2025 (7) TMI 1425 - AT - Income Tax

Addition u/s 69A - Allegation of inappropriate income offered by the assessee - Revenue recognition - CIT(A) deleted addition - as argued AO has given 10 reasons for making the addition and while deleting the addition the ld. AO was not given any opportunity or asked for the remand report - HELD THAT - In this case CIT (A) has also agreed with all contentions of the ld. AO and upheld all the findings of the AO. For the purposes of the quantum of addition he examined various tables reproduced in the assessment order and from the same tables he found that though the findings of the AO is correct but the quantum of addition is not correct as assessee has already offered higher income than determined by the ld. AO in earlier years. Therefore for the amount of revenue to be offered for this year the AO should have taken in to account revenues already offered by the assessee in earlier years. Thereafter only the balance addition should have been made. He found that on the same principles the income already offered by the assessee in earlier years is higher than what is estimated by the AO and therefore no further addition is required in this year. Hence he deleted the addition. Revenue could not show that as far as the above findings of the CIT (A) which is based on the findings and working of the ld. AO is incorrect. Revenue also did not controvert that the figures of the income earlier offered by the assessee from various projects shown is lower than the amount of addition made by the AO as well as the details mentioned in various charts submitted by the assessee used by the ld. AO for making addition confirmed by the CIT (A) to delete the addition. No infirmity in the order of the Ld. CIT (A) in deleting the addition on account of revenue recognition. Decided against revenue. Addition on account on unexplained cash deposits made in the bank account - HELD THAT - No infirmities were pointed out in the details submitted by the assessee. The books of account were also before the ld. lower authorities wherein availability of cash in books of accounts was never doubted. Thus when the availability of cash on hand prior to date of deposit of cash in Dhan Laxmi Bank account is higher as demonstrated by regular books of accounts of assessee naturally the deposit is made by the assessee in cash is out of the source available in the books of account of assessee unless it is proved by revenue that the amount of cash available in books of accounts is used by assessee for some other purposes and therefore the cash balance shown in cash book is non-existent. Revenue failed to prove so. Even before us no infirmities were pointed out to show that cash on hand shown in cash book is not the actual cash available with the assessee. Therefore the addition made by the ld. AO and confirmed by the ld. CIT(A) cannot be sustained hence deleted. Decided in favour of assessee.

Summary

ISSUES:

Whether the addition made under section 69A of the Income-tax Act, 1961 on account of revenue recognition based on Percentage Completion Method is justified where assessee has already offered higher income in earlier assessment years.Whether the addition under section 69A on account of unexplained cash deposits in the bank account is sustainable where assessee claims the source of cash deposits as withdrawals from its own bank accounts and advances from customers.Whether the Assessing Officer's reliance on Project Completion Method over Percentage Completion Method for revenue recognition in real estate development is appropriate under the Income Computation and Disclosure Standards (ICDS) and Accounting Standard-7 (AS-7).Whether the appellate authority erred in deleting or confirming additions without providing opportunity to the Assessing Officer for verification or remand.

RULINGS / HOLDINGS:

Regarding revenue recognition addition under section 69A, the appellate tribunal upheld the deletion of the addition by the CIT(A), holding that "the addition made by the AO u/s. 69A of the Act is not sustainable" since the assessee had already offered income higher than the addition in earlier years, and therefore "no further addition is required to be made."Concerning the addition on unexplained cash deposits, the tribunal reversed the CIT(A)'s confirmation of the addition, holding that "the amount of deposit in the bank account in cash with Dhan Laxmi Bank is emanating out of the available cash in the books of account of the assessee," and since "Revenue failed to prove" that the cash balance was non-existent, "the addition made by the ld. AO and confirmed by the ld. CIT(A) cannot be sustained, hence deleted."The tribunal affirmed that the Percentage Completion Method is the correct method for revenue recognition as per ICDS-III and AS-7, rejecting the AO's use of Project Completion Method which led to double taxation and incorrect revenue recognition.The tribunal found no infirmity in the CIT(A)'s order despite the AO's grievance of lack of opportunity for verification, as the CIT(A) agreed with the AO's findings on infirmities but relied on the assessee's prior income offered to delete the addition, which was supported by documentary evidence.

RATIONALE:

The tribunal applied the legal framework under the Income-tax Act, 1961, specifically section 69A relating to unexplained cash credits, and section 143(3) r.w.s 144B for assessment proceedings.The tribunal relied on the Income Computation and Disclosure Standards (ICDS) notified under section 145(2) of the Act, specifically ICDS-III, which mandates that contract revenue and expenses be recognized by reference to the stage of completion of the contract, i.e., the Percentage Completion Method.Accounting Standard-7 (AS-7) principles were also considered, emphasizing matching of contract revenue with costs incurred proportionate to work completed.The tribunal noted that the Assessing Officer's approach using Project Completion Method conflicted with ICDS-III and AS-7, and resulted in double taxation as revenue from completed projects was recognized again in the assessment year under dispute.The tribunal emphasized the importance of considering income already offered in earlier years when determining additions for the current year, thereby avoiding duplication.Regarding unexplained cash deposits, the tribunal held that the burden lies on the revenue to disprove the existence of cash balances shown in the books of account, and mere suspicion or inconsistency without evidence is insufficient to sustain additions under section 69A.No dissent or doctrinal shift was noted; the tribunal followed established accounting and tax principles consistent with statutory provisions and judicial precedents.