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TMI Blog2015 (11) TMI 994X X X X Extracts X X X X X X X X Extracts X X X X ..... long with relevant details. As we have already noted that the assessee filed tabulation chart showing taxable income and tax effect due to change of accounting policy and standard (assessee's Paper Book page no. 11) wherein it is amply clear that tax surcharge and EC as per AS-7 was calculated at ₹ 8,34,63,477 and tax surcharge and EC payable as per AS-9 was ₹ 12,37,91,145 and in the very first year, the assessee changed its method of accounting from AS-9 to AS-7, there was an amount of refund of ₹ 4,03,27,668. At the same time, from the said tabulation chart we further observe that in subsequent Assessment Year from 2008-09 to 2011-12 the assessee was under obligation to pay higher amount of tax, surcharge and EC by following AS-7 instead of AS-9, therefore, in the totality of the facts and circumstances, it cannot be held that the assessee changed its method of accounting from AS-7 to AS-9 with an intention to avoid tax liability and therefore this resulted into lowering of profits. However, as we have already pointed out that in the very first year of changing of accounting standard, there was a lesser tax liability on the assessee but in the subsequent four ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to this extent and directed the Assessing Officer to make a fresh assessment order on this aspect after making inquiries/verification and after giving reasonable opportunity of hearing to the assessee. Now, the aggrieved assessee is before the Tribunal with the following grounds:- 1. The order passed by the CIT u/s 263 of the Income-tax Act, 1961 (the Act) is bad in law, sans jurisdiction in as much as the order of the AO which has been revised is neither erroneous and nor is it prejudicial to the interests of revenue. 2. The order passed by the AO u/s 143(3) of the Act accepting a method of accounting which the assessee was required to adopt as per the mandate of section 145 of the Act read with section 211 (3A) of the Companies Act could not be termed as erroneous within the meaning of section 263. 3. The CIT erred both on facts and in law in further treating the order passed by the AO as prejudicial to the interests of revenue without appreciating that the sum of ₹ 119,808,876/- which had been deferred in the assessment year 2007-08 had been offered to tax in assessment year 2008-09 there being no loss to the revenue. 4. The CIT further erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to AS-7 vis- a-vis the preceding assessment year. The same was explained by the assessee vide letters dated 20.10.2009 and 30.10.2009 (pages 1 to 5 of the PB). In fact the annexures to the letter dated 30.10.2009 contained a detailed contract wise working explaining the difference between AS-9 and AS-7. The order of assessment was passed on 15.12.2009. The aforesaid documents when considered in the context of the observations in the assessment order (reproduced earlier) leaves no doubt about the due application of mind on the part of the AO to the point at issue. In other words it is a case of 'enquiry' and not a case of 'no enquiry' as is the view of the learned CIT. Order of the CIT passed u/s 263 The order has been passed in an inordinate hurry on 27.03.2012 after a solitary hearing on 26.03.2012. There is no reference to the detailed written submissions as also the judgements cited by the assessee. In other words the order u/s 263 is passed in a mechanical manner without application of mind. Judgements 1. CIT vs Ashish Rajpal 320 ITR 674 (Delhi) (Para 16 at Page 41 of the PB of Judgements to be read along with Para 15 at Page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arding the nature and character of the one-time regulatory fee paid by it as well as the bank and stamp duty charges. A detailed explanation in the form of statements and other documents required of by the Assessing Officer were produced at the stage of original assessment. Clearly this was not a case of No Enquiry . The lack of any discussion on this cannot lead to the assumption that the Assessing Officer did not apply his mind. 3. DIT vs Jyoti Foundation 357 ITR 388 (Delhi) (Para 5 at Page 49 to be read alongwith Para 15 at Page 48 and Paras 16 17 at Page 49 of the PB) 5. In the present case, inquiries were certainly conducted by the Assessing Officer. It is not a case of no inquiry. The order under Section 263 itself records that the Director felt that the inquiries were not sufficient and further inquiries or details should have been called. However, in such cases, as observed in the case of DG Housing Projects Limited (supra), the inquiry should have been conducted by the Commissioner or Director himself to record the finding that the assessment order was erroneous. He should not have set aside the order and directed the Assessing Officer to conduct the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible material to the contrary, the Commissioner of Income Tax could not have treated this finding to be erroneous or to be prejudicial to the interest of the Revenue. The observation of the Commissioner of Income Tax that the Assessing Officer had arrived at his finding without conducting an enquiry was erroneous, since an enquiry was specifically held with reference to which a disclosure of details was called for by the Assessing Officer and made by the assessee. 