No Income Addition Based on Form 26AS as Books Showed Higher Revenue: ITAT Pune

DCIT Vs Honeywell Automation India Pvt. Ltd. (ITAT Pune)

The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] for Assessment Year 2016-17, challenging the deletion of an addition of Rs. 8,45,53,050 made by the Assessing Officer (AO) on account of differences between receipts reflected in Form 26AS and the assessee’s books of account.

The assessee, engaged in the automation and control industry, filed its original and revised income tax returns declaring its income. During scrutiny assessment, the AO directed the assessee to reconcile receipts reflected in Form 26AS with those recorded in its books of account.

The assessee explained that the total revenue as per its Profit and Loss Account was higher than the income appearing in Form 26AS, and therefore no addition to the returned income was warranted. It relied on a Mumbai ITAT decision holding that additions based solely on AIR information were unsustainable where the declared receipts exceeded the information available. The assessee further submitted that differences between Form 26AS and its books arose due to several reasons, including credit notes, opening unbilled revenue, timing differences in recording invoices by customers and the assessee, inadvertent reporting errors by customers, and TDS deductions on service tax and works contract tax components. It also highlighted that, when all customers were considered together, revenue recorded in the books exceeded the receipts reflected in Form 26AS.

The assessee stated that complete reconciliation within the available time was difficult because of the large volume of transactions. On a sample reconciliation, it identified differences amounting to Rs. 29,27,015 and requested that no addition be made on that basis.

The AO rejected the explanation, observing that the assessee had not satisfactorily explained how the unreconciled difference had reduced from Rs. 29,27,015 to Rs. 2,47,530 in respect of sales to the same parties. Since only 3.46% of the receipts reflected in Form 26AS had beefn analysed, the AO extrapolated the unreconciled amount to the entire receipts reported in Form 26AS and computed underreported sales of Rs. 8,45,53,050, which was added to the assessee’s income. Penalty proceedings under Section 271(1)(c) were also initiated.

On appeal, the CIT(A) deleted the addition. The appellate authority held that tax authorities are required to compute the correct income in accordance with law. It observed that the AO had relied upon an initial unreconciled figure despite the assessee subsequently reducing the unreconciled amount and had rejected the revised reconciliation without providing adequate reasons. The CIT(A) found that the assessee’s explanations regarding timing differences and other discrepancies between Form 26AS and the books of account were common and plausible in complex business transactions. The reduction of the unreconciled difference from Rs. 29,27,015 to Rs. 2,47,530 demonstrated a bona fide reconciliation effort.

The CIT(A) further observed that Form 26AS is not an income accrual tool and is not a reliable basis for computing taxable income because it reflects tax deductions made by customers over which the assessee has no control. It also noted that the assessee followed audited accounting standards for revenue recognition, that timing differences commonly arise between Form 26AS and the books of account, and that additions based solely on Form 26AS could result in double taxation if corresponding reductions were not made in later years. The CIT(A.) concluded that the AO’s use of the higher initial unreconciled figure instead of the substantially reduced reconciled figure was factually incorrect and legally unsustainable, and directed deletion of the addition.

FULL TEXT OF THE ORDER OF ITAT PUNE

This appeal filed by the Revenue is directed against the order dated 03.09.2025 of the Ld. CIT(A), Pune – 13 relating to assessment year 2016-17.

2. Facts of the case, in brief, are that the assessee is a company engaged in automation and control industry. The company has a track record of pioneering projects in core industrial automation and intelligent building control systems. It provides solution to industrial sectors such as petroleum and petrochemicals, chemicals, metals & minerals and pharmaceuticals. It filed its return of income on 28.11.2016 declaring total income of Rs.2,13,88,02,780/-. Subsequently it filed revised return on 16.06.2017 declaring total income of Rs.2,27,25,51,380/-. Again the return was revised on 29.03.2018 declaring total income of Rs.2,27,04,54,750/-. Subsequently the case was selected for scrutiny and accordingly statutory notice u/s 143(2) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was issued and served on the assessee.

