CA Avinash Rajopadhye
It would not be incorrect to call 26AS as “Kundali” of income or receipt having income element earned or received by the assessee/deductee during the financial year. There are three parties intimately connected with Form 26AS Deductor, Deductee and Income Tax Department [hereinafter called department]. It is very powerful tool in the hands of the department to detect what income or receipt the deductee has missed out either deliberately or inadvertently in computation of income. The deductor and the department are most active players in the process of generating Form 26AS. They keep interacting with each other under various provisions dealing with tax deduction at source under chapter XVII[Collection and Recovery of Tax]. Above all Form 26AS is the record of the department where the deductee has no control at all.
The most vulnerable party if one may say is the deductee engaged in rendering professional services or services in the nature of work at pan India level having large number of customers who deduct tax at source from the payments made to the deductee. The assessing officer more often than not calls for reconciliation of sales or professional receipts as per Profit and Loss Account or Income and Expenditure with 26AS. Failure to match each and every entry as per Form 26AS leads to addition to the total income to the extent of un-reconciled entries. It is often the practice of deductee to claim the entire TDS credit as per 26AS without reconciling each and every entry as per 26AS with sales or professional receipts reflected in Profit and Loss Account. However it is not without reasons. Most importantly there are large number of deductors who fail to comply with the TDS provisions strictly. And the deductee has no control over them. More often than not the deductee is at receiving end if the matter is old one and deductor is reluctant to cooperate. When the deductee aggrieved by the additions for TDS mismatch goes in appeal against the said additions at the first appellate level the reconciliation gets changed when he uses fresh 26AS different from the 26AS used at the time of filing of return and relied by the Assessing Officer, normally it gets reduced substantially. So is the case when the appeal is before tribunal.
When the assessee company is asked to reconcile its sales as per audited P/L with entries in the Form 26AS there is a presumption that the entries reflected in the form 26AS are 100% correct. But it is not correct presumption on the part of the AO or Department.
1] What is the heading of the Form 26AS, “ TDS Reconciliation and Correction Enabling System”. It means Form 26AS facilitates reconciliation and correction in the data reflected therein for the deductee and AO. Nowhere it suggests that it is free from any error. From the Form 26AS itself it is evident that the entries therein are subject to change. Entries in the Form 26AS are subject to change as and when the deductor/s upload revised TDS return at the instance of TDS assessment by the TDS officer, deductee asking to rectify the mistakes or otherwise. Moreover the deductee has no control over deductor/s The following portion of the Form 26AS as reproduced below is relevant in this context.
This indicates how to read entries in the Form 26AS by the deductor and AO. It indicates status of booking of the entries in Form 26AS covering four different situations.
2] The legislature has been conscious of the fact and rightly so that the data populated in 26AS should be free from any ambiguity/errors with that intention it has introduced section 200A with effect from 01/04/2010 immediately after introduction of e-filing of TDS returns.
The data populated in 26AS is the data as per TDS returns uploaded by the deductors/ customers of the company under section 200. Such data could be relied upon as “correct” for the purpose of reconciliation only when the statements of TDS so uploaded have been processed under section 200A with effect from 01/04/2010. For your kind perusal we quote section 200A as under :
“ Processing of statements of tax deducted at source.
200A. (1) Where a statement of tax deduction at source 69[or a correction statement] has been made by a person deducting any sum (hereafter referred to in this section as deductor) under section 200, such statement shall be processed in the following manner, namely:—
(a) the sums deductible under this Chapter shall be computed after making the following adjustments, namely:—
(i) any arithmetical error in the statement; or
(ii) an incorrect claim, apparent from any information in the statement;
(b) the interest, if any, shall be computed on the basis of the sums deductible as computed in the statement;
(c) the fee, if any, shall be computed in accordance with the provisions of section 234E;
(d) the sum payable by, or the amount of refund due to, the deductor shall be determined after adjustment of the amount computed under clause (b) and clause (c) against any amount paid under section 200 or section 201 or section 234E and any amount paid otherwise by way of tax or interest or fee;
(e) an intimation shall be prepared or generated and sent to the deductor specifying the sum determined to be payable by, or the amount of refund due to, him under clause (d); and
(f) the amount of refund due to the deductor in pursuance of the determination under clause (d) shall be granted to the deductor:]
Provided that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the statement is filed.
