Loading judgment…
Facts
The revenue filed an appeal against the CIT(A)'s order deleting an addition of Rs.10,76,23,212/- made by the Assessing Officer (AO). The addition was based on a discrepancy between the revenue recognized under the Percentage of Completion Method (POCM) and the revenue offered by the assessee, a civil contractor, for assessment year 2017-18.
Held
The Tribunal held that the assessee correctly followed ICDS III and accounted for revenue as per POCM. The difference between the revenue recognized and offered was primarily due to Work-in-Progress (WIP) which was correctly accounted for. The Tribunal also held that GST accounting based on invoices does not impact income computation for income tax purposes.
Key Issues
Whether the AO was justified in adding the difference between the revenue computed under POCM and the revenue offered by the assessee, considering the assessee's accounting treatment of WIP and adherence to ICDS III. The role of GST accounting in relation to income tax computation.
Sections Cited
143(1), 143(3), 145, 145(2), 43CB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI S.S. VISWANETHRA RAVI, HON’BLE & SHRI S. R. RAGHUNATHA, HON’BLE
आदेश /O R D E R
PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:
1. This appeal filed by the revenue is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-18, Chennai, dated 28.08.2024 and pertains to assessment year 2017- 18.
:-2-: ITA. No: 2891/Chny/2024
At the outset, we find that there is a delay of 13 days in filing the appeal filed by the revenue and the revenue explained the reasons for delay in filing the appeal. The revenue has filed affidavit stating the reasons for delay in filing the appeal is due to non- availability of certain records within the due time. After considering the affidavit filed by the revenue and also hearing both the parties, we find that there is a reasonable cause for the revenue in not filing appeal on or before the due date prescribed under the law and thus, in the interests of justice, we condone delay in filing of appeal and admit the appeal filed by the revenue for adjudication.
The brief facts of the case are that the assessee is a Limited Liability Partnership firm carrying on business as a civil contractor. The assessee firm e-filed its return of income for the A.Y. 2017-18 on 31.10.2017 declaring a total income of Rs.9,79,75,000/-. The return of income was processed u/s.143(1) and subsequently selected for scrutiny under CASS. Later the statutory notice u/s.143(2) was issued and served on the assessee on 22.09.2018. Further notices came to be issued to which replies were furnished by the assessee.
During the course of the assessment proceedings before the AO, one of the issues that was raised by the AO was whether the :-3-: ITA. No: 2891/Chny/2024 assessee had complied with ICDS III (percentage of completion method) for recognition of income as the assessee was engaged in the business of construction contract. In reply the assessee stated that the percentage of completion method (POCM) as per ICDS III was adopted by the assessee. The AO however found that there was a discrepancy between the POCM and the revenue actually offered by the assessee. This came to be tabulated by the AO in his order as follows: Sl. Projects Revenue as Revenue No. per POCM offered till (Agreement date in Rs. Amount* percentage completed) in Rs. 1 GRT-Jewellers India Pvt.Ltd., - 14,259,812 10,913,699 Chengalpet 2 GRT Jewellers India Pvt.Ltd., Avadi 27,175,045 23,639,801 3 GRT Jewellers India Pvt.Ltd., Tuticorin 27,002,716 16,728,203 4 Hindustan College of Arts & Science 63,800,098 31,078,315 5 Prince Gold & Diamonds 11,643,980 11,231,824 6 Sabapathy 200,192,927 168,266,113 7 Saravana Textiles Rameswaram Road 37,500,000 26,654,842 (T.NagarMes) 8 Saravana Stores ThangaMaligai 9,705,482 0 9 Saravana Stores (ShangmugaDurai) 30,000,000 25,144,051 Total 421,280,060 313,656,848 Difference Rs.107,623,212
:-4-: ITA. No: 2891/Chny/2024
The AO thus came to the conclusion that the assessee had understated the revenue to the extent of Rs.10,76,23,212/-. The AO therefore added this difference as the suppressed income of the assessee and passed an order u/s.143(3) of the Act on 31.12.2019. Aggrieved by the order of the AO the assessee filed an appeal before the Ld. CIT(A).
