Summary: Income additions by tax authorities due to discrepancies between a taxpayer’s declared income and the details in Form 26AS are common. However, these additions often lack proper verification. In cases such as Swati Mahesh Vinchurkar v. Dy. CIT, the Tribunal ruled that merely relying on Form 26AS without verifying the taxpayer’s claims is insufficient. The burden of proof is on the tax authorities to establish that the income in Form 26AS belongs to the taxpayer. Similar rulings in Theo Desh Consultants v. Addl. CIT and LSG Sky Chef (India) (P.) Ltd. v. Dy. CIT have clarified that TDS credit is only available when the corresponding income is reported in the tax return. Even if a mismatch exists, as seen in the Star Consortium case, the authorities must verify the taxpayer’s explanation before making any additions. These cases emphasize the importance of verification and accurate record-keeping by both taxpayers and tax authorities. Taxpayers are advised to challenge discrepancies in Form 26AS promptly and maintain thorough documentation to support their claims.
Is addition made on the basis of Form 26AS, Justified? Discussion between CA Mickey and CA Mini
When there is mismatch between income declared by taxpayers and the details in Form 26AS, in that case income addition made by tax authorities. It highlights main case laws that emphasize importance of correct verification before making such additions and explains how taxpayers can challenge these discrepancies.
CA Mickey: Hi CA Mini, I have been hearing lot about income additions based on differences found in Form 26AS against what is declared in tax returns. Can you explain me how income tax authorities handle these cases?
CA Mini: Sure, CA Mickey. This is indeed common issue faced by many taxpayers. The key aspects of such cases, supported by judicial precedents and statutory guidelines.
CA Mickey: What happens if there is mismatch between Form 26AS and income declared in tax return?
CA Mini: The officer often adds the difference as income if there is mismatch between Form 26AS and income declared by taxpayer. However, taxpayer can challenge this by providing evidence that payment does not belong to them.
CA Mickey: CA Mini, I’ve noticed that there are several cases where income tax assessments have been heavily influenced by inconsistency in Form 26AS. Can you help me understand the key cases and their outcomes?
CA Mini: Absolutely, CA Mickey. Here some significant cases where the courts have provided clarity on this issue.
Here is in details case laws discussion
Swati Mahesh Vinchurkar v. Dy. CIT [IT Appeal No. 43 (Srt) of 2021, dt. 28-6-2021]
CA Mickey: I have heard about case of Swati Mahesh Vinchurkar. What were the key issues and how did the court rule?
CA Mini: In this case, Swati Mahesh Vinchurkar filed her tax return claiming refund. though, the CPC added income based on TDS entries reflected in Form 26AS, which were purportedly deducted by Electricity Distribution Division Gajraula-UP and Electricity Test Division Amroha-UP.
CA Mickey: So, what did I.T officer do?
CA Mini: The ITO added income to her total income merely based on Form 26AS, without any further verification, assuming TDS entries were accurate.
CA Mickey: Did Swati challenge this?
CA Mini: Yes, she denied having any connection with these entities. in spite of her objections, the CIT(A) upheld addition, believing that entries in Form 26AS were sufficient proof.
CA Mickey: What was the Tribunal’s stand?
CA Mini: The Tribunal ruled in favor of Swati Mahesh Vinchurkar, stating that addition was baseless since the taxpayer had constantly denied earning the income. The Tribunal criticized the CIT(A) for not verifying taxpayer’s claims and highlighted possibility of PAN error leading to incorrect entries in Form 26AS. The addition was deleted, with the judgment emphasizing that Form 26AS alone is not sufficient for making income additions.
CA Mickey: Is TDS credit automatically available if it appears in Form 26AS?
CA Mini: Not necessarily. Credit for TDS is only available if income from which tax was deducted is included in the taxpayer’s total income. In Theo Desh Consultants v. Addl. CIT 2018 TaxPub(DT) 1123 (Ahd-Trib), it was observed that taxpayer is entitled to claim TDS credit only when the related income is offered to tax.
Here is in details case laws discussion.
Theo Desh Consultants v. Addl. CIT 2018 TaxPub(DT) 1123 (Ahd-Trib)
CA Mickey: What about case of Theo Desh Consultants? How TDS credit play into income assessments?
CA Mini: In Theo Desh Consultants’ case, the ITO denied TDS credit because the corresponding income was not included in their tax return as reflected in Form 26AS.
CA Mickey: Did the taxpayer challenge this?
CA Mini: Yes, the taxpayer argued that they were entitled to the TDS credit. However, both the ITO and the CIT(A) held that without including related income, TDS credit could not be granted.
CA Mickey: How did the Tribunal respond?
CA Mini: The Tribunal agreed with the ITO and CIT(A), stating that TDS credit is only available when related income is reported in the tax return. This case clarified that simply showing TDS in Form 26AS isn’t enough—there must be corresponding income reported by the taxpayer.
Similarly, in Buhler India (P) Ltd. v. Dy. CIT 2019 TaxPub(DT) 4968 (Bang-Trib), the Tribunal directed the Assessing Officer to verify and grant TDS credit as per the income reflected in Form 26AS.
CA Mickey: Are there situations where TDS credit might be disallowed?
CA Mini: Yes, TDS credit may be disallowed if the corresponding income is not included in the tax return. For example, in LSG Sky Chef (India) (P.) Ltd. v. Dy. CIT (2014) 148 ITD 367 (Mum ‘A’-Trib), the Tribunal ruled that TDS credit could not be denied simply due to a mismatch in Form 26AS if the taxpayer had included the income in their return.
