Difference of receipts as per 26AS & books – Only embedded profits can be added to income

For difference of receipts as per 26AS and books of account, only embedded portion of profits can be added to the income

ABCAUS Case Law Citation
ABCAUS 3540 (2021) (08) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the addition made by the Assessing Officer (AO) towards undisclosed income.

During the course of assessment proceedings, the AO found  that as per the ITS details the gross receipts of the assessee  is higher than the amount as per the profit and loss account.  The assessee was asked to reconcile the difference in receipts. Since, no plausible explanation was provided by the assessee, the said amount of said difference was determined as undisclosed and added to the income of the assessee.

Before the Tribunal the assessee contended that at the time of scrutiny he was in bonafide belief that the excess amount and TDS thereon as reflected in 26AS Statement does not belong to him and thus, it had not claimed these amounts in its ITR.

The assessee pleaded that the Revenue was not justified to  treat  the entire amount as the income without appreciating that the rate of profit at the most which could be  brought to  tax in the contract receipts.

According to the assessee, the Assessing Officer should have added back not the total receipts treating as income but only at the average profit ratio in the last three years.

The Tribunal stated that 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.  

The Tribunal stated that 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. 

According to the Tribunal in such cases, 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.

The Tribunal restricted the addition at 5% of the net profit on the gross receipt

and the appeal was partly allowed in favour of the assessee.

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