Explanation. —For the purposes of this sub-section, “an incorrect claim apparent from any information in the statement” shall mean a claim, on the basis of an entry, in the statement—
(i) of an item, which is inconsistent with another entry of the same or some other item in such statement;
(ii) in respect of rate of deduction of tax at source, where such rate is not in accordance with the provisions of this Act.
(2) For the purposes of processing of statements under sub-section (1), the Board may make a scheme for centralised processing of statements of tax deducted at source to expeditiously determine the tax payable by, or the refund due to, the deductor as required under the said sub-section. ”
It may be noted that the processing of TDS statements is mandatory from the language of section 200A. Under the circumstance the deductee is not assured about the correctness of entries in 26AS from department’s end with reference to section 200A. The deductee will be able to reconcile his sales figure in the Profit and Loss account duly audited only when he would get the confirmation from the AO that all entries are duly processed as mandated under section 200A.
Keeping in view this legislative provision it becomes necessary to check whether all entries in 26AS as uploaded by the deductors have been duly processed under section 200A when the assessee company is asked to reconcile the amount paid/credited with the sales as per Profit and Loss Account duly audited.
3] Thereafter the legislature has introduced section 234E with effect from 01-07-2012 to make the data reflected in 26AS on real time basis to avoid delay in the processing of the returns of the deductees. Section 234E levies fee of Rs. 200 per day for default in furnishing TDS statements by the deductors within the time prescribed under section 200. This legislative step also shows that the legislature has become conscious of the fact that the data in 26AS fails to reflect entries as per the deductees record in the form of form 16 and form 16A issued by the deductors to the deductees. It may be appreciated that the constitutional validity of section 234E has been upheld by the Mumbai High Court on the basis expeditious processing of the returns.
4] It is also relevant to refer section 40(a)(ia). Under this section 30% of the expenditure non complaint with the TDS provisions is disallowed in the hands of deductor in the previous year in which such expenditure is incurred and it will be allowed in the year in which TDS has been paid. The legislative intention behind this deterrent provision to make the deductor deduct and pay TDS within financial year so that deductee will not suffer on account of delay in paying TDS by the deductor and data in 26 AS will be up to date with reference to the particular financial year. However this provision does not protect the deductee in a sense if the deductor deducts TDS in subsequent financial year the said expenditure will be allowed. It means in the earlier year’s 26AS this TDS will not get reflected at the time of filing of the return by the deductee. Reconciliation fails totally.
5] Apart from the above provisions of the Act filtering and refining the data in From 26AS based on the above referred provisions, amounts reflected in Form 26AS are the amounts paid or credited which cannot be reconciled so easily where number of deductors runs in thousands with the sales reported only on accrual/ mercantile basis in the Profit and loss accounts duly audited. In other words sales as reported by the assessee company and amounts reflected in 26AS are not on equal footing vis a vis amounts paid or credited reflected in 26AS. The amount/paid or credited as per Form 26AS includes vat and/or service tax charged by the deductee whereas the sales reflected in the profit and loss account are net of vat and/or service that. As per the TDS provision even “advance” is also subject to TDS.
6] No time limit has been prescribed by the Act for revising TDS returns for the deductor/s. Therefore Form 26AS keeps on fluctuating as and when deductor/s upload TDS returns revised or otherwise.
Having regard to the above discussion it would not be prima facie justifiable to ask for reconciliation and the assessee company having failed to reconcile, add the difference between the amount paid or credited as per 26AS and the sales as per Profit and loss account duly audited as sales alleged to have been suppressed to the income of the assessee. It is necessary to take thoroughly holistic and legitimate view before relaying upon the correctness of data reflected in 26AS. Additions based on TDS mismatch are not legally sustainable as it amounts to tax on hypothetical income. It is not a real income in the hands of the deductee. The deductee is the victim of non compliance of TDS provisions by the deductor. The Deductee is at the mercy of Assessing Officer as well as deductor
So under the circumstances there is neither concealment of particulars of income or furnishing inaccurate particulars of income by the assessee company so as to attract penalty based on Form 26AS. As Form 26AS keeps on changing it cannot be regarded as concrete evidence to allege that there is concealment of income or furnishing inaccurate particulars of income. There is no concept of “Fluctuating Evidence” under any law.