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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, A.M. & SHRI SAKTIJIT DEY, JM
O R D E R Per Shamim Yahya, A. M.: This is an Appeal by the Assessee directed against the Order passed u/s. 263 of the Income Tax Act, 1961 (‘the Act’ hereinafter) by the Commissioner of Income Tax -28, Mumbai (‘CIT’ for short) dated 30.03.2017 and pertains to the assessment year (A.Y.) 2008-09. The ground of appeal
read as under:
1. The Ld. CIT erred in passing the order under section 263 of the Act, inspite of the fact that the assessment order was neither erroneous nor prejudicial to the interest of the revenue.
(A.Y. 2012-13) Gahlot Construction vs. Pr. CIT 2. The Ld. CIT erred in ignoring all the relevant facts and legal precedents cited by the appellant in support of its claim that in the facts and circumstances prevailing in the case of the appellant, no action under section 263, was called for because the two view are possible and the Ld. AO had adopted the view in favour of assessee.
3. On the facts and circumstance of the case and law, the Ld. CIT) erred in passing order u/s 263 stating that assessee not offer income of 90% project completed. Assessee have completed project and showed whole Income in A Y 2013-14 4. On the facts and circumstance of the case and law, the Ld. CIT) erred in passing order u/s 263 stating that service tax provision not looked by AO whereas assessee did not claimed any service tax in profit 85 Loss Account.
5. On the facts and circumstance of the case and law , the Ld. CIT) erred in passing order u/s 263 stating that VAT provision is not looked by AO whereas assessee did not received any amount of Vat from customer.
6. On the facts and circumstance of the case and law , the Ld. CIT) erred in passing order u/s 263 stating that TDS provision u/s 194IA is not looked by AO whereas this provision was not applicable in respective years and it is applicable on buyer of property not to seller.
7. The appellant craves leave to add, alter, amend, modify or delete any of the aforesaid grounds of appeal
2. In this case, the ld. CIT noted though the status of completion of project was 90%. The assessee had not recognized the income and has shown NIL income in this year. That the correctness of method of recognition of income has not been examined by the Assessing Officer during the assessment proceedings in the light of AS-9. Further, the service tax provisions on property transactions became effective w.e.f. 01.06.2010. That this issue has not been looked into and examined by the A.O. during the course of assessment in the year under consideration despite the stage of completion of project being 90%. That if this data were procured and examined, the applicability of AS-9 would have been realized and the assessment could have been done accordingly so as to recognize income in the relevant A.Y. Also, VAT
(A.Y. 2012-13) Gahlot Construction vs. Pr. CIT payable/collectible on sale of property during the year and its implications on the determination/recognition of income during the assessment proceedings.
Hence, the ld. CIT observed that in view of the above, it was evident that the A.O. had not examined the aforesaid issues at all and allowed the claims made by the assessee without inquiring into the allowability of the same resulting in excess claims being correctly allowed and the income not being correctly assessed. Hence, the order of the Assessing Officer was considered erroneous in so far as it was prejudicial to the interests of the revenue and the show cause notice u/s. 263 of the Act dated 28.12.2016 was issued allowing an opportunity of being heard to the assessee on 05.01 2017.
Considering the assessee’s response, the ld. CIT held as under: 4. The submissions of the assessee have been carefully considered. An order u7s 143(3) of the I.T. Act, 1961 was passed by the Assessing Officer) on 30.03.2015 computing total income at Rs. Nil. It is seen that the closing WIP as on 31.03.2011 was Rs.42,24,28,281/- and purchases during the year are shown at Rs.3,39,54,731/- only. There is no opening WIP submitted during the year as also no computation of WIP was submitted. During the year, indirect expenses were debited at Rs.3,51,82,445/- and closing WIP of 31.03.2012 was shown at Rs.6,90,65,456/- and no explanation or justification for incurring these expenses in this regard submitted by the assessee. the assessee realized income on sale of shop at Rs.43,45,80,120/-. The claim of expenses for the allowability of the same vis-à-vis the status of the project does not appear to have been examined. It appears from the P&L Account and balance sheet that the extent of expenses claimed do not justify why the project has resulted in loss. The income did not offer any valid explanation in this regard for not offering any income and not adopting AS-9 for recognition of income. Hence, the assessment order is eerroneous in so far as it is prejudicial to the interests of the revenue on account of failure to examine the revenue recognition on the basis of percentage completion method and the claim of expenses. The AO is (A.Y. 2012-13) Gahlot Construction vs. Pr. CIT directed to verify the entire expenses including purchases debited in the P&L Account with specific reference to the purpose of the business to incur the same.
