2022 (11) TMI 65 - AT - Income Tax

Income recognition - advances received from customers - AR submitted that the advance from customers are due to accounting errors by the accountants who have been engaged temporarily by the assessee - HELD THAT - We find from the arguments of the AR that there is an error in the accounting of the customers' advances in different years which was converted into sales during the subsequent years. Accordingly, it is admitted by the AR that the tax on income has been deferred to the subsequent assessment years. It is also evident from the orders of the Ld. Revenue Authorities that the assessee has produced details regarding the customer advances before the Ld. AO who has not disputed the same. Further, as explained by the Ld. AR due to change in the incumbent of the accountant, the details furnished during the reassessment proceedings were not matching with the original list filed by the assessee. However, the Ld. AR pleaded that the original list filed by the assessee filed at the time of original assessment for the amount of actual advances received from customers is as per the audited balance sheet of the assessee. We also find merit in the argument of the Ld. AR that the customers advances carried over year after year and it is the consolidated list of advances as on balance sheet date is done in the liabilities side of the balance sheet. The advances may comprise of earlier advances also. Considering the same, the Ld. CIT(A) has rightly calculated the advances for the current year being the difference between the customer advances of AYs 2010-11 and 2011-12. We therefore find that the Ld. CIT(A) has rightly considered the current year advances and estimated the profit @ 6% based on the declared profits by the assessee, which were not disputed by the Ld. AO in the earlier years. We therefore find no interference is required in the order of the Ld. CIT(A) on this ground and accordingly, this ground raised by the Revenue is dismissed. Taxing of unrecorded incentives - HELD THAT - We find from the submissions made by the Ld. AR that a reconciliation statement has been provided before the Ld. Revenue Authorities. However, the Ld. AO was not being convinced with the reconciliation and rejected the claim of the assessee and proceeded to tax the difference amount as unexplained income. We also find from the submissions made by the Ld. AR that an amount represents income/incentives of the assessee. Therefore, the net income of the assessee should be shown at Rs. 10,65,576/- against which the assessee has admitted Rs. 9,30,860/-. Therefore, there is an unreconciled difference of Rs. 1,34,716/- which the assessee failed to reconcile but agreed for the addition to the total income of the assessee. CIT(A) in his findings of the order has observed the above facts and rightly directed the Ld. AO to delete Rs. 22,31,200/- and add Rs. 1,34,716/- to the total income of the assessee. We therefore find no interference is required in the order of the Ld. CIT(A) on this ground and dismiss the appeal of the Revenue.

Summary

Issues Involved:
- Appeal by Revenue against orders of Ld. CIT(A)
- Clubbing of appeals and cross objections
- Treatment of liabilities as customer advances
- Addition of unproved liabilities and unrecorded incentives
- Dispute over revenue recognition method
- Verification of voluminous data and onus of proof
- Reconciliation of customer advances and incentives
- Decision on appeals and cross objections

Analysis:
1. Appeal by Revenue against Ld. CIT(A) Orders:
- Revenue filed appeals against Ld. CIT(A) orders for AYs 2011-12 and 2012-13.
- Appeals and cross objections were clubbed, heard together, and decided in a consolidated order.

2. Treatment of Liabilities as Customer Advances:
- Assessee dealt in Two Wheelers and Spares, filed return admitting income.
- Survey operation revealed unproved liabilities treated as customer advances.
- Ld. CIT(A) partly allowed the appeal, treating advances as unaccounted sales at 6%.

3. Addition of Unproved Liabilities and Unrecorded Incentives:
- Revenue contested Ld. CIT(A) decision on unproved liabilities and unrecorded incentives.
- Dispute over revenue recognition method and onus of proof on the assessee.
- Ld. CIT(A) deleted additions based on explanations and reconciliations provided.

4. Reconciliation of Customer Advances and Incentives:
- Assessee explained discrepancies in customer advances and incentives.
- Ld. CIT(A) considered reconciliations and directed additions based on net unreconciled amounts.

5. Decision on Appeals and Cross Objections:
- Ld. AR argued errors in accounting of advances and deferred tax to subsequent years.
- Ld. CIT(A) justified calculations and estimations, dismissing Revenue's grounds.
- Dismissal of Revenue's appeals and cross objections due to no interference required in Ld. CIT(A) orders.

In conclusion, the judgment addressed the Revenue's appeals against Ld. CIT(A) orders regarding treatment of liabilities as customer advances, addition of unproved liabilities and unrecorded incentives, and reconciliation of discrepancies. The decision upheld Ld. CIT(A) rulings based on explanations, reconciliations, and estimations provided, ultimately dismissing the appeals and cross objections.