Form 26AS is a statement containing detail of all the taxes that are deducted during the financial year from one’s income and deposited against one’s PAN to the Government form 26AS also shows the taxes that are deposited by one as advance tax or self-assessment tax.

There are many reasons due to which tax credits as seen in the form 26AS might not match with the amount slips actually deducted as shown in the salary slips. Some of these reasons could be amount of tax deducted from salary is correctly reported by the employer, TDS deduction is reported in wrong section, amount deposited with government as TDS is wrongly mentioned. However, there can be other reasons as well as for the mismatch between the TDS certificates and FORM 26AS. If an employee has given wrong PAN to the deductor which can be one’s employer or bank, then in such cases tax deducted will not be reflected in Form 26AS. If while filing TDS returns, the deductor, the employee or the bank has mentioned the wrong PAN, then there is bound to be a mis-match between TDS certificates and Form 26AS. In case of sale of property having more than one seller i.e. joint ownership, it is usually seen that the buyer usually deducts the TDS but forgets to deposit against the PAN of the co-owners. This usually leads to mismatch in the tax credit details while depositing self-assessment tax or advance tax, if one has made any mistake, then the same can be corrected by making an application to the jurisdictional assessing officer as the power of correction of challan lies only with the Assessing Officer. Once the Jurisdictional Assessing Officer rectifies the same, the correction will automatically be reflected in form 26AS.

Can difference between the amount reflected in Books of Accounts and Form 26AS an income?

Generally, there is a difference between income reflected in 26AS as against the income reflected in the Books of Account for the relevant assessment year. It is therefore, necessary that the assessee should reconcile the difference between the income reflected in 26AS with the books of account before finalization of account in order to avoid litigation. If there are any discrepancies between the two, then same should be reconciled and necessary affect of the same given in the books of account.

The Income-tax Department always checks up the amount disclosed in the Income-tax return offered for tax matches with the amount disclosed with the amount reflected in 26AS. The Assessing Officer will call for explanation from the assessee to explain the difference between the two. If the explanation is found not satisfactory, then the Assessing Officer will make the difference as the addition to the income of the assessee.

The assessee should be ready explain the difference between the books of account and amount reflected in 26AS to avoid unnecessary additions to income of the assessee. The assessee should take practice measure, consider various judicial decisions and principles established by the decision rendered various authorities to avoid future litigation and to protect their interest. It is cogent that the dispute on account of above mentioned difference is always based on consideration of evidence and preponderance of probabilities. It is important to note that such kind of dispute can easily be resolved and does require interpretation of law. All such cause always revolve around interpretation and verification of facts.

Income-tax Officer v. Star Consortium [2021] 127 Taxmann.Com 681 ITAT, Kolkata

In this case there was a difference of Rs. 2,14,35,593/- between income reflected in Form 26AS as against the income reflected in Form 26AS as against the income reflected in the books of account for the relevant assessment year. The assessee had submitted that the discrepancy had happened due to wrong data/information filed by the counter party in form 26AS and that the ground handling business was taken are by other Company whose name closely resemble to that of the assesse. The assessee submitted evidence, E-mail communication with counter party which apparently proves that there was goof-up, a stupid mistake on the part of the counter party. In this case, the assessee brought out enough material before the Assessing Officer to substantiate the explanation that error was on the part of counter party while filing TDS return and therefore 26AS was reflecting erroneous data. It was held in this case that the assessee had brought this fact to the notice of AO that goof- up took place in the office of M/s. Kingfisher Airlines Ltd., the TDS deductor while filing 26AS as regards the assessee’s PAN having been entered wrongly posted after 1-6-2008 during which period the services were not claimed to have been rendered by the assessee firm and the relevant bills are not claims to have been raised by the assessee firm on the Airlines. Having brought these information to the notice of Assessing Officer and since the assessee was able to prove that the business of ground handling services was transferred to M/s. Star Construction Aviation Services Private Limited from 1-6-2008 onwards, and there was a goof- up in the office of TDS deductor (Kingfisher Airlines) while they were filing up 26AS by the wrongly entering the PAN, according learned CIT(A), the AO was duty bound to verify the veracity of the claim since the assessee has placed enough material before the AO to support its contention / explanation in respect of mismatch of Rs. 2,14,35,593/- which assessee firm denied to have been received by it. Taking note of all these facts, the Ld. CIT(A) had even issued a letter to Kingfisher Airlines on 4-9-2019 seeking clarification about the form 26AS/TDS credit against the assessee’s PAN. However, the Ld. CIT(A) noted that the said letter was referred back with the postal remark “left”, hence it was difficult to conclude the information in respect of TDS amount shown in form 26AS from the TDS deductor as conclusive against the assessee. Therefore, the Ld CIT(A) observed as under:

