2025 (6) TMI 397 - AT - Income Tax

Initiation of proceedings u/s148 - additions on account of attribution of profits received by the assessee as project advance - HELD THAT - We observe that the issue involved in this appeal is squarely covered by the decision of Gem Tech Solutions Private Limited 2013 (6) TMI 944 - ITAT COCHIN aa held only objection of the assessee appears to be that during the year under consideration the assessee devised a computer machine which was a model one subject to approval of the customer. The fact remains is that the so-called model developed by the assessee was on the basis of order placed by the customer after paying the advance amount. Therefore the so-called modeling devised by the customer is on the orders placed by the customer after paying the project advance. Even in the subsequent assessment year though the model was approved the assessee could not start its work and the project could not be completed. Still the assessee recognized 50% of the project advance as income. This Tribunal is of the considered opinion that the project work started when the assessee started working on the modeling on the basis of the orders placed by the customer on payment of project advance. Therefore as per the regular method of accounting adopted by the assessee part of the project cost has to be recognized as income as has been done for the assessment year 2005-06. Appeals filed by the assessee are dismissed.

Summary

The ITAT Cochin heard three appeals by the assessee against CIT(A) orders for AYs 2002-03, 2003-04, and 2005-06. Despite a 48-day delay in filing, the Tribunal condoned the delay due to the authorized signatory's accident. The appeals challenged the reopening of assessments under section 148 of the Income-tax Act and additions relating to attribution of profits on project advances.The Tribunal upheld the reopening, finding no merit in the assessee's legal objections. On the merits, it relied on a precedent from a co-ordinate Bench in Gem Tech Solutions Pvt. Ltd. v. DCIT (ITA No.293/Coch/2009), which held that "the project work started when the assessee started working on the modeling on the basis of the orders placed by the customer on payment of project advance," and accordingly, part of the project advance must be recognized as income under the regular method of accounting.Following this binding precedent, the Tribunal confirmed the CIT(A)'s order and the Assessing Officer's additions, dismissing the appeals.