TMI Blog2021 (7) TMI 1186X X X X Extracts X X X X X X X X Extracts X X X X ..... during immediately succeeding assessment year 2016-17 and the assessee offered to tax the income accrued to it from the said project and also paid all due taxes etc. thereon. Therefore, we are unable to agree with the allegation of Pr. CIT that the orders of the authorities below are erroneous and prejudicial to the interest of the revenue. Pr. CIT is not empowered to invoke revisionary powers u/s 263 of the Act in such a situation, where a view has been taken by Ld. CIT(A) in the similar facts and circumstances of the case, which has been accepted by the department without any further dispute or litigation. As decided in case of Coffeeday Global Ltd. [ 2021 (3) TMI 1030 - KARNATAKA HIGH COURT] the principle of res judicata does not applicable to tax proceedings and principle of consistency must be followed by the revenue authorities which is a mandate of tax jurisprudence. This principle supports the case of the assessee challenging the invocation of revisionary powers u/s. 263 of the Act. Competent authority including ld. Pr. CIT can call and examine the record of any proceedings under the Act and if he consider that any order passed therein by the 'Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the assessee chargeable to tax for A.Y. 2016-17 will be reduced consequently. We modify the impugned order of the Ld. Pr. CIT and direct the A.O. to bring to tax interest income in A.Y. 2015-16 under the head income from other sources and increase the closing work in progress of A.Y. 2015-16 and opening work in progress for A.Y. 2016-17 to that extent and to recalculate tax liability for both the years accordingly within a period of two months. Appeal of the assessee is partly allowed - ITA No. 168/CTK/2020 - - - Dated:- 22-7-2021 - P. M. Jagtap , Vice President And Chandra Mohan Garg , Member ( J ) For the Appellant : J. M. Patnaik, AR For the Respondents : S. M. Keshkamat , CIT , DR ORDER Per Bench The assessee has filed this appeal against the order u/s. 263 of the Income tax Act, 1961, dated 10.6.2020 of the Pr. CIT, Cuttack for the assessment year 2015-16. 2. Although the assessee has raised various grounds of appeal, but the effective issue raised in the grounds of appeal is that the Ld. Pr. CIT is not justified in setting aside the assessment order passed u/s. 143(3) of the Act dated 26.12.2017 exercising his power conferred u/s. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Other current liabilities(B/S,Note- 06 Flat booking advance 23,82,20,000 23,82,40,000 Inventory (B.S. Note-11) Closing work-inprogress 21,87,23,085 16,96,04,756 Income (P L account) Revenue from operation Other income Ni 1,46,79,924l Nil 1,58,07,715 3.1 As is evident from the above, the assessee company has not recognised revenue by following percentage completion method even though substantial amount was received from customers as advance and the stage of completion of the projects is at reasonable stage, since the value of closing work-in-progress is at ₹ 21,87,23,085/-. 3.2 However, in the audited accounts and report for the year ending 31st March, 2015, the auditor, vide his report on other legal and regulatory requirements, in para 2(d) has certified in the following manner: 'In our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under section 133 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P L account. Had that been the case, the profit before tax would have been computed at ₹ 39,40,158/- instead of loss of ₹ 4,91,18,329/- as shown in the P L account. The detail of such computation is given as under: I. 'Income Other Income - ₹ 1,46,79,924/- II. Expenditure Financial Cost : -₹ 96,52,863 Depreciation : Rs .8,18,327 Other Expenses: ₹ 2,68,576 ₹ 1,07,39,766/- Profit before tax I-II) ₹ 39,40,158/- 4.2 Considering the profit before tax at ₹ 39,40,158/- as computed above, total income of the assessee company was required to be computed at ₹ 47,58,485/- instead of Nil, as determined by the A.O. in his assessment order dated 26.12.2017. The computation of total income is given as under: Profit before tax as computed above - ₹ 39,40,158/- Add: Depreciation as per Comp. Act. - ₹ 8,18,327/- ₹ 47,58,485/- Less: Depreciation as per I.T.Act claimed By the assessee company - Rs. Nil Total income from business and profession: ₹ 47,58,485/-. 3. In response to show cause iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable offer income as per the percentage completion method. Further, Pr. CIT was of the view that apart from revenue recognition, there was another issue regarding claim of expenses of ₹ 1,07,39,766/- from other income, i.e. interest of ₹ 1,46,79,924/-. The profit before tax was computed at ₹ 39,40,158/- by deducting the above expenditure from the interest income. The above expenditure was not related to other income. Therefore, the expenses are not allowable expenditure because other income comprises only interest received from two parties to whom assessee had advanced loans. He observed that there was no business activity during the year and the assessee had disclosed only other income of ₹ 1,47,79,924/- being interest on money advanced to other parties and claimed various expenses. With these observations, Ld. Pr. CIT in exercise his power u/s. 263 of the Act, set aside the assessment order dated 8.12.2017 and direct the A.O. to adopt the percentage completion method to determine profit of the project and to add interest income of ₹ 1,46,79,924/- under the head income from other sources and reframe the assessment after providing the assessee due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal. 9. Ld. A.R. submitted that the Legislature, by Finance Act, 2018, has inserted Section 43CB to the Act w.e.f. 2017, which provides the profits and gains arising from a construction contract or a contract for providing services shall be determined on the basis of percentage completion method in accordance with the income computation and disclosure standards notified under sub-section (2) of Section 145 of the Act. Thus, this provision is applicable from assessment year 2017-18 onwards not from assessment year 2015-16. In support of his contention, he filed the order dated 27.7.2010 of ITAT Cuttack in ITA No. 291/CTK/2018 for A.Y. 2013-14 in the case of Hitech Estates Promoters Pvt. Ltd. vs. Pr. CIT. 10. Further, Ld. A.R. submitted that the A.O. having satisfied with the contention/documents and all relevant relating to issue completed the assessment u/s. 143(3) for the period under consideration for A.Y. 2015-16 and, therefore, there was no justification for invoking the provisions of section 263 of the Act merely on the unreasonable and unsustainable basis for a roving and fishing enquiry. 