TaxTMI 
TaxTMI 
2025 (5) TMI 1714
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....n the absence of any finding that order passed by the AO u/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 (wron....
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....nt to AY 2019-20). The PCIT has ignored the submission of the assessee that the Assessee has duly disallowed the aforesaid 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 lo....
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....rse of assessment proceedings, various notices u/s 142(1) were issued from time to time which were replied on every occasion by the assessee by filing detailed submissions 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....
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.... from the project, the AO is directed to examine the taxability of same. 6. AO is directed to verify and examine the issue of correctness of the exceptional gains of Rs. 261.80 crores and exceptional loss of Rs. 495.1 crores. 7. 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 th....
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.... is shown as Not Sold, also the revenue has to be recognised on the basis of actual received against such areas. 3. 'Not sold' may be thoroughly examined. Whether the nomenclature is deceptive or real. AO may examine as to what revenue has been received against it and the same be brought to tax irrespective 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....
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....having changed the method from CCM to POCM, it is implicit that the working of revenue and profit under POCM was duly subjected to scrutiny and as such the exercise of jurisdiction in respect of this issue is arbitrary and beyond scope. Further, the recognition of revenue is done on the basis of guidelines laid down by accounting standard (IndAS 18 /IndAS 115). However, the 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. ....
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....that the AO himself has rejected the Revenue recognition by the assessee following CCM. It is further seen that Ld. PCIT while giving directions to the AO in para 1 at page 61 of the order (reproduced herein above) directed the AO to compute the income of the leftover part of all the 11 completed projects by ignoring the facts that all the details asked by the AO during the course of assessment proceedings, were filed by the 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 ther....
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....ng the assessment for those two years. The ld CIT(A) found that the AO had indeed accepted the shift in method of accounting from POCM to CCM by the assessee in assessment years 2020-21 and 2021-22 and observed that the AO was not justified in rejecting the same in assessment year 2019- 20. Ld NFAC also took cognizance of the fact that POCM is one of the approved methods and the assessee was indeed entitled to follow the same for recognition 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....
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....nue neutral and recognition of revenue is only an effect of timing difference. The Hon'ble Supreme Court in the case of CIT Vs. Excel Industries Ltd reported in 358 ITR 295 had held that no addition need to be made by the revenue if the issue is revenue neutral as there is no loss of tax to the exchequer. Hence, the assessment order framed by the ld AO cannot be held to be prejudicial to the interest of revenue. It is trite law that ld 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 iss....
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....rayed that the order of Ld. PCIT deserves to be quashed on this score. 19. On the other hand, Ld.CIT DR supported the order of the Ld. PCIT and submitted that the assessee has given interest free advances to subsidiaries and group companies. He further submitted that no amount was charged on the corporate guarantees given to the bank however, all the financial expenses were claimed by the assessee by stating that there were commercial expediency 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 financi....
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.... the fact that necessary enquiry was made by AO and duly replied by the assessee before the AO as well as before Ld. PCIT. Thus, it is clearly established that the AO has applied his mind before allowing the claim of the assessee and Ld. PCIT has failed to point out any specific error which has resulted into loss of the Revenue. The Ld.PCIT has failed to state which other condition as enumerated in Explanation 2 of section 263 is violated by assessee. Therefore, by respectfully 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 a....
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.... 26. On the other hand, Ld.CIT DR has submitted that if the case of the assessee was selected for complete scrutiny wherein the AO failed to make necessary inquiries and has not analyzed the details of rental income shown, standard deduction claimed and issue of depreciation. He therefore, submits that by not making such enquiries, the order of the AO is erroneous as well as pre-judicial to the interest of the Revenue. 27. We have heard the rival submissions and perused the material available on record. The 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 ....
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....as contained in para 5 of the reply is available in Paper Book at page 2427. The Ld.AR thus, state that there is neither any error in the order of AO nor the order is pre-judicial to the interest of the Revenue on this count. Therefore, action of Ld. PCIT in holding the order is erroneous and pre-judicial to the interest of Revenue deserves to be hold bad in law. 30. The Ld.CIT DR for the Revenue supported the order of Ld. PCIT and submits that in the financial statement, the assessee has given a note with regard 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 &nbs....