Before the Ld. CIT(A) the assessee filed elaborate submissions which were as follows: “Further, it is submitted that the Assessing Officer has not properly analyzed facts on record and the details furnished and had completed the entire proceedings in a lot of haste. The Assessing Officer has considered data for nine projects which has been made depicted in the following table:
Project Name % Revenue as per Revenue offered completed POCM till date to date GRT Jewellers India P. 98.00% 1,42,59,812 1,09,13,699 Ltd. -Chengalpet GRT Jewellers – Avadi 94.31% 2,71,75,045 2,36,39,801 GRT Jewellers - 63.37% 2,70,02,716 1,67,28,203 Tuticorin Hindustan College of 47.47% 6,38,00,098 3,10,78,315 Arts & Science Prince Gold & Diamonds 65.59% 116,43,980 1,12,31,824 Sabapathy 40.93% 20,01,92,927 16,82,66,113 Saravana Stores 100.00% 375,00, 000 2,66,54,842 Textiles – Ramershwaram Road – T.Nagar Saravana Stores 29.31% 97,05,842 - Thanga nagai Maligai - Saravana Stores 100.00% 3,00,00,000 2,51,44,051 (Shanmugadurai) 42,12,80,060 (a) 31,36,56,848(b)
:-5-: ITA. No: 2891/Chny/2024 The Assessing Officer has observed that with respect to the above projects, the appellant has recognized lesser revenue cumulatively than that which should have been offered so far, based on the POCM. Therefore, in relation to these projects, the difference between the revenue that should have been reckoned so far and that which has been actually been offered to tax till date, i.e. (a) minus (b) amounting to ₹10,76,23,212/- has been the subject matter of addition. It is true that as per ICDS III, the income has to be recognized in the Profit and Loss Account as per the percentage of completion method. However, it was explained during the course of assessment proceedings that although apparently, it may seem that there is a shortfall in revenue recognition with respect to the above projects, the position has to be seen in conjunction with the work in progress which has also been reckoned at contract price. Therefore, it was submitted that when viewed in conjunction with WIP, there is no deficit in revenue recognition in these projects. The aspect of WIP lying as closing stock in respect of unbilled work has completely ignored. Therefore, it is humbly submitted that the order has been passed without application of mind and without proper appreciation of the facts of the case and the business of the appellant. Assessing Officer did not consider the explanation offered during the course of assessment proceedings: In this connection, the relevant portion of Section 43CB introduced with effect from 01.04.2017 are relevant and are reproduced hereunder: 43CB. (1) The profits and gains arising from a construction contract or a contract for providing services shall be determined on the basis of percentage of completion method in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145: …. In terms of the newly introduced provision, the appellant has been following POCM with respect to all the construction contracts undertaken for recognition of revenue as mandated by ICDS-III. The percentage of completion method basically indicates that revenue from performance obligations recognized over a period of time should be based on the percentage of completion of the contract undertaken. The method recognizes revenues and expenses in proportion to the completeness of the contracted project. It is commonly measured through the cost-to-cost method. Percentage of completion is commonly measured by dividing the cost incurred on the project till date by the estimated total cost to complete the project. Revenue is recognized based on the percentage of work completed thus determined. Following are the steps involved in application of POCM:
:-6-: ITA. No: 2891/Chny/2024 (i) Determine POC = Cost incurred to date / Estimated total contract cost (ii) Revenue to be recognized in the current year = (Contract price * POC) – revenue already recognized in prior periods However, it may be noted that the raising of invoices may not exactly be in tandem with the percentage of work completed and hence, the revenue recognized as sales would be based on the invoices raised on the customer since that would be the extent to which the liability is crystallized. Therefore, the portion of the work which is completed but not billed due to terms of the agreement, the proportionate value has been reckoned as work in progress (WIP) of the different contracts. It may be noted for GST purposes, entire amount received has to be reckoned as revenue which may not be in line with the percentage of work completed. For instance, mobilization advance may be received in respect of certain projects for purchase of materials and the percentage of completion would be very low. In such cases, the entire advance would have to be shown as sales and in relation to such projects, the WIP would be reckoned at a negative figure. The net credit to the Profit and Loss Account on account of such projects would be the