TMI Blog2022 (11) TMI 975X X X X Extracts X X X X X X X X Extracts X X X X ..... med the finding of the AO, ignoring the very fact that Revenue has taxed the sales of energy in preceding assessment years on sales realization on cash basis only - As an undisputed fact that the cash system of accounting has been followed is duly disclosed by Tax Auditors as well as by Special Auditor. Consistency in booking of sales on cash basis should have been accepted by department as there was no loss of revenue, by this method of realization of sales. From the para 3, of the assessment order for Assessment Year 2008-09, the AO has admitted on record that During the year under consideration the company has changed the system of accounting from cash to mercantile resulting in increase in revenue of Rs.36,86,66,000 . Department has accepted the version of Special Auditors that bills of electricity have been raised for an amount without application its mind to the standard principles of accounting system, change of method of accounting sue moto by assesse company, the resultant revenue gains on the principle of consistency on the disputed issue of booking of sales of energy/electricity. As per accounting method, in order to change a method of accounting an exercise is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year under consideration. 3. While confirming the addition, the ld. CIT(A) has observed as under: Decision- As mentioned in the assessment order, as per point 13A(i) of annexure A of form 6B of the audit report of the auditor it has been observed that assessee had shown sale of energy amounting to Rs 64,00,00000/- which is the amount actually received by the assessee from sale of energy to the state government, whereas the company was required as per law to book the energy sale on accrual basis during the FY 2006-07 amounting to Rs 1202070000/- though not shown in the financial statements to the income tax department. The argument of the assessee was that the revenue should be measured at the fair value of consideration received or receivable. That it may be appropriate to recognize revenue only when it is reasonably certain that ultimate collection will be made. Where there is no uncertainty as to ultimate collection, revenue is recognized at the time of sale or rendering of service even though payments are made by installments. When there is uncertainty relating to collect ability arises subsequent to the time of sale or the rendering of the service, it is mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee corporation. Also as per assessee, the debtor is indirectly the government of the state of J K. The funds receivable from the state government cannot be said to be unrecoverable. 5. Assessee is a separate entity than the state government of J K and cannot make its revenue recognition depended on the budgets of the state government. 6. As admitted by the assessee, the statutory audit was not carried out till filing of IT return. In view of the above observations of the AO, I am fully in agreement with the AO that there are sufficient reasons to believe that the financial accounts submitted by the appellant are incorrect and false and were rightly rejected. Hence the difference in the sale of energy amounting to Rs 56,20,70,000/- (1202070000 - 640000000) was rightly treated as understatement of income on account of sale of energy shown by the assessee during the year under assessment which addition is confirmed. 4. The ld. counsel for the assessee of Sh. R. K. Gupta, Adv. submitted that there was no understatement of the income as the assessee company has shown sales to this extent stands realized and the sales were in consistent with the method of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis only. The relevant pages of CIT(A)'s order are 5-7 of his order. Hence, we are in appeal before your Honour. 1. That consistency of booking sales on cash basis should have been accepted by department. By this method of realization basis, there is no loss to revenue and due taxes are paid. Earlier the cash system of accounting has been followed is duly disclosed by Tax Auditors as well as by Special Auditor and it is not a disputed fact. 2. The assessment order passed by Ld. A.O in respect of Assessment year 2008-09 is placed at page 97-100 of paper book. Kind attention is invited to para 3 of the order; relevant page 98 of paper book. The Ld. A.O has specifically stated in 4th line of this para that During the year under consideration the company has changed the system of accounting from cash to mercantile resulting in increase in revenue of Rs.36,86,66,000 . 3. Your Honours, this assessment order has been passed on 24.12.2010 for which return of income has been filed well within due date on 30.09.2009. The appellant company has Suo-moto declared the additional revenue of Rs.36,86,66,000/- due to change in method of accounting. Then application of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the appellant company has itself offered to tax an amount of Rs. 36,86,66,000/- in A.Y. 2008-09 by making change in Accounting Method and Ld. A.O has accepted it in scrutiny then the order passed for A.Y. under consideration is absolutely wrong in adding Rs.56,20,70,000/- on the issue which stands addressed correctly and rightly and which is not controverted by Ld. A.O in the following year. 6. Other case laws of Hon'ble SC (i) UCO Bank vs CIT Placed at page 110-117 (ii) CIT Vs Realest Builders Services Ltd; Placed at page 118-120 It is, therefore, prayed that addition imposed by ld. AO amounting to Rs.56,20,70,000/- may kindly be deleted. 5. The ld. DR stands by the impugned order. 6. Heard both the sides and perused the material on record. Admittedly, the Ld. CIT(A) has sustained the addition of Rs.56,20,70,000 on account of difference in sale of energy treating it as understatement of income. The Ld. AR contended that the appellant company has shown sales to the extent of disputed amount of Rs.56,20,70,000 and the same sales stands realized as per the method of accounting being followed by the appellant company consistently. 7. It is se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to be done from the very inception of business activity of sale of energy that these were the dues; these were the realizations and this much was the short fall. Once this exercise has been done, the excess or shortfall to be accounted for, to follow the change in accounting method is ignored by the authorities below. 10. In view of the settled principle of rule of consistency, by the Hon'ble Apex Court in a Historical Judgement in the case of Radhasoami Satsang vs. CIT (Supra), the authorities below ought to have been accepted, the appellant company s sales of energy on realization basis right from inception to year under consideration on principal of consistency. Over and above, if action of Ld. A.O and the Ld. CIT(A) in adding Rs.56,20,70,000/- on alleged account of booking sale on accrual basis is accepted, it would amount to double taxation as the appellant company has changed the method from cash to accrual in following year and has offered to tax additional revenue of Rs.36,86,66,000/- in addition to regular sales on accrual basis and further this exercise has to be done right from inception till the year under consideration subject to credit of the sum of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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