2013 (4) TMI 368 - HC - Income Tax

Addition in income - Maistries Due Revenue expenditure matching concept - Held that - As it is explained by the assessee that they have shown in the books of account as work-in-progress and especially under the circumstances of following the mercantile system of accounting, we find force in the submission made by the learned counsel appearing for the assessee. Accordingly, the first issue is answered in favour of the assessee and against the Revenue. As far as the next issue, namely, absence of materials to prove the expenses, is concerned the A.O has not found anywhere in the assessment order that the expenses made by the assessee towards the Maistry dues is not supported by any material documents. It is only when the matter was remitted back from the first Appellate Authority to the A.O during the pendency of the appeal, the assessee was not in a position to produce those vouchers, reason is that the vouchers were damaged during 2005 floods. - Decided in favor of assessee.

Summary

Issues involved:
1. Addition of amount shown as "due to Maistries" by the Assessing Officer.
2. Justification of making addition towards work-in-progress by the Assessing Officer.

Issue 1: Addition of amount shown as "due to Maistries" by the Assessing Officer

The appellant, a civil contractor, had shown an amount as "Maistries Due" in the balance sheet. The Assessing Officer added a sum out of this amount to the profit shown, which was contested by the appellant. The first Appellate Authority confirmed the addition, but the Income Tax Appellate Tribunal allowed the appeal. The Revenue challenged this decision, arguing that the expenses were not shown as income in the Profit and Loss Account, and no vouchers were produced for the disputed expenses. However, the appellant contended that they followed the mercantile system of accounting and valued the work-in-progress, which was duly debited to the Profit and Loss Account. The Tribunal found in favor of the appellant, stating that the assessee had been following the mercantile system of accounting and had accounted for the amounts correctly. The Court upheld the Tribunal's decision, emphasizing that the Assessing Officer did not reject the books of account and that the addition was made without proper justification.

Issue 2: Justification of making addition towards work-in-progress by the Assessing Officer

The second issue raised by the Revenue was regarding the addition made towards work-in-progress. The Revenue argued that the Assessing Officer was not justified in making this addition as the corresponding receipts were not shown by the appellant. However, the appellant maintained that they would only show the receipt as income when the work was completed, as per the mercantile system of accounting they followed. The Tribunal found that the appellant had duly debited the amounts to the Profit and Loss Account, supporting the appellant's contention. The Court agreed with the appellant, stating that in the absence of any evidence disproving the appellant's claims and considering the circumstances under which the vouchers supporting the expenses were damaged, there was no justification for the addition made by the Assessing Officer. The Court dismissed the appeal, ruling in favor of the appellant on both substantial questions of law raised by the Revenue.

This detailed analysis of the judgment highlights the key arguments, findings, and conclusions related to the issues raised in the case.