Introduction
For businesses and tax professionals in India, a red flag often triggers when gross receipts in Form 26AS don’t match sales reported in Profit & Loss (P&L) statements. Tax authorities may attempt to add the entire discrepancy as income. But a landmark verdict from the Income Tax Appellate Tribunal (ITAT) highlights that such actions are unsustainable when proper reconciliation is provided. In this article, we’ll explore why an addition based solely on a Form 26AS–P&L mismatch doesn’t stand and how to safeguard your financial statements.
What Is Form 26AS—and Why It Matters
Form 26AS is your annual consolidated tax statement containing:
-
TDS/TCS entries
-
Advance and self-assessment tax payments
-
Demands, refunds, and high-value transactions under your PAN
It plays a pivotal role during tax assessments, letting authorities verify if declared income aligns with taxes collected at the source.
Why Mismatches Occur: Common Scenarios
-
Net vs Gross Reporting
Contractors and service providers often record net receipts (excluding VAT/Service tax), while Form 26AS reflects the gross TDS amount . -
Timing Differences
Income may be declared in one year, while TDS is adjusted in another, leading to temporary mismatches -
Multiple TDS Deductions
Large contracts may attract TDS multiple times (e.g., interim and final bills), inflating Form 26AS totals
ITAT’s Landmark Judgments
1. ACE Build Tech (Delhi ITAT)
Held that a mismatch triggered by net accounting (excluding service tax) can’t justify additions if reconciled—addition deleted
2. Sudhir Dayalal Mistry (Mumbai ITAT, June 2025)
Ruled that ₹54.4 lakh addition based solely on mismatch was invalid when proper books and reconciliations were provided. ITAT noted, “no addition can be made solely on the basis of a mismatch…”
3. BBH Communications (Mumbai ITAT)
Addition sought under similar circumstances was deleted—recognizing that 26AS includes service tax, while net P&L records might not
Why the ITAT Says These Additions Don’t Stand
-
Books of account are sacrosanct: If audited and maintained properly, temporary mismatches alone aren’t grounds for addition.
-
Reconciliation is key: Provide detailed breakdowns showing how/why discrepancies occurred.
-
Basis of addition must be sound: Blanket assumptions without evidence—like tax liability postponement—don’t hold up.
Practical Steps for Tax-Ready Compliance
-
Document Timing Differences
Keep records of invoices and receipts showing which financial year the income was offered in. -
Maintain Gross/Net Recon Tables
Compare Form 26AS figures with P&L gross sales and adjust for taxes like service tax, VAT, WCT, etc. -
Request TDS Corrections
If TDS appears twice (e.g., interim + final), get a corrected TDS certificate from the payer. -
Keep P-Nums Ready
Keep PAN and TAN records handy to link entries between invoices, 26AS, and ledger. -
Include Confirmations from Clients
Written confirmations (e.g., from contractors/clients like Wockhardt) help substantiate reconciliation
Example: How It All Comes Together
Sunrise Constructions Pvt. Ltd. billed ₹1 crore for a project.
Recorded ₹1 crore net (excluding ₹12 lakh GST) in P&L
Form 26AS showed ₹1.12 crore (inclusive of GST/TDS)
They submitted a reconciliation • invoice schedules • TDS certificates
ITAT deleted ₹12 lakh addition—approved by Mumbai Bench
This practical illustration demonstrates how transparency and documentation can eliminate tax additions.
Table: Quick Comparison
| Reason for Mismatch | What to Provide | ITAT Position |
|---|---|---|
| Excluding service tax/VAT | Invoice and ledger details + tax computation | Mismatch explained, no addition |
| Timing differences (interim/final) | Billing calendar vs TDS entries timeline | Adequate proof ⇒ No addition |
| Double TDS deductions | Revised TDS certificates + payer letters | Explanation accepted & addition deleted |
Tips: Avoid Pitfalls During Assessment
-
Early Recon: Compare 26AS and P&L annually—don’t wait for assessment notices.
-
Use Tech Tools: Tally, Zoho Books, or ClearTax can help auto-sync receipts and 26AS.
-
Request Revisions Promptly: If mismatches appear, timely correction saves trouble.
-
Keep Records Well: Store TDS certificates, client emails, and reconciliation sheets systematically.
-
Engage Experts: When uncertain, consult a Chartered Accountant—they can preemptively guide reconciliation.
Conclusion
Relying purely on differences between Form 26AS and P&L to add income is unsustainable if you hold proper records and documented reconciliation. ITAT rulings clearly favor taxpayers who:
-
Maintain full, audited books
-
Provide transparent reconciliation
-
Identify reasons like timing, taxes, or double deductions
At Manika TaxWise, we urge businesses to stay proactive. Keep reconciliations current, maintain clarity, and treat discrepancies as early warning signals—not trouble. With organized documentation, you turn a possible audit headache into a showcase of strong compliance.
FAQs
Q: Can the tax officer add the total mismatch as undisclosed income?
A: No—if you maintain proper books and provide a credible reconciliation, ITAT rulings bar blanket additions.
Q: What are common causes of Form 26AS mismatches?
A: Net vs gross recording, timing differences, duplicate TDS, wrong PAN/TAN—all resolvable.
Q: How should businesses reconcile?
A: Maintain comparison tables, invoices, TDS certificates, and client acknowledgments annually.
Q: Is ITAT’s decision binding?
A: While not Supreme Court precedents, ITAT rulings at Mumbai and Delhi have strong persuasive value.
Q: What if TDS was deducted twice—can I amend it?
A: Yes, ask the payer to issue a corrected TDS certificate or file corrected TDS returns promptly.
🔑 Keywords: Form 26AS mismatch, P&L difference, ITAT ruling, sales mismatch, tax addition, TDS reconciliation, tax compliance India
