Nayana Digant Kapadia Vs ITO (ITAT Mumbai)
Interest Reflected in Form 26AS Cannot Be Taxed on Accrual Without Verification When Assessee Follows Cash System
The Mumbai ITAT held that interest income merely reflected in Form 26AS cannot automatically be taxed on accrual basis when the assessee follows the cash system of accounting under Section 145 and claims that the income was not actually received during the year. In this case, the assessee had carried forward TDS credit relating to interest shown in Form 26AS from DLK Commercial Pvt. Ltd., contending that the corresponding income was taxable only on receipt basis and would be offered in the year of actual receipt.
The Tribunal noted that while CPC made an adjustment under Section 143(1) citing mismatch between Form 26AS and the return, the assessee had disclosed the carry-forward of TDS in Schedule TDS-2 and explained the position during e-proceedings. However, unlike a similar case decided earlier in favour of a related assessee, the present assessee failed to substantiate with documentary evidence that the interest was not received during the relevant year and when it was offered to tax in subsequent years.
Observing that taxation on receipt basis is permissible where consistently followed, the ITAT held that the matter required factual verification, including confirmation from the payer and proof of subsequent year taxation. Accordingly, the Tribunal set aside the issue to the Assessing Officer for limited verification, with directions to grant the assessee a proper opportunity of hearing. The appeal was thus allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