6. CIT vs Honda Siel Power Products Ltd. (2010) 194 Taxman 175 (Delhi) (Para 18 of the Judgement to be read alongwith Paras 14 to 17) 18. From the aforesaid discussion, it is apparent that the expression prejudicial to the interest of revenue appearing in Section 263 has to be read in conjunction with the expression erroneous and that every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. In cases where the Assessing Officer adopts one of the courses permissible in law or where two views are possible and the Income-tax Officer has taken one view, the Commissioner of Income-tax cannot exercise his powers under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of revenue. (4) If during the assessment, the AO raised queries and replies filed by the assessee were considered, the mere fact that the assessment order was silent on these the same could not be held to be erroneous on account of 'absence of inquiry. ' (5) If there is some enquiry by the AO in the original proceedings even if inadequate that cannot clothe the CIT with the jurisdiction under section 263, merely because he can form another opinion. (6) One has to keep in mind the distinction between 'lack of inquiry' and 'inadequate inquiry'. If there was any inquiry even inadequate that by itself would give no occasion to the CIT to pass orders u/s 263 of the Act, merely because he has a different opinion in the matter. (7) In the case of 'inadequate inquiry' the CIT must himself conduct requisite enquiry before passing the order u/s 263 and the matter cannot be remitted to the AO to conduct such further enquiries. Ld. Counsel of the assessee further elaborated his submissions dated 26.3.12 filed before the CIT in response to the show cause notice issued u/s 263 of the Act and submitted that the ld. CIT proposed to rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Assessing Officer during assessment proceedings on record. Learned counsel of the assessee vehemently contended that the assessee had, in fact, filed contract wise working in support of the changed method of revenue recognition and all expenditure pertaining to deferred revenue was taken into account while recognizing the revenue in the financial statement of the assessee. On the issue of consistency, the learned counsel of the assessee pointed out that the assessee has followed the same method of revenue recognition i.e. adoption of Accounting Standard 7 in all the subsequent Assessment Years which is evident from the audited accounts filed before the CIT and before the Tribunal for the financial years ending on 31.3.08, 31.3.09, 31.3.10 and 31.3.2011. Ld. Counsel also submitted that Accounting Standard per assessment orders for Assessment Year 2008-09 and 2009-10 passed u/s 143(3) of the Act, the Assessing Officer has accepted the returned income wherein the revenue has been recognized in accordance with the changed method of accounting vide Accounting Standard-7 which has regularly and consistently been followed by the assessee during all subsequent Assessment Years subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the order passed by the Assessing Officer after due verification and examination of the issue on deferred revenue cannot be held as erroneous and prejudicial to the interest of revenue inasmuch as he has accepted the change of Accounting Standard adopted by the assessee by proper application of mind and after considering all relevant facts disclosed by the assessee for recognition of revenue as per relevant provisions of the Act and company law. Learned counsel of the assessee further pointed out that in the proceedings u/s 263 of the Act, the Assessing Officer cannot be faulted for accepting the method of accounting approved by the ICAI and mandated by the statute which otherwise is beneficial to the Revenue Accounting Standard compared to the method of accounting followed till 31.3.2006 i.e. Accounting Standard-9. Learned counsel of the assessee contended that neither of the conditions required and stipulated u/s 263 of the Act are specified in this case viz. the order of the Assessing Officer is neither erroneous nor prejudicial to the interest of revenue and therefore, the CIT had no valid jurisdiction to invoke revisionary powers of section 263 of the Act. Learned counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing heard during the assessment proceedings in pursuance to the impugned order and therefore no prejudice would be caused to the assessee if the issue is again verified and examined by the Assessing Officer after allowing opportunity of being heard to the assessee . 