2021 (8) TMI 1099 - AT - Income Tax

Addition u/s 68 - difference in total revenue shown as per the books of account of the assessee and income shown in Form No. 26AS for that year - Mercantile system of accounting - HELD THAT - CIT-A correctly deleted the addition as the amounts of service tax shown in the invoice are not reflected to the extent of service tax included in the gross value of payment. With respect to certain invoices, which were pertaining to assessment year 2012-13, included by the assessee in the income of those years whereas same were shown as payment made by the customer in the Form No. 26AS of this year. Interchangeability of receipts from Reliance Communication Ltd and Reliance Communication Infrastructure Ltd pertaining to the same group. The ld CIT (A) examined the reconciliation of both the companies individually with Form No. 26AS and no difference were found.The failure of the ld AO to consider the income shown under the other segment of the assessee already shown as income in the profit and loss account and merely comparing with one of the segment of the income. The above reasons are verified by the ld CIT (A) to the extent of each rupee and have given detailed analysis with respect to each of the parties. The ld DR could not show us any infirmity in the order of the ld CIT(A) in deleting the above additions - Therefore, we confirm the order of the LD CIT (A) and dismissed the ground of appeal of the LD AO. There can be overflow of income of one preceding previous year in the current year in form 26AS. However, there cannot be overflow of income pertaining to the preceding previous year in the current previous year in the books of accounts of the assessee because assessee is maintaining books of accounts on accrual system of accounting. AO should have considered the income shown by the assessee in the earlier year in its profit and loss account, when assessee has filed detailed reconciliation before the ld AO. The ld AO could also have verified the above with the books of account produced before him - difference between the revenue shown in the Form No. 26AS and the profit and loss account of the assessee , may trigger a doubt in the mind of the learned assessing officer, but that doubt needs to be further clarified by carrying out further examination of the details and reconciliation. Merely, issuing notices u/s 133(6) and not receiving the reply cannot result an addition into hands of the assessee. According to us, AO should have carried out further examination before making such a huge addition - Addition made by the ld AO has been correctly deleted by the CIT (A).

Summary

Issues:
Appeal against deletion of addition u/s 68 of the Act.

Analysis:
The appeal was filed by the ld ACIT against the order of the ld CIT(A) for Assessment Year 2013-14, challenging the deletion of an addition made u/s 68 of the Act amounting to ?7,41,78,940. The addition was based on the variance in total revenue as per the assessee's books of account and the income reflected in Form No. 26AS. The assessee, a telecom services company, had discrepancies in receipts from various entities like Tata Teleservices Ltd and Reliance Telecom Ltd. However, the assessee provided detailed reconciliation showing that the differences were due to already recognized income, accounting treatment, and service tax considerations.

Upon appeal, the ld CIT(A) examined the explanations and evidence provided by the assessee, concluding that the receipts in Form No. 26AS matched the income recognized in the profit and loss account. The ld CIT(A) found no discrepancies and deleted the addition. In the appeal before the ITAT, the ld DR supported the ld AO's order, while the ld AR relied on the ld CIT(A)'s decision.

The ITAT carefully reviewed the contentions and the ld CIT(A)'s order. The reasons for deletion of the addition included the non-reflection of service tax in invoices, treatment of certain invoices related to a previous assessment year, and interchangeability of receipts between related companies. The ld CIT(A) provided detailed analysis for each discrepancy and confirmed the deletion of the addition. The ITAT found no infirmity in the ld CIT(A)'s order and dismissed the appeal of the ld AO.

The ITAT emphasized that the ld AO should have understood the accounting treatment of income and service tax before making such a substantial addition. The ITAT highlighted that service tax is not income, and discrepancies may arise due to accounting methods. The ITAT stressed the importance of thorough examination and reconciliation before making significant additions based on differences between Form No. 26AS and profit and loss accounts. Ultimately, the ITAT upheld the ld CIT(A)'s decision to delete the addition made by the ld AO.

In conclusion, the ITAT dismissed the appeal of the ld AO, affirming the deletion of the addition by the ld CIT(A) and emphasizing the necessity for a comprehensive examination before making substantial additions based on revenue differences.