2020 (8) TMI 671 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on revision of financial accounts by company

ITO Ward-15 (4), New Delhi Versus Ritesh Properties And Industries Ltd.

The Tribunal upheld the decision of the CIT(A) and dismissed the Revenue's appeal regarding the revision of financial accounts by the assessee company. ... Revision of financial accounts - cancellation of sales in respect of sales effected during the year under review - revised computation filed by the assessee company claiming a deduction on account of revision of financial accounts on cancellation of sales - procedure for revised audit account - HELD THAT:- 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. AO 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 Affairs. CIT(A) rightly held that the artificial and hypothetical income created by mere general entries which were subsequently reverse 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 treatment given by the CIT(A) by directing the Assessing Officer to allow the claim of ₹ 9,00,00,000/- on account of revision of financial accounts is just and correct. - Decided in favour of assessee. Issues:1. Revision of financial accounts and deduction claimed by the assessee company.2. Interpretation of Circular No. 1/2003 issued by the Ministry of Finance and Company Affairs.3. Compliance with Section 139(5) of the Income Tax Act, 1961 regarding the revision of income tax return.4. Treatment of revised audit accounts by the Assessing Officer and the CIT(A).Analysis:Issue 1: Revision of financial accounts and deduction claimed by the assessee companyThe appeal was filed by the Revenue against the order passed by CIT(A) directing the Assessing Officer to consider the revised computation filed by the assessee company claiming a deduction of Rs. 9,00,00,000 on account of revision of financial accounts. The assessee revised its financial statements due to the cancellation of a project agreement, resulting in a reduction in sales. The company redrafted its financial statements and sought approval from the Board of Directors and the shareholders. The Assessing Officer did not accept the revised accounts and assessed the income based on the original accounts. The CIT(A) allowed the appeal of the assessee, stating that the revision of financial statements was in accordance with the guidelines and the Companies Act, 1956.Issue 2: Interpretation of Circular No. 1/2003The Revenue argued that the CIT(A) wrongly interpreted Circular No. 1/2003 issued by the Ministry of Finance and Company Affairs, allowing the revision of financial statements. The Revenue contended that the Circular was related to revised audit accounts and not the return of income, as per Section 139(5) of the Income Tax Act, 1961. However, the Ld. AR for the assessee maintained that the revision was in line with the Circular and the project agreement was not tenable during the assessment year.Issue 3: Compliance with Section 139(5) of the Income Tax Act, 1961The Revenue argued that the return of income can only be revised within a specified period, as per Section 139(5) of the Income Tax Act, and the assessee should not have revised the audited accounts. The Ld. AR clarified that the revision was of audit accounts, not the return of income, and the revision was done in accordance with the Circular and company procedures.Issue 4: Treatment of revised audit accountsThe Tribunal noted that the assessee revised the audited accounts with proper documentary evidence, and the Assessing Officer did not find any defects in the revised accounts. The Tribunal upheld the CIT(A)'s decision, stating that the revision of financial accounts was justified, as the income was not artificially created and the Revenue was not at a loss. The appeal of the Revenue was dismissed, affirming the decision of the CIT(A).In conclusion, the Tribunal upheld the decision of the CIT(A) and dismissed the appeal of the Revenue, emphasizing the correctness of the revision of financial accounts by the assessee company in compliance with the relevant guidelines and legal provisions.