11. Ld. counsel for the assessee drew our attention towards assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 and passing the impugned order on 10.6.2020. 14. Ld. counsel relied on the decision of Hon'ble Karnataka High Court in the case of CIT vs. S.N. Builders and Developers (2021) 431 ITR 241 (Karn.) and submitted that the Institute of Chartered Accountants has issued a clarification that revised Accounting Standard (AS-7) is not applicable to the enterprise undertaking construction activities and the assessee was right in following project completion method of accounting in terms of AS-9 i.e. project completion method. Ld. counsel has also placed reliance on the decision of ITAT Mumbai in the case of Trident Estate Pvt. Ltd. vs. ITO in ITA No. 1797/Mum/2019 A.Y. 2014-15 and other related departmental appeal order dated 27.4.2021 and submitted that in this order, the Tribunal has relied on the decision of Hon'ble Supreme Court in the case of Union of India Ors. vs. Exide Industries Anrs. (Civil Appeal No. 3545/2009 dated 24.4.2020) holding that the case thrusting of percentage completion method upon by the Revenue is not sustainable, hence, computation of gains adopting the said method is not sustainable and the Tribunal has approved the project completion method adopte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc. are also not paid by the assessee in the garb of project completion method and assessee was bound to follow percentage completion method. Therefore, pr. CIT was right in invoking revisionary powers u/s. 263 of the Act. Ld. CIT DR also pointed out that when the assessee is receiving interest income from surplus funds available with him, then same has to be taxed under the heard income from other sources and not as business income and the assessee is not allowed to take a benefit of set off of interest and other expenditure out of such income, which does not form part of business income. Therefore, Pr. CIT was also right in picking up second issue i.e. interest income for invoking revisionary powers against the assessee u/s. 263 of the Act. Ld. CIT DR submitted that on the interest income, the department was entitled to collect tax in assessment year 2015-16, which was received after one year i.e. in the assessment year 2016-17. Therefore, such delay in receiving tax etc by the revenue is also prejudicial to the interest of revenue and, on this score also, Pr. CIT was right in revising the assessment order. He, accordingly, submitted that the order of the Pr. CIT may kindly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said order of Ld. CIT(A). 21. Ld. CIT DR has also not disputed that the only project undertaken by the assessee was completed in subsequent financial year i.e. 2015-16 relevant to assessment year 2016-17 and the assessee has disclosed the entire income accrued to it from the only project and all due taxes etc. have been paid thereon in subsequent assessment year 2016-17. 22. After considering the entire facts and circumstances of the case and material placed on the record i.e. submission of assessee, reply of revenue, and rejoinder of the assessee and on careful consideration of arguments advance by both the parties and materials available on record, we find that this is a peculiar situation where in the immediately preceding assessment year 2014-15, the A.O. made addition disputing the method of accounting adopted by the assessee for revenue recognition, which was project completion method and this addition was deleted by Ld. CIT(A) by passing the first appellate order dated 28.11.2018 (supra) available at pages 142 to 157 of APB, which clearly reveals that the first appellate authority observed and recorded a finding of fact that the assessee's sale was completed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment and directing a fresh assessment. From the above, it is clear that the competent authority including ld. Pr. CIT can call and examine the record of any proceedings under the Act and if he consider that any order passed therein by the 'Assessing Officer' is erroneous and prejudicial to the interest of the revenue then he may, after giving an opportunity of being heard and after making required enquiry can pass order, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. In this sub-section (1), the legislature, to its wisdom, has not used any word that the order of higher authority i.e. CIT(A) can be reversed by invoking provisions of section 263 of the Act and thus, order of the ld. Pr. CIT revising the first appellate authority of Ld. CIT(A) is not sustainable as per the provisions of the Section 263 of the Act. 24. On the second issue, the core contention of Ld. counsel for the assessee is that the amount of interest income has been received from the surplus amount of advance from customers during the period and interest income was earned thereon which was inextricably linked with the projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same amount in the subsequent assessment year due to consequent effect of increase of WIP brought forward and the assessee would be entitled to receive refund accordingly. 26. In the present case, undisputedly, the project was completed during immediately subsequent assessment year 2016-17 and all income including impugned interest income was offered to tax and due taxes etc thereon were also paid by the assessee but as we have observed above the tax on the interest income, which was to be charged in A.Y. 2015-16, was paid by delay of one year. The total effect is that the tax on the interest income which was to be received by the department during A.Y. 2015-16 was actually received in A.Y. 2016-17 i.e. after one year and the payment of tax thereon was made by the assessee after one year. Undisputedly, since assessee is a company and rate of tax etc were the same for both the years, thus, we observe that there is no loss of tax on the interest income except delay of one year in receipt due tax by the Revenue. This factual position was emerged and agreed by both the parties during the arguments. We always follow and approve a well recognized principle of tax jurisprudence that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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