TMI Blog2015 (1) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... t justified in invoking jurisdiction under section 263 of the Act. The decisions cited by ld. DR would not, thus support the case of the revenue. In view of the above discussion, we set aside the impugned order under section 263 of the Act because the assessment order dated 29.12.2009 could not be said to be erroneous in so far as prejudicial to the interests of the revenue and quash the same. - Decided in favour of assessee. - ITA No. 404/CHD/2012 - - - Dated:- 31-10-2014 - SHRI BHAVNESH SAINI AND SHRI T.R.SOOD, JJ. For the Appellant : Shri Ashwani Kumar For the Respondent : Smt. Jyoti Kumari ORDER Per: Bhavnesh Saini: This appeal by assessee is directed against the order of ld. CIT, Central , Ludhiana under section 263 of the Income Tax Act dated 21.02.2012 for assessment year 2007-08 on the following grounds : 1. That the Ld. Commissioner of Income Tax (Central) has erred in assuming the jurisdiction u/s 263 of the Income Tax Act and thereby setting aside the order to the file of the Assessing Officer to frame the assessment denovo. 2. That while setting aside the order of the AO on various issues, the Ld. IT (Central) has failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment charges. Therefore, same are not allowable expenses and have to be added to the closing stock. It was also observed that in the order under consideration, about 11.5% of the land has been sold and balance 88.5% of the land is appearing in closing stock. Therefore, 88.5% of the expenses should be added to the closing stock. It was also noted in the notice that last year expenses claimed on these heads, proportionate to such expenses relating to land appearing in closing stock should have been added to the closing stock. 3. The ld. CIT considered another item to be the disallowance of expenses under section 14A of the Act and noted that disallowance as per Rule 8D to be made in a sum of ₹ 208,576/-. It was also noted that loans and advances have been given for which no necessary details have been filed, therefore proportionate interest to be disallowed @ 12% under section 36(1) (iii) of the Act in a sum of ₹ 9,90,000/-. Suspense account was considered and it was found that cash is utilized by the Directors which is to be added under section 2(22) (e) of the Act. Provision against development expenses was considered to be incurred on provision basis which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n year, the assessee has to develop the colony and it is a continued liability and therefore, above expenses could not be treated as provision for development expenses. Further external development charges are payable to PUDA as statutory government dues as per approval granted which were payable to the government on sale of the plots as per accounting policies followed consistently. As per accounting policy adopted by the assessee company, payment of external development charges is accounted for in the books of account on cash basis as per notes on accounts which was part of balance sheet filed during the course of assessment proceedings. The said expenses are covered under section 43B of the Act and law permits their allowability on actual payment basis and therefore, same was not included in the closing stock. As the expenses are claimed only on the basis of sale of plots and sale price charged from the prospective buyer is inclusive of development expenses, maintenance expenses and external development charges etc, there is no question of adding the same to the cost of the closing stock. 6. The assessee in support of this contention, relied upon certain decisions of differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Registered Deed is executed in favour of buyer and no possession is given until receipt of full and final payment. Therefore, the basic ingredients of the sale are missing. The assessee also explained through the balance sheet regarding revenue recognition that sales are taken into consideration at the time of full payment in respect of plots sold. until the full payments are received and possession is given to the buyer, no sale is booked by the assessee. The ld. CIT, however noted that no enquiries have been conducted by the Assessing Officer and the note given on revenue recognition is contradictory in as much as the payment is treated as advance till the full payment is made while on other hand in respect of purchase, these are taken into account when sale is executed. 8. The ld. CIT relied upon decision of the Hon'ble Punjab Haryana High Court in the case of CIT V Fairdeal Traders and noted that advances should be considered as sale. In regard to maintenance deposits, the assessee submitted that provision for maintenance deposit was created on account of sale of land/plot and various expenses are incurred by debiting to maintenance deposit account. Ld. CIT, however ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year under appeal as compared to the earlier years. The assessee is engaged in the development of PUDA approved colonies and as per condition imposed by them, assessee is under obligation to develop the colony within stipulated time period and to maintain the same till the colony was handed over to the municipal authorities. In this way, irrespective of plots sold in any year, the assessee has to develop the colony and it is a continued liability. Therefore, these expenses could not be termed as provision for dev elopement expenses. The same method is consistently adopted by assessee and that external development charges are accounted for in the books of account on cash basis as have been demanded by the authorities which is allowable deduction under section 43B of the Act on actual payment. Therefore, the assessment order could not be said to be erroneous in so far as prejudicial to the interest of revenue. He has submitted that Rule 8D is not applicable to assessment year under appeal, therefore, disallowance under section 14A is not permissible. The assessee produced complete details with regard to the loans and advances and explained that land was purchased for business activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid judgement has been over-ruled by the Hon'ble Supreme Court in the case of Dhir and Co. Colonisers Pvt. Ltd. V CIT vide order dated 26.10.2009. Copy of the decision is filed on record in which Hon'ble Supreme Court followed its decision in the case of CIT Vs Realest Builders and Services Ltd. 307 ITR 202. He has relied upon decision of the Hon'ble Supreme Court in the case of CIT Vs Realest Builders and Services Ltd. (supra) in which it was held as under : In cases where the Department wants to tax an assessee on the ground of liability arising in a particular year, it should always ascertain the method of accounting followed by the assessee in the past and whether the change in the method of accounting was warranted on the .ground that profit is being under-estimated under the impugned method of accounting. If the Assessing Officer comes to the conclusion that there is under-estimation of profits, he must give facts and figures