DLF HOME DEVELOPERS LIMITED,NEW DELHI vs. PRINCIPAL COMMISSIONER OF INCOME TAX, DELHI-1, NEW DELHI, NEW DELHI

Ground Nos.3 raised by the assessee wherein the assessee has challenged the direction of Ld. PCIT for re-computation of income of assessee following Percentage of Completion Method (“POCM”). 10. The Ld. PCIT in its order has observed that the assessee has followed Completed Contract Method (“CCM”) whereas the income of the assessee should be recognized on the basis of POCM and directed the AO to compute the revenue in terms of the stock “sold but the possession letter not issued” and “not sold” has to be computed as per following guidelines:- “The computation of revenue for the leftover part of completed projects as per the above chart has to be done keeping in view the following facts and principles:- 1. For the area which is s Possession Letter (PL) were not issued yet, the revenue has to be recognised on the basis of actual received against such areas. 2. For the area which is shown as Not Sold, also the revenue has to be recognised on the basis of actual received against such areas. 3. 'Not sold' may be thoroughly examined. Whether the nomenclature is deceptive or real. AO may examine as to what revenue has been received against it and the same be brought to tax irrespective of its treatment in books. Any disputed amount against this category may also be brought to tax. 4. The nomenclatures like 'PL not issued', or 'Not Sold' are alien to the Percentage of Completion Method, since the entire project has been completed. 5. Since the basic principle of Income Tax Law is to recognise the Real Income and not the Notional Income, the revenue received for the leftover area of the entire project has to be computed in accordance with actual receipts of assessee against this leftover area. 6. The deemed rent on the unsold inventory of assessee would be brought to tax as per the provisions of the Income Tax Act as Completion Certificate has already been received. 7. As and when the Unsold Area is actually sold by assessee, the gross receipts as such will be brought to tax as the cost for the same would have been already considered. Here it may be clarified that 'actually sold would include any type of receipts in cash or kind by whatever name called. The above 1 to 7 steps for the recognition of revenue in the case of assessee are based on principles of recognition of Revenue as per POCM and it taxes the Real Income only. Also, there is no loss to revenue as the future receipts from this area would be brought to tax on the real time basis at the Real income.” 11. During the course of hearing, Ld.AR submitted that the assessee has changed its method of Revenue recognition of real estate business from POCM to CCM in view of the introduction of IND AS 115 by Ministry of Corporate Affairs. However, such change of method was not accepted by the AO who rejected the same and in terms of his observations made at Page 2 to 18 of the assessment order re-computed the revenue as per POCM. He further submitted that such action of the AO is challenged by the assessee before the First Appellate Authority and the matter is sub-judiced therefore, Ld. PCIT has no juri iction on this issue u/s 263 of the Act. It is further submitted that once the AO has applied his mind and reaches to the conclusion that POCM is most appropriate method for Revenue recognition and also computed the amount of addition therefore, there is no error in the order of the AO for which the proceedings could be initiated u/s 263 of the Act. He therefore, submits that once the assessee has specifically examined the issue by making separate and independent enquiry and further made the addition, there is no prejudice caused to the Revenue and therefore, the action of Ld. PCIT in holding the assessing order as erroneous and pre-judicial to the interest of the Revenue is without any basis and he prayed accordingly. 12. The Ld.AR for the assessee further made written submissions in this regard which is extracted as under:- “At the outset, it is submitted that the issue of method of recognition of revenue is subject matter of dispute before the CIT(A) and as such the PCIT is ousted of its juri iction to issue direction in respect of the said issue u/s 263. It is worth mentioning that the issue of working of revenue under POCM was duly considered by the assessing officer during the course of assessment and it is not a case of lack of enquiry. In fact, the AO having changed the method from CCM to POCM, it is implicit that the working of revenue and profit under POCM was duly subjected to scrutiny and as such the exercise of juri iction in respect of this issue is arbitrary and beyond scope. Further, the recognition of revenue is done on the basis of guidelines laid down by accounting standard (IndAS 18 /IndAS 115). However, the PCIT fell into grave error in recommending personal and subjective criteria for recognition revenue under POCM which are wholly contrary to IndAS. In fact, the Ind AS are drafted by expert National Advisory Committee on Accounting Standards constituted by Central Government under supervision of Accounting Standards Board (ICAI), the PCIT was not justified in tinkering with the method. It is relevant to state that the authority of accounting standards having been approved and accepted by the Hon'ble Supreme Court in the case of CIT v. Virtual Soft Systems Ltd. [2018] 404 ITR 409 (SC), the direction of PCIT is perverse and unjustified. In fact, Apex Court in the case of Bilahari Investment 299 ITR 1 has duly examined the applicability of POCM and CCM method and confirmed both the methods. Even otherwise, the whole exercise is revenue neutral as the direction of PCIT would merely result in preponement of the revenue from incomplete project which eventually has been recognized in subsequent years. Further, the tax rate remaining the same, no prejudice is caused to the interest of the revenue and as such the exercise of power u/s 263 is unwarranted and without any basis. Further, PCIT has not recorded anu finding that the system followed by the assessee has caused any prejudice to the interest of the revenue. In this regard, reference is made to the decision of Apex Court in the case of CIT v. Excel Industries Ltd. [2013] 358 ITR 295 (SC). [Refer internal Page 22-41 & 83-85 of reply dated 22/03/24 placed at page no. 368-387 & 429-431 of the paperbook] [Details of projects - Annexure 9 placed at page no. 1040 of the paperbook] [working of Project wise POCM Annexure 9 placed at Page no. 1038 1060 of the paperbook] [Project-wise break-up of revenue till 31st March 18 and 31st March 19 is contained in Annexure 19 placed at Paperbook Pg 1423- 1424.” 13. The Ld.AR for the assessee also submitted that this issue has already been considered and decided by the Co-ordinate Bench of ITAT in the case of group company DLF Assets Ltd. vs PCIT vide order dated 18.09.2024 therefore, even otherwise this issue is covered by the decision of the Co-ordinate Bench of the Tribunal. 