Ito Chennai v. Naresh Kumar Jain Chennai

In The Income Tax Appellate Tribunal B Bench Chennai Before Shri Abraham P George Accountant Member And Shri George Mathan Judicial Member I T A No 833 Mds 2017 Assessment Year 2012 2013 The Income Tax Officer Non Corporate Ward 9 3 Chennai Vs Shri Naresh Kumar Jain No 13 2 Nd Floor Valliammal Road Vepery Chennai 600 007 Pan Aadpj 4202 A Appellant Respondent Appellant By Dr S Pandian Irs Jcit Respondent By Shri D Anand Advocate Date Of Hearing 05 12 2017 Date Of Pronouncement 07 12 2017 O R D E R Per Abraham P George Accountant Member Grounds Taken By The Revenue In This Appeal Which Is Directed Against An Order Dated 30 01 2017 Of Ld C Ommissioner Of Income Tax Appeals 11 Chennai Are Reproduced He Reunder Ita No 833 Mds 2017 2 1 The Order Of The Commissioner Of Income Tax Appeals Is Contrary To The Law And Facts Of The Case 2 The Commissioner Of Income Tax Appeals Has Erred In Deleting The Addition Made By The Assessing Officer When Both The Opening And Closing Work In Progress Were Taken Into Account 3 The Commissioner Of Income Appeals Has Erred In Accepting The Assessees Admission Of 8 Of The Total Contract Receipts As Income Without Any Basis 4 For These And Other Grounds That May Be Adduced At The Time Of Hearing It Is Prayed That The Order Of The Learned Commissioner Of Income Tax Appeals Be Set Aside And That Of The Assessing Officer Be Restored 2 Facts Apropos Are That Assessee Engaged In Digging And Laying Of Telephone Cables On Contract Basis Had F Iled His Return Of Income For The Impugned Assessment Year Disclosing Income Of 6 64 530 During The Course Of Assessment Proce Edings Ld Assessing Officer Noted That Assessee Had Shown A S Um Of 1 15 17 290 As Part Of Work In Progress In His Balance Sheet Under The Head Current Assets However In The Trading Account There Was No Work In Progress Shown By The Assessee As Per The Ld Assessing Officer Assessee Was Following Mercantile System Of Accounting And Was Required To Show Work In Progress In The Tradin G Account Ita No 833 Mds 2017 3 Assessee Was Put On Notice On This Lacuna Reply Of The Assessee Was As Under The Amount Of 1 15 17 290 Appearing I N The Books As Work In Progress Is The Amount Carried Forward Being Orders Which Were In Progress And Not Completed During The Year The Breakup Of The Same Is Enclosed Herewith The Respective Expenses Have Been Credited And Work In Progress Debited For The Said Amount On 31 03 2012 These Amounts Are Again Debited On 01 04 2014 And Credited Work In Process Account In The Same Way The Amount Of 34 96 888 Shown As Work In Process As 34 96 888 Was Transferred To The Respective Expense Account On 01 04 2012 And Work In Process Account Was Credited However Ld Assessing Officer Did Not Accept The A Bove Reply According To Him Assessee Was Following A Practi Ce Of Not Showing Work In Progress In His Trading Profit And Loss Acc Ount Though This Was Shown In His Balance Sheet According To Him Difference Between Closing And Opening Work In Progress Had To Be Tak En As Income Of The Assessee Work In Progress As Per Balance Shee T As On 31 03 2011 Was 34 96 888 And Work In Progress As Per Balance Sheet As On 31 03 2012 Was 1 15 17 290 Differe Nce Of 80 20 402 Was Added By The Ld Assessing Officer 3 Ld Assessing Officer Also Noted That Assessee Had In The Profit And Loss Account Excluded Expenditure Coming Under Work In Progress From Direct Cost According To Him Work In Progress Having Ita No 833 Mds 2017 4 Been Brought Into The Trading Account It Was Req Uired That Expenditure Which Went Into Such Work In Progress W As Included In The Direct Cost He Worked Out A Sum Of 4 27 346 As Net Profit Not Taken Into Account When The Such Expenditure Was Charged To The Profit And Los Account Thus A Total Addition Of 84 47 748 Was Made 4 Aggrieved Assessee Moved In Appeal Before The Ld Commissioner Of Income Tax Appeals Argument Of T He Assessee Was That It Was Following Project