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....ted NRV Testing (14.59) Abhiraj Real Esate Pvt. Ltd. NRV Testing (12.65) Amishi Builders & Developers Pvt Ltd NRV Testing (9.45) Poliwol Real Estate Limited NRV Testing (5.82) Particulars Brief Remarks Total These are part of clause 21(a) of the Tax Audit Report. Domus Real Estates Private Limited NRV Testing (5.09) DLF Gayatri Home Developers Limited NRV Testing (1.66) DLF Phose IV Commercial Developers Limited NRV Testing (1.81) (325.65) Minor Provision (15,66) Property Tax Provision (6.78) MS Reddy Provision (5.66) DLI Provision (36.25) Lic-95 Sec-83 (4.225 Acre) Provision (18.00) Panipat land advance Provision (33.21) Total (897.73) 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....
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....enue, merely direct the AO to make verification of the corresponding Revenue by which it cannot be said that the order is erroneous and pre-judicial to the interest of the Revenue and jurisdiction u/s 263 could be assumed and therefore, he prayed for cancellation of order of Ld. PCIT on this issue. 35. On the other hand, the Ld.CIT DR supports the order of the AO and further placed reliance on the case laws relied upon by him in its submissions which are reproduced herein above while dealing in Ground No.1 of the assessee. 36. After careful consideration of the submissions of both the parties and looking to the financial statements of the assessee, we find that during the year under appeal, the assessee has disclosed total consideration of INR 132 crores in its P&L Account against the cost of INR 96.96 crores which was forming part of total receivable as on the first day of the previous year. The amount of INR 88.50 crores is the residuary figure of receivables on account of the remaining 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.....
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....is submitted that receivables of Rs. 185.46 crores outstanding as at 31.03.2018 have reduced to Rs. 88.50 crores as at 31.03.2019. Accordingly, it is submitted that the Assessee has reduced the cost of inventory of Rs. 96.96 crores from receivables and has recorded such cost in the statement of profit and loss under note 30 of the audited financial statements. It is submitted that a corresponding revenue of Rs. 132 crores has been recognized in the statement of profit and loss under note 28 of the audited financial statements and offered to tax by the Assessee. It is submitted that the revenue of Rs. 132 crores form part of net revenue from sale of land/plot/DR of Rs. 139.53 crores furnished vide Annexure 19 of our submission dated 22.03.2024 and cost of Rs. 96.96 crores forms part of the cost of sale of land/plot/DR of Rs. 133.65 crores furnished vide Annexure 19 of our submission dated 22.03.2024. Should your honor desire any further information/detail in this regard, the Assessee would be glad to furnish the same upon hearing from your honor. In view of the above submissions, it is submitted that the Assessee has already offered to tax the revenue from the aforesaid tra....
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....ms which are in nature of profit on disposal of investment, provision for impairment of assets and provision for loss. It was clarified that the assessee has suo moto disallowed the provisions in its computation of income and offered the gain on disposal of investment of INR 261.80 crores to tax in the ITR. Further, out of total exceptional loss of INR 495.11 crores as appearing in the P&L a/c, the assessee has only claimed loss of INR 105.81 crores which is actual suffered on account of unrecoverable business advance. However, the PCIT without appreciating the submission issue arbitrary direction to AO sans any application of mind. Accordingly, the assessing officer having verified the exceptional items during the course of assessment proceedings and in absence of any error or infirmity in the same, assessment order is neither erroneous or prejudicial to the interest of the revenue to this effect. [Refer internal page 61-69 of reply dated 22.03.2024 and page 19-24 of the reply dated 28.03.2024 placed at PB page No.407-415 and PB pg.2474-2479 respectively]." 40. On the other hand, Ld.CIT DR for the Revenue vehemently supported the order of Ld. PCIT and further ....
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....yond scope of section 263 of the Act. The liabilities are as a result of normal business transaction and they cannot be doubted. The Ld.AR further submits that during the course of revisional proceedings, the assessee has made a specific reply in this regard which has not been considered by the Ld.PCIT in true perspectives and hold the order as erroneous and pre-judicial to the interest of the Revenue without any specific instance of bogus or unverifiable creditors/liabilities and therefore, he prayed for the cancellation of the order of Ld. PCIT on this score. 44. On the other hand, Ld.CIT DR for the Revenue supports the order of Ld. PCIT and submits that Ld. PCIT has given direction as the AO has failed to examine the applicability of section 68 of the Act in case of creditors and therefore, he prayed for confirmation of order of Ld. PCIT. 45. On careful consideration of the facts and submissions, we find that this issue has already been examined by the AO where he has asked the assessee to file necessary details of creditors and liabilities and after considering the same, has reached to the conclusion that these are normal business creditors and no adverse inference was re....
