Addition due to Mis-match b/w books & Form 26AS can be made only on embedded portion of profit: ITAT

The Income Tax Appellate Tribunal (ITAT), in the case of Purna Chandra Rout V/s. ITO held that only embedded portion of profit is to taken into consideration in case of difference between assesse books of accounts and Form 26 As.

In this matter, the assesse pertains to the affirmations of the addition of Rs. 41,40,753/- made by the AO on account of sales arises due to difference in receipts between assessee’s books of accounts and as per Form 26 AS. The Ld. CIT (A) affirmed the amount of Rs. 41,40,753/- on account of mismatch of amounts as per Form 26 AS and gross receipts as per audited accounts on the ground that said amount was not accounted for by the assesse.

Aggrieved by the order passed by CIT (A), the assesse filed appeal before ITAT. The Ld AR relied before the ITAT upon judgments passed by the coordinate benches in the cases of ShriKayyum Ahmed Vs. ITO, Ward-1(3), Meerut (ITA No. 2410/Del/2013 decided on 22.05.2015) and SohanLal Aggarwal Vs. ACIT, Circle-62(1), New Delhi {(2021) 130 Taxmann.com 380-Del Tribunal}[ITA No. 986/Del/2017 decided on 11.08.2021] and submitted that in the identical situation, the Hon‟ble Courts clearly held that in case of the difference between the assessee‟s books of account and as per Form No. 26AS, then on the said difference, only embedded portion of the profits is to be taken into consideration and the addition is to be made thereon but entire turnover cannot be added to the income of the assessee. The reasoning given in Sohan lal Agarwal Vs. ACIT (supra) is as follows:

“5. It is a settled proposition of law that in case of difference between the assessees books of account and as per the TDS certificate, then on the said difference, the only embedded portion of the profits is to be taken into consideration and addition is to be made thereon. There are number of judicial pronouncements by which the principle to this effect has been laid down that the total sale cannot represent as the profit of the assessee. The net profit rate has to be adopted and once the net profit is adopted it cannot be said that there is perversity of approach. Thus, taking into consideration the entire aspect of the matter, we do not find any justification in making the addition of the entire turnover to the income of the assessee. Having regard to the peculiar facts and circumstances of the case, we find it justified to restrict the addition at 5% of the net profit on the gross receipt of Rs.11,93,79,537/-. The Ld. Assessing Officer is directed to grant relief to the assessee as on the above terms.”

ITAT relied on the judgments of the Hon’ble Coordinate benches referred above and direct the AO to restrict the addition.

To Read Judgment Download PDF Given Below: