Mere Turnover Mismatch Across Tax Statutes Cannot Sustain Addition: ITAT Delhi

JCIT (OSD) Vs Rudra Buildwell Homes Pvt. Ltd. (ITAT Delhi)

Summary: The Delhi Bench of the Income Tax Appellate Tribunal dismissed the Revenue’s appeals arising from quantum assessment and penalty proceedings for AY 2018-19 in the case of a real estate developer executing the “Rudra Aqua Casa” project at Greater Noida (West). The assessment under section 143(3) had resulted in an addition of Rs.10,63,68,619/- for alleged suppressed turnover based on the difference between turnover reflected in service tax records and turnover reported in the income-tax return and Form 3CD. A disallowance of Rs.8,56,22,003/- under section 40(a)(ia) was also made. The CIT(A) deleted the turnover addition after accepting that the difference arose because the two statutes operated on different bases of recognition, and also granted relief in relation to the disallowance. The Revenue challenged, inter alia, the deletion of the turnover addition and acceptance of the Percentage of Completion Method (POCM).

The Tribunal held that returns filed under two different revenue statutes may report amounts differently because the statutes operate on different taxing events. Unless the Income Tax Act 1961 specifically permits income reported under another revenue statute to form the basis for computing income under the Act, a mismatch between returns filed under different statutes cannot, by itself, sustain an addition or disallowance. Under the erstwhile service tax regime, tax applied to advances received even before the service was rendered or possession handed over, whereas the assessee recognised revenue under POCM/mercantile accounting according to the stage of completion. The Tribunal noted that advances not recognised as revenue were carried in the balance sheet as liabilities and that revenue of Rs.5,10,47,004/- for FY 2017-18 was recognised in accordance with POCM. The audited books and Form 3CD had not been shown to suffer from discrepancies.