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2025 (6) TMI 1862 - AT - Income TaxDeferment of revenue - Difference between receipts as per Form 26AS and the Profit Loss Account - uncertainty of ultimate revenue collection and has failure to demonstrate with supporting evidences that the conditions mentioned in AS-9 are fulfilled - as per assessee deferment of revenue recognition was on account of a genuine dispute between the assessee and the parties concerned and this amount was received by the assessee in a later year HELD THAT - On going through the contents of the agreements furnished by the assessee for deferment of revenue the year-wise income recognition table and the reconciliation statement of Form 26AS with audited Profit Loss Account we are of the considered view that assessee has not given a clear finding on what basis the amount was deferred by the assesee. Assessee has also not submitted the precise breakup of bills raised by the assessee the copies of bills for which revenue were deferred and has also not submitted the evidences to ascertain the reasons for deferring the revenue. Accordingly in view of the lack of submission of complete details by the assessee in the interest of justice the matter is hereby restored to the file of AO for de-novo consideration with a direction to the assessee to file all necessary details as called for by the AO during the course of assessment proceedings. Appeal of the assessee is allowed for statistical purposes.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal are: - Whether the addition of Rs. 4,66,86,192/- by the Assessing Officer (AO) towards the alleged difference between receipts as per Form 26AS and the Profit & Loss Account is justified. - Whether the assessee's explanation regarding deferment of revenue recognition, based on accounting policy and agreements with the parties concerned, was properly considered and accepted by the authorities. - Whether the principles of accounting standard AS-9 relating to revenue recognition and deferment were correctly applied by the AO and the Commissioner of Income Tax (Appeals) (CIT(A)). - Whether the assessee's contention that the addition leads to double taxation due to deferred revenue being offered to tax in a later assessment year was rightly rejected. - Whether the Assessing Officer and CIT(A) erred in not giving due credit for Tax Deducted at Source (TDS) as appearing in Form 26AS when the receipts were brought to tax. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Legitimacy of Addition on Account of Difference Between Receipts in Form 26AS and Profit & Loss Account Relevant Legal Framework and Precedents: The assessment of income under the Income Tax Act requires that income be computed according to the method of accounting regularly employed by the assessee, subject to the provisions of the Act. Accounting Standard 9 (AS-9) prescribes principles for revenue recognition, including criteria for deferring revenue where ultimate collection is uncertain. Court's Interpretation and Reasoning: The AO observed a discrepancy of Rs. 4,66,86,192/- between receipts as per Form 26AS and the Profit & Loss Account. The AO disbelieved the assessee's explanation that the difference arose due to deferment of revenue recognition. The AO noted absence of complete details such as copies of bills raised, breakup of deferred and recognized revenue, and proper reconciliation supporting the deferment claim. Key Evidence and Findings: The assessee submitted agreements with a group concern (Larsen & Toubro) for deferment of payment on three projects, citing financial difficulties and inability to generate positive cash flow. However, the AO found that the agreements only reflected delayed payments rather than uncertainty of ultimate collection. The assessee failed to produce supporting documentation like bills and detailed reconciliations during assessment and appellate proceedings. Application of Law to Facts: AS-9 requires revenue to be recognized when there is reasonable certainty of ultimate collection. Deferral is permissible only if conditions in paragraphs 9.2, 10, 11, and 12 of AS-9 are fulfilled. The AO and CIT(A) concluded these conditions were not met by the assessee, as the deferment agreements did not establish uncertainty of collection but merely delayed payment terms. Treatment of Competing Arguments: The assessee argued that deferment was justified due to genuine disputes and financial crunch of the parties, supported by deferment agreements. The Revenue contended that the agreements only postponed payment dates without creating uncertainty of receipt. The CIT(A) sided with the Revenue, emphasizing lack of evidence and non-fulfillment of AS-9 criteria. Conclusions: Both AO and CIT(A) upheld the addition, rejecting the assessee's deferment claim due to insufficient evidence and non-compliance with AS-9 conditions. Issue 2: Application of Accounting Standard AS-9 on Revenue Recognition and Deferment Relevant Legal Framework and Precedents: AS-9 mandates revenue recognition on accrual basis when ultimate collection is reasonably certain. Deferral is allowed only if uncertainty exists regarding collection, and specific conditions (paras 9.2, 10, 11 & 12) are satisfied. Court's Interpretation and Reasoning: The CIT(A) analyzed the facts against AS-9 and found that the assessee did not demonstrate uncertainty of ultimate collection or fulfill conditions for revenue deferral. The absence of bills and detailed evidence was a critical factor. The Tribunal noted that the assessee followed mercantile accounting and was required to recognize revenue on