2020 (10) TMI 981 - AT - Income Tax

Suppression of debtors - CIT-A deleted the addition - HELD THAT - Entire turnover of the assessee is exclusively from Government Department and the said turnover has not been disputed by the AO. AO has also not considered the debtors of other divisions and only considered debtors of contracting division - no Government Department issues any confirmation, an issue which has been raised by the AO. AO has just made an estimated calculation and actual figures of various deductions such as TDS, Works contract Tax, Security deposit, royalty, Secured Advances (EMD), and Retention money has not been considered. These facts were not refuted by the Ld. DR at the time of hearing. AO resorted to some strange calculation finding out mismatch in the account of sundry debtors in view of the accounts derived at for the subsequent assessment year. When the AO is accepting the turnover, sales are not disputed and the AO has also not considered the actual figure of various deductions as afore-stated, in such scenario, we are of the considered view that the Ld. CIT(Appeals) was correct in deleting the addition. Addition on account of mismatch in work in progress - CIT-A deleted the addition - HELD THAT - AO arrived at a conclusion by selecting some particular sites and taking recourse to reverse calculation on the basis of subsequent years profitability. On the facts on records, AO failed to consider specifies of each project. The facts such as escalation in some projects, were not considered. In the case of amount of escalation, there is no corresponding expenditure against the same and therefore, it would not have any impact on WIP. AO has not considered the figures and accounts of all the sites. Adoption of accounts of subsequent years cannot be the basis for calculating work in progress of the year. In view of our above observations, we do not find any reason to interfere with the findings of the Ld. CIT(Appeals). Addition on account of labour payment - AO disallowed 5% of the entire site expenses - HELD THAT - Ground of the Revenue was against restricting of disallowance to 5% of labour charges by the Ld. CIT(Appeals). However, with the order of the Tribunal 2017 (12) TMI 1780 - ITAT PUNE this 5% disallowance on labour charges has been overturned and instead 3% disallowance on labour charges has been retained. In such scenario, the ground of appeal by the Revenue before us on this issue needs to be dismissed. Appeal of the Revenue is dismissed.

Summary

Issues Involved:

1. Deletion of additions on account of suppression of debtors amounting to ?8,32,44,990.
2. Deletion of additions on account of mismatch in Work-in-Progress (WIP) amounting to ?7,32,73,273.
3. Restriction of disallowance to ?25,14,015 of the additions made by the Assessing Officer on account of labour payment to ?2,96,19,146.

Issue-wise Detailed Analysis:

1. Suppression of Debtors:

The Revenue contested the deletion of additions made by the Assessing Officer (AO) on account of suppression of debtors amounting to ?8,32,44,990. The AO noticed a mismatch between the debtors' figures in the assessee's books and project-wise details, leading to an estimated computation of debtors at ?12,98,60,231, against the ?4,66,15,241 shown by the assessee. The AO added the difference of ?8,32,44,990 to the income.

The CIT(A) found that the AO's estimation did not account for various deductions like TDS, Works Contract Tax, Security Deposit, Royalty, Secured Advances (EMD), and Retention money. The CIT(A) concluded that the AO's assumptions and estimates were not legally sustainable, and the turnover from government departments was not disputed. Thus, the addition was deleted.

The Tribunal upheld the CIT(A)'s decision, noting that the AO's calculations were based on estimates and did not consider actual figures of deductions. The Tribunal found no reason to interfere with the CIT(A)'s findings and dismissed Ground No.1 raised by the Revenue.

2. Mismatch in Work-in-Progress (WIP):

The AO identified a mismatch in the closing WIP figures, estimating an understatement of ?7,32,73,273 based on an average profit margin from the subsequent assessment year. The AO's estimation was challenged by the assessee, who clarified that the WIP figures related to different divisions and correctly reconciled with the balance sheet.

The CIT(A) noted that the AO's estimation was based on selective site data and reverse calculations from subsequent years' profitability, failing to consider specifics like project escalations. The CIT(A) found the AO's approach speculative and without basis, thus deleting the addition.

The Tribunal agreed with the CIT(A), emphasizing that the AO's reliance on subsequent years' accounts for current year WIP calculations was inappropriate. The Tribunal upheld the deletion of the addition and dismissed Ground No.2 raised by the Revenue.

3. Disallowance of Labour Payment:

The AO disallowed 5% of the labour expenses, totaling ?2,96,19,146, citing discrepancies in vouchers and lack of proper documentation. The CIT(A) restricted this disallowance to 5% of labour charges only, excluding other site expenses.

The Tribunal, in a related case, had previously reduced this disallowance to 3% of labour charges, finding the 5% disallowance excessive. The Tribunal applied this precedent, dismissing the Revenue's appeal on this issue and confirming the 3% disallowance on labour charges.

Conclusion:

The Tribunal dismissed the Revenue's appeal on all grounds, upholding the CIT(A)'s decisions to delete the additions for suppression of debtors and mismatch in WIP, and to restrict the disallowance of labour payment to 3%.