TaxTMI 
TaxTMI 
2019 (8) TMI 980
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....has changed the income recognition policy related to fees from Property Service Group from recognizing the entire fees from Property Service Group from recognizing the entire fees on rendering of service to recognizing the fees to the extent of invoice raised on customer, thereby non account ing of income of Rs. 13,16,72,984/-. 2. The appellant craves leave to add, amend, vary omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal. 3. The appellant prays that the order of CIT(A) on the above ground be set - aside and that of the assessing officer be restored." On the other hand, the assessee as a cross-objector has objected to the order of the CIT(A) on the following grounds: "1. The Commissioner of Income-tax (Appeals) - 15, Mumbai (herein referred to as 'CIT(A)') erred in upholding the action of the Deputy Commissioner of Income-tax-14(2)(1), Mumbai, (herein after referred to as 'AO') of re-opening the assessment under section 147 of the Income-tax Act, 1961 ("the Act"), thereby not appreciating the facts in the case of the Respondents. 2. The CIT(A) ought to have held....
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....lients. However, if the purchase of the flat would thereafter not materialise or the deal between the prospective flat purchaser and its builder clients was terminated, no fees on account of PSG in respect of the said transaction would be payable to the assessee by its builder clients. It was submitted by the assessee that as there would be uncertainties on completion of the contracts due to processes such as legal and technical due diligence including verification of property title deeds, government land records, project plan approvals etc, therefore, receipt of the PSG fees would remain dependant on them. It was the contention of the assessee that for the delay on the part of the buyer/seller of the property, the transaction assumed to have been concluded by the assessee would in majority of cases be subsequently cancelled/reversed. Based on the aforesaid policy the fees from PSG which would have been accounted for by the assessee company in advance in the year in which the flats were booked, on the subsequent non-materialising or termination of the contracts would no more be receivable and had to be subsequently written off at a large scale by the assessee. It was submitted by t....
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....der clients, instead of on completion of rendering of services. It was noticed by the A.O that a perusal of the 'notes to accounts' of the assesses financial statements for the year under consideration revealed that it had changed the income recognition policy relating to fees from PSG from recognising the entire fees on rendering of service i.e booking of flats by the prospective buyers with its builder clients to recognising the fees to the extent of invoice raised on its builders clients, as a result whereof income of Rs. 13,16,72,984/- had remained unaccounted in its books of accounts. On the basis of the aforesaid observations the A.O was of the view that as the assessee had rendered its services and income had accrued to it, therefore, the unbilled revenue of Rs. 13,16,72,984/- was also required to be included in its taxable income for the year under consideration i.e. A.Y. 2009-10. In the backdrop of his aforesaid deliberations the A.O made an addition of Rs. 13,16,72,984/- and assessed the total income of the assessee at Rs. 167,23,73,190/-. 6. Aggrieved, the assessee carried the matter in appeal before the CIT(A). Insofar the validity of the reopening of the concluded a....
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.... that was consistently followed in the subsequent years. It was further submitted by the assessee that the A.O while framing the assessments in the subsequent years had accepted the said basis of accounting of fees from PSG without carrying out any adjustments. The CIT(A) after deliberating on the contentions advanced by the assessee in context of the issue under consideration was persuaded to subscribe to the same. It was observed by him that the assessee prior to the previous year relevant to A.Y 2009-10 recognised fees from PSG on rendering of services i.e. on booking of flats by the prospective flat purchasers with their builder clients, instead of recognising the same at the time of completion of the rendering of services. It was noticed by the CIT(A) that in a situation where the purchase of the flats would not materialise or stood terminated, then no fees on account of PSG would be payable to the assessee by its builder clients. The CIT(A) deliberating on the reasons leading to the change in the basis of accounting of the fees from PSG by the assessee, observed that as per the earlier method where such fees was accounted by the assessee company in advance in the year in whic....
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..../s Neon Solutions Pvt. ltd. (ITA No. 2251 & 2360 of 2013, dated 05.04.2016). On the basis of his aforesaid observations, it was observed by the CIT(A) that the change in the basis of revenue recognition by the assessee by considering only those income which had reasonable certainty of being collected was in conformity with the guidance notes of AS-9 issued by the Institute of Chartered Accountant of India. It was further observed by him that though the assessee was following mercantile method of accounting, the income not accounted for as per the change in the revenue recognition policy could not be said to have accrued to it. The CIT(A) observed that as the change in the recognition of PSG income was bonafide and had thereafter consistently been followed by the assessee in the subsequent years, therefore, the A.O had erred in making an addition of Rs. 13,16,72,984/- on account of change in basis of revenue recognition. In the backdrop of his aforesaid deliberations the CIT(A) deleted an addition of Rs. 13,16,72,984/- made by the A.O and partly allowed the appeal. 8. As observed by us hereinabove, the revenue being aggrieved with the order of the CIT(A) has carried the matter in....
