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Judgment
PER NAVEEN CHANDRA [A. M]:
The above captioned appeal is preferred by the Revenue against the order dated 30.06.2025, passed by National Faceless Appeal Centre/Learned Commissioner of Income Tax(Appeals), New Delhi (hereinafter referred to as ‘ld. CIT(A)), under section 250 of the Income Tax Act, 1961 [hereinafter referred to as, “Act”] for Assessment Year 2015-16. The assessment order in this appeal is passed by the Assessing Officer [for short, AO] under section 143(3) of the Act.
The Revenue has raised following grounds of appeal:-
“1.whether on the facts and circumstances of the case the Ld. CIT(A) was justified in deleting the Addition of Rs.2,04,39,193/- made by the A0 as difference in Higher Turnover reported in service tax return as compared to ITR.”
The sole issue involved in the instant case is that the deletion of addition made by the Assessing Officer on account of difference in turnover as reported in service tax return as compared to Income Tax Return. None appeared on behalf of the assessee, hence we decided to hear the case with the assistance of ld. Sr. DR. We have carefully perused the materials on record.
We have heard the submissions and perused the material available on record. Briefly, the facts are that Return of income in this case was e-fi1ed on 30.09.2015 declaring a total income of Rs.2,14,590/-. The case was selected for Limited scrutiny under CASS and notice u/s 143(2) was issued on 28.07.2016. In the course of assessment proceedings, the AO found that as per AIR information, the assessee had filed service tax return of Rs.3,08,91,715/ for the year under consideration and the gross receipts as per form 26AS was Rs 2,42,19,725/-. Further, the AO noticed that from the perusal of financial statements of the assessee, that the assessee had shown gross receipts of Rs.1,04,52,522/ only. The AO finally held that as the assessee furnished the value of services provided amounting to Rs.3,08,91,715/- and declared income at Rs. 1,04,52,522/- only therefore the difference of Rs.2,04,39,193/ (i.e. Rs.3,08,91,715 - Rs. 1,04,52,522) was added to the return of income of the assessee for the year under consideration.
The CIT(A) deleted the said addition as follows:
3.2.I have carefully considered the submissions made on behalf of the appellant, the findings of the Assessing Officer and the facts on record. The perusal of the return of income and the computation of taxable income filed along with the return of income reveals that the assessee has claimed credit for TDS in the income tax return amounting to Rs.6,18,49,871/- and the corresponding amount reflected in the said TDS certificates to the tune of Rs. 259,42,51,681/-. As against the amount of Rs.259,42,51,681/-, the assessee has shown contract sales of Rs.306,73,33,963/- in the Profit& Loss account (Refer to Schedule-8 to the accounts for the years ended 31st March 2008). There is also no dispute over the fact that the assessee has shown contract sales of Rs.306,73,33,963/- after reducing advance of Rs.29,08,07,163/-which implies that the said advance of Rs. 29,08,07,163/- has not been considered as income of AY. 2008-09 but considered as liability in the balance sheet. It passes my comprehension that on what basis the Assessing Officer has arrived at the conclusion that this advance money from various customers has been received after deduction of Tax at source (TDS) the credit the credit of which has been claimed in the year under appeal. There is absolutely nothing on record brought about by the Assessing Officer to suggest that TDS credit corresponding to advance of Rs.29,08,07,163/- has been claimed by the assessee during the year under appeal. If credit for TDS corresponding to advance of Rs. 28,08,07,163/- would have been claimed by the assessee, the Assessing Officer would have been fully justified in denying credit of the said TDS as the corresponding advance were not offered to tax for the relevant year, but it is not understandable as to why the advance of Rs.29,08,07,163/- should be brought to tax only during the year under appeal. Needless to mention that the assessee has neither offered advance of Rs.29,08,07,163/- to tax in the relevant year nor claimed credit for TDS corresponding to the said advance of Rs. 29,08,07,163/.