Here it may also be pointed out that from the records that service tax provisions on property transactions became effective w.e.f. 01.06.2010 and TDS on transfer of property (Sec. 194-IA) became effective w.e.f. 01.06.2013. The ITS statement of the assessee shows payment of service tax in A.Y. 2013-14 and 2014-15 and TDS u/s 194-IA in A.Y. 2014-15 as also sale of property transactions in A.Y. 2013-14 and 2014-15 (AIR Information). These issues do not appear to have been looked into and examined during the course of assessment in the years in question despite the advanced stage of completion of project seen at 90% in A.Y. 2012-13. Also VAT is payable/collectible on the sale of property during the period in question which has also not been seen. The details of VAT payment by the assessee have not been called for during the assessment proceedings as regards the applicability of the provisions of section 43B of the Act. The submission of the assessee in this regard in fact concede that for the reasons mentioned in the submissions, the AO has not examined the implications of these levies in so far as recognition of income as required by AS-9 is concerned. If this data were procured and examined, the applicability of AS-9 would have been realised and the assessment could have been done accordingly so as to recognize incomes in the relevant assessment years. In fact, in the submission made by the assessee during A.Y. 2012-13 wherein details of Booking Advance and Deposits are mentioned, it is seen that the assessee has registered its first sale document on 24,12.2008 and there have been regular sales documents thereafter. The assessee has contended that the issue regarding service tax, MVAT and TDS u/s. 194-IA on sale of property and the consequent implications were considered by the A.O. during the course of assessment proceedings and in support of his contentions stated that the assessee had made submissions on each of these aspects. This contention is not acceptable because nothing from the records indicates that these issues have been examined or considered during the assessment proceedings. The AO, as is apparent from record, does not appear to have applied his mind on these issues and considered the implications of the same on the income offered in the return of income/computation of income filed by the assessee. 5.1 The assessee has himself admitted substantial completion of the project at 90% and considering the same and in consonance with the Accounting Standard 9 that would apply to the project which the AO has failed to consider, the assessment is held to be erroneous and also prejudicial to the interest of the revenue.
(A.Y. 2012-13) Gahlot Construction vs. Pr. CIT 6. Therefore, it is held that the order dated 30.03.2015 u/s 143(3) of the Income-tax Act 1961, is erroneous in so far as it is prejudicial to the interests of the revenue within the meaning of clauses (a) and (b) of Explanation 2 below sib-section (1) of Sec. 263 of the Income-tax Act, 1961 and as the Assessing Officer failed to conduct inquiries. The assessment order is hereby set aside to the Assessing Officer with the direction to pass a fresh assessment order in accordance with law and after affording an opportunity of being heard to the assessee.
5. Against the above order, the assessee is in appeal before us.
We have heard both the counsels and perused the records. The ld. Counsel of the assessee submitted that the assessee has been following project completion method of accounting consistently since long. He submitted that this aspect has also been confirmed by the ITAT in assessee’s own case in & 4896/Mum/2013 for A.Ys. 2008-09 and 2009-10. In this case, the ITAT vide order dated 27.05.2013 has noted that it was the assessee’s contention that the assessee never adopted percentage completion method for Revenue recognition as a builder and submitted that they are following the project completion method. The ITAT has concluded as under: 6. We have considered the arguments advanced by the Ld DR for Revenue and AR for assessee. We have noticed that in the case of Bhoomi Construction Project Vs ACIT & ACIT Vs Bhoomi Construction Project vide ITA No.1267/M/2013& ITA No. 2174/M/2013 dated 15.05.2015 ( case of assessee’s sister concern) the co-ordinate bench of this Tribunal on identical issues held as under: “Additional income offered voluntarily - return of income filed in response to notice u/s 153A - at the time of search the assessee had offered to disclose the income on the basis of percentage completion method which has been retracted later on - Held that:- There is no finding that the assessee has been following percentage completion method regularly since beginning or in any other project. There is no such evidence or documents which have been (A.Y. 2012-13) Gahlot Construction vs. Pr. CIT found during the course of search indicating that the assessee had been following percentage completion method regularly. If the assessee has been following one of the recognized methods as prescribed by AS-9, then it cannot be held that the Revenue can impose a different method upon the assessee unless there is a finding of fact that such a method is not reflecting the true profits of the assessee. Now it has also been brought on record by the Id. Counsel that in the subsequent year i.e. in the year of completion of the project in A.Y. 2012- 13, the Revenue itself has accepted the project completion method for recognition of revenue and accordingly, has assessed the income of the project on the same method. Thus, a contrary view cannot be taken for this year. - Decided against revenue.”
