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TMI Blog2019 (8) TMI 980X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly followed by it in the subsequent years, therefore, no addition could have been made by the A.O on account of such change in the method of recognizing the fees from PSG by the assessee. See M/S. MODERN TERRY TOWELS LTD., [ 2012 (8) TMI 776 - BOMBAY HIGH COURT] CIT(A) even in the case of an assessee following mercantile system of accounting, an item would be regarded as accrued income only if there was certainty of receiving it and not when it had been waived. We find that a coordinate bench of the Tribunal in the case of Addl. CIT Vs. Hill County Properties Ltd. [ 2015 (5) TMI 930 - ITAT HYDERABAD] had after deliberating on somewhat similar facts as are involved in the case of the assessee before us, observed that where some extraordinary events created uncertainty with regard to completion of project by the assessee, which resulted in cancellation of property booking/filing of legal cases, the assessee who was a property developer was justified in changing the method of recognition of income and adopting registration of agreement for sale or handing over of possession of flats and bungalows as the basis for recognition of income, as against execution of agreement for sale that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss objection at any time before or the time of hearing of the cross objections as they may by advised." 2. Briefly stated, the assessee company which is engaged in the business of home finance as well as deriving income from property services had e-filed its return of income for A.Y. 2009-10 on 30.09.2009, declaring total income at ₹ 145,64,43,072/-. Original assessment in the case of the assessee was framed under Sec. 143(3) on 16.12.2011, determining its total income at ₹ 342,81,87,230/-. Subsequently, the case of the assessee was reopened under Sec.147 of the I.T Act. The assessee in compliance to the notice issued under Sec. 148, dated 19.03.2013 requested that its 'Original' return of income filed under Sec. 139(1) on 31.03.2013 may be treated as the return of income filed in response to the aforementioned notice issued under Sec.148 of the IT Act. 3. During the course of the assessment proceedings the copy of 'reasons to believe' on the basis of which the case was reopened under Sec.147 were made available to the assessee. On a perusal of the 'reasons to believe', it was observed by the assessee that its case was reopened for the reason that as it had chan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich revenue was to be recognised only where the same was measurable at the time of rendering of the services and it would not be unreasonable to expect ultimate collection of the same. In sum and substance, it was submitted by the assessee that following the principles laid down by the AS-9 the fees from PSG was recognised from A.Y 2009-10 as revenue in instances where: "a. Initial payments were made by prospective flat buyer to builder clients of the appellants and the said sum(s) was/were not refundable; or b. The flat purchase was completed by executing the transactions as agreed upon by the prospective flat buyer and the builder client of the appellants. In such cases the PSG fees became due and payable to the appellant by builder clients, which resulted in reasonable certainty to expect the ultimate PSG fee income." It was further submitted by the assessee that the aforesaid basis of accounting the fees from PSG from A.Y. 2009-10 onwards was consistently followed by the assessee till date, and the same had also been accepted by the A.O in the subsequent years without any adjustments. It was thus the claim of the assessee that the change in the basis of accounting of PSG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of the A.Y. 2009-10, therefore, the proviso to Sec.147 was not applicable in its case. On the basis of his aforesaid observations the CIT(A) concluded that the fact that the assessee had made full disclosure at the time of assessment under Sec.143(3) would not be a bar for reopening the said assessment. As regards the contention of the assessee that the reopening was based on a "change of opinion" as the details pertaining to revenue recognition of PSG fees were on the record of the A.O while passing the assessment order, the same too did not find favour with the appellate authority. The CIT(A) was of the view that it was not the case of the assessee that the specific issue of change in revenue recognition of PSG fees was examined and accepted by the A.O while framing the original assessment. In fact, the CIT(A) observed that simply because the information regarding the change in revenue recognition formed part of the 'notes to accounts', the assessing officer could not be said to have formed an opinion on the said count. In sum and substance, the CIT(A) held a conviction that as the A.O while framing the original assessment had not examined the aspect pertaining to change in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also persuaded to accept the contention of the assessee that by changing the basis of accounting of fees from PSG the assessee had brought the same in conformity with Accounting Standard-9 issued by the Institute of Chartered Accountants of India, as per which the revenue was to be recognised at the stage when the same was measurable and it would not be unreasonable to expect ultimate collection of the same. It was noticed by the CIT(A) that as per the principles laid down in AS-9, where the ability to assess the ultimate collection with reasonable certainty was lacking at the time of raising any claim, revenue recognition was postponed to the extent of uncertainty involved. On the basis of his aforesaid deliberations, it was observed by the CIT(A) that the assessee by shifting to recognising of the fees from PSG to the extent invoices were raised on its builder customers, had thus brought the same in conformity with the Accounting Standard-9 for recognition of income. In the backdrop of the aforesaid facts, it was observed by the CIT(A) that where the assessee had changed the method of recognition of income for