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3.5.In the present case, there is no dispute regarding system of accounting consistently followed by the assessee and its income has been computed as per above system. It may be relevant to mention here that the assessee has been following accounting for construction contracts prescribed by the accounting standard 7 of the Institute of Chartered Accountants of India which is a mandatory accounting standard and has been followed by the assessee for recognizing income from the time it came into existence. The basis of recognizing income in respect of long term construction contracts is on percentage of completion method. Benefit for the tax deducted at source is to be allowed as per statutory provisions contained in section 199 of the Act. It has nothing to do with the system of accounting followed by the assessee. In the present case, the assessee has neither offered advance of Rs. 29,08,07,163/- to tax for the relevant year nor claimed credit for TDS corresponding to advance of Rs. 29,08,07,163/-. The Assessing Officer did not dispute the method of accounting followed by the assessee and compliance of the accounting standard. The main reason for making addition of Rs.25,06,07,153/- is that according to the AO credit for TDS corresponding to advance of Rs.29,08,07,163/- has been claimed during the year under consideration. The Assessing Officer has not pointed out any specific defect or discrepancy in the books of accounts. Admittedly, the assessee had been maintaining regular Books of Account, which were duly audited by independent Chartered Accountants. The accounts which are regularly maintained in the course of business and are duly audited, free from any qualification by the auditors, should normally be taken as correct unless there are adequate reasons to indicate that they are incorrect or unreliable. The onus is upon the Assessing Officer to show that either the Books of Account maintained by the assessee were Incorrect or incomplete or method of accounting adopted by him was such that true profits of the assessee cannot be deduced there from. The assessing authority has to look into the substance of the situation and decide the matter in such a manner that neither is put to unreasonable liability nor the assessee is subjected to unreasonable hardship. No doubt it is not only the right but also the duly of the Assessing Officer to consider whether or not the books disclosed the true state of accounts and the correct income can be deduced there from. But these rights and duly have to be exercised in such a manner and have to be based on cogent reasons and sufficient material. The reasons given by the Assessing Officer in this case on the facts and circumstances are demonstrated, as erroneous by the assessee. Accounts regularly maintained in the course of business have to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable and incorrect. The procedure of the Assessing Officer is of judicial nature and in making the assessment he should proceed on judicial principles. If evidence is produced by the assessee in support of its return it should be accepted unless it is rebutted by admissible evidence and not by mere hearsay.
3.6.Thus for all these reasons and as the assessee has produced sufficient material justifying its claim and as it has repelled the contentions advanced by the Assessing Officer with cogent material and evidence, I am of the considered view that on the facts and in the circumstances of the case, the Assessing Officer was not justified in making the addition of Rs. 29,08,07,163/- on account of "TDS claim on advance against running contracts. The addition to the extent of Rs.29,08,07,163/- is, therefore, directed to be deleted. As a result, Grounds of appeal Nos. 1 to 5 are allowed.
5.3In view of the above mentioned facts, circumstances and the legal position, the addition of Rs.2,04,39,193/- deserves to be deleted. At any rate, without prejudice, the addition as made is very excessive.”
From the above, it is noted that the appellant provided a fair reconciliation of the difference between the amounts reported in the service tax return and the turnover declared in the ITR. The difference is mainly attributed to the advance received for services to be rendered and the mobilization advance from customers, which the appellant recognized as revenue in subsequent years and offered for taxation.
The appellant has declared its policy of revenue recognition in the notes to the account. According to this policy, revenue from development contracts on a time and material basis is recognised using the percentage completion method, as well as according to the specific terms of each contract with clients. Revenue from services is recognised proportionately over the period during which the services are rendered. This approach to revenue recognition follows the appellant’s accounting policy and is governed by the specific terms of the contracts and other milestones agreed upon between the appellant and their clients. Additionally, the appellant has highlighted that their books of accounts have been duly audited with no discrepancies found by the assessing officer, thus they have not been rejected.
Regarding the revenue recognition associated with work contracts and services provided by the appellant, it is to be noted that the appellant is best positioned to assess the incurred costs, materials consumed, specific contract terms, and achieved milestones. The discrepancy between the turnover reported in the service tax return and the turnover reported in the income tax return does not imply that the appellant’s accounting policies and accounts should be rejected or that the income should be estimated. Furthermore, it is noted that the addition in the assessment order appears to be influenced by the discrepancy between the service tax return and income tax return turnovers, based on information received from one of the clients, Palladium Constructions Private Limited. In my view, this is not a solid basis for making an addition of the reported discrepancy, given that the appellant had provided a reasonable explanation and appropriate reconciliation before the assessing authority.
5.6.In the above circumstances, I am of the considered view that the addition made by the assessing officer is not justified based on the facts of the case. The appellant had recognized revenue on the mobilization advances and other advances in subsequent years, explaining that there was no tax evasion regarding the discrepancy noted in the assessment. Accordingly, it is deemed appropriate to delete the addition made by the assessing officer and allow the appellant's ground on this issue.
From the above, we find that the AO added the difference in Turnover as declared in Service tax return and as compared with ITR. We also note that the CIT(A) has analysed the reconciliation of the difference between the amounts reported in the service tax return and the turnover declared in the ITR. The CIT(A) found that the difference is mainly attributed to the advance received for services to be rendered and the mobilization advance from customers, which the assessee recognized as revenue in subsequent years and offered for taxation. The above findings of CIT(A), which are in detail, could not be controverted by Id. DR. Neither any material has been brought on record to establish the finding of CIT(A) otherwise. Therefore, we find no reason to interfere with the decision of the ld. CIT(A). Accordingly, the order of the ld. CIT(A) is confirmed. Ground of appeal is dismissed.
In the result, the appeal of the Revenue in ITA No.5619/Del/2025 is dismissed.