2025 (6) TMI 491 - AT - Income Tax

Undisclosed income/sales - difference in the receipts as declared in the profit and loss account and Form 26AS - adhoc disallowance of 10% of the expenses debited to the profit and loss account - HELD THAT - If over all contract receipt is seen is spread over the year of contract work carried out then there is no difference in the contract receipts. In any case from the bare perusal of Form 26AS there are multiple deduction appearing in the amount of Rs. 54, 39, 879/-. For instance there was double deduction of TDS for Rs. 45, 66, 264/- once as part of Rs. 53, 41, 695/- and again independently on 19/03/2012. There are other double deduction of TDS which has been explained in the aforesaid chart. All these explanation and re-conciliation was given before the ld. CIT(A). Accordingly we do not find any reason to remand this matter back to the file of the ld. AO as no new material has been brought on record that re-conciliation is given before the ld. AO and ld. CIT(A) is factually incorrect. Accordingly we hold that no addition can be made on account of sales simply based on difference in the figure in Form 26AS and the sales disclosed by the assessee in the audited accounts because the other party i.e. WHL has deducted TDS on interim bill as well as final bill and there are double deduction of TDS on various accounts. Thus the addition made by the ld. AO is deleted. Disallowance on account of alleged personal element in transportation expenses and Depreciation on Motor car - As no specific effect has been found as to what expenses are not verifiable or personal element. Since it is a query on adhoc disallowance same can be sustained accordingly it is deleted.

Summary

The primary issues considered in this appeal relate to the correctness of additions made to the assessee's income on account of alleged discrepancies between sales declared in the profit and loss account and entries in Form 26AS, the validity of disallowance of certain expenses on account of personal elements, and the question of double taxation or double addition of income.

First, whether the addition of Rs. 54,39,870/- on account of difference in receipts from contracts based on Form 26AS entries is justified.

Second, whether the entries in Form 26AS reflect double deduction of tax and whether this impacts the validity of the addition.

Third, whether the revenue has suffered any loss or whether the same income has been subjected to double addition in different assessment years.

Fourth, the propriety of disallowance of Rs. 48,217/- on account of alleged personal elements in transportation expenses and depreciation on motor car.

Regarding the first issue, the legal framework involves the provisions under section 143(3) of the Income Tax Act, 1961, which empower the Assessing Officer (AO) to make additions to income if discrepancies or undisclosed income are found. The AO relied on the mismatch between sales declared in the profit and loss account and the figures in Form 26AS, which reports tax deducted at source (TDS) by third parties. The AO rejected the assessee's explanation and held that the assessee indulged in systematic postponement of tax liability by not offering income in the correct assessment year, thereby adding Rs. 54,39,879/- to income. Penalty proceedings under section 271(1)(c) were initiated for concealment.

The assessee contended that the addition is unjustified because the entries in Form 26AS reflect double deduction of TDS on the same bills, and that the revenue has been offered in subsequent years, negating any tax loss. The assessee also argued that the AO should have verified the books of accounts and contract details rather than relying solely on Form 26AS. The assessee submitted detailed reconciliations and explanations, including confirmation from the client (Wockhardt Hospitals Limited) about the nature of deductions and payments.

The Court noted that the AO and the Commissioner of Income Tax (Appeals) (CIT(A)) failed to consider the detailed explanation provided by the assessee, particularly the issue of double deduction of TDS on interim and final bills. The Court examined the reconciliation tables and documentary evidence submitted by the assessee, which demonstrated that the client deducted TDS multiple times on the same amounts due to interim and final billing practices and retention adjustments. The Court observed that the overall receipts over the contract period, when aggregated, did not show any discrepancy that would justify an addition.

On the question of double deduction, the Court analyzed the entries in Form 26AS and the corresponding bills, noting specific instances where TDS was deducted twice on the same amounts. For example, TDS was deducted once as part of a lump sum payment and again independently on a component of that payment. This double deduction led to inflated figures in Form 26AS, which the AO mistakenly treated as undisclosed income. The Court emphasized that such double deductions are administrative or systemic issues on the part of the deductor and do not translate into undisclosed income for the assessee.

The Court also considered the contention that the revenue has been offered in subsequent years, which the AO dismissed as systematic postponement. However, given the mercantile system of accounting followed by the assessee, income accrual and recognition must be consistent with contract completion and billing cycles. The Court found no evidence of deliberate tax evasion or postponement, but rather a mismatch arising from the client's billing and TDS deduction practices.

Regarding the disallowance of Rs. 48,217/- on account of alleged personal elements in transportation expenses and motor car depreciation, the AO made an adhoc disallowance of 10% of certain expenses, assuming some personal use. The assessee argued that there was no personal element in these expenses. The Court found no specific evidence to sustain this disallowance and held that adhoc disallowance without concrete basis is not justified. Consequently, this disallowance was deleted.

The Court rejected the Revenue's request for remand to the AO for verification of the reconciliation, noting that the assessee had already submitted the detailed reconciliation and explanations before the CIT(A), which were not considered. Since no new material was presented, remand was deemed unnecessary.

In conclusion, the Court held that no addition could be made solely on the basis of differences between Form 26AS and the assessee's books when the difference arises due to double deduction of TDS by the client. The addition of Rs. 54,39,879/- was deleted, and the adhoc disallowance of Rs. 48,217/- was also deleted.

Significant holdings include the principle that mere discrepancies in Form 26AS entries, especially arising from double deduction of TDS by a third party, do not justify additions to income without proper verification of the assessee's books and contract details. The Court stated: "No addition can be made on account of sales simply based on difference in the figure in Form 26AS and the sales disclosed by the assessee in the audited accounts because the other party i.e. WHL has deducted TDS on interim bill as well as final bill and there are double deduction of TDS on various accounts."

The Court also emphasized that adhoc disallowances must be supported by specific evidence and cannot be sustained on mere assumptions of personal use.

Accordingly, the appeal was allowed, reversing the additions and disallowances made by the AO and confirmed by the CIT(A).