We have noticed that issue raised in this appeal is squarely covered by the order of the Tribunal in dated 15.05.2015 (case of assessee’s sister concern). Hence keeping in view the principle of consistency, hence, we do not find any substance in the appeal filed by the revenue.
7. Referring to the above, the ld. Counsel of the assessee contended that the assessee is following the project completion method and not percentage completion method, hence, since the project was not completed during the year, there was no question of the ld. CIT directing that fresh assessment order should be passed recognizing revenue on the basis of percentage completion method. Hence, the ld. Counsel submitted that the ld. CIT’s observation that the assessment order is found to be erroneous insofar as it is prejudicial to the interest of revenue on account of failure to examine the revenue recognition on the basis of percentage completion method and the claim of expenses is not sustainable.
Per contra, the ld. DR could not controvert this submission that ITAT in assessee’s own case has held that the assessee was consistently following project completion method and there was no infirmity in such practice.
(A.Y. 2012-13) Gahlot Construction vs. Pr. CIT 9. Upon careful consideration, we find that the ITAT in assessee’s own case has upheld the consistent method of accounting, i.e., revenue recognition by project completion in the case of assessee. It is not the case that the Hon'ble jurisdictional High Court has reversed the decision. In such circumstances, following the precedent as above, we hold that the ld. CIT is not correct in exercising jurisdiction u/s. 263 with regard to the method of accounting followed by the assessee. Accordingly, we set aside the order of the ld. CIT in which he has directed that the A.O. shall examine the revenue recognition on the basis of percentage completion method.
As regards Ground nos. 4, 5 and 6 raised in the grounds of appeal, the ld. Counsel of the assessee submitted that these issues do not arise, as these are not applicable in the case of the case. He submitted that the ld. CIT’s direction of service tax provision was not looked into by the A.O. does not arise because the assessee did not claim any service tax account in profit and loss account. The ld. CIT’s order stating that VAT provision is not looked into by the A.O. would also not apply, since the assessee did not received any amount of VAT from customer. He further submitted that the CIT’s direction of TDS provision u/s. 194IA is not looked by the A.O., is also not applicable, as it is applicable on the buyers of property not to the seller. We find considered cogency that if such expenditures/transactions had not been entered into the same direction would not be applicable. However, we find that if the assessee has not entered into any such activity, no prejudice will be cause to the (A.Y. 2012-13) Gahlot Construction vs. Pr. CIT assessee by any such examination by the A.O. Ld. CIT has given a clear finding that the A.O. has not examined these aspects. Hence, this aspect may be examined by the A.O. in accordance with the law.
11. Another issue raised is that the A.O. is directed to verify the entire expenditure including purchases debited in the profit and loss account with a specific reference to the purpose of business. In this regard, the ld. Counsel submitted that this aspect has not been mentioned in the notice issued u/s. 263. Hence, the ld. Counsel of the assessee submitted that the ld. CIT cannot give any direction under the provision of section 263 of the Act, if in the show cause issued u/s. 263, the same was not mentioned. Furthermore, the ld. Counsel submitted that the A.O. has duly examined the assessee’s expenditures debited and has made some disallowances out of the same also. Hence, he submitted that it cannot be said that the A.O. has not examined the expenditures and purchases debited in the profit and loss account. Hence, he submitted that the ld. CIT cannot exercise any jurisdiction in this aspect.
12. Upon hearing both the counsels and perusing the records, we find that the ld. Counsel of the assessee is cogent that without giving an opportunity to the assessee by way of mentioning in the show cause notice, the ld. CIT cannot give any direction to the A.O. Furthermore, we note that the A.O. has duly made disallowance out of the expenditures. Hence, it cannot be said that the A.O. has not examined the expenditures debited. Hence, there is no occasion for the ld. CIT to direct that the (A.Y. 2012-13) Gahlot Construction vs. Pr. CIT A.O. should verify the entire expenditure. It is settled law that dehors any reasoning the ld. CIT cannot direct fresh enquiry. Hence, we set aside the direction of the ld. CIT to make enquiry into the expenditure.
13. In the result, this appeal filed by the assessee stands partly allowed. Order pronounced in the open court on 05.10.2017 Sd/- Sd/- (Saktijit Dey) (Shamim Yahya) �या�यक सद�य / Judicial Member लेखा सद�य / Accountant Member मुंबई Mumbai; �दनांक Dated : 05.10.2017 व.�न.स./Roshani, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. आयकर आयु�त(अपील) / The CIT 3. आयकर आयु�त / CIT - concerned 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard File 6. आदेशानुसार/ BY ORDER,