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....er deserves to be quashed. 48. On the other hand, Ld.CIT DR for the Revenue supports the order of Ld. PCIT and request for the confirmation of the same. 49. After considering the rival submissions and perused the material available on record, we find that the assessee in vary specific terms while making reply to the AO as well as before the Ld. PCIT has stated that the relevant consideration of INR 3,700 crore was offered for tax in AY 2016-17 and necessary details were also filed before Ld. PCIT stating that the transaction was not pertaining to the year under appeal. There is no error in the assessment order in respect of the turnover of INR 3,700 crores. Therefore, mere directions for examination of the taxability and with these directions holding the assessment order as erroneous and pre-judicial to the interest of the Revenue is contrary to the provisions of law as has been held by the Hon'ble Supreme Court in the case of PCIT vs Shreeji Paints P.Ltd. (supra). The AR also submits the copy of computation for AY 2016-17 wherein consideration of INR 3,700 crores is offered for tax such as first offered of INR 1,850 crores under the head 'revenue from operations' and further....
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....vt.Ltd. [2017] [c] PCIT vs Mohak Real Estate (P.) Ltd. [2024] 161 taxmann.com 388 (Delhi) [d] CIT vs R K Jain Infra Projects P.Ltd. [2024] 297 taxman 369 (SC) [e] CIT vs Gopal Sharma [2024] 298 Taxman 49 (Calcutta) [f] Kiaxon Trading Pvt.Ltd. [TS-728-HC-2023 (Del)] He thus prayed that the order passed u/s 263 of the Act by Ld.PCIT deserves to be quashed. 54. On the other hand, Ld.CIT DR for the Revenue supported the order of Ld. PCIT and further placed reliance on the following judgments:- 1. Hon'ble Supreme Court in the case of Deniel Merchants Pvt. Ltd. vs. ITO (Appeal No. 2396/2017) dated 29.11.2017 2. Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs CIT [2000] 109 Taxman 66 (SC)/[2000] 243 ITR 83 (SC)/[2000] 159 CTR 1 (SC) 3. Hon'ble Supreme Court in the case of Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) 4. Hon'ble Supreme Court in the case of Tara Devi Aggarwals v. CIT [1973] 88 ITR 323 (SC) 5. Hon'ble Supreme Court in the case of Toyota Motor Corporation v. CIT [2008] 306 ITR 52 (SC) 6. Rajmandir Estates (P.) Ltd. Vs PCIT [70 taxmann.c....
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....al Co. Ltd. (supra) and followed by Hon'ble Delhi High Court in the case of CIT vs Vikas Polymers reported in 194 Taxman 57(Delhi). 56. The Hon'ble Supreme Court in Malabar Industrial Co. Ltd. (supra) has held that the phrase 'prejudicial to the interests of the revenue' must be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be held as an erroneous order which is prejudicial to the interest of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law. This principal has been again reiterated by Hon'ble Court in its subsequent judgment in the case of CIT vs Max India Ltd. reported in 295 ITR 282 (SC). 57. The Hon'ble Delhi High Court in CIT V/s Vikas Polymers (supra), further observed that as regards the scope and ambit o....
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....ed to exercise his revisional powers by calling for and examining the records of any proceedings under the Act and passing orders thereon. In Gabriel India Ltd. (supra), it was expressly observed: - "The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity [Parashuram Pottery Works Co. Ltd. vs. ITO, (1977) 106 ITR 1 (SC)]. It was further observed as under: - "From the aforesaid definitions as 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 more elaborately. This section does not....
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....uded assessment, therefore, must be understood in the context of the provisions of the relevant sections. While doing so, it must also be borne in mind that the legislature had not vested in the revenue any specific power to question an order of assessment by means of an appeal. Regarding applicability of Section 263, what has to be seen is that a satisfaction that an order passed by the Authority under the Act is erroneous and prejudicial to the interest of the revenue is the basic precondition for exercise of jurisdiction under section 263. Both are twin conditions that have to be conjointly present. Once such satisfaction is reached, jurisdiction to exercise the power would be available subject to observance of the principles of natural justice which is implicit in the requirement cast by the section to give the assessee an opportunity of being heard. Further, there could be no doubt that so long as the view taken by the Assessing Officer is a possible view, the same ought not to be interfered with by the Commissioner under Section 263 merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views ar....