2023 (4) TMI 733 - AT - Income Tax

Revision u/s 263 by CIT - Underreporting of income - criterion for selection of case for limited scrutiny was Contract receipts/fees mismatch' - there was a mismatch between the amount of revenue as per service tax return and the amount offered as per income-tax return inasmuch as less revenue was shown in income tax return - HELD THAT - Under the column B1.2 Amount received in advance for services for which bills/invoices/challans or any other documents have not been issued , the amount has been shown as Nil in the service tax return for the last quarter, i.e. Jan to March, 2015. This obviously contravenes what the assessee made out a case and what is the position as per the service tax return. AR contended that a sum was the amount received as advance from its customer for rendering the services, the assessee itself mentioned Nil as the amount received in advance, in its service tax return. This apparent contradiction ought to have been examined by the AO who, after seeing reconciliation filed by the assessee showing some amount as advance, did not go further to ascertain as to why the assessee had declared Nil figure of advance in its service tax return. Lesser amount of revenue shown in income tax return vis- -vis the service tax return, if not successfully proved, would have gone to swell income for the year under consideration. We are satisfied that the assessment order passed by the AO on this score was erroneous and prejudicial to the interest of the Revenue which was rightly taken cognizance of by the ld. Pr.CIT u/s.263 - Decided against assessee.

Summary

Issues:
1. Time-barred appeal with reasons for delay.
2. Assessment order challenged under section 263 for mismatch in contract receipts/fees.

Analysis:
1. The appeal was time-barred by 444 days, but the assessee provided reasons for the delay, which were found satisfactory. The delay was condoned, and the appeal was admitted for disposal on merits.

2. The case involved a challenge to the assessment order under section 263 due to a mismatch in contract receipts/fees. The assessee, engaged in providing Tent house services, had a discrepancy of Rs.7,21,225 between the revenue shown in the service tax return and the income tax return. The assessing officer did not verify the advance received for services, leading to the order being deemed erroneous and prejudicial to revenue. The Pr.CIT set aside the assessment order, directing a fresh assessment on this issue.

3. During the proceedings, the assessee claimed that the mismatch was due to an advance received from the Tahsildar, part of which was not considered as income for the current year. However, no confirmation of this advance was provided during assessment. The service tax return contradicted the claim of receiving an advance, as it showed Nil amount received in advance for services. The Tribunal found the assessment order to be erroneous, as the assessing officer failed to investigate the contradiction between the income tax return and the service tax return. The lesser revenue shown in the income tax return, without proper substantiation, could inflate the income for the year.

4. Ultimately, the Tribunal upheld the Pr.CIT's decision, dismissing the appeal. The assessment order was considered erroneous and prejudicial to revenue due to the unverified mismatch in contract receipts/fees. The decision was pronounced in the open court on 6th March 2023.