SAHARA INDIA POWER CORPORATION LTD.,,PUNE vs. ASSISTANT COMMISSIONER OF INCOME-TAX,,

The ITA 1155/Del/2009 are relate to assessment years 2003-04 & 2004-05 filed by the assessee directed against order of CIT(A) dated 23/10/2006 and 13/01/2009 respectively. The appeal in filed by revenue and C.O. 55/Del/2014 filed by the Assessee for the assessment year 2005-06 are directed against order of the CIT(A) dated 27/06/2013. Since the issues in all these assessment years are common in nature, hence, they are clubbed together, heard together and disposed of by this common order for the sake of convenience.

3 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

1. That the Learned CIT(A) is not justified in confirming the addition of Rs.32,11,500/-made by the Learned Assessing Officer by treating the advance received by the appellant from Sahara India Commercial Corporation Limited as taxable receipt.

2. That the Learned CIT(A) has not correctly appreciated the facts and circumstances of the case, the terms of the agreement entered into between the appellant company and M/s. Sahara India Commercial Corporation Limited and the nature of work involved against which advance was received by the appellant company which in the hands of the appellant company was utilized for work in progress and there was no justification in subjecting the difference between the two amounting to Rs.32,11 ,500/- to tax as income.

3. That the Learned CIT(A) has failed to appreciate that there was no accrual of income till the work of preparation of feasibility reports, layout, plans etc. contracted with M/s. Sahara India Commercial Corporation Limited was complete in the hands of the appellant company as total investments made by sub-contracting and making payment to EDCL and EDCL-PPL the sub-contractors was in the nature of work in progress and, therefore, there was no justification in subjecting an hypothetical income which had neither accrued nor arisen to tax.

4 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

4. That the Learned CIT(A) is not justified in confirming the addition of Rs.27,625/- made by the learned Assessing Officer against the second aspect of the work as per agreement which --was sub- contracted to Cummins Diesel Sales and Services (India) Limited.

5. That the Learned CIT(A) is wrong in holding that the difference between the total payment made and the total sum received tantamounted to income in the hands of the appellant company as the sum paid included advance also to the sub-contractors, therefore on the facts and circumstances of the case there was no justification in confirming the addition of Rs.27,625/- in the hands of the appellant.

6. That in any view of the matter the Learned CIT(A) has not correctly appreciated the facts and circumstances of the case, the terms of MOU between the appellant company and M/s. Sahara India Commercial Corporation Limited, the nature of work which was executed pursuant to the agreement and the explanations submitted during the course of assessment proceedings as well as appellate proceedings and is wrong in confirming the additions made by the Ld. Assessing Officer.

7. That the order passed by the Learned CIT(A) is without proper opportunity and bad in law.

8. That the order passed by the Learned CIT(A) is against the merits, circumstances and legal aspects of the case.

5 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

9. That the appellant craves leave to add, alter, amend or withdraw any or all the grounds of appeal on or before the date of hearing.

3. The grounds in assessment year 2004-05 in filed by the Assessee are as follows:

1. That the learned CIT(A) is not justified in confirming the addition of Rs 40,48,500/-made by the Learned Assessing officer by treating the advance received by the appellant from Sahara India Commercial Corporation Limited as taxable receipt.

2. That the Learned CIT(A) has not correctly appreciated the facts and circumstances of the case, the terms of agreement entered into between the appellant company and M/s Sahara India Commercial Corporation Limited and the nature of work involved against which advances was received by the appellant company which in the hands of the appellant company was utilized for work in progress and there was no justification in subjecting the difference between the two amounting to Rs 40,48,500/-to tax as income.

3. That the Learned CIT(A) has failed to appreciate that there was no accrual of income till the work of preparation of feasibility reports, lay-out, plans etc. contracted with M/s Sahara India Commercial Corporation Limited was complete in the hands of the appellant company as total investment made by sub-contracting and making payment to EDCL and EDCL-PPL the sub-contractors was in the nature of work in progress and, therefore, there was no justification in subjecting an hypothetical income which had neither accrued nor arisen to tax.

6 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune 4. That the Learned CIT(A) is not justified in confirming the addition of Rs 7,541/- made by the Learned assessing officer against the second aspect of the work as per agreement which was sub contracted to Cummins Diesel Sales and Service (India) Limited.

5. That the Learned CIT(A) is wrong in holding that the difference between the total payment made and total sum received tantamounted to income in the hands of the appellant company as the sum paid included advance also to the sub-contractors, therefore on the facts and circumstances of the case there was no justification in confirming the addition of Rs 7,541/- in the hands of the appellant.

6. That in any view of the matter the Learned CIT(A) has not correctly appreciated the facts and circumstance of the case, the terms of MOU between the appellant company and M/s Sahara India Commercial' Corporation Limited, the nature of work which was executed pursuant to the agreement and the explanations submitted during the course of assessment proceeding as well as appellant proceedings and is wrong in confirming the addition made by the Ld. Assessing Officer.

7. That the order passed by the Learned CIT(A) is without proper opportunity and bad in law.

8. That the order passed by the Learned CIT(A) is against the merits, circumstance and legal aspects of the case.

9. That the appellant craves leave to add, alter. Amend or withdraw any or all the grounds of appeal on or before the date of hearing.

7 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

4. The grounds in Revenue’s appeal for assessment year 2005-06 in are as follows:

2. On the facts and circumstances of the case the Ld. C1T(A) has erred in cancellation of assessment order passed by AO in response to proceedings initiated u/s 148 of IT Act whereas at the same time he has uphold the addition on merit and treated the initiation of proceeding u/s 147/148 as void, which was taken by AO well within the time and well founded.

3. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal."

5. The grounds in Assessee’s Cross Objection for assessment year 2005-06 in C.O. No. 55/Del/2014 are as follows:

“1. That the ld. CIT(A) is fully justified in canceling the order passed under section 143(3) read with section 147 of the Income Tax Act on the facts and circumstances of the case as well as in law.

2. That without prejudice the ld. CIT (A) is not justified in confirming the action of the Assessing Officer in subjecting to tax on hypothesis by making up 10% over the payment made by the respondent to various parties for power project work amounting to Rs.3,00,19,717/- which was debited to work in progress and treating the same as income of the respondent of the year under appeal.

8 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

3. That without prejudices the ld. CIT(A) has erred in law and on facts of the case in making up payment of Rs. 4,47,52,000/- made to EDCL-PPL and subjecting the said mark up of Rs. 44,75,200/- to tax on hypothesis and surmises without any material on record.

4. That without prejudices the ld. CIT(A) has erred in law and on facts and circumstances of the case in recasting the income and expenditure account of the respondent and working out profit of Rs.78,43,649/- as against Rs.5,58,927/- shown by the respondent.

6. That the ld. CIT(A) has erred in law and on facts and circumstances of the case in confirming the addition of Rs.1,38,04,350/- under section40(a)(ia) of the Income Tax Act and concurring with the observation of the Assessing Officer that the deduction of payment will be available to the respondent in the subsequent year, i.e. A.Y.2006-07.

7. That the Id. CIT (A) has erred in law and fact and circumstances of the case in not treating the amendment brought by the Finance Act 2008 to be in the nature of curative amendment having retrospective effect and thereby confirming the addition under section 40(a) (ia) of the Income Tax Act.

9 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

8. That the respondent craves leave to add, alter, amend or withdraw any or all the grounds of cross-objection on or before the date of hearing.”

8. The Assessing Officer verified from CDSSL and found certain discrepancies in the amount of payments made to them. According to CDSSL an amount of Rs.21,02,042/- was received by them in view of various invoices raised by them whereas in the balance sheet an advance of Rs.21,05,000/- was shown to M/s. CDSSL (incorrectly

11 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune shown as Rs.2,08,00,000/- by the Assessing Officer in para 7 of the assessment order). It was stated by the assessee that M/s. CDSSL was to be paid Rs.2,75,000/- per month and mobilization advance ofRs.2 lakhs which was to be adjusted from the 7thRA bill of Rs.20,000/- per month. The total amount said to have been paid as per page 7 of the assessment order was Rs.21,05,000/-. The Assessing Officer wondered as to how Rs.2,49,645/- was shown as expenditure payable in the balance sheet and as to how the assessee had arrived at a figure of Rs.19,25,000/- while working out additional income. The Assessing Officer further noted that since bill of Rs.21,07,875/- has been issued to SICCL, the same is not reflected in the amount receivable from SICCL and M/s SICCL is not shown as sundry debtors in the books of SICCL. On the basis of the above, the Assessing Officer stated that these payments were reflected as advance in the return while those were not advances but payments made on account of bills raised by M/s CDSSL as M/s CDSSL furnished the details of 7 invoices raised amounting to Rs.2,75,000/- each. It was held that assessee was entitled for minimum consultancy charges of 10% on Rs.21.02,042/-. An addition of Rs.27,625/- was made to the income of the assessee.

