TaxTMI 
TaxTMI 
2022 (8) TMI 24
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....d on the assessment records of the assessee for the year under consideration, viz. A.Y. 2016-17, and observed that one of the reasons for selection was to verify whether the liabilities were genuine or not. The Ld.PCIT in his order u/s 263 observed that, there was a huge balance in the name of Lalitpur Power Generation Co. Ltd at Rs. 632.75 crores which was claimed as advance received by the assessee and duly deducted TDS on the same. The total project cost was Rs.2057.32 crores, out of which 5% (i.e. Rs.103 crores) was to be paid in advance and rest was agreed to be paid at different stages of the project development. On examination of the records it was observed that assessee had shown Rs.632.75 crores as advance and the excess advance beyond 5% under current liabilities which should have taken to the profit and loss account. Secondly, the Ld.PCIT observed that the advance received for the purpose of the projects was diverted and used for illiquid investments in private limited companies which cannot be liquidated. Lastly, Ld. PCIT observed that as per the MOU dated 22.04.2010, the State Government of Uttar Pradesh was initially involved in the project, thus there would be strict....
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....9;Construction Contract' issued by ICAI for revenue recognition from construction contract accounting its revenue based on completion of the physical proportion of the contract work. The assessee further submitted that the amount to the extent not recognized as revenue as per AS-7 is required to be shown as Current Liability and same will be recognized as revenue in subsequent years based on percentage of work completed. The assessee submitted the summary of revenue recognized by the assessee till AY 2016 -17 as follows: AY Turnover as per Audited Accounts excluding taxes O/s Balance of Advance from LPGCL as at year end 2012-13 2,86,62,05,180 1,76,85,76,940 2013-14 17,90,44,551 1,96,52,55,592 2014-15 96,12,83,580 1,95,54,89,812 2015-16 1,87,61,52,547 4,43,07,98,762 2016-17 4,71,50,71,583 6,32,75,20,837 10,59,77,57,441 7. With respect to the advance received beyond 5% shown under Current Liability, the assessee rebutted the contentions of the Ld. PCIT and submitted as under: - "In this regards, we would like to submit that assessee has completed part of the Work till end of relevant AY again....
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....eived from Lalitpur Power Generation Ltd of Rs.632.75 crore is rightly shown as Current Liability- by the assessee." 8. In respect of the investments made in the private limited companies, the assessee submitted that for furtherance of object of the company, it looks forward for similar opportunities in the said arena. For furtherance of the said object and as a strategic move for opening opportunities to increase the business of the company in short to medium term and also keeping the flexibility to exit if the prospect looks discouraging, it had invested in Zero Percent Optionally Convertible Debentures of few companies who are engaged in infrastructure activities including real estate space as under: - S. No. Name of Party Opening as on 01.04.2015 Additional Investment Sale of Investment Closing as on 31.03.2016 1 Bajaj International Realty Pvt. Ltd. Nil 50,00,00,000 Nil 50,00,00,000 2 Abhitech Developers Pvt. Ltd. Nil 10,00,00,000 Nil 10,00,00,000 3 Lambodar Projects Pvt. Ltd. 308,15,53,800 220,63,00,000 Nil 528,78,53,800 9. It further submitted without prejudice that even if it is assumed that there ....
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....s and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent, i.e. if the order of the AO is erroneous but is not prejudicial to the interests of Revenue or if it is not erroneous but is prejudicial to the Revenue, recourse cannot be had to s 263(1) of the Act just to re-examine or verify the issues already examined/veted at the assessment level. It is only when an order is erroneous and prejudicial that the section will be attracted." 12. The submissions as above did not find favour with the Ld. Pr.CIT. According to the Ld. Pr.CIT the assessee has not disputed the fact that the advance received was in excess of 5% specified in original and revised contracts. However, the advance receipt has been shown as current liability in the Balance Sheet. Moreover, the assessee was admittedly following percentage completion method for revenue recognition as specified in AS 7 consistently. It was further noted by the Ld. Pr.CIT that a crucial fact now admitted by assessee is that that increase in project advance was due to an amended contract dated 29.11.2014 whereby there was an increase in scope of work., however AS-7 has not been applied on these enhanc....
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.....75 crores shown in current liabilities claimed as advances received. In fact, the appellant had file various submission and supporting documents during the course of assessment proceeding before LAO with respect to such advances. 3. The Ld. Pr. CIT erred in not appreciating that the appellant has made genuine investments in three entities in the ordinary course of business as strategic move which cannot be treated as diversion of fund or diversion of income. 4. The revision order passed u/s 263 by the Learned Pr. CIT is bad in law and deserve to set aside. 5. The Ld Pr. CIT has grossly erred in directing the LAO to set aside the original order and to frame the assessment order de novo, keeping in mind the observations made under the Order u/s 263 of the Act. 6. Your appellant leave, to add, to amend, to alter or delete any of the foregoing grounds of appeal and further reserves its right to file a detailed submission during hearing of the appeal." 15. That during the course of hearing of the appeal it was submitted by the Ld. Authorised Representative (for short 'A.R') for the assessee that the issue on the basis of which revisional jurisdict....
