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TMI Blog2022 (9) TMI 1239X X X X Extracts X X X X X X X X Extracts X X X X ..... challenging the assumption of jurisdiction by the ld. PCIT in invoking the revisionary proceedings and passing the impugned order u/s 263 of the Act, in respect of two issues raised which are (i) in respect of advances received from customers and (ii) in respect of capitalization of project expenses. 3. Before us, Shri Manoj Kataruka, Advocate represented the assessee and Shri Sudipta Guha, CIT(DR) represented the department. 4. Brief facts of the case are that assessee is in the business of development of property. It filed its return of income on 29.10.2017 reporting total income as Nil which was assessed u/s 143(3) of the Act at nil income. Subsequent to the said assessment, ld. PCIT invoked the revisionary proceedings after calling fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel for the assessee submitted in respect of the first issue relating to advance from customers that ld. PCIT has misunderstood and misread the balance sheet of the assessee for the impugned year. He pointed out by referring to the balance sheet placed in the Paper Book at page no. 30 & 48 to demonstrate that advance from customers are reflected in it as the net figure of all the years and not what is received during the year. Ld. Counsel stated that a balance sheet is defined as a statement of assets, liabilities and capital of a business at a particular point in time, giving details of balances, income and expenditure over the preceding period which is a cumulative reflection of the business assets and liabilities. He referred to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mers to the extent of Rs. 20,00,000/- is baseless, incorrect and not borne out of the records. He also stated that such an approach demonstrates non-application of mind by the ld. PCIT, and lack of rudimentary knowledge of accountancy for the purpose of reading a balance sheet. On the second issue relating to project expenses, ld. Counsel admitted that an inadvertent error occurred on the part of the auditor who had reported for exclusive method of accounting in tax audit report in respect of indirect taxes as against the inclusive method followed by the assessee. Ld. Counsel submitted that since there has been no sale during the year, the entire project expenses have been transferred to closing stock/work in progress and duly reported in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed reliance on the order of the ld. PCIT and stated that there should not be any prejudice to the assessee if the matter is examined by the ld. AO in terms of directions given by the ld. PCIT in the impugned order. 10. We have heard the rival contentions and perused the material on record. 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. Further, 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 organizat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 284/- 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. 11. We observe that in the course of proceedings u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the order passed by the AO can be termed as erroneous order. Looking at the second limb as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue, one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. "prejudicial to the interest of the revenue'' has to be read in conjunction with an erroneous order passed by the AO. Their Lordships held that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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