2017 (11) TMI 1564 - AT - Income Tax

Revision u/s 263 - assessee has not recognized any income of the project for any earlier assessment year or succeeding assessment year applying AS-9 - Held that - Once it is held that the assessee is following project completion method consistently and it has followed the same during the current assessment year in which the project has been completed, there is no question of recognizing any income for any earlier or succeeding assessment year. The ld. CIT s observation that the loss does not seem to have been examined properly is also a surmise without any cogent reasoning. Furthermore, the ld. CIT has also directed to examine the allowability of expenses. For this also, no cogent reason has been mentioned by the ld. CIT. We note that the A.O. has examined the expenses incurred and made some disallowances also. Hence, the ld. CIT s direction to examine the expenses is a direction for making a roving enquiry not permissible u/s. 263 of the I. T. Act. Hence, we set aside the direction of the ld. CIT qua examination of the method of accounting for revenue recognition and examination of expenditure. As regards the ld. CIT s observation to examine the service tax, TDS and MVAT provision and their applicability, the ld. Counsel of the assessee s submission is that these are not applicable and have been complied with to the extent necessary. In this regard, we note that the A.O. s order is silent on these issues, hence, if the ld. CIT has given a direction to examine these issues, no prejudice will be caused to the assessee. Hence, we uphold the order of the ld. CIT to this extent only. - Decided in favour of assessee partly.

Summary

Issues:
1. Validity of the order passed under section 263 of the Income Tax Act
2. Recognition of income for the project completed in February 2013
3. Examination of expenses and revenue recognition method
4. Verification of service tax, TDS, and MVAT provisions

Issue 1: Validity of the order under section 263
The appeal was against an order passed under section 263 of the Income Tax Act, challenging the assessment order's validity. The appellant argued that the assessment order was neither erroneous nor prejudicial to the revenue's interest. The appellant contended that the assessing officer (AO) had adopted a view in favor of the assessee, and two views were possible in the circumstances. However, the Commissioner of Income Tax (CIT) found discrepancies related to income recognition, expenses, and tax provisions, leading to the conclusion that the assessment order was erroneous and prejudicial to the revenue's interest.

Issue 2: Recognition of income for the project completed in February 2013
The CIT noted that the project was completed in February 2013, and the appellant had not offered any income for the project in any year, claiming a loss instead. The CIT observed that the AO did not examine the loss arising in that year, despite the project's completion requiring the adoption of AS-9 for income recognition. The CIT directed the AO to verify expenses, sales, and the applicability of AS-9 to recognize income correctly.

Issue 3: Examination of expenses and revenue recognition method
The CIT directed the AO to verify all expenses debited in the Profit & Loss Account, sales, and the applicability of AS-9 for recognizing income. The CIT found the claimed expenses did not justify the project's loss and required a detailed examination. The CIT's direction for a thorough examination of expenses was deemed a roving inquiry, not permissible under section 263. The ITAT set aside this direction, emphasizing that the AO had already examined expenses and made disallowances.

Issue 4: Verification of service tax, TDS, and MVAT provisions
The CIT directed the AO to verify service tax payments, TDS provisions, and MVAT implications, which were not adequately examined during the assessment. The ITAT upheld the CIT's direction to examine these issues, as the AO's order was silent on them. The ITAT found that examining these provisions would not cause prejudice to the assessee. Thus, the appeal was partly allowed, affirming the CIT's order to verify service tax, TDS, and MVAT provisions.

In conclusion, the ITAT upheld the CIT's order regarding the verification of service tax, TDS, and MVAT provisions but set aside the direction to examine the method of accounting for revenue recognition and expenses. The judgment highlighted the importance of correctly recognizing income, verifying expenses, and complying with tax provisions to ensure accurate assessment under the Income Tax Act.