ADDITION ON THE BASIS OF ENTRIES FOUND IN FORM 26AS

[Mr. M. GOVINDARAJAN]

Form 26AS is a statement that provides details of any amount deducted as TDS or TCS from various sources of income of a taxpayer.  It also reflects details of advance tax/self assessment tax paid and high value transactions entered into by the taxpayer. This statement gives a consolidated tax record of every tax related information associated with the Permanent Account Number of the assessee.  The assessee while filing his income tax return has to check with the entries in his Form 26AS for better compliance. 

The Revenue, while scrutinizing the income return of the assessee, compares the information furnished by the assessee in his return with Form 26AS generated in the income tax portal in respect of the permanent account number of the assessee.  If there is any omission the Revenue may issue notice to the assessee for short fall of tax, if any.  If there is omission the assessee is to pay the amount due along with interest.  If required revised return is to be filed by the assessee, the same shall be filed.

In order to promote transparency and simplifying the tax return filing process, CBDT vide Notification dated May 28, 2020 has amended Form 26AS vide Sec 285BB of Income Tax Act, 1961 read with Rule 14-I of Income Tax Rules, 1962 with effect from 01.06.2020. The new Form 26AS will provide a complete profile of the taxpayer for a particular year.

Up to the Assessment year 2017-18 the Assessing Authorities add the income on the basis of entries found in Form 26AS.  The Department clarified that no such adjustment shall be made in relation to a return furnished for the assessment year 2018-19 and thereafter.  The same has been confirmed by ITAT, Surat in SHEELABEN D. ITALIA VERSUS I.T.O., WARD-2 (3) (4) , SURAT - 2023 (12) TMI 494 - ITAT SURAT . In the said case  the appellant is the  assessee.  She is the individual.  The assessee filed her income tax returns for the Assessment Year 2017-18 on 07.11.2017 declaring income of Rs.11,19,438/- arising from house property, business income, capital gain and income from other sources.  The Central Processing Unit (‘CPU’ for short) processed the said return on 08.12.2019.  The CPC added Rs.4,12,541/- to the income of the assessee based on the entries found in Form 26AS of the assessee. 

The assessee filed an appeal before the Commissioner of Income Tax (Appeals) against the order of CPC.  The assessee submitted the following before the Commissioner of Income Tax (Appeals)-

•  The assessee received interest income of Rs. 8,24,766/- from three parties, out of which one party deducted TDS of Rs. 4,25,114/-.
• The assessee has paid interest of Rs. 12,36,024/- to various parties and remaining difference amount of Rs. 4,11,258/- was deducted from business income in the computation of income. 
• The assessee received interest income of Rs. 61,869/- as income from other sources.
• The CPC compared the interest income reflected in Form No. 26AS and net interest income shown in the computation of income and the difference of Rs. 4,12,541/- was added. 
• The CPC did not issue any notice for such addition which is against to the principles of Natural Justice.
• The programming of computerized system of CPC which is based on data, cannot consider allowability, therefore, enhancement of income was made merely on the basis of entries found in the form No. 26AS without deduction of expenditure.
• The Department clarified that addition of income appearing in Form 26AS which has not been included in computing the total income in the return till the assessment year 2017-18. However, no such adjustment shall be made in relation to a return furnished for the assessment year 2018-19 and thereafter.
• No addition is warranted and addition deserve to be deleted.

The Commissioner of Income Tax (Appeals) after considering the entire facts of the facts and the submission of the assessee confirmed the order of the CPC on the following grounds-

• The assessee has not given reason why the advance was made.
• The assessee has not explained the details in income tax return whether interest expenses are correctly disclosed in her return of income.
• The assessee simply made a bald assertion that e-mail or communication issued by CPC were not received, no cogent material to that effect is placed.
•  Unsecured loan was availed by the assessee at the end of financial year was of Rs. 1.83 crore which is around 50% of total balance sheet.

Against the order of Commissioner of Income Tax (Appeals) the assessee filed the present appeal before the Income Tax Appellate Tribunal (‘ITAT’ for short).  The appellant raised the following grounds before the ITAT-

• CIT(A) has erred in confirming the adjustment made by CPC making addition of Rs. 4,12,540/- on the basis of entries found in form No. 26AS, particularly when:

• Entire interest income of Rs. 8,24,766/- was declared in interest account and net result Rs. 4,11,258/- after deduction of interest payment of Rs. 12,36,024/- was shown in profit & loss account.
• Same treatment was given in the immediate preceeding year, which was accepted.
• Confirming the adjustment of CPC causing double taxation.

The Revenue supported the order of Commissioner of Income Tax (Appeals).

The ITAT considered the submissions of the appellant as well as the submissions of the Revenue.  The ITAT went through the facts of the case.  The ITAT observed that the CPC made adjustment/ addition of Rs. 4,12,540/- while processing the return on 08/02/2019. Such adjustment was made due to mismatch of interest income and entries in Form No. 26AS as reflected in last page of intimation/order under Section 143(1).  The ITAT also observed that the Commissioner of Income Tax (Appeals) instead of examining the fact of the case in a proper perspective, has given a different theory in his order.  The ITAT found that  the assessee has shown bank interest under the head income from other sources and net difference of interest income earned and interest income incurred of Rs. 4,11,258/- is reduced from business income.  The ITAT agreed to the contention that the CPC has not considered or unable to consider the allowability of interest income earned and interest incurred due to mechanical working.  No addition on 26AS alone can be a basis for making addition without verification of fact. 

Therefore the ITAT allowed the appeal filed by the assessee.

Now the Form 26AS has been replaced by Annual Information System (AIS) which provides complete information about a taxpayer for a particular financial year. It contains information about taxpayers' incomes, financial transactions, tax details, etc. A taxpayer can access AIS information and submit his response (if needed) by logging into his income-tax e-filing account.      .