14. On the other hand, the Ld.CIT DR for the Revenue vehemently supported the order of the lower authorities and submitted that the Explanation-II was inserted by Finance Act, 2015 w.e.f. 01.06.2015 wherein the Ld. PCIT can declare the order as erroneous insofar as pre-judicial to the interest of Revenue in the opinion of Ld. PCIT. The order is passed without making enquiry or verification which should have been made. In the instant issue, the AO though had made the enquiries however, not concluded the issue in terms of the observations made by the Ld. PCIT and therefore, the order of Ld. PCIT should be sustained on this score. He further placed reliance on the judgement which are discussed while dealing Ground Nos.1,2 and 11 of the assessee. 15. We have heard the rival submissions and perused the material available on record. From the directions given by the Ld.PCIT with respect to the Revenue recognition by following POCM as against CCM, we find that the AO himself has rejected the Revenue recognition by the assessee following CCM. It is further seen that Ld. PCIT while giving directions to the AO in para 1 at page 61 of the order (reproduced herein above) directed the AO to compute the income of the leftover part of all the 11 completed projects by ignoring the facts that all the details asked by the AO during the course of assessment proceedings, were filed by the assessee which are available at pages 1038 to 1060 of the Paper Book. In the instant case, the issue of Revenue recognition by following POCM as against CCM adopted, has already been challenged before the Ld. CIT(A) and therefore, it cannot be said that this issue has not been considered/examined. On the other hand, the AO has applied his mind and reaches to the conclusion therefore, the scope of Ld. PCIT u/s 263 for making further enquiries is nothing but change of opinion which is not permissible u/s 263 of the Act. The Hon’ble Supreme Court in the case of PCIT vs Sriji Prints (2021) 130 taxmann.com 294 (SC) has held that once the AO has taken a plausible view, the same cannot be considered as erroneous and pre-judicial to the interest of the Revenue and therefore, the Hon’ble Supreme Court has dismissed the SLP filed by the Revenue against the order of Hon’ble Gujarat High Court filed by the Revenue. 15.1. It is further seen that this issue has been decided by the Co-ordinate Bench in the case of group company namely, DLF Assets Ltd. in ITA No.2355/Del/2024 wherein vide order dated 18.09.2024, the Co-ordinate Bench in para 4 & 5 of the order has held that the revisional juri iction invoked by Ld. PCIT on this issue is bad in law. The relevant observations of the Co-ordinate Bench are as under- 4. “This assessment was subjected to challenge by the assessee before the ld NFAC. The ld NFAC disposed of the appeal on 18.12.2023 giving partial relief to the assessee. It is pertinent to note that the assessee was following Percent of Completion Method (POCM) for recognition of revenue from the business of real estate activities. But during the year, there was a change in the method from percentage of completion to completed contract method (CCM) as per the Accounting Standard-7 (AS-7) issued by Institute Of Chartered Accountants of India (ICAI). The assessee had debited a sum of ₹609185.90 lakhs in the return representing reversal of excess revenues (net of cost) booked in the earlier years in respect of projects under execution as on 01.04.2018 on account of change in the method of accounting from POCM to CCM. In the return of income for the year under consideration, the assessee made a one time claim of ₹609185.90 lakhs in schedule BP in ITR. In the assessment proceedings, the said deduction was subject matter of examination by the ld AO. The assessee filed written submissions vide letters dated 22.09.2021 and 27.09.2021 on this issue before the ld AO. The assessee also pleaded that CCM is also one of the recognized methods under AS-7 issued by ICAI for the assessee engaged in real estate business. The AO disallowed the one time claim of deduction of ₹609185.70 lakhs. However, the ld AO allowed the alternative claim of the assessee as deduction to the tune of Rs. 104226.14 lakhs which was contingent upon and consequent to the outcome of proceedings for AYs 2017-18, 2018-19 and 2019-20. The ld NFAC took cognizance of the fact that the assessee has followed CCM in succeeding assessment years i.e. 2020-21 and 2021-22, for recognition of revenues and it was also accepted by the ld AO while completing the assessment for those two years. The ld CIT(A) found that the AO had indeed accepted the shift in method of accounting from POCM to CCM by the assessee in assessment years 2020-21 and 2021-22 and observed that the AO was not justified in rejecting the same in assessment year 2019- 20. Ld NFAC also took cognizance of the fact that POCM is one of the approved methods and the assessee was indeed entitled to follow the same for recognition of income. Reliance was also placed by the assessee on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Bilahari Investments Pvt Ltd reported in 299 ITR 1 (SC) and the decision of the Hon‟ble Juri ictional High Court in the case of CIT Vs. Manish Buildwell Private Limited reported in 16 taxmann.com 27 (Del HC) ; decision of Hon‟ble Karnataka High Court in the case of CIT v. Prestige Estate Projects Pvt Ltd reported in 440 ITR 343 (Kar.) ; and decision of Hon‟ble Juri ictional High Court in the case of Paras Buildtech India Pvt. Ltd reported in 382 ITR 630 (Del). The ld NFAC also gave a categorical finding of reversal of excess revenues, which was booked in earlier years of ₹609185.90 lakhs which was claimed as a one time claim of deduction during the year under consideration due to shift in method of accounting from POCM to CCM was worked out by the assessee on the basis of recognized principles, applicable accounting standards and duly vetted by the auditors. Further, he also observed that the entire exercise of this addition made by the AO in the assessment proceedings is purely academic in nature as it is revenue neutral in view of the fact that the same would have to be allowed as deduction in subsequent years as it is only the effect of timing difference. The ld NFAC took cognizance of the fact that due to the statutory requirement of adoption of Ind AS-115, the assessee had to mandatory change the method of recognizing revenue from POCM to CCM since inception in respect of the projects which are under implementation and are yet to be completed. That being so, the revenue hitherto recognized under POCM followed upto AY 2018-19, the revenue had to be reversed in Assessment Year 2019-20 pursuant to adoption of CCM to avoid the situation of double taxation. Accordingly, the ld NFAC categorically had given observation that if one time claim of deduction of ₹609185.90 lakhs is not allowed to the assessee, then it would result in double taxation of income for the assessee which would in turn impair the real income theory. 