Non-Disclosure of Contract Receipts Despite TDS Deduction Unsustainable: ITAT Upholds ₹5.97 Cr Addition [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has upheld an addition of ₹5.97 crore against ruling that non-disclosure of contract receipts despite deduction of tax at source (TDS) is unsustainable under law.

The assessee Virgo Softech Limited,who carried on business of rendering e-governance services filed his return showing loss of ₹79.18 lakhs in assessment year 2018–19. While conducting the scrutiny assessment, it was noticed by the Assessing Officer (AO) that total receipt of more than ₹6.18 crores appeared in Form 26AS but ₹6.10 crores were not shown in return for the purpose of taxation and he included ₹6.10 crores as income, out of which it was reduced to ₹5.97 crores by CIT(A).

The assessee argued that receipts arose on account of provision of service in previous financial years (FY 2011–12 and FY 2012–13) and these were adjusted against work-in-progress (WIP) under completed contract basis due to disputes with their clients.

The Assessee claim for deferral of revenue recognition till acceptance of services and assured payment under its accounting policy was rejected by the Revenue. The Revenue further asserted that the assessee had not established the fact that the money collected was shown as taxable income in prior years. The Revenue contended that tax deduction at source implied that the income was taxable.

The Tribunal held that contractual receipts reflected in Form 26AS, accompanied by TDS deduction, are taxable in the year of receipt where the assessee fails to establish that such income was offered to tax in earlier years. The Bench dismissed the assessee’s appeal and confirmed the addition sustained by the Commissioner of Income Tax (Appeals).

The Tribunal observed that the assessee neither offered the receipts to tax in earlier years nor in the year of receipt. It noted that no documentary evidence was furnished to substantiate prior taxation or justify the accounting treatment. The Bench further held that Form 26AS entries coupled with TDS deduction strongly indicate taxability and cannot be ignored.

Rejecting the assessee’s reliance on the completed contract method, the Tribunal termed the accounting approach “opaque” and inconsistent with statutory provisions.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates