TaxTMI 
TaxTMI 
2025 (5) TMI 1714
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....s. 143(3) is erroneous and prejudicial to the interest of revenue, it is not open to set-aside the same for re-verification and as such direction of PCIT, Delhi-1 are highly arbitrary and contrary to purpose, object and scope of sec. 263 of the Act. 2(i) That various issues regarding principles of revenue recognition raised by the PCIT, Delhi-1 in the notice u/s. 263 have already been examined by the Assessing Officer during assessment proceedings u/s. 143(3) and as such there is no case for treating the assessment order as erroneous and prejudicial to the interest of revenue. (ii) That when appeal of the assessee against the assessment order u/s 143(3) is pending before CIT(A)/NFAC, the CIT is not competent to issue directions to revise the order on that point on the ground that a particular aspect of that point was not dealt with by the Assessing Officer. 3(i) That the direction by PCIT to compute the income from the area "Sold out but the Possession Letter (PL) not issued" and "Not Sold" as elaborated and directed at point Nos. 1 to 7 on page 59-60 of order u/s 263 for all the 20 projects (wrongly mentioned as 11 projects) in the chart scanned as Annexure A at page 57 of o....
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....oresaid write off of Rs. 336.47 crores in the computation of income of the immediately preceding year, i.e. AY 2018-19. 7. That the direction of PCIT to examine the taxability of transferring of rights in the land at Ranga Reddy district Telangana for Rs. 88.50 crores during the year in lieu of gross revenue from the project is not valid, as the same represents closing balance of inventory in respect of area under development agreement forming part of audited balance sheet under note 10 Other Assets and the appellant has already offered to tax the corresponding revenue in relation to such inventory of Rs. 88.50 cores in the subsequent years in terms of the development agreement and accordingly, the assessment order cannot be regarded as erroneous or prejudicial to interest of revenue. 8. That the direction by PCIT to verify and examine the issue of correctness of the exceptional gains of Rs. 261.80 crores and exceptional loss of Rs. 495.10 crores is not justified as the assessee has duly offered for taxation Rs. 261.80 Crores and out of exceptional loss of Rs. 495.10 Crores, the assessee has already disallowed Rs. 194.40 Crore on account of provision for loans (including intere....
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....sions alongwith relevant evidences. It is relevant that all the notices were issued through e-filing portal and the assessee had also filed the submissions alongwith requisite details through e-filing portal. Thereafter, the assessment was completed u/s 143(3) of the Act vide order dated 30.09.2021 by ACIT, Circle-7(1), Delhi at a total income of INR 127,28,92,277/- by making following additions/disallowances:- (i) Disallowance on account of impact of IND AS 115 as on 0.104.2018 on Completed Contract Method ("CCM") at INR 12,20,21,36,120/- (ii) Disallowance of brokerage and commission of INR 2,49,05,085/- (iii) Disallowance to school running expenses of INR 1,07,29,166/- and (iv) Disallowance u/s 14A of INR 27,96,33,237/-. 4. Against such order, an appeal was filed by assessee which is still pending for adjudication. In the meantime, Ld. PCIT observed that the order so passed u/s 143(3) is erroneous and pre-judicial to the interest of the Revenue and issued a show cause notice u/s 263(1) of the Act on 20.11.2023 wherein various issues were raised with respect to assessment order passed. The said notice dated 20.11.2023 fixing the date of hearing on 01.12.2023 is available ....