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....notes to accounts', it was categorically stated that the assessee had changed the income recognition policy related to fees from PSG, as per which the fees was now recognised to the extent of invoice raised on the customers, as against the earlier method of recognising the entire fees on rendering of services. The ld. A.R took us through the relevant part of the 'notes to accounts' and submitted that it was specifically disclosed by the assessee that in case it would have continued to use the earlier basis of recognising fees from PSG on rendering of service, then the income in the profit and loss account before taxation in the year under consideration would have been higher by Rs. 13,16,72,984/-. The ld. A.R submitted that the reopening of an assessment on an issue already considered during the course of the assessment proceedings is not permissible under the eyes of law, specifically when the same facts were there before the A.O and he had considered the said issue while framing the assessment. In support of her aforesaid contention the ld. A.R relied on the judgment of the Hon'ble High Court of Bombay in the assesses own case for A.Y. 2006-07 i.e. ICICI Home Finance Company Ltd.....
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....d solely on objections raised by the audit party. It was submitted by the ld. A.R that as the case of the assessee was reopened in the absence of any application of mind by the A.O, therefore, the reassessment proceedings were liable to be struck down on the said count itself. In order to buttress her aforesaid contention, it was submitted by the ld. A.R that as the A.O had during the course of the original assessment proceedings raised queries in respect of the variance in the amount of income disclosed in the financial statements as against that disclosed in the TDS certificates, therefore, it could safely be concluded that he had deliberated on the change in accounting for the PSG fees by the assessee during the year under consideration. In fact, as claimed by the ld. A.R the assessee had vide its letter dated 02.08.2011 explained and demonstrated before the A.O the change in the income recognition policy as was stated in the paragraphs of the 'notes to accounts' and also reconciled its income as per the financials and the TDS certificates on the basis of which credit was claimed in the return of income. Apart there from, it was submitted by the ld. A.R that pursuant to the audi....
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.... the Hon'ble Supreme Court in the case of CIT Vs. P.V.S. Beedies (P) Ltd. (1999) 237 ITR 13 (SC). Insofar the contention of the counsel for the assessee that the reopening of the concluded assessment on the basis of a 'change of opinion' was not permissible was concerned, it was submitted by the ld. D.R that no query was raised by the A.O in the course of the original assessment proceedings in respect of the change in the method of recognising fees from PSG by the assessee during the year under consideration was concerned. It was thus the contention of the ld. D.R that now when the A.O had not deliberated upon and formed any opinion in respect of the issue on the basis of which the case of the assessee was reopened, therefore, it was incorrect on the part of the ld. A.R to state that there was any 'change of opinion' on the basis of which the reopening of the case had been carried out. It was submitted by the ld. D.R that the reliance placed by the counsel for the assessee on the order of the Hon'ble High Court of Bombay in the case of ICICI Home Finance Company Ltd. Vs. ACIT, 10(1) (2012) 25 taxman.com 241 (Bom) was distinguishable on facts. The ld. D.R submitted that in the afore....
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....that the A.O had reopened the concluded assessment only on the basis of the 'audit objection' without any independent application of mind on his part. 12. We shall first advert to the contention advanced by the ld. A.R that the concluded assessment of the assessee had been reopened by the A.O on the basis of a 'change of opinion'. We find from a perusal of the assessment order passed by the A.O under Sec. 143(3), dated 16.12.2011 that the issue as regards the change in the method of recognising the fees from PSG by the assessee during the year under consideration finds no mention in the same. Apart there from, there is neither any material available on our record, nor any such material has been placed before us by the ld. A.R in the course of hearing of the appeal, which could persuade us to conclude that the issue as regards the change in the method of recognising the PSG fees by the assessee during the year was either queried by the A.O in the course of the assessment proceedings or any such material was placed on his record by the assessee in the course of such proceedings. We though are of the considered view that in case the A.O would had deliberated on the issue under cons....
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.... relevant assessment year, the assessee cannot object to the reopening on the ground that as the 'books of accounts' or other evidence from which material evidence could with due diligence have been discovered by the A.O was produced before him during the course of the original assessment proceedings, therefore, a disclosure of the material facts was made before him. In sum and substance, a mere fact that the assessee had disclosed the change in the income recognition policy related to fees from PSG in the 'notes to accounts', the same cannot be construed as inferring formation of an opinion on the said aspect by the A.O in the course of the said original assessment proceedings. We find that as observed by the Hon'ble Supreme Court in the case of ITO Vs. Techspan India Pvt. ltd. & Anr. (2018) 404 ITR 10 (SC), before interfering with the proposed reopening of the assessment on the ground that the same is based only on a 'change of opinion', it has to be verified whether the assessment earlier made had either expressly or by necessary implication expressed an opinion on a matter which is the basis of the alleged escapement of income that was taxable. It was observed by the Hon'ble Ap....
