2020 (4) TMI 428 - AT - Income Tax

Denial of credit of TDS - Income recognition method - AO dismissed the claim of the assessee holding that the credit of TDS is to be allowed only in the year in which receipt has been reflected by the assessee as its income in its account - HELD THAT - AO has not made any adverse inference in so far as the method of accounting employed by the assessee is concerned and has accepted that the assessee is consistently following POCM for recognizing income from construction contracts as prescribed in Accounting Standard-7 issued by Institute of Chartered Accountants of India, which is mandatory accounting standard. In its reply, the assessee has specifically mentioned that since it is following POCM, it has offered for tax the income on which it has claimed TDS during the year, in subsequent years on the basis of revenue recognized as per the consistent method of accounting followed by the assessee as per POCM. There is no mention of any such income offered in subsequent Assessment Years nor it has been verified by the Assessing Officer. Therefore, in the interest of justice and fair play, we restore this issue to the file of the Assessing Officer. The Assessing Officer is directed to verify whether the income has been recognized in subsequent Assessment Years and if found correct, credit of TDS should be given accordingly. Appeal of the assessee treated as allowed for statistical purposes.

Summary

Issues:
- Denial of credit of TDS
- Recognition of income under Percentage of Completion Method (POCM)
- Verification of income recognition in subsequent assessment years

Denial of credit of TDS:
The appeal was filed against the order confirming the denial of credit of TDS by the ld. CIT(A). The Assessing Officer dismissed the claim of the assessee for TDS credit amounting to ?3,12,40,697, stating that TDS credit should only be allowed in the year when the receipt is reflected as income in the accounts. The assessee explained that progressive invoicing and mobilization advance received were not considered as income for the year under consideration, following the Percentage of Completion Method. The Tribunal noted that the Assessing Officer accepted the method of accounting followed by the assessee and directed the Assessing Officer to verify if the income has been recognized in subsequent assessment years for fair play and justice.

Recognition of income under Percentage of Completion Method (POCM):
The assessee, a joint venture for construction contracts, explained that income from progressive invoicing and advance payments was not considered as income for the year under consideration, in line with the Percentage of Completion Method (POCM) followed. The Tribunal observed that the assessee consistently followed POCM for recognizing income from construction contracts as per Accounting Standard-7. The Tribunal emphasized that the income on which TDS was claimed during the year should be offered for tax in subsequent years based on the revenue recognized as per the accounting method. However, there was no verification of this in subsequent assessment years, leading to the issue being restored to the Assessing Officer for verification.

Verification of income recognition in subsequent assessment years:
The Tribunal directed the Assessing Officer to verify if the income, for which TDS was claimed in the year under consideration, has been recognized in subsequent assessment years. If found correct, the credit of TDS should be given accordingly. The appeal of the assessee was treated as allowed for statistical purposes, emphasizing the importance of verifying income recognition in subsequent assessment years for fair treatment.

In conclusion, the Tribunal addressed the denial of TDS credit, the adherence to the Percentage of Completion Method for income recognition, and the necessity of verifying income recognition in subsequent assessment years for fair play and justice. The decision highlighted the importance of following accounting standards and ensuring proper verification of income recognition for tax purposes.