3. During the course of assessment proceedings the Assessing Officer asked the assessee to reconcile the income / receipts and TDS reflecting in Form 26AS vis-à-vis the figures of such components appearing in the books of the assessee company. The assessee in response to the same submitted as under which has been reproduced by the Assessing Officer in the body of the assessee which reads as under:

• Total revenue as per statement of Profit and Loss is INR 2,21,095 Lacs whereas total income appearing in Form 26AS is INR 51,946 Lacs. The extract of Note No. 18 and 19 of financial statements and Form 26AS are enclosed by way of Annexure-1 and Annexure-2 respectively for your goodself perusal.
• Since, total income considered for the purpose of computation of income is higher than the income as per Form 26AS, no addition to the returned income is warranted.
• Total income considered for computation of income is higher than the income as per Form 26AS, no addition to the returned income is warranted. In this regard, the assessee relies on the judgement of Mumbai ITAT in the case of A.F. Ferguson & Co. [ITA No. 5037/M/2012] in which it was held that:

“In our view, the addition made solely on the basis of AIR information, especially in the absence of full details of parties and when the professional receipts declared by the assessee far exceeds than the amount mentioned in the AIR information, is not sustainable in the eyes of law.”

Keeping the above judgement in view, we request your goodself to kindly have no addition considering sales as per Form 26AS as the total income of the assessee.

• Further, the company wishes to humbly bring to your goodself’s attention that the above difference includes differences on account of the following reasons:
• In the case of certain customers, income appearing in Form 26AS is higher than the income appearing in the books of accounts (i.e. sales register);
• Whereas, in the case of certain other customers, income appearing in the books of accounts (i.e. sales register) is higher than the income appearing in the Form 26AS;
• We also wish to highlight that for all the customers put together, the revenue as per the books of accounts is higher than the income appearing in Form 26AS.
• Your goodself would appreciate that there could be multiple reasons for the differences identified between the revenue appearing in Form 26AS vis-à-vis amounts reported in books of accounts. Few key reasons for the aforementioned differences are highlighted for your goodself’s references as under:

1. Credit notes may have been raised by the assessee (which reduces the billing for the year), but may not be taken into consideration by the customer while deducting TDS;

2. Opening unbilled revenues (i.e. last year’s closing work-in-progress) may be considered by the assessee in previous financial year, but the same could be recorded by the customer in current financial year and vice-versa;

3. Billing amount recorded by the assessee in previous financial year, but recorded by the customer in current financial year;

4. Billing amount recorded by the assessee in subsequent financial year, but recorded the customer in current financial year;

5. Inadvertent errors while recording the transaction by the customers in its TDS return filling.

6. The assessee may record the billing amount net of service tax and works contract tax. However, the customer while making payment to the assessee deducts TDS on the service tax and works contract tax component as well.

• In view of the above mentioned reasons, the company humbly submits that no additions on account of difference between income as per books and income as per Form 26AS is warranted.

A.8 Without prejudice to the above, considering the voluminous data and number of line items in sales register and Form 26AS, the Assessee finds it difficult to completely reconcile the same in the available time limit. However, the Assessee has prepared the reconciliation with respect to certain deductors selected on sample basis.

• • During the reconciliation, the Assessee noted certain instances where income as per Form 26AS is more than the books of accounts which are tabulated in Annexure-3 for your goodself’s perusal. The said differences between sales register and Form 26AS amounts to INR 29,27,015.

A.9 In view of the above mentioned reasons, the assessee, requests your good self not to make addition of INR 29,27,015 on account of difference between income as per books and income as per Form 26AS.