5. Now the ld PCIT by invoking his revision juri iction u/s 263 of the Act is trying to reconsider the very same issue with regard to recognition of revenue as per POCM instead of CCM adopted by the assessee. In this regard, it is pertinent to note that the ld NFAC had already categorically held that the entire exercise of shifting from PCOM to CCM has been made as per the mandate provided in Ind AS -115 and also the effect of the same is revenue neutral as real income should be recognized in respect of method followed. It is pertinent to note that the order of the assessment got merged with the order of ld NFAC, Delhi and the order of the NFAC was passed prior to the date of passing of revision order u/s 263 of the Act by the ld PCIT. In fact, the order of NFAC dated 18.12.2023 was even brought to the knowledge of the ld PCIT. Despite the fact that the ld PCIT proceeded to pass the revision order u/s 263 of the Act by giving direction to the ld AO to determine the income by following POCM method. First of all, we find that the exercise is revenue neutral and recognition of revenue is only an effect of timing difference. The Hon'ble Supreme Court in the case of CIT Vs. Excel Industries Ltd reported in 358 ITR 295 had held that no addition need to be made by the revenue if the issue is revenue neutral as there is no loss of tax to the exchequer. Hence, the assessment order framed by the ld AO cannot be held to be prejudicial to the interest of revenue. It is trite law that ld PCIT in order to invoke his revision juri iction should cumulatively satisfy the twin conditions i.e. (i) that is the order of the AO must be erroneous and (ii) order of the AO must be prejudicial to the interest of revenue. Even if one condition is absent, revision proceedings u/s 263 of the Act cannot be invoked by the ld PCIT. Reliance in this regard is placed on the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Company Ltd reported in 243 ITR 83 (SC). Further, we find that the basis of shift in the method of recognition of revenue from POCM to CCM has already been examined in detail by the NFAC and accepted by the NFAC to be in order. Hence, the order of the assessment got merged with the order of NFAC. This issue has been already decided by NFAC. Hence, in view of clause (C ) of Explanation to Section 263(1) of the Act, the ld PCIT could not have assumed revision juri iction at all on this issue. Hence, the revision juri iction invoked by the ld PCIT u/s 263 of the Act on this issue is bad in law for more than one reason and accordingly deserves to be quashed and is hereby quashed.” 16. In view of the above facts and by respectfully following the judgment of Hon’ble Supreme Court and Co-ordinate Bench of the Tribunal in the group cases, we find no error in the order of the AO and none of the condition of Explanation-2 is violated. Accordingly, the juri iction invoked by Ld. PCIT u/s 263 is hereby held as bad in law and the order passed u/s 263 on this issue is hereby quashed. As a result, Ground No.3 of the assessee is allowed. 17. In Ground No.4 of the assessee has challenged the direction of Ld. PCIT to examine and verify the financial expenses allowed by the AO which are not in accordance with commercial expediency. 18. During the course of hearing, the Ld.AR for the assessee submitted that the AO has made specific query in this regard vide notice dated 12.08.2021 which was replied vide letter dated 21.09.2021 in response to query No. “L” of the said notice. This fact was brought to the knowledge of Ld. PCIT also and the relevant details so submitted were available in Paper Book at Page 444 to 797 relevant Page 448. The copy of the submissions made before the AO vide reply dated 27.09.2021 is also placed at page 1703 to 1706 of the Paper Book. He further submits that the Ld. PCIT has given a general direction for making necessary verification without recording satisfaction that order is erroneous and pre-judicial to the interest of the Revenue by not pointing out which claim of interest on the advances/loans given to group companies is not for commercial expediency. He further submits that AO has made specific query in this regard as observed above and similar claim was made in preceding years where such claim was allowed and therefore, as a principal of consistency, there is no error in the order of the AO. Ld.AR further submits that this issue has already been decided by this Co-ordinate Bench of Tribunal in group company M/s. DLF Assets Ltd. (supra) therefore, even otherwise this issue has already been decided in favour of the assessee. He thus prayed that the order of Ld. PCIT deserves to be quashed on this score. 19. On the other hand, Ld.CIT DR supported the order of the Ld. PCIT and submitted that the assessee has given interest free advances to subsidiaries and group companies. He further submitted that no amount was charged on the corporate guarantees given to the bank however, all the financial expenses were claimed by the assessee by stating that there were commercial expediency and looking to the deep interest to the group companies which is not correct. He prayed that Ld. PCIT has rightly held the order as erroneous and pre- judicial to the interest of the Revenue as the AO has not make any disallowance u/s 36(1)(iii) of the Act. Therefore, he prayed for confirmation of order of Ld. PCIT on this issue. 20. We have heard the rival submissions and perused the material available on record. At the outset from the records, it is seen that the AO has made specific queries with respect to the interest and financial expenses claimed by the assessee during the course of assessment proceedings wherein the AO has made the following queries to the assessee:-

“Query No.6 “As per notes to the financial statement for the period ended on 31.03.2019, it is noticed that the borrowing cost were not capitalized during the year under consideration. However, the same is debited to profit & loss account. Show cause why the borrowing cost may not be capitalized in view of proviso to section 36(I)(iii) of Income Tax Act, 1961?” 21. From the perusal of this query which was duly replied by assessee with every possible supporting evidence thus, it is clear that the AO has made very specific query and after considering the past history wherein the similar claim was allowed by the AO and no disallowance u/s 36(1)(iii) was made towards the financial expenses claimed vis-à-vis interest free advances given to group companies. It is further seen that identical issue was come up in case of group company (cited supra) of DLF Assets wherein the Co-ordinate Bench in para 6 of its order has held that there is no error in the order of the AO and quash the revisionary juri iction assumed by Ld. PCIT on this issue. The relevant observations are as under:- 6. “The next issue on which the ld PCIT has invoked the revision juri iction u/s 263 of the Act was an account of examination of financial expenses claimed by the assessee. We find that the assessee had furnished detailed submissions with regard to eligibility of claim of interest before the ld AO vide its reply dated 02.09.2021 in response to the notice issued by the ld AO dated 26.07.2021. The assessee gave the explanation that the loans were advanced out of commercial expediency and also gave details of availability of own funds in its kitty. The AO having taken cognizance of the same had granted deduction towards interest expenditure claimed by the assessee. This act of the ld AO was sought to be revised by the ld PCIT by invoking revision juri iction u/s 263 of the Act without even indicating as to how the order of the ld AO is erroneous which is a pre-requisite before invoking revision juri iction u/s 263 of the Act. There is absolutely no discussion of the by the ld PCIT on the issue. Hence, the action of the ld PCIT to revise this issue by giving direction to the ld AO to examine the same is hereby held to be arbitrary and absolutely without any basis. Hence, the assumption of revision juri iction on this issue u/s 263 of the Act is quashed.” 