Income tax scrutiny assessment
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
05 May 2018
An Assessing Officer made additions to income of ₹ 5 crores in the scrutiny assessment order stating that there are differences in the previous year column of current financial statements and the previous year financial statements. The fact is that the difference was only on the face of the Profit and loss account due to change in grouping but there was no other difference as the Profit Before Tax (PBT) was same. Is there any reference of such cases earlier to represent before the CIT (Appeals) ?
05 May 2018
Seems no need to search for case laws for the cited issue. It can be proved with two years audited statements.
Querist : Anonymous
Querist :
Anonymous
(Querist)
05 May 2018
Sir, thanks for the reply. We have already done that before the Assessing Officer and inspite of that, the disallowance was made. I am sure that as soon as the matter is heard, the Appeal Order will be passed in favour of the assessee as it is a blunder by the Assessing Officer but I am just trying to make my case stronger by finding out if there are any precedents.
31 July 2024
To strengthen your case before the Commissioner of Income Tax (Appeals) [CIT (A)], you can refer to similar precedents where adjustments or additions made by the Assessing Officer (AO) were overturned due to the same underlying facts and circumstances. Here's how you can approach this:
### Key Points to Argue Before CIT (A):
1. **Consistency in Profit Before Tax (PBT):**
- Emphasize that the PBT remained unchanged despite the re-grouping in the financial statements.
- Highlight that there was no impact on the taxable income.
2. **Clarity on Re-grouping:**
- Provide a clear explanation and reconciliation showing the nature of re-grouping.
- Demonstrate how the re-grouping did not alter the financial results of the company.
3. **Precedents and Judicial References:**
- Refer to similar cases where the Tribunal or higher authorities have ruled in favor of the assessee in cases of re-grouping without affecting the PBT.
### Relevant Case Laws and Precedents:
1. **ACIT vs. Bhaidas Cursondas & Co. (2005) (ITAT Mumbai):**
- The Tribunal held that where there is no change in the net result of the profit and loss account due to re-grouping of accounts, no addition should be made on the grounds of mere re-grouping.
2. **CIT vs. Alok Paper Industries (2007) (ITAT Delhi):**
- In this case, the ITAT held that additions made solely on account of differences arising due to re-grouping in financial statements were not sustainable when the overall financial result was consistent.
3. **CIT vs. Excel Industries Ltd. (2013) (Supreme Court of India):**
- Although this case deals with tax treatment differences, it supports the broader principle that accounting re-groupings, which do not affect the overall taxable income, should not lead to additions.
4. **Pr.CIT vs. Narendra Properties Ltd. (2019) (Madras High Court):**
- The High Court held that differences due to accounting adjustments or re-grouping which do not result in actual understatement of income should not attract additions.
### Documentation:
- **Reconciliation Statement:**
- Prepare a detailed reconciliation statement highlighting the re-grouping entries and demonstrating that the net profit remains unaffected.
- **Affidavit or Statement from CFO/Finance Head:**
- A declaration from the Chief Financial Officer or Finance Head explaining the nature and necessity of the re-grouping.
- **Expert Opinion:**
- Obtain a certificate from a Chartered Accountant explaining the re-grouping and confirming no impact on PBT or taxable income.
### Additional Steps:
- **Written Submissions:**
- Prepare a detailed written submission to the CIT (A) explaining the facts, supported by precedents and technical analysis.
- **Personal Hearing:**
- Request a personal hearing to present the case in detail and address any queries from the CIT (A).
### Format for Submission:
#### 1. Written Submission Format:
```plaintext
Date: [Insert Date]
To,
The Commissioner of Income Tax (Appeals),
[Insert CIT (A) Office Address]
Subject: Written Submissions in Appeal against Assessment Order dated [Insert Date]
Respected Sir/Madam,
We, [Name of the Company], submit this written representation in respect of the appeal filed against the assessment order dated [Insert Date] for the Assessment Year [Insert Year]. The Assessing Officer has made an addition of ₹ 5 crores to our income based on perceived differences in the previous year's column of our financial statements.
We wish to bring the following facts to your kind attention:
1. **Consistency in Profit Before Tax (PBT):**
The PBT remains unchanged at ₹ [Insert Amount] despite the re-grouping in our financial statements. There is no impact on the overall financial results or the taxable income.
2. **Nature of Re-grouping:**
The re-grouping pertains solely to the presentation and classification of expenses/income within the Profit and Loss account. This re-grouping has been done to better reflect the financial position of the company and adheres to generally accepted accounting principles.
3. **Reconciliation Statement:**
We enclose a detailed reconciliation statement (Annexure A) highlighting the re-grouping entries and demonstrating that the net profit remains unaffected.
4. **Precedents and Judicial References:**
We refer to the following cases which support our contention:
- ACIT vs. Bhaidas Cursondas & Co. (2005) (ITAT Mumbai)
- CIT vs. Alok Paper Industries (2007) (ITAT Delhi)
- CIT vs. Excel Industries Ltd. (2013) (Supreme Court of India)
- Pr.CIT vs. Narendra Properties Ltd. (2019) (Madras High Court)
5. **Expert Opinion:**
We enclose a certificate from our Chartered Accountant (Annexure B) explaining the nature of the re-grouping and confirming no impact on the PBT or taxable income.
We request you to kindly consider the above facts and the enclosed documentation and pass an appropriate order, thereby deleting the unwarranted addition of ₹ 5 crores.
