documentary evidence before the AU.

2. Addition of Rs. 61,24,05,490 under section 69C read with section 115BBE of the Act on account of discrepancy in value of purchases:

2.1 . The learned CIT(A) erred in law and on facts in confirming an addition of Rs. 61,24,05,490 under section 69C of the Act by treating the alleged difference between the amount disclosed under the financial statements and Taxpayer Information Statement (‘TIS’) collated by the Income Tax Department basis the GST returns as inflated / bogus purchases

2.2 The learned CIT(A) erred in law and on facts in confirming the addition made by the AU on the ground that the Appellant had failed to furnish documentary evidence in support of the imports during the assessment proceedings, despite the Appellant having duly submitted copies of the Bills of Entry evidencing such imports.

2.3 The learned CIT(A) and the AU erred in law and on facts in treating the difference between the purchases of goods disclosed in the financial statements and the total supplies reflected in the TIS as unexplained/ bogus purchases, without appreciating that the purchases recorded in the financials also include imports of materials, which are not reflected in the TIS.

2.4 The learned CIT(A) and the AU erred in law and on facts in failing to appreciate that the total value of purchases disclosed in the financial statements represents only the purchases of stock-in-trade (goods), whereas the amount reflected in the TIS includes purchases of both goods and services, the expenditure relating to services having been duly accounted for and disclosed as other expenses in the financial statement.

3. Addition on account of discrepancies in the value of transactions as per the books of account of the Appellant and balance confirmed by the vendors amounting to Rs. 5,53,16,810:

3.1 The learned CIT(A) erred in law and on facts in confirming the addition of Rs. 5,53,16,810 under section 69C of the Act solely on the basis of alleged differences between transaction values appearing in the books of account and the alleged confirmations directly obtained from vendors in response to notice under section 133(6) of the Act without independently adjudicating the documents and explanations provided by the Appellant or providing any opportunity to verify and reconcile the difference.

3.2 The learned CIT(A) and AU failed to appreciate that the additions based on materials collected from third parties and relied upon against the Appellant can be made only after granting an effective opportunity to the Appellant to explain or rebut the same or submit reconciliation

3.3 The learned CIT(A) and AU failed to appreciate that the value of transaction reported in the books of account of the Appellant duly match with the value of transaction appearing in GSTR 2B, which is compiled based on the GST returns furnished by the third parties against the GSTIN of the Appellant and there is no difference as alleged by the AU

4. Addition on account of discrepancies between sales as declared in ITR and GSTR-1 amounting to Rs.29,59,40,486:

4.1 The learned CIT(A) erred in law and on facts in confirming the addition of Rs. 29,59,40,486 on account of alleged discrepancies between sales as declared in financial statement and the GST returns.

4.2 The learned CIT(A) erred in law and on facts in confirming the addition made by the AU on the ground that the Appellant had failed to furnish the explanation during the assessment proceedings despite the Appellant having duly submitted the reconciliation statement before the AU.

4.3 The learned CIT(A) and AU ought to have observed that the interstate stock transfers between the branches of the Appellant amounting to Rs. 29,45,90,234 though treated as supplies for levy of GST but do not constitute sale or give raise to income under the provisions of the Act and Income Computation and Disclosure Standards IV.

4.4 The learned CIT(A) and AU erred in law and on facts in failing to appreciate that the exports amounting to Rs. 13,50,253, effected in the month of March 2021, were duly accounted for and offered to tax in the FY 2020-21, and that their inclusion in the GST return for April 2021 does not result in our taxation again in FY 2021-22.

4.5 Notwithstanding and without prejudice to the above, the learned CIT(A) and AU ought to have treated only the profit underlying the sales as income instead of entire value sales.

5. Addition on account of erroneous totalling of repair and maintenance ledger account amounting to Rs. 2,877:

5.1 The learned CIT(A) erred in law and on facts in confirming the addition of Rs. 2,877 pertaining to repairs and maintenance expenditure without appreciating that the addition arose merely on account of an apparent totalling error and does not warrant any disallowance.