bonafide reason and the same is found to be in accordance with the nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that the concluded assessment in the case of the assessee was reopened within a period of 4 years from the end of the relevant assessment year. The ld. A.R took us through the 'reasons to believe' on the basis of which the finality of the assessment earlier framed was disturbed by the A.O. It was submitted by the ld. A.R. that the A.O had reopened the case on the basis of an 'audit objection' received by him vide letter dated 22.12.2012 from the audit office. In order to fortify her aforesaid contention the ld. A.R drew our attention to Page 94 of the assesses paper book (for short 'APB'), wherein a copy of the objection of the audit cell was placed on record. It was submitted by the ld. A.R that the assessee had replied to the audit objection by way of an e-mail dated 16.12.2013. It was averred by the ld. A.R that the assessee had brought to the notice of the A.O that the change in the method of recognising fees from PSG was duly disclosed in the 'notes to accounts' forming part of Schedule XV to the financial statements of the assessee for the period ending 31.03.2009. Further, it was averred by the ld. A.R that the assessee by changing the method of recognising the fees fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment. In fact, it was observed by the High Court that the reason for which the assessment for A.Y. 2006-07 was sought to be reopened by a communication dated 12.10.2011 was identical to the objection of the audit authority dated 29.12.2009. In the backdrop of the said facts, it was observed by the Hon'ble High Court that as there was no independent application of mind by the A.O before he issued the impugned notice, therefore, on the said ground alone the assumption of jurisdiction by the A.O stood faulted. 9. In the case before us the ld. A.R has assailed the validity of the jurisdiction assumed by the A.O for reopening of the assessment on two grounds viz. (i) that the concluded assessment had been reopened on the basis of a 'change of opinion'; and (ii) the reopening of the assessment was not on the basis of any independent formation of belief by the A.O but simply on the basis of the 'audit objection' communicated to him. It was further submitted by the ld. A.R that the assessee had by way of 'Notes' forming part of its accounts filed along with its return of income had at Para 2(j) duly disclosed the change in the income recognition policy related to fees from PSG. Further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee by adhering to AS-9 had carried out a bonafide change in respect of recognition of its revenue insofar fees from PSG was concerned. The ld. A.R submitted that as per the earlier method as per which fees from PSG was recognised at the time of rendering of services i.e. booking of flats by the prospective purchasers with their builder clients, if for any reason the said agreement would not crystallise, then no fees on account of PSG in respect of the said contract would be payable to the assessee by the builder clients. In the backdrop of the aforesaid facts, it was submitted by the ld. A.R that the assessee who would have recognised the income at the time of booking of the flats would thereafter had to substantially 'write off' the same in the year in which such agreements were terminated or did not materialise. The ld. A.R submitted that it was for the said reason that the assessee had switched over from its earlier method of recognising the fees from PSG at the time of booking of the flats by the prospective buyers, to recognising the same to the extent invoices were raised on the builder clients. It was submitted by the ld. A.R that the aforesaid change of recognising the reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he change in the method of recognising revenue for PSG fees by the assessee during the year was not bonafide. Apart there from, it was averred by the ld. D.R. that the aforesaid change in recognising the revenue from PSG fees by the assessee did not fit in the AS-9 as was so relied upon by it. On the basis of the aforesaid contentions it was submitted by the ld. D.R that the A.O after validly reopening the case of the assessee had rightly brought the income of ₹ 13,16,72,984/-of the assessee which had escaped assessment to tax in its hands. 11. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. As the assessee has assailed the order of the CIT(A) on the ground that he had erred in upholding the validity of the jurisdiction assumed by the A.O for reopening its case under Sec.147 of the I.T Act, therefore, we shall first advert to the said aspect. Admittedly, the assessment in the case of the assessee company was earlier framed under Sec. 143(3), dated 16.12,2011. On the basis of an 'audit objection', dated 22.11.2012 it was brought to the notice of the A.O that from a perusal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the A.O. However, as observed by us hereinabove, as there is neither any discussion on the issue pertaining to change in the method of recognising the PSG fees by the A.O in the assessment order, nor there is any such material on the basis of which it could be safely gathered that the said issue had been looked into and deliberated upon by him in the course of the original assessment proceedings, therefore, the aforesaid contention of the assessee that its concluded assessment was reopened on the basis of a 'change of opinion' cannot be accepted. Insofar support drawn by the ld. A.R from the relevant extracts of the letter dated 24.02.2014 that was addressed by the assessee to the A.O, therein pointing out that the then A.O in the course of original assessment proceedings had raised queries on the issue of the income disclosed by the assessee in its financial statements as against that disclosed in the TDS certificates is concerned, the same in our considered view would not suffice for concluding that the A.O while framing the original assessment had deliberated upon and formed an opinion as regards the change in the method of recognising the PSG fees by the assessee during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpt to bring to tax income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed 'change of opinion' even in cases where the order of assessment does addressed itself to a given aspect sought to be examined in the reassessment proceedings. The Hon'ble Supreme Court after referring to its earlier judgment in the case of CIT Delhi Vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC), had though reiterated the view earlier taken by the Court that a mere 'change of opinion' cannot per se be a reason to reopen a concluded assessment, but had also stated that it has to be verified as to whether the assessment earlier made has either expressly or by necessary implication expressed an opinion on a matter which forms the basis of reopening the concluded assessment. We may herein observe that the reliance placed by the assessee on the judgment of the Hon'ble High Court of Bombay in its own case for A.Y. 2006-07 i.e. ICICI Home Finance Company Ltd. Vs. ACIT-10(1) (2012) 25 taxman.com 241 (Bom) is distinguishable on facts. In the aforementioned case the Hon'ble High Court had specifically observed that all the facts in respect of which the assessment was sought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstance be reopened on the basis of an 'audit objection' is concerned, we are afraid that the same cannot be accepted as such. Our aforesaid view is supported by the judgment of the Hon'ble Supreme Court in the case of CIT Vs. P.V.S. Beedies (P) Ltd (1999) 237 ITR 13 (SC). However, in a case where the A.O had merely acted upon the information received from the audit section, without any independent application of his mind to the same, such a reopening cannot be sustained and would be liable to be vacated. Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Bombay in the assesses own case i.e. ICICI Home Finance Co. Ltd. Vs. ACIT- 10(1) (2012) 25 taxman.com 241 (Bom). In the aforementioned case the Hon'ble High Court by relying on the judgment of the Hon'ble Supreme Court in the case of India & Eastern Newspaper Society Vs. CIT (1979) 119 ITR 996 (SC) had observed that whether an income has escaped assessment or not must be determined by the A.O himself. It was further observed that the A.O cannot blindly follow the opinion of an audit party for the purpose of arriving at a belief that the income of the assessee has escaped assessment. In the backdrop of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available to the assessee by the A.O vide his letter dated 20.01.2014) on the basis of which the concluded assessment of the assessee had been reopened by the A.O, which reads as under: "It is seen from the Notes to accounts [No.1(j)] that during the previous year relevant to A.Y. 2009-10 the company had changed the income recognition policy related to fees from Property Service Group from recognising the entire fees on rendering of service to recognizing the fees to the extent of invoice raised on customer, thereby non accounting of income of ₹ 13,16,72,984/-. As the assessee had rendered its services and income had accrued to it, the unbilled revenue was also required to be include in the taxable income." A careful perusal of the 'reasons to believe' as had purposively been reproduced by us hereinabove, clearly reveals that the A.O had reopened the concluded assessment of the assessee by merely adopting and endorsing the 'audit objection' as was so intimated to him by the audit section. There is in nothing discernible from the 'reasons to believe' from where it can be concluded that there has been any independent application of mind by the A.O to the information recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no independent application of mind on the part of the A.O who had merely acted upon the audit objection so received, the reopening of the concluded assessment of the assessee cannot be upheld and is liable to be vacated on the said ground. 16. We shall for the sake of completeness now advert to the merits of the case. The revenue has assailed the order of the CIT(A) on the ground that he has erred in vacating the addition of ₹ 13,16,72,984/- made by the A.O on account of failure on the part of the assessee to account for its fees from PSG to the said extent, specifically when the same had accrued to it. As observed by us hereinabove, the assessee had during the year changed its method of recognising the fees from PSG from the earlier method of recognising the same at the time of rendering of services i.e booking of flats by the buyers with its builder clients. As per the revised policy the assessee company now recognised the fees to the extent of invoice raised on the customer, as against the earlier method of recognising the entire fees on the rendering of the services. In order to appreciate the facts in the true perspective, it would be relevant to understand the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) and are in agreement with the view taken by him that as the change in the method of recognizing the fees from PSG by the assessee during the year was a bonafide change, which thereafter had consistently been followed in the subsequent years, therefore, no adverse inferences on account of such change in the method of accounting was liable to be drawn in the hands of the assessee. In our considered view, the assessee by changing the basis of revenue recognition had brought the same in conformity with the guidance notes of AS-9 issued by the Institute of Chartered Accountants of India, as per which the revenue is required to be recognized at the stage when the same is measurable and canreasonably be expected to be ultimately collected. In fact, as per the principles laid down in AS-9, where the ability to assess the ultimate collection with reasonable certainty was lacking at the time of raising any claim, revenue recognition was postponed to the extent of uncertainty involved. We find that from the year under consideration viz. A.Y 2009-10, the assessee had started recognizing the fees from PSG to the extent invoice was raised on the customers (i.e the builders) as per AS-9. We ..... X X X X Extracts X X X X X X X X Extracts X X X X
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