ACIT Vs Bharat Sanchar Nigam Pvt. Ltd. (ITAT Delhi)
Conclusion: Inter/Intra Circle Remittance Balance represented only internal transfer and reconciliation entries relating to assets and stock in transit between different Circles of the Assessee company. Since no expenditure or deduction had been claimed and the balances did not represent any real income or loss, the addition of Rs.1527.40 crores made by the AO and confirmed by the CIT(A) was deleted.
Held: Assessee company operated through approximately 47 Circles and 700 Accounting Units spread across various States in India. Its operations involved regular inter-circle movement of assets, capital work-in-progress, stock and other business items between different Circles and Accounting Units. At the time of such movement, the transferring Circle raised an Advice of Transfer of Debit (“ATD”) upon the receiving Circle. Upon receipt, verification and recording of the assets/items by the receiving Circle, a corresponding Advice of Transfer of Credit (“ATC”) was generated. In many cases, due to timing differences, the ATC process remained incomplete as on 31 March of the relevant year, resulting in pending balances reflected in the books as “Inter/Intra Circle Remittance Balance”. For AY 2011–12, the AO treated the balance of Rs.1527.40 crores appearing under Inter/Intra Circle Remittance as unexplained difference between store ledger and control ledger and added the same to the income of the Assessee. The addition was confirmed by the CIT(A). Assessee contended that the impugned balance merely represented value of assets/items in transit between different Circles and Accounting Units of the same organization, accounting entries demonstrated that no expenditure or liability was debited to the Profit & Loss Account and no deduction had been claimed in the return of income and the balance represented only a timing and reconciliation difference which stood accounted for in subsequent years upon completion of verification and recording by the receiving Circle. Revenue relied upon the orders of the lower authorities and supported the addition. Tribunal held that the inter/intra circle remittance balances arose on account of internal movement of assets, stock, capital work-in-progress and other business items between various Circles and Accounting Units of assessee. Such balances merely represented stock/assets in transit and reconciliation entries within the organization. Revenue failed to establish that assessee had claimed the impugned amount as expenditure or deduction in the Profit & Loss Account.The management certificate and accounting records clearly established that the impugned balances pertained only to movement of assets between Circles and did not represent any real income, loss or profit. Reconciliation differences arising due to timing mismatch in recording inter-circle transfers could not be treated as taxable income in the absence of any evidence of suppression, diversion or claim of expenditure. Addition made by the tax authorities treating the inter/intra circle remittance balance as income of assessee was wholly unjustified and unsustainable.
