2018 (1) TMI 1407 - AT - Income Tax

Consistency in Accounting Practices: ITAT Upholds CIT(A)'s Decision for Assessee

The ITAT upheld the decision of the Ld. CIT(A) in favor of the assessee, dismissing the Revenue's appeal and the Assessee's Cross Objection. The judgment ... Addition on account of provisions for unrealized surcharge levied on account of delay in payment of bills - accrual of income - Held that:- The books of accounts of the assessee are regularly audited by the CAG and Tax auditors and the same has been duly accepted them. We further find that the case laws cited by the Ld. DR in the written submissions are on different set of facts and circumstances, hence, the same are not applicable in the present case. The assessee’s case is fully covered by the Coordinate Bench decisions of the Tribunal in assessee’s own case of assessment years 2006-07 to 2008-09 [2012 (2) TMI 563 - ITAT DELHI] and [2012 (7) TMI 340 - ITAT, DELHI]. In view of the above, we are of the considered view that CIT(A) has rightly deleted the addition in dispute by respectfully following the decision of the previous CIT(A) as well as the ITAT decisions in assessee’s own case of assessment years 2006-07 to 2008-09, hence, the impugned order does not need any interference on our part, therefore, we uphold the action of the Ld. CIT(A) on the issue in dispute and reject the ground raised by the Revenue. Issues Involved:1. Addition of provisions for unrealized surcharge2. Obligation to follow mercantile system of accounting3. Treatment of unrealized surcharge as income4. Violation of accounting principles5. Treatment of unrealized surcharge as bad debt6. Validity of reassessment proceedings under Section 147Analysis:Issue 1: Addition of provisions for unrealized surchargeThe Revenue contended that the Ld. CIT(A) erred in deleting the addition of a substantial amount made on account of provisions for unrealized surcharge, arguing that the company should follow the mercantile system of accounting. The AO observed that the right to receive surcharge had matured, making the income includible in the total income of the assessee. However, the Ld. CIT(A) allowed the appeal of the assessee, citing previous Tribunal orders in favor of the assessee for similar issues. The ITAT upheld the decision, stating that the issue was covered by previous decisions in the assessee's favor, and the books of accounts were audited and accepted by relevant authorities.Issue 2: Obligation to follow mercantile system of accountingThe Revenue argued that the assessee, being a company, is obligated to follow the mercantile system of accounting as per the Companies Act. The AO disallowed the provision made on account of surcharge levied but not realized, as the company was following the mercantile system of accounting. The Ld. CIT(A) and ITAT, however, held in favor of the assessee, citing consistency with previous Tribunal decisions and acceptance of audited books of accounts.Issue 3: Treatment of unrealized surcharge as incomeThe Revenue contended that the assessee violated accounting principles by not accounting for the unrealized surcharge as income. The AO disallowed the provision made on account of unrealized surcharge, as it was considered violative of accounting principles for a company assessee. The Ld. CIT(A) and ITAT disagreed with the Revenue, citing the assessee's historical practices and consistency with previous decisions in the assessee's favor.Issue 4: Violation of accounting principlesThe Revenue argued that the practice adopted by the assessee regarding unrealized surcharge amounted to following the cash method of accounting, violating accounting principles for a company assessee. The AO disallowed the provision made on account of surcharge levied but not realized. However, the Ld. CIT(A) and ITAT upheld the appeal of the assessee, citing previous Tribunal decisions and the consistency in the treatment of such issues.Issue 5: Treatment of unrealized surcharge as bad debtThe Revenue contended that the assessee did not treat the unrealized surcharge as bad debt. The AO disallowed the provision made on account of surcharge levied but not realized. The Ld. CIT(A) and ITAT ruled in favor of the assessee, following previous Tribunal decisions and accepting the audited books of accounts.Issue 6: Validity of reassessment proceedings under Section 147The Assessee's Cross Objection challenged the validity of reassessment proceedings under Section 147, arguing that the reassessment was barred by the proviso to Section 147 of the Act. However, the ITAT dismissed the Cross Objection as the Revenue's appeal was already rejected on merit, and the grounds raised in the Cross Objection were not raised before the Ld. CIT(A).In conclusion, the ITAT upheld the decision of the Ld. CIT(A) in favor of the assessee, dismissing the Revenue's appeal and the Assessee's Cross Objection. The judgment highlighted the importance of consistency in accounting practices, previous Tribunal decisions, and the acceptance of audited books of accounts in resolving the issues at hand.