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Facts
The Assessing Officer (AO) made an addition of Rs. 1,81,41,923/- to the assessee's income, citing a difference between gross receipts reported in Form 26AS (Rs. 7,17,70,636/-) and those shown in the assessee's books of account (Rs. 5,36,28,713/- + Rs. 19,34,272/-). The assessee, engaged in civil engineering consultancy, explained that the discrepancy arose because payers deducted TDS on bill amounts inclusive of service tax/GST, while the assessee recorded only actual contractual receipts as revenue. The CIT(A) verified the reconciliation, granted partial relief for Rs. 1,76,53,879/-, and sustained an addition of Rs. 4,88,044/-.
Held
The Income Tax Appellate Tribunal (ITAT) found no infirmity in the CIT(A)'s order granting relief to the assessee. The tribunal noted that figures in Form 26AS can change with rectifications by payers and that the assessee provided detailed reconciliation, particularly emphasizing that all payers were government entities, minimizing the scope for undisclosed income. The revenue's argument regarding improper maintenance of books and rejection under section 145(3) was deemed to have no impact as no estimated profit determination was done.
Key Issues
Whether the CIT(A) was justified in partially deleting the addition made by the AO on account of differences in gross receipts between Form 26AS and the assessee's books of account.
Sections Cited
143(3), 145(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in AY 2017-18, arises out of the order of the Commissioner of Income Tax (Appeals)-4, Kanpur [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No. CIT(A)-IV/KNP/10411/2019-20 dated 04.04.2022 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 23.11.2019 by the Assessing Officer, DCIT, Central Circle, Ghaziabad (hereinafter referred to as ‘ld. AO’).
The only effect issue to be decided in this appeal is as to whether the ld CIT(A) was justified in deleting the addition made by the ld AO partially on account of difference in gross receipts figures reflecting in Form 26AS and the books of account of the assessee, in the facts and circumstances of the instant case.
We have heard the rival submissions and perused the material available on record. The assessee company is engaged in civil engineering consultancy providing competitive and innovative solutions to engineering projects. During the course of assessment proceedings, the entire books of account together with bills and vouchers were duly produced by the assessee before the ld AO and same were duly examined on test check basis. As per the audited balance sheet and Profit and Loss Account, the assessee has shown gross receipts from revenue of Rs. 5,36,28,713/- and other income of Rs. 19,34,272/-. The ld AO compared this gross receipt figures with the gross receipts figures reflected in Form 26AS of Rs. 7,17,70,636/-. The ld AO observed that the cash book of the assessee was not properly maintained and assessee was following both mercantile and cash system of accounting. The ld AO proceeded to reject the books of account u/s 145(3) of the Act.
It was explained by the assessee by way of detailed reconciliation that some parties had deducted tax at source (TDS) on bill amount inclusive of service tax portion whereas the assessee had taken the revenue exclusive of service tax on the ground that service tax is collected and paid to the account of the central govt and hence, it cannot be treated as revenue of the assessee. It was clarified that the assessee has been following only mercantile system of accounting. It was also clarified that all the payers are govt parties and some parties deducted TDS on bills including service tax portion and some parties deducted TDS on actual value of bill alone excluding service tax portion. However, consistently the assessee has been considering the gross receipts only exclusive of service tax portion as its revenue. The ld AO did not heed to this contention and proceeded to add Rs. 1,81,41,923/- as undisclosed contractual receipts.
During the course of appellate proceedings, the assessee submitted that the payers had modified/ rectified their respective TDS returns and if the revised Form 26AS is considered, then there would be no difference in the gross receipts at all. The assessee also placed on record revised Form 26AS before the ld CIT(A). The assessee in respect of certain parties duly proved the fact that the difference in gross receipts had arose due to inclusion of service tax/ GST portion in the gross bills of certain parties whereas the assessee had shown only the actual contractual receipts as its income in its books of account and service tax portion is shown separately. Accordingly, it was pleaded that there was no difference at all.
