Gujarat High Court Upholds Deletion of Rs. 3.74 Crore Addition Where AO Failed to Verify Form 26AS Discrepancy
Case Reference
PCIT Vs MBC Infra Space Pvt. Ltd. (Gujarat High Court)
Assessment Year: 2013-14
Appeal Filed Under: Section 260A of the Income Tax Act, 1961
Background and Context
The Gujarat High Court recently dismissed an appeal preferred by the Revenue challenging an order of the Income Tax Appellate Tribunal, Surat (hereinafter referred to as "the Tribunal") in ITA No.675/SRT/2018 for AY 2013-14. The appeal had been filed under Section 260A of the Income Tax Act, 1961, and the core controversy revolved around whether an addition of Rs. 3,74,27,513/- — made on account of a mismatch between receipts as reflected in Form 26AS and the figures recorded in the assessee's books of account — was legally sustainable.
The outcome of this case carries significant practical implications for assessees in the infrastructure and contracting space, where running account (RA) billing arrangements and multi-tranche TDS deductions frequently give rise to apparent discrepancies between Form 26AS data and book receipts.
Factual Background
Return Filing and Scrutiny Selection
MBC Infra Space Pvt. Ltd., the respondent assessee, filed its return of income for AY 2013-14 on 28.9.2013, declaring a total income of Rs. 57,45,077/-. The case was subsequently picked up for scrutiny assessment.
Assessment Under Section 143(3)
The Assessing Officer (AO) completed the assessment under Section 143(3) of the Income Tax Act, 1961 on 28.3.2016, determining the total income at Rs. 4,32,54,749/-. Two additions were made in this assessment order:
- Rs. 3,74,27,513/- — on account of the difference between the amount of payment received as reflected in Form 26AS and the corresponding figures appearing in the assessee's books of account.
- Rs. 82,159/- — on account of disallowance of employees' contribution towards Provident Fund (PF) deposited after the due date.
The primary dispute before the High Court concerned only the first addition relating to the Form 26AS discrepancy.
Revenue's Case During Assessment
During the course of assessment proceedings, the AO noted that the assessee had received contractual payments from two different parties, both of whom had deducted tax at source (TDS) on such payments. The AO observed that the receipts corresponding to these payments had not been fully disclosed in the return of income filed by the assessee. A show cause notice was issued asking the assessee to explain why the differential amount should not be added back to its total income for the year under consideration.
Assessee's Explanation
In response, the assessee submitted before the AO — and reiterated during appellate proceedings — that there had been a double deduction of TDS on the same project. The assessee's position was that TDS had been deducted once at the stage of raising bills and again at the time of actual payment on certain bills, creating a distorted picture in Form 26AS that did not accurately represent the actual income received during the year.