Here is in details case laws discussion for your reference :
LSG Sky Chef (India) (P.) Ltd. v. Dy. CIT (2014) 148 ITD 367 (Mum ‘A’-Trib)
CA Mickey: CA Mini, in case of LSG Sky Chef (India) where there was issue with TDS credit not matching the taxpayer’s records. Could you explain what happened in that case?
CA Mini: The case of LSG Sky Chef (India) (P.) Ltd. v. Dy. CIT dealt with situation where the taxpayer claimed TDS credit based on the TDS certificates they had received. However, there was a mismatch between these TDS certificates and the entries reflected in Form 26AS.
CA Mickey: How did the ITO handle this mismatch?
CA Mini: The ITO, noticing discrepancy, denied TDS credit to LSG Sky Chef. The ITO’s basis was that the mismatch indicated that the TDS reflected in Form 26AS did not support with the taxpayer’s claim.
CA Mickey: What was the taxpayer’s argument against this?
CA Mini: LSG Sky Chef argued that they should be allowed to the TDS credit based on the certificates provided by the deductors, in spite of of the mismatch with Form 26AS. They maintained that the TDS had indeed been deducted and that they had furnished all necessary certificates to substantiate their claim.
CA Mickey: How did the CIT(A) respond to this?
CA Mini: The CIT(A) analysis the case and decided in favor of taxpayer, recognizing that the TDS credit could not be denied simply due to mismatch in Form 26AS, especially when taxpayer had produced valid TDS certificates.
CA Mickey: What did the Tribunal ultimately decide?
CA Mini: The Tribunal upheld the CIT(A)’s decision, emphasizing that TDS credit should not be denied if the taxpayer has provided valid TDS certificates, even if there’s a mismatch with Form 26AS. The Tribunal pointed out that the TDS certificates are crucial documents, and as long as the taxpayer can prove that tax was deducted and paid to the government, the credit should be granted. This ruling highlighted the importance of the substance over the form when it comes to granting TDS credits.
CA Mickey: What verifications are required to claim TDS credit?
CA Mini: According to Rule 37BA, credit for TDS is granted based on information provided by the deductor to the income-tax authority and the details state in the return of income. This process is subject to confirmation under the risk management strategy formulated by the tax authorities.
CA Mickey: Can the department add income solely based on Form 26AS?
CA Mini: No, income cannot be added solely based on information in Form 26AS. This was emphasized in ITO v. Star Consortium [I.T.A. No. 04/Kol/2020, C.O. No. 08/Kol/2020, dt. 7 April, 2021], where the Tribunal held that the addition could not be justified just because of a mismatch between Form 26AS and the turnover shown in the profit and loss account. The assessing officer must verify the taxpayer’s explanation.
Here is in details case laws discussion
ITO v. Star Consortium [I.T.A. No. 04/Kol/2020, C.O. No. 08/Kol/2020, dt. 7 April, 2021]
CA Mickey: I remember there was another case involving Star Consortium where there was a mismatch between Form 26AS and the reported turnover. What happened there?
CA Mini: In the Star Consortium case, the ITO made an addition based on a mismatch between the TDS certificate (Form 26AS) and the turnover reported in the Profit & Loss account.
CA Mickey: Was this addition upheld?
CA Mini: Interestingly, the CIT(A) did not agree with the ITO’s approach and sided with the taxpayer. CIT(A) noted that the ITO should have verified the taxpayer’s explanation and the supporting documents instead of relying solely on the TDS certificate.
CA Mickey: And what was the Tribunal’s final decision?
CA Mini: The Tribunal confirmed that the ITO’s reliance solely on the Form 26AS mismatch was not sufficient to justify the addition. They emphasized that the ITO was required to thoroughly verify the taxpayer’s claims before making any addition. This case reaffirmed that discrepancies in Form 26AS cannot be the sole basis for income additions.
Key Points and Takeaways:
- Form 26AS Discrepancies: Income tax authorities often make additions based on discrepancies between Form 26AS and the income declared by the taxpayer. However, these additions can be challenged if the taxpayer can provide evidence to dispute the income reflected in Form 26AS.
- TDS Credit: TDS credit is only available when the related income is included in the taxpayer’s total income. Even if TDS is reflected in Form 26AS, the taxpayer must ensure that the corresponding income is reported in their return to claim the credit.
- Judicial Emphasis on Verification: Several cases, such as Swati Mahesh Vinchurkar v. Dy. CIT and ITO v. Star Consortium, stress that tax authorities must verify the taxpayer’s claims and supporting documents before making any income additions based on Form 26AS.
- Importance of TDS Certificates: In the case of LSG Sky Chef (India) (P.) Ltd. v. Dy. CIT, the Tribunal ruled that TDS credit cannot be denied simply due to a mismatch with Form 26AS, provided the taxpayer has valid TDS certificates.
- Burden of Proof: The burden of proof often lies with the tax authorities to show that the income reflected in Form 26AS truly belongs to the taxpayer, especially when the taxpayer denies such income and provides reasonable evidence.
- Practical Implications: Taxpayers should maintain accurate records and challenge any discrepancies in Form 26AS promptly. It’s crucial for tax authorities to take a balanced approach and not rely solely on Form 26AS without proper verification.
Dealing with income additions due to Form 26AS mismatches can be hectic. However, I tis important to know that tax authorities can not make these additions without proper verification. If you face this issue, keep your records clear and challenge any mistakes. Understanding your rights can help ensure you are treated fairly in your tax assessment.
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