ITAT directs De Novo Proceedings due to lack of Evidence to substantiate Deffered Revenue in P & L account [Read Order]

Gujarat State Road Development Corporation Ltd., the assessee, appealed against the order passed by the Commissioner of Income Tax(Appeals), (CIT(A)), National Faceless Appeal Centre ( “NFAC”), Delhi vide order dated 14.06.2024 passed for A.Y. 2017-18.

During the course of assessment, on examination of the Profit and Loss Account of the assessee, the Assessing Officer observed that the assessee had shown income from Rs. 9,63,30,302/-, whereas on reconciliation of the same with Form 26AS, the total receipts of the assessee came to Rs. 14,30,16,494/-. The Assessing Officer observed that an amount of Rs. 4,66,86,192/- has been short accounted by the assessee in the Profit & Loss Account, during the relevant assessment year.

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In response to notice issued by the assessing officer, the assessee submitted that during the impugned assessment year, the assessee had adopted a policy to defer its income recognition. The difference in the receipts in Profit & Loss Account and the amounts appearing in Form 26AS is on account of deferred revenue recognition. The assessee submitted that during the year, the assessee has adopted an accouting policy to defer the income recognition in respect of three projects since the “ultimate collection with reasonable certainty was lacking”.

The assessee submitted that during the impugned Financial Year, Larsen & Toubro submitted it’s request to grant relaxation and extension in respect of payment of additional concessional premium and interest payment due to financial crunch and inability to generate positive cash flow for three projects. Accordingly, the assessee entered into a deferment agreement with L & T for three projects in which L & T agreed to pay additional concessional premium and interest on delayed payment of additional concessional premium.

However, the Assessing Officer did not agree with the contention of the assessee with regards to deferment of revenue since he was of the view that on perusal of the deferment agreement entered between the assessee and L & T, it is seen that the assessee has not given complete details as to the working of contracts executed by the assessee with these three companies for the impugned assessment year, copies of bills raised by the assessee were not submitted, the break-up of bills recognized and deferred at the relevant assessment year was not furnished and further, even the reconciliation statement submitted by the assessee did not provide a correct clarification based on Revenue deferred by the assessee. Accordingly, an amount of Rs. 4,66,86,192/- was added to the income of the assessee.

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CIT(A) dismissed the appeal of the assessee by observing that as per AS-9, where there is no uncertainty as to the ultimate collection, the Revenue was required to be recognized at the time of sale or renting the services. In the instant case, the assessee has not demonstrated the reasons for uncertainty of ultimate revenue collection and has also failed to demonstrate, with supporting evidences that the conditions mentioned in AS-9 are fulfilled.

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The assessee is in appeal before us against the aforesaid order passed by CIT(A). Before us, the Counsel for the assessee primarily reiterated the arguments taken before the Lower Authorities. The Counsel for the assessee submitted that the deferment of revenue recognition was on account of a genuine dispute between the assessee and the parties concerned and this amount was received by the assessee in a later year. It was further submitted that the assessee has also not claimed TDS for income received from these projects.

On going through the contents of the agreements furnished by the assessee for deferment of revenue, the year-wise income recognition table and the reconciliation statement of Form 26AS with audited Profit & Loss Account, the two member bench of Annapurna Gupta, Accountant Member & Siddhartha Nautiyal, Judicial Member viewed that assessee has not given a clear finding on what basis the amount was deferred by the assesee.

Further, the assessee has also not submitted the precise breakup of bills raised by the assessee, the copies of bills for which revenue were deferred and has also not submitted the evidences to ascertain the reasons for deferring the revenue.

In view of the lack of submission of complete details by the assessee, in the interest of justice, the tribunal restored the matter to the file of Assessing Officer for de-novo consideration with a direction to the assessee to file all necessary details as called for by the Assessing Officer during the course of assessment proceedings.

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