2018 (12) TMI 1263 - AT - Income Tax

Addition on account of running bill - assessee failed to explain the discrepancy noted by Ld. AO during assessment proceedings - Assessee was following accrual method of accounting and moreover, contractee had credited the said amount to the account of the assessee and had made TDS on it. - Held that - We find that it is undisputed fact that the assessee had failed to explain the discrepancies noted by AO during assessment proceedings and could not justify as to why the said receipts were not offered to tax. The perusal of ledger accounts received from HDIL revealed that the assessee was given credit of impugned amount and due TDS was also deducted against the same. The transactions were duly reflected in Form 26AS. The assessee while claiming the credit of TDS, justified its stand of not offering the same to tax on the premise that there was uncertainty as to collection of the revenue which was in sharp contrast to the fact that expenditure against the projects were being claimed by the assessee in profit & loss account. Under the given circumstances, we set aside the findings of first appellate authority and remit the matter back to the file of Ld. AO for re-adjudication - Decided in favour of revenue for statistical purposes

Summary

Issues Involved:
1. Addition made by AO on account of running bill not accounted for by the assessee.
2. Recognition of revenue under Accounting Standard 9 (AS-9) by the assessee.
3. Direction to give full credit of TDS claim of assessee.

Analysis:

Issue 1: Addition made by AO on account of running bill not accounted for by the assessee:
The appeal by the revenue contested the order of CIT(A) regarding the addition made by the AO on account of a running bill not accounted for by the assessee during the relevant previous year. The AO contended that the assessee, following the accrual method of accounting, did not account for a substantial amount raised by the contractee, despite the contractee crediting the amount to the assessee's account and making TDS. The CIT(A) deleted the addition, considering the ongoing dispute between the assessee and the contractee, leading to a lack of certainty in receiving the income. The CIT(A) held that the revenue recognition and taxation were contrary to the concept of real income and provisions of AS-9, postponing the recognition of revenue until it was reasonably certain that the ultimate collection would be made. The ITAT upheld the appeal, remitting the matter back to the AO for further adjudication.

Issue 2: Recognition of revenue under Accounting Standard 9 (AS-9) by the assessee:
The dispute revolved around the assessee's claim of following AS-9 for revenue recognition, contrary to its regular practice of following AS-7. The assessee argued that due to the ongoing dispute with the contractee and uncertainty in receiving payments, the revenue should not be recognized. The CIT(A) agreed with the assessee's contentions, emphasizing that revenue recognition should align with the concept of real income and provisions of AS-9. The ITAT, however, found that the assessee failed to explain the discrepancies noted by the AO and directed the matter to be re-examined by the AO with substantiated evidence from the assessee.

Issue 3: Direction to give full credit of TDS claim of assessee:
The CIT(A) directed the AO to give full credit of the TDS claim of the assessee, ignoring the fact that the amount not offered for tax by the assessee was held not liable to tax during the relevant previous year. The ITAT set aside the CIT(A)'s findings, remitting the matter back to the AO for further examination, emphasizing the need for the assessee to substantiate its stand regarding the TDS claim.

In conclusion, the ITAT's judgment addressed the issues of revenue recognition, addition made by the AO, and credit of TDS claim, emphasizing the importance of substantiating claims and aligning revenue recognition with accounting standards and the concept of real income.