ITAT Remands Case of Mismatch in Form 26AS Due to Project Completion Method

The assessee, Trine Infracon LLP, is a construction firm that filed its income tax return (ITR) on 17.10.2017, disclosing an income of Rs 2,57,24,320. During the scrutiny, the Assessing Officer noted that the gross receipts reported in the Profit and Loss Account were different from what was shown in the Form 26AS.

On not getting enough explanation, the AO added Rs 81,15,791 as unexplained income under Section 69A, treating it as undisclosed receipts. AO determined the total income at Rs 3,38,40,110. The assessee also filed an appeal before the CIT(A). However, the Ld. CIT(A) also upheld the addition, stating that the explanation and documents provided lacked clarity and supporting evidence. Therefore, the assessee approached the Income Tax Appellate Tribunal (ITAT) in Ahmedabad.

The assessee submitted that they follow the Percentage Completion Method, under which the income is recognised when the project is completed and not when the money is received. Form 26AS shows all receipts during the year on which TDS is deducted. They further submitted that many of the payments shown in Form 26AS were advances from customers, not actual income, and were shown in the balance sheet under “Liabilities”.

The assessee also argued that Service Tax was included in those receipts, which created a difference in the amount.

The Tribunal observed that the assessee had used the project completion method and that Form 26AS shows receipts, and that timing and accounting method differences could cause a mismatch. The ITAT also noted that the assessing officer did not point out the defect in the assessee’s accounting method or in the financial statement.

The ITAT also acknowledged the reconciliation submitted by the assessee. Since the AO and CIT(A) did not properly verify the reconciliation, the ITAT decided that the matter needs fresh consideration. Therefore, it set aside the matter and remanded it to the AO for fresh adjudication after giving proper opportunity to the assessee to explain and submit the relevant documents.