2025 (10) TMI 204 - AT - Income Tax

Tax additions deleted where AO relied solely on Form 26AS entries; TDS not taxable without actual receipt

ITAT JAIPUR directed deletion of additions made by the AO that were based solely on Form 26AS entries where the assessee followed cash accounting and had ... Addition on account of difference in receipts as per Form 26AS and as shown in return of Income, arbitrarily - Onus to prove - HELD THAT:- First entry is of Raghavan Sasi Prabhhu addition of difference amount based on the fact that income reflected in Form no. 26AS is more than what is reflected in the accounts. As it was already accepted by the AO that the assessee offers the income on cash basis merely the entry reflected in Form no. 26AS cannot be termed as income of the assessee when the assessee categorically submitted that he is following the cash system of accounting. Even the income declared in the year under consideration is overall higher then in the Form no. 26AS and thereby considering that aspect of the matter we direct the AO to delete that amount. Amount reflected in the Form no. 26AS in the name of Address Home Retail Private Limited - Merely the TDS deducted and thereby without assessee raising any service to the said company there cannot be addition in the hands of the assessee merely on account of the entry appearing in the Form no. 26AS and even other wise the assessee filed the details to support his contention. Therefore, we direct the AO to delete that addition so made for an amount. Difference in respect of East West Pipeline Limited - East West Pipeline Limited made the provision of the amount payable by that company and the assessee following the cash system of accounting that provision made by East West Pipeline Limited cannot be considered as income of the assessee. Therefore, looking that aspect as confirmed by the confirmation filed before the lower authority, we do not find any reason to sustain that addition and therefore, we direct the ld. AO to delete that addition. The remining amount also the amount of invoice no. PK/16-17/152-D was not shown as income as the same was not paid and received by the assessee. This fact being confirmed by the third party and the assessee following cash system of accounting he cannot be forced to pay the tax on the amount for which he has not received any fees and therefore, considering that confirmation so filed we do not find any reason to sustain that addition also. Addition of income for the different entities for which the income offered by the assessee and that of the income reflected in the Form no. 26AS is recited herein below for the sake of the understanding. The payment shown to have been paid more than what is recorded in the account is less by Rs. 61,500/- so far as it relates to Rosmerta HSRP Ventures Private Limited. For this difference assessee claimed that payment made was inclusive of TDS. As this contention has not been discussed by the lower authority for that difference of payment and income reported by the assessee the ld. AO is directed to make necessary verification based on the evidence placed on record and decide the issue of Rs. 61,500/- about chargeability of that income. Difference between 26AS and payment recorded in the books of account the difference cannot be added for an amount but since there is no observation on the overall receipt shown by the assessee and reflected in the 26AS demonstrated herein above, ld. AO directed to verify the overall receipt offered based on the cash system of accounting followed by the assessee and if that receipt if paid by the payer in addition to what has been shown by the assessee the sperate addition may be made else merely based on the difference on account of 26AS amount is higher no addition can be made in the hands of the assessee when the over all group receipt is concerned. Thus, on this issue also addition on account of receipt shown to have been received from the Rosmerta Group the issue is restored to the file of the ld. AO, who will verify the contention as discussed above so as to check the overall receipt as a group company as per the overall reconciliation as stated herein above. While doing so if there is no difference as such with the payment made by those companies and receipt shown by the assessee no addition merely based on the 26AS difference can be made in the hands of the assessee. We note that the assessee being higher tax payer sufficient opportunity be given to the assessee while checking the issue in remand and if required ld. AO may exercise to confirm the facts submitted by the assessee as per provision of section 133(6) of the Act and render justice to the assessee in determining the correct income based on the regular method of accounting followed by the assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether receipts reflected in Form 26AS but not appearing as cash receipts in assessee's books (cash system of accounting) can be treated as taxable income and added to assessable total merely on the basis of 26AS entries. 2. What is the onus of proof on the assessee to establish that amounts shown in Form 26AS do not pertain to him or were offered to tax in a subsequent year when he follows cash system of accounting. 3. Whether entries of TDS in Form 26AS attributable to erroneous deduction by third parties (no services rendered) can sustain an addition against the assessee. 4. How to treat inter-company/group payments (payments made by one group company on behalf of another) reflected in 26AS vis-à-vis receipts recorded by the assessee; and whether the Tribunal should remand such group reconciliation for further verification. 5. Whether additional evidence filed before the appellate authority (confirmation letters, ledgers, bank statements) was required to be admitted/considered and whether remand to the Assessing Officer is justified; scope of Tribunal's power to decide on merits versus remanding. 6. Whether AO ought to make consequential directions regarding allowance of corresponding TDS credit and expenses if amounts are subsequently offered to tax. