In the recent assessments, it has become a standard feature for the tax officer to ask for various reconciliations between the books of the taxpayer and information gathered by the government, through various returns /transactions filed/carried out by the taxpayer. One such reconciliation is between the imports as per CBIC data available with the tax officer and imports as per books of account. Sometimes such CBIC import data are provided as a month-wise summary without Bill of Entry (BoE) wise details, and it becomes next to impossible for the taxpayers to reconcile such data. Broadly, differences between CBIC information and books of account could genuinely arise due to following reasons:

• Foreign exchange differences. Imports as per CBIC is as per customs determined exchange rates, whereas in books it is the spot rate on the date in which transaction is recorded.

• Year-end timing differences i.e., there is always a time lag between BoE date and GRN done at the entity’s premises. Imports during the end of March, could be recorded in the subsequent month.

• Import of capital goods

• Inclusion of both warehousing bill of entry and ex-bond bill of entry for the same import i.e., duplication of import data. This will lead to imports being higher as per CBIC.

Hence, a detailed reconciliation considering the above items would be possible only if BoE wise breakup of CBIC data is furnished by the tax officer to the taxpayer.

If such a reconciliation isn’t furnished by the taxpayer, then to the extent of the difference an addition is carried out u/s 69C of the Income Tax Act. In a nutshell, section 69C states that if the taxpayer incurs any expenditure and offers no explanation about it or offers an explanation and the tax officer isn’t satisfied, such expenditure or part of it can be deemed to be income. The question that needs to be asked is whether non-furnishing of import reconciliation that too due to non-availability of the BoE wise import data supporting the import value available with the tax officer could be a basis for addition u/s 69C. The tax officer himself wouldn’t be able to pinpoint the purchases, which are unexplained or not recorded in books of account. Under this section the onus is on the tax officer to prove that the difference is unexplained expenditure. The Hon’ble Bombay HC in the case of CIT vs Johnson vs Johnson [CIT vs Johnson & Johnson ltd. [TS-5329-HC-2017(Bombay)-O] held that where there wasn’t any evidence that purchases and sales were made outside the books of account, then no addition could be made to the total income of the taxpayer. Additionally, one could also argue that it is not the expenditure that should be deemed as income but only the profit element embedded in it. Such a position was upheld by Hon’ble Gujarat HC in the case of CIT vs Simit P Sheth [(2013) 356 ITR 451 (Guj)] = [TS-24-HC-2013(GUJARAT)-O].

On this very subject of import reconciliation and addition u/s 69C, the Hon’ble Delhi High Court (‘Delhi HC’) recently set aside the assessment order passed in the case of Bausch and Lomb India Private Limited [TS-5247-HC-2024(Delhi)-O] and remanded it back to the tax officer, wherein an addition u/s 69C was made as an unexplained expenditure. The addition was the alleged difference between the imports as per books of account and the import data as per CBIC.  During the assessment, the tax officer provided a month-wise summary (consisting of cumulative invoice value, assessable value, duty paid) of import data obtained from CBIC and asked the taxpayer to reconcile the same with its import data. The taxpayer furnished its import data amounting to INR 151 crores as against INR 221 crores provided by the tax officer. The taxpayer also requested for Bill of Entry (‘BoE’) wise data for it to effectively carry out a reconciliation. However, tax officer proceeded to make an addition stating that the data from CBIC was authentic, and if the taxpayer was to refute the adjustment, it should have obtained a certificate from the customs department/CBIC that the import data furnished by the tax office was incorrect.   

Delhi HC after hearing the arguments adjudicated as below:

1. It was impossible for the taxpayer to dispute alleged additional purchases in the absence of BoE data and the taxpayer cannot be faulted for not carrying out the reconciliation.

2. Reconciliation exercise could be carried out only when details of invoices or BoE are made available to the taxpayer.

3. If the invoice/BoE wise data isn’t available, it wouldn’t be possible to identify the purchases that were subject matter of dispute.

4. The tax officer had to at least identify the purchase entries that ought to have been in taxpayer’s books of account.

5. Hence, it was impermissible for the tax officer to make the adjustment u/s 69C.

This verdict from the Delhi HC reaffirms the position that, to carry out an addition u/s 69C the details of such alleged unexplained expenditure should be available with the tax officer.

Though this is a welcome decision, it is always recommended that taxpayers provide at-least a high-level reconciliation to the tax office even in the absence of complete data or only summary level data is provided by the tax office. The reconciling items if any could be backed up with some evidence as well. This could provide the tax office with necessary comfort on the reconciliation and possibly avoid the disallowance.