Interest income reconciliation: addition based solely on Form 26AS-books difference deleted and assessment adjustment set aside.

Assessability of alleged undisclosed interest turned on reconciliation between Form 26AS and the assessee's books: the tribunal accepted the books showing interest receipts and the profit and loss netting, and held that an addition cannot rest solely on the numerical difference between gross receipts in Form 26AS and the net interest recorded in accounts. Because the accounting treatment and netting were not rebutted by contrary evidence, the impugned addition was deleted and the assessment adjustment was set aside as unsustainable.

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Issues: Whether the addition of Rs. 2,80,507/- made by the Assessing Officer and upheld by the Commissioner of Income Tax (Appeals) towards alleged undisclosed interest income for A.Y. 2016-17 is justified.

Analysis: The assessee's books showed interest receipts of Rs. 4,51,804/- from M/s SKZ Realities which corresponds with Form 26AS, and the profit and loss account reflected a net interest income of Rs. 1,69,208/- after appropriate netting. The Assessing Officer treated the difference between the amount in Form 26AS and the net interest shown in the profit and loss account as taxable addition without accepting the accounting treatment and without requiring or establishing any further contrary evidence. The appellate authority below confirmed the addition by noting the numerical difference without addressing the netting shown in the books. The appellate tribunal accepted the reconciliation between Form 26AS and the books and found no basis for the addition.

Conclusion: The addition of Rs. 2,80,507/- is deleted and the appeal is allowed in favour of the assessee.

Final Conclusion: The reassessment notice under Section 148 of the Income-tax Act, 1961 resulting in the impugned addition does not sustain where the interest receipts recorded in Form 26AS are reflected in the books and the net interest income is correctly brought to profit and loss account; therefore the assessment addition is set aside.

Ratio Decidendi: Where interest receipts shown in Form 26AS are recorded in the books and the net interest income is properly reflected in the profit and loss account after admissible netting, an addition based solely on difference between gross receipts and net accounting figure is not sustainable.

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