Mismatch in Form 26AS – No addition to be made if explanation is offered for difference: ITAT Mumbai

Facts of the Case:

• Assessee is engaged in the business of certification for Quality & Environmental Management Systems for Automobile Industry, Third Party Inspection, CE Marketing and other related work.
• Assessee filed its return of income during the relevant year and claimed the TDS credit amounting to Rs. 6.02 crore whereas credit appearing in AIR database (Form 26AS) amounted to Rs. 6.33 crore.
• Assessing officer (AO) concluded that the assessee has not disclosed receipts of income amounting to Rs. 3.08 crore represented by excess TDS of Rs. 30.88 lakhs and made addition of undisclosed income/ receipts u/s 68 of the Income Tax Act, 1961.

Contention of the Assessee:

• The assessee contended that the differential TDS of 27.64 Lakhs is due to an error made by one of its clients, who has erroneously mentioned assesee’s PAN in its TDS Return, whereas actually the income belongs to another person. For which the assessee further submitted revised TDS return copies.
• Further, for TDS differential of Rs 12.82 lakhs from actual revenue recorded, assessee contended that they recognize income exclusive of service tax, whereas their client deducts TDS on gross amount i.e. inclusive of service tax, thereby having no control over the Income Tax database. Party wise reconciliation and ledger accounts, for major differences were submitted and accordingly, addition made by AO should be deleted.

Contention of the Revenue Department:

• According to the department representative, the assessee has failed to submit complete reconciliation statements revenue as appearing in its return of income with revenue as per AIR information.
• The assessee has submitted clarification for Rs. 2.7 crore differential revenue, but failed to provide any explanation for remaining differential revenue. Therefore, remaining amount of unexplained income has been added back as income.

Conclusion:

• The ITAT of Mumbai bench held the decision in favor of assessee and states that un-reconciled difference is around 2.13 per cent of the total TDS which is not significant difference of TDS. The assessee has submitted reconciliation statements and offered explanations party wise during appellate proceedings thus, the assessee has duly discharged its primary onus casted under the Act. It also, held that AO and appellate authority failed to conduct enquiries with the parties who had deducted TDS., hence no cogent incriminating material were brought on record by the authorities.

• It is further held that assesee’s contention that, difference could be because clients have deducted TDS on gross amount inclusive of service tax while income reflected by tax-payers in their books is exclusive of service tax and assessee has no control over the data base of the Income-tax department as is reflected in Form No. 26AS and at best the assessee could do is to offer bonafide explanations for these differences, also seems appropriate. Therefore, no addition shall be made u/s 68 of the Act.

Our Comments: There can be several reasons because of which difference between revenue as per AIR database vis-à-vis books of account of assessee can arise. Therefore, CBDT should come up with a mechanism to provide facility in Income tax return utilities, where assessee could provide reason for mismatch while filing its income tax return. This will certainly reduce litigations to a large extent on this matter.

Source: TUV India (P.) Ltd. v. Deputy Commissioner of Income-tax, Mumbai [2019] 110 taxmann.com 175 (Mumbai-Trib.).