Case Law Details
ST Engineering Electronics Ltd. Vs ACIT (ITAT Chennai)
The appeal filed by ST Engineering Electronics Ltd. for the Assessment Year (AY) 2018-19 challenges the addition of Rs. 14,41,72,414 made by the Assessing Officer in relation to alleged short Contract Revenue. The crux of the appeal revolves around the Dispute Resolution Panel’s (DRP) decision, questioning the methodology of recognizing revenue and imposition of additional tax.
1. Methodology of Revenue Recognition: The appellant, a foreign company incorporated in Singapore, has consistently followed the percentage completion method for recognizing contract revenue. This approach aligns with Accounting Standard-7 (AS-7), ensuring revenue is recognized as work is performed over the contract’s duration.
2. Basis of Additions: The impugned addition is based on the financial projections made by the appellant in a Section 197 application seeking lower tax deduction on contract revenue. The Assessing Officer’s contention is that the appellant recognized revenue based on estimated projections, leading to a significant shortfall.
3. Compliance with Accounting Standards: The Tribunal finds that the appellant’s methodology is in accordance with AS-7, where contract revenue is matched with contract costs incurred as work progresses. The appellant’s recognition of contract losses further aligns with accounting standards, and there is no deviation as alleged by the Assessing Officer.
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