2022 (8) TMI 513 - AT - Income Tax

Accrual of income - Difference between the receipts as per books and form No.26AS as revenue receipt liable to tax in this year - difference as being on account of the assessee not booking the relevant invoices in its books as sales either for the reason that it had reflected the same was WIP or had booked the same in the subsequent year, and had also explained the reason for doing so, and substantiated the same also with the copy of ledger account of the parties - CIT-A has rejected the explanation, primarily for the reason that since the assessee followed the accrual method of accounting, and the job was completed and bill raised by the assessee, the corresponding sales should have been booked in the impugned year only - HELD THAT - Even as per the accrual system of accounting, the income is said to have been accrued only when the other party accepts its liability with respect to the bills raised on it. Until then no income is said to be accrued. Even going by the logic of the ld.CIT(A) we find that the assessee had rightly booked income on account of bills which he had demonstrated, were accepted by the CONCORD Biotech Ltd. in the subsequent year. This, income accrued to the assessee in the subsequent year only when the bills were passed and accepted by the CONCORD Biotech Ltd.. With regard to these bills, therefore, the assessee had rightly booked the amounts in the subsequent year, and no addition was called for to be made to the income of the assessee in respect of these bills in the impugned year. As for remaining amounts relating both the Apple Wood Estate Ltd. and CONCORD Biotech Ltd. which the assessee had explained that it had booked this amount in its WIP and not as sales of the year,we find that it had substantiated its explanation by producing copy of its ledger account reflecting the same. We see no reason to reject this explanation of the assessee. Nothing has been pointed out by the Revenue as to why the assessee was wrong in booking these amounts, as its WIP. In view of the same, the addition on account of this difference pertaining to Apple Wood Estate Ltd. and CONCORD Biotech Ltd. is also not sustainable. In any case had reflected sales from these parties from Apple Wood Estate Ltd. and CONCORD Biotech Ltd.. Difference noted was to the extent of Rs.3.31 lakhs in the case of Apple Wood Estate Ltd. which is not even one percent of the total sales booked from the Apple Wood Estate Ltd. and Rs.21.93 lakhs in the case of CONCORD Biotech Ltd. which is approximately 20% of the sales. Assessee has shown turnover of Rs.10.09 crores, declaring GP at 9.16% and Net Profit of 3% during the year. Having disclosed such huge turnover, and disclosed appropriate net profit and having duly explained the difference in the turnover, as reflected in its books and in Form No.26AS there is no reason to believe that the assessee had wrongly not disclosed sales on these very small amount of Rs.3.00 lakhs and Rs.21 lakhs (approximately) from the aforesaid two parties. In view of the above, we direct the deletion of addition on account of difference in sales as reflected in the books of the assessee, and that in Form 26AS The ground of appeal of the assessee is allowed.

Issues Involved:

1. Condonation of delay in filing the appeal.
2. Legality of the addition of Rs.25,24,873/- due to alleged short receipts.
3. Difference in receipts between books and Form No. 26AS.
4. Accounting treatment of receipts as work-in-progress (WIP) and subsequent year booking.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:

The assessee filed an appeal delayed by 63 days and sought condonation of delay, citing the reason as having filed a rectification application to the Assessing Officer (AO) against the addition confirmed by the CIT(A). The affidavit stated that the incomes added were returned to tax in the subsequent year, leading to a delay. The Tribunal found the cause reasonable and bonafide, considering the short period of delay, and condoned the delay.

2. Legality of the Addition of Rs.25,24,873/- Due to Alleged Short Receipts:

The assessee challenged the addition of Rs.25,24,873/- towards alleged short receipts, arguing that the CIT(A) erred in law and facts by not considering the explanations and evidence properly. The Tribunal noted that the assessee had declared a total turnover of Rs.1.09 crores with a gross profit rate of 9.16% and a net profit rate of 3% during the year.

3. Difference in Receipts Between Books and Form No. 26AS:

The difference in contractual receipts was attributed to two parties: Apple Wood Estate Ltd. (Rs.3,31,228/-) and CONCORD Biotech Ltd. (Rs.21,93,645/-). The assessee explained that the difference was due to the method of accounting, where certain amounts were booked as WIP and reflected as sales in the subsequent year. The Tribunal found that the assessee had substantiated this explanation with necessary evidence, including subsidiary ledger accounts and payment release notes.

4. Accounting Treatment of Receipts as Work-in-Progress (WIP) and Subsequent Year Booking:

The CIT(A) had rejected the assessee's explanation, stating that under the accrual system of accounting, the sales should have been booked in the impugned year when the job was completed and the bill was raised. However, the Tribunal disagreed, stating that income accrues only when the other party accepts its liability. The Tribunal found that the assessee had rightly booked the income in the subsequent year when the bills were accepted by CONCORD Biotech Ltd. For the amounts booked as WIP, the Tribunal saw no reason to reject the explanation as the assessee had substantiated it with ledger accounts.

The Tribunal also noted that the difference in turnover was minimal compared to the total sales booked from the parties, and the assessee had disclosed a significant turnover with appropriate net profit. Therefore, the addition of Rs.25,24,873/- was not justified.

Conclusion:

The Tribunal directed the deletion of the addition of Rs.25,24,873/- on account of the difference in sales as reflected in the books of the assessee and in Form 26AS. The appeal of the assessee was allowed.

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