ITAT Grants Relief to Waterproofing Company in Form 26AS Mismatch Case

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has given relief to a company named “Nina Concrete Systems Pvt. Ltd” that faced tax additions due to a mismatch between its income records and Form 26AS.

The company was engaged in the business of waterproofing. In AY 2017-18 the assessee filed its return of income on 31 October 2017, declaring a loss of Rs 2.06 crore. Whereas in AY 2018-19 the assessee filed its return of income on 29 October 2018, declaring NIL income.

The Income Tax Department found out that the income appearing in Form 26AS is different from the income shown in the company’s profit and loss account As a result, the Assessing Officer added Rs 3.18 crore for AY 2017-18 and Rs 1.34 crore for AY 2018-19 to the company’s taxable income.

The company explained that it had a sister concern, Nina Waterproofing Systems Pvt. Ltd., which operated in the same business.

According to the company, some customers of the sister concern mistakenly deducted TDS using the taxpayer’s PAN instead of the sister concern’s PAN. Because of this mistake, income belonging to the sister concern appeared in the taxpayer’s Form 26AS.

The company also stated that it later asked those customers to correct their TDS returns, and revised Form 26AS records were subsequently generated.

The Tribunal observed that the additions were only made because of the mismatch between the profit and loss account and Form 26AS.

ITAT observed that updated Form 26AS and additional supporting documents were available but the tax authorities have not properly examined the same. Thus, the Tribunal remanded the matter back to the assessing officer and directed the department to consider updated Form 26AS and all supporting evidence before taking a decision. The Tribunal also dealt with a few other issues which included the assessing officer being directed to confirm a disallowance relating to interest on delayed TDS payment. It asked the department to confirm the taxpayer has already rejected specific expenses in its return.

As the taxpayer has already voluntarily denied an amount more than the exempt income achieved during the year, ITAT removed a disallowance of Rs. 40.16 lakh under Section 14A. Considering the updated TDS records and accompanying documentation, the ITAT partly allowed both the appeals and returned the primary Form 26AS mismatch issue to the assessing officer for further examination.

The tribunal noted that, “during the year under consideration, the assessee had earned exempt income of Rs. 15,22,409/-. Whereas, the assessee had suo motu disallowed an amount of Rs. 37,59,649/- under Section 14A read with Rule 8D. Thus, as can be seen, the suo motu disallowance made by the assessee was much more than the exempt income earned during the year. That being the case, no further disallowance can be made. Accordingly, we direct the Assessing Officer to delete the disallowance of Rs.40,16,030/-. This ground is allowed”.