4. However, the Assessing Officer was not satisfied with the arguments advanced by the assessee and made addition of Rs.8,45,53,050/- to the total income of the assessee by observing as under:

9.3 The contention of the assessee is perused. The same is not found satisfactory as the assessee company has not furnished any details to prove how the difference between sales receipt as per books of account and as per 26AS which was computed as Rs. 29,27,015/- vide submission dated 29/11/2019 has reduced to Rs. 2,47,530/- vide submission dated 08/12/2019 in respect of sales made to the same parties. The above difference of unreported gross sales receipt is reported by the assessee after reconciling out of sales receipt of Rs. 1,74,84,350/- as per 26AS.

The assessee has further analyzed 26AS data under two new categories, firstly, where sales have been disclosed at higher than 26AS (total amount analyzed of Rs. 1,13,91,787/- as per 26AS) and secondly the cases where there are no differences as per sales register and 26AS (total amount analyzed of Rs. 15,09,49,432/- as per 26AS). Considering all the above details, the assessee has analyzed sales receipts of Rs. 17,98,25,569/- out of total receipts (sales) of Rs. 519,46,43,818/- as per 26AS. This shows that assessee has merely analyzed 3.46% of total sales receipts as per 26AS. As, there is unrecorded sales of Rs. 29,27,015/- as per submission dated 29/11/2019 on analyzing of sales receipt of Rs. 17,98,25,569/- as per 26AS, the similar unrecording sales in books of account for balance receipts as per 26AS (which is of Rs. 501,48,18,249/-) cannot be ruled out. As, assessee has failed to reconcile 26AS with sales receipt as per books of account completely inspite of adequate opportunities given to it for which the assessee has common reply that the data cannot be reconciled looking to the majority of data and shortage of time. In view of the same, there is no other option accept to interpolate the data on the basis of submission made by the assessee.

9.4 As discussed above, there is a difference of Rs. 29,27,015/- after analyzing of 26AS data of Rs. 17,98,25,569/-, considering the total receipt as per 26AS of Rs. 519,46,43,818/-, the underreporting of sales comes to Rs. 8,45,53,050/- (29,27,015 X 519,46,43,818 / 17,98,25,569). Therefore, the under reported receipts amounting to Rs. 8,45,53,050/- is added to its total income. Since, the assessee company had concealed the particulars of its income to the extent of amount mentioned above, penalty proceedings under section 271(1)(c) of the Act is initiated separately in the case.

5. Similarly, the Assessing Officer also disallowed an amount of Rs.2,09,84,561/- by invoking the provisions of section 40(a)(i). However, the same is not the subject matter of appeal. Therefore, we are not concerned with the same. The Assessing Officer accordingly determined the total income of the assessee at Rs.237,59,92,360/-.

6. In appeal, the Ld. CIT(A) deleted the addition made by the Assessing Officer by observing as under:

IV Findings and Reason:

14. I have carefully considered the arguments presented by both. It is a fundamental principle of income tax assessment that the tax authorities are obligated to compute the correct income and tax liability of an assessee in accordance with the law.

15. In the present case, the Assessing Officer relied on an initial unreconciled figure to make a substantial proportionate addition. While the AO acknowledged the Appellant’s subsequent submission reducing the unreconciled amount, he rejected it without providing adequate reasons, stating merely that the explanation was not “satisfactorily” proved. This approach fails to recognize the efforts made by the Appellant to provide a more accurate reconciliation.

16. The Appellant’s explanations regarding timing differences and other discrepancies between its books of accounts and Form 26AS are common and plausible in complex business transactions. The fact that the Appellant, given additional time, was able to significantly reduce the unreconciled difference from Rs. 29,27,015 to Rs. 2,47,530 demonstrates a bona fide attempt to reconcile the data.