9. Regarding the contract given to EDCL/EDCL Power Project Ltd. to whom advance of Rs.2,08,00,000/- and Rs.1,13,15,000/- had been given for services already referred above as on 31/3/2003, it was stated that the bills which were raised by EDCL/EDCL Power Project Ltd. on the assessee were for various feasibility reports, assessment of the power requirement, setting up of transmission and distribution network, their plans and layouts etc. It was stated that the work carried out was in the nature of WIP in the hands of the assessee as 12 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune the assessee company was to be reimbursed only 10% of the actual expenditure incurred pursuant to clause 8 of the agreement of the assessee with SICCL. Till such time the work was completed, the assessee was not in position to know as to what was the total expenditure on the project and, therefore, the entire expenses in relation thereto stood capitalized by the assessee under the head WIP. It was stated that due to accounting mistake the payment made to EDCL were shown as advance but the mistake stood rectified in the subsequent year where these payments have been transferred to WIP. The Assessing Officer, however, did not agree to the contention of the assessee and after referring to the terms and conditions between the assessee and SICCL that the assessee shall be reimbursed all its actual expenses incurred for operation and maintenance of existing facilities on actual basis and shall be paid consultancy charges also came to the conclusion that income had actually accrued to the assessee. The Assessing Officer found that no payment had been made by SICCL to assessee since the assessee had not raised any bills on SICCL. He proceeded to reject the contention of the assessee that the amount can be received only when the final reports are submitted by the assessee to SICCL since in the contract there was no mention that the payment will be made only on completion of the project and that SICCL will not make any payment on non fulfillment of the agreement. Non raising of the bill by the assessee, according to the Assessing Officer, does not entitle the assessee to claim the same as WIP. The Assessing Officer also gave an illustration wherein he mentioned the case of M/s Raj Promoters and builders who were contractors of SICCL and sub contractors of Gora Projects Ltd., a contractor of SICCL. M/s Raj Promoters & Builders have issued running bills to Gora project ltd. and also to SICCL. The Assessing Officer was also aware that assessee

13 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune though closely related to SICCL were independent legal entities. CDSSL & EDCL/ EDCL PPL had already raised bills on assessee. It meant that certain amount - of work had already been crystallized and was quantifiable. As to why no bill had been raised by the assessee especially when no mobilization advance had also been received was instrumental in persuading the Assessing Officer to hold that the assessee had not raised any bills on SICCL only to reduce the incidence of income during the year. The discussion on the issue was summarized as under:

SIPCL is a contractor of SICCL SIPCL has sub contracted the work to Cummins and EDCL Cummins and EDCL raised bills of work done by them for SIPCL SIPCL has made the payment to Cummins and EDCL For the bill raised by Cummins, SIPCL has raised the bill on SICCL and shown income on it @ 10% However, SIPCL had not raised any bill for work done by EDCL/EDCL PPL on SICCL Once EDCL/EDCL PPL and Cummins (sub contractors of SIPCL) have raised a bill on it, it has to raise a running bill to SICCL as per agreement of contract. WIP shall be in respect of any work for which Cummins and EDCL has not raised the bill but they have done the work. However, there is no such pending work for which bill is yet to be raised by sub-contractors. Non issue of the bill by SIPCL does not entitle the assessee to claim the same as WIP.

10. On the basis of above, it was held that assessee has not shown the income which has actually accrued to it. As per the contract between SICCL and the assessee the assessee is entitled to consultancy charges subject to maximum of 10%. The assessee had made payments of Rs.3,21,15,000/- to EDCL/EDCL-PPL. The Profit &

14 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune Loss account and balance sheet were re-casted by the Assessing Officer as given on page 13 of the assessment order and the income was assessed at Rs.34,88,488/-.

11. The facts in assessment year 2004-05 are similar that of Assessment Year 2003-04 except the differences in the denominations.

12. The crux of the various grounds raised by assessee in the Assessment Year 2003-04 are with regard to treating of the advance paid to SICCL – Rs.21,05,000/-, EDCL Power Corporation – Rs.2,08,00,000/- and EDCPL – Rs.1,13,15,000/-. The lower authorities are of the opinion that amount advanced the said parties are towards the work done by them on behalf of the assessee in respect of contract undertaken by assessee with SIPCL. The ld. AO found that SIPCL is a contractor of SICCL and observed as under: • SIPCL is a contractor of SICCL. SIPCL has sub contracted the work to Cummins and EDCL. • Cummins and EDCL had raised bills of work done by them for SIPCL. • SIPCL has made the payment to Cummins and EDCL. • For the bill raised by Cummins, SIPCL has raised the bill on SICCL and shown income on it @ 10%. • However, SIPCL that' not raised any bill for work done by EDCL on SICCL.

13. It was observed that SIPCL is - contractor for SICCL. Once EDCL and Cummins (sub-contractors of SIPCL) have raised the bill on it, it has to raise a running bill to SICCL as per agreement of contract Work In Progress (WIP) shall be in respect of any work for which Cummins and EDCL has not raised the bill, but they have done the work. However, there is no such pending work for which bill is yet to be raised by sub- contractors. Non issuance of the bill by SIPCL does not entitle the assessee to claim the same as WIP.

15 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

15. The next question arises is that if SIPCL shows WIP for the work done by it and will not raise a bill then from when it will make payment to its sub- contractors. SIPCL though sister concern of SICCL is an independent legal entity. When Cummins and EDCL have raised a bill on SIPCL, it means certain amount of work has been crystallized and work done is quantifiable, then it should simultaneously raise the bill on SIPCL, especially when no mobilization advance is received by it. The assessee company has shown the work done by it as WIP till 2005 and has not yet finalized the bill. In the circumstances, it is apparent that SIPCL is not showing the income which has actually been accrued.

16. The ld. AO further observed that as per contract between SICCL and SICPL, the SICPL is entitled to consultancy charges subject to maximum of 10%. Since the actual cost in such case are the payments made to EDCPL, income from consultancy charges has become due to the SICPL in the case of EDCPL also. The company has made payment of Rs. 3,21,15,000 to EDCPL, it is entitled to 10 % of profit incurred on these expenses.

17. The ld. AO mentioned that the amount of Rs. 3,21,15,000 should have been shown as receivable from SICCL and should have been reflected in the balance sheet of SICPL as sundry debtor and in the balance sheet

16 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune of SICCL as Sundry Creditors, whereas company has shown this amount only as advances to EDCL. In view of these findings, the profit and loss account and the balance sheet of SICPL is re-casted by the ld. AO as under:-

EXPENDITURE Income

402057Interest on FDR 468545 Expenditure as per return Payment to Cummins Diesel Sales& Bill issued toSICCL (against Services Ltd 2105000 contract given to Cummins) 2315500

Bills issued to SICCL (against Payment to EDCL Power 22880000 work allotted to EDCPL)

20800000 Corporation Ltd Payment to Energy development Co Ltd 12446500 11315000 Profit 6488488 38110545 38110545

18. Very similar is the position in assessment year 2004-05 too. The contention of ld. A.R. is that, assessee has been following Contract Completion method and contract completion method is one of accepted methods of computing income of assessee and percentage completion method is not mandatory in these assessment years and the AO disturbing consistent method of accounting followed by the assessee by substituting percentage completion method which give the distort picture of income of the assessee, which shall be avoided. Thus, he has submitted as follows:

17 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

19. The Ld. A.R. submitted that the assessing officer and CIT (A) have grossly erred in increasing the taxable income of the Appellant by making addition on the basis of hypothetical income. The lower authorities have not correctly appreciated the facts of the case, terms of the agreements between parties and revenue recognition method provided in AS-9 which was followed by the assessee.

21. The assessing officer held that once EDCL/ EDCL-PPL had raised bill on the assessee, the assessee ought to have also raised bill on Sahara India Commercial, ignoring the fact that there were altogether different agreements entered into by the assessee with the said parties. In this regard, the ld. A.R. submitted that EDCL/ EDCL-PPL was a sub-contractee and the final feasibility report to be prepared by EDCL/ EDCL-PPL was to be submitted with SICCL within the time frame as agreed, failing which SICCL may terminate the agreement. Therefore, since the assessee was required to raise bill on SICCL of an amount mutually determined on the basis of assessment and final feasibility report which was to be accomplished by EDCL/ EDCL-PPL, the assessee was neither in the position to know the actual amount of bill to be raised on SICCL nor it was sure about the income accrual since it was contingent on timely

18 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune submission, therefore, the assessee booked the amount paid to EDCL/ EDCL-PPL as WIP, instead of expenditure and for the amount received from SICCL as advance from vendor under creditor in current liabilities in the financial statement.

"Definitions A construction contract is a contract specifically negotiated for the construction of an asset or combination of assets that are closely

19 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use.

4. For the purposes of this Statement, construction contracts include:

(a) contracts for the rendering of services which are directly related to t construction of the asset, for example, those for the services of project managers and architects; and (b) contracts for destruction or restoration of assets, and the restoration of the environment following the demolition of assets."

25. The AO and CIT(A) grossly erred in ignoring the basic accounting as per AS-9 "Revenue Recognition" where in case of rendering of services, it has been provided that revenue shall be recognized on the basis of "Completed Service Contract Method" where performance consists of execution of a single act, i.e., submission of feasibility report in the present case. The relevant extract of AS-9 is as under:

20 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune "7. Rendering of Services 7.1 Revenue from service transactions is usually recognized as the service is performed, either by the proportionate completion method or by the completed service contract method.

