Asstt. CIT v. Computer Lab [ITA Nos. 207, 208
& 209/CTK/2019, dt. 26-11-2020] : 2020 TaxPub(DT) 4992 (Ctk-Trib)
Revenue recognition -- Mirror imaging -- TDS credit thereon
Facts:
Assessee firm was doing certain contractual jobs on
Information technology side like biometric identification/capturing of data
etc. to ECIL/BEL under a tendered contract. As per the contract they recognized
only the certified work of ECIL/BEL. ECIL/BEL on the other hand accounted for
the entire contractual value and deducted TDS on the whole amount but paid only
the certified portion of the work. It was the case of the assessing officer
that the difference of the consideration shown in 26AS and that of the assessee
be taxed as income. Assessee's contention was --
1. They were following
percentage of completion method for work certified.
2. They had not accounted the
respective expenditure on the uncertified portion of work.
3. If they had not claimed the
entire TDS credit they would loose the credit to the extent of the postponed or
the uncertified revenue which is yet to be recognized or recognized in the
subsequent year.
Assessing officer sustained the additions. On appeal
Commissioner (Appeals) concurred with the views of the assessee and annulled
the additions but on the TDS claim he took the additional income in the 26AS
minus the assessee's reported income and applied the uniform Net profit rate of
16.22% citing that if the TDS credit was being taken the profit element on the
same ought to be taken otherwise the assessee gets an unfair benefit. Revenue's
plea was that the cancellation of the disallowances were incorrect and the net
profit should not be applied thus but should be applied taking into the salary
and interest paid to the partners or in short the gross profit before the
partner's salary/interest. On higher appeal by the revenue.
Held against the revenue that the addition of the entire
income was not warranted. On the gross profit/net profit ratio the case was
remanded back to the assessing officer for fresh consideration as the ITAT
concurred with the view that the gross profit before partner's interest and
capital ought to have been taken.
Editorial Note: The
case makes an interesting reading due to mismatch in the revenue recognition
between the biller and the payer. Now there is a column in the return for
postponing the TDS credit to match to the year of income in the respective
assessment years. Such a column did not exist for the appeal asst. years though
assessee at the time of assessment could have sought the same and had the
revenue disagreed to it that by itself would have also been an appealable
point.