Taxability of contractual receipts under the accounting method upheld where prior year taxation was not proved

Statutory notices and repeated opportunities were found to have been issued, with the assessee filing replies; on that record, no procedural infirmity or denial of opportunity was established, so the challenge to the assessment failed. On taxability of contractual receipts reflected in Form 26AS, the Tribunal noted that income must be assessed according to the assessee's method of accounting, but the assessee did not prove that the receipts had already been offered to tax in earlier years or adjusted through work-in-progress. In the absence of convincing evidence of prior recognition, the receipts were taxed in the year of receipt and the addition was sustained.

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Issues: (i) Whether the assessment was vitiated for want of show-cause notice or draft assessment order before making additions; (ii) whether the contractual receipts reflected in Form 26AS were taxable in the year of receipt where the assessee followed the completed service contract method and claimed earlier recognition or adjustment through work-in-progress.

Issue (i): Whether the assessment was vitiated for want of show-cause notice or draft assessment order before making additions.

Analysis: The assessment record showed issuance of statutory notices and repeated opportunities, with the assessee responding to the requisitions. The assessment order also recorded the notices issued, replies received, and conclusions drawn. On that basis, no procedural lapse or denial of opportunity was established.

Conclusion: The challenge on procedural infirmity failed and was decided against the assessee.

Issue (ii): Whether the contractual receipts reflected in Form 26AS were taxable in the year of receipt where the assessee followed the completed service contract method and claimed earlier recognition or adjustment through work-in-progress.

Analysis: The dispute was only about the year of taxability, since the receipts themselves were taxable. The Tribunal noted that income under the Income-tax Act is governed by the method of accounting, and that receipts may be taxed either on cash basis or accrual basis depending on the assessee's accounting. On the facts, the assessee failed to substantiate that the disputed receipts had already been offered to tax in earlier years, and the materials on record did not support the claim that the amounts had been accounted for in the relevant earlier periods. The reflection of receipts and TDS in Form 26AS, coupled with the absence of convincing evidence of prior taxation, supported taxation in the year of receipt.

Conclusion: The addition of the contractual receipts in the year under consideration was upheld and the issue was decided against the assessee.

Final Conclusion: The Tribunal sustained the additions made on account of contractual receipts and rejected the procedural challenge, leaving the assessee with no relief in the appeal.

Ratio Decidendi: Where an assessee fails to prove prior taxation of contractual receipts and the evidence shows receipt during the relevant year, such receipts may be taxed in that year according to the applicable method of accounting.

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