TaxTMI 
TaxTMI 
2026 (4) TMI 483
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....variations was issued by Ld. AO prior proceeding to make additions to income of assessee company. 2. That the Ld. AO grossly erred in making additions of Rs. 5,97,14,197/- to the income of assessee on belief that the stated amount was not offered for tax by the assessee company. 3. That the Ld. AO as well as Ld. CIT(A) grossly erred in making and upholding additions of Rs. 5,97,14,197/- holding that the said receipts were not credited to or routed through Profit and Loss account and were credited to WIP account in Balance Sheet. 4. That Ld. AO as well as Ld. CIT(A) grossly erred in law and in facts of the case in assessing gross receipts as income of assessee without allowing expenses incurred for caring said receipts which due to disputes with clients were debited to WIP account in earlier years. 5. That the assessee company seeks leave to add, alter, modify or delete any ground of appeal during the course of appellate proceedings. 6. That the assessment order passed by Ld. AO as well as the appellate order passed by Ld. CTI(A) are bad in law and have been passed in contravention of prevailing law as well as facts of the case, therefore....
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....ultifaceted Information technology company with interest in e- governance, smart card solution and is engaged in developing e-governance solutions. The appellant/assessee also provides IT facility management and other IT enabled services. The Appellant had filed its return of income on October 26, 2018 declaring a loss of INR 79,18,188. Subsequent to processing under section 143(1), the return of Income was selected for scrutiny assessment to verify Investments/Advances/Loans, Business Loss and Contract Receipt or Fees. The ld AO made an addition of Rs. 6,10,82,722/- on account of contract receipts available and appearing in the 26AS statement of the assessee and which were not disclosed and offered for taxes in the Return of Income. Considering the complexity of the issue, we deem it necessary to extract hereunder the findings of the ld. AO made in pages 2 to 8 of his order:- "....5.1. On verification of TDS Report available in the systems it is seen that during the previous year relevant to the assessment year under consideration the total amount of Rs. 6,18,28,407/- was credited/paid to the assessee by various parties on which TDS was deducted by them u/s 194A, 1940 and....
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....eflected in 26AS were adjusted against the work-in-progress. The services against the below payments were rendered in FY 2011-12 and FY 2012-13 and the TDS was deducted by the parties at the time of payment in FY 2017-18. Party Name TAN Section Amount NSDL E-Governance Infrastructure Limited MUMN05226E 194C 1,308,575 Bharat Electronics BLRB03693E 194C 110,845 DOEACC Centre Auranganbad NSKD01790F 194C 11,881,011 National Institute of Electronics and Information technology Chandigarh PTLD11376B 47,722,341 Total- 194C 61,022,772 As per the accounting policy of the Company, The Company recognises revenue on completed service contract method. Revenue is recognised when the services have been delivered, acceptability of the services have been confirmed and the collectability is reasonably assured. The expenses incurred on the rendering of services for which revenue has been recognised are also recognised in the same period when revenue is recognised till such time the same are treated as work in progress under current assets. Work-in-progress is valued at cost and other attributable co....
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.... income in the Return of income. However the following receipt has not offered as income; Party Name Amount NSDL E-Governance Infrastructure Limited 1,308,575 Bharat Electronics 110,845 DOEACC Centre Auranganbad 11,881,011 National Institute of Electronics and Information technology Chandigarh 47,722,341 Total- 61,022,772 With respect to amount received from the above parties the assessee contention is summarized as under; I According to the assessee the work for the same was done by the Company during the Financial Year 2011-12 and 2012-13. ii. The Company recognises revenue on completed service contract method. Therefore the Revenue is recognised when the services have been delivered, acceptability of the services has been confirmed and the collectability is reasonably assured, i.e. during the F Y 2011-12 and 2012-13. iii. The Company has in the light of above has not recognized the same in revenue and adjusted the same against the opening balance of work-in progress (shown under inventory in current assets- Note 16) amounting to Rs. 35,56,44,358. iv. The balance amount of work-in progress was writte....
