SUMITRA BHAVE AND SUNIL SUKTHANKAR,PUNE vs. ITO WARD 6(1), PUNE

This is an appeal filed by the appellant directed against the order of National Faceless Appeal Centre, Delhi dated 25.04.2024 for the assessment year 2011-12.

Briefly, the facts of the case are that the appellant is an individual, no regular Return of Income for the A.Y. 2011-12 was filed under the provisions of Income-tax Act. Based on the Non- filers Monitoring System (NMS) data that the appellant received Rs.32,00,000/- fees for professional and technical services, the Assessing Officer (AO) formed an opinion that income escaped assessment to tax. Accordingly a notice u/s.148 was issued to the appellant on 22.03.2018. However, the appellant neither complied with the notice issued u/s.148 or the notice u/s.142(1) of the Act. In the circumstances, the AO was constrained to pass the best judgment assessment by assessing the entire receipt of Rs.32,00,000/- received from Maharashtra Institute of Technology Transfer of Rural Areas (MITTRA), Nashik towards professional charges for production of Film vide order dated 08.12.2018 passed u/s.144 r.w.s.147 of the Act.

Being aggrieved, an appeal was filed before the NFAC contending that the Assessing Officer ought not to have resorted to best judgment assessment u/s.144 without taking into consideration the submissions filed by the appellant. It was further submitted that the gross receipts of Rs.32,00,000/- was offered to tax for the A.Y. 2012-13 and therefore, no addition is required to be made for the year under consideration. However, the ld. NFAC rejected the contention of the appellant by holding that the Accounting Standard- 9 is not applicable to the appellant and the income should have been offered to tax on Receipt basis/percentage of completion method.

Being aggrieved, the appellant is in appeal before the Tribunal in the present appeal.

The ld. Authorized Representative submits that the Accounting Standard-9 is applicable in respect of entities which are engaged in rendition of services. The finding of the NFAC is erroneous. He further submits that the income is offered to tax following Accounting Standard-9. In the absence of completion of the contract of production of the Film, there is no liability to Income-tax. He also filed the certificate issued by Central Board of Film Certification, Govt. of India to show that the production of the Film is complete only during the previous year relevant to the A.Y. 2012-13. He further submits that the appellant had rightly offered the entire receipts to tax in the subsequent A.Y. 2012-13.

On the other hand, the ld. Sr. DR submits that the appellant should have offered the receipts to tax on percentage completion method and the appellant is not entitled to postpone the liability to tax.

I heard the rival submissions and perused the material on record. The solitary issue that arises for my consideration in the present appeal is whether the appellant is justified in postponing the recognition of revenue arising from the business of execution of contract of production of the Film. It is the contention of the appellant that the revenue is recognised as and when the contract is completed. The fact that the Film is released in subsequent period goes to prove that the production of the Film is completed only during the previous year relevant to the A.Y. 2012-13. Accounting Standard-9 permits the recognition of revenue in respect of service contracts either on the basis of percentage completion method or completed service contract method. The AO cannot impose upon the appellant a particular method of Accounting. The AO is only empowered to examine whether the appellant had recognised the income in accordance with the method of Accounting Standard employed or not. Therefore, in terms of the completed contract method, it cannot be said that the income had accrued to the appellant on account of execution of contract of production of the Film, during the previous year relevant to the assessment year under consideration. The NFAC had fell in serious error in holding that Accounting Standard-9 is not applicable to service contracts. Thus, the orders of the lower authorities are reversed and the appeal filed by the appellant stands allowed.

In the result, the appeal filed by the assessee is allowed.