TaxTMI 
TaxTMI 
2015 (11) TMI 994
X X X X Extracts X X X X
X X X X Extracts X X X X
....e perusal of the balance sheet as on 31.3.2007 shows that the assessee has shown an amount of Rs. 11,98,08,876 as deferred revenue income by changing its method of accounting said to be as per Accounting Standard-7 which has resulted in lowering of profits by the same amount. The CIT also observed that the Assessing Officer has accepted the assessee's claim in this regard without making any inquiry or verification as to whether the method was bonafide and was consistently followed in future, and whether it was permitted under the provisions of the Act. The CIT also alleged that Assessing Officer has not examined as to whether any expenditure corresponding to the deferred revenue income was debited/claimed by the assessee and whether these were allowable in view of the fact that corresponding income is not taken into account and thus to that extent the impugned assessment order is prima facie prejudicial to the interest of revenue. With said observations, the CIT proceeded to invoke revisionsal powers available to him u/s 263 of the Act. The CIT finally passed impugned order dated 27.3.12 by holding that the order of the Assessing Officer is erroneous and prejudicial to the inte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ced on record. At the outset, learned counsel of the assessee summarized the brief facts of the case and reiterated assessee's submissions/arguments dated 24.8.2015 which read as under: - "(A) The order of Assessment The assessment was framed u/s 143(3) by the learned Additional CIT (the 'AO') after issuing statutory notices u/s 143(2) & 142(1) and obtaining requisite details and written submissions from time to time. The following is extracted from the assessment order. "In response to the notices, Sri Vijay Bansal who is the authorized representative of the assessee appeared on various dates and filed the necessary details. The case was discussed with him. Written submissions filed along with supporting documents were perused and placed on record." B) Disclosure in the audited Accounts (1) (b)Changes in Accounting Policies disclosing the switch over from AS-9 to AS-7 with an income impact of Rs. 119,808,876/- (page 24 of the PB) (2) Basis of Revenue Recognition at (e) (page 25 of the PB) (3) Schedule 13: Current Liabilities reflecting deferred revenues to the extent of Rs. 119,808,876/- (page 22 of the PB)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....proper" verification is un sustainable". 2. CIT vs Vodafone Essar South Ltd. 212 Taxman 184 (Delhi) Paras 10 & 11 at Pages 44 & 45 of the PB) 10. This Court is conscious that an earlier bench of Court in CIT vs. Sunbeam Auto Ltd., (2011) 332 ITR 167, had held that if there is some enquiry by the A.O. in the original proceedings even if inadequate that cannot clothe the Commissioner with jurisdiction under Section 263 merely because he can form another opinion. It was emphasized here that the notice and questionnaire given to the assessee which were duly replied, were evidence of full and due enquiry about this expenditure. After satisfying himself that they were in fact revenue expenditure, the assessee's claim was upheld under Section 37. The Court in Sunbeam Auto (supra) held as follows: "Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to orders under Section 263 of the Act, merely because has a different opinion in the matter. It is o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ial to the interests of the Revenue and it was for the Commissioner to point out as to what error was committed by the Income-tax Officer in having reached to his conclusion and in the absence of which proceedings under section 263 of the Act is not warranted." "As held by this court in the case of Goyal Private Family Specific Trust [1988] 171 ITR 698, we are of the considered opinion that merely because the Income-tax Officer had not written lengthy order it would not establish that the assessment order passed under section 143(3)/148 of the Act is erroneous and prejudicial to the interests of the Revenue without bringing on record specific instances, which in the present case, the Commissioner of Incometax has failed to do." 5. CIT vs Development Credit Bank Ltd. 323 ITR 206 (Bombay) (Page 34 of the PB) "We have indicated this only as and by way of an illustration in aid of our finding that there was no basis or justification for the Commissioner of Income Tax to invoke the provisions of Section 263. In the order of assessment, the Assessing Officer had after making an enquiry and eliciting a response from the assessee come to the conclusion that the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aid provisions. As pointed out in Kelvinator of India (supra), when a regular assessment is made under Section 143(3), a