(ii) Completed service contract method. - Performance consists of the execution of a single act. Alternatively, services are performed in more than a single act, and the services yet to be performed are so significant in relation to the transaction taken as a whole that performance cannot be deemed to have been completed until the execution of those acts. The completed service contract method is relevant to these patterns of performance and accordingly revenue is recognized when the sole or final act takes place and the service becomes chargeable.

21 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

Income may accrue to an assessee without the actual receipt of the same. The assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in praesentisolvendum in futuro. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him.

15. After considering the respective submissions, we are not in a position to take a view different from what is taken by the Tribunal in the instant case. In the facts of this case, it is apparent that at the time of admission, the students are required to deposit the whole fee of the entire course, but that would only remain a 'deposit' or 'advance' and it cannot be said that this fee had become 'due' at the time of deposit. Fee is charged in advance for the entire course, presumably because of the reason that there should not be any default in making the said by the students during the period of course. Interestingly, the Assessing Officer in his assessment order has himself stated that students were required to deposit the fee for the whole module of course at the time of registration itself'. The Assessing Officer has used the expression 'deposit'. In the very next breadth, he draws the conclusion that this would mean that the fee had become 'due'. Thus, the Assessing Officer knew the significance of the expression 'deposit' viz-a-viz 'due', though he committed the mistake in treating the said deposit as the fee becoming due. When we applies the principles of law laid down in E.D. Sassoon & Co. Ltd.'s case (supra) and Calcutta Co. Ltd. v. CIT [1959] 37 ITR

22 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune 1 (SC), it becomes apparent that the fee was not due the time of deposit. The services in respect of financial year 1997-98, for which also the payment was taken in advance were yet to be rendered. Therefore, applying the principle in the case of Calcutta Co. Ltd. (supra), this could only be treated as advance otherwise it would lead to an anomaly situation, highly derogatory to die assessee, which is not intended in law, viz., even when the very amount received, expenses pre to be deducted to arrive at the net income and those expenses are yet to be incurred (which may be incurred in the next .financial year), the entire receipts become income which would be exigible to much higher tax. It is for this reason, the following principle was enunciated by the Supreme Court in Calcutta Co. Ltd.' case (supra)

"The expression "profits or gains in section 10(1) of the Income-tax Act has to be understood in its commercial sense and there can be no computation of such profits and gains until the expenditure which is necessary for the purpose of earning the receipts is deducted therefrom - whether the expenditure is actually incurred or the liability in respect thereof has accrued even though it may have to be discharged at some future date.

16. We may also, at this stage, usefully refer to another judgment of the Apex Court in the case of CIT v. Shri Goverdhan Ltd. 119681 69 ITR 675 in the following terms :

It is, however, well-established that the income may accrue to an assessee without actual receipt of the same and if the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on, on its being ascertained. The legal position is that a liability depending upon a contingencyis not a debt in praesenti or in futuro till the contingency happens. But if it is a debt the fact that the amount has to be ascertained does not make it any the less a debt if the liability is certain and what remains is only a quantification of the amount: debitum in praesenti, solvendum in futuro.

23 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune 17. The judgments cited by the learned counsel for the Revenue do not concern the issue, which we are dealing with these appeals.

18. We, thus, answer the question in the affirmative and as a consequence, dismiss these appeals."

(emphasis supplied)”

"6. We have heard both the sides at some length... ... The definition of a "construction contract" is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use. Whereas a "cost plus contract" is a construction contract in which the contractor is reimbursed for allowable or 24 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune otherwise defined costs, plus percentage of these costs or a fixed fee. In the present case, the assessee had entered into an agreement with GSRTC for the development of a shopping complex. The assessee as a developer has been allowed to find intending allottees and to collect sale consideration from such lessees. However, a significant clause was that the intending lessees could become allottees only on the approval by the GSRTC. Due to the said reason, it was vehemently contested that an enforceable transaction could take place only on approval by GSRTC. Hence, the assessee's stand for recognition of revenue was that it could be recognized at the time only upo obtaining such approval. According to assessee, the assessee could legally earn income on the occasion of granting of approval by GSRTC for the allotment to such lessees. Rather it has been emphasized that the collection although made before such approval, in case of denial of approval, was to be refunded. The provisions of AS-7 have thus kept in mind such eventuality as well. Although the recognition of Revenue as per AS-7 is upto the stage of completion of a contract but it has also been prescribed that an enterprise is generally able to make reliable estimates after it has agreed to a contract which establishes each parties enforceable rights regarding the assets to be constructed ...

6.3. Therefore, AS-9 as per the question of uncertainties not remained untouched and that eventuality has also been prescribed therein. Thus AS-9 has prescribed that the recognition of Revenue requires that Revenue is measurable and that at the time of rendering of service it would not be unreasonable to expect ultimate collection. Where the ability to assess the ultimate collection with reasonable certainty is lacking, then Revenue recognition is to be postponed to the extent of uncertainty involved. It has therefore been prescribed vide Para-9 that it is appropriate to recognize revenue only when it is reasonably certain that the ultimate collection will be made... ... "

25 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

30. Therefore, in the aforesaid circumstances, the ld. A.R. submitted that the Assessee had correctly treated the amount paid to the EDCL/ EDCL- PPL as WIP and the amount received from SICCL as advance under the head 'sundry creditors', since it was impossible to raise bill on SICCL and recognize revenue at a stage when the work was underway. Therefore, the ld. A.R. submitted that the hypothetical income as brought to tax by the lower authorities deserves to be deleted in toto.

31. The ld. A.R. submitted that It is most pertinent to mention that subsequently in year 2005 the Government of Maharashtra laid electrify lines in Lonawala near Aamby Valley because of which Aamby Valley was able to get electricity at very low rates and as a result of which the work of assessment of the total power requirement and feasibility study in respect of various options of power availability and work allied nature was suspended and ultimately terminated vide termination agreement dated 30.09.2005 and 1% of total value of WIP as per book of account of the Assessee as on date was given to the Assessee by the way of compensation. Therefore, the actual compensation received by the Assessee for the services rendered to SICCL from 28.03.2002 to 30.09.2005 was Rs.22,45,659 which is reported as other income in the financial statement and offered for tax in the return of income filed for AY 2006-07. The said amount of income was accepted in the order of CIT(A) passed under section 154 r.w.s. 250 of the Act. (emphasis supplied)

26 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

33. Reliance in this regard is placed on the decision of the Supreme Court in the case of CIT vs Balbir Singh Maini: 398 ITR 531 (SC) wherein the apex Court held that recognition of revenue on the basis of an unregistered JDA which was subsequently cancelled shall tantamount to taxation of hypothetical income. The pertinent findings of the Court are as under:

"27. In the facts of the present case, it is clear that the income from capital gain on a transaction which never materialized is, at best, a hypothetical income. It is admitted that, for want of permissions, the entire transaction of development envisaged in the JDA fell through. In point of fact, income did not result at all for the aforesaid reason. This being the case, it is clear that there is no profit or gain which arises from the transfer of a capital asset, which could be brought to tax Under Section 45 read with Section 48 of the Income Tax Act.

In the present case, the Assessee did not acquire any right to receive income, inasmuch as such alleged right was dependent upon the necessary permissions being obtained. This being the case, in the circumstances, there was no debt owed to the Assessees by the developers and therefore, the Assessees have not acquired any right to receive income under the JDA. This being so, no profits or gains "arose" from the transfer of a capital asset so as to attract Sections 45 and 48 of the Income Tax Act.

We are, therefore, of the view that the High Court was correct in its conclusion, but for the ret ons stated by us hereinabove. The appeals are dismissed with no order as to costs." (emphasis supplied)”

27 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

12. On both counts, the Tribunal has in a detailed discussion of more than 40 paragraphs found that there is no substance in the objections of the Revenue. If the Revenue is trying to show that the relevant transactions were sham and not real, then it has to bring in satisfactory material. The Tribunal found in paras 37 to 40 of the impugned order that the income which was earlier disclosed was not as such because the Agreements were terminable or could have been cancelled. Once they were cancelled, the properties have reverted back to the assessee. They are duly reflected in the balance sheet and as assets of the assessee. There were revised accounts and which were also scrutinized. They were found to be in order and meeting the accounting practice adopted. Therefore, the accounting policy also could not have been faulted. In para 42 of the impugned order, the Tribunal held that income could not have really accrued because of the fact that these Agreements were cancelled. Then the issue of their cancellation has been zone into, and in extensive details. The correct le2a1 principles were applied and a finding of fact is arrived at in para 48, that no income could be said to have really accrued to the assessee as a result of the five transactions in the immovable properties and which income was chargeable to tax in the year under consideration. Once income had not accrued to the assessee in the real sense, then the original return represents wrong statement which was corrected by the assessee by filing a revised return. Therefore, no hypothetical income of the assessee could have been brought to tax.

(emphasis supplied)

28 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

35. Reliance is further placed by the ld. A.R. on the decision of this Hon'ble Tribunal dated 24.08.2020 in the case of ITO vs Ritesh Properties & Industries Ltd: ITA No.3336/Deli,2011. In the said case, the assessee, a public limited company, was engaged, inter alia, in the business of real estate. Permission for development of Integrated Industrial Park at Ludhiana, Punjab was granted to the assessee. Despite the fact that said permission was hedged with various conditions, including in particular, prohibition on pre-launch of the Project, the assessee, on pre-launch basis, entered into agreement for sale of part of the Project, resulting in recognition of notional amount of Rs.9crores as revenue, which was subsequently cancelled. Accordingly, revised audited financial statements were prepared which were duly approved by the members, wherein an amount of Rs.9 crores erroneously recognized as revenue in the original financial statements was excluded. In the assessment proceedings, the assessing officer, however, held that the revised audited financial accounts were not acceptable, and income was assessed based on the originally audited accounts. On appeal, the CIT(A) accepted the revised accounts and consequently, deleted the addition made by the assessing officer. On further appeal by the Revenue, this Hon'ble Tribunal held as user:

"7. We have heard both the parties and perused the material available on record. It is pertinent to note that the assessee has revised the audited account and has given the relevant documentary evidence before the CIT (A) upon which the Assessing Officer has also commented through the remand report. The Assessing Officer has not pointed out any defects in the audited accounts which are allowed to be revised as per the guidelines issued by the Ministry of Finance and Company

29 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune Affairs. Thus, the CIT(A) rightly held that the artificial and hypothetical income created by mere general entries which were subsequently reversed cannot be brought to tax. Besides that the assessee made the statement before us that the income derived from the said project in subsequent Assessment Years has been offered to tax by the assessee. Thus, the Revenue is not at loss at any point of time and hence the treatmentgiven by the CIT(A) by directing the Assessing Officer to allow the claim of Rs. 9,00,00,000/- on account of revision of financial accounts is just and correct. The appeal of the Revenue is dismissed." (emphasis supplied)”

36. Reliance is also placed by the ld. A.R. on the following decisions wherein it has been categorically held that income-tax cannot be levied on hypothetical income:

• Godhra Electricity Co. Ltd. v. CIT : 225 ITR 746 (SC) • CIT v. Excel Industries Ltd :358 ITR 295 (SC) • CIT v. Shoorji Vallabhdas &Co : 46 ITR 144 (SC) • Airport Authority of India v. CIT : 340 ITR 407 (Del.) • CIT v. Ferozepur Finance (P.) Ltd : 124 ITR 619 (P&H) • CIT v. Motor Credit Co. (P.) Ltd : 127 ITR 572 (Mad.)

37. In the aforesaid circumstances, where the income of the Assessee never materialized and agreement under consideration was subsequently cancelled, the ld. A.R. submitted that there arises no question of bringing to tax any hypothetical income; therefore, the addition made by the assessing officer and sustained by the CIT(A) deserves to be deleted.

30 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

38. Even otherwise, the ld. A.R. submitted that the income accruing to the assessee has already been offered to tax in AY 2006-07 and accepted as such. Therefore, bringing the same income to tax in the subject assessment year would lead to double taxation.

• CIT vs Glaxo Smithkline Asia (P) Ltd: 195 Taxman 35 (SC) • CIT vs Nagri Mills Company Ltd: 33 ITR 681 (Born) • Shri Ram Pistons & Rings Ltd: 220 CTR 404 (Del) • CIT vs Triveni Engineering Industries Ltd: 239 CTR 216 (Del) 40. For the reasons stated above, the ld. A.R. submitted that the addition made by the assessing officer and sustained by the ld. CIT(A) deserves to be deleted.

Re: Ground No. 4 to 6

41. The ld. A.R. submitted that the Assessee, during the previous year, had made payment of Rs.19,25,000 to CDSSL {i.e., Rs.2,75,000/month for 7 months} for maintenance of generating sets installed at Aamby Valley site. The Assessee raised a corresponding invoice of Rs.21,07,875 on SICCL {Rs.19,25,000 * 109.5%) and offered as income, the amount of Rs.1,82,875 {Rs.21,07,875 — Rs.19,25,000} in the revised computation of income filed before the assessing officer. As per the terms of agreement with CDSSL, the Assessee had to pay mobilization advance of Rs.2,00,000 which was to be amortized in 10 equal installments. The amount of loans and advance to 31 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune CDSSL in the financial statements stood at Rs.21,05,000 i.e., [19,25,000 + (2,00,00020,000)].

32 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

Assessee following project completion method, AO not justified in rejecting the method midway and estimated profit more so on when it was not permissible for the assessee or for the revenue to correctly work out the profit by changing the method of accounting in midway and make estimate of the income from ongoing contract for which there is no specific allocation of expenditure.

“Assessee builder having regularly employed project completion method which is an accepted method of accounting and the AO having accepted the same in the preceding assessment year, there is no justification to reject the said method to apply the percentage

33 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune completion method when the assessee has offered the income in the year of completion of the project.”

“AS-7 has also made a provision that advances received from customers may not necessarily reflect work performed. Outcome of a contract cannot be estimated reliably, therefore, no profit can be recognized. Clauses of agreement dated 1st March- 2002 prescribe that lease of units agreed to be allotted by assessee to intending allottees become legally en forcible only upon GSRTC approving allotment and uptill that time, there would be no legally tenable transaction by appellant in favour of intending lessee. Such approvals have in fact been granted by GSRTC in F.Y. 2004-05 relevant for A.Y. 2005-06 onwards. Vide order dated 18/5/2004 District Collector has restrained assessee from leasing in any manner whatsoever any of shop in GSRTC project. Therefore, AO has incorrectly applied AS-7 on assessee. Since the assessee can be termed as a contractor as also a developer, therefore Revenue can be recognized in terms of AS-9 guidelines. As per statement made by assessee, completion certificates of respective projects were obtained on 15.3.2005, 10.8.2004 and 31.12.2004. AO is empowered to examine this aspect and in view of guidelines and position of law narrated hereinabove, can take appropriate action prescribed under law. It was wrong on part of AO to assess income irrespective of year of completion of project when amount received in advance has not reached certainty and that too AO has merely estimated 10% as 34 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune recognition of Revenue of construction contract, without assigning any specific basis of such an estimation, such an estimation is not approved. Order of CIT(A) is upheld - Appeals dismissed.”

Accounting Standard AS-7 relied upon by the Assessing Officer is applicable strictly in the case of construction contracts only. Further, the assessee is following consistently this method of revenue recognition in prior years as well as in subsequent years and which has been accepted by the revenue and thus rule of consistency also demand that in the year under consideration the assessing officer is not justified in deviating the consistent approach of the Department. In view of above, there is no error in the order of the CIT(A) on the issue in dispute. Revenue’s appeal dismissed.

(Paras 8)

Conclusion: In the absence of any sale agreement or execution of any sale deed it cannot said that accounting standard AS-9 for revenue recognition was applicable in the appellant’s case.

Conclusion: Rejection of books of accounts by application of provisions of sec. 145(3) was not justified when there was nothing on record which may indicate that any item of income was suppressed or any item of expenditure was suppressed or inflated.”

36 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune “Appellant firm had recognized the income in respect of sale of plots by adopting Completed Contract Method, whereas, the Assessing Officer is of the view that income should be offered to tax received on year to year basis based on the stage of receipt of consideration, irrespective of the fact that the title in the plots have been passed on the buyer or not. It is an undisputed fact that the plots forms a part of stock-in-trade in the business of appellant firm and are immovable properties. The title in the immovable property can be passed on only in terms of the provisions of Transfer of Properties Act.

(Para 6)

Provisions of section 2(47) of the Act have no application to the transactions of stock-in-trade. In this case, the stock-in-trade in immovable property and the title in immovable property can be transferred or alienated in accordance with the provisions of the Transfer of PropertiesAct. The right, title or interest in the immovable property can be transferred only by way of registering the conveyance deed executed in this behalf. Even the accounting standard 9 dealing with the recognition of income also lays down that the income in respect of transfer of immovable property can be recognized only when the risks, rewards and ownership of the property is transferred to the buyer. Therefore the matterrequires fresh examination by the Assessing Officer in the light of the above position of law. Therefore, court remand this matter back to the file of the Assessing Officer with a direction that the income in respect of sale of plots can be recognized only in the year in which conveyance deed executed is registered in favour of the buyers and to allow the development expenditure incurred as 37 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune expenditure or the expenditure likely to be incurred on the plots sold as expenditure. And this direction also goes in line in consonance with the provisions of accounting standard 9 which clearly lays down that matching is required to be done on accrual basis in respect of the income offered to tax and upheld byHon’ble Supreme Court in the case of CIT Vs. Taparia Tools Ltd.”

“The appellant undertakes construction activity for those persons to whom it intends to sell the super-built area along with undivided share of land in a project which it is developing as a developer. Hence, the assessee is not a construction contractor and revised AS-7 was considered as not applicable. Accounting Standard-7 has not been specified by the Central Government under s. 145(2). Hence, the AD could not have rejected the accounts under s. 145(3) on the ground that the assessee has not followed the prescribed method of accounting. As per s. 145(1), income is to be computed in accordance with system of accounting regularly employed by the assessee. The assessee was employing regularly the project completion method and the project completion method is an accepted method of accounting. The assessee has changed the method of accounting from project completion method to percentage completion method in the subsequent year. Hence, the change in this year will be revenue neutral. Moreover, the assessee was under the bona fide belief that it was adopting a method of accounting, which was applicable to it as per the expert committee report of the ICAI. This bona fide belief is evident from 38 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune the fact contained in letter dt. 3rd Sept., 2007 addressed to AO. In view of this, revised AS-7 cannot be applied in the case of the assessee. —CIT vs. Khoday Distilleries Ltd. (ITRC Nos. 19, 20 & 21 of 1993) and H.M. Constructions vs. Jt. CIT (2004) 90 TTJ (Bang) 510 : (2003) 84 ITD 429 (Bang) followed; CIT vs. Bilahari Investment (P) Ltd. (2008) 215 CTR (SC) 201 : (2008) 3 DTR (SC) 329 : (2008) 299 ITR 1 (SC) relied on.