22. In view of the above findings and also looking to the fact that necessary enquiry was made by AO and duly replied by the assessee before the AO as well as before Ld. PCIT. Thus, it is clearly established that the AO has applied his mind before allowing the claim of the assessee and Ld. PCIT has failed to point out any specific error which has resulted into loss of the Revenue. The Ld.PCIT has failed to state which other condition as enumerated in Explanation 2 of section 263 is violated by assessee. Therefore, by respectfully following the judgement of Co-ordinate Bench in DLF Assets wherein the identical issue has been decided by the Co-ordinate Bench, we are of the view that Ld. PCIT has wrongly assumed juri iction u/s 263 towards the financial expenses claimed by the assessee accordingly, Ground No.4 of the assessee is allowed. 23. Ground No.5 of the assessee is related to the directions of Ld. PCIT to examine and analyze the issue related to income from house property and notional rental income on unsold stock. 24. During the course of hearing, Ld.AR for the assessee submitted that the AO vide Query No.4 of his notice dated 23.09.2021 has specifically asked the assessee to explain as to how the rental income is shown and further asked to file the breakup of the income from unsold stock which was replied by the assessee. The relevant query and answer are available at page 1701 to 1702 of the Paper Book. The Ld.AR for the assessee further submits that the assessee has submitted complete details of the rental income and income shown under the head ‘business and profession’ on account of notional rental income on vacant property held as stock-in-trade. The Ld. PCIT has failed to appreciate these facts and further failed to appreciate that the income declared by the assessee under the head ‘rental income’ was accepted in preceding and succeeding years on the same basis and has never been doubted. Therefore, as a principle of consistency, this issue cannot be held as erroneous and pre- judicial to the interest of the Revenue. He further submits that all these facts were submitted before Ld. PCIT during the course of hearing and necessary replies are available in Paper Book at page 390 to 394 and 435. Thus the order of Ld. PCIT on this issue deserves to struck down. 25. The Ld.AR for the assessee has also filed a written submission as under:- “In this regard, it is submitted that the direction issued by the PCIT is of general nature and the revisionary order does not contain any specific finding or point out any infirmity in the assessment order vis-à-vis rental income. Further, before the PCIT, the assessee has furnished detailed submission explaining the break-up rental income offered to tax under the head House property and PGBP. Further, the basis of classification of notional rental income on vacant properties held as stock was also furnished. It was further clarified that no depreciation has been claimed on property income from which is taxed under the head House Property. It is astonishing that the revisionary order does not contain any whisper of discussion on the submission filed by the assessee and the direction issued by the PCIT is mechanical and without application of mind. In fact, the issue of taxation of rental income being of recurring nature and accepted in the past as well as future years, there is no ground or basis for terming the assessment as erroneous or prejudicial to the interest of the revenue. [Refer internal Page 44 - 48 & 89 of the reply dated 22/03/24 placed at page no. 390-394 and 435 of the paperbook].” 26. On the other hand, Ld.CIT DR has submitted that if the case of the assessee was selected for complete scrutiny wherein the AO failed to make necessary inquiries and has not analyzed the details of rental income shown, standard deduction claimed and issue of depreciation. He therefore, submits that by not making such enquiries, the order of the AO is erroneous as well as pre-judicial to the interest of the Revenue. 27. We have heard the rival submissions and perused the material available on record. The reply submitted before Ld. PCIT during the course of revisionary proceedings, is available at pages 391 to 394 of the Paper Book wherein it is claimed by the assessee that the assessee has declared total rental income of INR 21,19,13,543/- out of which INR 2,20,11,122/- was offered under the head “income from house property” relating to units which were held as inventory and were let out during the year. The details of the same were submitted before the AO during the course of assessment proceedings. Besides this, the assessee has declared income of INR 18,99,02,421/- as notional rent on the vacant properties held as stock-in-trade. The notional rent was determined on the basis of valuation report of independent valuer and all these facts were submitted before Ld. PCIT in the course of revisional proceedings which were ignored by Ld. PCIT. It is also submitted by the assessee that the assessee has not charged any depreciation and in support of such claim, necessary details were filed before Ld. PCIT. The assessee is engaged in the business of real estate where primary motive of assessee of selling the real estate however, the unsold stock was let out for hire and income was shown as ‘income from house property’. The AO found no error in the details so filed nor Ld. PCIT has pointed out any error or any occasion where the tax could not be less charged therefore, it cannot be held that the order is pre-judicial to the interest of Revenue or erroneous and accordingly, the direction of Ld.PCIT to make verifications of the standard deduction claimed and notional rental income declared and depreciation is beyond the juri iction u/s 263 of the Act, more particularly, when all the details were filed by the assessee before the AO as well as before Ld. PCIT which were not found to be incorrect. With these observations, in our considered view, the order of Ld. PCIT on this issue of invoking the juri iction u/s 263 of the Act is bad in law and thus, is hereby quashed. Ground No.5 raised by the assessee is allowed. 