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.... 29.11.2014. He submitted that Ld. Assessing Officer never doubted the source of advances. In fact he accepted the revenue recognition policy consistently followed by the assessee in accordance with Accounting Standard (AS) 7 'Construction Contracts' for the advances received from LPGCL at regular intervals and which was offered as income on project completion basis in accordance with AS-7. Further, TDS was duly deducted on the advances and also no TDS Credit was claimed in the year since revenue had not been recognised. Further, all the facts and replies were duly submitted to the Assessing Officer during the course of proceedings. Thus, the Assessing Officer has applied his mind while passing the order u/s 143(3) after deliberating over all the facts and replies submitted by the assessee. Therefore, the contention of the Ld.Pr.CIT that the Ld. Assessing Officer has failed to examine the income embedded in the project advances received from LPGCL and that his order is erroneous in so far as it is prejudicial to the interest of the revenue is baseless and not sustainable. The Ld. A.R heavily relied upon the following judicial precedents in support of his submissions: - (i)....
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.... enquiries and also not applied his mind with respect to revenue recognition in respect of the advances received by the assessee and with respect to and utilisation of these advances. On a careful consideration of the matter and as is evident from the face of record, the Assessing Officer has deliberated upon the facts and has examined the replies and the submissions made by the assessee during the course of the proceedings and the said fact has neither been disputed by the Pr.CIT nor controverted by the Ld.DR before us. The language used by the legislature in section 263 is to the effect that the CIT may interfere if he considers that the order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the revenue. It is quite clear that two conditions must co-exist in order to give jurisdiction to the CIT to interfere in revision. The order of the Assessing Officer in question must not only be erroneous but also it must be prejudicial to the interest of the revenue. In other words, merely because the assessment order is erroneous, the CIT cannot interfere. Each and every erroneous order cannot be the subject matter of revision because the second ....
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.... the assessment order passed by the Assessing Officer as erroneous and prejudicial to the interest of the revenue. 20. In this regard, we may gainfully rely upon the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co Ltd vs CIT (2000) 243 ITR 83. The Hon'ble Supreme Court in the said case held that if order of the Assessing Officer is erroneous, but does not prejudice the interest of the revenue or if it is not erroneous but is prejudicial to the interest of the revenue, recourse cannot be taken u/s 263 of the Income-tax Act, 1961. The relevant portion of the order is extracted below: - "A bare reading of section 263(1) makes it clear that the pre-requisite to exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent - if the order of the ITO is erroneous but is not prejudicial to the revenue or if it is not errone....
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....n'ble High Courts in the following cases: - (i). "CIT v. Late Shri Vijay Kumar Koganti" (2020) 4 NYPCTR 606 (Madras HC) (ii). "Commissioner of Income Tax Vs. Development Credit Bank Ltd" (2010) 323 ITR 206 (Bombay HC) 23. We are aware of the fact that strictly speaking resjudicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasoning's, in the absence of any material change justifying the Revenue to take a different view of the matter- and if there was not change it was in support of the assessee- we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-Tax in the earlier proceedings, a different and contradictory stand should have been taken. In this regard, we may rely upon the decisi....
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....cision of Radhasoami Satsang (supra) has observed as under :-- "20. The decisions cited have uniformly held that res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same, no authority whether quasi-judicial or judicial can generally be permitted to take a different view. This mandate is subject only to the usual ITA No. 3738/Mum/2019 Assessment year: 2014-15 gateways of distinguishing the earlier decision of where the earlier decision is per incuriam. However, these a....
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....an object the diversion of funds other than intended purpose. The revenue has no role to play how the funds are being utilized by the assessee, it can only analyse the method of accounting adopted consistently and offered the proper income for taxation. Beyond that they don't have any role to play and they are not expected to enter the shoes of the assessee how their affairs have to be carried out. In the given case, the Assessing Officer had verified the method of accounting in detail and the assessment was also selected (limited scrutiny- to verify contract receipt and current liabilities are genuine) for specifically to verify the recognition of revenue adopted by the assessee. It is fact on record that assessee is following recognised method accounting standard, AS-7 published by ICAI and Assessing Officer has not found any mistake in the revenue recognition and moreover, the revenue can be recognised only on the agreement of both parties by critically evaluating the progress of the project, it merely cannot be based on the receipt of funds. Further it is the other party who makes the payment, who has not objected or had not made any claim against the misuse of the advance of f....