(Paras 3.17 to 3.21)

In case the revised AS-7 is to be applied then the opening inventories are also to be valued as per revised AS-7 though revised AS-7 is not applicable in the case of the assessee. Also on the principle of consistency, the Revenue should have accepted the method of accounting adopted by the assessee as the same was being followed for the last so many years. When the guidance note provided that revised AS-7 is applicable to real estate developers, the assessee has itself changed the method of accounting. Hence the AO is directed to accept the project completion method of accounting for the year under reference.—Motor Industries Company Ltd. vs. Asstt. CIT (ITA Nos. 335 & 336/Bang/2005, dt. 12th June, 2008) followed.

(Para 3.25)

Conclusion:

Assessee developer having regularly employed project completion method which is an accepted method of accounting, and the Central Government having not notified AS-7 under s. 145(2), AO could not 39 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune reject the accounts under s. 145(3) on the ground that the assessee had not followed the percentage completion method.”

“7. We have considered the submissions made on both the sides and have perused the record. Section 145 of the Act deals with method of accounting. Section 145(1) provides that income chargeable under the head 'profits and gains of business or profession' or 'income from other sources' shall subject to provisions of sub-section (2) be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. It is noteworthy that section 145 came to be amended w.e.f. 1-4-1987 and has not been given retrospective operation. The supreme court in the case of Bilahari Investments (P.) Ltd. supra has held as under:

Every assessee is entitled to arrange its affairs and follows the method of accounting which the department has earlier accepted. It is only in those cases where the department records a finding that the method adopted by the assessee results in distortion a profits that the department can in substitution of the existing method.

41 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune In the case of CIT Vs. Prestige Estate Projects P. Ltd. 440 ITR 343 55. (Karn.) wherein held that “10. In the instant case, assessee entered into a Development Agreement with M/s. Karnataka Realtors Private Limited, under which agreement the assessee was to develop the property and after development of the property, the owner and the developer were entitled to a specified percentage of super built area and both were free to sell the super built area allotted to their respective shares before construction of the built up area fallen to the share of the assessee, it (assessee) entered into agreement with the proposed buyer to construct the portion as per their specification. In other words, construction is undertaken by the assessee on behalf of the proposed buyer. However, for the purposes of stamp duty payable on the sale of undivided share of land sold to the buyer, only value of the land is taken and assessee had followed consistently this method of accounting to declare the profit namely, on project completion method as per the provisions of the Companies namely, section 211(3A) the Profit and Loss Account and balance sheet of the company has to comply with the Accounting Standard. As per proviso to section 211(3C), Standards of accounting specified by the ICAI are deemed to be Accounting Standard until the Accounting Standards are prescribed by the Central Government. In other words, the companies are required to adopt and follow the Accounting Standards as prescribed by ICAI. In the event of such prescribed Accounting Standards are not being followed, then, such companies are required to disclose in its Profit and Loss Account and Balance sheet the reasons as prescribed under section 42 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune 211(3B) of the Companies Act. To put it differently, the Companies Act also provided for deviation from the Accounting Standards also. There is no dispute to the fact that AS-7 effective from 01.04.2003 is applicable to all construction contractors. The objective of AS-7 reads:

The objective of this Standard is to prescribe the accounting treatment of revenue and costs associated with construction contracts. Because of the nature of the activity undertaken in construction contracts, the date at which the contract activity is entered into and the date when the activity is completed usually fall into different accounting periods. Therefore, the primary issue in accounting for construction contracts is the allocation of contract revenue and contract costs to the accounting periods in which construction work is performed. This Standard uses the recognition -criteria established in the Framework for the-Preparation -and –Presentation of Financial- Statements-to determine when contract revenue and contract costs should be recognized as revenue and expenses in the statement of profit and loss. It also provides practical guidance on the application of these criteria.

Thus, assessee-company which is required to follow Standard as prescribed by ICA' will have to necessarily take into account the reply furnished by the Institute for the Expert Committee, which reads as under:

(i) the seller of the goods has transferred to the buyer the property in the goods for a specific price or on significant risks and rewards of ownership has been transferred to the buyer and the 43 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune seller retains no effective control of the goods transferred to a degree usually associated with ownership; (ii) no significant uncertainty exists regarding amount of consideration that has been derived from the sale of the goods.

In the instant case, it has been noticed by the appellate Tribunal that assessee was in the activity of projects and was not a construction contractor. Thus, the revised AS-7 would be applicable to an enterprise undertaking construction activities on their own account as a venture of commercial nature. Whereas, the assessee undertakes construction activities for those persons to whom it intends to sell super built area along with undivided share of land in a project which it is developing as a developer.

"Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by any one of the accounting methods. The completed contract method is one such method. Similarly, the percentage of completion method is another such method.

Under the completed contract method, the revenue is not recognized until the contract is complete. Under the said method,

44 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune costs are accumulated during the course of the contract. The profit and loss is established in the last accounting period and transferred to the profit and loss account. The said method determines results only when the contract is completed. This method leads to objective assessment of the results of the contract.

On the other hand, the percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognized under this method is determined by reference to the stage of completion of the contract."

46 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune In view of preceding analysis, the fourth substantial question of law is also answered against the revenue and in favour of the assessee.

In the result, the appeal fails and is hereby dismissed.”

“8. We have considered the submissions made on both sides and have perused the afore-mentioned decisions carefully. On perusal of the afore-mentioned decisions referred to supra rendered by this Court in the case of PRESTIGE ESTATE PROJECTS, BANJARA DEVELOPERS & CONSTRUCTIONS (P) LTD., VARUN DEVELOPERS, S.N. BUILDERS & DEVELOPERS IN ITA 393/2014 AND ITA 739/2018 as well as the decisions of the Hon’ble Supreme Court in EXCEL INDUSTRIES and in BILAHARI INVESTMENTS supra and taking into account the fact that the Revenue itself has recognized the completed contract method for computation of the subsequent Assessment years, that is 2013-2014 and 2014-2015, we answer the substantial questions of law against the Revenue and in favour e of the assessee.

In the result, the appeals preferred by the Revenue fail and are hereby dismissed.”

"assessee is free to employ for the purpose of his trade, his own method of keeping accounts, and for that purpose to value his stock-in-trade either at cost or at market price. A method of 47 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune accounting adopted by the trader consistently and regularly cannot be discarded by departmental authorities on the view that he should have adopted a different method of keeping accounts or of valuation. The method of accounting regularly employed may be discarded only, if, in the opinion of taxing authorities, income of the trade cannot be properly deduced there from (as per provisions of 1922 Act in force at that time, presently only if case falls in sub section (3) of section 145)".

48 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune adjustments from the accounts maintained taxable profits may be properly deduced, the ITO is bound to compute profits in accordance with method of accounting. but where in the opinion of ITO, the profits cannot be properly deduced from eth system of accounting adopted by assessee it is open to him to adopt a more suitable basis for computation of true profits. Their Lordships then also dealt with method of accounting and observed as under-

"among Indian businessmen as elsewhere, there are current two principle systems of book keeping, there is, firstly, the cash system in which record is maintained of actual receipts and actual disbursements, entries being posted when money or money's worth is actually received, collected or disbursed. There is secondly, mercantile system in which entries are posted in eth books of account on the date of transaction i.e. on the date on which rights accrue or liabilities are incurred irrespective of the date ofpayment.

32. Examining the facts of instant appeal we in light of above judgments we find that the method of accounting along with following project completion method for treatment of advances received from proposed buyers the assessee has been consistently followed this method and appellant's assessment has been completed by the Ld. AO for first two years viz, A.Y. 2010-11 & 2011-12. In both these years also the appellant has credited the advance received against proposed sales of flats to a separate account and shown as a liability in balance sheet. At this stage it may be relevant to mention that in those years also the appellant has credited the advance received against proposed sale of flats to the Advance against sale of Flat A/c and not treated the same as income for said years on the basis that revenue in respect of sale of said flats would be recognized only on execution and registration of sale deeds of flats. The assessment of the said years have been completed by AO by the same common order, accepting the method of accounting and method of recognition of revenue. Thus the method followed by appellant is a consistent method which has been accepted by AO for two years i.e. AY 2010-11 & 2011-12 Since the said method has been consistently followed by appellant and even accepted by department, the same cannot be deviated in the present two years without there being any finding as contemplated u/s 145(3) on the basis of satisfaction required by that section viz., (1)about correctness or completeness of the accounts of the assessee or (2) about the fact

50 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune that the assessee has not regularly employed the method of accounts provided in section 145(1) or (3) that the income has not been computed in accordance with the standards notified u/s 145(2).