17. In addition, the following aspects with respect to Form 26AS reconciliation with the books of account of the appellant vis-à-vis the offering of income needs to be taken into consideration –

i. Form 26AS is not an income accrual tool:

• • • Form 26AS is not a reliable basis for computing taxable income as it reflects tax deductions made by customers, and the Appellant has no control over the timing of these deductions or their reporting.
    • The Appellant follows prudent accounting policies, specifically Accounting Standards for revenue recognition, which is duly audited without qualifications.
    • Differences between Form 26AS and the books of accounts are often timing differences, which are common in the Appellant’s industry and square off over time once contracts are concluded and all revenue is offered to tax.
    • Judicial precedents, such as the Hon’ble Delhi ITAT decision in Lloyd Insulation (India) Ltd and Hon’ble Kolkata ITAT in The Institute of Indian Foundrymen, support the view that books of account should be relied upon unless specific defects are found, and that assessees have no control over Form 26AS entries.

• • ii. Reconciliation efforts and genuine hardship:

• • • The Appellant provided reconciliation reconciling a substantial portion of the identified variance.
    • Reconciling the entire data is extremely difficult due to the large number of customers, transactions, and entries in Form 26AS.

iii. Income offered to tax is higher than Form 26AS:

• • • Often, total income offered to tax as per books, significantly exceeds the receipts reported in Form 26AS across various assessment years.

iv. Avoidance of Double Taxation:

• • • Making additions based on Form 26AS can lead to double taxation if consequential reductions are not made in subsequent years, resulting in the same income being taxed twice (on accrual and on receipt).

18. The AO’s decision to use the higher, initial unreconciled figure (Rs. 29,27,015) for the proportionate addition, instead of the final, much lower reconciled figure (Rs. 2,47,530), is factually incorrect and legally unsustainable. It amounts to an arbitrary estimation of income without giving due consideration to the revised information and explanations provided by the assessee.

19. Therefore, in view of the discussion above, I find that the addition made by the Assessing Officer on account of reconciliation of receipts from Form 26AS, amounting to Rs. 8,45,53,050, is erroneous. Accordingly, Ground No. 2 of the Appellant is allowed. The Assessing Officer is directed to delete the addition of Rs. 8,45,53,050.

7. Aggrieved with such order of the Ld. CIT(A) the Revenue is in appeal before the Tribunal by raising the following grounds:

i) On the facts and the circumstances of the case and in law, the Ld. CIT(A) is not justified in deleting the ‘undisclosed sales/receipts ‘ of Rs.8,45,53,050/-being difference between the receipts accounted for in the books of account and reflected in the Form 26AS for the AY 2016-17, in spite of the fact that the assessee had failed to reconcile the entire receipts accounted for in the books of account and reflected in the Form 26AS.

ii) On the facts and the circumstances of the case and in law, the Ld. CIT(A) is not justified in bolding the Assessing Officer’s decision incorrect and legally unsustainable, to use the higher (initial) unreconciled figure (Rs.29,27,015) for the proportionate addition, instead of the Ulna° lower reconciled figure (Rs.2,47,530); as the assessee failed to prove how the difference between sales receipt as per books of account and as per 26AS which was computed at Rs.29,27, 015/- has been reduced to Rs.2,47,530/- in respect of sales made to the same parties.

iii) The appellant craves to add, amend, alter or delete the above grounds of appeal during the course of appellate proceedings before the Hon’ble Tribunal.

8. The Ld. DR heavily relied on the order of the Assessing Officer and submitted that despite the assessee failed to reconcile the entire receipts accounted for in the books of account and as reflected in Form 26AS, the Ld. CIT(A) deleted the addition made by the Assessing Officer which is not justified. He accordingly submitted that the order of the Ld. CIT(A) be set aside and that of the Assessing Officer be restored.

9. The Ld. Counsel for the assessee on the other hand referring to the order of the Ld. CIT(A) for assessment year 2014-15, copy of which is placed at pages 107 to 111 of the paper book, submitted that similar addition made by the Assessing Officer was deleted by the Ld. CIT(A) and the Revenue has not filed any appeal on this issue. He submitted that the addition made by the Assessing Officer, if sustained, will amount to double addition.

