Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2019 (11) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (11) TMI 698 - AT - Income TaxReversal of profits declared in earlier years on account of estimated loss expected - valuation of work in progress (WIP) - percentage completion method basis - Addition stating that that an enterprise may choose to apply this guide note from an earlier date provided - HELD THAT:- An examination of the working of total estimated loss on the project “S.S. House” as worked out by the assessee clearly indicates that it suffers from basic deficiencies viz. (i) total cost incurred till 31/03/2014 ₹ 91,07,85,390/ or ₹ 978,886,048/- is not a reliable one, as the assessee is sticking to two figures, without supporting computation, and (ii) total estimated loss of ₹ 3,95,51,736/- or ₹ 108,431,736/- is not a reliable one, as the assessee is sticking to two figures, without supporting computation, (iii) there is no prudent estimate of additional cost for completion of the project. The matching principle requires recording expenses in the same accounting period in which the revenues were earned as a result of the expenses. Expense recognition, similar to revenue recognition, has a balance sheet effect. In this view, expense recognition is simultaneous with a decrease in an asset or an increase in a liability. In such a scenario, reversal of profits declared in the earlier years on account of estimated loss expected of ₹ 6,81,13, 166/- in WIP for the impugned assessment year by the assessee upsets the applecart of mercantile system of accounting, the matching principles. Therefore, no reliance can be placed on the above workings of total estimated loss as on 31.03.2014 of project “S.S. House” arrived at by the assessee, which are nothing but bald statements. As the order passed by the Ld. CIT(A) is not based on proper appreciation of facts and law, we set it aside. Resultantly, the order passed by the AO is restored.
|