credit that should have been reckoned in terms of the POCM approach only. It should be noted that the valuation of WIP is not at cost but at contract price. This becomes amply clear from the workings which are given by way of Annexure-1. The difference between the contract price and the amount recognized as revenue in the Profit and Loss Account is reckoned as WIP in respect of each of the contract. This is equivalent to reckoning year end stock at selling price. It does not make a difference in terms of profit whether the product is reckoned as sold or in stock since the valuation is on contract price. Since WIP has been reckoned at contract price and ICDS-III has been entirely complied with, as is clearly brought in Annexure 1, the question of adding the difference between the revenue actually recognized and the revenue to be recognized in terms of ICDS-III based on POCM, does not arise. Addition of the differential without considering that the WIP has been valued at contract price and the revenue has actually been reckoned, would lead to double taxation of the same amount which has been already reckoned as WIP since the billing event has not occurred. It may be observed in Annexure 1 that there is only a minor difference of ₹18,366/- in the amount that has been added as income by the Assessing Officer and the amount already reckoned as WIP plus the revenue recognized in the Profit and Loss Account. It is amply clear that the addition has been made only due to non- appreciation of the facts and the accounting treatment in respect of WIP. Based on the workings, it becomes clear that the appellant has rightly
:-7-: ITA. No: 2891/Chny/2024 reckoned revenue arising from the contracts in terms of the mandate of the applicable standard, In view of the facts, it is humbly submitted that the addition made on this ground may please be deleted. Only select projects have been considered for the purpose of addition Without prejudice to the contention that no addition is warranted in the instant case, it is humbly submitted that the Assessing Officer has only cherry-picked certain projects and made an addition based on the premise that the revenue has been recognized less than what is computed based on POCM. As per the ICDS III, the income has to be recognized based on level of completion of the work and not based on actual billing/receipt. In case the billing/receipt is less than that level of completion, the difference has to be added as revenue. Applying the same principle, in case of advance payment, the receipt may be higher than the revenue to be recognized based on the percentage of completion. In that case, revenue should be recognized only based on POCM and accordingly offered to tax. There are other projects where the actual revenue recognized is more than that computed as per POCM. Therefore, it is humbly submitted that having accepted the method adopted for the other projects, the same approach for the impugned projects should have been applied by Assessing Officer. It may be noted that if all the projects are considered, the difference between the revenue to be recognized and the amount credited as work in progress would tally excepting for a small difference. The reconciliation between the addition made by the Assessing Officer and the work in progress credited to the Profit and Loss Account is provided as Annexure -2. In this connection, the decision of Jaipur bench of Hon'ble Income Tax Appellate Tribunal in the case of Vastukar Township Pvt. Limited v DCIT reported in 2018 (2) TMI 97 – ITAT JAIPUR where the principle of revenue recognition in terms of Percentage of Completion Method was enunciated, particularly the fact that where POCM is applied, the percentage should be reckoned even in respect of advances received. The relevant portion of the decision is reproduced for ready reference of this respected authority: “Further, it is noted that in respect of revenues from executed sale deeds, the revenues have been recognized to the extent of work completed and the said principle will apply in respect of advances so received from the buyers.
:-8-: ITA. No: 2891/Chny/2024 In light of above discussions, in respect of total advances actually received from the customers as on 31.03.2012 amounting to Rs 4,44,28,514 arising out and in respect of which plot buyers agreement has been executed, revenues to the extent of percentage of work completed (45.73%) which comes to Rs 2,03,17,159, following the percentage completion method has been rightly brought to tax by the Assessing officer and the order of the ld CIT(A) is set aside to this extent.” In view of the above decision, it is humbly submitted that in case of those projects where advances have been received, the amount to be recognised as revenue should be restricted to the percentage of completion in respect of the projects. In view of the above contentions, it is humbly submitted that the addition made by the Assessing Officer deserves to be deleted.”
