2022 (9) TMI 1081 - AT - Income Tax

Revision u/s 263 by CIT - application of principle of consistency - Judicial discipline - assessee had made a claim to be surplus through audit trial that assessee had made a provision on account of anticipated loss that was debited to its profit and loss - assessee was following the percentage completion method from year to year for computing the income of the Assessee - As per CIT, AO failed to examine the factual aspect ignoring the provisions of Section 145(1) and (2) of the IT Act AND the loss to be contingent nature and therefore, disregarded assessee s recognized income or loss percentage computation method (POCM) as prescribed in the accounting standard-(AS)7 - HELD THAT - In the present case as Revenue has accepted the Accounting Method followed by the Assessee for year to year, in the middle of the completion of the project, neither the AO nor the PCIT can not disturb the method of accounting followed by the Assessee, if the accounting method is allowed to be disturb on an assessment year, which will give distort picture of the Assessee s financial position. Thus the Order passed by the AO cannot set to be erroneous if the same view that of the earlier years has been accepted by the AO in the year under consideration, thus the Ld. A.O. has applied his mind and came to the correct conclusion. The Ld. PCIT cannot interfere in an issue which has been accepted by the Revenue for number of years. When the facts in the Assessment year are same that of the Earlier Years, then the AO cannot take contrary view to the view taken in the earlier years. As the AO has accepted the accounting method followed by the assessee from year to year, in the relevant Assessment Year, the AO cannot take contrary view. Where facts and law in a subsequent assessment year are the same, no authority whether quasi judicial or judicial can generally be permitted to take a different view. This mandate is subject only to the usual gateways of distinguishing the earlier decision or where the earlier decision is per incuriam. However, these are fetters only on a coordinate bench which, failing the possibility of availing of either of these gateways may yet differ with the view expressed and refer the matter to a bench of superior strength or in some cases to a bench of superior jurisdiction. In the absence of any material change justifying the Revenue to take a different view of the matter-and if there was no change it should be in support of the assesses-we do not think the question should have been reopened and contrary to what had been decided by the A.O in the earlier proceedings. Invoking jurisdiction u/s. 263 of the Act by the Ld. PCIT is bad in law, accordingly we quash the impugned order of the Ld. PCIT passed under section 263 of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Justification of jurisdiction under Section 263 of the Income Tax Act.
2. Validity of the assessment order under Section 143(3).
3. Recognition of income or loss under the Percentage Completion Method (POCM) as per AS-7.
4. Nature of the provision for anticipated loss.
5. Basis for invoking Section 263 on account of audit objections.

Detailed Analysis:

1. Justification of jurisdiction under Section 263 of the Income Tax Act:
The appellant contended that the Principal Commissioner of Income Tax (PCIT) was not justified in assuming jurisdiction under Section 263, as the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. The assessment order was passed after proper verification of facts, and there was no lack of enquiry. The Tribunal found that the Assessing Officer (AO) had indeed conducted a proper enquiry and verified the materials on record before passing the assessment order.

2. Validity of the assessment order under Section 143(3):
The original assessment order dated 27/12/2016, passed under Section 143(3), was challenged by the PCIT on the grounds that it was erroneous and prejudicial to the interest of the Revenue. The Tribunal noted that the AO had issued a detailed questionnaire and the assessee had provided comprehensive responses. The AO had verified these responses and accepted the income of the assessee, thus the assessment order was not erroneous.

3. Recognition of income or loss under the Percentage Completion Method (POCM) as per AS-7:
The assessee had been recognizing income or loss as per the POCM, a method prescribed by Accounting Standard 7 (AS-7). The PCIT held that the loss claimed was of a contingent nature and disregarded the POCM. However, the Tribunal observed that the assessee had consistently followed the POCM from year to year, and the AO had accepted this method. The Tribunal held that the PCIT could not disturb the accounting method that had been consistently followed and accepted by the Revenue in previous years.

4. Nature of the provision for anticipated loss:
The provision for anticipated loss of Rs. 6,35,58,558/- was a significant point of contention. The PCIT considered this provision as contingent and not crystallized in the year under consideration. The Tribunal, however, found that the AO had examined this provision and accepted it based on the POCM and AS-7. The Tribunal held that the AO's acceptance of the provision was justified and not erroneous.

5. Basis for invoking Section 263 on account of audit objections:
The appellant argued that the PCIT had assumed jurisdiction under Section 263 merely based on audit objections, without any legal basis. The Tribunal supported this view, noting that the AO had conducted a detailed enquiry and verification before passing the assessment order. The Tribunal held that the PCIT's action of invoking Section 263 was not justified, as the AO's order was neither erroneous nor prejudicial to the interest of the Revenue.

Conclusion:
The Tribunal concluded that the PCIT's order under Section 263 was bad in law and quashed it. The appeal filed by the assessee was allowed, and the original assessment order passed by the AO was upheld. The Tribunal emphasized the importance of consistency in the application of accounting methods and the necessity for the Revenue to demonstrate any material change in circumstances to justify a different view in subsequent assessment years.