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Facts
The assessee company, engaged in advertising services, filed its return of income. During scrutiny, a discrepancy was found between net receipts in the P&L account and gross receipts in Form 26AS. The assessee failed to reconcile this difference and explain the breakdown of revenue and expenses.
Held
The Tribunal noted the assessee's failure to reconcile gross receipts (as per 26AS) with net receipts (as per P&L) and to provide details of contracts and expenses. Consequently, the matter was restored to the Assessing Officer for fresh adjudication.
Key Issues
Whether the addition made by the AO and sustained by the CIT(A) based on un-reconciled receipts is justified, or if the matter should be remanded for proper reconciliation.
Sections Cited
143(3), 26AS, 194A
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Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAHUL CHAUDHARY
This appeal by the assessee is directed against order dated 15.01.2025 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2015-16, raising following grounds: “The grounds stated here under are independent of, and without prejudice to one another.
1. On the facts and circumstances of the case, and in law, the order passed by the Commissioner of Income Tax (Appeals) - National Faceless Appeal Centre ('NFAC'), is void/bad in law/passed in gross violations of principles of natural justice. The order has been passed without providing opportunity of hearing to the Appellant.
On the facts and in the circumstances of the case and in law, the NFAC has erred in confirming the addition of INR 9,42,00,000 to the Total Income made by the Learned AO by applying ad-hoc profit margin on gross billing of the Appellant for the year under consideration. Each of the above grounds of appeal
is without prejudice to and independent of one another. The Appellant prays that the additions made by the learned AO and upheld by the Hon'ble NFAC be deleted and consequential relief be granted. The Appellant craves leave to add, alter, amend and/or withdraw any of the above grounds of appeal and to submit such statements, documents and papers as may be considered necessary either at or before the hearing of this appeal as per law”
2. Briefly stated facts of the case are that the assessee filed its return of income for the year under consideration on 30.11.2015 declaring total income at Rs. 21,68,61,615/-. The assessee was engaged in providing the marketing services for development of the client’s product, through advertising messages on media like newspaper, magazines hoardings and another outdoor sites etc. During the scrutiny proceedings, the assessing officer observed net receipt of Rs. 133,9570,712/- declared in the profit and loss accounts, whereas, in the form No. 26AS i.e. form prescribed under the Income Tax Rules, 1962, receipt of Rs. 1372,03,12,413/- was shown in receipt column corresponding to tax deducted at source(TDS). The Assessing officer asked the assessee to reconcile the difference between the receipt appearing in the form No. 26AS and the Profit and Loss A/c. The assessee contended that it has recorded only net receipt after deducting expenses from the gross receipt in the profit and loss account, but could not reconcile party wise gross receipt vis-à-vis net receipt. The assessing officer accordingly rejected the books of accounts and estimated the quantum of gross revenue to be added as business income of the assessee. The relevant part of the assessment order was reproduced as under: “9.4 Further vide order sheet noting dated 29.12.2017, the assessee was asked to provide the complete breakup of the above mentioned two categories of contracts. Assessee was also asked to provide the breakup of the gross revenue of the current year as per the billing books amounting to Rs 1466 crores submitted by the assessee vide submissions dated 30.11.2017. The same were not furnished by the assessee. Assessee merely communicated that around 75% of the total gross revenue earned towards media release has commission income in the range of 1-3% (Agency on Record Contracts) and on 25% of the total gross revenue earned towards media release has commission income to the tune of 10-14% (Creative Contracts). Assessee was asked to identify the receipts categorized as 75% and the receipts categorized as 25% i.e. complete breakup of these two categories of contracts. The same was not furnished by the assessee. Assessee didn't provide any details of the expenses incurred against these contract receipts. Also no documentary evidences were provided for the expenses incurred against the gross receipts. 9.5 Assessee has neither provided the complete breakup of the above mentioned contracts nor has assessee provided the details of expenses with regard to those two types of contracts so as to arrive at the profit margin as determined by the assessee. Hence keeping in view the overall facts and circumstances of the case, it is estimated that the first category of contract of 75% of the gross revenue (75% of Rs 1394 crores = Rs 1045 crores) earned towards media release (Agency on Record Contracts) (billing on which commission was earned in the range of 1- 3%) should be "2.5%" instead of 2% as estimated by the assessee and second category of contract of 25% of the gross revenue (25% of Rs 1394 crores = Rs 348 crores) earned towards media release (Creative Contracts) (billing on which commission was earned in the range of 10- 14%) should be "13%" instead of 12% as estimated by the assessee.”