accrual basis unless AS-9 conditions justified deferment. Key Evidence and Findings: The deferment agreements were scrutinized and found to reflect only delayed payments, not uncertainty. The assessee's failure to produce bills and reconciliation details undermined the claim for deferment under AS-9. Application of Law to Facts: The Tribunal agreed with the CIT(A) that the deferment did not meet AS-9 criteria, and hence revenue should have been recognized in the relevant year. Treatment of Competing Arguments: The assessee's reliance on deferment agreements and accounting policy was rejected due to lack of supporting evidence and failure to meet AS-9 conditions. The Revenue's argument that delay alone does not justify deferment was accepted. Conclusions: The Tribunal concurred with the CIT(A) that the addition was justified as the revenue recognition was not deferred in accordance with AS-9. Issue 3: Allegation of Double Taxation and Credit for TDS Relevant Legal Framework and Precedents: Income once offered to tax in a particular assessment year should not be taxed again in a subsequent year to avoid double taxation. Credit for TDS is available when income is taxed and TDS is reflected in Form 26AS. Court's Interpretation and Reasoning: The assessee contended that the deferred revenue was offered to tax in a later year, and taxing it again in the impugned year would amount to double taxation. It also claimed that TDS credit was not properly given. Key Evidence and Findings: The Tribunal observed that since the deferment claim was not accepted, the income was rightly taxed in the impugned year. The question of double taxation did not arise as the revenue was not deferred legitimately. Regarding TDS credit, the Tribunal noted that the Assessing Officer was directed to consider all necessary details during reassessment. Application of Law to Facts: Since the revenue was recognized in the impugned year, the addition was justified and no double taxation occurred. The TDS credit issue was to be addressed by the AO upon reassessment. Treatment of Competing Arguments: The assessee's argument of double taxation was rejected due to failure to establish valid deferment. The Revenue's position that the addition was proper was upheld. Conclusions: The Tribunal did not find merit in the double taxation claim and directed reassessment to ensure proper TDS credit. Issue 4: Procedural Fairness and Natural Justice Relevant Legal Framework and Precedents: Principles of natural justice require that the assessee's explanations and evidence be duly considered before making additions. Court's Interpretation and Reasoning: The assessee alleged that the CIT(A) did not fully consider the written submissions explaining the deferment. The Tribunal noted that the assessee failed to produce complete evidence such as bills and detailed reconciliations both before AO and CIT(A). Key Evidence and Findings: The Tribunal found that the lack of full disclosure and incomplete submissions justified the AO's and CIT(A)'s approach. Application of Law to Facts: The Tribunal emphasized that the assessee must provide complete and cogent evidence to support deferment claims, failing which the addition is justified. Treatment of Competing Arguments: The assessee's contention of non-consideration was not accepted due to absence of required documents. The Revenue's approach was upheld. Conclusions: The Tribunal did not find any violation of natural justice and directed restoration of the matter for fresh consideration with directions to the assessee to furnish complete details. 3. SIGNIFICANT HOLDINGS "Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, the revenue may be postponed to the extent of uncertainty involved. However, where there is no uncertainty as to ultimate collection, revenue is recognized at the time of sale or rendering services." (Para 9.2, AS-9) "The appellant has not demonstrated the reasons for uncertainty of ultimate revenue collection and failed to demonstrate with supporting evidences that the conditions mentioned in para 10, 11 & 12 of AS-9 are fulfilled. Therefore, the explanation submitted by the appellant is not found acceptable." (CIT(A) order) "The assessee did not produce copies of bills raised or detailed breakup of deferred revenue, which are necessary to ascertain the reasons for deferring revenue. The agreements filed only show delay in payment, not uncertainty of receipt." (Tribunal) "In view of the lack of submission of complete details by the assessee, the matter is hereby restored to the file of Assessing Officer for de-novo consideration with a direction to the assessee to file all necessary details as called for during assessment proceedings." (Tribunal) The core principle established is that revenue recognition must adhere strictly to AS-9, and deferment of revenue is permissible only when uncertainty of ultimate collection exists and is supported by cogent evidence. Mere delay in payment does not justify deferment. The assessee bears the onus to furnish complete and detailed evidence including bills and reconciliations to substantiate deferment claims. Final determinations: - The addition of Rs. 4,66,86,192/- was justified on the facts and law due to failure to meet AS-9 criteria for deferment. - The assessee's contention of double taxation was not accepted as revenue was rightly recognized in the impugned year. - The matter is restored to the AO for fresh consideration with directions to the assessee to produce all relevant documents and details to enable proper examination of the deferment claim.
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