Yours faithfully,
[Signature]
[Name of the Authorized Signatory]
[Designation]
[Company Name]
Enclosures:
1. Reconciliation Statement (Annexure A)
2. Chartered Accountant’s Certificate (Annexure B)
3. Copy of Assessment Order
4. Copies of Financial Statements (Current and Previous Year)
```
### Conclusion
Using the provided format, along with detailed supporting documentation and relevant case laws, will help substantiate your case before the CIT (A). Ensure that all submissions are thorough, clear, and well-organized to facilitate a favorable outcome.
### Key Points to Argue Before CIT (A):
1. **Consistency in Profit Before Tax (PBT):**
- Emphasize that the PBT remained unchanged despite the re-grouping in the financial statements.
- Highlight that there was no impact on the taxable income.
2. **Clarity on Re-grouping:**
- Provide a clear explanation and reconciliation showing the nature of re-grouping.
- Demonstrate how the re-grouping did not alter the financial results of the company.
3. **Precedents and Judicial References:**
- Refer to similar cases where the Tribunal or higher authorities have ruled in favor of the assessee in cases of re-grouping without affecting the PBT.
### Relevant Case Laws and Precedents:
1. **ACIT vs. Bhaidas Cursondas & Co. (2005) (ITAT Mumbai):**
- The Tribunal held that where there is no change in the net result of the profit and loss account due to re-grouping of accounts, no addition should be made on the grounds of mere re-grouping.
2. **CIT vs. Alok Paper Industries (2007) (ITAT Delhi):**
- In this case, the ITAT held that additions made solely on account of differences arising due to re-grouping in financial statements were not sustainable when the overall financial result was consistent.
3. **CIT vs. Excel Industries Ltd. (2013) (Supreme Court of India):**
- Although this case deals with tax treatment differences, it supports the broader principle that accounting re-groupings, which do not affect the overall taxable income, should not lead to additions.
4. **Pr.CIT vs. Narendra Properties Ltd. (2019) (Madras High Court):**
- The High Court held that differences due to accounting adjustments or re-grouping which do not result in actual understatement of income should not attract additions.
### Documentation:
- **Reconciliation Statement:**
- Prepare a detailed reconciliation statement highlighting the re-grouping entries and demonstrating that the net profit remains unaffected.
- **Affidavit or Statement from CFO/Finance Head:**
- A declaration from the Chief Financial Officer or Finance Head explaining the nature and necessity of the re-grouping.
- **Expert Opinion:**
- Obtain a certificate from a Chartered Accountant explaining the re-grouping and confirming no impact on PBT or taxable income.
### Additional Steps:
- **Written Submissions:**
- Prepare a detailed written submission to the CIT (A) explaining the facts, supported by precedents and technical analysis.
- **Personal Hearing:**
- Request a personal hearing to present the case in detail and address any queries from the CIT (A).
### Format for Submission:
#### 1. Written Submission Format:
```plaintext
Date: [Insert Date]
To,
The Commissioner of Income Tax (Appeals),
[Insert CIT (A) Office Address]
Subject: Written Submissions in Appeal against Assessment Order dated [Insert Date]
Respected Sir/Madam,
We, [Name of the Company], submit this written representation in respect of the appeal filed against the assessment order dated [Insert Date] for the Assessment Year [Insert Year]. The Assessing Officer has made an addition of ₹ 5 crores to our income based on perceived differences in the previous year's column of our financial statements.
We wish to bring the following facts to your kind attention:
1. **Consistency in Profit Before Tax (PBT):**
The PBT remains unchanged at ₹ [Insert Amount] despite the re-grouping in our financial statements. There is no impact on the overall financial results or the taxable income.
2. **Nature of Re-grouping:**
The re-grouping pertains solely to the presentation and classification of expenses/income within the Profit and Loss account. This re-grouping has been done to better reflect the financial position of the company and adheres to generally accepted accounting principles.
3. **Reconciliation Statement:**
We enclose a detailed reconciliation statement (Annexure A) highlighting the re-grouping entries and demonstrating that the net profit remains unaffected.
4. **Precedents and Judicial References:**
We refer to the following cases which support our contention:
- ACIT vs. Bhaidas Cursondas & Co. (2005) (ITAT Mumbai)
- CIT vs. Alok Paper Industries (2007) (ITAT Delhi)
- CIT vs. Excel Industries Ltd. (2013) (Supreme Court of India)
- Pr.CIT vs. Narendra Properties Ltd. (2019) (Madras High Court)
5. **Expert Opinion:**
We enclose a certificate from our Chartered Accountant (Annexure B) explaining the nature of the re-grouping and confirming no impact on the PBT or taxable income.
We request you to kindly consider the above facts and the enclosed documentation and pass an appropriate order, thereby deleting the unwarranted addition of ₹ 5 crores.
Yours faithfully,
[Signature]
[Name of the Authorized Signatory]
[Designation]
[Company Name]
Enclosures:
1. Reconciliation Statement (Annexure A)
2. Chartered Accountant’s Certificate (Annexure B)
3. Copy of Assessment Order
4. Copies of Financial Statements (Current and Previous Year)
```
### Conclusion
Using the provided format, along with detailed supporting documentation and relevant case laws, will help substantiate your case before the CIT (A). Ensure that all submissions are thorough, clear, and well-organized to facilitate a favorable outcome.
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