The assessee thus tried to explain that the WIP lying as closing stock in respect of unbilled work had completely been ignored. The assessee therefore submitted that the sales viewed in conjunction with WIP shown to the credit of the profit and loss account, there was no deficit in recognition of revenue.
The assessee thus explained that his process of accounting was to transfer the entire amount collected from a customer to sale account. The assessee would thereafter compute the income to be accounted as per the POCM and follow the following procedure: (a) If the amount recognised in respect of a project on transfer of the entire collections on the said project to sales, is less than the amount to be offered under the POCM, the excess amount to be offered would be credited to WIP (b) If the amount recognised in respect of a project on transfer of the entire collections on the said project to sales, is more than the :-9-: ITA. No: 2891/Chny/2024
amount to be offered under the POCM, the deficit amount would be debited to WIP 9. Thus, the assessee sought to explain that the closing WIP represented the balance of amount to be offered to income as per the POCM. The assessee further went on to submit a reconciliation of the manner in which the income had been recognised in respect of each project and explained that there was only a meagre difference of Rs.18,367/- arising as the income to be recognised between what the AO held should be offered under the POCM versus what was offered by the assessee under the POCM.
The assessee submitted that the confusion that lead the AO to believe that the revenue is not correctly recognised as per the POCM was that the AO had not noticed that the excess to be offered under the POCM over and above the amount already credited to sales (being the entire amount of collection from the customers during the year) had been credited to the profit and loss account as WIP and that once the WIP is recognised there is no difference between the sales credited to profit and loss account and increased by the WIP credited to the profit and loss account and the POCM as computed by the AO subject to a reconciliation.
The assessee explained that this reconciliation was also primarily because of the fact that the projects where the revenue
:-10-: ITA. No: 2891/Chny/2024 recognised on the basis of sales credited to the profit and loss account being in excess of the POCM which had to be reduced from the income reckoned by the AO since this had already been debited to WIP and one mistake committed by the AO in not recognising the amount transferred to WIP in respect of one project and further not taking into account the difference on account of materials at site.
The reconciliation submitted by the assessee is as follows: WIP of all the projects (as per WIP statement) 10,60,98,182
Reconciliation between addition made by the Assessing Officer and WIP as per the Profit/Loss a/c Difference between revenue to be reckoned and revenue actually reckoned (as per AO) in relation 10,76,23,212 to the projects mentioned in the assessment order Add: Projects with positive WIP considered by Assessing Officer Jayachandran Industries P. Ltd. 14,31,611 14,31,611
10,90,54,823 Less: Projects with negative WIP not considered by the Assessing Officer Ashok Verghese 13,58,412 Gowri Hospitals 1,85,508 Otto Clothing Pvt. Ltd. 1,38,272 Pothys - Nagercoil 1,56,390 Shanmugapriya Chittalapakkam 1,83,767 St. Mary Church, Injambakkam 12,86,144 33,08,493
10,57,46,330 Difference (Material at site) 3,51,852 As per WIP statement 3,33,485 Difference 18,367
:-11-: ITA. No: 2891/Chny/2024
The assessee also made out a table explaining the project wise revenue recognition which is as follows:
