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2013 (11) TMI 1271 - AT - Income TaxRevision u/s 263 - Recognition of Income - Assessee recognized income from both the projects based on the 'project completion method' consistently followed over the years Held that - The Gym View Project is already completed in the year under consideration; whereas the Link Corner Project is yet to be completed as on 31st March of this PY - This approach of the CIT is not proper - There is no discussion in the order how the method of accounting followed by the assessee in respect of Link Corner Project is inappropriate - There is no discussion in the review order how following Project completion method is prejudicial to the interest of review and what is the revenue loss in this process - CIT has not demonstrated in his review order how AS-7 or AS-9 are legally binding on the assessee in matters of recognizing the income of the project when the said AS-7 and AS-9 are not notified by the CBDT for the purpose of section 145 of the Act - If they are binding on project say Link Corner Project of the assessee, the same is binding on the other project i.e; Gym View Project too - In that sense, the CIT turned Nelson's Eye to the method adopted in respect of the other project as the same is inconvenient to him - This approach of the CIT is not valid. Jurisdiction u/s 263 - Held that - The assumption of jurisdiction by the CIT is not valid - the revenue cannot trust a method of accounting on the assessee though that method is superior and therefore, substitution of method of accounting is not allowed unless, the loss of revenue is made out of the project of the assessee - CIT has not made out that by following project completion method, the assessee fulfilled the condition relating to 'prejudicial to the interest of revenue' used in section 263 of the Act - Therefore, when the assessee is not held by the revenue guilty of change of method of accounting with the mala fide intention to reduce the tax liability, the CIT cannot allege the mala fide in the method followed by the assessee in respect of the income of the Link Corner project - the CIT cannot assume jurisdiction u/s 263 of the Act, when the issue relating to selection of method of account is debatable one in nature - Assessee has not committed any legal error by uniformly and consistently following 'Project Completion Method' in respect of his project - AO's order does not suffer from any error both on law or fact - it is a trite law that the CIT can only assume jurisdiction when there is erroneous assumption of law or fact or where the AO failed to apply his mind to an issue during making of an assessment or where AO failed to conduct reasonable enquiry into the claim made in the return Decided in favour of Assessee.
Issues Involved:
1. Invocation of Section 263 of the Income Tax Act, 1961. 2. Direction to apply the percentage completion method for income computation. 3. Recognition of revenue as per Accounting Standard 9. 4. Consistency in following the project completion method. 5. Principles of natural justice. Issue-wise Detailed Analysis: 1. Invocation of Section 263 of the Income Tax Act, 1961: The appellant contested the Commissioner of Income Tax's (CIT) invocation of Section 263, arguing that the conditions precedent for its application were not satisfied. The CIT had set aside the original assessment order dated 13.7.2009. The Tribunal noted that the CIT must have material to prima facie conclude that the Assessing Officer's (AO) order was erroneous and prejudicial to the Revenue. The CIT failed to demonstrate how the project completion method was inappropriate or prejudicial to the Revenue. 2. Direction to Apply the Percentage Completion Method for Income Computation: The CIT directed the AO to compute the appellant's income using the percentage completion method for the Link Corner Project, which the appellant argued against, citing consistent use of the project completion method. The Tribunal referenced several cases, including CIT vs. Bilahari Investment and CIT vs. TATA Iron & Steel Co. Ltd., to support the argument that a consistently followed accounting method should not be substituted unless it distorts profits. The Tribunal found no error in the project completion method and concluded that the CIT's direction was improper. 3. Recognition of Revenue as per Accounting Standard 9: The CIT held that significant advances received indicated a transfer of significant risks and rewards, necessitating revenue recognition as per Accounting Standard 9. The appellant argued that AS-9 was not applicable as agreements for sale were not signed in the relevant year. The Tribunal noted that AS-7 and AS-9 were not notified by the government, making them non-binding on the appellant. The Tribunal also pointed out the inconsistency in the CIT's approach, as the percentage completion method was not applied to the Gym View Project. 4. Consistency in Following the Project Completion Method: The appellant consistently followed the project completion method, which was accepted by the AO for the assessment year 2007-2008. The Tribunal emphasized that the choice of accounting method lies with the assessee, provided it is consistently followed. The Tribunal cited several precedents, including Shapoorji Pallonji & Co (Rajkot) (P) Ltd. vs. ITO and CIT vs. Advance Construction Co. (P) Ltd., reinforcing that the project completion method was a recognized and valid accounting practice. 5. Principles of Natural Justice: The appellant argued that the CIT's revision order contravened the principles of natural justice. The Tribunal found that the CIT's assumption of jurisdiction under Section 263 was invalid, as there was no erroneous assumption of law or fact by the AO, nor a failure to apply reasonable enquiry. Consequently, the Tribunal allowed the appellant's grounds, rendering other issues academic. Conclusion: The Tribunal concluded that the CIT's invocation of Section 263 was not justified, the project completion method was validly and consistently followed by the appellant, and the CIT's direction to apply the percentage completion method was improper. The appeal was allowed, and the grounds raised by the appellant were upheld.
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