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Treatment of Form 26AS entries vis-à-vis cash system of accounting Legal framework: Section 145 (method of accounting) permits recognition of income on cash or mercantile basis as regularly followed. Form 26AS is a third-party information statement reflecting TDS credits; it is indicative but not conclusive proof of receipt by the assessee. Precedent Treatment: The Tribunal relied on general principles that accounting method consistently followed by assessee must be respected unless disproved by material showing actual receipt; no specific authority was overruled. Interpretation and reasoning: The Tribunal observed that where the assessee follows cash system and has declared receipts supported by bank statements/audited books, mere reflection of an accrual/provision and TDS in the deductor's books (appearing in 26AS) does not ipso facto constitute income of the assessee. The Tribunal examined party-wise facts and third-party confirmations and accepted that certain 26AS entries were provisions/accruals or erroneous TDS entries by payers and therefore not taxable in assessee's year when cash system applies. Ratio vs. Obiter: Ratio - Form 26AS entries alone cannot justify addition where assessee consistently follows cash basis and produces bank/ledger evidence and third-party confirmations; additions must be supported by verifiable proof of actual receipt. Obiter - general comments on reconciliation practice. Conclusions: Tribunal deleted additions in respect of specified items (Rs. 3,39,417 relating to Raghavan Sasi Prabhu; Rs. 80,600 relating to Address Home Retail Pvt. Ltd.; Rs. 24,74,400 relating to East West Pipeline - comprised of Rs. 19,24,400 provision and Rs. 5,50,000 invoice received later) holding that those amounts were not taxable in the impugned year given cash accounting and confirmations. Issue 2 - Onus of proof on the assessee Legal framework: Burden lies on assessee to substantiate that amounts in 26AS do not pertain to him or were offered in another year when he claims cash basis; AO may require documentary proof and VERIFICATION (including third-party confirmation under section 133(6)). Precedent Treatment: The AO's initial view that assessee must prove non-receipt was acknowledged; Tribunal emphasized that where assessee furnishes credible bank statements, ledgers and confirmations, AO must verify and cannot make addition solely on 26AS. Interpretation and reasoning: Tribunal applied a fact-sensitive approach - assessee must produce evidence; if evidence on record (bank statements, confirmations, ledger extracts) is sufficient and credible, addition cannot stand. Where evidence was produced, Tribunal accepted it; where further clarification was necessary (group payments), Tribunal remanded for verification. Ratio vs. Obiter: Ratio - assessee's onus requires reasonable documentary support; if supplied, AO must verify and cannot rely solely on 26AS. Obiter - comments on timing and sufficiency of AO's opportunities to verify. Conclusions: Tribunal directed deletion of several additions where documentary evidence/confirmations were produced; for other items (group receipts) the Tribunal directed further verification by AO rather than blanket addition. Issue 3 - Erroneous TDS deduction by third parties Legal framework: TDS credit in 26AS may reflect erroneous deduction; taxability depends on whether assessee actually received consideration. Third-party confirmation can negate taxability. Precedent Treatment: Administrative practice and judicial approach treat 26AS as not conclusive; erroneous TDS can be contested by assessee with third-party evidence. Interpretation and reasoning: On evidence that a payor confirmed no services were rendered and the deduction was an error, Tribunal held that mere presence of TDS in 26AS does not create taxable income for assessee. Ratio vs. Obiter: Ratio - erroneous TDS deduction without actual receipt cannot be basis for addition when supported by confirmation and bank records. Conclusions: Deletion ordered for the item where payor confirmed no services (Rs. 80,600). Tribunal instructed AO to accept/delete accordingly. Issue 4 - Inter-company/group payments and reconciliation (Rosmerta group) Legal framework: Where payments are routed within a group, taxability depends on whether assessee actually received the funds in the year claimed under its accounting method; AO may require reconciliation across group entities. Precedent Treatment: Tribunal invoked principles that remand may be appropriate when issues cannot be conclusively resolved on record; reliance on authorities permitting Tribunal to dispose on merits when material suffices but to remand when further inquiry is warranted. Interpretation and reasoning: The Tribunal found that ledger/confirmation material indicated overall group receipts matched assessee's receipts on an aggregate basis, except a small discrepancy (Rs. 61,500) and an unresolved difference (Rs. 32,06,575). Given complexity and potential need for verification from payers, Tribunal directed remand of group-related differences to AO for verification (including use of section 133(6) if needed) rather than sustaining a wholesale addition based solely on 26AS variances. Ratio vs. Obiter: Ratio - where inter-company routing raises factual questions not fully resolved on record, Tribunal should remand for verification rather than sustain addition; Obiter - guidance on group reconciliation methodology. Conclusions: Tribunal restored the Rosmerta-related issue to AO for verification of overall group receipts and for specific examination of Rs. 61,500 discrepancy; AO directed to verify and make consequential adjustments if warranted. Issue 5 - Admission and consideration of additional evidence; remand vs. disposal on merits Legal framework: Tribunal has discretion to remand or decide on merits; remand should be sparingly used only where record is insufficient. Appellate authority's duty to consider admissible evidence and afford opportunity of hearing. Precedent Treatment: Tribunal relied on cited authorities stating primary duty to decide on merits when material on record permits; remand is exceptional. Interpretation and reasoning: The Tribunal found that for several items the material already on record (confirmations, bank statements) sufficed to decide in assessee's favour and directed deletions. For complex group reconciliations where material raised further factual queries, remand was appropriate. Tribunal also observed AO may employ section 133(6) for third-party verification and must afford sufficient opportunity to assessee during remand. Ratio vs. Obiter: Ratio - remand justified where verification by AO is necessary and record is insufficient; Tribunal should decide on merits where evidence is adequate. Obiter - procedural guidance on application of rule 46A and timings. Conclusions: Appeal partly allowed - specific additions deleted; other amounts (group differences) remanded to AO for verification with directions to allow assessee adequate opportunity and to use third-party inquiry powers if necessary. Issue 6 - Consequential directions on TDS credit and expenses Legal framework: If AO deletes addition or accepts receipt in later year, corresponding TDS credit and expenses' treatment must be appropriately adjusted; AO can restrict duplicate allowances where expense already claimed. Interpretation and reasoning and Conclusions: Tribunal noted AO's earlier observation that corresponding TDS may be claimed later but expenses may not be allowed again; Tribunal directed AO to verify and decide consequential aspects during remand in accordance with law and facts.