Already Reckoned in Reckoned in Revenue to recognised P& L as sale Revenue P&L as Total revnue be reckoned in prior during FY 16- recognised Closing offered so far Differen as per A O year(s) 17 so far Stock- WIP in P&L ce (g)=(f)- (a) (b) (c) (d)=(b)+(c) (e) (f)=(d)+(e ) (a) GRT - Chengalpet 1,42,59,812 1,09,13,699 1,09,13,699 33,45,810 1,42,59,509 303 GRT Jewellers India P.Ltd.- Avadi 2,71,75,045 2,36,39,801 - 2,36,39,801 35,33,854 2,71,73,655 1,390 GRT Jewellers India P.Ltd.- Tuticorin 2,70,02,716 25,04,732 1,42,23,468 1,67,28,200 1,02,73,771 2,70,01,971 745 Hindustan College of Arts & Science 6,38,00,098 94,59,081 2,16,19,234 3,10,78,315 3,27,25,514 6,38,03,829 -3,731 Prince Gold & Diamonds 1,16,43,980 44,36,080 67,95,744 1,12,31,824 4,12,746 1,16,44,570 -590 Sabapathy 20,01,92,927 1,01,10,457 15,81,55,656 16,82,66,113 3,19,43,776 20,02,09,889 -16,962 Saravana Stores Textiles _ Rameshwaram rd. 3,75,00,000 2,66,54,842 - 2,66,54,842 1,08,45,158 3,75,00,000 - Saravana Stores Thanga Nagai Maligai 97,05,482 - - - 97,05,001 97,05,001 481 Saravan Stores (Thangadurai) 3,00,00,000 - 2,51,44,051 2,51,44,051 48,55,949 3,00,00,000 - Total 42,12,80,060 7,68,04,993 23,68,51,852 31,36,56,845 10,76,41,579 42,12,98,424 -18,364
Further that the Ld. AO had taken the POCM only of select projects which the assessee had tabulated which is as follows:
:-12-: ITA. No: 2891/Chny/2024
WORK IN PROGRESS AS ON 31.03.2017
CONTRACT REVENUE CONTRACT COST Contract Contract % of Revenue Earned Revenue Total costs costs Total PROJECTS recognised complet WIP Revenue recognised contract incurred incurred estimated DURING ion in previous value as in upto the contract THE company agreed previous reporting costs YEAR company date Ashok Verghese - 2500000 8713501 - 574888 4388000 13.10% 1141588 -1358412 Gowri Hospital Pvt Ltd - 200000 30000000 - 6956 14401000 0.05% 14492 -185508 Grt - Chengalpet - 10913699 14550829 54658 8383942 8611000 98.00% 14259509 3345810 GRT Jewellers India Pvt Ltd- Avadi 23639801 - 28814595 16166051 393759 17559810 94.31% 27173655 3533854 GRT Jewellery India Pvt Ltd - Tutricorin 2504735 14223468 42611198 7495 17027160 26882000 63.37% 27001974 10273771 Hindustan College of Arts & Science 9459081 21619234 134400881 16222750 23657705 84007000 47.47% 63803829 32725514 Jayachandren Industries Private Limited - 452489 9000000 - 990827 4733000 20.93% 1884100 1431611 New Saravana Stores Bramandamai 2500000 3097081 5597081 961181 2615466 3576647 100.00% 5597081 - Otto Clothing Pvt Ltd - 72224000 115000000 78363 42476663 67889000 62.68% 72085728 -138272 Pothys - Nagercoil 76437551 - 76437551 30191953 10968661 41245000 99.80% 76281161 -156390 Prince Gold & Diamonds 4436080 6795744 17752676 1360894 4772737 9351000 65.59% 11644570 412746 Sabapathy 10110457 158155656 489110500 1978902 108716247 270427000 40.93% 200209889 31943776 Saravana Stores Textile Rameswaram Road 26654842 - 37500000 19869694 277033 20146727 100.00% 37500000 10845158 Saravana Stores Thanga Nagai Maligai - - 33113210 1335729 4307338 19254000 29.31% 9705001 9705001 Saravana Stores(Shanmug a Durai) - 25144051 30000000 46827 17620335 17667162 100.00% 30000000 4855949 Shanmugapriya Chittalapakkam 4500000 300000 4800000 1594876 980598 2678000 96.17% 4616233 -183767 St.Mary's Church,Injamba kkam 2659211 943396 14231750 1453349 14926 9020700 16.28% 2316463 -1286144 TOTAL 162901758 316568818 1091633772 91322722 243785243 621837047 585235273 105764697
Other material at site 333485 CLOSING WIP AS ON 31.03.2017 106098182
The Ld. CIT(A) after considering the submissions of the assessee found that the difference between the addition made by the AO and the WIP as per profit and loss account was a marginal sum of Rs.18,637/- and that there was therefore hardly any :-13-: ITA. No: 2891/Chny/2024 difference in the revenue recognised by the assessee compared to the revenue determined by the AO. The Ld. CIT(A) thus held that the addition made on account of revenue recognition is not sustainable and deleted the same.