11. On careful consideration of above submissions of both the sides and careful perusal of relevant material placed on record inter alia Paper Book of the assessee spread over 211 pages, impugned order passed u/s 263 of the Act and brief synopsis of submissions by the assessee , we note that the CIT issued a show cause notice u/s 263 of the Act dated 12.3.12 to the assessee which reads as under:- The Perusal balance sheet as on 31.03.2007 shows that the assessee has shown an amount of ₹ 11,98,08,876/- as deferred revenue income by changing its method of accounting, said to be as per AS-7. This has resulted in lowering of profits by ₹ 11,98,08,876/-. The AO has accepted the assessee's claim in this regard without making any inquiry/verifications, as to whether the change was bonafide was consistently followed in future, and whether it was permitted under the I.T. Act, The AO has also not examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT vs Vodafone Essar South Ltd. reported in (2012) 212 Taxman 184 (Delhi), as relied by learned counsel of the assessee, wherein it was held that when the AO specifically queried regarding the nature and character of one time fee paid by it as well as the bank and stamp duty charges and the detailed explanation in the form of submissions and other documents required by the Assessing Officer were produced at the stage of original assessment, then clearly this was not a case of no inquiry and the lack of any discussion of the assessment order cannot lead to the assumption that the Assessing Officer did not apply his mind. In this judgement, Hon'ble Jurisdictional High Court has also referred dicta laid down by it in the case of CIT vs Sunbeam Auto Ltd. (2011) 332 ITR 167 (Delhi) wherein it was held that one has to keep in mind the distinction between lack of inquiry, even inadequate inquiry and if there was any inquiry, if inadequate, that would not by itself give occasion to the Commissioner to pass order u/s 263 of the Act merely because he has a different opinion in the matter. The present case is squarely covered in favour of the assessee by the dicta of Hon'ble Juri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under:- 3. It can be seen that the assessee company has merely filed some details regarding the amount of excess billing and the change in assessee's revenue recognition policy. This does not show that the AO has made relevant enquiry/verification as to whether the change was bonafide and was consistently followed in future. The Ld. Counsel was not able to point out that the AO has made any enquiry/verification into these aspects. There is nothing on record to show that the AO has made Investigations to satisfy himself about the bonafides of the change in the policy. There is also nothing on the record to show that the AO verified that the changed policy was consistently followed in future. There is also nothing on record to show that the AO had made any examination to find out whether any expenditure corresponding to the deferred revenue income was debited/claimed by the assessee and whether these were allowable in view of the fact that corresponding income is not taken into account. Since the AO has accepted the change in the revenue recognition policy i.e. method of accounting without any inquiry/verification which has resulted in lowering of profits by ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S-9 was ₹ 12,37,91,145 and in the very first year, the assessee changed its method of accounting from AS-9 to AS-7, there was an amount of refund of ₹ 4,03,27,668. At the same time, from the said tabulation chart we further observe that in subsequent Assessment Year from 2008-09 to 2011-12 the assessee was under obligation to pay higher amount of tax, surcharge and EC by following AS-7 instead of AS-9, therefore, in the totality of the facts and circumstances, it cannot be held that the assessee changed its method of accounting from AS-7 to AS-9 with an intention to avoid tax liability and therefore this resulted into lowering of profits. However, as we have already pointed out that in the very first year of changing of accounting standard, there was a lesser tax liability on the assessee but in the subsequent four years, the tax liability was much higher when the assessee adopted AS-7 as against AS-9. 18. Learned counsel of the assessee has placed reliance on the judgment of Allahabad High Court in the case of CIT vs Mahendra Kumar 282 ITR 503 (All) wherein it was held that when the Assessing Officer had passed the assessment order after obtaining certain details an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said notice. In this situation, the impugned order falls within the ambit of dicta laid by Hon'ble Jurisdictional High Court of Delhi in the case of DIT vs Jyoti Foundation (supra) wherein, after considering the ratio of its own decision in the case of CIT vs DG Housing Project Ltd., the Hon'ble Jurisdictional High Court held that where the order u/s 263 of the Act records that the inquiries were not sufficient and further inquiries or details should have been called for by the Assessing Officer, then in such cases, the inquiry should have been conducted by the Commissioner himself to record the finding that the assessment order was erroneous. Their lordships explicitly held that the CIT should not have set aside the order and directed the Assessing Officer to conduct the said inquiry. The present case of the assessee squarely falls within the ratio of the judgment of Hon'ble High Court in the case of Jyoti Foundation (supra) and hence we reach to a conclusion that the notice u/s 263 of the Act dated 12.3.12 and impugned order of the CIT was not passed under valid assumption of revisional jurisdiction available to the CIT(A) u/s 263 of the Act and thus, the same ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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