34. Further the Hon,ble High Court of Gujarat in the case of CIT v Shivalik Buildwell P Ltd (2013) 40 taxmann.com 219 (Guj.) dealing with the similar issue observed as follows;

51 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune "On the Revenue's appeal, the Tribunal confirmed the view of the Commissioner of Income Tax (Appeals), however, on slightly different ground, namely, that the assessee being a developer of the project, profit in his case, will arise on transfer of title of the property and receipt of any advances or booking amount cannot be treated as trading receipt of the year under consideration.

The Tribunal further noted that such method of accounting followed by the assessee had been accepted by the Revenue in earlier years. The Tribunal was, therefore, of the opinion that the Assessing Officer's decision to reject the book results during the year under consideration was not justified. We are of the opinion that the Tribunal committed no error. If as per the accounting standard available, the assessee was entitled to claim the entire income on completion of the project and if such accounting standard was accepted by the Revenue in the earlier years, in the present year, the Assessing Officer could not have taken a different sand and that too, without hearing the assessee".

"In the present case, it is not the Assessing Officer's case that the appellant is not reporting or under reporting its income. In fact, I find in the subsequent assessment year, i.e. the assessment year 2007-08, the appellant has disclosed substantial income from the projects undertaken in the business proprietary concerns, viz, M/s. Neelkanth Enterprises, M/s. Ghanshyam Enterprises and M/s. Swaminarayan Enterprises. In the subsequent year, i.e. the 52 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune assessment sear 2007-08 the profit declared from the projects run by these three proprietary concerns ranges from 43 per cent to 46 per cent. The Supreme Court in the case of Sanjeev Woolden Mills v. CIT (supra), has clearly held that to attract the proviso to section 145(1) of the Act, the Assessing Officer should be of the view that the accounts are correct and complete but the method employed is such that the income cannot be property deduced there from. The choice of method of accounting regularly employed by the assessee lies with the assessee but the assessee would be required to show that the assessee's regular method would not be rejected as improper merely because it gives the assessee the benefit in certain years or that as per the Assessing Officer, the other method would have been more preferable. If the method adopted does not afford true picture of profit, it would be rejected, but then such rejection should be based on cogent evidence and should be done with caution. In the present case, the appellant has declared substantial profits on the basis of project completion method in the subsequent years. In construction, the project completion method and percentage completion methods, both have also been recognized by the Central Board of Direct Taxes in the instruction No.4 of 2009 dated June 30, 2009. Therefore, the Assessing Officer is not considered justified in bringing to tax the profit of Rs.1,66,70,811 in the year under consideration, particularly when such profits have already been offered to tax by the appellant in the assessment year 2007-08. The addition of Rs.1,66,70,811 are directed to be deleted".

56 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune completion method applied by us, the Assessing Officer observing as follows; "The assessee in reply to the query raised by the Assessing Officer had inter alia claimed that it had been consistently following method of booking of the revenue on the completion of the flat when full payment had been made to it by the person concerned and possession was delivered to him. It was pointed out that neither Accounting standard 9 (AS 9) or Accounting Standard 7 (AS 7) issued by the Institute of Chartered Accounts of India has been recognized by the Act and in such circumstances, there was no guidance or strict procedure for adopting a particular accounting standard under the/act and it depends upon facts and circumstances of each case. In other words, the assessee was entitled to adopt Project Completion method for determining its income which was being regularly followed by it. Though the Assessing Officer had rejected the plea of the assessee, but the CIT(A) while accepting the appeal of the assessee made the following observations:- "It is however not the AO's case that the profits have been distorted by following the project completion method. The impugned order is also silent as regards the position of the books of account. In other words the books have not been rejected, nor any defects pointed out. In the case of CIT vs. Bilahari Investment (P) Ltd (2008) 299 ITR 1 SC, the Apex Court held that the completion contract method adopted by the assessee for chit discount consistently over the years, is not required to be substituted by percentage completion method. In CIT v Manish Buildwell (P) Ltd (2011) 245 CTR 397 (Del), it was enunciated that project completion method is one of the recognized methods of accounting. That it cannot be said that the project completion method followed by the assessee would result in 57 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune deferment of payment of taxes. Therefore, considering the discussion above, I do not find any merit on the part of the AO to have worked out the income by applying the percentage completion method". The Tribunal affirmed the order of the CIT(A). It was concluded that project completion method and percentage completion method are accepted standards of accounting and the assessee has option to adopt any one of them. The relevant findings recorded by the Tribunal read thus:-

"We have heard the rival contentions and perused the record. The issue arising in the present appeal before us is in relation to the method to be applied for recognizing the revenue generated by the assessee in the course of carrying on the business of real estate developers. The case of the assessee is that it is following one of the accepted accounting standards approved by ICAI for recognizing the revenue generated by it. The assessee had followed project completion method which had been consistently followed by the assessee for the preceding years also. The Assessing Officer on the other hand, had applied percentage completion method to compute the income in the hands of the assessee. The Commissioner of Income Tax (Appeals) had allowed the claim of the assessee. Both the methods of accounting are i.e. project completion method and percentage completion method is accepted standards of accounting and either of the methods can be applied by the assessee. In the facts of the present case before us, the assessee had chosen to compute its income on the basis of project completion method i.e. recognizing the income on -the completion of the project and not from year to year whereas the case of the revenue was that it should account for the income as it

58 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune is generated in the hands of the assessee i.e. from year to year on the basis of the work completed being relatable to the revenue generated from year to year. The Hon`ble Supreme Court in CIT Vs. Bilahari Investment (P) Ltd (supra) had held that "recognition/identification of income under the 1961 Act is attainable by several methods ,of accounting. It may be noted that the same result could be attained by any one of the accounting methods. Completed contract method is one such method.

"It was further held that "Every assessee is entitled to arrange its affairs and follow the method of accounting which the Department has earlier accepted. It is only on those cases where the department records a finding that the method adopted by the assessee results in distortion of profits, the Department can insist on substitution of the existing method". Applying the above said principles to the facts of the present case we find that the assessee before us has been following the systematic method of accounting from year to year which has been accepted by the department and no defects have been pointed out by the department in the method of accounting adopted by the assessee and thus, there is no reason to reject the same. The Hon'ble Delhi High Court in CIT v Manish Buildwell (P) Ltd (supra) had held that "It is well settled that the project completion method is one of the recognized methods of accounting. It cannot be said that the projection completion method followed y the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the IT Act. AS-7 issued by the ICAI also recognizes the position that in the case of construction contracts, the 59 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune assessee can follow either the project completion method or the percentage completion method. "

Where the assessee was following a particular method of accounting consistently, which has been accepted by the department from year to year and in the absence of any defect being pointed out by the Assessing Officer that t4 following such method, income had escaped assessment, we find no merit in the order of the Assessing Officer in holding that percentage completion method should be applied to the assessee for the year under consideration. It is the prerogative of the assessee to arrange its affairs in such a manner and follow any recognized method of accounting to compute its profits. In view thereof, we find no merit in the order of the Assessing Officer in recomputing the income in the hands of the assessee. Upholding the order of Commissioner of Income Tax (Appeals), we dismiss ground of appeal raised by the revenue.” The Delhi High Court in CIT V. Manish Build Well (P) Ltd. (2011) 16 taxmann.com 27(2002) 204 Taxman 106 noted that project completion method is one of the recognized methods of accounting. It was held as under:- "It is well settled that the project completion method is one of the recognized methods of accounting. It cannot be said that the project completion method followed by the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the IT Act" The assessee respondent had been consistently following one of the recognized methods of accountancy, i.e project completion method, for computation of its income. In the absence of any prohibition or restriction under the Act for doing so, it cannot be held that the approach

60 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune of the CIT (A) and the Tribunal was erroneous or illegal in any manner so as to call for interference by this Court. No substantial question of law arises. Consequently, finding no merit in these appeals, the same are dismissed."

38. It is well settled that the project completion method is one of the recognized methods of accounting. In CIT v Hyundai Heavy Industries Co. Ltd (2007) 291 ITR 482/161 Taxman 191 (SC) the Supreme Court held as follows:-

"Lastly, there is a concept in accounts which is called the concept of contract accounts.

Under that concept, two methods exist for ascertaining profit for contracts, namely, "completed contract method" and "percentage of completion method".

To know the results of his operations, the contractor prepares what is called a contract account which is debited with various costs and which is credited with revenue associated with a particular contract. However, the rules of recognition of cost and revenue depend on the method of accounting. Two methods are prescribed in Accounting Standard No.7. They are "completed contract method" and "percentage of completion method".

39. This view was reiterated by the Supreme Court in CIT v. Bilahari Investment (P) Ltd. (2008) 299 ITR 1/168 Taxman 95 with the following observations:

61 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune "Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by any one of the accounting methods. The completed contract method is one such method. Similarly, the proceedings of completion method is another such method.

Under the completed contract method, the revenue is not recognized until the contract is complete. Under the said method, costs are accumulated during the course of the contract. The profit and loss is established in the last accounting period and transferred to the profit and loss account. The said method determines results only when the contract is completed. This method leads to objective assessment of the results of the contract. The On the other hand, the percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognized under this method is determined by reference to the stage of completion of tht contract. The stage of completion can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract.

