TaxTMI 
TaxTMI 
2021 (6) TMI 665
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....f appeal raised above at. 2. Briefly stated facts of the case are that the assessee company was engaged in the business of providing consultancy in the field of power and infrastructure sector. The return of income for the year under consideration was filed on 29/11/2013, declaring total income of Rs. 3,28,41,734/-. The return of income filed by the assessee was selected for scrutiny assessment. In the assessment completed under section 143(3) of the Income-tax Act, 1961 (in short 'the Act') on 14/03/2016, the Assessing Officer, following his predecessor's decision in assessment years 2010-11 and 2012-13, disallowed 10% of the expenses, which amounted to Rs. 15,38,00,157/- on the ground that no project-wise accounting was available and no work-inprogress was reported. The Ld. CIT(A), following her predecessor's decision in assessment year 2012-13 (Appeal No. 0397/2014-15), deleted the addition observing as under: "3.4 I have perused the assessment order and the submission of the appellant on the issue. The appellant provides specialized engineering counseltancy services in the water, energy and transportation sector. In the return filed for the year, gross receipts of R....
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.... arising from those very books of accounts. 3.3.1 The addition has been occasioned by the fact that no closing work in progress or unbilled work has been shown by the appellant at the end of the year. The estimation of 10% of the expenses incurred and allocation of the same towards closing work in progress amounts to rejection of books but the reasons for such rejection are not discussed in the assessment order. In any case the books of accounts can only be rejected if serious discrepancies or infirmities are found therein. However, the AO has show caused the appellant as to why the impugned addition may not be made based only on his predecessor's assessment orders for the preceding years. When the books of accounts have not been rejected after examination of the books of accounts, the action of the AO cannot be endorsed. 3.4 Moreover, I find that in the assessment order, the AO has reproduced the appellant's submissions for the AY 2010-11 (which were part of the figures in the appellant's submissions dated 06.02.2015) filed in response to his show cause and he has not adverted to the facts of the present year at all. If the facts of the present year w....
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....ills and vouchers, bank statements were produced during the course of assessment proceedings and were put to test check. From the perusal of the assessment order it also found that books of accounts have not been rejected. The addition of Rs. 4,05,02,738/- has been made on the reasoning that Appellant company is a service provider and has not made provision for dosing Work In Progress with regard to estimated amount of unbilled work at the year end. On this reasoning the assessing officer has estimated 10% of total expenses as estimated dosing WIP. This action of the assessing officer tantamounts to rejection of the audited P&L account which has been prepared on the basis of books of accounts. Therefore, the impugned addition is based upon rejection of book results. However, the assessing officer has failed to reject the books of accounts and discuss the reasons for such rejection in the assessment order. Section 145 (3) of the I.T. Act empowers the assessing officer to make a best judgement assessment- (a) if he is not satisfied about the correctness or completeness of the books of accounts, or (b) Where the method of accounting provided in section 145(1....
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....as dosing stock. (e) 2 instances Pointed out by in the assessment order of alleged mismatch between revenue recognized and expenses incurred stand clarified as discussed in para 22 & 23- 27. I have considered the above summarized arguments made by the Appellant. The issue to be determined under these grounds of appeal is whether work-in- progress is required to be considered for determination of profits? The basic purpose underlying the valuation of the dosing stock is to balance the costs of the goods entered on the other side of the account at the time of their purchase or production, so that by cancelling out of the entries, relating to the same stock from both sides of the account, would leave only the transactions on which there have been actual sales in the course of the year showing profit or loss actually realised on the year's trading. The basic principle underlying the valuation of stock is to get a correct picture of the profitability of the business and not for reduction or enhancement of profit. It is merely a process of carrying forward of costs for goods which are yet to be sold at the year end. Valuation of stock-in-trade is not a sour....
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...., there is nothing tangible to value as on a particular date, since there is neither any goods or material in hand to which the assessee has a right, nor the services already rendered could be treated as stock-intrade or WIP, since the work is already accomplished and no asset remains in hand. In such cases, the assessee has only right to recover dues for the services rendered. By the very peculiar nature of work done and service rendered, the Appellant is correct in contending that there is no work-in-progress, which has to be determined and accounted for. The assessing officer has failed to understand and appreciate the above discussed basic and fundamental accounting principle. 29. This issue can be viewed from another dimension. Concept of matching of cost with revenue: The concept of matching of cost with revenue is subject to specific provisions of the Income-tax Act. As per the said principle, if cost has been incurred but revenue has not been realized and is expected to be realized in subsequent years, the cost is accumulated and carried forward to subsequent years and is not debited to profit and loss account of the year in which it is incurred. However, ....
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....penses have been found to be incurred legitimately and driven by commercial expediency no disallowance on estimated basis can be made by artificially introducing the concept of Closing WIP. 30. Accounting Standard (AS-2) issued by Institute of Chartered Accountants of India (ICAI) deals with Valuation of Inventories. Relevant portion of the same is reproduced below:- OBJECTIVE A primary issue in accounting for inventories is the determination of the value at which inventories are carried in the financial statements until the related revenues are recognized. This statement deals with the determination of such value, including the ascertainment of cost of inventories and any write-down thereof to net realizable value. Scope 1. This Statement should be applied in accounting for inventories other than: a) Work in progress arising under construction contracts, including directly related service contracts [see Accounting Standard (AS) 7, Accounting for Construction Contracts]; b) Work in progress arising in the ordinary course of business of service providers; c) Shares, debentures and other financial instru....
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....r of the Assessing Officer but could not controvert this fact that same issue has already been decided by the Tribunal in the earlier year. 6. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. It is undisputed that addition has been made by the Assessing Officer following the findings of his predecessor and the Learned CIT(A) has also deleted the addition following her predecessor's decision in AY 2012-13 (Appeal No. 0397/2014-15). The Tribunal in ITA No.4350 & 6073/Del/2014 for assessment years 2010-11 and 2011-12 respectively has decided the identical issue as under: "10. We have carefully considered the rival contentions and find that the ld. AO has disallowed 10% of the total expenditure incurred by the assessee on ad-hoc basis. As the assessee is engaged in providing services it recognized revenue on milestone basis. As soon as milestone is achieved the invoices have been raised, hence, it was contended by the assessee that there is not remained any work in progress at the end of the year. The ld. AO asked the assessee to furnish project-wise revenue and the project-wise expenses which the assessee di....