2024 (2) TMI 925 - AT - Income Tax

Revision u/s 263 - CIT said AO in the assessment order has not mentioned whether the assessee was following percentage completion method or project completion method for recognising the revenue - PCIT held AO had failed to examine method of revenue recognition interest on loan and nature of expenses as capital in nature therefore held that order passed u/s 143(3) of the Act on 02.03.2021 was erroneous insofar as it was prejudicial to the interest of revenue. HELD THAT - As assessee has filed the relevant copies of audit report and information pertaining to revenue recognition demonstrating that assessee has followed the percentage completion method and not the project completion method as mentioned by the ld. Pr.CIT in her order passed u/s 263 of the Act. In relation to the above the assessing officer has also called the various details like project wise value of work-in-progress and finished stock, detail of cost incurred and adjusted against sales reported project wise, party wise sale, receipts of each project and project wise gross profit etc. As undisputed fact that it has also been brought to the notice of ld. Pr.CIT that it has already been verified in the assessment order passed u/s 143(3) for assessment year 2012-13 to 2015-16, 2017-18 and 2018-19 that assessee has constantly followed the percentage completion method. As evident from the various information obtained by the assessing officer during the course of assessment proceedings that AO has verified and considered the various detail in respect of the method adopted by the assessee for recognizing the revenue. CIT has not disproved the material placed on record by the assessee in support of their claim that they have followed percentage completion method and not project completion method. In respect of claim of TDR expenses as undisputed fact that assessee was engaged in the business of construction and development of building. The assessee has explained that TDR was a right of construction in form of FSI relating to land and building which was part of stock in trade in the business carried out by the assessee, therefore, we consider that treating TDR in the nature of capital expenditure was not justified. CIT has not substantiated that how the assessment order passed by the assessing officer is erroneous as well as prejudicial to the interest of revenue. Therefore, ground of the appeal of the assessee are allowed. Pr.CIT jurisdiction to pass order u/s 263 over order passed by the faceless assessment u/s 144B - HELD THAT - Once the record are transferred to the jurisdictional assessing officer on completion of assessment the jurisdictional PCIT assume jurisdiction therefore can exercise power u/s 263 of the Act over the order passed by the faceless assessment unit. Therefore, we don t find any merit in the ground no. 3 of the appeal of the assessee and the same stand dismissed.

Issues Involved:
1. Validity of the order under Section 263 of the Income Tax Act.
2. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) to pass the order under Section 263.
3. Violation of principles of natural justice.
4. Merits of the assessment order being set aside for fresh inquiries and verification.

Summary:

Issue 1: Validity of the order under Section 263 of the Act
The assessee challenged the order passed under Section 263, arguing that the assessment order dated 02.03.2021 was not erroneous and prejudicial to the interest of revenue. The PCIT had set aside the assessment order, stating that the assessee followed the project completion method, and therefore, the interest on loans taken during the year was not allowable. However, the Tribunal found that the assessee had consistently followed the percentage completion method, as evidenced by the audit report and details submitted during the assessment proceedings. The Tribunal concluded that the PCIT did not disprove the material placed on record by the assessee and that the assessment order was not erroneous or prejudicial to the revenue's interest.

Issue 2: Jurisdiction of the PCIT to pass the order under Section 263
The assessee contended that the PCIT had no jurisdiction to pass the order under Section 263 as the assessment was made under the Faceless Assessment Scheme, supervised by another PCIT. The Tribunal noted that the Faceless Assessment Scheme, notified by the CBDT, provided that after completing the assessment, the electronic records would be transferred to the jurisdictional Assessing Officer for further action. The Tribunal held that the jurisdictional PCIT could exercise revisionary powers under Section 263 after the records were transferred back to the jurisdictional Assessing Officer. The Tribunal dismissed the assessee's ground, stating that the PCIT, Mumbai-27, had the jurisdiction to pass the order under Section 263.

Issue 3: Violation of principles of natural justice
The assessee argued that the PCIT violated the principles of natural justice by not considering the submissions filed by the assessee and changing the basis of invoking jurisdiction. The Tribunal did not find merit in this argument, as the PCIT had provided an opportunity for the assessee to be heard and had issued a show-cause notice detailing the reasons for invoking Section 263.

Issue 4: Merits of the assessment order being set aside for fresh inquiries and verification
The PCIT had set aside the assessment order for fresh inquiries and verification, particularly concerning the method of revenue recognition and the nature of expenses. The Tribunal found that the Assessing Officer had already examined these issues during the original assessment proceedings, as evidenced by the detailed submissions and documentation provided by the assessee. The Tribunal concluded that there was no need for fresh inquiries and verification, as the assessment order was neither erroneous nor prejudicial to the revenue's interest.

Conclusion:
The Tribunal partly allowed the appeal, holding that the assessment order was not erroneous or prejudicial to the revenue's interest, and the PCIT had no jurisdiction to pass the order under Section 263. The Tribunal dismissed the ground related to the violation of principles of natural justice and upheld the jurisdiction of the PCIT to exercise revisionary powers after the records were transferred back to the jurisdictional Assessing Officer.

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