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TMI Blog2019 (3) TMI 1126X X X X Extracts X X X X X X X X Extracts X X X X ..... s no failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment. Reference to first explanation to Section 147 of the Act in this respect, would not aid the revenue. In the order of assessment, however, there was no addition made on this ground. Clearly, therefore, the Assessing Officer through scrutiny assessment agreed that the assessee on the accounting treatment given by the assessee to such billed amount and on that ground also, the Assessing Officer now cannot press the ground in service to sustain the impugned notice of reassessment. - Decided in favour of assessee. - WRIT PETITION NO. 294 OF 2019 - - - Dated:- 8-3-2019 - AKIL KURESHI M.S. SANKLECHA, JJ. Mr. Prakash Shah a/w Mr. Jas Sanghvi, Ms. Sherry Goyal and Ms. Divyasha Mathur i/by PDS Legal for the Petitioner Mr. A.R. Malhotra for the Respondents P.C.: 1. Heard learned counsel for the parties for final disposal of the petition. 2. The petitioner has challenged a notice of reassessment dated 23.3.2018 issued by respondent No. 2 - Assessing Officer for the assessment year 2011-12. Brief facts are as under:- 2.1 The petitioner is engaged in man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... After all, the assessee can raise bill only when it is entitled to do so as as per the terms of the contract on reaching certain milestone. 3.2 The cost incurred by the assessee in respect of the above projects till reaching of milestone was actually debited by the assessee in the profit and loss account. 3.3 The assessee has explained in note (J) of Schedule J - notes on accounts that as per accounting standards, it has booked sales based on percentage completion method which is reflected by actual cost incurred by it and not based on bills raised which was based on various mile stones reached in the project. 3.4 It is to be noted that the Accounting Standard AS 7 is not recognized under section 145(2). Even otherwise the method followed by the assessee is not acceptable as considered below. 3.5 It is held by various courts that the mode of book entries cannot change the nature of receipt. If a receipt is a trading receipt the fact it is not so shown in the account books of an assessee does not prevent the assessing authority from treating it as a trading receipt ( Chowringee Sales Bureau P. Ltd. Vs CIT (1973) 87 ITR 542, 548-9(SC). In other words a trading re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explaining the year end provision at ₹ 895.69 Lakh. These figures are not reconciled and no movement statement was obtained showing the net provision for the year and the utilization from earlier balance. Further, the AO has not examined the past history of actual expenses with reference to provision made to conclude that the provisioning is scientifically done, 5. As there is a failure on part of assessee to disclose fully and truly all material facts necessary for its assessment during the year under consideration and considering the facts that the assessee has claimed incorrect deduction as well as has not offered his entire income for tax, I have reasons to believe that income of more than ₹ 1 Lakh chargeable to tax has escaped assessment for this assessment year i.e. A.Y. 2011-12, coming within the meaning of Section 147 of the Income Tax Act, 1961. 6. In view of the same, notice u/s. 148 is issued after approval of CIT-LTU,Mumbai vide letter No. CIT(LTU)/CMIFPE/147/2017-18 dated 22.3.2018 . 2.2 Upon being supplied the reasons, the petitioner raised objections to the notice of reopening of assessment under communication dated 31.7.2018. Such objectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses had to be disallowed; ii. An amount of ₹ 41.88 crores (rounded off) which is a difference between the total of bills raised by the assessee to the clients and the sale booked in the account. According to the Assessing Officer, when the bills are already raised, the amount has accrued to the assessee and therefore, had to offer to tax which the assessee had not done; iii. An amount of ₹ 4.08 crore which was claimed by way of warranty provision was not allowable looking to the past history of actual expenses in relation to such warranty. 7. In the context of prior period expenses, the Assessing Officer had during the original assessment under a letter dated 11.11.2013 called upon the assessee to provide the following details:- 4. Details of miscellaneous expenses. 8. In response to such query, the assessee under a letter dated 26.12.2013 had provided said details of miscellaneous expenses at Annexure 1 which included details of prior period expenses. 9. Likewise with respect to the warranty provision, the Assessing Officer under the same letter dated 11.11.2013 had asked the petitioner to explain as under:- 5. Please explain why the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gation, and (iii) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized. The Court further stated that there was enough statistical data to indicate that every year some of the value actuators manufactured by the assessee company were found to be defective and no customer was prepared to buy such products without a warranty. Thus, the warranty stood attached to the sale price of the product. The Supreme Court based on the facts and circumstances held that provision for warrant is rightly made by the assessee company. Accordingly, the Supreme Court concluded that the assessee company was eligible for a deduction in respect of its provision for warrant claims when computing its taxable business income under the Income Tax Act. Various other courts including Tribunals has relied on above Supreme Court's decision. Based on the above discussion and various judicial precedents available till date, provision of warrant made by the Company in its books of accounts may be allowed as deduction while computing its taxable income under Income Tax Act. 11. In clear terms, thus, both th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pto the reporting date bear to the estimated total contract costs. The Cenvat Credit is accounted by crediting the amount to cost of purchases on receipt of goods and is used on clearance of finished goods by debiting Excise duty account. Contract revenue accrued in excess of billing amounting to ₹ 11,910.99 lacs (2009-2010: ₹ 6,289.40 lacs) has been reflected as due from customers on construction contracts under the head Currents assets, Loans and Advances . While billing in excess of Contract revenue accrued amounting to 4,188.90 lacs (2009-2010: ₹ 3,533.43 lacs) has been reflected as due to customers on construction contracts under the head Current Liabilities and Provisions Provision for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the current estimates. Income from services is recognized as and when the services are rendered. Interest Revenue is recognized on time proportion basis taking into account the amount outstanding and the rate applicable. Dividend income is recognized when the right to receive divident is established. Eligible expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , irrespective of the manner, it has been recorded in the books of account. 2.4 Therefore, the income of the assessee is under-assessed by sum of ₹ 35.33 crores which reflects the amount which has already become due to the assessee in terms of the contracts but is not accounted in the profit and loss account. The tax effect for the underassessment works out to ₹ 12.0 Cr. In the balance sheet under head current assets, the assessee has shown amount recoverable from customers at ₹ 62.89 Cr. This amount represents excess of aggregate sale proceeds recognized over the progress billings as on the reporting date. Prima facie, it appears that this amount cannot be reduced since if work done exceeds aggregate bills raised, the same will represent the work in progress and should be accounted as such by crediting income account. 14. In the order of assessment, however, there was no addition made on this ground. Clearly, therefore, the Assessing Officer through scrutiny assessment agreed that the assessee on the accounting treatment given by the assessee to such billed amount and on that ground also, the Assessing Officer now cannot press the ground in service ..... X X X X Extracts X X X X X X X X Extracts X X X X
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