10. Referring to the decision of the Mumbai Bench of the Tribunal in the case of Shri S Ganesh vs. ACIT vide ITA No.527/Mum/2010 order dated 08.12.2010 drew the attention of the Bench to the following paragraphs:

“8.2 We find sufficient force in the above submissions of the assessee. Admittedly, the revenue has not controverted the submissions of the assessee before the Assessing Officer during the assessment proceedings as well as remand proceedings that all professional fees received are by way of cheques and all such cheques have been deposited in his Oriental Bank of Commerce Account, South Extension Branch, New Delhi (vide letter addressed to Assessing Officer on 8.10.208). Therefore, in absence of any contrary material brought by the revenue authorities that the assessee has received amount more than the professional fees than what has been declared by him, no addition should have been made. It is also a fact that the professional income declared by the assessee far exceeds the professional fees as per AIR information. There may be so many reasons such as low deduction of tax, non-deduction of tax, deduction on account of reimbursement of expenses etc., for which the figure as per the AIR may not tally with the income declared by the assessee on account of professional fees from various clients. Further, it has categorically been explained by the assessee that it is not practically possible to give detailed party wise breakup of fees receipts since the assessee received his fees either directly from the clients or from the instructing advocates or CAs, if they have collected the amounts from the clients. Similar explanation have been accepted in the past in scrutiny assessment and no addition has been made, a fact already brought on record. In this view of the matter, we find sufficient force in the submissions made by the assessee that no addition is called for on this account.

Accordingly, we set aside the order of the CIT(A) and direct the Assessing Officer to delete the addition.”

11. He submitted that the appeal filed by the Revenue was dismissed by the Hon’ble Bombay High Court vide Income Tax Appeal No.1930 of 2011, order dated 18.03.2014, copy of which is placed at pages 68 and 69 of the paper book which reads as under:

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.1930 OF 2011

Commissioner of Income Tax – 13

.. Appellant

Vs.

Shri S. Ganesh

.. Respondent

Mrs.S.V.Bharucha for the Appellant.

Mr.PJ. Pardiwalla, Sr. Counsel with Ms.Beena Pillai i/b Niraj Punmiya for the Respondent.

CORAM : S.C.DHARMADHIKARI & G.S.KULKARNI, JJ.

DATED : 18th MARCH, 2014.

P.C. :

1. Having heard Ms.Bharucha, learned counsel appearing on behalf of the Revenue and perusing the order passed by the Income Tax Appellate Tribunal, we are of the opinion that the Tribunal did not commit any error of law or perversity in partly allowing the appeal of the respondent assessee.

2. The assessee in regard to grounds 1 to 7 challenged the order of the Commissioner of Income Tax in confirming the addition of Rs.47,37,000/- made by Assessing Officer on account of non-conciliation of professional receipts with TDS certificates. Insofar as that aspect is concerned, the Tribunal considered this submission of both sides and found that the assessee was engaged as an Advocate to argue the matters by what is popularly known as Advocates on record or instructing Advocates method, meaning thereby the client does not engage the assessee directly but a professional or the Advocate engaged by the client requests the assessee to argue the case. The brief is then taken as the counsel brief. That being the practice, the assessee gave an explanation that the break-up as desired cannot be given and with regard to all payments. It is pointed out that at times, assessee receives fees directly from the clients or from the instructing Advocates or Chartered Accountants if such professionals have collected the amounts from the clients.

3 Under these circumstances, the break-up as desired cannot be placed on record. An explanation which has been given by the assessee and accepted in the past has been now accepted by the Tribunal once again. Since it is accepted for the Assessment Year 2006-07, in the peculiar facts, in relation to the present assessee, we are of the view that this Appeal does not deserve to be entertained. It does not give rise to any substantial question of law.

