2021 (4) TMI 103 - AT - Income Tax

Profit in the business of development - method of determining the profit - percentage of completion method OR project completion method - appellant has agreed for the addition during the assessment proceedings and it is consistently followed for preceding and subsequent years - addition with respect to profit on development even if the authorized representative of the appellant has agreed for such addition as there is no estoppel against the law - neither the principles of valuation of WIP adopted by the appellant nor the method of determination of profit by the assessing officer is correct in law - appellant being a developer and not a contractor, the revenue or income can be recognized only when the appellant sells the units - HELD THAT - Method adopted by assessee though was not a recognised method; the method of computation of additional income by AO is also uncalled for. We rely on Circular No. 14 of 1955 dated 11/04/1955 issued by CBDT, wherein it is expressed that assessing officers are expected to educate the assessee and allow claims that alleged timidly due to assessee, even when such a claim is not made. In the present case, the Ld. AO ought to have guided assessee for adopting one of the recognised method of accounting to arrive at the correct income vis- -vis the method of accounting adopted by assessee in the previous assessment year or the immediately succeeding assessment year. We rely on the decision of Hon'ble Supreme Court in case of CIT vs British Paints India Ltd. 1990 (12) TMI 2 - SUPREME COURT observed that assessee was valuing the work in progress and finished products at raw material cost by excluding other overriding expenditure. Hon'ble Supreme Court, held the method adopted by assessee therein was not acceptable, as it was not recognised method. We note that the method adopted by the Ld. AO to determined taxable income in the hands of assessee is not correct. It was incumbent on the Ld. AO to correct the mistake in the method adopted by assessee to compute taxable income for year under consideration. Merely because assessee had followed an unrecognised method to compute taxable income in the immediately preceding and succeeding assessment year, cannot be an estoppel under the statute to correct the mistake that has crept in. AO was duty-bound to correct the method of computation of income by adhering to either of recognised accounting standards. We refer to and rely upon to the decision of Hon'ble Bombay High Court in case of in case of Nirmala L. Mehta vs. A. Balasubramaniam, CIT Ors., 2004 (4) TMI 43 - BOMBAY HIGH COURT held that, merely because the assessee has offered the income, that would not take away the right to contend that amount was not chargeable to tax. We therefore remand this issue back to Ld. AO to consider it afresh. The Ld. AO shall resort to either of the recognised methods of accounting standards acceptable under the Income tax Act to compute the income in the hands of assessee if any for the year under consideration. As submitted that for assessment year 2012-13, also assessee had computed its income in similar manner. Accordingly we remand the issue raised by assessee in ground No. 2-7 for asst. year 2012-13, for recomputing the income in the hands of assessee in accordance with the recognised methods of accounting standards acceptable under income tax act. Assessee shall be granted proper opportunity of being heard. Assessee is directed to file all requisite relevant documents in support and to assist the Ld. AO in computing the correct taxable income for years under consideration. Additional ground raised by assessee for assessment year 2011-12.

Summary

Issues:
1. Validity of reassessment proceedings
2. Method of determination of income in the hands of the assessee
3. Disallowance of TDS credit and computation of interest under sections 234A, 234B, and 234C

Validity of Reassessment Proceedings:
The assessee filed an appeal against the order passed by the Ld. CIT(A) for the assessment year 2011-12. The Ld. CIT(A) confirmed the additional profits in the hands of the assessee as computed by the Ld. AO but deleted the disallowance of credit card commission charges paid to the bank. The Ld. Counsel did not press Ground No. 2-3 challenging the validity of reassessment proceedings, and these grounds were dismissed as not pressed. The Ld. Counsel focused on the issues raised on merits in Ground 4-8 and an additional ground raised later.

Method of Determination of Income in the Hands of the Assessee:
The Ld. Counsel argued that the Ld. AO estimated the income based on a percentage of work in progress (WIP), which is not a recognized method under accounting standards. The Ld. AO's method of computation was challenged as ad-hoc and not in line with generally accepted accounting principles. The Ld. Sr. DR supported the orders passed by the authorities below. The Tribunal noted that neither the assessee nor the Ld. AO followed any recognized method to declare profits as per accounting standards. The Tribunal referred to Circular No. 14 of 1955 and emphasized the need for guiding the assessee to adopt recognized accounting methods. The Tribunal remanded the issue back to the Ld. AO to consider afresh and compute income using recognized methods.

Disallowance of TDS Credit and Computation of Interest:
The assessee raised additional grounds related to the disallowance of TDS credit and the computation of interest under sections 234A, 234B, and 234C. The Tribunal admitted these grounds as they emanated from the assessment order and were necessary to determine the tax payable. The Tribunal directed the assessee to provide supporting documents, and the Ld. AO was instructed to consider the issues in accordance with the law. The grounds raised by the assessee on merits were allowed for statistical purposes for the assessment years 2011-12 and 2012-13, and the appeal was partly allowed.

In conclusion, the Tribunal addressed the issues of the validity of reassessment proceedings, the method of determination of income in the hands of the assessee, and the disallowance of TDS credit and computation of interest under sections 234A, 234B, and 234C. The Tribunal remanded certain issues back to the Ld. AO for proper consideration and directed the assessee to provide necessary documentation. The appeal was partly allowed based on the Tribunal's findings and directions.