Since the income has been added, the AO is legally required to prove that the said income accrued to the Appellant or was received by it. The burden is on the AO to prove the allege fact. On the contrary in the assessment proceedings, the AO demanded the appellant to prove that the amount in form 26AS did not belong to the Appellant. In any case, it is difficult to prove the negative for the Appellant, who seems to have submitted good amount of papers to the AO to support its case on the issue concerned. For the purposes of the Appellate order he held that the AO had proceeded without any material to hold that the Appellant had earned Rs. 2,14,35,593/-. He further held that Form 26AS alone cannot lead to addition of income if claims are made of wrong data entry/information and lack of corresponding services by the deductee to the deductor.

Onus on the assessee: Whenever there is a mismatch in the Books of Account and 26AS, the primary onus is on the assessee to prove the difference not the income of the assessee. In order to discharge the onus, the assessee should give logical explanation making a sense to the given facts and circumstances and he should tender necessary evidence to substantiate the explanation offered. In the above case, the assessee tendered evidence to substantiate the facts that error was on the part of the counter party while filing TDS returns. The assessee has provided that proof in the form of e-mail communication and proved that impugned income did not belong to the assessee.

Onus on the AO: Once the assessee has provided the explanation and evidence then onus or burden of proof is transferred to AO to prove that the explanation and the evidence are not sufficient or not adequate or not acceptable. Therefore, the department is required to verify facts properly by recourse to Section 133(6) of income-tax Act. In this case, Ld. CIT(A) has issued the notice to the counter party to confirm the explanation offered by the assessee. However, the same could not be verified. Since the department could not counter the evidence produced by the assessee and the assessee has produced enough material to prove that the income does not belong to the entity. The decision in this case was rendered in favour of assessee.

Sequence of Process: If there is a difference in books of account and 26AS, then the separate process emerges in litigation. The sequence of process us as under:

1. The assessee should give logical explanation for the difference;
2. The assessee should produce reconciliation of difference along with possible evidence;
3. If supporting evidence are conclusive in nature, then the decision will be in favour of the assessee;
4. The above procedure should be followed and relevant records be submitted by the assessee during the litigation process then the onus is discharged and transferred to the Ld. officer o verify the facts properly.

Process to be followed by the department as follows:

1. Consider the explanation offered by the assessee and evidence submitted by the assessee.
2. The Department may take the course of section 133(6) to corroborate the evidence submitted by the assessee.

Once the above procedure is completed, the verification of the facts reaches the completion stage. If the above process is not executed in totality, then there is probability that matter will be restored back to AO far the completing the verification process.

Ashoka Construction Co. v. ACIT [2021] 127 Taxmann.com 595 / 188 ITD 896 (All)

1. Difference noted in assessment Rs. 37,92,738/-. The difference of Rs. 18,46,865/- was due to the reason that assessee in previous year (pertaining to two Partners). It was also explained that the assessee has offered income on receipt basis;
2. The difference of Rs. 6,60,210/- was in the nature of reimbursement;
3. The difference of R 12,85,663/- was wrongly shown by the party and the same was never received by the assessee.

