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2020 (7) TMI 522 - AT - Income TaxRevision u/s 263 - revenue recognition method - assessee company is following percentage completion method of accounting for revenue recognition but while considering the revenue recognition of the Surekha Vatika Project, proper method was not applied by the assessee leading to incorrect revenue recognition instead of the proper method which recognizes the revenue - HELD THAT - It is well settled principle that the AO is required to make reasonable, sufficient and adequate enquiry of impugned issues during assessment proceedings and in case of no enquiry or insufficient or inadequate enquiry, Pr.CIT is empowered to revise the order holding the same as erroneous and prejudicial to the interest of the revenue. But if this proposition is evaluated in the facts and circumstances of the present case then, it is clearly discernible that the AO by way of notice u/s.142(1) dated 26.10.2015 and 30.7.2015 called the documents/information from the assessee which includes copy of the audited balance sheet, profit and loss account, Annual report alongwith details of bank accounts maintained including bank name, branch details and a/c no. supported with bank statements for the financial year 2012-13 relevant to assessment year 2013-14. As observed that the Assessing Officer also called the details of party-wise purchase and sales of land/flat, details of project-wise percentage of construction as on 31.3.2013, estimate cost of each projects and estimate sales price thereof and closing stock details with detail valuation and method of valuation, which were submitted by the assessee and this fact has not been negated or disputed by Pr. CIT in the impugned order as well as during the arguments before us by Ld. CIT DR. In view of copies of notices and replies of the assessee available at APB page 43 to 51, we are satisfied that during assessment proceedings, the AO made proper, sufficient and adequate enquiry on the issues including issue of revenue recognition of the assessee by following percentage completion method, project-wise revenue recognition. It is not a case of no enquiry, inadequate enquiry or insufficient enquiry. Therefore, without holding so, the impugned assessment order cannot be tagged or alleged as erroneous and prejudicial to the interest of revenue. The methodology adopted by the assessee for revenue recognition was being consistently followed by the assessee during previous and subsequent assessment years and same cannot be tinkered or disturbed by placing new method of revenue recognition wherein work in progress shown by the assessee has not been taken into consideration. In such type of case, inquiry should have been conducted by the revisional authority himself to record the finding that the assessment order was erroneous. In the present case, the Pr. CIT has not made inquiry himself on the submission/reply of the assessee to before exercising his power u/s.263 of the Act vide dated 23.3.2018 (APB pages 59 to 68) and relevant part as reproduced by the ld Pr. CIT in para 4 of the impugned order. He merely set aside the assessment order and directed the AO to redo the assessment denovo on the issue, which is not permissible as per principle laid down by Hon ble Delhi High Court in the cases of Jyoti Foundation 2013 (7) TMI 483 - DELHI HIGH COURT and DG Housing 2012 (3) TMI 227 - DELHI HIGH COURT . We reach to a logical conclusion that the issuance of notice u/s.263(1) of the Act and impugned revisional order u/s.263 of the Act is not sustainable and revisionary authority had no valid jurisdiction to revise the assessment order. Consequently, the impugned notice as well as revisional order u/s.263 of the Act are hereby dismissed. - Decided in favour of assessee.
Issues Involved:
1. Validity of the order passed under Section 263 of the Income Tax Act. 2. Consistency in following the percentage completion method of accounting. 3. Adequacy of enquiries conducted by the Assessing Officer (AO) during the original assessment proceedings. 4. Whether the revenue recognition method adopted by the assessee was proper and justified. 5. Whether the order passed under Section 263 was barred by limitation. Detailed Analysis: 1. Validity of the order passed under Section 263 of the Income Tax Act: The assessee challenged the order passed by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263, arguing that the original assessment order was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal found that the Pr. CIT had not conducted any independent inquiry before alleging that the assessment order was erroneous and prejudicial to the revenue. The Tribunal held that the Pr. CIT cannot simply set aside the assessment order and direct a de novo assessment without conducting necessary inquiries himself. 2. Consistency in following the percentage completion method of accounting: The assessee consistently followed the percentage completion method of accounting for revenue recognition, as prescribed by AS-7 of the Institute of Chartered Accountants of India (ICAI). This method was accepted by the revenue department in previous and subsequent assessment years. The Tribunal noted that the revenue recognition method for the Surekha Vatika project was consistent with the method followed for other projects and was not disputed by the Pr. CIT for other projects. 3. Adequacy of enquiries conducted by the Assessing Officer (AO) during the original assessment proceedings: The Tribunal observed that the AO had made proper, sufficient, and adequate inquiries during the original assessment proceedings. The AO issued notices under Section 142(1) along with questionnaires, which were duly replied to by the assessee with relevant documents and details. The Tribunal held that the AO conducted reasonable and sufficient inquiries, and thus, the assessment order could not be termed as erroneous or prejudicial to the interest of the revenue. 4. Whether the revenue recognition method adopted by the assessee was proper and justified: The Tribunal found that the assessee had recognized revenue for the Surekha Vatika project at ?12,04,63,062, which was calculated based on 29% completion and 61% booking of the project. Additionally, the assessee showed work in progress (WIP) of ?6,04,48,098.66. The total revenue recognized by the assessee for the Surekha Vatika project was higher than the amount estimated by the Pr. CIT. Therefore, the Tribunal concluded that the revenue recognition method adopted by the assessee was proper and justified. 5. Whether the order passed under Section 263 was barred by limitation: The assessee argued that the order received under Section 263 was barred by limitation. However, the Tribunal did not specifically address this issue in the judgment, as the primary focus was on the validity and justification of the order passed under Section 263. Conclusion: The Tribunal allowed the appeal of the assessee, holding that the issuance of notice under Section 263(1) and the impugned revisional order under Section 263 were not sustainable. The Tribunal concluded that the Pr. CIT did not have valid jurisdiction to revise the assessment order, as the AO had made sufficient and adequate inquiries, and the revenue recognition method adopted by the assessee was proper and justified. Consequently, the impugned notice and revisional order under Section 263 were dismissed.
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