Completion Metho D As Per The Assessee If The Work In Progress Was Treated As Part Of Trading Profit And Loss Account Then Expenditure Which For Med Such Work In Progress Should Also Go Into Such Trading Account As Per The Assessee It Had Earlier Excluded Such Work In Prog Ress As Well As Expenditure Components Therein From The Trading Pr Ofit And Loss Account Contention Of The Assessee Was That Even If These Were Included In The Trading Profit And Loss Account It Made No Difference Assessee Also Gave A Work Out Of His Net Profit Ratio For Various Assessment Years Which Read As Under Ay 2010 11 2011 12 2012 13 2013 14 2014 15 Np Ratio 6 63 4 70 4 36 2 51 34 83 Ita No 833 Mds 2017 5 5 Ld Commissioner Of Income Tax Appeals After Cons Idering The Submissions Of The Assessee Was Of The Opinion That Ld Assessing Officer Had Not Properly Understood The Method Of A Ccounting Followed By The Assessee As Per The Ld Commissioner Of In Come Tax Appeals When Expenditure Included In Work In Prog Ress Was Not Reckoned While Preparing The Trading Profit And L Oss Account Then Exclusion Of Work In Progress Made No Difference However As Per The Ld Commissioner Of Income Tax Appeals Net P Rofit Shown By The Assessee Was Widely Fluctuating It Seems Assessee S Representative Agreed On An Estimated Profit Of 8 Ld Commissio Ner Of Income Tax Appeals Upheld The Addition To The Extent Of 7 51 430 Being Difference Between What Was Returned By The Assesse E And Profit Estimated At 8 6 Now Before Us The Ld Departmental Representative Strongly Assailing The Order Of The Ld Commissioner Of Inco Me Tax Appeals Submitted That Without Considering Opening And Clos Ing Work In Progress Trading Profit And Loss Account Could Not Be Accepted As Per The Ld Departmental Representative Ld Assess Ing Officer Was Justified In Reworking The Trading Account Includin G Work In Progress Contention Of The Ld Departmental Representative Was That Increase In Work In Progress Was Rightly Considered As Part Of Income Ita No 833 Mds 2017 6 According To Him Ld Commissioner Of Income Tax A Ppeals Fell In Error In Rejecting The Method Adopted By Ld Assess Ing Officer And Estimating The Profit Of The Assessee At 8 Of His Contract Receipts 7 Per Contra Ld Authorised Representative Strongly Supported The Orders Of The Authorities Below 8 We Have Considered The Rival Contentions And Peruse D The Orders Of The Authorities Below It Is True That As Sessee Had Not Shown Opening Work In Progress And Closing Work In Progre Ss In Its Trading Profit And Loss Account Though These Sums Were Sho Wn In The Balance Sheet Contention Of The Assessee Is That Expendi Ture Going In The Work In Progress Were Never Included In The Direct Cost Charged To The Trading Account Or In Other Words As Per The As Sessee If The Work In Progress Was Forcibly Introduced In The Trading Acc Ount Then The Corresponding Direct Expenditure Should Also Be I Ncreased Proportionally We Find Much Strength In This Conte Ntion Of The Assessee Ld Assessing Officer Had Not Increased The Direct Cost That Went Into The Work In Progress In The Reworked Tr Ading Account If Such Cost Was Included Then In Our Opinion There W Ould Not Have Been Much Effect Of Exclusion Or Inclusion Work In Prog Ress On The Profit Of The Assessee That Apart Ld Commissioner Of Incom E Tax Appeals Had Appreciated The Matching Principle And Had Est Imated The Profit Ita No 833 Mds 2017 7 Of The Assessee At 8 Of Contract Receipts Since T He Working Results Were Varying Wildly Over The Years In The Facts And Circumstances Of The Case We Do Not Find Any Reason To Interfere With The Order Of The Ld Commissioner Of Income Tax Appeals 9 In The Result The Appeal Of The Revenue Stands Di Smissed Order Pronounced On Thursday The 7th Day Of Decemb Er 2017 At Chennai Sd George Mathan Judicial Member Sd Abraham P George Accountant Member Chennai Dated 7th December 2017 Kv 0 1 2 1 Copy To 1 Appellant 3 3 Cit A 5 167 8 Dr 2 Respondent 4 3 Cit 6 79 Gf