2022 (3) TMI 1125 - AT - Income Tax

Difference between gross contract receipts as per Form 26AS and the gross contract receipts shown in the return of income - AR submitted that only real income in the hands of the assessee can be brought to tax and though the assessee couldn't submit the reconciliation as sought before the lower authorities, all the documents and ledger accounts are on record and the assessee is in position to reconcile the difference - HELD THAT - Assessee deserves one more opportunity to reconcile the difference between the contract receipts as shown in the return of income and as per Form No. 26AS taking into consideration the fact that the Ld. AR has stated at the Bar that the assessee is in position to reconcile the difference and in fact, there are no differences in the contract receipts which have been offered in the return of income as contractually accrued to him and receipts as per Form 26AS which the assessee can demonstrate through his books of accounts and supporting documentation once an opportunity is provided to the assessee. Taking into consideration the undertaking so given by the Ld. AR and with the understanding that the assessee shall cooperate and shall not abuse the opportunity so provided, the matter is set aside to the file of the AO to verify the differences after providing reasonable opportunity of hearing to the assessee. The assessee is also directed to cooperate in the timely completion of the proceedings, as so directed by the AO. In the event the assessee fails to avail of this opportunity and/or fails to offer necessary explanation to reconcile the differences to the satisfaction of the AO, the AO is at liberty to decide the matter as per law. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Addition of undisclosed income based on variance in contract receipts.
2. Failure to reconcile contract receipts as per Form 26AS and return of income.
3. Adequacy of opportunities provided to assessee for reconciliation.

Issue 1: Addition of Undisclosed Income
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the addition of undisclosed income by the Assessing Officer (AO). The AO observed a variance in gross receipts from contract business as per Form 26AS and the return of income filed by the assessee. Despite issuing show cause notices and opportunities for explanation, the assessee failed to provide any satisfactory response. Consequently, an amount of undisclosed income was added to the taxable income of the assessee, leading to the completion of assessment under section 144 of the Income Tax Act.

Issue 2: Failure to Reconcile Contract Receipts
The assessee challenged the addition of undisclosed income before the Commissioner of Income Tax (Appeals), contending that the real issue behind the addition was not addressed. The Commissioner, after considering the submissions and the Remand Report of the AO, confirmed the addition. The assessee's argument that the difference in contract receipts could be reconciled from ledger accounts was considered, but the Commissioner dismissed it, stating that no documentary evidence was provided to reconcile the variance. The Commissioner held that the explanation provided by the assessee was evasive, leading to the confirmation of the addition.

Issue 3: Adequacy of Opportunities for Reconciliation
During the appeal hearing, the assessee requested another opportunity to reconcile the difference in contract receipts, emphasizing that all relevant documents and ledger accounts were available. The Department, however, argued that sufficient opportunities had already been provided, and the assessee failed to offer any reconciliation. The Appellate Tribunal decided to grant the assessee one more opportunity to reconcile the contract receipts, considering the representation made by the assessee's representative. The matter was remanded to the AO for verification, with a directive for the assessee to cooperate. Failure to avail of this opportunity would empower the AO to decide the matter as per law.

In conclusion, the appeal was allowed for statistical purposes, and the matter was remanded to the AO for further verification based on the representations made during the appeal hearing.