The following evidence was submitted:

1. Ledger copies from the books of the assessee were submitted which were mapped with entries reflected in 26AS;
2. No specific evidence submitted;
3. The emails sent by the assessee to the respective parties were submitted but no response was received from the counter parties for such emails.

In the above case difference between 26AS and Books of Account consist of three types of reconciliation. Out of which first difference was of Rs. 18.46 lacs for which assessee offered an explanation that along with the evidence in form of ledger copies.

Tribunal held as under:

Now, it is for the revenue to bring on record cogent material to prove that prejudice is caused to revenue or there is malice on part of assessee to have included said income in the preceding previous year while it ought to have been included in the current previous year income. However, at the same time we are of the considered view that the said amount is duly included in the return of income filed for preceding previous year and taxes paid for previous year 2013-14 requires verification. The Tribunal restored this issue to the file of AO for fresh adjudication and the assessee was directed to provide a necessary evidences. For remaining difference, the Tribunal highlighted as under:

The AO was directed to AO to invoke provisions of Section 133(6) of the Income tax Act, 1961 to get information directly from the said concern to unravel the truth. It was the bounded duty of authorities to assist the taxpayer so that correct and legitimate taxes are mandated under the provisions and authority of Income-tax Act can be collected. Similarly, every taxpayer of the country has a duty cast on it to ensure that correct taxes are paid to Government by the taxpayers as mandated under the provisions of 1961 Act and all reasonable assistance as may be required in this direction be provided which is also the bounded duty of all taxpayers. With these direction, the said issue was restored to the file of the AO for fresh direction on merits in accordance with law.

Difference between 26AS and Books of Account

It is a matter of evidence. The assesse was advised to reconcile the difference as the time of closure of books account. Further, all such difference should be backed by the logical explanation within the framework given facts and circumstances. It can be seen that the assessee has already provided the logical explanation but due to lack of conclusive evidence the matter was restored to Assessing Officer. Therefore, the assessee should get conclusive evidence from counter parties in the form of balance confirmation or signed ledger extract in the books of counter parties to discharge the burden of proof by the assessee. It was also advisable to get the written reply through email from the counter parties for the difference noted in 26AS. However, in the above case, the assessee had offered explanation but the conclusive evidence was not produced before Assessing Officer or CIT (A) to conclude proceedings.

The Department should take proper steps to reach to conclusive end. Section 133(6) of the Income Tax is a right and proper step to bring clarify to the matter and verify the explanation given by the assessee. However, in the above case, the procedure to verify the facts from the department side was incomplete and therefore the matter was restored to AO. However, there may be a case wherein the assessee would not offer explanation or will give explanation. In such a situation, the onus on the assessee is not discharged and therefore, the assessee will have to face the consequence of tax liability on account of differences. The same principle has been uphold in case of Dy. CIT v. Edelwise Financial Advisors Ltd. 188 ITD 834 (ITAT Ahmedabad).

Conclusion: The assessee should before filing income-tax return should reconcile the difference between the income as per 26AS and income per books of account. In case of difference if any, the assesse should obtain the following evidence as,

1. Balance confirmation;
2. Ledger extracts of the assessee’s account in the books of counter party be obtained;
3. If in any circumstances, the assessee is not able to obtain balance confirmation or ledger extracts and if services are under preview of Government, the assessee can also take basis of GSTR-2A and reconcile the difference;
4. E-mail confirmation is obtained from the counter party which reflects the differences in the books of account and 26AS.
5. The AO should take following steps:
   1. to cross-verify the facts and explanation offered by the assessee;
   2. it is always advisable for AO to take recourse to Section 133(6) of the Income-tax Act, 1961 to cross-verify the facts.

If the evidence produced to incomplete from the assessee side or the verification is adequate from the side of the AO, then the matter be restored to the file of AO with proper direction.