The above indicates the difference between the completed contract method and the percentage of completion method." (underlining ours)

62 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune Accounting Standards 7 (AS7) issued by the Institute of Chartered Accountants of India also recognize the position that in the case of construction contracts, the assessee can follow either the project completion method or the percentage completion method. In view of the judgments of the Supreme Court (Supra), the finding of the CIT(A), upheld by the Tribunal, does not give rise to any substantial question of law. Further, the Tribunal has also found that there was no justification on the part of the assessing officer to adopt the percentage completion method for one year(the year under appeal) on selective basis. This will distort the computation of the true profits and gains of the business. For these reasons, we axe of the view that no substantial question of law arises. We, therefore, decline to admit question Nos. 2 and 3."

63 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune months from the date of agreement i.e. from 1.4.2009. The Ld.A.0 also ignored the fact that right to sale its share of constructed area with the assessee was only from April, 2014 onwards and the assessee has offered the revenue for taxation from F.Y 2014-15 onwards as and when the sale deed has been registered. As held by various courts as discussed above that the method of adopting project completion method is not ultra virus and the assessee is free to adopt either the percentage completion method or project completion method with the only rider that it should be consistently adopted and in case of any deviation the effect of profit or loss should be offered to tax as the case may be. Revenue has not disputed this fact that assessee has offered the impugned advances to tax in the subsequent years i.e. from financial year 2014-15 based on sale deed registered which proves that there has been no loss to the revenue. Mere postponement of tax as a result of method employed by assessee has not been viewed adversely by courts so long as the method is regularly and consistently employed as held by Hon'ble Apex Court in the case of Excel Industries Ltd (2013) 358 ITR 295.”

“The taxability on estimated income from the development and construction project of building is in controversy. As noticed by the CIT(A) as well as pointed out on behalf of the assessee, assessee is engaged as a developer and constructor of the building project and is not a mere Civil Contractor. Thus, the AO could not challenge the project completion method adopted by the assessee to the percentage completion method unless all

64 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune significant risks and rewards of ownership have been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership. The assessee has referred to BU permission etc. and has demonstrated on facts that the risks associated with the project continued with the developer in a significant way during the year under consideration. It is also not in dispute that the income has been ultimately offered in the later assessment year and duly assessed. Thus, the entire exercise of the AO is revenue neutral. The CIT(A) has correctly appreciated the facts and circumstances of the case and has taken note of the revenue recognition in the later year. The assessee has also demonstrated that the revenue recognized from project has been actually assessed and accepted in 143(3) r.w.s. 263 of the Act proceedings.

(Para 8) 62. As seen from the above judgments, the Courts time and again held that method of accounting followed by the assessee, which is project completion method of recognizing the revenue is permitted by law and followed by assessee. Thus, it is settled proposition that the judicial discipline requires consistency in its proceedings and same to be followed year to year. There is no allegation by the present AO that the assessee has changed the method of accounting from one year to another year. In other words, the assessee is continuously and consistently following the same method of accounting year to year. This is only revenue neutral.

65 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune and both options is available to the assessee. Further, the assessee having chosen the project completion method, it is impermissible for the AO to modify it by recasting the Assessee’s profit and loss account when the various courts have approved the project completion method, the method adopted by the lower authorities is unsustainable in law. In these circumstances, we have to examine whether income generated from these transactions was offered to tax in subsequent years. If it is offered to tax in subsequent assessment years as said earlier, it is only revenue neutral and it cannot be brought to tax in these two assessment years without considering the offering of same income in subsequent assessment years. For this purpose, we place reliance on the judgement of Hon’ble Supreme Court in the case of Bilahari Investments Pvt. Ltd., [2008] 299 ITR 1/168 Taxman 95wherein held as under:-

"15. Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by any one of the accounting methods. Completed contract method is one such method. Similarly, percentage of completion method is another such method.

17. On the other hand, percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognised under this 66 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune method is determined by reference to the stage of completion of the contract. The stage of completion can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract."

“24. From the above it is clear that percentage completion method and compete contract method are both recognised method of construction project. Similar proposition was laid down by Hon'ble Supreme Court in the case of CIT v Hyundai Heavy Industries Co. Ltd (2007) 291 ITR 482 wherein Hon'ble. Apex Court held as follows:-

"Lastly, there is a concept in accounts which is called the concept of contract accounts. Under that concept, two methods exist for ascertaining profit for contracts, namely, "completed contract method" and "percentage of completion method". To know the results of his operations, the contractor prepares what is called a contract account which is debited with various costs and which is credited with revenue associated with a particular contract. However, the rules of recognition of cost and revenue depend on the method of accounting. Two methods are prescribed in Accounting Standard No.7. They are "completed contract method" and "percentage of completion method."

67 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

68 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

69 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune (ii) CIT v. Manish Build Well (P.) Ltd. (2011) 245 CTR 397 (Del.) wherein held that: “It is well settled that the project completion method is one of the recognized methods of accounting. In CIT v. Hyundai Heavy Industries Co. Ltd. [2007] 291 1TR 482 / 161 Taxman 191 (SC) the Supreme Court held as follows:- "Lastly, there is a concept in accounts which is called the concept of contract accounts. Under that concept, two methods exist for ascertaining profit for contracts, namely, "completed contract method" and "percentage of completion method". To know the results of his operations, the contractor prepares what is called a contract account which is debited with various costs and which is credited with revenue associated with a particular contract. However, the rules of recognition of cost and revenue depend on the method of accounting. Two methods are prescribed in Accounting Standard No.7. They are "completed contract method" and "percentage of completion method". This view was reiterated by the Supreme Court in CIT v. Bilahari Investment (P.) Ltd. [2008] 299 ITR 1/168 Taxman 95 with the following observations: "Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by any one of the accounting methods. The completed contract method is one such method. Similarly, the percentage of completion method is another such method. Under the completed contract method, the revenue is not recognized until the contract is complete. Under the said method, costs are accumulated during the course of the contract. The profit and loss is established in the last accounting period and transferred to the profit and loss account. The said method determines results only when the contract is completed. This method leads to objective assessment of the results of the contract. On the other hand, the percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognized under this method is determined by reference to the stage of completion of the contract. The stage of completion can be looked at undies this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract. The above indicates the difference between the completed contract method and the percentage of completion method." (underlining ours)

70 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune After the above judgments of the Supreme Court it cannot be said that the project completion method followed by the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the Income Tax Act. Accounting Standards 7 (AS7) issued by the Institute of Chartered Accountants of India also recognize the position that in the case of construction contracts, the assessee can follow either the project completion method or the percentage completion method. In view of the judgments of the Supreme Court (Supra), the finding of the CIT (A), upheld by the Tribunal, does not give rise to any substantial question of law. Further, the Tribunal has also found that there was no justification on the part of the assessing officer to adopt the percentage completion method for one year (the year under appeal) on selective basis. This will distort the computation of the true profits and gains of the business. For these reasons, we are of the view that no substantial question of law arises. We, therefore, decline to admit question Nos. 2 and 3.”

(iii) Radhasoami Satsang v. CIT (1992) 193 ITR 321 (SC)

“One of the contentions which the learned senior counsel for the assessee-appellant raised at the hearing was that in the absence of any change in the circumstances, the revenue should have felt bound by the previous decisions and no attempt should have been made to reopen the question. He relied upon some authorities in support of his stand. A Full Bench of the Madras High Court considered this question in T.M.M. Sankaralinga Nadar & Bros. v. CIT 4 ITC 226. After dealing with the contention the Full Bench expressed the following opinion: "The principle to be deduced from these two cases is that where the question relating to assessment does not vary with the income every year but depends on the nature of the property or any other question on which the rights of the parties to be taxed are based, e.g., whether a certain property is trust property or not, it has nothing to do with the fluctuations in the income; such questions if decided by a Court on a reference made to it would be res judicata in that the same question cannot be subsequently agitated...." (p. 242) One of the decisions referred to by the Full Bench was the case of Hoystead v. Commissioner of Taxation 1926 AC 155. Speaking for the Judicial Committee, Lord Shaw stated : "Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they present as to what should be proper apprehension by the Court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity

71 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune is exhausted. It is a principle of law that this cannot be permitted, and there is abundant authority reiterating that principle. Thirdly, the same principle - namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light -or ingenuity might suggest some traverse which had not been taken." These observations were made in a case where taxation was in issue.

12. This Court in Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 stated: ". . . At the same time, we have to bear in mind that the policy of law is 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...." (p. 10) Assessments are certainly quasi-judicial and these observations equally apply.

13. We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assess ment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.