28. Ground No.6 raised by the assessee is with regard to the direction of Ld. PCIT for making verification of claim of writing off of INR 336.47 crores towards Madras Race Club property. 29. During the course of hearing, the Ld.AR for the assessee submits that this issue actually pertained to AY 2018-19 wherein the assessee has suo moto disallowed the claim in the computation of income. For this, he placed on record the copy of computation for AY 2018-19 wherein a sum of INR 11,42,36,37,487/- were added to the total income of the assessee as exceptional items for which necessary working was enclosed. From the perusal of that working, a sum of INR 336.47 crores related to Madras Race Club property was found included in the gross total sum of INR 1142.36 crores as stated above. The Ld.AR thus submits that Ld. PCIT has not appreciated this fact which was brought to his notice in terms of the reply submitted during the course of proceedings u/s 263 of the Act vide letter dated 28.03.2024. The relevant reply of the assessee as contained in para 5 of the reply is available in Paper Book at page 2427. The Ld.AR thus, state that there is neither any error in the order of AO nor the order is pre-judicial to the interest of the Revenue on this count. Therefore, action of Ld. PCIT in holding the order is erroneous and pre-judicial to the interest of Revenue deserves to be hold bad in law. 30. The Ld.CIT DR for the Revenue supported the order of Ld. PCIT and submits that in the financial statement, the assessee has given a note with regard to the amicable settlement of the property with Madras Race Club and writing off of INR 336.47 crores therefore, the order of Ld. PCIT on this issue is correct and deserves to be upheld. 31. After considering the arguments put forth from the parties and from the perusal of the computation of income filed by the assessee for AY 2018-19, it is seen that the amount of INR 336.47 crores is included in the total amount of exception items added back to the total income u/s 37 of the Act at INR 1142.36 crores and the necessary break-up of the same as provided is reproduced as under:- 32. Further, the assessee in reply to observations No.4 of Ld. PCIT during the course of revisional proceedings has brought these facts to the notice of Ld. PCIT however, Ld. PCIT merely for the verification of these facts has hold the order as erroneous and pre-judicial to the interest of the Revenue. It is settled law that merely for verification purposes, the order cannot be held as erroneous and pre-judicial to the interest of the Revenue. Ld.PCIT has failed to point out which condition of Explanation 2 of section 263 is applicable on this issue. Looking to these facts, in our considered opinion, the order of Ld. PCIT u/s 263 of the Act on this score holds no water and thus is quashed. Ground No.6 raised by the assessee is accordingly, allowed. 33. Ground No.7 raised by the assessee is with regard to the direction of Ld. PCIT for examination of taxability of transferring of rights in the land at Ranga Reddy District, Telangana for INR 88.50 crores. 34. The Ld.AR for the assessee submitted that the assessee has entered into a development agreement with other real estate developers of land parcels at Narsingi Village and Poppalguda Village for construction of multi-storey residential apartment complex wherein the assessee’s share in gross revenue was 24.5%. It was explained by the assessee company that the assessee has given possession of the underlying land parcels to other land owners for the development of the applicants and inventory has been reduced to such extent and was re-classified as receivable. The corresponding sales and cost is recognized in the years of sales booking done by the developers. During the year under consideration out of the total receivable of INR 185.46 crores as outstanding on the first day of the previous year were reduced to INR 88.50 crores as on 31.03.2019. The corresponding decrease in the value of receivables of INR 96.96 crores was recorded as revenue in P&L Account and the remaining amount of INR 88.50 crores was carried over to the next year as receivable which was recorded as revenue in subsequent year when the sale has taken place. Ld. PCIT without raising any doubts on the submissions so made nor finding any error in the same which leads to order as pre-judicial to the interest of revenue, merely direct the AO to make verification of the corresponding Revenue by which it cannot be said that the order is erroneous and pre-judicial to the interest of the Revenue and juri iction u/s 263 could be assumed and therefore, he prayed for cancellation of order of Ld. PCIT on this issue. 35. On the other hand, the Ld.CIT DR supports the order of the AO and further placed reliance on the case laws relied upon by him in its submissions which are reproduced herein above while dealing in Ground No.1 of the assessee. 36. After careful consideration of the submissions of both the parties and looking to the financial statements of the assessee, we find that during the year under appeal, the assessee has disclosed total consideration of INR 132 crores in its P&L Account against the cost of INR 96.96 crores which was forming part of total receivable as on the first day of the previous year. The amount of INR 88.50 crores is the residuary figure of receivables on account of the remaining stock of the project against which the relevant revenue was recorded in the P&L Account in subsequent years. All these facts are emanated from the submissions made by the assessee before Ld. PCIT during the course of hearing wherein reply to Observation No.5, the assessee has made following submissions:- 6. “Observation 5: Regarding transferring of rights in the land at Ranga Reddy district Telangana for Rs. 88.50 crores during the year in lieu of gross revenue from the project please show cause as to why the profit from this be not brought to tax and the order of AO be not considered erroneous and prejudicial to this extent, as it was not examined at all. Reply: In connection with the above observation, it is submitted that the Assessee has explained the above transaction in detail in it submission dated 22.03.2024. To reiterate, it is submitted that the Assessee wishes to submit that the Company entered into an Development agreement with other real estate developer in respect of land parcels at Narsingi Village and Poppalguda Village for a multistory residential apartment complex ('the project'), for a consideration of 24.5% of the gross revenue from ultimate sale of the project. It is submitted that in accordance with the said development agreement, the Company has given possession of the underlying land parcels, forming of part of its inventory to the other land owner for development of the multistory residential apartment complex and inventory has been reduced to that extent and has been reclassified as receivable. The corresponding sale and cost is recognized in the year of sales booking done by the developer. The relevant extract of note 10 and note 54 of the audited financial