Aggrieved by the order of the Ld.CIT(A) the revenue is in appeal before us on the following grounds:
The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.
2. The Ld.CIT(A) erred in deleting the addition of Rs.10,76,23,212/- towards percentage completion method as prescribed under ICDS- III 3. The Ld.CIT(A)’s has erred in not considering the fact that the assessee has chosen to alter the WIP without providing satisfactory documentary evidences and computation as mandated by ICDS III during the assessment proceedings and appellate proceedings. 4. The Ld.CIT(A) has erred in accepting the contention of the assessee that it recognized advance receipts for the purpose of the GST whereas opted to defer the revenue in the case of the Income Tax. 5. The Ld.CIT(A) has erred in not considering the facts in case of conflict between the ICDS and provisions of the Act, the provisions of the Act shall prevail in the interest of revenue. 6. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.
The Ld. DR supported the order the AO and prayed for reversal of the order of the Ld. CIT(A) and restoration of the order of the AO.
:-14-: ITA. No: 2891/Chny/2024 The ld.DR further relied on the grounds of appeal filed by the revenue.
18. Per contra the Ld. AR on the other hand sought to explain the fact that the income as per the POCM had already been offered as income by the assessee and elaborately explained the working on the basis of which the Ld. CIT(A) allowed the appeal of the assessee. The Ld. AR further stated that the assessee has returned a total income of Rs.9,79,75,000/- on a gross POCM of Rs.42,26,67,000/- which amounts to a net income of 23.18%. If the addition made by the AO is taken into account the net margin of the assessee would be 48.64% which is improbable in the assessee’s line of business. The ld.AR further submitted that the ld.CIT(A) has considered all the aspects of the revenue as well as the closing WIP recognised in lieu of revenue and deleted the additions made by the AO and hence prayed for confirming the same.
We have heard the rival contentions perused the materials available on record and gone through orders of the lower authorities. At the outset it may be noticed that there is no dispute on the application of ICDS III in the facts of the case, the assessee being a civil contractor.
:-15-: ITA. No: 2891/Chny/2024
The grounds of appeal raised by the revenue effectively revolve around 3 aspects:
(i) That the WIP had been altered by the assessee without providing satisfactory documentary evidence and computation as mandated by the ICDS III (ii) That the Ld. CIT(A) erred in accepting that while the assessee recognised advance receipts for the purpose of GST opted to defer the revenue for IT purposes (iii) That in the event of a conflict between the ICDS and the IT Act, it is the Act which has to prevail 21. Coming to the aspect of a conflict between ICDS and the provisions of the Income Tax Act, it can be seen that the ICDS clearly provides that in the event of a conflict between the IT Act and the ICDS, the provisions of the Act should prevail. At this stage it may be relevant to notice that the provisions of section 145(2) gives the power to the Central Government to notify in the official gazette from time to time Income Computation Disclosure Standard to be followed by any class of assessees’ in respect of any class of income. It can also be seen that ICDS III is applicable in respect of a construction contract and that Para 17 of the ICDS makes it expressly clear that the revenue and expenditure should be recognised on the basis of the POCM
At the outset ICDS III it may be noted is not in conflict with any of the provisions of the IT Act and consequently has to be :-16-: ITA. No: 2891/Chny/2024 followed. We find that there is no dispute between the assessee and the revenue on the percentage of work completed in respect of each project but only on whether the amount to be recognised as per the ICDS has been recognised as revenue or not.