presumption can be raised that the order has been passed upon an application of mind. No doubt, this presumption is rebuttable, but there must be some material to indicate that the Assessing Officer had not applied his mind." F) Summary of the Submissions Restricting the submissions to the question of application of mind and due verification on the part of the AO the following legal propositions emerge from the judgements relied upon. (1) A matter considered after due enquiry on the part of the AO cannot be the subject matter of proceedings u/s 263 unless the view expressed is unsustainable in law. (2) When a regular assessment is made u/s 143(3) a presumption can be raised that the order has been passed upon an application of mind. No doubt this presumption is rebuttable, but there must be some material to indicate that the AO had not applied his mind. (3) Where details and evidence had been filed by the assessee and assessment framed thereafter u/s 143(3) the fact that in the assessment order there is no mention of a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....per directions of the Institute of Chartered Accountants of India (ICAI) and as per section 211(3)(a) of the Companies Act, it has been mandated that every company has to prepare its balance sheet and profit and loss account in accordance with the Accounting Standard framed by the ICAI. Furthermore, ld. Counsel of the assessee also pointed out that as per section 145(4) of the Income Tax Act, it has been radically recast w.e.f. 1.4.1997 so as to promote only cash or mercantile system of accounting as also to enforce adherence to the Accounting Standard notified by the central government. 4. Elaborating the facts and circumstances of the present case, the learned counsel of the assessee submitted that as per Schedule XIII to the statement of accounts of the assessee, an amount of Rs. 11.98 crore was shown under the head of current liability under deferred revenues (PB page no. 22) and in the notes to financial statements Item II(b), it is clear that the reason for the changeover from item AS-9 to AS-7 and item 2(e) deals with revenue recognition (pages 24 & 25 of the assessee's paper book). Learned counsel of the assessee vehemently contended that the Assessing Officer inquir....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the assessee also pointed out that the method of accounting approved by ICAI having been accepted by the Assessing Officer after due verification and examination cannot be rejected at the threshold in the revisionary proceedings u/s 263 of the Act. Learned counsel of the assessee has also drawn our attention towards assessee's Paper Book page no. 11 wherein a chart showing taxable income and tax effect due to change of accounting policy and standards from Assessment Year 2008-09 to 2011-12 has been tabulated and submitted that adjustment of income due to Accounting Standard-7 was beneficial to the assessee in the first year of change but in the subsequent Assessment Year the assessee has to pay higher amount of tax surcharge and EC by adopting Accounting Standard-7 instead of Accounting Standard-9, therefore, the order of the Assessing Officer cannot be held as erroneous and prejudicial to the interest of revenue. 6. Learned counsel of the assessee further elaborated that it is for the Commissioner to exercise jurisdiction u/s 263 of the Act to show that the order sought to be revised is erroneous and prejudicial to the interest of revenue and both the conditions must exis....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Act is not legal and correct which is not only bad in law but void ab initio and therefore, the impugned order may kindly be quashed. 8. Ld. DR supported the action of the CIT and pointed out that the Assessing Officer did not apply his mind to the radical change of Accounting Standard by the assessee and the Assessing Officer did not examine and verify the issue of deferred revenue income adopted by the assessee by way of adopting Accounting Standard-7 from 1.4.06. Ld. DR vehemently contended that the Assessing Officer has accepted the assessee's claim in this regard without making any inquiry as to whether change was bonafide and was also consistently followed for the future Assessment Years. 