4. Appeal is accordingly dismissed.

12. Referring to the following decisions, he submitted that the figures reflecting in Form 26AS is not the income accruing to the assessee:

i. PCIT vs. MBC Infra Space (P.) Ltd. (2023) 153 com 108 (Gil))

ii. TUV India (P.) Ltd. vs. DCIT (2019) 110 com 175 (Mumbai Trib.)

iii. ALIT vs. Patel Engineering Ltd (2025) 173 com 768 (Mumbai Trib.)

iv. D M Estates (P.) Ltd. vs. DCIT (2020) 180 ITD 813 (Bangalore — Trib.)

v. M/s. Goldmine Developers Pvt Ltd vs. DCIT vide CO No.219/Del/2018, order dated 13.01.2020 for assessment year 2011-12

13. Referring to the following decisions he submitted that when the receipts as per books of account are higher than Form 26AS, then no addition can be made:

i. CIT vs. Shri S. Ganesh vide Income Tax Appeal No.1930 of 2011, order dated 18.03.2014

ii. Shri S Ganesh vs. ACIT vide ITA No.527/Mum/2010 order dated 08.12.2010

iii. M/s. A.F. Ferguson & Co. vs. JCIT vide ITA Nos.5037/M/2012 & 437/M/2013 order dated 17.10.2014 for assessment years 2008-09 and 2009-10

iv. M/s. Lintas India Private Limited vs. DCIT vide ITA Nos.1156/Mum/2015 & 1187/Mum/2015 order dated 12.06.2019 for assessment year 2010-11

v. DCIT vs. M/s. Honeywell Automation India Ltd vide ITA No.332/PUN/2021 order dated 24.11.2021 for assessment year 2014-15

14. He accordingly submitted that the order of the Ld. CIT(A) being in accordance with law should be upheld and the grounds raised by the Revenue be dismissed.

15. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case made addition of Rs.8,45,53,050/- on the ground that there is difference between the figures reflected in Form 26AS and the sales receipts as per books of account. We find the Ld. CIT(A) deleted the addition, the reasons of which have already been reproduced in the preceding paragraphs. We do not find any infirmity in the order of the Ld. CIT(A) on this issue. A perusal of the reply given by the assessee during the course of assessment proceedings shows that the total income considered for the purpose of computation of income is higher than the income as per Form 26AS. We find the Assessing Officer on the basis of unreconciled sale of Rs.29,27,015/- has extrapolated such unreconciled figure for the whole year at Rs.8,45,53,050/-, the reasons of which has been given at para 4 of this order. It has been held in various decisions that the figures reflected in Form 26AS is not the income accruing to the assessee. It has further been held in various decisions that when the receipts as per the books of account are higher than the figures as per Form 26AS, then no addition is called for. We find the Ld. CIT(A) while deleting the addition has considered the accounting policies followed by the assessee specifically Accounting Standards for revenue recognition which is duly audited without qualifications. He has given a finding that the difference between the figures in Form 26AS and the books of account are often timing differences which are common in assessee’s industry and squared off over time once contracts are concluded and all revenue is offered to tax. Further, he has given a finding that the assessee has reconciled a substantial portion of identified variance and reconciling the entire data is extremely difficult due to the large number of customers, transactions and entries in Form 26AS. Further, we find identical additions were also made by the Assessing Officer in assessment year 2014-15 which were deleted by the Ld. CIT(A). We find although the Revenue has filed an appeal before the Tribunal for other issues, however, no ground was taken before the Tribunal on the issue of deletion by the Ld. CIT(A) on account of difference between figures reflecting in Form 26AS and the figures as per books of account. Under these circumstances and in view of the detailed reasoning given by the Ld. CIT(A), we do not find any infirmity in the order of the Ld. CIT(A). Accordingly, the same is upheld. The grounds raised by the Revenue are accordingly dismissed.

16. In the result, the appeal filed by the Revenue is dismissed.

Order pronounced in the open Court on 17^th June, 2026.