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.... therefore, there could be no reasonable basis for the A.O to have reopened the concluded assessment. 13. We have deliberated at length on the issue under consideration in light of the settled position of law and are unable to persuade ourselves to accept the contention of the assessee that the reopening of the concluded assessment in its case was based on a 'change of opinion'. In the backdrop of our aforesaid observations, we are of the considered view that as the issue pertaining to change in the method of recognising of fees from PSG by the assessee during the year had not been deliberated upon by the A.O in the course of the original assessment proceedings, therefore, there was no occasion for him to have formed an 'opinion' in respect of the said issue in the course of the said proceedings, pursuant whereto the claim of the assessee that its case was reopened on the basis of a 'change of opinion' in context of the issue under consideration, does not merit acceptance and is therefore rejected. 14. We shall now advert to the challenge thrown by the assessee to the validity of the reassessment proceedings on the ground that the A.O has reopened the concluded assessment on ....
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....ependent application of mind on the information so received before so doing. In this regard it would be relevant to look into the 'audit objection' as was received by the A.O from the audit authority, which reads as under: "As per provisions of Section 28(i) of the Income Tax Act, 1961 any income of any business or profession which was carried on by the assessee at anytime during the Previous year shall be chargeable to income tax under the head 'Profit and gains of Business or profession'. In the instant case assessment was complete on 16/12/2011 by computing taxable income of Rs. 342,81,87,230. It was seen from the Notes to accounts (No.l(j)) that during the previous year relevant to A.Y.2009- 10 the company had changed the income recognition policy related to fees from Property Service Group from recognizing, the entire fees on rendering of service to recognizing the fees to the extent of invoice raised on customer, thereby non accounting of income of Rs. 13,16,72.984. As the assessee had rendered its services and income had accrued to it, the unbilled revenue was also required to be included in the taxable income of the previous year. Failure to add b....
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....press upon us that the reopening of a case on the basis of factual information given by internal audit party was valid in law is concerned, we find that the said judgment is distinguishable on facts. In the said judgment the Hon'ble Apex Court had observed that the factual information provided by the audit party was to be treated as information within the meaning of Sec.147(b) and reopening on the said basis is permissible under law. We may herein observe that the issue before us is not as to whether the information received by the A.O from the audit party is to be treated as information within the meaning of Sec.147(b) or not, but the issue herein involved is as to whether the A.O without applying his independent mind to the information so received from the audit party can reopen a concluded assessment on the basis of the borrowed satisfaction of the 'audit party', or not. As observed by us at length hereinabove, now when there is no independent application of mind by the A.O on the information received from the audit party, therefore, it can safely be concluded that in the absence of a bonafide belief arrived at by the A.O on the basis of information intimated to him by the au....
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....from PSG on rendering of services i.e. on booking of flats by the prospective flat purchasers with their clients i.e. the builders, instead of on completion of the rendering of services. In a situation where the purchase of flat would not materialise or stood terminated, no PSG fee pertaining to the said contract would be receivable by the assessee from its builder client. On the basis of the aforesaid earlier method of recognising the fees from PSG in advance by the assessee in the year in which the flats were booked, if property transaction between the prospective flat purchaser and the builder would thereafter not materialise and stand cancelled/reversed, then the assessee who would had already accounted the PSG fee pertaining to the said transaction in its 'books of accounts', had to 'write off' the said income to the extent the same would not be receivable in full or in part. In the backdrop of the aforesaid bottlenecks in recognising the correct income, the assessee brought the same in conformity with AS-9 issued by the Institute of Chartered Accountants of India, as per which the revenue was to be recognized at the stage of rendering of services, subject to the condition ....
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....ration onwards had brought the same in conformity with AS-9, which had resulted into facilitating the accounting of its true income during a year. In our considered view now when the change in the method of accounting by the assessee is a bonafide change, which thereafter had been consistently followed by it in the subsequent years, therefore, no addition could have been made by the A.O on account of such change in the method of recognizing the fees from PSG by the assessee. Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Bombay in the case of CIT Vs. Modern Terry Towers Ltd. (2014) 43 Taxmann.com 466 (Bom), wherein the Hon'ble High Court had reaffirmed its earlier view taken in the case of Melmould Corporation Vs. CIT (1993) 202 ITR 789 (Bom), wherein it was held as under : "Whenever there is a change in the method of valuation, there in bound to be sum distortion in calculating the profit in the year in which change takes place. But if change is brought about bonafide and is accordance with the normally accepted accounting practice, there is no reason why such a change should not be permitted." Apart there from, we find that as observed by....