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2022 (9) TMI 1239 - AT - Income TaxRevision u/s 263 by CIT - advances received from customers and capitalization of project expenses - HELD THAT:- Admittedly, it is an undisputed fact that assessee has disclosed advances received from customers in its audited balance sheet on the date of 31.03.2016 and 31.03.2017 - It is a rudimentary knowledge of accountancy that balance sheet is prepared with the balances in the books of accounts taken at a particular point of time, which is 31.03.2017 in the present case and a statement of assets, liabilities and capital of a business or an organization is prepared depicting financial picture at a particular given point in time Balance sheet gives the whole picture which is a cumulative reflection of the assets, liabilities and capital on a particular date. The amount of advance from customers reported in the balance sheet “as on” 31.03.2017 for an amount of Rs. 3,72,77,107/- signifies the amount received from customers as advance upto the date of 31.03.2017 when the said balance sheet was drawn. Thus, this balance as on 31.03.2017 is inclusive of Rs. 20 lacs which was received by the assessee in the period prior to the financial year 2016-17 for which the balance was drawn “as on” 31.03.2016 wherein the advance received from customers till that date was reported at Rs. 20 lacs in that balance sheet prepared as on 31.03.2016. Lack of such a rudimentary knowledge of accountancy for reading a balance sheet and thereby invoking the revisionary proceedings by holding that Rs. 20 lacs has been understated is not appreciated. Project expenses in the tax audit report - Assessee has accounted for cost of purchases of raw material under an inclusive method but since there has been no sale during the year, the entire project expenses have formed part of the closing stock/work in progress taken on the income side of the profit & loss account. Thus the VAT component is on both sides of the P & L A/c, on the debit side included in the cost of purchases and on the credit side in the closing stock. Therefore, there is no loss to the revenue on this account. Even if, by adopting the exclusive method of accounting, the VAT component is removed from the cost of purchases then at the same time, it will get removed from the closing stock/work in progress, making it revenue neutral. From the above factual matrix of the two issues raised by the ld. PCIT, we find that ld. PCIT has not applied his mind to arrive at a consideration which is erroneous in so far as prejudicial to the interest of the revenue, for passing the impugned order u/s 263 of the Act. We observe that in the course of proceedings u/s 263 of the Act before the Ld. PCIT, assessee had furnished the relevant details and explained the issues raised through the show cause notice by the Ld. PCIT, supporting its contentions by various decisions. It is well settled law that for invoking the provisions of section 263 of the Act, both the conditions that the order must be erroneous and prejudicial to the interest of revenue needs to be satisfied. We find that the two issues in the present case are purely on facts which are verifiable from the records of the assessee. Examination and verification of the audited financial statements i.e. Balance Sheet and Profit & Loss account of the assessee reveals the correct state of their affairs in respect of the two issues raised in the impugned revisionary proceedings for which both, ld. PCIT and the ld. CIT, DR could not bring any material on record to controvert the verifiable factual position. Accordingly, on the issues raised by the Ld. PCIT in the revisionary proceedings, no action u/s 263 of the Act is justifiable which in our considered view cannot be sustained - Decided in favour of assessee.
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