statements explaining the above transaction is reproduced hereunder: As evident from the above notes, it is submitted that receivables of Rs. 185.46 crores outstanding as at 31.03.2018 have reduced to Rs. 88.50 crores as at 31.03.2019. Accordingly, it is submitted that the Assessee has reduced the cost of inventory of Rs. 96.96 crores from receivables and has recorded such cost in the statement of profit and loss under note 30 of the audited financial statements. It is submitted that a corresponding revenue of Rs. 132 crores has been recognized in the statement of profit and loss under note 28 of the audited financial statements and offered to tax by the Assessee. It is submitted that the revenue of Rs. 132 crores form part of net revenue from sale of land/plot/DR of Rs. 139.53 crores furnished vide Annexure 19 of our submission dated 22.03.2024 and cost of Rs. 96.96 crores forms part of the cost of sale of land/plot/DR of Rs. 133.65 crores furnished vide Annexure 19 of our submission dated 22.03.2024. Should your honor desire any further information/detail in this regard, the Assessee would be glad to furnish the same upon hearing from your honor. In view of the above submissions, it is submitted that the Assessee has already offered to tax the revenue from the aforesaid transaction in terms of the development agreement and accordingly, the assessment order cannot be regarded as erroneous or prejudicial to interest of revenue.” 37. From the above reply of the assessee, it is clear that the assessee has duly offered the income against such cost incurred on the project at Ranga District, Telangana in the year when the income was accrued and therefore, the assessment order was neither erroneous nor pre-judicial to the interest of the Revenue and accordingly, we quash the order of Ld. PCIT passed u/s 263 of the Act on this issue wherein Ld. PCIT has merely direct the AO for making verification of the income offered without in any manner pointing out any error or loss of Revenue. Ground No.7 raised by the assessee is accordingly, allowed. 38. Ground No.8 raised by the assessee is with regard to the verification of correctness of exceptional gain of INR 261.80 crores and exceptional loss of INR 495.1 crores. 39. During the course of hearing, the Ld.AR for the assessee submitted that the AO has made a specific query in terms of notice dated 12.08.2021 which was replied by the assessee on 21.09.2021. The relevant copies of the reply are placed in the Paper Book at page 445 to 448. He further submits that Ld.PCIT has given general direction without finding any error in the submissions made by the assessee in its reply dated 28.03.2024 made before Ld.PCIT during revisionary proceedings. The Ld.AR also drew our attention to the computation of income placed at pages 3114 to 3115 of the Paper Book wherein the provision made for exceptional items and exceptional loss were added back to the income and further the exceptional gain of INR 261.80 crores is offered for tax under the head “income from capital gain”. He thus prayed that the order of Ld.PCIT holding the assessment order as erroneous as well as pre-judicial to the interest of the Revenue and devoid on merits and deserves to struck down on this issue. 39.1. The Ld.AR also filed written submissions on this issue, which is reproduced as under:- “The PCIT has given general direction to the assessing officer for examination of exceptional gain and loss as appearing the financial statement which is totally beyond the scope of section 263. It is relevant to mention that the assessee before PCIT furnished detailed submission explaining individual exceptional items which are in nature of profit on disposal of investment, provision for impairment of assets and provision for loss. It was clarified that the assessee has suo moto disallowed the provisions in its computation of income and offered the gain on disposal of investment of INR 261.80 crores to tax in the ITR. Further, out of total exceptional loss of INR 495.11 crores as appearing in the P&L a/c, the assessee has only claimed loss of INR 105.81 crores which is actual suffered on account of unrecoverable business advance. However, the PCIT without appreciating the submission issue arbitrary direction to AO sans any application of mind. Accordingly, the assessing officer having verified the exceptional items during the course of assessment proceedings and in absence of any error or infirmity in the same, assessment order is neither erroneous or prejudicial to the interest of the revenue to this effect. [Refer internal page 61-69 of reply dated 22.03.2024 and page 19-24 of the reply dated 28.03.2024 placed at PB page No.407-415 and PB pg.2474-2479 respectively].” 40. On the other hand, Ld.CIT DR for the Revenue vehemently supported the order of Ld. PCIT and further placed reliance on the judgements as discussed in Ground No.1 above with respect to the power of Ld.PCIT for making necessary verification as provided in Explanation 2 to section 263 of the Act. He thus prayed for confirmation of the order of Ld. PCIT. 41. We have heard the rival contentions and perused the material available on record. From the reply dated 28.03.2024 filed before the Ld.PCIT, it is clear that total exceptional gain of INR 261.80 crores was offered for tax during the year under appeal and out of exceptional loss of INR 495.1 crores, the assessee has already offered INR 394.30 crores by including the same in the total income which is evident from the computation and left over was claimed as exceptional loss. It is also relevant to state that the AO has made specific query in this regard and after considering the submissions made by the assessee on this issue has accepted the claim of the assessee. The Ld. PCIT has not found any error either in the submissions made by the assessee before the AO or before Ld. PCIT himself nor brought any instance of incorrect claim which leads the assessment order as pre-judicial to the interest of the Revenue. From the perusal of order of Ld. PCIT, we find nowhere Ld. PCIT has been able to make out a case that assessee has violated any of the condition as provided in Explanation 2 of section 263 of the Act. Under these circumstances, in our considered opinion, the action of Ld. PCIT in holding the assessment order as erroneous and pre-judicial to the interest of the Revenue is without any basis and therefore, quash the same on this issue. Accordingly, Ground No.8 of the assessee is allowed. 42. Ground No.9 raised by the assessee is with regard to the direction given by Ld. PCIT for making examination of the correctness of the current liability shown in the balance sheet. 