Residuary business - additions made on the basis of Form 26AS

Facts:

Assessee was in the residuary business. They were slapped with an addition of Rs. 37.86 crores based on mismatches on the income reported to the Form 26AS. It was the case of the assessee that in the residuary business they would be approached by customers who intend to use equipments of the assessee on rent. Accordingly assessee shortlists a lender/financier to whom the rentals are discounted without recourse and cash received upfront by securitization of the rentals of customers. The lender would in turn be assigned the rental receivables who will collect the proceeds periodically as they mature and become due. TDS is deducted by the end customer using the assessee's PAN but the credit of the same is claimed by the lender/financier. In case of loss if any due to TDS the same is reimbursed by the assessee to the financier/lender. The rental is thus not the income of the assessee. This did not meet eye of the AO but the CIT(A) on merits dropped the additions that were sustained by the AO. Aggrieved revenue appealed to ITAT -

Held against the revenue that the order of the CIT(A) was correct and the rentals were not income of the assessee at all. 

Ed. Note: The price what is paid to the equipment seller and the upfront amount received by the assessee from the lender/financier is income of the assessee. The rentals are the income of the lender/financier and what they have paid to the assessee becomes the cost of sales of the underlying rentals. There is a principal and an interest in this transaction which needs bifurcation in the hands of the lender like instalment/hire purchase sale. The income is the earning over the principal invested by the lender and not the entire amount ideally. But TDS is bound to happen on the entire rental amount paid by the end customers as the bifurcation of principal or interest is not known/or is inconsequential to them. 

Case: DCIT v. Connect Residuary (P) Ltd. 2023 TaxPub(DT) 4378 (Mum-Trib)