It is the case of the assessee that the amount of revenue to be recognised as per POCM which has not been credited to sales since the same is yet to be collected has been carried to WIP which is nothing but the unbilled revenue which is to be recognised along with sale which will in effect result in the amounts as per the POCM being credited to the profit and loss account. The difference subject to the reconciliation is what the AO seeks to add and is nothing but the amount credited to the profit and loss account as WIP [subject to the reconciliation made and explained before the Ld. CIT(A)]
Further we note that the assessee before the Ld. CIT(A) has submitted that the entire invoice value is shown as sales for GST but the income in the profit and loss account is recognised on the basis of the POCM.
We have gone through the workings made by the assessee in respect of the POCM and the manner in which the same has been accounted in the profit and loss account by the assessee. The profit and loss account of the assessee clearly has a credit by way of :-17-: ITA. No: 2891/Chny/2024 closing WIP amounting to Rs.10,60,98,182/- over and above the sales of Rs.31,65,68,818/- credited to the profit and loss account.
Taking the aggregate of these two (Revenue and Closing WIP) and the reconciliation as explained by the assessee which is nothing but the arithmetic difference in respect of some projects which the AO has missed out in computing the POCM but which has been correctly taken by the assessee and transferred to WIP in order to be compliant with ICDS III in so far as recognising income as per POCM is concerned.
As rightly pointed out by the Ld. CIT(A) after such recognition there is a meagre difference of only Rs.18,367/- in respect of gross receipts from sales and the amount credited to WIP being Rs.42,26,67,000/- which could only be in rounding off and at any rate is too negligible to warrant interference with the order of the Ld. CIT(A).
Having thus seen that there is no conflict between ICDS and the provisions of the Act and that the ICDS is to be followed and also that there is no alteration made to the WIP but only that a credit has been made to the WIP and recognised in the profit and loss account to be compliant with ICDS III, the only issue that :-18-: ITA. No: 2891/Chny/2024 remains is with regard to deferral of income with respect to IT as compared to GST.
We have gone through the order of the Ld. CIT(A) where at para 5.4.3 the Ld. CIT(A) observed this aspect and states that the assessee has submitted that for GST purposes the receipt / invoice value is shown as sale in certain projects which is not in line with the POCM, it is only the POCM which has been used for the revenue recognition since the raising of invoice may not exactly match with the POCM.
On perusal of the various data provided to the Ld. CIT(A) and which are part of this order we find that for IT purposes the assessee has correctly treated an aggregate sum of Rs.42,26,67,000/- as the income from civil construction as per POCM. This sum of Rs.42,26,67,000/- is nothing but the aggregate of Rs.31,65,68,818/- and Rs.10,60,98,182/- credited to the profit and loss account by way of sales from service and WIP respectively.
We also find that the assessee paying GST as per the invoice raised is not in conflict with the method of accounting as required by section 145 read along with ICDS III, in so far as preparing the accounts are concerned and on which basis the income has been computed by the assessee.
:-19-: ITA. No: 2891/Chny/2024
In the present facts and circumstances of the case, we therefore hold that the assessee is mandated to follow ICDS III and has rightly followed the same and accounted the entire revenue as required by ICDS III in computing its total income. We also hold that the assessee paying GST on the basis of invoices raised and not on the basis of POCM will have no implication on the computation of total income of the assessee.
We also find merits in the argument of the Ld. AR that the assessee has by itself has returned a total income of Rs.9,79,75,000/- on a gross POCM of Rs.42,26,67,000/- which itself amount to a net income of 23.18% and that if the addition made by the AO is also taken into account the net margin of the assessee would be 48.64% which appears to be improbable in the assessee's line of business.
Having found that the income has been correctly accounted as per POCM and that the manner of paying GST has no implication on the quantum of income to be offered and which has been correctly offered and that there is no conflict between the ICDS and the Income Tax Act, we are of the considered view that no interference is warranted with the findings and the order of the Ld. CIT(A) in deleting the additions made by the AO.
:-20-: ITA. No: 2891/Chny/2024
In the result, the appeal of the revenue stands dismissed.
Order pronounced in the court on 25th April, 2025 at Chennai.