TMI Blog2013 (11) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. But this does not mean that the assessee cannot follow the other Accounting standards issued by ICAI. ICAI being the highest accounting body of the country, created by an Act of Parliament, Accounting Standards issued by it cannot be brushed aside lightly. On the contrary, if an assessee is following the Accounting Standards issued by ICAI, it would give more credibility and authenticity to its account The matching principle is of relevance where income and expenditure, both are to be considered together. However, in the instant case, the effect of valuation of WIP would automatically affect the profits of subsequent years accordingly. Therefore, there was no reason for not accepting in principle the assessee’s claim as being allowable - Following decision of Jacobs Engineering India (P.) Ltd. Versus Assistant Commissioner of Income-tax 8(2), Mumbai [2009 (5) TMI 601 - ITAT MUMBAI] - Decided against Revenue. - ITA No.2991,3669/Mum/2011 - - - Dated:- 17-5-2013 - B R Mittal and N K Billaiya, JJ. For the Appellant : Shri Vijay Mehta For the Respondent : Shri P K Shukla ORDER:- PER : N K Billaiya These cross appeals by the Revenue and the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No supporting evidences were available in case of expenses like travelling expenses, miscellaneous expenses etc. and 6) Ledger account not made available 3. The AO also made observations relating to the Tax Audit Report. In response to the show cause notice and the discrepancies pointed out by the AO, the assessee submitted the clarifications vide letter dt. 23.12.2006. It was explained that the nature of activities involved in the construction business are far different than in the case of manufacturing concern. It was further explained that the assessee is carrying construction on various project sites, most of which are in remote and far off locations, sometimes situated far away from the towns and cities. So far as observation relating to work-in-progress is concerned, the assessee submitted that work-in-progress represents cost incurred for the project but yet to be billed to the client. It was further explained that various costs including materials, labour, subcontract, establishment and overhead cost are being incurred at various project sites, the billing to the clients is based on the actual measurement of the work done and certified by the clients. The difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee has not given full inventory of closing stock. The closing stock of the raw material, consumables etc could not be verified because the assessee submitted details on sample basis. For other submissions, the response of the AO was that the assessee has submitted only sample details and not complete details. 4.1. After considering the facts and the submissions and the remand report of the AO, the Ld. CIT(A) was convinced with the reply of the assessee in respect to the discrepancies pointed out by the AO and considering the entire submissions/explanation, the Ld. CIT(A) was convinced that assessee s accounts were correct and complete following regularly the method of accounting and the accounting standards prescribed by the Government. Whatever defects were noticed by the AO were subject matter of verification and reconciliation. The Ld. CIT(A) observed that during remand report proceedings such discrepancies were duly reconciled/explained by the assessee and which have also been accepted by the AO. The Ld. CIT(A) concluded that there was no case before the AO for invoking the provisions of Sec./ 145(3) of the Act and accordingly disapproved the action of the AO r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to his notice u/s. 133(6) of the Act. If some of the balances remained unreconciled, the AO could have asked directly from the parties for the difference. Such unreconciled accounts cannot lead to the rejection of books of account. As seen from the assessment order, there is no finding that the books of accounts are not correct or complete. There is also no finding that the method of accounting followed by the assessee is not in accordance with the standards notified. The major plank for rejection of the books of account seems to be the unverifiable nature of expenses and non maintenance of the stock register. The Ld. CIT(A) has not only considered the above issue but also other issues raised by the AO in the remand proceedings. As seen from the remand report placed at page - 53 of the Paper Book, the AO instead of examining the voluminous of details filed, giving a complete report reiterated the objection as stated in the assessment order. As the explanations/details furnished by the assessee before the Ld. CIT(A) have been duly considered by the Ld. CIT(A) and also that these details were sent to AO for remand, we do not find any reason to defer from the findings of the Ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of that item cost is done in a subsequent accounting year. As per AS-7 such cost that relates to a future activity are recognized as an asset and classified as work-in-progress. Therefore, it was prayed that the losses claimed by the assessee should be allowed in total. 10.1. After considering the submissions of the assessee, the AO observed that the assessee has claimed entire foreseeable losses of future years in A.Y. 2004-05. The AO was of the opinion that such claim could not be allowed because it was only based on estimate and was contingent in nature. Since no such observation was taken to its logical conclusion during the assessment proceedings, the AO requested the Ld. CIT(A) to disallow the claim of future losses claimed by the assessee. 11. The Ld. CIT(A) put a question to himself whether he has the power to make such disallowances at the Appellate stage. The Ld. CIT(A) was of the opinion that the AO in the assessment order has indirectly disallowed the assessee s claim of future losses by estimating the taxable income at the rate of 5%. According to the Ld. CIT(A) issue of disallowance of future losses was very much present before the AO during assessment proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have considered the rival submissions and perused the orders of the lower authorities. We have also the benefit of going through the AS-7 issued by ICAI. At the very outset, it would not be out of place to consider the provisions of Sec. 145 of the Act. Sec. 145(2) of the Act provides that the Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. It is a fact that AS-7 has not been notified by the Central Government. This does not mean that the assessee is precluded from following AS-7. A perusal of the provisions of Sec. 145 show that Accounting Standards which have been notified by the Central Government have to be mandatorily followed by the assessee. But this does not mean that the assessee cannot follow the other Accounting standards issued by ICAI. ICAI being the highest accounting body of the country, created by an Act of Parliament, Accounting Standards issued by it cannot be brushed aside lightly. On the contrary, if an assessee is following the Accounting Standards issued by ICAI, it would give more credibility and authenticity to its account. AS - 7, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year in which the contract had been entered into or it was to be spread over a period of contract, as was done by the assessee in earlier years. As far as the change in the method of valuation of work-in-progress was concerned, it could not be disputed that in view of mandatory requirements of the AS-7, it was a bona fide change in the method of valuation of work-in-progress, particularly in view of the qualification made in this regard by statutory auditors as well as by the Comptroller Auditor General of India. Therefore, the observation of the Commissioner (Appeals) that the assessee had booked bogus loss was not correct. As far as the basis of estimation was concerned, the same was done on technical estimation basis and, therefore, merely because there were some variations in the figures furnished by the assessee at different stages, it could not be said that the estimated loss was not allowable. It was not disputed that the department in earlier years had allowed the loss on estimated basis having regard to the expenditure actually incurred in various years. Therefore, in principle, it was not disputed that the estimated loss under the present circumstances was an allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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