Income Tax Officer vs Iris Pioneer Infraproject Private Limited

PER MANISH AGARWAL, AM:

This appeal is filed by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A) in short], dated 15.03.2024 in Appeal No. NFAC/2014-15/10228334 arising out of the order passed u/s 147 r.w.s 143(3) of the Income Tax Act, 1961 dated 10.03.2024 for Assessment Year 2015-16.

Brief facts of the case are that the case of the assessee was reopened by issue of notice u/s 148 on 29.03.2022 after passing the order u/s 148A(d) on same day. In response to notice u/s 148, assessee has filed return of income on 08.08.2022 declaring total income at Rs. 18,672/-. The assessee was engaged in the business of Real Estate and allied activities and during the year was constructing a residential floor project in Faridabad. The AO observed that the assessee has followed percentage of completion method to recognize the income from the real estate project where the Revenue is recognized on the basis of stage of construction vis a vis advances received against the total area booked. The Ao observed that, as per service tax return, the total turnover declared was of Rs.19,34,73,504/- as against the total sale recognized at Rs. 6,93,35,282/- in the return of income filed. Therefore, the AO was the opinion that the differential amount to Rs.12,41,38,222/- was the income which was not declared. The submissions of the assessee were that since, assessee has followed percentage of completion method and preceding Financial Year as well as subsequent financial year, income has been declared on the basis of Revenue recognized under percentage of completion method. Whereas under the Service Tax Law, it has to be paid on the gross receipts of the year, therefore, the different occurred between the receipts declared in service tax return and the turnover declared in ITR which cannot be held as the income. However, the AO has not accepted the claim of the assessee and observed that in preceding assessment years no return of income were filed and only when notices u/s 148 were issued, the assessee filed the return of income declaring total loss in all the years, therefore, the contention of the assessee that Revenue was recognized in different assessment years was not accepted and AO made the addition of differential amount of turnover declared in the service tax return and as per ITR of Rs. 12,41,38,222/- as business receipt u/s 28 of the Act.

Against the said order, the assessee filed an appeal before the Ld. CIT(A), who vide impugned order dated 15.03.2024 has deleted the addition so made.

Aggrieved by the said order, the Revenue is in appeal before the Tribunal wherein following grounds of appeal are taken:

All the effective three grounds of appeal of the Revenue are with respect to the deletion of addition of Rs. 12,41,38,220/- made as business income u/s 28 of the Act by the AO, thus, they are taken together for consideration.

Before us, Ld. CIT-DR vehemently supported the order of the AO and submits that though the assessee had followed the percentage of completion method, however, since no return of income was filed for the year under appeal and also for preceding two assessment years u/s 139(1) of the Act which fact was also observed by the AO at page 6 of the assessment order. The Ld. CIT-DR submits that in Assessment Years 2014-15 and 2015-16, the returns were filed in response to notices issued u/s 148 of the Act and in both the returns of income, assessee had declared loss. As per ld. CIT DR since the assessee has not suo moto disclosed profit / loss from Real Estate business and if proceeding u/s 148 were not initiated, it appears that no turnover would be declared by the assessee. He, therefore, submits that the AO has rightly hold that assessee has never disclosed the differential amount of turnover as per profit and loss account and as per Service Tax Return and, therefore, the AO has rightly made the addition for the same. Besides this Ld. CIT-DR further submits that assessee has never filed any reconciliation to justify the differential amount as per service tax return and as per ITR and further failed to state whether such amount was ever offered for tax in any of the preceding or subsequent assessment years. He, therefore, alternatively prayed that the matter may be sent back to the file of the AO for making verification of the facts.

On the other hand, Ld. AR for the assessee submits that undisputedly assessee followed the percentage of completion method where the income is offered for tax based on the advance received and the construction work completed. The assessee had declared turnover in various assessment years which is tabulated in the page 6 of the assessment year, according to which the assessee has recognized the Revenue from Financial Years 2013-14 to 2017-18. The Ld. AR submits that as per the service tax law, the service tax was payable on the gross value of advance received during the year towards the booking of area constructed/ to be constructed whereas under percentage of completion method, as stated above, the revenue is recognized as per the advances received / work completed. Therefore, there is a difference between the turnover declared by the assessee in ITR and the receipts declared as per service tax return. The Ld. AR submits that Ld. CIT(A) after appreciating this fact has deleted the addition which order deserves to be upheld. He prayed accordingly

Heard both the parties and perused the materials available on record. The solitary issue before us is with respect to the addition made by the AO being the difference between the turnover declared as per service tax return and as per income tax return. Under the Service Tax Law, in case of Real Estate Developer, service tax is payable on the gross amount received during the year pursuant to the sales as well as advanced received whereas under the Income Tax Act, since the assessee was following percentage of completion method where the Revenue is recognized as and when the construction is completed viz-a-viz corresponding advances received. Thus, there must be difference between the turnover as per books of accounts and receipts declared under service tax returns.

In the instant case, assessee claimed that it had declared turnover in various assessment year as tabulated below:

As could be observed that assessee has declared turnover of more than Rs. 21 Crs. in five financial years starting from Financial Year 2013-14 to 2017-18, however, the fact remained that no return of income was filed for preceding two Assessment Years as well as for the year under appeal and when the notices u/s 148 were issued, returns were filed wherein assessee has declared the aforesaid turnover in respective years and declared the losses. It is further observed that in subsequent assessment years where the assessee has declared substantial turnover as stated in the aforesaid table, however, no return u/s 139 of the Act were filed. Therefore, the contention of the assessee that assessee had already recognized the Revenue cannot be fully accepted in absence of voluntarily filing of return u/s 139 by the assessee. It is further observed that the assessee has failed to file any reconciliation statements of the turnover declared in the Service Tax Returns and revenue recognized as per the financial statements filed along with income tax returns for various years. Looking to the entirety of the facts, we are considered opinion that it is duty of the assessee to file the reconciliation statements of income declared/Revenue recognized in ITR and the gross receipts declared under the service tax returns to the satisfaction of the AO that the receipts declared in Service Tax Returns has ultimately offered for tax under the Income Tax returns. Therefore, for this limited purposes of reconciliation of the receipts as per the service tax returns and as per ITR, the matter is remand back to the file of the AO. The AO is further directed to verify the fact that the assessee has declared total revenue as per the percentage of completion method in ITRs filed for various assessment years which was declared in service tax returns in various years and if the assessee has filed to reconcile the same, the AO is at liberty to add such difference in the year under appeal. With these directions, the appeal of the Revenue is allowed for statistical purposes.

In the result, the appeal filed by the Revenue is allowed for statistical purposes.