I.T.A. No. 5067/DEL/2013 (A.Y. 2005-06)

73 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune of 12 months from the end of the month in which the return was furnished by the assessee. Since in this case the return was furnished on 31.10.2005 a notice under section 143(2) could have been validly issued by the Assessing Officer on the same return filed which was pending before him up to 31.10.2006. Instead of issuing a notice under section 143(2) the Assessing Officer issued a notice under section 148 of the Income Tax Act on the-appellant on 02/01/2006 itself. Therefore, it will be appreciated that there is no justification at all for initiation of the proceedings under section 147 of the Income Tax Act more particularly when the department had sufficient time available to make regular assessment of the appellant on the basis of return which was filed and, therefore, the notice issued u/s 148 of the Income Tax Act is void ab-initio and bad in law and consequent thereof the entire proceedings are liable to be quashed. The ld. A.R. submitted that the Hon'ble Delhi High Court has held consistently that re- assessment under section147 cannot be completed within the time available for issue of notice under section 143(2) and for completion of assessment u/s 143(3).In this connection, he placed reliance on the .judgment of the Hon'ble Delhi High Court in the case of KLM Royal Dutch Airways vs. A.D.I.T. 292 ITR 49 (Del.). Similar view has been taken in the following judgment:

C.I.T. Vs TCP Ltd. 323 ITR 346(Mad.). C.I.T. Vs Qatalys Software Technologies Ltd. 308 ITR 249 (Mad.). In the case of C.I.T. Vs TCP Ltd. The Horeble Madras High Court has held as follow: "That the Tribunal was right in holding that notice under section 148 of the Income Tax Act could not be issued for making an assessment under section 147 of the Act, when time limit was 74 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune available for issue of notice under section 143(2) of the Act for making, an assessment under section 143(3) of the Act."

75 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune have issued u/s 143(2) of the Act to complete original assessment. In the present case, the original return was only processed u/s 143(1) of the Act and there was no original assessment. The AO rightly recorded the reason that reopening of assessment so as to bring the escaped income into tax. There is no dispute with regard to this. The notice issued by AO u/s 147 r.w.s. 148 of the Act is not time barred on the reason that the AO has not initiated the proceedings by issue of notice u/s 143(2) of the Act. For this proposition, we rely on the judgment of Delhi High Court in the case of Acorus Unitech Wireless Pvt. Ltd. & Anr. Vs. DCIT reported in 345 ITR 228 (Del), wherein it is held as under:-

“14. In the case of Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers (P) Ltd., (2008) 14 SCC 208, it has been held as under:-

"19. Section 147 authorizes and permits the assessing officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the assessing officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the assessing officer should have finally ascertained the fact by legal evidence or conclusion. The function of the assessing officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers.

20. As observed by the Delhi High Court (sic the Supreme Court) in Central Provinces Manganese Ore Co. Ltd. v. ITO for 76 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

initiation of action under Section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the assessing officer is within the realm of subjective satisfaction [see ITO v. Selected Dalurband Coal Co. (P) Ltd.; Raymond Woollen Mills Ltd. v. ITO].

77 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune assessment of that year. Both these conditions were conditions precedent to be satisfied before the assessing officer could have jurisdiction to issue notice under Section 148 read with Section 147(a) but under the substituted Section 147 existence of only the first condition suffices. In other words if the assessing officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to Section 147. The case at hand is covered by the main provision and not the proviso."

16. Further the facts of the present case are clearly distinguishable from the factual disposition in Ved & Co. (supra) in Appeal (civil) 3058 of 2004.

. In the present case, the Assessing Officer has not issued notice pursuant to the return of income, but under Section 147/148 of the 78 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune Act. This notice has been issued when the Assessing Officer could have also initiated the proceedings under Section 143(2) of the Act. The Assessing Officer is not trying to do anything indirectly which could not have been done directly.

79 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune April, 2011, an order under Section 143(1) of the Act was earlier passed.

80 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune 30th March, 2012, that the petitioner objected to the reassessment proceedings raising the aforesaid ground and issue.

The Legislature in its wisdom has given two options to the Assessing Officer to reopen assessments : (a) accepting the return of income by merely processing it under section 143(1) of the Income- tax Act, 1961, without making investigation, and (b) taking up the case for scrutiny and completing the assessment under section 143(3) of the Act. Merely because the Assessing Officer has two options for reopening the matter processed under section 143(1), non-exercise of option under section 143(2) to correct the assessment made under section 143(1), does not exclude the Assessing Officer's power to reopen the assessment under section 147 of the Act.

"The scheme of section 143(1)(a) of the Income-tax Act, 1961, and the clarificatory circular dated 31-10-1989, issued by the Central Board of Direct Taxes, makes it amply clear that unlike the past practice, assessments are not required to be made in each and every case and assessment orders will be passed only in a very limited number of cases, selected for scrutiny. Under section 143(1)(a), the Assessing Officer has to accept the return on its face value and make minor adjustments consistent with the information given in the return without touching upon debatable and controversial issues. There is a lot of difference between an assessment and an intimation, as contemplated by section 143(1)(a) and if it were not so, then Parliament would not have used the word intimation as a substitute for assessment. The intimation under section 143(1)(a)(i) is only fictionally taken as a notice of demand under section 156. From all this it follows that the intimation is nothing but an acknowledgement slip to the effect that the return filed has been accepted and the Assessing Officer has acted upon that and for the purposes of recovery, that shall be deemed to be a notice of demand as if issued under section 156. Jurisdiction to make adjustment under the provisions of section 143(1)(a) is co-extensive and coterminous with the jurisdiction vested in the Assessing Officer under section 154 for making obvious corrections, as no item of debatable nature can be corrected under section 154 of the Act. Similarly, the Assessing Officer cannot enter into any controversial

82 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune item to make permissible adjustments under the proviso to section 143(1)(a).

The only requirement of section 147 is that Assessing Officer must have good reason to believe that some income had escaped assessment. One this belief is well-founded, recourse to reassessment proceedings cannot be said to be illegal. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate reassessment proceedings and failure to take steps under section 143(2) will not render the Assessing Officer powerless to initiate the reassessment proceedings."

83 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

In our view, the power that can be exercised under section 143(2) to correct the assessment made under section 143(1) does not exclude the power of the Assessing Officer to reopen the assessment under section 147 if the ingredients of section 147 are satisfied. It is open to the Assessing Officer to invoke the jurisdiction under section 147, notwithstanding the fact that there are other remedies open to him under the Act. It cannot, therefore, be accepted that the reassessment under section 147 is vitiated because the Assessing Officer failed to invoke his power to correct the assessment already completed under section 143(1) by issuing a notice under section 143(2) of the Act.

Another plea taken by the petitioner was that within that prescribed time-limit action for assessment under section 143(3) was not taken. We find no substance in this plea. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate to proceed under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued. A similar view has been taken in A. Pusa Lal v. CIT[1988] 169 ITR 215 (AP) ; Jorawar Singh Baid v. Asstt. CIT [1992] 198 ITR 47 (Cal.) and Pradeep Kumar Har Saran Lal v. Assessing Officer [1998] 229 ITR All.).

84 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

85 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune proceedings initiated by virtue of filing the return or assessment proceedings by way of issuance of notice under section 143(2) are concluded or not. Thus, in fact, following situation emerged from the above discussion:

(i) after filing the return of income, processing is not done/acknowledgement is not issued, i.e., return filed is pending. Thus, there is a case of assessment having not done. This will fall in clause (b) to Explanation 2.

(ii) Where return of income is filed, processing is done/ acknowledgement issued. The proceedings initiated by way of filing of return is concluded though technically, it may not be said to be an assessment completed as held in various Court judgments. This will also fall in clause (b) to Explanation 2.

(iii) Where return of income is filed, processing is not done/acknowledgement is not issued but notice under section 143(2) is issued. If Assessing Officer still finds escapement of income then he has two options. He can cover such escaped income in the proceedings initiated under section 143(2) or he can initiate proceedings under section 147 read with Explanation 2(b) as assessment is not complete and there is a case of deemed escapement of income.

(iv) Return of income is filed, processing is done/ acknowledgement is issued and thereafter notice under section 143(2) is issued within the specified time. Such cases would also be cases of deemed escapement of income if conditions laid down in Explanation 2(b) are satisfied.

(v) Return of income is filed, processing is done or not done, acknowledgement is issued or not issued as intimation, the time period for issuance of notice under section 143(2) is expired. This would be again a case which will fall in Explanation 2(b) as assessment is not done.

(vi) Where assessment is done under section 143(3) after filing the return of income and Assessing Officer finds escapement of income then such case would fall in Explanation 2(c).

86 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune (vii) Were no return of income is filed at all then such case would fall in Explanation 2(a).

12. We also found substance in the submissions of the ld. D.R. that the period of notice shall be counted from the relevant assessment year for the limitation of issuing notice under Section 148 of the Act which period also covers the period of notice to be issued as per Section 143(2) of the Act. Considering the entire issue and judgements relied by both the parties as well as cited by us (supra), we allow the appeal of Revenue and set aside the order of the CIT(A). Since the CIT(A) has not decided issue on merit, the issue on merits shall be considered by the CIT(A) and for this purpose, the case is remanded to the CIT(A) to decide merits of the appeal after due hearing afforded to the assessee.

87 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune C.O No. 55/Del/2014 in (A.Y .2005-06)

In view of deciding the Appeal filed by the Revenue in (A.Y 2005-06) the Ground No. 1 regarding reopening of the assessment has become in-fructuous. Accordingly, the Ground No. 1 of the C.O. is dismissed for having become in-fructuous.

Considering the fact that the issue involved in Ground No. 2 to 4 of the present Cross Objection are similar to the above issue involved in Assessment Year 2003-04 and 2004-05, the same direction with mutatis mutandis applies to present Appeal.

88 AND ITA.1155/Del/2009 & ITA.5067/Del/2013 AND C. O. No. 55/Del/2014 Sahara India Power Corporation Ltd., Pune

Order pronounced in the open court on : 28/04.2023.