2021 (6) TMI 509 - AT - Income Tax

Difference between the contractual amount shown in the TDS certificates and that shown in the Profit and Loss account - Credit of entire amount of TDS shown in TDS certificates - assessee has not offered the entire amount of contract receipts shown in the TDS certificates - HELD THAT - We have noticed that the aggregate amount of payment received by the assessee during the year under consideration was ₹ 2,78,72,229/-, while the amount actually reconciled in a summary manner was ₹ 2,23,30,487/-. In any case, in our view, the reconciliation made in summary manner will not give correct result. It is the duty of the assessee to reconcile the payments received from each of the parties, i.e., the assessee should furnish reconciliation statement for each of the parties. In fact, the assessee itself has reconciled the payments received from M/s Iconica Constructions in a proper manner. In our view, the assessee should reconcile the payments received from other four parties also in the similar fashion. In the reconciliation statement furnished by the assessee in summary manner, the assessee has claimed that there is increase in work-in-progress amount to the tune of ₹ 2,66,01,891/- and it is further stated that the above said WIP has been offered as income by the assessee. We are unable to agree with the said submission. The amount of work in progress cannot be considered as an item of income offered by the assessee. We explain the same. The amount of Closing stock /work in progress is credited to the Profit and Loss account under revenue cost matching principle , i.e., in order to arrive at the correct profit, one is entitled to deduct only corresponding cost. In the normal practice, the purchases made during the year would be booked in the Purchases account and the entire amount shall be transferred to the Profit and Loss account. We are of the view that the issues contested before us require fresh examination. Accordingly, we set aside the order passed by Ld CIT(A) and restore all the issues to the file of the assessing officer for examining them in the light of discussions made supra. As directed earlier, the assessee shall furnish reconciliation statements for each of the parties in the similar fashion as furnished in the case of M/s Iconica Constructions along with the relevant ledger copies. After examining the reconciliation statements and duly considering any other information and explanations that may be furnished by the assessee, the AO may take appropriate decision in accordance with law. Appeal of the assessee is treated as allowed for statistical purposes.

Summary

Issues Involved:
1. Addition of ?1.12 Crores to the Assessee's Income.
2. Reconciliation of Contractual Payments and Turnover.
3. Entitlement to TDS Credit.

Issue-wise Detailed Analysis:

1. Addition of ?1.12 Crores to the Assessee's Income:
The assessee, a civil contractor, filed a return of income declaring ?9,31,740/- for the assessment year 2016-17. The A.O. noticed a discrepancy between the contractual payments shown in the TDS certificates (?2,78,72,229/-) and the turnover declared in the Profit and Loss account (?1,65,99,621/-). The A.O. concluded that the difference of ?1,12,72,608/- should be added to the assessee's income since the assessee claimed TDS credit for the entire amount of ?5,57,448/-. The CIT(A) upheld this addition, leading to the appeal.

2. Reconciliation of Contractual Payments and Turnover:
The assessee argued that as a civil contractor, invoices are raised at various stages of construction, and payments received in advance are not immediately recognized as turnover. The assessee highlighted that the TDS is deducted on payments made, including advances, and these advances are adjusted against future invoices. The assessee provided a reconciliation statement showing amounts recorded in the books under different heads (contract receipts, advance payments, and work in progress), which collectively exceeded the payments mentioned in the TDS certificates. The A.O. and CIT(A) did not accept this explanation, leading to the appeal.

3. Entitlement to TDS Credit:
The Ld. D.R. contended that the assessee should only be entitled to TDS credit proportionate to the income recognized in the relevant year, as per Rule 37BA(3) of the I.T. Rules and Section 199(3) of the Act. The assessee argued that some case laws support the claim for the entire TDS credit irrespective of income disclosure. The Tribunal noted that the reconciliation provided by the assessee for one party (M/s Iconica Constructions) was satisfactory but not for the remaining parties. The Tribunal directed the assessee to provide detailed reconciliation for each party to determine the correct income and corresponding TDS credit.

Conclusion:
The Tribunal set aside the order of the CIT(A) and remanded the matter to the A.O. for fresh examination. The assessee was instructed to provide detailed reconciliation statements for each party, similar to the one provided for M/s Iconica Constructions. The A.O. was directed to consider these reconciliations and any additional information provided by the assessee before making a final decision. The issue of TDS credit entitlement was left to the discretion of the A.O., considering the provisions of the Act and relevant case laws. The appeal was allowed for statistical purposes.