2017 (7) TMI 1390 - AT - Income Tax

Revision u/s 263 - verification of purchases - Outstanding sundry creditors - assessee was making payment for purchase after ten months or one year which is not normal in the business practice - HELD THAT - AO asked for details of payment to sundry creditors outstanding as on 31-03-2012 exceeding ₹ 1 lacks per party with evidence of payment subsequently. Assessee filed statements giving details of subsequent payments to the sundry creditors exceeding ₹ 1 lacks and also produced copies of ledger accounts of these parties for subsequent assessment years wherein the payment received from assessee through banking channels is reflected. As regard to the query of the AO that the assessee has received credits on account of purchased from parties, it was explained that the assessee group including the partners independently is developing various projects in which substantial purchases were made and therefore having good business relations with these parties and due to that is availing credit facility. AO examined the aspect in detail in the course of assessment proceedings and did not find any anomaly in the details furnished before him and accordingly has not taken any adverse view of the matter. We find that the complete details were examined by the AO during the course of assessment proceedings and now CIT through this revision order want to re-examine this issue, which according to us is not permissible u/s 263. Unsold flats - HELD THAT - As explained before us that only part of total sale consideration is received in this year i.e. the advance or earnest money for purchase of flat by the prospective buyer and full consideration is received only in subsequent years. And in subsequent years this sale is reflected as revenue by crediting the same to the P L Account. The assessee has filed complete statements and details of sale of various units as on 31-03-2012 in subsequent years and the same has been examined by the AO The assessee before us also filed copies of assessment orders passed u/s 143(3) of the Act for AYs 2013-14 and 2014-15, during which years the assessee has disclosed the sale consideration of these flats when actually these were sold. We find that on merits as well as on the issued at the matter was examined by the AO during the course of assessment proceedings, the revision proceeding initiated by the CIT(A) u/s 263 of the Act and revision order passed is not as per the provision of law. As decided in MAX INDIA LTD. 2007 (11) TMI 12 - SUPREME COURT where two views are possible and the AO has taken one of the possible view, with which CIT does not agree, it cannot be treated as erroneous order so as to prejudicial to the interest of Revenue. We are of the view that the revision order passed by CIT u/s 263 of the Act is without any basis and void. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the assumption of jurisdiction by the PCIT under Section 263 of the Income Tax Act, 1961.
2. Verification of certain purchases debited to the profit and loss account.
3. Treatment of advances received from customers as taxable income.

Issue-wise Detailed Analysis:

1. Validity of the Assumption of Jurisdiction by PCIT under Section 263:
The primary issue in this appeal was whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking Section 263 of the Income Tax Act, 1961, to revise the assessment order passed by the Assessing Officer (AO) under Section 143(3). The assessee contended that the PCIT erred in holding the AO’s order as erroneous and prejudicial to the interest of revenue. The Tribunal noted that the PCIT issued a show cause notice under Section 263, observing that the AO had overlooked significant issues during the assessment. However, the Tribunal found that the AO had indeed examined the relevant details during the assessment proceedings, and the PCIT's action of revising the order was not permissible under Section 263 as the AO had taken a plausible view based on the facts and circumstances of the case.

2. Verification of Certain Purchases Debited to the Profit and Loss Account:
The PCIT observed that the assessee made significant purchases without timely payments, which was not normal business practice. The PCIT directed the AO to verify these purchases, citing the amended provisions of Section 263 (Explanation 2), which deem an order erroneous if it is passed without making necessary enquiries or verification. The Tribunal, however, found that the AO had already scrutinized the details of sundry creditors and purchases during the assessment proceedings. The AO had examined the subsequent payments made to creditors and found no anomalies. Therefore, the Tribunal concluded that the PCIT's direction to re-examine the issue was unwarranted, as the AO had already conducted a thorough verification.

3. Treatment of Advances Received from Customers as Taxable Income:
The PCIT noted that the assessee received advances amounting to ?2.18 crores from customers for booking flats, which should have been disclosed as income since the project was completed. The PCIT directed the AO to re-examine this aspect and consider these advances as sales. The Tribunal observed that the assessee followed the project completion method of accounting and recognized revenue upon the actual sale of flats. The advances received were part of the total sale consideration, and the revenue was recognized in subsequent years when the sales were finalized. The Tribunal found that the AO had examined this aspect during the assessment proceedings and accepted the assessee's method of revenue recognition. Consequently, the Tribunal held that the PCIT's revision order on this issue was not justified.

Conclusion:
The Tribunal quashed the revision order passed by the PCIT under Section 263, holding that the AO had conducted necessary enquiries and verification during the assessment proceedings. The Tribunal emphasized that the PCIT cannot substitute his judgment for that of the AO unless the AO's order is unsustainable in law. The appeal of the assessee was allowed, and the revision order was deemed void.