2013 (8) TMI 659 - AT - Income Tax

Deemed sale - Addition of income from dispatches to sub-contractors - percentage completion method - Difference between the concluded sales and estimated sales - Held that - There seems to be a prima facie mistake committed by the Assessing Officer in treating the difference between the concluded sales and estimated sales on despatches made to sub-contractors as not accounted, whereas both the streams of income were already taken to the Profit & Loss Account. If this aspect is found to be correct, there is no need to make any addition, as the assessee has offered both the streams of income in the respective Profit & Loss Accounts. Since there seems to be a mistake committed in the course of assessment proceedings and also first appellate proceedings, in the interests of justice, we set aside the issue to the file of the Assessing Officer to examine the contentions of the assessee and in case it is found that the assessee has already accounted for the income as stated above, the question of making any further addition does not arise at all. With these directions, we restore the respective additions in the three years to the file of the Assessing Officer for examination of facts and to decide accordingly. Assessee should be given due opportunity for explaining the above contentions - Decided in favour of assessee. Addition towards incorrect accounting of stock - Held that - The MOU between the assessee and the VSSC, a Government organization, was examined and there is no dispute with reference to the fact that assessee is maintaining a metal bank for procuring strategic raw-material and using them as and when there was order from VSSC for its supply. It is also on record that the VSSC is providing funds and assessee only procures them on behalf of the VSSC and keeps sufficient stock in its godown. Just because the stock was procured by the assessee, it does not mean that it has ownership on the stock, which pertained to VSSC - While accepting that the assessee is maintaining the stock of material on behalf of others and only charging fixed amount for this service, and as such, apparently, there is no need to admit the same in their books as stock in trade, he confirmed the same holding that the assessee did not specify how the balance figures are shown in the books of VSSC and what is the effect of this confirmation. This reasoning given by the CIT(A) cannot be accepted because VSSC has certified the stock under consideration belongs to it and in no way the ownership of the stock pertains to the assessee. Just because the stock is kept with the assessee the same cannot be treated as the stock of the assessee, as it belongs to a third party, viz. VSSC in this case - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of income from despatches to sub-contractors.
2. Addition towards incorrect accounting of stock.

Detailed Analysis:

1. Addition of Income from Despatches to Sub-Contractors:

In all three appeals, a common issue was the addition of Rs. 7.88 crores, Rs. 5.25 crores, and Rs. 7.50 crores for the assessment years 2006-07, 2008-09, and 2009-10, respectively, as income from despatches to sub-contractors. During the assessment proceedings, the Assessing Officer (AO) found that the assessee was not recognizing the income regarding despatches to sub-contractors and made the additions accordingly. The assessee contested these additions before the Commissioner of Income-tax (Appeals) [CIT(A)], arguing that the income was consistently accounted for and that the method had been followed for years without objection. However, the CIT(A) confirmed the additions.

Before the Tribunal, the assessee's counsel argued that there were factual errors in the assessment stage. The income from concluded contracts was mistaken for despatches to sub-contractors, leading to erroneous additions. The assessee had recognized income on concluded contracts and on an estimated basis for despatches to sub-contractors, both of which were already accounted for in the Profit & Loss Account. The AO erroneously took the difference for taxation. For example, the assessee accounted for sales of Rs. 45.18 crores and deemed sales of Rs. 37.68 crores, but the AO added Rs. 7.50 crores as income, despite the entire amount being offered as income.

The Tribunal found a prima facie mistake by the AO in treating the difference between concluded sales and estimated sales on despatches to sub-contractors as unaccounted, while both streams of income were already in the Profit & Loss Account. The Tribunal set aside the issue to the AO to examine the contentions and decide accordingly, ensuring the assessee is given due opportunity to explain.

2. Addition Towards Incorrect Accounting of Stock:

This issue arose only in the appeal for the assessment year 2009-10. The AO added Rs. 20.91 crores towards incorrect accounting of stock, based on an MOU between the assessee and Vikram Sarabhai Space Centre (VSSC) for procuring and storing strategic raw materials. The AO believed that the stock maintained by the assessee should be shown as closing stock, treating it as the assessee's property. The assessee argued that they were only receiving service charges for maintaining VSSC's stock, which was funded by VSSC and not owned by the assessee. Despite a confirmation from VSSC, the CIT(A) upheld the addition, questioning the treatment of the stock in VSSC's books.

The Tribunal disagreed with the AO and CIT(A), noting that the MOU clearly indicated the stock belonged to VSSC, and the assessee only maintained it. The Tribunal found no basis for treating the stock as the assessee's property, especially given the confirmation from VSSC. The Tribunal directed the AO to delete the addition, emphasizing that both the assessee and VSSC are government organizations audited by C&AG, and no objections were raised in the audits.

In conclusion, the Tribunal allowed the assessee's appeals for statistical purposes, with directions for further examination by the AO on the first issue and deletion of the addition on the second issue.

Order Pronounced:

The order was pronounced in the court on 24.05.2013.