KONE ELEVATOR INDIA PRIVATE LTD.,,CHENNAI vs. ACIT,, CHENNAI

आदेश / O R D E R

Per A. Mohan Alankamony, AM:-

The assessee has raised several grounds against the order passed by the Ld.CIT U/s. 263 of the Act, however the crux of the issue is that the Ld.CIT without appreciating the revenue recognition principles consistently followed by the assessee as per AS9 held that the order passed by the Ld.AO is erroneous and prejudicial to the interest of the Revenue without any basis by holding that AS7 would be applicable in the case of the assessee.

2.1 Since, both the parties agreed that the appellate order passed U/s.250(6) , 143(3) of the Act may be heard on merits, the appeal of the assessee against the order passed by the Ld.CIT U/s.263 of the Act is hereby dismissed.

In all these appeals, the assessee has raised identical grounds. For the sake of convenience, those grounds are briefly stated herein below for adjudication, which are acknowledged by both the parties at the time of hearing:-

“The assessee has been consistently recognizing its income on completion of the sale of elevators/escalators/lifts etc., however only with respect to the contract with Delhi Metro Rail Ltd (DMRL), the assessee was recognizing its income on percentage completion method. On the above practice followed by the assessee, the Ld.CIT(A) has erred by holding that the appellant is bound to follow Accounting Standard 7 and thereby adopt percentage completion method for all its contract irrespective of the time duration involved in such contracts and with such direction remitted back the matter to the file of Ld.AO.”

3.1 The brief facts of the case are that the appellant is a company involved in the business of design, manufacture, supply, erection, installation and maintenance of lifts and escalators apart from being engaged in software export. The only dispute in the appeals is the revenue recognition method to be followed with respect to manufacture and sale of the above mentioned products of the assessee. The assessee was recognizing its income towards the manufacture sale and erection of its products consistently under project completion method. However, with respect to its new assignment of supplying elevators, lifts for the Delhi Metro projects, the assessee recognized its income on project completion method in compliance with the Accounting Standard 7. The Ld.CIT in his order U/s.263 opined that assessee has been contradicting his stand before various forum and thus the method of recognition of income of the assessee lacks clarity i.e., the applicability of AS 7 or applicability of AS 9, therefore by holding that the order passed by the Ld.AO is erroneous and prejudicial to the interest of the Revenue, remitted the matter back to the file of Ld.AO for the AY 2006-07. Thereafter the Ld.AO completed the assessment for the AY 2006-07, 2007-08 & 2008-09 by adapting percentage completion method with respect to all the contracts executed by the assessee based on the information gathered from the records on estimate basis.

3.2 On appeal, the Ld.CIT(A) remitted back the matter to the Ld.AO with the following observation:-

“4.2.7. In view of the above, I have no hesitation in holding that the appellant's method of accounting is not correct' entirely since it does not result in identifying the true and proper income of the appellant, The appellant is bound to follow Accounting Standard AS-7 and thereby Percentage Completion Method for all its contracts irrespective of the time duration involved in such contracts. Nevertheless, the Assessing Officer did not divulge in clear terms the basis of either estimating the income at 47% of the total expenditure for Assessment Years 2006-07 and 2009-10 or for computing the gross profit at 10% of the total Contract Value for A.Y. 2008-09.

Then again, I do not agree with the contention of the appellant that the Assessing Officer erred in not rejecting the books of account, but only attempted to correct the method of accounting followed by the appellant in view of the fact that the appellant suo motu changed the method of accounting from the assessment year 2004-05 and the Assessing Officer made a categorical observation that the Accounting Standard AS- 7 has to be followed by the appellant. However, as rightly pointed out by the appellant, the addition of income in respect of 'supply and installation under modernization' and 'income from maintenance services rendered' of Rs.7,85,11,000/- and Rs.25,22,55,000/- respectively for the A.Y. 2006-07 and Rs.28,46,00,000/- and Rs.63,50,00,000/- respectively for the A.Y. 2009-10 had resulted in double addition. Secondly, the estimation of income on contract value for one year and estimation based on expenditure incurred in another year would also lead to taxing the same income twice. All the same, the appellant's contention' that it follows AS-9 for accounting long term contracts entered into with Delhi Metro and that AS-9 squarely applies to all other contracts undertaken has no foundation after the decision of the Constitution Bench of the Hon'ble Supreme Court in appellant's own case, It is imperative that the appellant follows Accounting Standard AS-7 without exception.

Since the assessments for the Assessment Years 2006-07, 2008- 09 and 2009-10 only are in appeal before me and the computation of income for the assessment years under consideration requires reconciliation with the income assessed in the case of the appellant pertaining to other assessment years, the Assessing Officer is directed tore-compute the income of the appellant in accordance with the findings and the conclusions arrived at in this order after providing proper opportunity of being heard to the appellant.”

3.3 Before us, the Ld.AR did not have any objection for the matter to be remitted back to the file of Ld.AO, but he pleaded that the issue may be decided in accordance with AS 7 and AS 9 issued by the Institute of Chartered Accountants of India, which the assessee is mandatorily bound to follow. The Ld.DR though oppose to the submissions of the Ld.AR finally agreed to the proposal of the Ld.A.R for remitting back the matter for fresh consideration on the issue.

3.4 We have heard the rival submissions and carefully perused the material on record. We find merit in the submission of the Ld.AR. From the facts of the case, it is apparent that the issue has to be dealt in accordance with the Accounting Standard laid down by the Institute of Chartered Accountants of India, which the assessee has to mandatorily follow. Moreover, only if the accounting standards are complied with, the correct profit of the assessee can be determined. Therefore, in the interest of justice, we hereby remit back the matter to the file of Ld.AO for fresh consideration and decide the matter after applying the relevant

7 ITA Nos.2352 to 2354/Mds/2016 applicable Accounting Standards laid down by the Institute of Chartered Accountants of India, after duly giving opportunity to the assessee of being heard. Accordingly the order of the Ld.CIT(A) stands modified.

Order pronounced in the court on the 20th June, 2017.