6. Addition on account of short deduction of TDS for payments made towards professional/consultancy fees amounting to Rs. 72,338:

6.1 The learned CIT(A) erred in law and on facts in confirming the disallowance of Rs. 72,338 under section 40(a)(ia) of the Act without adjudicating the Form 16A furnished by the Appellant evidencing the tax deducted on professional/ legal fees.

6.2 The learned CIT(A) and AU failed to appreciate that tax had been duly deducted at source on the payments and therefore the provisions of section 40(a)(ia) were not applicable.

7. Addition on account of non-deduction of TDS for interest payments amounting to Rs. 32,25,109:

7.1 The learned CIT(A) erred in law and on facts in confirming the disallowance of Rs. 32,25,109 under section 40(a)(ia) of the Act without adjudicating the Form 16A furnished by the Appellant evidencing the tax deducted on interest payments.

7.2 The learned CIT(A) and AU failed to appreciate that tax had been duly deducted at source on the payments and therefore the provisions of section 40(a)(ia) were not applicable.

8. Rejection of books of account under section 154(3) of the Act:

8.1. The learned CIT(A) erred in law and on facts in upholding the rejection of books of account under section 145(3) of the Act.

8.2. The learned CIT(A) and AU failed to appreciate that no defects were identified in the method of accounting, books of account, stock record or quantitative records maintained by the Appellant so as to justify invocation of section 145(3) of the Act.

3. We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that for the year under consideration, the assessee filed its return of income on 30/11/2022, declaring a total income of INR 14,52,15,050. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, it was noticed that the purchases shown in the income tax return were less than the invoice value of imports as per Export-Import data received from CBIC. Accordingly, the assessee was asked to furnish the copy of the ledger account of all parties from whom such purchases were made, along with their PAN. It was further observed that, as per the GSTR-1 data available on record, the assessee has shown purchases from 273 parties totalling INR 93,60,76,113. During the assessment proceedings, a notice under section 133(6) of the Act was issued to 69 parties to verify the assessee’s purchases. In response, some of the parties replied to confirm the purchase transaction amounting to INR 22,66,83,729. As there was a difference of INR 5,53,16,830, an opportunity was granted to the assessee to explain the genuineness of the transaction. Further, the assessee was asked to explain the difference of INR 61,24,05,490 between the purchases shown in the income tax return and the purchases reported under GSTR-1. In compliance, the assessee furnished the party-wise breakup for the purchases made during the financial year 2021-22. As the assessee did not provide any explanation and documentary evidence in support of the difference in purchases amounting to INR 61,24,05,490, the Assessing Officer (“AO”), vide order dated 21/03/2024 passed under section 143(3) read with section 144B of the Act, added the said sum to the total income of the assessee under section 69C of the Act. Further, the AO also made an addition of INR 5,53,16,830, being the difference between the transactions claimed by the assessee and the transactions confirmed by the relevant parties under section 69C of the Act. In addition to the above, the assessee was asked to explain the reason for the difference in sales amounting to INR 29,59,40,470. In compliance with the show cause notice, the assessee submitted the reconciliation for the said difference in total sales as per the income tax return and GST data. As per the assessee, the difference was mainly on account of stock transferred from one branch of the company to another branch of the company, which has been excluded for the purpose of financial statements from sales as well as purchases, and the impact of stock transfer on the profit and loss statement is Nil. The assessee submitted that the stock transfer was reported in the GST return as the same is to be reported as per the GST law. Since the assessee did not provide any supporting documentary evidence in respect of the difference on sale of INR 29,59,40,487, the AO, doubting the genuineness of the difference, added the same to the total income of the assessee. The AO also made the addition of INR 2877 being the difference between the repair and maintenance expenditure claimed by the assessee and the details provided in the ledger account. The AO also made a disallowance under section 40(a)(ia) of the Act. Further, it was noticed that the assessee has not deducted TDS on an amount of INR 1,58,25,592. In response, the assessee furnished the evidence of TDS deduction under section 195 of the Act in respect of interest on debentures amounting to INR 44,84,136. Since the assessee has not provided any evidence and explanation regarding the deduction of TDS on interest on ECB amounting to INR 1,07,50,364, the AO made a disallowance of INR 32,45,109 under section 40(a)(ia) of the Act.

4. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and held that during the assessment proceedings adequate opportunities were granted to the assessee to substantiate the purchases, creditors, sales, TDS compliance and other claims with documentary evidence. However, the assessee failed to furnish complete reconciliation and supporting documentary evidence. The learned CIT(A) held that the assessment order cannot be said to have been passed without enquiry or without granting adequate opportunity. The learned CIT(A) also rejected the reconciliation and explanations made by the assessee during the appellate proceedings on the basis of fresh documents. The learned CIT(A) held that the appellate proceedings cannot be utilised to fill the deficiencies left during the assessment proceedings. Accordingly, the learned CIT(A) upheld the additions and disallowances made by the AO. Being aggrieved, the assessee is in appeal before us.

5. During the hearing, the learned Senior Counsel, appearing for the assessee, submitted that all the details which are available with the assessee were filed before the AO. However, the AO made the impugned additions as, in its view, some more documents were required, which were furnished by the assessee before the learned CIT(A). The learned Senior Counsel submitted that the learned CIT(A), without considering these documents, dismissed the appeal filed by the assessee.

6. On the other hand, the learned Departmental Representative (“learned DR”) vehemently relied upon the order passed by the lower authorities.

7. We have considered the submissions of both sides and perused the material available on record. From the perusal of the assessment order, it is evident that the AO noted various discrepancies during the assessment proceedings in the details of purchases as shown in the income tax return and data received from CBIC, GSTR data, details of expenses as provided in the ledger account and as claimed by the assessee. Further, certain discrepancies were also noticed in the tax deducted at source by the assessee. From the perusal of the assessment order, it is further evident that the assessee provided certain information. However, as the same were not sufficient in view of the AO, various disallowances and additions were made vide assessment order. As per the assessee, all the details, in the absence of which the impugned additions have been made by the AO, were furnished before the learned CIT(A). From the perusal of the impugned order, we find that the learned CIT(A), without considering any of these details, dismissed the grounds raised by the assessee on the basis that the assessee failed to furnish the details before the AO despite grant of ample opportunities.

8. It is trite law that the powers of the learned CIT(A) are coterminous with the AO. Thus, the learned CIT(A) can also examine any fresh piece of evidence being furnished by the assessee in support of its case, and if required, can also seek a remand report from the AO. However, as is evident from the perusal of the record, the learned CIT(A) did not take any of these steps, and straightaway dismissed the assessee’s plea and rejected fresh details submitted during the appellate proceedings.

9. Since the various disallowances/additions made by the AO are on account of discrepancies in the value as shown in the income tax return and as recorded in other documents, we are of the considered view that for complete adjudication of the issues involved in this appeal, a detailed factual verification is required. Therefore, in the interest of justice and fair play, we grant one more opportunity to the assessee to furnish all the details in support of its case for necessary verification/examination. Accordingly, we restore the matter to the file of the AO for de novo adjudication with a direction to the assessee to furnish all the evidence in support of its claim regarding the additions/disallowances made by the AO. Needless to mention, no order shall be passed without affording reasonable and adequate opportunity of hearing to the assessee. As the matter has been restored to the file of the AO for consideration afresh, we direct the assessee to fully cooperate in the assessment proceedings and furnish any other details as may be sought by the AO. With the above directions, the impugned order is set aside, and the grounds raised by the assessee are allowed for statistical purposes.

10. In the result, the appeal by the assessee is allowed for statistical purposes.

11. Since the appeal by the assessee has been decided, the stay application filed by the assessee, being S.A. No.143/Bang/2026, for the year under consideration, has become infructuous and therefore is dismissed.

12. To sum up, the appeal by the assessee is allowed for statistical purposes, while the stay application is dismissed as infructuous.