2022 (1) TMI 880 - AT - Income Tax

Estimation of business income - Estimating the profit rate of 7.5% on the total contract value - AO noted that the gross receipts as per Form No. 26AS with respect to the contract work of Billpower Limited as shown more than gross receipts credited in the profit and loss account of the assessee - HELD THAT - Assessee has submitted details before the lower authorities i.e. CIT (Appeals), the statement showing reconciliation was also before the learned CIT (A) and before AO during the remand proceedings. The reconciliation submitted by the assessee, as evident that no further clarification is required there from. There is no allegation that the books of accounts of the assessee do not comply with the respective accounting standards which has a mandate of law in view of the Provisions of section 211 of the Companies Act. As the complete details were filed before the learned CIT (A) and where the annual accounts for two years filed before him clearly shows the higher income offered by the assessee from the impugned contract, we do not find any reason to set aside this issue back to the file of the learned Assessing Officer. Furthermore, the appeal before the learned CIT (A) is also a continuation of assessment proceedings only. The learned CIT (A) confirmed addition merely harping on non-compliance by assessee before the Assessing Officer and not applying his mind to the merits of the addition, such order is also not in accordance with the law. If the assessee is non-compliant before Assessing Officer that could not be the reason to brush aside the merits of the case and confirm addition in the hands of the assessee when complete details are available before the Commissioner of Income Tax (Appeals) - we direct to delete the addition - Decided in favour of assessee.

Summary

Issues:
1. Addition of income by Assessing Officer based on profit rate estimation.
2. Applicability of completed contract method for revenue recognition.
3. Discrepancy between Form No. 26AS and books of account.
4. Compliance with accounting standards and principles.
5. Allegation of non-cooperation by the assessee.
6. Violation of principles of natural justice.

1. Addition of Income by Assessing Officer:
The appeal was filed against the addition of income amounting to ?72,78,238, estimated by the Assessing Officer at a profit rate of 7.5% on the total contract value. The assessee, engaged in contract execution, filed its return at a loss, leading to the addition during assessment proceedings.

2. Applicability of Completed Contract Method:
The assessee followed the completed contract method for revenue recognition, in line with Accounting Standards 9 (AS 9). Revenue is recognized upon completion of the contract, as evidenced by audited accounts and details of work-in-progress and advances received from debtors.

3. Discrepancy between Form No. 26AS and Books of Account:
The Assessing Officer noted a discrepancy in gross receipts between Form No. 26AS and the profit and loss account. The reconciliation showed higher income offered by the assessee upon completion of the contract, exceeding the amount in Form No. 26AS.

4. Compliance with Accounting Standards and Principles:
The Tribunal emphasized compliance with accounting standards and principles, highlighting the importance of reconciling revenue recognition methods with tax deductions reflected in Form No. 26AS. The Tribunal noted that the purpose of Form No. 26AS differs from the annual accounts of the company.

5. Allegation of Non-Cooperation:
The Department argued non-cooperation by the assessee as a basis for confirming the addition. However, the Tribunal found that the assessee had submitted detailed reconciliations and evidence before the lower authorities, demonstrating compliance with accounting standards and offering higher income upon contract completion.

6. Violation of Principles of Natural Justice:
The first ground of appeal, alleging a violation of principles of natural justice, was dismissed due to lack of arguments. The Tribunal partly allowed the appeal, directing the Assessing Officer to delete the addition of ?72,78,238, as the lower authorities' orders were reversed based on the merits of the case.

This detailed analysis of the judgment covers the key issues involved and the Tribunal's decision on each aspect of the case.