in that regard to demonstrate that the impugned method of accounting adopted by the assessee results in under-estimation of profits and is therefore rejected. Otherwise the presumption would be that the entire exercise is revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record. PB-161 is the notice issued after completion of the assessment which was merely issued on raising audit objection which was also replied by the assessee. The assessee maintained same accounting system which was maintained in earlier years and accepted by the Revenue Department on which all the above expenditures have been allowed to the assessee and advances from the customers have not been treated as trading receipts. The ld. CIT was wrong in observing that expenditure should be part of the closing stock because it was related to the sales. PB-75 to 83 are the copies of the assessment orders in the case of the assessee under section 143(3) for preceding assessment years 2001-02 and 2002-03 and queries raised by the Assessing Officer at the assessment stage on almost identical items on which proceedings under section 263 have been initiated, Assessing Officer asked for the simi lar explanation and was satisfied with the explanation of the assessee and accepted the returned income of the assessee. He has submitted that the search was also conducted in the case of the assessee in other years in which the matter was referred to the Settlement Commission. The details of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TAX ACT,1961 S. 263. iii) Decision of Hon'ble Delhi High Court in the case of CIT V Sunbeam Auto Ltd. reported in 332 ITR 167 in which it was held as under : Held, dismissing the appeal, (i) that the Assessing Officer allowed the claim on being satisfied with the explanation of the assessee. Such decision of the Assessing Officer could not be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. The Assessing Officer had called for explanation on the very item from the assessee and the assessee had furnished its explanation. This fact was conceded by the Commissioner himself in his order. This showed that the Assessing Officer had undertaken the exercise of examining as to whether the expenditure incurred by the assessee in the replacement of dies and tools was to be treated as revenue expenditure or not. Therefore, it could not be said that it was a case of lack of inquiry. The accounting practice followed for a number of years had the approval of the income-tax authorities. Even for future assessment years, the very same accounting practice was accepted. (ii) That the dies were components of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer was erroneous and was prejudicial to the interests of the Revenue. Since no decision about the erroneous ' of the order was firmly taken, the Tribunal was right in vacating 'the order of the Commissioner under section 263. 12. The ld. counsel for the assessee, therefore submitted that ld. CIT was not justified in holding the assessment order to be erroneous in so far as prejudicial to the interest of revenue. 13. On the other hand, ld. DR relied upon the impugned order and submitted that the provisions made for expenses are not allowable deduction and expenses should be added to the closing stock. The Assessing Officer did not make proper enquiry on all the items taken up by the ld. CIT in the notice under section 263 of the Act. The Assessing Officer has not verified all the facts at the assessment stage and no reply dated 01.12.2009 was available on record as submitted by ld. counsel for the assessee. The proceedings under section 263 of the Act have not been initiated on audit objections. The ld. DR contended that since no proper enquiries have been conducted at assessment stage, no verification of details have been made and Assessing Officer passed the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lopment expenses have been incurred for the purpose of business and since it was ascertained liability of the assessee to be incurred in future, therefore, provision was made which were accounted for at the time of making sales. The external development charges were paid to the PUDA and assessee furnished complete details before Assessing Officer as well as before ld. CIT. The statutory payments made to government agencies are allowable deductions under section 43B(a) of the Act. The assessee followed consistently same method of accounting not only for assessment year under appeal but in earlier year as well on which the revenue has accepted the same accounting standard. Therefore, there is no change in facts and circumstances noticed in the year under consideration. Therefore, on identical facts if the Assessing Officer has accepted claim of assessee of development expenses and external development expenses, the ld. CIT should not substitute the view of the Assessing Officer in the proceedings under section 263 of the Act. 16. The ld. CIT also, on the basis of sales made in percentage proposed that expenditure to that extent could only be allowed as deduction. However, he has n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Dhir Co. Colonisers Pvt. Ltd. (supra) in which the Hon'ble Supreme Court followed its decision in the case of Realest Builders Services Ltd. (supra) and the decision in that case support the case of the assessee that advances have not been rightly treated as trading receipts. 18. Considering the above materials on record and the investigation carried on by the Assessing Officer at the assessment stage would clearly reveal that the assessee followed Project Completion Method of accounting regularly and complete details have been filed of trading receipts and expenses before Assessing Officer which have been examined and accepted by Assessing Officer. The profit rate of the assessee is better at 40% as compared to earlier years of 26%. The system of accounting is same and Assessing Officer has accepted the explanation of the assessee on the same issues in preceding assessment year 2001-02 and 2002-03 under section 143(3) of the Act. There is no change in facts and circumstances noted by us. The expenses have not been doubted by the ld. CIT. The assessee produced complete books of account and material before Assessing Officer at the assessment stage which have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded by the criminal court in this regard could not be brushed aside. Hence, any de novo proceedings at this stage would be futile. The order of revision had to be quashed. The assessment of the petitioner for the assessment year 1992-93 made by order dated May 16,1994, had to be considered complete and final . 19. The Hon'ble Bombay High Court in the case of CIT V Gabriel India Ltd. 203 ITR 108 held as under : Held, that the Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given a detailed explanation in that regard by a letter in writing. All these were part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation assessee. This decision of the Income-tax Officer could not be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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