3. Before the Ld. CIT(A) also the assessee would not explain computation of the net receipt and reconciliation of the same with the gross receipt and the expenses. Therefore, the Ld. CIT(A) also sustained the addition made by the Ld.AO observing as under.
“6.1.1 However, during the Appellate proceedings Appellant submitted vide his submission dated 13/Nov/2018 reasons for why business receipts as per Appellants books and amounts appearing as per form 26AS differ which is reproduced as below. "1.credit notes issued by the appellant, but not taken into consideration by the client while deducting the taxes 2. opening jobs done pending billing taken into account by Appellant in preceding financial year but recorded by the client current financial year. 3. amounts recorded by the Appellant in proceeding financial year, but the client records the same in current financial year, 4. amounts recorded by Appellant in subsequent financial year, but the client records the same in current financial year. 5. amounts wrongly recorded twice by the client 6. amounts wrongly recorded by the client.
Invoices raised by the appellant on particular client, but some other group company of the client deducts the taxes on the said amount. In view of the same, in the books of Apellant, billing is on a particular client (say A) where as in the form 26AS, the said amount appears in the name of another client (say B)" From the above reasons furnished by the Appellant, its amply clear that what ever receipts received by the appellant are not reconcilable and totally away from the reality. Hence the AO observation that correct income of Appellant cannot be deduced from the accounts furnished by the Appellant is correct and rejection of the books accounts by the AO was correct and justified. In view of that AO action of rejection books of accounts of Appellant is sustained. 6.1.2 Further Appellant failed to produce any details to reconcile the receipts as per 26AS and receipts shown as commission income in P&L account. Even the gross revenue was not bifurcated in to two types contracts which he himself stated before the AO during the Assessment proceedings. This appears to be gross failure on the part of the Appellant as it failed in its duty to submit all the details of its receipts as per 26AS and how the net receipts which offered as income in P&L account arrived from the receipts. AO has no other alternative except to estimate net profit from the available details on record which he has systematically and methodically done and estimated the additional revenue of the Appellant in most conservative manner. I have not found any gross miscalculation or lack methodical approach followed by the AO based on the situation and circumstances at hand before him at that time. Hence no adverse inference is drawn on the AO's approach of estimating additional revenue of the Appellant. In view of the above facts and circumstances of the case addition of additional gross revenue Rs.9.42 cr to the business income of the Appellant is here by sustained and ground of appeal
no 1&2 of the Appellant is here by Dismissed.”
4. We have heard rival submissions of the parties and perused the relevant material on record. The issue and dispute in the instant case is determination of the correct amount of receipt from the advertising business of the assessee. The assessee failed to reconcile receipt recorded in form no 26 AS and the receipt appearing in the profit and loss A/c. The main reason for the same is that in the Form No. 26 AS gross receipt are appearing received from different parties whereas the assessee in his profit and loss A/c has recorded net receipt after deducting expenditure incurred in respect of the gross receipt from customers. Therefore, the onus is on the assessee to reconcile the gross receipt from the customers with the net receipt appearing in form No. 26 AS. The Ld. counsel for the assessee requested that if matter is restore back , the assessee would file all the reconciliation of the net receipt vis-a-vis gross receipt. In view of the aforesaid facts and circumstances of the case and in the interest of substantial justice, we feel it appropriate to set aside the order of ld CIT(A) and restore the matter back to file of the Assessing Officer for deciding afresh with a direction to the assessee to file a proper reconciliation of gross receipt from the customers, expenditure incurred in relation to said gross receipt and then reconcile the same with the net receipt recorded in the Profit and Loss A/c. In case any other discrepancy is noticed by the assessing officer, then assessee shall explain the same along with the documentary evidence to the Assessing officer. Accordingly, grounds of the appeal of the assessee are allowed for statistical purposes.
In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 29/04/2025.