43. Before us, the Ld.AR submits that during the course of assessment proceedings vide query No. “Q”, the AO has made necessary inquiries about the creditors of liabilities which were duly replied by the assessee in terms of the reply dated 21.09.2021 which is available in the Paper Book at pages 445 to 797 and the relevant pages at 448. He further submits that the AO after making verification of the details submitted, had accepted the claim of the assessee. The Ld. PCIT has given general direction for making verification which are beyond scope of section 263 of the Act. The liabilities are as a result of normal business transaction and they cannot be doubted. The Ld.AR further submits that during the course of revisional proceedings, the assessee has made a specific reply in this regard which has not been considered by the Ld.PCIT in true perspectives and hold the order as erroneous and pre-judicial to the interest of the Revenue without any specific instance of bogus or unverifiable creditors/liabilities and therefore, he prayed for the cancellation of the order of Ld. PCIT on this score. 44. On the other hand, Ld.CIT DR for the Revenue supports the order of Ld. PCIT and submits that Ld. PCIT has given direction as the AO has failed to examine the applicability of section 68 of the Act in case of creditors and therefore, he prayed for confirmation of order of Ld. PCIT. 45. On careful consideration of the facts and submissions, we find that this issue has already been examined by the AO where he has asked the assessee to file necessary details of creditors and liabilities and after considering the same, has reached to the conclusion that these are normal business creditors and no adverse inference was recorded. In revisional proceedings, the assessee has demonstrated that all the creditors were genuine creditors and no error was found by Ld. PCIT in the same, who simply direct the AO for making further verification which is beyond the scope of section 263 of the Act. As observed above, the Hon’ble Supreme Court in the case of PCIT vs Shreeji Paints P.Ltd. (supra) has held that once the AO has made inquiry in details and accepted the genuineness of loans received by the assessee, such view of AO was a plausible view and same cannot be considered erroneous or pre-judicial to the interest of the Revenue and therefore, the Hon’ble Supreme Court dismissed the SLP of the Revenue and confirmed the order of Hon’ble Gujarat High Court reported in 130 taxmann.com 293 (Gujarat). In view of the above facts and by respectfully following the judgement of Hon’ble Supreme Court, we find no error in the order of AO and therefore, the order of Ld. PCIT passed u/s 263 on this issue is hereby quashed. Hence, Ground No.9 raised by the assessee is allowed. 46. Ground No.10 raised by the assessee is with respect to the direction of Ld. PCIT for making verification of tax implication on the land parcel at Shivaji Marg to SPV for INR 3700 crores. 47. In this regard, the Ld.AR for the assessee submits that this issue does not relate to the year under appeal. He further submits that Ld. PCIT picked this issue from Note No.53 of the audited financial statement for the year ended on 31.03.2019 available at page 3107 of the Paper Book wherein the assessee has explained creation of SPV and transfer of land which was done in FY 2015-16 relevant to AY 2016-17. The assessee has entered into the transaction of sale of lands above the circle rate and due tax was offered for tax in AY 2016-17 and this fact was duly brought to the notice of Ld. PCIT in terms of the submissions made during the course of revisionary proceedings vide reply dated 28.03.2024. The Ld.AR submits that since the transaction was not pertained to the year under appeal and necessary revenue has already been offered for tax in the correct AY i.e. AY 2016-17, therefore, solely for making verification of the taxability of the same, the assessment order cannot be held as erroneous and pre-judicial to the interest of the Revenue. Therefore, he prayed that the action of Ld. PCIT deserves to be bad in law and consequent order deserves to be quashed. 48. On the other hand, Ld.CIT DR for the Revenue supports the order of Ld. PCIT and request for the confirmation of the same. 49. After considering the rival submissions and perused the material available on record, we find that the assessee in vary specific terms while making reply to the AO as well as before the Ld. PCIT has stated that the relevant consideration of INR 3,700 crore was offered for tax in AY 2016-17 and necessary details were also filed before Ld. PCIT stating that the transaction was not pertaining to the year under appeal. There is no error in the assessment order in respect of the turnover of INR 3,700 crores. Therefore, mere directions for examination of the taxability and with these directions holding the assessment order as erroneous and pre-judicial to the interest of the Revenue is contrary to the provisions of law as has been held by the Hon’ble Supreme Court in the case of PCIT vs Shreeji Paints P.Ltd. (supra). The AR also submits the copy of computation for AY 2016-17 wherein consideration of INR 3,700 crores is offered for tax such as first offered of INR 1,850 crores under the head ‘revenue from operations’ and further offered INR 1,850 crores in the computation of income. This being so, we find no error in the order of AO on this score and therefore, the order of Ld. PCIT hereby, quashed on this issue. Ground No.10 raised by the assessee is accordingly, allowed. 50. Now we take up the legal grounds of appeal No.1,2 and 11 where the assessee has challenged the order of Ld. PCIT passed u/s 263 of the Act as the twin conditions of section 263 are not satisfied. 51. In this regard, it is submitted by the Ld.AR for the assessee that for invoking the provision of section 263 of the Act, Ld. PCIT first has to record the satisfaction that the order is pre-judicial to the interest of the Revenue and erroneous. The twin conditions as enumerated in section 263 has to be satisfied together before invoking the provision of section 263 of the Act. As per Ld.AR, Ld. PCIT without pointing out any error in the assessment order which leads to the order as pre-judicial to the interest of the Revenue at page 61 of the order has given directions (which are reproduced herein above) for making verification and examination which is not permissible in the eyes of law. He placed reliance on the judgement of Hon’ble Supreme Court in the case of Malabar Industrial Co.Ltd. vs CIT [2000] 243 ITR 83 (SC) and CIT vs Gabriel India Ltd. [1993] 203 ITR 108 (Bombay HC) wherein it is held that unless twin conditions are satisfied, CIT(A) cannot assure juri iction u/s 263 of the Act. 52. The Ld.AR for the assessee further submits that once the AO has carried out necessary inquiries and reached to a conclusion, the juri iction cannot be exercised u/s 263 of the Act and for which he placed reliance on the following judgments:-

The Hon’ble Supreme Court in Malabar Industrial Co. Ltd. (supra) has held that the phrase 'prejudicial to the interests of the revenue' must be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be held as an erroneous order which is prejudicial to the interest of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law. This principal has been again reiterated by Hon’ble Court in its subsequent judgment in the case of CIT vs Max India Ltd. reported in 295 ITR 282 (SC).

