Additions cannot be done by AO on the basis of information available in Form 26AS

The Hon’ble ITAT, Kolkata in the case of ITO v. M/S Star Consortium [Income Tax Appeal No. 04/KOL/2020 C.O. No. 08/Kol/2020, dated April 7, 2021] dismissed an appeal filed by the Revenue Department and held that the Assessing Officer ('the AO') cannot make additions merely by relying on information available in TDS Certificate i.e. Form 26AS on account of mismatch of amounts between Form 26AS and the turnover shown by the assessee in its P&L account.

Facts

M/S Star Consortium ('the Assessee') is engaged in the business of handling, maintaining, cleaning of aircrafts etc. While assessing the income of the Assessee, the AO noted that the Assessee has shown Rs 3,39,87,563/- in its P&L account but from perusal of Form 26AS, they received the payment of Rs 5,54,23,156/- from M/s Kingfisher Airlines Ltd ('the Payee').

The AO issued a show cause notice to the Assessee asking the reason for the difference. The Assessee stated that the ground handling business was taken over by M/s Star Consortium Aviation Services Pvt. Ltd. ('Holding Company') from June 01, 2008 and the alleged amount relates to the holding company for rendering services as aircraft handling and cleaning charges. 

The Assessee submitted that this discrepancy happened due to wrong information filled by Payee in Form 26AS and furnished copies of communication with the Holding Company. The AO stated that there was no opportunity for him to cross verify the facts due to paucity of time and thus, added Rs 2,14,35,593/- in the income of the Assessee.

Being aggrieved, the Assessee filed an appeal before the CIT(A), wherein, the CIT(A) ordered in favour of the Assessee stating that the AO cannot take the plea that they did not have sufficient time to cross-verify the explanation given by assessee. But the CIT(A) made partial confirmation by adding Net Profit ('NP') at 11.17% of the difference amount of Rs. 2,14,35,593/- in the income of the Assessee.

Aggrieved by the order of the CIT(A), the AO has filed the present appeal.

The Assessee has contended that, even if addition is made, the NP should be only 1.22% since the Assessee has shown NP on its turnover of Rs 3,31,50,625/- which has been accepted by the AO as well as CIT(A).

Issues

1. Whether the AO can make addition of difference in amount reflecting between Form 26AS and P&L account as the income of the Assessee?
2. Whether the CIT(A) can calculate the NP at different percentage as against calculated by the Assessee?

Held

The ITAT, Kolkata in Income Tax Appeal No. 04/KOL/2020 C.O. No. 08/Kol/2020 dated April 7, 2021, has held as under:

• Observed that, the Assessee has brought to the notice of AO that ground handling business was taken over by the Holding Company from June 1, 2008 and the income in respect of ground handling business might have been wrongly shown by the Payee and wrongly credited in Form 26AS of the Assessee instead of the Holding Company. Further, the Assessee placed before the AO the communication between the Assessee and the Payee which stated the discrepancy of wrong information filed by the Payee in Form 26AS.
• Further observed that, there was a goof up in the office of the Payee in respect of filling up of Form 26AS. The Assessee’s PAN have been entered wrongly after June 01, 2008, during the stated period, the services were not claimed to be rendered by the Assessee and the relevant bills were not claimed to have been raised by the Assessee on the Payee.
• Opined that, only because there is a mismatch between Form 26AS, and turnover shown by the Assessee in its P&L account cannot be the sole basis on which the entire addition of the difference could have been brought to tax. 
• Held that, the view taken by the CIT(A) to delete the addition is plausible and accordingly his action is confirmed and appeal of the AO stands dismissed.
• Stated that, the partial confirmation made by CIT(A) by resorting to estimation of NP at 11.17% of the difference in amount, CIT(A) while exercising his co-terminus power in the appellate proceedings, it should have rejected the audited books of account produced by the assessee in accordance with Section 145 of the Income Tax Act, 1961 which the CIT(A) has not admittedly done. Hence, the estimation of CIT(A) fails being bad in law.
• Directed the deletion of estimated amount.