2025 (6) TMI 878 - AT - Income Tax

Denial of full credit for TDS - there is mismatch between the figures in Form 26AS and the figures in financial statements - HELD THAT - Assessee submitted that the assessee needs to file certain reconciliation statements along with supporting documents by way of paper book in order to substantiate its claim. We are also of the considered opinion that assessee could not produce the reconciliation/documents/ submission during the course of proceedings u/s 154 of the Act. This being so in the interest of Justice fair play we deem it fit to remit the entire issue in dispute to the file of AO for fresh consideration in accordance with law. The assessee is also directed to submit the reconciliation of the gross receipt as reflecting in 26AS and as declared in the profit loss account along with supporting documents/records/information which they are willing to file before us by way of paper book. Appeal filed by the assessee is partly allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal include:

- Whether the Commissioner of Income Tax (Appeals) erred in dismissing the appeal and upholding the order denying full credit of Tax Deducted at Source (TDS) as claimed by the assessee.

- Whether the Assessing Officer and subsequent authorities were correct in granting TDS credit only to the extent of Rs. 71,61,308/- as against the TDS claimed of Rs. 78,44,038/- reflected in Form 26AS.

- Whether there was a legitimate mismatch between the figures of gross receipts reflected in Form 26AS and the figures declared in the assessee's financial statements and audit report, and the implications of such mismatch on the entitlement to TDS credit.

- Whether the income figure mentioned in Form 26AS is determinative for granting TDS credit or whether reconciliation with financial statements is necessary.

- Whether the adjustments made in the rectification orders under section 154 of the Income Tax Act were legally permissible.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the denial of full TDS credit as claimed by the assessee

Relevant legal framework and precedents: The entitlement to TDS credit is governed by the provisions of the Income Tax Act, which mandate that credit for TDS can be claimed only when the deductee's income corresponds with the income on which TDS has been deducted and reflected in Form 26AS. The principle is that the TDS credit must correspond to the income actually earned and declared by the assessee.

Court's interpretation and reasoning: The Tribunal noted that the Assessing Officer and the Commissioner of Income Tax (Appeals) had restricted the TDS credit to Rs. 71,61,308/- against the claimed Rs. 78,44,038/-, primarily on the basis of a mismatch between the gross receipts shown in Form 26AS and those declared in the financial statements and audit report.

Key evidence and findings: Form 26AS reflected gross receipts of Rs. 47,59,74,485/- while the audit report and profit and loss account showed contract revenue of Rs. 42,68,47,260/-. The authorities below relied on this discrepancy to limit the TDS credit.

Application of law to facts: The Tribunal observed that the assessee had not submitted any reconciliation or supporting documents during the proceedings under section 154 to explain the discrepancy. However, the Tribunal recognized the assessee's contention that reconciliation was necessary and that the mismatch might be explained by appropriate documentation.

Treatment of competing arguments: The assessee argued that the CIT(A) erred in relying solely on Form 26AS figures without considering the facts and reconciliation with financial statements. The Revenue contended that Form 26AS figures were authoritative for granting TDS credit.

Conclusions: The Tribunal found merit in the assessee's submission that reconciliation was necessary and that the denial of full TDS credit without allowing opportunity to submit supporting documents was improper. Hence, the issue was remitted to the Assessing Officer for fresh consideration after allowing the assessee to furnish reconciliation and supporting evidence.

Issue 2: Legitimacy of reliance on Form 26AS figures for determining TDS credit

Relevant legal framework and precedents: Form 26AS is a consolidated tax statement reflecting TDS deducted and deposited with the government. While it is a key document for TDS credit, the law requires that the income on which TDS is claimed must be reflected in the assessee's return and financials.

Court's interpretation and reasoning: The CIT(A) had held that the income figure in Form 26AS is determinative for granting TDS credit and that the Assessing Officer was correct in granting credit only to the extent of income reflected therein.

Key evidence and findings: The Tribunal noted that the CIT(A)'s conclusion did not adequately consider the possibility that the income declared in financial statements might legitimately differ from the gross receipts shown in Form 26AS due to timing or accounting treatments.

Application of law to facts: The Tribunal emphasized that a mere mismatch does not ipso facto disqualify the assessee from claiming TDS credit and that reconciliation between Form 26AS and financials is necessary to establish entitlement.

Treatment of competing arguments: The assessee submitted that the CIT(A) erred in disregarding the financial statements and audit report, while the Revenue argued that Form 26AS figures are conclusive.

Conclusions: The Tribunal held that the CIT(A)'s reliance on Form 26AS figures alone was not correct without considering reconciliation and supporting evidence, warranting remand for fresh examination.

Issue 3: Validity of adjustments made under section 154 of the Income Tax Act

Relevant legal framework and precedents: Section 154 permits rectification of mistakes apparent from the record. However, such rectification cannot be used to make substantive changes without proper adjudication.

Court's interpretation and reasoning: The assessee contended that the adjustments made in the rectification orders increasing the demand were not permissible as they were based on denial of TDS credit without proper examination.

Key evidence and findings: The Tribunal observed that the rectification orders accepted the returned income but increased the demand due to reduced TDS credit, without the assessee having the opportunity to submit reconciliation or evidence.

Application of law to facts: The Tribunal found that the rectification orders, while technically permissible, should not have been passed without allowing the assessee to substantiate its claim, as the issue was substantive and required adjudication.

Treatment of competing arguments: The Revenue maintained the correctness of rectification, while the assessee argued for deletion of such adjustments.

Conclusions: The Tribunal implicitly held that the rectification orders need to be reconsidered in light of fresh evidence and reconciliation to be submitted before the Assessing Officer.

3. SIGNIFICANT HOLDINGS

- "The assessee could not produce the reconciliation/documents/submission during the course of proceedings u/s 154 of the Act. This being so, in the interest of Justice & fairplay we deem it fit to remit the entire issue in dispute to the file of AO for fresh consideration in accordance with law."

- "The assessee is also directed to submit the reconciliation of the gross receipt as reflecting in 26AS and as declared in the profit & loss account along with supporting documents/records/information which they are willing to file before us by way of paper book. The AO shall accordingly grant credit of TDS as per law."

- The Tribunal established the principle that mere mismatch between Form 26AS and financial statements does not justify denial of TDS credit without allowing the assessee an opportunity to reconcile and substantiate the figures.

- The final determination was that the appeal is partly allowed for statistical purposes, and the matter is remitted to the Assessing Officer for fresh adjudication after considering the reconciliation and evidence to be submitted by the assessee, ensuring a fair opportunity to be heard.