2022 (3) TMI 426 - AT - Income Tax

Revenue estimation - recognition of revenue from BSNL project - application of percentage completion method - non-grant of deduction in respect to excess revenue taxed for its contract with Bharat Sanchar Nigam Limited ( BSNL ) - difference between completed contract method and percentage of completion method - how much revenue from BSNL project is liable to taxation during the relevant period, i.e., AY 2008- 09? - HELD THAT - We are of the considered opinion that whilst applying the percentage completion method, the estimated revenue of a project would be dynamic year-on-year and would keep on changing over the contract period. Thus, the myopic view taken by the Ld. CIT(A) in comparing the total estimated revenue from BSNL contract vis a vis the assessment order of AY 2005-06 (i.e., sum of INR 1617,62,89,128/-) and as claimed by the Assessee (i.e., sum of INR 1606,85,17,755/-) in the relevant AY 2008-09, is baseless and devoid of merits. Our view is fortified by the judgment of the Hon ble Supreme Court in CIT v. Bilahari Investment (P.) Ltd. 2008 (2) TMI 23 - SUPREME COURT We are of the opinion that the percentage completion method tries to attain periodic recognition of income in order to reflect current performance and, accordingly, the revenue recognized during AY 2005-06 to AY 2007-08 would be relevant for determining the recognizable revenue from BSNL project till AY 2008-09 and not the final figure when the project is actually completed, which would otherwise lead to impossibility of performance. We also note that the Assessing Officer has not disputed that during the relevant period, estimate of revenue under BSNL project was INR 1606,85,17,755/- and 97.76% of the project was completed and, thus, the recognizable revenue of the Assessee from BSNL project was INR 1570,82,26,462/-. Therefore, it was not open for the Ld. CIT(A) to take a contrary view in the remand proceedings without any corroborative evidence on record. This is second round of litigation before this Tribunal and all the necessary factual details are available on record. After duly considering the material evidence on record and the order of the Ld. CIT(A) we observe that the CIT(A) has missed to take into consideration the revenue from BSNL project which was suo moto offered to tax by the Assessee and is also reflected in the audited financials. In this background, we approve the working submitted by the Ld. AR that the total revenue taxed by the Assessing Officer with respect to the BSNL project for AY 2005-06 to AY 2008-09 is INR 1610,60,22,380/- and the recognizable revenue from BSNL project for AY 2005-06 to AY 2008-09 as per percentage completion method is INR 1570,82,26,461/-. Accordingly, the Assessing Officer is directed to grant relief to the Assessee to the extent of sum excessively taxed, so as to avoid double taxation - Decided in favour of assessee.

Summary

Issues Involved:
1. Non-grant of deduction for excess revenue taxed in earlier years.
2. Non-grant of credit for taxes paid under protest.
3. Levy of penalty under section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Non-grant of deduction for excess revenue taxed in earlier years:

The core issue pertains to the non-grant of deduction for excess revenue taxed under the BSNL project for the assessment year (AY) 2008-09. The tribunal had previously remanded the matter back to the Assessing Officer (AO) for re-adjudication. The AO, in his order dated 26.06.2015, acknowledged the correct determination of total revenue over the life of the BSNL project but did not allow deduction for revenues already taxed in earlier years, citing that the matter for AY 2006-07 was still sub-judice.

The assessee contended that the AO had taxed excess revenue of INR 39,77,95,919 under the BSNL project, which had already been taxed in prior years. The CIT(A), however, rejected this claim, stating that the appellant had misled by providing incorrect figures and that the project was not complete, making the claim premature.

The tribunal, upon review, noted that the percentage completion method was consistently applied by both the assessee and the AO. The tribunal highlighted that the estimated revenue of a project is dynamic and changes over the contract period. The tribunal found that the AO had not disputed the total estimated revenue under the BSNL project for AY 2008-09 as INR 1606,85,17,755/- and that 97.76% of the project was completed, making the recognizable revenue INR 1570,82,26,462/-. The tribunal concluded that the CIT(A) erred in not considering the revenue of INR 24,92,41,718/- from the BSNL project, which was offered to tax by the assessee. Therefore, the tribunal directed the AO to grant relief to the assessee to avoid double taxation, allowing grounds 1 to 1.3.1.

2. Non-grant of credit for taxes paid under protest:

This issue was not explicitly discussed in the detailed analysis of the judgment. However, considering the tribunal's direction to grant relief for the excess revenue taxed, it can be inferred that the tribunal's decision indirectly addresses the concern of taxes paid under protest.

3. Levy of penalty under section 271(1)(c) of the Income Tax Act:

The tribunal noted that the issue of penalty under section 271(1)(c) was not pressed by the assessee during the proceedings. Consequently, this ground was disposed of as not pressed.

Final Judgment:

The appeal of the assessee was allowed, and the AO was directed to grant relief for the excessively taxed sum to avoid double taxation. The issue of penalty under section 271(1)(c) was disposed of as not pressed. The order was pronounced on 09.02.2022.