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....ee has failed to substantiate it's claim that the amount received by the assessee from the above parties of Rs. 6,10,22,772/-was offered for taxation in A Y 2012-13 and 2013-14. Accordingly the amount credited/paid by the above referred parties totaling to Rs. 6,10,22,772/- is treated as the assessee's income for the year under consideration and added to the total income. 5.6 It is also seen that the assessee has received Rs. 59,950/- on which TDS was deducted by ITI Limited. On verification of the details of sale of service submitted by the assessee it is seen that the assessee has not included the above amount in the amount of sale of service. As the assessee has not submitted any explanation in respect of this receipt, the same is treated as assessee's income for the year under consideration and added to the total income. Total addition on account of TDS information in TDS Report is Rs. 6,10,82,722/- (Rs.6,10,22,772+59,950). Penalty proceeding u/s 270A of Income Tax Act is being separately initiated for under reporting of Income which is in consequence of misreporting thereof...." 7. Aggrieved by the impugned addition, the assessee moved to the ld. First Appellate Au....
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....progress. So, these amounts were lying as work-in-progress without there being any effect on the P&L account. 7.4 From the above analysis, it is clear that the amount received by the appellant during the impugned A.Y. was neither offered to tax in A.Yrs. in which the work was actually executed and nor in the impugned A.Y. Thus, technically, this amount of Rs. 5,97,14,197/- has not suffered tax and hence, the addition made by the AO is sustainable...." 8. We have heard rival submissions in the light of material available on records. The ld. Counsel for the assessee, Shri Neeraj Mangla, reiterated the arguments taken before the lower authorities so as to contest and agitate that the addition made by the ld. AO and the relief accorded by the ld. CIT(A) is not correct. It is the case of the appellant, the Appellant had entered into service contracts with some customers Government Agencies e.g. DOEACC Centre (now known as National Institute of Electronic and Information Technology, Aurangabad, National Institute of Electronic and Information Technology, Chandigarh and others in earlier years majorly in FY 2011-12 and FY 2012 -13. The contracts were of short term in nature. H....
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....including substantial salary cost) incurred is capitalized in balance sheet as work in progress ('WIP') in Inventory under current asset and not routed through Profit and Loss Account. The Appellant had briefed the same to the Ld. AO vide their submission dated February 08, 2021. It was contested that the Ld. AO has neither applied his mind nor understood the case and the accounting policies followed by the Appellant. 11. The ld. DR Ms. Ankush Kalra placed full reliance upon the order of the lower authorities. It was contested that the income embedded in the impugned contractual receipts deserves to be taxed in the year of its receipt or its accrual. The ld. DR invited reference to Accounting Standards and statutory provisions of the Income Tax to allude that the action of the ld. AO and the ld. CIT(A) is based upon firm judicial findings and do not deserve any interference in this stage. It was contended that TDS deductions and the charging of income go hand in hand and that the assessee has claimed deduction during the year and therefore corresponding income has to be taxed. 12. From the facts narrated hereinabove, it is clear that the assessee has given, in FY 2011-12 and ....
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.... as bad debts in subsequent years in the event of non-receipt by the tax payer. The typical method of accounting indicated by the assessee shows that it adjusts its receipts and losses and shortages in the receipts in its working progress accounts and offers the net figure for taxation. This practice is not supported by the method of accounting and disclosure of income/receipts currently prescribed by the Income Tax Act. The system and practice adopted by the appellant assessee is an opaque system bereft of any transparent disclosure. The appellant has itself admitted that it had been remitted the impugned receipts of Rs. 6,10,82,722/-by the impugned parties along with commensurate TDS deduction. There is nothing on record by way of any demonstrative evidences to suggest that the said receipt was contested and the justification for the contest. We have perused pages no.26 of the paper book filed by the assessee which includes audited tax audit report dated 02.09.2018 of the company. In point-g(i), the auditor has categorically certified that 'the company does not have pending litigation which would impact its financial position'. Thus, admittedly, there was no legal dispute continu....