Facts of the Case

The assessee filed its return declaring income of ₹17,40,230, and assessment was completed under section 143(3). Subsequently, the Assessing Officer observed a discrepancy between contractual receipts reported in the profit and loss account and amounts reflected in Form 16A/TDS records.

While the assessee had shown contractual receipts of ₹55,05,722, Form 16A indicated receipts of ₹7,54,92,401, leading the Assessing Officer to infer unreported receipts of ₹1,99,86,679 and initiate reassessment proceedings under section 148.

The assessee explained that TDS had been deducted not only on works contracts but also on supply transactions, and that such supply receipts were already recorded under the “sales” head in the accounts. The Assessing Officer rejected the explanation and made the addition. The CIT(A) deleted the addition but upheld the reopening. Both parties appealed before the Tribunal.

 Issues Involved

  1. Whether reopening of assessment under section 147 based on discrepancy in TDS data (Form 16A/26AS) was valid.
  2. Whether reassessment initiated following audit information constituted a mere “change of opinion.”
  3. Whether additions for alleged undisclosed receipts were justified when such receipts were already recorded in books under different heads.

 Petitioner’s Arguments (Assessee)

The assessee contended that the reassessment was based solely on an audit objection without independent application of mind and therefore amounted to a change of opinion. It was argued that all relevant details had been examined during the original assessment under section 143(3).

On merits, the assessee submitted that total receipts of ₹9.55 crore had already been disclosed in the profit and loss account, bifurcated between contract receipts and sales. TDS had been deducted by certain government departments even on supply transactions, which led to the mismatch with Form 16A figures. The alleged undisclosed amount was thus already included in taxable income, making the addition impermissible as a duplication.

 Respondent’s Arguments (Revenue)

The Revenue argued that audit information highlighting factual discrepancies constitutes valid information for reopening. It was submitted that there was tangible material indicating escapement of income due to mismatch between reported receipts and TDS records.

On merits, the Revenue contended that the assessee failed to reconcile certain credits appearing in TDS certificates and that credit for TDS should be allowed only for the year in which corresponding income is assessable, in accordance with Rule 37BA.

 Court Order / Findings (ITAT Allahabad)

On Validity of Reopening

The Tribunal held that reassessment proceedings were valid. It observed that the discrepancy between Form 16A figures and the profit and loss account constituted tangible material giving rise to a belief that income had escaped assessment.

The Tribunal relied on judicial principles that audit information pointing out factual errors can form the basis for reopening, provided the Assessing Officer independently applies his mind. Since there was no evidence that the issue had been examined in the original assessment, reopening did not amount to a change of opinion.

On Merits of Addition

On the substantive issue, the Tribunal upheld the CIT(A)’s deletion of the addition. It found that the Assessing Officer had compared Form 16A figures only with contract receipts and ignored sales receipts, despite evidence that TDS had been deducted on supplies as well.

The Tribunal noted that:

  • Total receipts were already disclosed in the accounts
  • TDS had sometimes been deducted incorrectly on sales transactions
  • The assessee had provided reconciliation details
  • Receipts were from government departments through banking channels
  • The Assessing Officer had not conducted further verification with payers

 Important Clarification

The Tribunal clarified that credit for TDS must correspond to income offered to tax in the relevant assessment year under the mercantile system. While deleting the addition, it directed that proper reconciliation be carried out to allow TDS credit only for income taxable in that year, in line with Rule 37BA.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771061561_DY.COMMISSIONEROFINCOMETAXCIRCLE1ALLAHABADVS.MSDEORAELECTRICWORKSALLAHABAD.pdf

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