2019 (12) TMI 684 - AT - Income Tax

Mismatch between income as per Form 26AS maintained in data base of Revenue and income offered to tax by assessee in return of income filed with the Revenue as is reflected in books of accounts - Addition made purely based on entries in Form 26A - return of income was originally processed by Revenue u/s 143(1) but later case of the assessee was selected by Revenue for framing scrutiny assessment u/s 143(3) read with Section 143(2) - HELD THAT - There could be several reasons for mismatch between income as is reflected in Form 26AS and income offered to tax in return of income filed with Revenue which could be due to recognition of income in the preceding year or in the subsequent year by the taxpayer vis-a-vis the other party owing to stage of completion of the work, different method of accounting followed by taxpayer and other party , deficiency in rendering of services /supplies which could lead to rejection of material/services rendered , credit notes /debit notes issued by one party while the same is not accounted by other party etc. The assessee on its part has tried to reconcile its income as offered in the books of accounts with Form 26AS but the said evidences which are critical evidences going to the root of the matter has been discarded by the CIT(A) at the threshold as the same were not admitted by CIT(A). No doubt, Rule 46A of the 1962 Rules give powers to Ld.CIT(A) to refuse admit additional evidences in certain circumstances as stipulated under Rule 46A but whence substantial justice is pitted against technicalities , the Courts will lean towards substantial justice. We admit the additional evidences filed by assessee before Ld.CIT(A) and restore the matter back to the file of the AO for framing fresh assessment denovo after considering entire evidences furnished by the assessee in its defense on merits in accordance with law. AO shall admit all the evidences/explanation filed by assessee in its defense and then decide the issue in denovo assessment on merits in accordance with law. Needless to say that the AO shall give proper and adequate opportunity of being heard to the assessee in the interest of principles of natural justice in accordance with law.

Summary

Issues Involved:
1. Confirmation of addition based on entries in Form 26AS.
2. Admission of new evidence by the Commissioner of Income Tax (Appeals) under Rule 46A.
3. Adjustment to book profit under Section 115JB of the Income Tax Act.
4. Claim for credit of TDS as per Section 199 read with Rule 37BA.

Detailed Analysis:

1. Confirmation of Addition Based on Entries in Form 26AS:
The primary issue revolves around the mismatch between the income reported by the assessee in their return and the income reflected in Form 26AS. The AO noticed discrepancies amounting to ?4,49,69,696/- due to differences in reported income from two parties, HCL Infosystems Limited and Sonata Information Technology Limited. After allowing for taxes such as Service Tax/VAT/CST at 12%, the AO added ?3,26,88,378/- to the assessee's income. The CIT(A) upheld this addition, noting that the assessee did not provide sufficient justification for the discrepancy during the assessment proceedings.

2. Admission of New Evidence by Commissioner of Income Tax (Appeals) under Rule 46A:
The assessee submitted additional evidence during the appellate proceedings, including reconciliation statements, confirmation from third parties, and credit notes. However, the CIT(A) refused to admit these new evidences, citing that no application was made under Rule 46A for their admission and that the AO had already provided sufficient opportunity during the assessment proceedings. The Tribunal, acknowledging the importance of these evidences for a fair resolution, decided to admit them and directed the AO to conduct a de novo assessment after considering these additional documents.

3. Adjustment to Book Profit under Section 115JB of the Income Tax Act:
The AO had added the disputed amount of ?3,26,88,378/- to the book profit for the purpose of Minimum Alternate Tax (MAT) computation under Section 115JB. The CIT(A) noted that the assessee did not challenge this adjustment specifically in their appeal. The Tribunal acknowledged that the adjustment to book profit under Section 115JB was consequential to the addition made under normal provisions and directed the AO to reassess this in the de novo assessment.

4. Claim for Credit of TDS as per Section 199 read with Rule 37BA:
The CIT(A) observed that the assessee claimed credit for TDS for the entire receipts as reflected in Form 26AS. As per Section 199 read with Rule 37BA, credit for tax deducted at source should be given for the assessment year for which the income is assessable. The CIT(A) upheld the AO's stance that since the assessee claimed TDS credit for the entire amount, the entire gross receipts must be assessable for the year under consideration. The Tribunal directed the AO to re-evaluate this claim during the de novo assessment.

Conclusion:
The Tribunal set aside the order of the CIT(A) and directed the AO to conduct a de novo assessment. The AO is instructed to admit the additional evidence provided by the assessee and re-evaluate the discrepancies, the adjustments to book profit under Section 115JB, and the claim for TDS credit. This decision aims to ensure substantial justice by allowing the assessee another opportunity to present their case with all relevant evidence. The appeal filed by the assessee is allowed for statistical purposes, and the matter is restored to the AO for a fresh assessment.