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....Regarding current liabilities as shown in the balance sheet, AO is directed to examine the correctness of the same. 8. Regarding issue related to land parcel at Shivaji Marg, New Delhi which has been sold by the company SPV for 3700 crores, the tax implication of this transaction in view of the fact that the registration of the property was got done at a higher value, is set aside for verification and enquiry by the AO." 6. Against such order passed u/s 263 giving these directions, the assessee is in appeal before the Tribunal by taking grounds of appeal as reproduced herein above. 7. With these facts, the appeal of the assessee is decided as under:- 8. Grounds Nos.1, 2 & 11 of the appeal are in respect to the legality of order passed u/s 263 of the Act as according to assessee, the assessment order was neither erroneous nor pre-judicial to the interest of revenue. 8.1. Further the assessee has separately challenged the order u/s 263 on merits wherein directions given by Ld. PCIT are agitated in Ground No.3 to 10 therefore, we first adjudicated these grounds of appeal before dwelling upon legal issues taken by the assessee in Ground Nos. 1, 2 & 11. 8.2. Coming to various iss....
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....of its treatment in books. Any disputed amount against this category may also be brought to tax. 4. The nomenclatures like 'PL not issued', or 'Not Sold' are alien to the Percentage of Completion Method, since the entire project has been completed. 5. Since the basic principle of Income Tax Law is to recognise the Real Income and not the Notional Income, the revenue received for the leftover area of the entire project has to be computed in accordance with actual receipts of assessee against this leftover area. 6. The deemed rent on the unsold inventory of assessee would be brought to tax as per the provisions of the Income Tax Act as Completion Certificate has already been received. 7. As and when the Unsold Area is actually sold by assessee, the gross receipts as such will be brought to tax as the cost for the same would have been already considered. Here it may be clarified that 'actually sold would include any type of receipts in cash or kind by whatever name called. The above 1 to 7 steps for the recognition of revenue in the case of assessee are based on principles of recognition of Revenue as per POCM and it taxes the Real Income only. Also, ther....
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....PCIT fell into grave error in recommending personal and subjective criteria for recognition revenue under POCM which are wholly contrary to IndAS. In fact, the Ind AS are drafted by expert National Advisory Committee on Accounting Standards constituted by Central Government under supervision of Accounting Standards Board (ICAI), the PCIT was not justified in tinkering with the method. It is relevant to state that the authority of accounting standards having been approved and accepted by the Hon'ble Supreme Court in the case of CIT v. Virtual Soft Systems Ltd. [2018] 404 ITR 409 (SC), the direction of PCIT is perverse and unjustified. In fact, Apex Court in the case of Bilahari Investment 299 ITR 1 has duly examined the applicability of POCM and CCM method and confirmed both the methods. Even otherwise, the whole exercise is revenue neutral as the direction of PCIT would merely result in preponement of the revenue from incomplete project which eventually has been recognized in subsequent years. Further, the tax rate remaining the same, no prejudice is caused to the interest of the revenue and as such the exercise of power u/s 263 is unwarranted and without any basis. Furth....
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....e assessee which are available at pages 1038 to 1060 of the Paper Book. In the instant case, the issue of Revenue recognition by following POCM as against CCM adopted, has already been challenged before the Ld. CIT(A) and therefore, it cannot be said that this issue has not been considered/examined. On the other hand, the AO has applied his mind and reaches to the conclusion therefore, the scope of Ld. PCIT u/s 263 for making further enquiries is nothing but change of opinion which is not permissible u/s 263 of the Act. The Hon'ble Supreme Court in the case of PCIT vs Sriji Prints (2021) 130 taxmann.com 294 (SC) has held that once the AO has taken a plausible view, the same cannot be considered as erroneous and pre-judicial to the interest of the Revenue and therefore, the Hon'ble Supreme Court has dismissed the SLP filed by the Revenue against the order of Hon'ble Gujarat High Court filed by the Revenue. 15.1. It is further seen that this issue has been decided by the Co-ordinate Bench in the case of group company namely, DLF Assets Ltd. in ITA No.2355/Del/2024 wherein vide order dated 18.09.2024, the Co-ordinate Bench in para 4 & 5 of the order has held that the revisional juris....
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....cognition of income. Reliance was also placed by the assessee on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Bilahari Investments Pvt Ltd reported in 299 ITR 1 (SC) and the decision of the Hon'ble Jurisdictional High Court in the case of CIT Vs. Manish Buildwell Private Limited reported in 16 taxmann.com 27 (Del HC) ; decision of Hon'ble Karnataka High Court in the case of CIT v. Prestige Estate Projects Pvt Ltd reported in 440 ITR 343 (Kar.); and decision of Hon'ble Jurisdictional High Court in the case of Paras Buildtech India Pvt. Ltd reported in 382 ITR 630 (Del). The ld NFAC also gave a categorical finding of reversal of excess revenues, which was booked in earlier years of Rs. 609185.90 lakhs which was claimed as a one time claim of deduction during the year under consideration due to shift in method of accounting from POCM to CCM was worked out by the assessee on the basis of recognized principles, applicable accounting standards and duly vetted by the auditors. Further, he also observed that the entire exercise of this addition made by the AO in the assessment proceedings is purely academic in nature as it is revenue neutral in view of the fact that....
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.... PCIT in order to invoke his revision jurisdiction should cumulatively satisfy the twin conditions i.e. (i) that is the order of the AO must be erroneous and (ii) order of the AO must be prejudicial to the interest of revenue. Even if one condition is absent, revision proceedings u/s 263 of the Act cannot be invoked by the ld PCIT. Reliance in this regard is placed on the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Company Ltd reported in 243 ITR 83 (SC). Further, we find that the basis of shift in the method of recognition of revenue from POCM to CCM has already been examined in detail by the NFAC and accepted by the NFAC to be in order. Hence, the order of the assessment got merged with the order of NFAC. This issue has been already decided by NFAC. Hence, in view of clause (C ) of Explanation to Section 263(1) of the Act, the ld PCIT could not have assumed revision jurisdiction at all on this issue. Hence, the revision jurisdiction invoked by the ld PCIT u/s 263 of the Act on this issue is bad in law for more than one reason and accordingly deserves to be quashed and is hereby quashed." 16. In view of the above facts and by respectfully following....
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....y and looking to the deep interest to the group companies which is not correct. He prayed that Ld. PCIT has rightly held the order as erroneous and pre- judicial to the interest of the Revenue as the AO has not make any disallowance u/s 36(1)(iii) of the Act. Therefore, he prayed for confirmation of order of Ld. PCIT on this issue. 20. We have heard the rival submissions and perused the material available on record. At the outset from the records, it is seen that the AO has made specific queries with respect to the interest and financial expenses claimed by the assessee during the course of assessment proceedings wherein the AO has made the following queries to the assessee:- 6. "Query No.6 "As per notes to the financial statement for the period ended on 31.03.2019, it is noticed that the borrowing cost were not capitalized during the year under consideration. However, the same is debited to profit & loss account. Show cause why the borrowing cost may not be capitalized in view of proviso to section 36(I)(iii) of Income Tax Act, 1961?" 21. From the perusal of this query which was duly replied by assessee with every possible supporting evidence thus, it is clear that the AO ha....
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....ully following the judgement of Co-ordinate Bench in DLF Assets wherein the identical issue has been decided by the Co-ordinate Bench, we are of the view that Ld. PCIT has wrongly assumed jurisdiction u/s 263 towards the financial expenses claimed by the assessee accordingly, Ground No.4 of the assessee is allowed. 23. Ground No.5 of the assessee is related to the directions of Ld. PCIT to examine and analyze the issue related to income from house property and notional rental income on unsold stock. 24. During the course of hearing, Ld.AR for the assessee submitted that the AO vide Query No.4 of his notice dated 23.09.2021 has specifically asked the assessee to explain as to how the rental income is shown and further asked to file the breakup of the income from unsold stock which was replied by the assessee. The relevant query and answer are available at page 1701 to 1702 of the Paper Book. The Ld.AR for the assessee further submits that the assessee has submitted complete details of the rental income and income shown under the head 'business and profession' on account of notional rental income on vacant property held as stock-in-trade. The Ld. PCIT has failed to appreciate these....
