Facts of the Case

The assessee, an individual, earned commission income which was reflected in Form 26AS and subjected to tax deduction at source under Section 194H. The assessee filed the return of income declaring business income under the presumptive provisions of Section 44ADA. While processing the return under Section 143(1), the Centralized Processing Centre (CPC) made an adjustment by adding the entire gross commission amount reflected in Form 26AS, treating it as undisclosed income. The adjustment resulted in taxation of the gross receipts despite the assessee having already declared income derived from such receipts. The addition was sustained by the first appellate authority.

Issues Involved

Whether the CPC is empowered under Section 143(1) to make an adjustment by adding the entire gross commission reflected in Form 26AS, particularly when income from such receipts has already been declared by the assessee, and whether such adjustment results in impermissible double addition.

Petitioner’s Arguments

The assessee contended that the commission income had already been included while computing total income, though declared under presumptive taxation due to filing the return in an incorrect form. It was argued that the CPC exceeded its jurisdiction under Section 143(1) by making an adjustment on the basis of Form 26AS entries, as the provision permits only prima facie adjustments and not debatable additions. The assessee further submitted that the adjustment effectively taxed the same income twice by adding the entire gross receipts instead of the profit component

Respondent’s Arguments

The Revenue argued that the return filed under Section 44ADA was incorrect, as commission income subject to TDS under Section 194H does not fall within the presumptive scheme invoked by the assessee. It was contended that the gross receipts reflected in Form 26AS did not reconcile with the income declared, and in the absence of proper computation details, the CPC was justified in making the adjustment. The Revenue also maintained that the assessee could have corrected the mistake by filing a revised return but failed to do so.

Court Order / Findings

The Tribunal observed that the adjustment made by the CPC resulted in addition of the entire gross commission amount, despite the assessee having already declared income derived from those receipts. Such action effectively led to double addition. Considering the facts and circumstances, the Tribunal held that the matter required fresh examination. Accordingly, the order of the appellate authority was set aside, and the issue was remanded to the Assessing Officer for adjudication afresh after granting the assessee an opportunity of being heard.

Important Clarification

The Tribunal emphasized that adjustments under Section 143(1) must remain within the limited scope of prima facie processing and should not result in taxation of gross receipts or duplication of income already declared. Where factual verification is required, the matter must be examined in regular assessment proceedings.

Link to download the order –

https://itat.gov.in/public/files/upload/1651731618-ITA%20No.%202%20Alld%202022%20Pramod%20Kr%20Tandon.pdf

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