The Hon’ble ITAT, Kolkata in its recent ruling in the case of ITO v. M/S Star Consortium has dismissed an appeal filed by the Revenue Department and held that mismatch between TDS certificate (26AS) and turnover shown by the assessee in its P& L account cannot be the sole basis on which the entire addition of the difference could have been brought to tax.
Facts of the case:
- The appellant M/S Star Consortium is engaged in the business of handling, maintaining, cleaning of aircrafts etc. The main business of the assessee firm was with M/s Kingfisher Airlines Ltd.
- The AO noted that the assessee has rendered such services to M/s Star Consortium Aviation Services Pvt. Ltd. , Spicejet etc. The AO observed from a perusal of the profit and loss account that assessee has shown income at Rs. 3,31,50,625/- from aircraft handling & cleaning charges and other income of Rs. 8,36,938/- totaling Rs. 3,39,87,563/-. However, the AO noted from a perusal of Form 26AS that the assessee has received payment from different sources including M/s Kingfisher Airlines (payee) was at Rs. 5,54,23,156/-.
- The AO issued a show cause notice to the Assessee asking the reason for the difference. The AO was of the prima facie opinion that this difference in amount was understated income of the assessee.
- The Assessee stated that the ground handling business was taken over by M/s Star Consortium Aviation Services Pvt. Ltd. (Holding Company) from June 01, 2008 and the alleged amount relates to the holding company for rendering services as aircraft handling and cleaning charges.
- The Assessee further stated that they have not claimed any credit for TDS of the bills which are shown in Form 26AS which are not part of their turnover.
- The Assessee submitted that this discrepancy happened due to wrong information filled by Payee in Form 26AS and furnished copies of communication with the Holding Company.
- The AO stated that there was no opportunity for him to cross verify the facts due to paucity of time and thus, added Rs 2,14,35,593/- in the income of the Assessee.
- Being aggrieved, the Assessee filed an appeal before the CIT(A), wherein, the CIT(A) ordered in favour of the Assessee stating that the AO cannot take the plea that they did not have sufficient time to cross-verify the explanation given by assessee. But the CIT(A) made partial confirmation by adding Net Profit at 11.17% of the difference amount of Rs. 2,14,35,593/- in the income of the Assessee.
- Aggrieved by the order of the CIT(A), the AO has filed the present appeal.
- The Assessee has contended that, even if addition is made, the NP should be only 1.22% since the Assessee has shown NP on its turnover of ₹ 3,31,50,625/- which has been accepted by the AO as well as CIT(A).
Issues involved in the appeal:
- Whether the AO can make addition of difference in amount reflecting between Form 26AS and P&L account as the income of the Assessee?
- Whether the CIT(A) can calculate the Net Profit at different percentage as against calculated by the Assessee?
Order of ITAT: Deliberation and Ruling
- It is noted that while explaining the mismatch, the assessee has brought to the notice of the AO that even though the assessee firm was engaged in the business of ground handling, maintaining, cleaning of aircrafts etc. from 01.06.2008 onwards, the ground handling business was taken over by the M/s Star Consortium Aviation Services Pvt. Ltd. and therefore according to assessee firm, the income/payment in respect of services rendered in respect of ground handling business for M/s Kingfisher Airlines might have been wrongly shown by Kingfisher Airlines to have been wrongly credited in Form 26AS of the assessee firm instead of the M/s Star Consortium Aviation Services Pvt. Ltd.
- Since the assessee was able to prove that the business of ground handling services was transferred to M/s Star consortium Aviation Services Pvt. Ltd. from 01.06.2008 onwards; and there was a goof-up in the office of TDS deductor (Kingfisher Airlines) while they were filling up 26AS by wrongly entering the PAN, according to Ld. CIT(A) the AO was duty-bound to verify the veracity of the claim since the assessee has placed enough material before the AO to support its contention/ explanation in respect of mismatch of Rs. 2.14 crores which assessee firm denied to have been received by it.
- We note that only because there is a mismatch between TDS certificate (26AS) and turnover shown by the assessee in its P& L account cannot be the sole basis on which the entire addition of the difference could have been brought to tax.
- Coming to the partial confirmation made by the Ld. CIT(A) by resorting to estimation of NP at 11.17% of the difference in amount/turnover at Rs. 2,14,35,593/- we note that while doing so i.e. while exercising his co-terminus power in the appellate proceedings he could have done so as per law meaning when he proposed to estimate the income of the assessee, the Ld. CIT(A) should have first of all rejected the audited books of account produced by the assessee in accordance to Section 145 of the Income Tax Act, 1961 which the Ld. CIT(A) has not admittedly done. So the estimation of Ld. CIT(A) fails being bad in law.
In view of the above deliberations the ITAT, Kolkata held that the view of the Ld. CIT(A) to be a plausible view and accordingly his action of deleting Rs. 2,14,35,593/- is confirmed and therefore, the appeal of the Revenue stands dismissed. Further estimated addition made by CIT(A) towards net profit was struck down.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