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....he reply submitted before Ld. PCIT during the course of revisionary proceedings, is available at pages 391 to 394 of the Paper Book wherein it is claimed by the assessee that the assessee has declared total rental income of INR 21,19,13,543/- out of which INR 2,20,11,122/- was offered under the head "income from house property" relating to units which were held as inventory and were let out during the year. The details of the same were submitted before the AO during the course of assessment proceedings. Besides this, the assessee has declared income of INR 18,99,02,421/- as notional rent on the vacant properties held as stock-in-trade. The notional rent was determined on the basis of valuation report of independent valuer and all these facts were submitted before Ld. PCIT in the course of revisional proceedings which were ignored by Ld. PCIT. It is also submitted by the assessee that the assessee has not charged any depreciation and in support of such claim, necessary details were filed before Ld. PCIT. The assessee is engaged in the business of real estate where primary motive of assessee of selling the real estate however, the unsold stock was let out for hire and income was show....
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....to the amicable settlement of the property with Madras Race Club and writing off of INR 336.47 crores therefore, the order of Ld. PCIT on this issue is correct and deserves to be upheld. 31. After considering the arguments put forth from the parties and from the perusal of the computation of income filed by the assessee for AY 2018-19, it is seen that the amount of INR 336.47 crores is included in the total amount of exception items added back to the total income u/s 37 of the Act at INR 1142.36 crores and the necessary break-up of the same as provided is reproduced as under:- DLF Home Developers Ltd. Exceptional Items for FY 2017-18 (Amount in Crores) Particulars Brief Remarks Total These are part of clause 21(a) of the Tax Audit Report. (A) Fair Valuation Gain on certain Investments .......... YG Reality Fair Valuation 89.78 DLF Urban Fair Valuation 357.37 DLF Midtown Fair Valuation Total 447.15 (B) Impairment of PPE & IP as per bplan MRC Fair Valuation (336.48) Ludhiana Fair Valuation (41,59) T....
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....; Total Exceptional Item (1,195.82) Summary: Total disallowable Total Allowable - Income from other sources (Amount in Rs.) (11,42.36,37,487); (1,28,97,01,715) 75,51,37,500 (11,95,82,01,702) * 149-456.52 = 605.52 Crores. 32. Further, the assessee in reply to observations No.4 of Ld. PCIT during the course of revisional proceedings has brought these facts to the notice of Ld. PCIT however, Ld. PCIT merely for the verification of these facts has hold the order as erroneous and pre-judicial to the interest of the Revenue. It is settled law that merely for verification purposes, the order cannot be held as erroneous and pre-judicial to the interest of the Revenue. Ld.PCIT has failed to point out which condition of Explanation 2 of section 263 is applicable on this issue. Looking to these facts, in our considered opinion, the order of Ld. PCIT u/s 263 of the Act on this score holds no water and thus is quashed. Ground No.6 raised by the assessee is accordingly, allowed. 33. Ground No.7 raised by the assessee is with regard to the direction of Ld. PCIT for examination of taxabili....
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....ing stock of the project against which the relevant revenue was recorded in the P&L Account in subsequent years. All these facts are emanated from the submissions made by the assessee before Ld. PCIT during the course of hearing wherein reply to Observation No.5, the assessee has made following submissions:- 6. "Observation 5: Regarding transferring of rights in the land at Ranga Reddy district Telangana for Rs. 88.50 crores during the year in lieu of gross revenue from the project please show cause as to why the profit from this be not brought to tax and the order of AO be not considered erroneous and prejudicial to this extent, as it was not examined at all. Reply: In connection with the above observation, it is submitted that the Assessee has explained the above transaction in detail in it submission dated 22.03.2024. To reiterate, it is submitted that the Assessee wishes to submit that the Company entered into an Development agreement with other real estate developer in respect of land parcels at Narsingi Village and Poppalguda Village for a multistory residential apartment complex ('the project'), for a consideration of 24.5% of the gross revenue from ultimate sa....
