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Income Tax Appellate Tribunal, “ A ” BENCH, AHMEDABAD
Before: MS. SUCHITRA KAMBLE & SHRI MAKARAND V. MAHADEOKAR
आयकर अपीलीय अिधकरण, अहमदाबाद "ायपीठ “ए“, अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “ A ” BENCH, AHMEDABAD सु"ी सुिच"ा का"ले, "ाियक सद" एवं "ी मकरंद वसंत महादेवकर, लेखा सद" के सम"। ] ] BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं / Year : 2014-15 Pioneer Security Solutions The ITO बनाम/ Pvt.Ltd. Ward-3(1)(2) v/s. 85, Bombay Deluxe Ahmedabad Warehouse Nr.Mony Hotel, Narol Road Isanpur Road Ahmedabad – 382 443 "थायी लेखा सं./PAN: AAECP 2104 K अपीलाथ%/ (Appellant) &' यथ%/ (Respondent) Assessee by : Shri S.N. Soparkar, Sr.Advocate & Shri Jignesh Parikh, AR Revenue by : Shri Veerbadram Vislavath, Sr.DR सुनवाई की तारीख/Date of Hearing : 16/10/2024 घोषणा की तारीख /Date of Pronouncement: 28/10/2024 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM:
This appeal by the assessee is directed against the order dated 30.11.2017 passed by the Commissioner of Income Tax (Appeals)-7, Ahmedabad [hereinafter referred to as “CIT(A)”] in relation to the assessment order passed by the Assessing Officer [hereinafter referred to as “AO”] under Section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] for the Assessment Year (AY) 2014-15. Pioneer Security Solutions Pvt.Ltd. vs. ITO Asst. Year : 2014-15 2 Facts of the case:
The assessee filed its return of income declaring a total income of Rs.12,71,780. During the course of assessment proceedings, the Assessing Officer (AO) noted a discrepancy between the gross receipts reflected in Form 26AS (Rs.4,49,24,717/-) and the Revenue from operations shown in the Profit & Loss (P&L) Account (Rs.1,91,29,668/-). The AO made an addition of Rs.2,57,95,053/-, representing the difference, to the assessee’s income, treating it as undisclosed revenue. The AO observed that the assessee had netted off direct expenses, such as salary and wages, from the gross receipts, and reflected the resultant net figure in the P&L Account. The AO, citing non- compliance with Accounting Standard-9 (AS-9) on Revenue recognition, rejected the assessee’s explanation and passed an order adding the difference of Rs.2,57,95,053/- to the income of the assessee.
3. Assessee preferred an appeal before the CIT(A), who upheld the order of the AO, concluding that the assessee's method of netting off expenses against revenue was not in accordance with accounting standards and that it was unclear how the income and expenses were accounted for.
4. The assessee being aggrieved by the addition of Rs.2,57,95,053/- made by the AO and upheld by the CIT(A), has raised the following grounds: 1. The learned appeal Authority against order passed by assessing officer has erred in making addition of Rs.2,57,95,053/- being difference between from 26AS And amount credited to profit and loss account and applicant disclosed the net receipt in profit and loss account instate of gross receipt as shown in form 26AS. The difference amount was amount of salary and wages paid which is deductibles u/s 37 of income tax act. It is therefore submitted that addition be deleted now. The learned assessing officer has passed order on the presumption without considering facts on record and therefore addition requires to be deleted. It is submitted that it be so deleted now. Pioneer Security Solutions Pvt.Ltd. vs. ITO Asst. Year : 2014-15
2. The appellant also requests you to waive the income tax amount of Rs.1,12,35,260/- and interest, penalty and any other levied amount.
3. The appellant craves for leave to add, alter or amend any of the ground of appeal on or before the final date of hearing.
To stay the demand till the disposal of appeal.
4.1. The assessee filed Revised Grounds of appeal as follows:
I. Addition of Rs.2,57,95,053/- on accounts of difference between Gross Receipts of reflected in 26AS and Revenue from Operation reflected in Audited Annual Accounts 1. The Learned CIT Appeals has erred in Law and in Facts in Confirming the Addition of Rs.2,57,95,053/- made by Ld. AO on accounts of difference between Gross Receipts of Rs.4,49,24,717/- as reflected in 26AS and Revenue from Operation Rs.1,77,70,749/-reflected in Audited Annual Accounts ignoring the contention of the appellant that Revenue from Operations have been recorded in Audited Annual Accounts by reducing direct expenses from Gross Receipts.
