Arithmetic Mistake in Percentage Computation: ITAT Deletes ₹3.92 Cr Addition for Alleged Suppressed Revenue in Construction Project [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) deleted the addition of Rs. 3,92,66,722/- for alleged suppressed revenue in a construction project, citing an arithmetic mistake in the computation of percentage completion by the Assessing Officer (AO).

I.P. Constructions Private Limited (assessee), a company engaged in construction activities, had its case selected for complete scrutiny under CASS for Assessment Year (AY) 2017-18. Notices under Sections 143(2) and 142(1) were issued, and the assessee furnished details of sales, unsecured loans, revenue from hotel business, and expenses on the e-filing portal.

The AO issued a show-cause notice to the assessee. The AO completed the assessment making additions of Rs. 3,92,66,722/- for suppressed revenue based on percentage completion method and Rs. 14,386/- under Section 36(1)(va) for delayed employee contributions.

The assessee filed an application under Section 154 for rectification, which was dismissed by the AO. Aggrieved by the AO’s order, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) dismissed the appeal.

Aggrieved by the CIT(A)’s order, the assessee appealed to the ITAT. The assessee’s counsel argued that the AO erred in passing the Section 154 order without adequate opportunity and mechanically rejected the rectification application.

The Counsel contended that the AO miscalculated the percentage completion at 90.73%, whereas the correct figure based on expenses incurred (Rs. 63,42,33,158/-) divided by estimated project cost (Rs. 78,97,15,000/-) was 80.31%. Further, the addition under Section 36(1)(va) was prospective from AY 2020-21 and inapplicable for AY 2017-18.

The two-member bench comprising S. Rifaur Rahman (Accountant Member) and Vimal Kumar (Judicial Member) observed that the AO’s computation of percentage completion at 90.73% was an arithmetical mistake, as the correct calculation yielded 80.31%.

The bench held that the AO rejected the Section 154 application mechanically without discussion or reasoning, rendering the order illegal. It further noted that the amendment under Section 36(1)(va) via Finance Act, 2021, was prospective and could not be invoked for AY 2017-18.

The tribunal directed deletion of the Rs. 14,386/- addition and set aside the Section 154 order. The appeal of the assessee was allowed.

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