9. Ld. DR also pointed out that the Assessing Officer has also not examined as to whether any expenditure corresponding to the deferred revenue income was debited and claimed by the assessee and whether these were allowable in view of the fact that corresponding income is not taken into account. Ld. DR lastly submitted that the Assessing Officer has not verified that whether the change in Accounting Standard from AS-9 to AS-7 was permitted under the provisions of the Act an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n we analyse the facts and circumstances of the first allegation, we note that as per order sheet entry dated 20.10.09, the Assessing Officer asked the assessee to explain the deferred revenue items and to give submissions as to how they are taken into the next year. The assessee filed two replies in this regard; first on 20.10.09 available at page 1 of assessee's Paper Book and second on 30.10.09 which is also available at pages 2 to 5 of assessee's Paper Book wherein the assessee has also submitted detailed contract wise working pertaining to the deferred revenue. However, from a careful reading of the impugned assessment order, we note that there is no detailed deliberation on this issue and there is a bare mention of presence of assessee's representative on various dates and it has been also noted that the AR filed necessary details and after discussion with him, written submissions filed along with supporting documents were perused and placed on record and the Assessing Officer accepted the returned income of the assessee. 14. In this situation, it is clear that the Assessing Officer made inquiries on the issue of deferred revenue which were replied by the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce with the changed method of accounting i.e. AS-7. In view of these submissions, the ld. DR could not show us that the assessee did not follow AS-7 in the subsequent Assessment Years and in view of the documents submitted by the assessee pertaining to subsequent Assessment Years i.e. annual accounts and assessment orders for Assessment Year 2008-09, 2009-10, it is amply clear that the assessee consistently followed AS-7 for recognition of revenue which was changed w.e.f. 1.4.2006. 16. It is relevant to mention that the assessment proceedings were completed u/s 143(3) of the Act on 15.12.09 and the CIT issued impugned notice u/s 263 of the Act on 12.3.12 and impugned order was passed on 27.3.12 and entire proceedings of issuance of notice and passing order were completed within 15 days time. We further observe that in response to the show cause notice u/s 263 of the Act, the assessee filed detailed written submissions spread over 5 pages on 26.3.12 along with a Paper Book and the CIT has only considered arguments of the learned counsel of the assessee in regard to assessee's letters dated 20.10.09 and 30.10.09 and after reproducing the contents of these letters, the CIT jump....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Act, then the CIT could have noticed that the assessee is following AS-7 not only in the Assessment Year under consideration viz. 2007-08, but the same was consistently followed in the subsequent Assessment Years for recognising revenue from Engineering Business Segment wherein the assessee company has followed percentage completion method as prescribed under AS-7 issued by ICAI for the accounting of contractors. At the cost of repetition, we may also point out that the assessee furnished letters dated 20.10.09 and 30.10.09 showing the cause of change of method of recognition of deferred revenue as per AS-7 instead of AS-9 along with detailed contract wise working which was considered by the Assessing Officer while passing the impugned assessment order. It is also pertinent to mention that there was a specific query from the Assessing Officer during assessment proceedings vide order sheet entry dated 20.10.09 and the same was replied by the assessee by filing two letters viz. first on 20.10.09 and 30.10.09 along with relevant details. 17. As we have already noted that the assessee filed tabulation chart showing taxable income and tax effect due to change of accounting policy and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tailed submission by the assessee. At this juncture, it is relevant to mention that the CIT has passed impugned order in a hasty manner without any deliberation on the written submissions submitted by Paper Book of the assessee filed in response to the show cause notice u/s 263 of the Act and he jumped to the conclusion without any adjudication on the submission and explanation of the assessee, therefore, we are inclined to hold that the impugned order has been passed by the CIT without following the well-accepted principles of adjudication and without application of mind. Our view also finds support from the judgment of Hon'ble High Court in the case of CIT vs Development Credit Bank Ltd. (supra). 19. Lastly, we also observe that the CIT has directed the Assessing Officer to make a fresh assessment order on the aspect of deferred revenue by holding the assessment order as erroneous and prejudicial to the interest of revenue on this aspect but the CIT has not drawn any conclusion that the assessment order passed by the Assessing Officer is not in accordance with the provisions of the Act and thus, the same is unsustainable in law. The CIT has not made any inquiry in regard t....