2018 (9) TMI 1240 - AT - Income Tax

Addition on account of difference in TDS receipts - Difference in gross receipts as per the form 26AS with gross receipts recognized in accordance with cash system of accounting - Held that - Approach of Revenue was to wrongly invert the law by erroneously charging such amounts to tax which are not assessable as Assessee s income of this year under cash system of accounting regularly followed by the Assessee, merely because Assessee has claimed credit for tax deducted at source on corresponding amounts; instead of following the correct approach whereunder Revenue should have allowed credit for tax deducted as source in respect of such amounts only which are assessable as income of this year in accordance with cash system of accounting regularly followed by assessee. We disapprove the approaches of both Assessee and Revenue. It is not permitted for anyone to either distort or to invert law. We set aside the orders of Ld. CIT(A) and the Assessing Officer and we restore this matter to the file of the Assessing Officer to re-compute the income of the assessee in accordance with cash system of accounting, which is the system of accounting regularly employed by the Assessee; and to give credit for prepaid taxes on account of tax deducted at source, as per law, having regard to section 199 of I.T. Act r.w.r. 37BA of Income Tax Rules. Disallowance of expenses out of Car Expenses, Telephone Expenses and Staff Welfare Expenses - Held that - Assessee failed to bring any materials for our consideration to prove that the disallowances confirmed by the Ld. CIT(A) were excessive, unreasonable, erroneous or against law. The Ld. Counsel for Assessee failed to make a case for any interference with the order of Ld. CIT(A) on these issues. Therefore, grounds related to disallowances are hereby dismissed. - Appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Initiation of proceedings under Section 147 read with Section 148 of the Income Tax Act.
2. Merits of the addition of ?48,19,659/- on account of difference in TDS receipts.
3. Merits of disallowances of Car Expenses, Telephone Expenses, and Staff Welfare Expenses.
4. Interest charge under Sections 234A, 234B, and 234D of the Income Tax Act.

Detailed Analysis:

1. Initiation of Proceedings under Section 147 read with Section 148 of the Income Tax Act:
The Assessee contested the initiation of proceedings under Section 147/148, arguing that there was no "reason to believe" income had escaped assessment and that the action was based on suspicion and stale information. However, the Assessee conceded that the initiation of proceedings was not contested at earlier stages and decided not to press these grounds before the ITAT. Consequently, the grounds related to the initiation of proceedings under Section 147/148 were dismissed as not pressed.

2. Merits of Addition of ?48,19,659/- on Account of Difference in TDS Receipts:
The addition arose due to a mismatch between gross professional receipts as per Form 26AS and the receipts shown in the Assessee's return. The Assessee follows the cash system of accounting and argued that the income was shown in subsequent years when actually received. The ITAT noted that while the Assessee had erroneously claimed credit for TDS on amounts not shown as income in the relevant year, the Revenue also erred by adding these amounts to the income of the year merely because TDS was claimed. The ITAT set aside the orders of the lower authorities and directed the Assessing Officer to re-compute the income in accordance with the cash system of accounting and to give credit for TDS as per law.

3. Merits of Disallowances of Car Expenses, Telephone Expenses, and Staff Welfare Expenses:
The Assessee failed to provide evidence to prove that the disallowances confirmed by the CIT(A) were excessive or unreasonable. Consequently, the ITAT found no reason to interfere with the CIT(A)'s order on these issues, and the grounds related to these disallowances were dismissed.

4. Interest Charge under Sections 234A, 234B, and 234D:
The grounds related to interest charges under Sections 234A, 234B, and 234D were deemed consequential. The ITAT directed the Assessing Officer to re-compute the interest as per law while giving effect to the order.

Conclusion:
The Assessee's appeal was partly allowed. The ITAT directed the Assessing Officer to re-compute the income and TDS credit in accordance with the cash system of accounting and upheld the disallowances of Car, Telephone, and Staff Welfare Expenses. Interest charges under Sections 234A, 234B, and 234D were to be re-computed as per law.