Mere Form 26AS mismatch without substantive corroboration inadequate to justify reassessment: HC

The Revenue had preferred the said appeals before the learned ITAT against an order dated 25.03.2019 and 18.03.2019 passed by the learned Commissioner of Income Tax (Appeals)-28, New Delhi, [CIT(A)]. By the order dated 25.03.2019 the learned CIT(A) had set aside the order dated 29.06.2017 passed by the Assessing officer [AO] under Section 271(1)(c) of the Act. And, in terms of the order dated 18.03.2019, the learned CIT(A) had allowed the assessee’s appeal against the assessment order dated 29.12.2016 passed under Section 143(3) of the Act and had deleted the additions made to the returned income of the assessee. The learned CIT(A) reasoned that since the assessee had prevailed in his appeal as to the quantum of additions, the order imposing penalty would be unsustainable.

Facts of the Case:

The assessee had filed his return of income for AY 2009-10 on 25.07.2009 declaring an income of Rs. 10,92,498/-. The said income comprised of salary amounting to Rs. 9,92,492/- and income from other sources amounting to Rs. 2,02,706/-. The assessee’s return was processed under Section 143(1) of the Act.

On 28.03.2016, the AO issued a notice under Section 148 of the Act after recording its reasons for reopening the assessment for AY 2009-10. The only reason as recorded for the reopening was the mismatch in the Form 26AS and the petitioner’s return. The AO had noticed that the Form 26AS indicated a higher TDS and on the said basis found that there was a difference in the salary income as disclosed by the assessee in his return and Form 26AS which was based on the information as furnished by the petitioner’s employer.

Thereafter, during the re-assessment proceedings the AO reconciled the TDS as reflected in the Form 26AS and the salary as disclosed by the assessee. Concededly, it was evident from the Form 26AS that there were duplicate entries. Resultantly, the quantum of TDS as reflected was inflated. This was the principal reason for the mismatch between the income from salary as disclosed by the assessee and as ascertained from the TDS as reflected in Form 26AS. After eliminating the duplicate entries, the AO found that there was apparent difference of only Rs. 1926/- and accordingly made an addition of the said amount. Additionally, the AO also found certain entries in books of certain related parties.

The AO was of the view that those entries should be imputed to the petitioner and accordingly made additions in respect of those entries as well.

The assessee had appealed the said assessment order dated 29.12.2016 before the learned CIT(A). The learned CIT(A) found that there was no reason for the AO to re-open the assessment as there was no tangible material available with the AO, which could furnish a reason to believe that the assessee’s income had escaped assessment. Concededly, Form 26AS, was the only material on which the AO had surmised that the assessee’s income has escaped assessment. The CIT(A) did not consider the same as tangible material on the basis of which the re-opening of the assessment could be premised. The learned CIT(A) faulted the AO for assuming jurisdiction and set aside the assessment order. The Revenue appealed the said decision before the learned ITAT, which concurred with the view of the learned CIT(A).

ITAT Order:

In our view, the present appeal does not throw up any substantial questions of law. We say so for the reason that it is clear from the findings recorded that there were apparent errors in the Form 26AS which could be discovered by merely looking at it. Certain entries were repeated, and therefore the income from salaries returned by the petitioner did not conform to the TDS reflected in the Form 26AS. Plainly, if there is material on record which on the face of it appears to be erroneous, the same cannot be considered as a tangible material for forming a belief that the assessee’s income had escaped assessment.

It is the Revenue’s case that since the assessee’s return was not picked up for scrutiny, the extended period of limitation of six years would apply and, therefore, any material that could give rise to reason to believe that the assessee’s income has escaped assessment would be sufficient to reopen the assessment. The Revenue relies upon the decision of this court in Indu Lata Rangwala v. Deputy CIT: (2016) 384 ITR 337 in support of its contention.

10. It is correct that where the return filed by the assessee has not been examined by issuance of notice under Section 143(3) of the Act; therefore, the question of change of opinion may not arise. However, this is not an issue involved in this present petition. This is not a case where the assumption of jurisdiction has been faulted on the ground that there has been a change of opinion. The decision in the case of Indu Lata Rangwala v. Deputy CIT, (supra) is not an authority for the proposition that an assessment can be reopened on the material that does not furnish reasons to believe that an assessee’s income has escaped assessment.

11. In the present case, we find that the learned CIT(A) as well as the learned ITAT have been persuaded to accept that there was no tangible material for the AO to believe that the petitioner’s income had escaped assessment on the basis of the quality of the material as available with the AO. Given the fact that there were apparent errors in the Form 26AS and if the duplicate entries were eliminated, according to the AO, there was only a difference of Rs. 1926/- in the income of salary as returned by the assessee and as reflected in the Form 26AS; we are unable to accept that Form 26AS would furnish any reason for the AO to believe that the assessee’s income had escaped assessment.