The ld CIT(A) duly verified the same and found in respect of receipts from Executive Engineer, ICD-I, Lalitpur, originally the payer had reflected the gross figures of Rs. 3,13,95,000/- and the same was duly corrected by the said party at Rs. 2,09,30,000/- inclusive of GST of Rs. 27,30,000/-. The revised figure of Rs. 2,09,30,000/- was duly reflected in the revised Form 26AS of the assessee. Similarly, in the matter of receipt of Rs. 20 lakhs from Executive Engineer, Investigation and Planning Division, Banda, the assessee submitted that Rs. 20 lakhs had already been accounted by it in AY 2016-17 by following mercantile system of accounting, whereas, the payer had considered the same as their expenditure only in AY 2017-18. This aspect was duly examined by the ld CIT(A) and found to be correct. Further, in respect of receipts from M/s. WAPCOS Ltd, there was difference of Rs. 24,58,879/- between receipts reflected in profit and loss account and Form 26AS. The assessee clarified that the total contract value for the period 01.04.2015 to 31.03.2017 was Rs. 4,25,19,173/-. Out of this, a sum of Rs. 2,82,21,069/- was recognized as receipts in AY 2016-17 and balance amount of Rs. 1,42,98,104/- was recognized as receipts in AY 2017-18. This aspect has been duly examined by the ld CIT(A) and found to be correct. The ld CIT(A) duly tabulated the difference in figures between audited profit and loss account and Form 26AS in respect of aforesaid three parties namely Executive Engineer, ICD-1, Lalitpur; Executive Engineer, Investigation and Planning Division, Banda; and WAPCOS Ltd and observed that the assessee was duly able to reconcile the difference up to Rs. 1,76,53,879/- and sustained the balance addition of Rs. 4,88,044/- (Rs. 18141923- 17653879). Against this order of the ld CIT(A), the assessee has not preferred any appeal and only revenue is in appeal before us.
The ld DR vehemently argued that the assessee did not maintain books of account properly which forced the ld AO to reject the same u/s 145(3) of the Act. The party-wise figures mentioned in Form 26AS matched with those reflected in the books of account of the assessee without including the portion of service tax/ GST except in respect of aforesaid three parties. He argued that when the figures are matching with other parties, it is improbable to accept the contention of the assessee that only in respect of the aforesaid three parties, the payer had included the GST/ service tax portion also in the gross receipts.
Per contra, the ld AR argued that according to ld AO, cash book was not properly maintained by the assessee. The ld AO had not brought any basis for making this statement. He further argued that despite rejection of books u/s 145(3) of the Act, the ld AO did not resort to determination of profits on estimated basis by bringing in any comparable instances. Hence, there is absolutely no impact that was created on the total income due to rejection of books of account u/s 145(3) of the Act. The entire addition has been made by the ld AO by considering the figures reflected in original Form 26AS as sacrosanct without considering revised Form 26AS that was placed on record.
It is fact on record pursuant to revised Form 26AS placed on record, the assessee was able to explain the discrepancy of gross receipts in facts and figures. It is pertinent to note that figures in form 26AS would get changing as and when TDS returns were modified/ rectified by the payers which is absolutely not in the control of the assessee. Hence, the main argument of the ld DR that discrepancy were noticed in the respective three parties whereas with other parties, without GST, figures were matching has got no relevance at all. Admittedly, the addition was made by the ld AO based on Form 26AS. We find from pages 34 of the Paper Book containing Form 26AS which is updated till 01.02.2018 and from pages 48 of the Paper Book containing the revised form 26AS updated till 28.09.2019, the assessee filed complete reconciliation of figures in second Form 26AS vis a vis gross receipts shown in books. The said reconciliation is enclosed in pages 43 to 47 of the Paper Book. One more excruciating fact that requires consideration is that all the payers are Govt parties and hence, there is no scope of receiving any undisclosed income from said parties. Some payers had deducted TDS including GST/ service tax portion and some had not done it. The assessee had duly filed the reconciliation and the ld CIT(A) had tabulated the difference in figures in respect of three parties in para 6.6 of this order with facts and figures after due examination of the same. In fact the ld CIT(A) on examination of reconciliation had also found that the assessee was not able to explain the difference of Rs. 4,88,044/- and accordingly had sustained the said addition, which is also accepted by the assessee. Hence, we do not find any infirmity in the order of the ld CIT(A) granting relief to the assessee to the extent of Rs. 1,76,53,879/-. Accordingly, grounds raised by the revenue are dismissed.