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2015 (8) TMI 555 - AT - Income TaxMethod of accounting - recognition of income - determination of value of WIP - accounting for construction contracts (AS7) of the Institute of Chartered Accountant of India - CIT(A) directing to take WIP for A.Y. 2001-02 at ₹ 3 Crs and not ₹ 4.94 for Ghatprabha Project as adopted by the AO - carrying forward of losses as per the revised return Held that - The bill raised by the assessee has been accepted by the department and for whatever reason an amount of ₹ 2.88 crores was not paid during F.Y. 2001-02 but the fact remains that there is no such dispute as claimed by the assessee. No documentary evidence/correspondence has been filed by the assessee during assessment proceedings or appeal proceedings or even before us to substantiate the contention that some dispute was going on between the assessee and department. It is also to be noted that the assessee has not incurred any further expenditure in subsequent years for receipt of the above amount. We do not find merit in the submission of the assessee that since he has offered the income in the A.Y. 2004-05 and since there is no loss to the revenue the order of the CIT(A) should be upheld. Here, in the instant case the question is not relating to loss to the Revenue. It relates to the taxability of the income in a particular year. In the instant case the assessee follows mercantile system of accounting, has debited all the expenditure to the profit and loss account during the impugned assessment year, has valued the WIP at a particular figure, got its accounts audited and filed the return of income belatedly. Having done so the question that arises is whether the assessee be allowed to value the WIP at a reduced figure merely on receipt basis. The answer in our opinion in the facts of the present case is negative, i.e. in favour of the Revenue and against the assessee. So far as the various decisions relied on by the Ld. Counsel for the assessee are concerned we find the same are not applicable to the facts of the present case. In the instant case the assessee initially raised the bill on the Government department which has not been disputed by the department. The assessee has categorically submitted before the CIT(A) that the departmental engineer endorsed on the bill that the measurements were checked on 31-03-2001. Even the assessee in the profit and loss account has also accounted for such WIP. Further, from the copy of the letter addressed by the Executive Engineer to the Addl.CIT there appears to be no dispute so far as the bill is concerned. Only there was a delay in release of the payment. Therefore, the decision of Hon ble Patna High Court in Chanchani Brothers (Contractors) Pvt. Limited 1986 (2) TMI 26 - PATNA High Court is not applicable to the facts of the present case. Since the assessee is following mercantile system of accounting and since the assessee himself has shown in the belated original return of income the figure of WIP as per the bills raised by it on the Government department and since the assessee has not incurred any further expenditure on such amount received in subsequent year, therefore, the order of the CIT(A) reducing the WIP from ₹ 4.94 crores to ₹ 3 crores for A.Y. 2001-02 in our opinion cannot be accepted. Merely because assessee has offered the same to tax in A.Y. 2004-05 cannot be a ground to reduce the correct WIP from ₹ 4.94 crores to ₹ 3 crores. We accordingly set aside the order of the CIT(A) and the grounds raised by the revenue are allowed. - Decided in favour of revenue.
Issues Involved:
1. Validity of the revised return filed by the assessee. 2. Correct valuation of Work-In-Progress (WIP) for the assessment years 2001-02 to 2003-04. 3. Jurisdiction and procedural correctness of the notice issued under Section 143(2). 4. Applicability of Section 263 and Section 264 of the Income Tax Act. 5. Taxability of income in the correct assessment year. Detailed Analysis: 1. Validity of the Revised Return: The assessee, a partnership firm engaged in civil construction, initially filed its return of income for the assessment year (A.Y.) 2001-02 on 20-02-2002, declaring a total income of Rs. 94,56,820/-. This return was processed under Section 143(1) on 15-06-2002. Subsequently, the assessee filed a revised return on 20-01-2003, declaring a loss of Rs. 2,63,95,650/-, which was processed on the same day. The CIT held that the revised return was not valid and canceled the second intimation dated 20-01-2003, confirming the first intimation dated 15-06-2002 as final. 2. Correct Valuation of Work-In-Progress (WIP): The main issue was whether the WIP as on 31-03-2001 should be valued at Rs. 3 crores or Rs. 4.94 crores. The assessee argued that the WIP should be valued at Rs. 3 crores, as the running account bill raised in March 2001 was scaled down by the Executive Engineer from Rs. 5,88,69,955/- to Rs. 3 crores on 31-05-2002. The CIT(A) agreed with the assessee, holding that the correct value of WIP for A.Y. 2001-02 was Rs. 3 crores and not Rs. 4.94 crores. The CIT(A) directed that the amount of Rs. 1.94 crores should be considered in A.Y. 2004-05, when the assessee was vested with the right to receive the income. 3. Jurisdiction and Procedural Correctness of Notice Issued Under Section 143(2): The assessee contended that the assessment completed under Section 143(3) read with Sections 263 and 264 was illegal and without jurisdiction, as the statutory notice under Section 143(2) was invalid. The CIT had canceled the notice served on 28-05-2003 issued under Section 143(2)(ii), rendering the subsequent assessment proceedings void. 4. Applicability of Section 263 and Section 264 of the Income Tax Act: The CIT issued a show cause notice under Section 263, holding that the second return filed on 20-01-2003 was invalid. Consequently, the CIT set aside the intimation issued under Section 143(1) dated 15-06-2002 and directed the Assessing Officer to make a fresh assessment de novo. The CIT also set aside the intimation for A.Y. 2002-03 and directed the Assessing Officer to issue a notice under Section 143(2)(ii) for A.Y. 2003-04 and make a regular assessment thereafter. 5. Taxability of Income in the Correct Assessment Year: The Revenue argued that the assessee, following the mercantile system of accounting, should have valued the WIP at Rs. 4.94 crores as per the original return. The Executive Engineer's letter indicated no dispute regarding the bill amount, only a delay in payment due to a shortage of funds. The CIT(A) held that the income should be taxed in the year when the assessee gets the right to receive it. Since the assessee received the amount of Rs. 2.88 crores in A.Y. 2004-05, the CIT(A) directed that the WIP for A.Y. 2001-02 should be Rs. 3 crores. Conclusion: The Tribunal concluded that the assessee, following the mercantile system of accounting, should have valued the WIP at Rs. 4.94 crores for A.Y. 2001-02. The Tribunal set aside the CIT(A)'s order and restored the Assessing Officer's decision. The appeals filed by the Revenue were allowed, and the Cross Objections filed by the assessee were dismissed as 'not pressed'.
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