The Income Tax Appellate Tribunal (ITAT), Bangalore Bench ruled that a mere unrecognized method followed by the assessee to compute taxable income can not be estoppel.
The assessee, M/s Monarch Plaza Comforts Pvt. Ltd. is a developer and filed its return of income for the year under consideration on 26/07/2013 declaring a total income of Rs.1,03,29,370/-for assessment year 2011-12. Subsequently, the case was reopened by issuing notice under section 148 of the Act. In response, the assessee filed a letter replying that the original return filed by the assessee may be treated as a return in response to notice under section 148 of the Act. Subsequently, notice under section 143(2) was issued to the assessee.
The assessee declared income at 15% on the WIP. The assessee adopted a method of determination of income that is unknown to law or to the approved accounting standards. However the contention of Ld. Counsel is that the AO instead of adopting correct methods to determine income in the hands of the assessee estimated the income as a percentage of WIP, which is also erroneous and in law unapproved.
The assessee objected to the observation of authorities below that, assessee agreed to the addition, which is not based on approved accounting standards.
The assessee has only 2 options, either follow the project completion method or percentage completion method, which is the generally accepted accounting principles and A-S 7 issued by the Institute of chartered accountants of India. He submitted that the AO estimated the income and computed addition on an ad-hoc basis, which is not recognized either by the accounting standards or under the Income-tax Act.
The coram of Chandra Poojari and Beena Pillai ruled that the method adopted by the assessee though was not a recognized method, the method of computation of additional income by AO is also uncalled for.
“We rely on Circular No.14 of 1955 dated 11.04.1955 issued by CBDT, wherein it is expressed that assessing officers are expected to educate the assessee and allow claims that alleged timidly due to assessee, even when such a claim is not made,” the ITAT said.
The ITAT said that the AO ought to have guided the assessee for adopting one of the recognized methods of accounting to arrive at the correct income vis-a-vis the method of accounting adopted by the assessee in the previous assessment year or the immediately succeeding assessment year.
The ITAT remanded the issue back to AO to consider it afresh. The AO shall resort to either of the recognized methods of accounting standards acceptable under the Income-tax Act to compute the income in the hands of the assessee if any for the year under consideration.
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