Method Of Revenue Recognition Adopted By Taxpayer And ITO In Earlier & Later Years Cannot Be Disturbed Sans Any Modification: Ahmedabad ITAT

The Ahmedabad ITAT held that once a method of recognizing the revenue adopted by the assessee and accepted by the revenue in the earlier and later years, the same cannot be disturbed for the intervening year i.e. the year in dispute until and unless initial year is made subject to the modification.

The Bench comprising Madhumita Roy (Judicial Member) and Waseem Ahmed (Accountant Member) observed that, “the PCIT himself has admitted the fact that the assessee was entitled for certain amount of TDS in the earlier year based on revenue recognition. Admittedly, there was no benefit of TDS credit claimed by the assessee in the earlier year, therefore, there cannot be any prejudice to the revenue as the entire exercise of claiming the TDS benefit is tax neutral.” (Para 9)

As per the brief facts of the case, the Assessee's return was selected for scrutiny, wherein PCIT found certain defects in the assessment. As per the PCIT, the assessee claimed to have been following the method of revenue recognition as per the accounting standard-7 issued by ICAI consistently. However, the Principal CIT found that the assessee is recognizing the revenue based on sale deed registered in the relevant year. As per PCIT, the assessee has not furnished the revenue statement demonstrating that the revenue was recognized based on percentage completion method. The PCIT further found that assessee has shown sale of property on which TDS u/s 194IA was deducted. The PCIT found that the offered and claimed amount of tax is different as the assessee has claimed the excessive TDS credit for which he was not entitled. Thus, the PCIT concluded that the assessment framed by the AO u/s 143(3) is erroneous in so far prejudicial to the interest of Revenue.

The Bench noted that the assessee has been following the method for recognizing the revenue in proportion to construction of the project i.e. 25% viz a viz receipt of consideration i.e. 20% which was also accepted by the revenue in the assessment framed u/s 143(3).

The Bench further noted that there is no allegation by the PCIT that the assessee has not offered the income to tax in the later year but it is the difference of the year in which the income has been offered to tax by the assessee from its project.

The Bench stated that PCIT himself has admitted the fact that the assessee was entitled for certain amount of TDS in the earlier year based on revenue recognition, as admittedly, there was no benefit of TDS credit claimed by the assessee in the earlier year, therefore, there cannot be any prejudice to the revenue.

Therefore, on finding no error in the order passed by the AO, the ITAT partly allowed assessee's appeal.

Counsel for Appellant/ Taxpayer: Biren Shah

Counsel for Respondent/ Department: Ritesh Parmar

Case Title: Ralsons Infrastructure Pvt. Ltd. verses PCIT

Case Number: ITA No.110/AHD/2021

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