2. The CIT Appeals has erred in Law and in facts in Confirming the Addition of Rs.2,57,95,053/- made by Ld. AO simply because the Accenting Treatment of recognising Revenue from Operation by netting of direct expense by Appellant in not in accordance with the prescribed Accounting Standards.
The Appellant Craves the leave to amend, alter or delete any of the above grounds of appeal.
During the course of hearing before us, the Ld. Sr.Counsel of the assessee submitted that the addition made by the AO was a result of misunderstanding. The difference of Rs.2,57,95,053/- represented salary and wage expenses paid to security personnel working at different client sites. The assessee had netted off these expenses against gross receipts, which is why the net revenue from operations was reflected in the P&L Account. The Ld.Sr.Counsel for the assessee submitted a reconciliation statement showing that the gross revenue of Rs.4,49,24,717/- had been fully accounted for in the Pioneer Security Solutions Pvt.Ltd. vs. ITO Asst. Year : 2014-15 books and that the net figure in the P&L Account reflected the deduction of these direct expenses. He also submitted that Rs.1,21,23,816/- debited under Employee Benefit Expenses represented indirect salary expenses. The Ld.AR argued that the reconciliation statement was not previously submitted to the lower authorities and that the matter should be remanded for verification of the reconciled ledger accounts.
The Departmental Representative (DR) relied on the orders of the AO and the CIT(A), contending that the addition was justified as the assessee had failed to follow the prescribed accounting standards in recognizing Revenue.
We have carefully considered the submissions made by both the parties and perused the orders of the AO and the CIT(A) along with the relevant records. It is evident that the core issue revolves around the manner in which the assessee recognized Revenue. The assessee’s method of netting off direct expenses (salary and wages) against gross receipts before reflecting them in the P&L Account is inconsistent with Accounting Standard-9 (AS-9), which mandates that gross Revenue must be recorded before any deductions for expenses. The sales register, which the assessee submitted to the AO, showed the gross Revenue to be Rs.4,49,24,717/-, which matches the gross receipts in Form 26AS. However, neither the AO nor the CIT(A) undertook a proper reconciliation exercise to verify the expenses and income. The assessee’s claim that the difference is attributable to the direct expenses paid as salary and wages was not fully substantiated with proper reconciliation of the ledger accounts. The CIT(A) also observed that it was unclear how the expenses and income were booked, despite the fact that the financial Pioneer Security Solutions Pvt.Ltd. vs. ITO Asst. Year : 2014-15 5 statements were audited under both the Companies Act, 2013 and Section 44AB of the Income Tax Act, 1961. 7.1. Given that financial statements are summarized presentations of individual ledger accounts, a reconciliation exercise is necessary to establish whether the expenses were correctly accounted for. Accounting principles dictate that debit must equal credit, and the gross revenue in the sales register indicates that the revenue has been fully recorded. Thus, the issue is primarily one of proper reconciliation, which was not conducted at the lower levels.
7.2. In light of the above observations, we find that the matter requires further verification of the reconciliation statement and ledger accounts. The failure of both the AO and the CIT(A) to reconcile the gross Revenue from Form 26AS with the net Revenue reflected in the P&L Account has resulted in an incomplete assessment of the issue. Therefore, we deem it fit to restore the matter back to the file of the AO for fresh consideration, with the following directions: • The AO shall verify the reconciliation statement submitted by the assessee and ensure that the gross Revenue and direct expenses are appropriately reflected in the financial statements. • The AO shall conduct a thorough examination of the ledger accounts for both income and expenses to ascertain whether the gross Revenue and salary expenses have been properly accounted for in accordance with the basic accounting principles. • The assessee is directed to provide all necessary documents, including the reconciliation statement, ledger accounts, and any supporting evidence, to the AO to facilitate this verification. Pioneer Security Solutions Pvt.Ltd. vs. ITO Asst. Year : 2014-15 7.3. The appeal is, accordingly, allowed for statistical purposes and the matter is remitted back to the file of the AO for further adjudication in accordance with the directions narrated above.