ITAT: Commercial Tax Dept’s Accepted Sales Tax Returns Can’t Be Scrutinized by I-T Dept

The Chennai bench of the Income Tax Appellate Tribunal (ITAT) ruled that the Income Tax Department does not have the authority to scrutinize Sales Tax Returns accepted by the commercial tax department. Therefore, the panel removed the addition added by the assessing officer concerning stock valuation.

Aruljothi Exports Private Limited, a corporate resident involved in trading cloth and job work, is the assessee in this case. During the assessment proceedings, the assessing officer alleged that the assessee disclosed a low value of their closing stock, resulting in a shortage of Rs. 197.29 Lacs.

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The claim made by the assessee, stating that the finished cloth was damaged due to heavy rain and flooding in December 2013, was rejected since the assessee couldn’t provide any evidence to support the claim.

The assessee contended that the sales tax returns filed with the commercial department were accepted, so, the closing stock should be accepted as well.

It was unclear when the commercial tax authority scrutinized the trading activity and permitted the closing of stock. As a result, the contended addition was made in the hands of the assessee. Dissatisfied with the directive, the assessee filed an appeal before the Commissioner of Income Tax (Appeal) [CIT(A)], who upheld the assessing officer’s decision of addition.

Subsequently, the assessee filed an appeal before the tribunal. The tribunal noted that the assessee maintained proper books of accounts, which were subjected to a tax audit. The assessing officer did not find any delicacy in the physical stock as maintained by the assessee.

Furthermore, it is clear that the assessee is registered with the commercial tax department and files its sales tax returns. The trading results were accepted by the commercial department, and there was no detrimental material on record.

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After studying the material facts, the two-member bench comprising Manoj Kumar Aggarwal (Accountant Member) and Mahavir Singh (Vice-President) concluded that unless the competent authority under the Sales Tax Act disagreed with the assessee’s closing stock, the return accepted by the Commercial Tax Department would be binding on the income tax authorities. Therefore, the assessing officer did not have the authority to scrutinize the return submitted by the assessee to the commercial tax department, which had already been accepted.

Therefore, the assessing officer did not have any authority to exceed the value of the closing stock declared by the assessee and accepted by the Commercial Tax Department.

Finally, the bench approved the appeal filed by the assesssee, S. Sridhar appeared as counsel for the assessee, and D. Hema Bhupal as counsel for the revenue.