Facts of the Case

The assessee filed its return declaring income of ₹17,40,230, and assessment was completed under section 143(3). Later, the Assessing Officer observed that contractual receipts shown in the accounts were significantly lower than amounts reflected in Form 16A (TDS certificates).

While the assessee reported contract receipts of ₹55,05,722, Form 16A indicated receipts of ₹7,54,92,401, leading to an alleged understatement of ₹1,99,86,679. Reassessment proceedings under section 148 were initiated.

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

 Issues Involved

  1. Whether reassessment under section 147 based on discrepancy between Form 16A/26AS and accounts was valid.
  2. Whether reopening based on audit information amounted to a “change of opinion.”
  3. Whether addition for undisclosed receipts was justified when receipts were already accounted for under different heads.

 Petitioner’s Arguments (Assessee)

The assessee contended that reopening was based solely on an audit objection without independent application of mind and therefore invalid. It argued that the issue had already been examined during the original assessment under section 143(3).

On merits, the assessee submitted that total receipts of ₹9.55 crore were disclosed in the profit and loss account, bifurcated between contract receipts and sales. TDS had been wrongly deducted by certain government departments even on supply transactions, causing mismatch with Form 16A figures. Hence, the alleged undisclosed receipts had already been offered to tax.

Respondent’s Arguments (Revenue)

The Revenue argued that audit information highlighting factual discrepancies constitutes valid “information” for reopening. It was submitted that mismatch between TDS data and reported receipts provided tangible material indicating escapement of income.

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

 Court Order / Findings (ITAT Allahabad)

On Validity of Reopening

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

It held that audit information pointing out factual errors can justify reassessment if the Assessing Officer independently applies his mind. Since there was no evidence that this 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 deletion of the addition. It found that the Assessing Officer had compared Form 16A figures only with contract receipts while ignoring sales receipts, despite evidence that TDS had been deducted on supply transactions as well.

Key findings included:

  • Total receipts were already disclosed in the accounts
  • TDS had been deducted even on sales in some cases
  • The assessee provided reconciliation between receipts and TDS data
  • Receipts were from government departments through banking channels
  • The Assessing Officer did not conduct independent verification with payers

Important Clarification

The Tribunal emphasized that under the mercantile system, income and corresponding TDS must be matched to the correct assessment year. While deleting the addition, it directed that TDS credit should be allowed only to the extent of income offered to tax in that year, in accordance with Rule 37BA.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771061820_MSDEORAELECTRICWORKSALLAHABADVS.DY.COMMISSIONEROFINCOMETAXCIRCLE1ALLAHABAD.pdf

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