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....m your honor. In view of the above submissions, it is submitted that the Assessee has already offered to tax the revenue from the aforesaid transaction in terms of the development agreement and accordingly, the assessment order cannot be regarded as erroneous or prejudicial to interest of revenue." 37. From the above reply of the assessee, it is clear that the assessee has duly offered the income against such cost incurred on the project at Ranga District, Telangana in the year when the income was accrued and therefore, the assessment order was neither erroneous nor pre-judicial to the interest of the Revenue and accordingly, we quash the order of Ld. PCIT passed u/s 263 of the Act on this issue wherein Ld. PCIT has merely direct the AO for making verification of the income offered without in any manner pointing out any error or loss of Revenue. Ground No.7 raised by the assessee is accordingly, allowed. 38. Ground No.8 raised by the assessee is with regard to the verification of correctness of exceptional gain of INR 261.80 crores and exceptional loss of INR 495.1 crores. 39. During the course of hearing, the Ld.AR for the assessee submitted that the AO has made a specific qu....
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...." 40. On the other hand, Ld.CIT DR for the Revenue vehemently supported the order of Ld. PCIT and further placed reliance on the judgements as discussed in Ground No.1 above with respect to the power of Ld.PCIT for making necessary verification as provided in Explanation 2 to section 263 of the Act. He thus prayed for confirmation of the order of Ld. PCIT. 41. We have heard the rival contentions and perused the material available on record. From the reply dated 28.03.2024 filed before the Ld.PCIT, it is clear that total exceptional gain of INR 261.80 crores was offered for tax during the year under appeal and out of exceptional loss of INR 495.1 crores, the assessee has already offered INR 394.30 crores by including the same in the total income which is evident from the computation and left over was claimed as exceptional loss. It is also relevant to state that the AO has made specific query in this regard and after considering the submissions made by the assessee on this issue has accepted the claim of the assessee. The Ld. PCIT has not found any error either in the submissions made by the assessee before the AO or before Ld. PCIT himself nor brought any instance of incorrect cl....
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....eached to the conclusion that these are normal business creditors and no adverse inference was recorded. In revisional proceedings, the assessee has demonstrated that all the creditors were genuine creditors and no error was found by Ld. PCIT in the same, who simply direct the AO for making further verification which is beyond the scope of section 263 of the Act. As observed above, the Hon'ble Supreme Court in the case of PCIT vs Shreeji Paints P.Ltd. (supra) has held that once the AO has made inquiry in details and accepted the genuineness of loans received by the assessee, such view of AO was a plausible view and same cannot be considered erroneous or pre-judicial to the interest of the Revenue and therefore, the Hon'ble Supreme Court dismissed the SLP of the Revenue and confirmed the order of Hon'ble Gujarat High Court reported in 130 taxmann.com 293 (Gujarat). In view of the above facts and by respectfully following the judgement of Hon'ble Supreme Court, we find no error in the order of AO and therefore, the order of Ld. PCIT passed u/s 263 on this issue is hereby quashed. Hence, Ground No.9 raised by the assessee is allowed. 46. Ground No.10 raised by the assessee is with re....
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....as first offered of INR 1,850 crores under the head 'revenue from operations' and further offered INR 1,850 crores in the computation of income. This being so, we find no error in the order of AO on this score and therefore, the order of Ld. PCIT hereby, quashed on this issue. Ground No.10 raised by the assessee is accordingly, allowed. 50. Now we take up the legal grounds of appeal No.1,2 and 11 where the assessee has challenged the order of Ld. PCIT passed u/s 263 of the Act as the twin conditions of section 263 are not satisfied. 51. In this regard, it is submitted by the Ld.AR for the assessee that for invoking the provision of section 263 of the Act, Ld. PCIT first has to record the satisfaction that the order is pre-judicial to the interest of the Revenue and erroneous. The twin conditions as enumerated in section 263 has to be satisfied together before invoking the provision of section 263 of the Act. As per Ld.AR, Ld. PCIT without pointing out any error in the assessment order which leads to the order as pre-judicial to the interest of the Revenue at page 61 of the order has given directions (which are reproduced herein above) for making verification and examination which....