The Hon’ble Delhi High Court in CIT V/s Vikas Polymers (supra), further observed that as regards the scope and ambit of the expression "erroneous", Hon’ble Bombay High Court in CIT vs. Gabriel India Ltd. (supra) held with reference to Black's Law Dictionary that an "erroneous judgment" means "one rendered according to course and practice of Court, but contrary to law, upon mistaken view of law; or upon erroneous application of legal principles" and thus it is clear that an order cannot be termed as "erroneous" unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as "erroneous" by the Commissioner simply because, according to him, the order should have been written differently or more elaborately. The Section does not visualize the substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is not in accordance with law. Further, any and every erroneous order cannot be the subject matter of revision because the second requirement also must be fulfilled. There must be material on record to show that tax which was lawfully leviable has not been imposed as held in Gabriel India Ltd.(supra). However, the expression "prejudicial to the interest of the revenue", as held by the Supreme Court in the Malabar Industrial Co. Ltd. (supra), is not an expression of art and is not defined in the Act and, therefore, must be understood in its ordinary meaning. The Commissioner's exercise of revisional juri iction under the provisions of Section 263 cannot be based on whims or caprice. It is trite law that it is a quasi-judicial power hedged in with limitation and not an unbridled and unchartered arbitrary power. The exercise of the power is limited to cases where the Commissioner on examining the records comes to the conclusion that the earlier finding of the Income-tax Officer was erroneous and prejudicial to the interest of the revenue and that fresh determination of the case is warranted. There must be material to justify the Commissioner's finding that the order of the assessment was erroneous insofar as it was prejudicial to the interest of the revenue.

The Hon’ble Delhi High Court, in the case of Vikas Ploymers (supra) further observed that there is a fine though subtle distinction between "lack of inquiry" and "inadequate inquiry". It is only in cases of "lack of inquiry" that the Commissioner is empowered to exercise his revisional powers by calling for and examining the records of any proceedings under the Act and passing orders thereon. In Gabriel India Ltd. (supra), it was expressly observed: - "The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi- judicial controversies as it must in other spheres of human activity [Parashuram Pottery Works Co. Ltd. vs. ITO, (1977) 106 ITR 1 (SC)].

The Hon’ble Supreme Court in the case of CIT vs Amitabh Bachchan reported in the case of 69 Taxmann.com 170 held that the power of appeal and revision is contained in Chapter XX of the Act which includes section 263 that confers suo-motu power of revision in the Commissioner. The different shades of power conferred on different authorities under the Act has to be exercised within the areas specifically delineated by the Act and the exercise of power under one provision cannot trench upon the powers available under another provision of the Act. In this regard, it must be specifically noticed that against an order of assessment, so far as the revenue is concerned, the power conferred under the Act is to reopen the concluded assessment under section 147 and/or to revise the assessment order under section 263. The scope of the power/juri iction under the different provisions of the Act would naturally be different. The power and juri iction of the revenue to deal with a concluded assessment, therefore, must be understood in the context of the provisions of the relevant sections. While doing so, it must also be borne in mind that the legislature had not vested in the revenue any specific power to question an order of assessment by means of an appeal. Regarding applicability of Section 263, what has to be seen is that a satisfaction that an order passed by the Authority under the Act is erroneous and prejudicial to the interest of the revenue is the basic precondition for exercise of juri iction under section 263. Both are twin conditions that have to be conjointly present. Once such satisfaction is reached, juri iction to exercise the power would be available subject to observance of the principles of natural justice which is implicit in the requirement cast by the section to give the assessee an opportunity of being heard. Further, there could be no doubt that so long as the view taken by the Assessing Officer is a possible view, the same ought not to be interfered with by the Commissioner under Section 263 merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from. 60. The Hon’ble Bombay High Court in Moil Ltd. Vs. CIT reported in 81 Taxmann.com 420 has observed that if a query is raised during the assessment proceedings which was responded to by the assessee, the mere fact that the query was not dealt with in the assessment order then it would not lead to a conclusion that no mind has been applied to it and the Assessing Officer is not expected to raise more queries, if he was satisfied about the admissibility of claim on the basis of the material and the details supplied.

The judgements cited by the revenue are on the issue where no enquiry was made by the AO or lack of enquiry on the part of the assessee or where AO has raised the issue but was not replied by the assessee to the satisfaction of the appropriate authorities. However, in the instant case as observed above, the AO has made specific queries in respect to all the issues part of which are discussed by the AO in the assessment order also and remaining were not forming part of the assessment order. Yet the fact remained that proper enquiry was made by the AO and assessee has made reply to each and every query duly supported by the relevant evidence, copies of the same are filed before us in paper books having two volumes of more than 4000 pages. Therefore, the judicial pronouncements relied upon by the revenue are not applicable to the facts of the present case of the assessee.

From the perusal of the revision order of ld. PCIT, we find that Ld. PCIT in its order at page 58 to 59 has reproduced the issues raised vide show cause notice and thereafter, at page 61 to 62 has given certain directions to the AO after holding the assessment order as erroneous and pre-judicial to the interest of the Revenue. After considering these directions and order of Ld. PCIT, we find that nowhere in the order, the satisfaction was recorded by the AO how and on what ground or which of the submission filed by the assessee was not in accordance with the provisions of the law or the claim of the assessee was incorrectly allowed by the AO. Merely for the purpose of verification, the assessment order was held as erroneous and pre-judicial to the interest of the Revenue. As has been observed, the Hon’ble Supreme Court and the various High Courts as cited supra, has held that whether AO examined the issues and after due application of his mind, take a plausible view, such action of AO cannot be held as erroneous without bringing on record any contrary material. In view of above discussion, the order of Ld. PCIT wherein direction has been given for making verification is bad in law and therefore, the order of Ld. PCIT is not liable to be sustained. Accordingly, the same is quashed. Hence, Ground No.1,2 and 11 raised by the assessee are allowed. 63. Since we have already discussed each of the directions given by Ld. PCIT as agitated by the assessee in separate grounds of appeal and decided such grounds in favour of the assessee. Further the legal grounds taken are also allowed. In view of the observations made herein above, we hold that the assessment order is neither erroneous nor pre-judicial to the interest of revenue and therefore, is quashed. 64. In the result, the appeal of the assessee is allowed.