2016 (10) TMI 45 - HC - Income Tax

Estimation of income on booking receipts - Commissioner in his revisional order added profit at the estimated rate of 8 per cent - Tribunal noted booking receipts were only worth ₹ 22.42 crores (rounded off) on which the assessee had already offered tax at the rate of 8 per cent and Commissioner was factually wrong in making further additions on this score - Held that - Irrespective of the error of the Commissioner in referring to the said figure, we notice that the respondent assessee was in the business of development of construction project in which booking profit on the basis of project completion method is a well recognised principle of accountancy. It is not pointed out to say that in the earlier orders, the assessee had taken a different yardstick or though taken the same measure of project completion project, the department had objected to the same. - Decided against revenue

Summary

Issues:
1. Distribution of income offered by the assessee during survey operation
2. Applicability of project completion method for ongoing construction project

Analysis:

Issue 1 - Distribution of Income:
The Tribunal noted that no further additions were made by the Assessing Officer even after a reminder by the Commissioner exercising revisinal power under section 263. As a result, the first question raised by the revenue became infructuous and was not examined further.

Issue 2 - Applicability of Project Completion Method:
The Commissioner, in the revisional order, referred to a sum of &8377; 121.18 crores as booking receipts and added profit at the rate of 8 per cent. However, the Tribunal found that the actual booking receipts were only &8377; 22.42 crores, on which the assessee had already paid tax at 8 per cent. The Commissioner was deemed factually incorrect in making additional additions based on this discrepancy. The revenue's counsel argued that the Commissioner's mention of the higher figure was based on the context of the assessee's accounts using the project completion method. Despite this error, the court observed that the assessee was involved in construction projects where booking profit based on project completion method was a recognized accounting principle. There was no evidence to suggest that the assessee had deviated from this method in the past or that the department had objected to it. Consequently, the Tax Appeal was dismissed.