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....alcutta)/[2016] 386 ITR 162 (Calcutta)/[2016] 287 CTR 512 7. Rajmandir Estates (P.) Ltd. Vs PCIT [2017] 77 taxmann.com 285 (SC)/[2017] 245 Taxman 127 (SC) 8. Order of Hon'ble ITAT F-Bench in the case of PTC Impex (India) Pvt. Ltd. Vs CIT, ITA No. 2860/Del/2010 dated 03.04.2018 9. Hon'ble High Court of Karnataka in the case of CIT vs Infosys Technoglies Ltd. 341 IT 293 dated 04.01.2012 10. CIT vs Apollo Tyres Ltd. 65 ITD 263 (ITAT, Delhi) 11. Gee Vee Enterprises vs Addl. CIT 99 ITR 375 (Delhi HC) 12. Perfetti Van Melle India Pvt.Ltd. in ITA No.3046/Del/2016 for AY 2009-10 order dated 11.01.2019 13. Ramesh Kumar in ITA No.1982/Del/2018 for AY 2014-15 order dated 25.01.2019 14. Shankar Tradex Pvt.ltd. vs PCIT in ITA No.2999/Del/2017 for AY 2007-08 order dated 16.04.2018 15. Surya Financial Services Ltd. vs PCIT [2018-TIOL-74-ITAT-DEL] order dated 08.01.2018 16. CIT vs Nagesh Knitwears (P) Ltd. [2012] 345 ITR 135 (Delhi) 17. CIT vs Ashok Logani [2011] 347 ITR 22 (Delhi) 18. Pooja Gupta in ITA No.4057/Del/2018 dated 31.01.2019 Ld.CIT DR prayed for the confirmation of the order of Ld.PCIT. 55. In the instant case, the ld. PCIT has given direction to the AO f....
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....ictionary that an "erroneous judgment" means "one rendered according to course and practice of Court, but contrary to law, upon mistaken view of law; or upon erroneous application of legal principles" and thus it is clear that an order cannot be termed as "erroneous" unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as "erroneous" by the Commissioner simply because, according to him, the order should have been written differently or more elaborately. The Section does not visualize the substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is not in accordance with law. Further, any and every erroneous order cannot be the subject matter of revision because the second requirement also must be fulfilled. There must be material on record to show that tax which was lawfully leviable has not been imposed as held in Gabriel India Ltd.(supra). However, the expression "prejudicial to the interest of the revenue", as held by the Supreme Court in the Malabar Industrial Co. Ltd. (supra), is not an expression of art and is no....
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....ld to be erroneous. Cases may be visualized where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. x x x x There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser ta....
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....e Hon'ble Bombay High Court in Moil Ltd. Vs. CIT reported in 81 Taxmann.com 420 has observed that if a query is raised during the assessment proceedings which was responded to by the assessee, the mere fact that the query was not dealt with in the assessment order then it would not lead to a conclusion that no mind has been applied to it and the Assessing Officer is not expected to raise more queries, if he was satisfied about the admissibility of claim on the basis of the material and the details supplied. 61. The judgements cited by the revenue are on the issue where no enquiry was made by the AO or lack of enquiry on the part of the assessee or where AO has raised the issue but was not replied by the assessee to the satisfaction of the appropriate authorities. However, in the instant case as observed above, the AO has made specific queries in respect to all the issues part of which are discussed by the AO in the assessment order also and remaining were not forming part of the assessment order. Yet the fact remained that proper enquiry was made by the AO and assessee has made reply to each and every query duly supported by the relevant evidence, copies of the same are filed befo....