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TMI Blog2019 (11) TMI 1179X X X X Extracts X X X X X X X X Extracts X X X X ..... y, 5.75 crores should have been added u/s 115JB of the Act. AO had taken note of the issue of provision of 5.75 crores claimed by the assessee as deduction and has raised queries and the assessee has duly replied and the AO has accepted the claim of the assessee. Since the provision the assessee claimed is an ascertained liability, there was no question that AO could have disallowed the same neither in the normal computation nor while computing book profit u/s 115JB of the Act. So the AO has discharged his duty as an investigator as well as an adjudicator and allowed the claim which is a plausible view, which cannot at any rate be called as an unsustainable view. So the Ld. Pr. CIT failed to make out a case that the order of AO is erroneous as well as prejudicial to the interest of the revenue, which was a condition precedent for invoking jurisdiction u/s 263 of the Act. Therefore the impugned order of Ld. Pr. CIT is without jurisdiction and null in eyes of law. - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... ts reply and thereafter the Ld. Pr. CIT after considering the submissions of the assessee held as under: "I have carefully considered the material available on record and found that the issues pointed out in the show cause needs verification as merely accepting submission during the course of assessment proceedings the A.O. failed to examine the above referred issue. After having considered the position of law and facts and circumstances of the instant case, I am of the considered opinion that the assessment order passed by the A.O. is erroneous in so far as it is prejudicial to the interest of revenue in accordance with the Explanation 2(c) below section 263(1) of the Act. Accordingly, the issue is set aside to the table of AO on specific point mentioned in para 2 above. The A.O. is directed to provide reasonable opportunity to the assessee company to produce documents & evidences which it may choose to rely upon for substantiating its own claim. Thereafter a fresh assessment order may be passed in accordance with the relevant provisions of law." 4. Aggrieved by the aforesaid action of the Ld. Pr. CIT the assessee is before us challenging the exercise of revisional jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, according to the Ld. AR the AO had raised the query on this issue and after going through the detailed reply of the assessee, the AO has accepted the contention of the assessee that the amount of ₹5.75 crores is an ascertained liability and therefore, he was pleased to allow the same and therefore, while calculating the book profit u/s 115JB of the Act did not prefer to add the same which view is a plausible view taken by the AO. Further, the Ld. AR also pointed out that it was explained before the AO vide this reply that the assessee had filed along with reply also brought to the notice that the assessee had filed a copy of the certificate issued by the architect supervising the Elgin Road Project by M/s. Saha & Associates that since the construction of the building was substantially completed, the company could legally handover the possession of the units to the flat purchasers. Taking note of the same, and that since the assessee was following the completed contractual method/project completion method, booked/recognized in the accounts for the year ended 31.03.2014 the gross revenue of the Elgin Road Project. Moreover according to the Ld. AR, at the time of inspection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of matching concepts that the expenditure need to be allowed as deduction which claim was accepted by the AO after going through the architect's report as well as the site engineer's report (as well as the expenses on this issue which had taken place in subsequent years). Therefore according to the Ld. AR that the view taken by the AO was a plausible view and he cited the order of the coordinate Bench of this Tribunal in ITA No. 714/Kol/2018 in the case of DCIT vs. M/s. Ashiana Housing Limited wherein the question was whether deduction can be given for provision in respect of ascertained liability wherein the Tribunal has held as under: "6. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the assessee in the present case is carrying on the business of real estate development and revenue from the said business was being recognised by it by following the project completion method. As per the said method, the revenue of 7 projects which were completed or substantially completed was recognised by the assessee in the year under consideration, out of the said 7 projects, 2 projects were fully completed and since no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction in the case of the assessee following mercantile system of accounting. He however ignored the fact that the provision was made by the assessee for the expenses in relation to the projects completed of which the revenue was recognised and since such expenses were duly identified by the assessee in respect of each and every projects and details of the same were also furnished before the AO, the provision made by the assessee represented ascertained liability. Moreover, the expenditure so provided was to be incurred in respect of the projects substantially completed, the entire revenue of which was duly recognised by the assessee in the year under consideration. The said expenditure thus was related to the revenue already recognised by the assessee in the year under consideration by following the project completion method and the same was allowable as deduction in the year under consideration as per the concept of matching principle. It is pertinent to note here that the similar method of accounting was followed by the assessee consistently even in the earlier years and as submitted by the learned counsel for the assessee, similar provision made for the expenses to be incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for invoking revisional jurisdiction is absent in the facts of the case. 8. Per contra, the Ld. CIT(DR) supporting the order of the Ld. Pr. CIT submitted that though the AO had asked the assessee about this issue, however has simply accepted the reply of the assessee without verifying whether the provision claimed by the assessee as deduction is ascertained liability or not, which makes the order erroneous and prejudicial to the revenue, so Ld. Pr. CIT rightly invoked the jurisdiction u/s 263 of the Act and relied on the judicial precedent cited by Pr. CIT as well as the reasons given by Ld. Pr. CIT. So he does not want us to interfere with the order of the Ld. Pr. CIT. 9. Having heard both the parties, and on a careful consideration of the facts and circumstances of the case, we find that the ld. PrCIT invoked the revisionary jurisdiction on finding fault that the AO had simply accepted the version of assessee and allowed deduction of provision which is an un-ascertained liability, as well as the same [un-ascertained liability] could not have been allowed by the AO while computing book-profit. Therefore, according to ld. PrCIT, there was a requirement for verification and as a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer cannot be treated as prejudicial to the interest of the revenue. It was further observed that when the Assessing Officer adopts one of the course permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the Ld. CIT does not agree, it cannot be treated as an order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law. 10. We note that the sheet anchor on which the ld. CIT has found fault with the AO's order in the present case is the lack of enquiry/verification on the part of the AO to have simply accepted the version of assessee and allowed deduction of provision which is an un-ascertained liability, as well as the same [un-ascertained liability] could not have been allowed while computing book-profit. In this context we find that there is a clear distinction between "lack of enquiry" and "inadequate enquiry". If there is an enquiry, even if inadequate, that would not by itself give occasion to the ld. PrCIT to interdict and interfere by exercising his revisional jurisdiction merely because he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Pr CIT after going through the aforesaid submission of assessee has finally concluded by stating that in his opinion the AO's order is erroneous as well as prejudicial to the interest of Revenue in accordance with the Explanation 2(c) below Section 263 of the Act. So we reproduce Explanation 2(c) below Section263 of the Act which reads as under: "the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119" 12. We note that in the impugned order, the Ld. CIT has fortified his usurpation of revisionary jurisdiction u/s 263 of the Act, by relying on the amendment to Section 263 whereby second Explanation to sub-section (1) of sec. 263 of the Act was inserted with effect from 01.06.2015. The said amendment inserted the words "in the opinion of Principal commissioner or Commissioner". According to ld. CIT, after this amendment was brought into statute, the order passed by the AO can be deemed to be erroneous insofar as prejudicial to the interest of the revenue if in the opinion of the Pr. CIT or CIT, the order has been passed without making enquiries or verification which should have been made. According to us, however, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ways to have extended] to such matters as had not been considered and decided in such appeal.] [Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.] [(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.] (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase or any other person. 14. So, the amendment brought by the Finance Act, 2015, by way of insertion of Explanation-2, can come to the aid of the ld. Pr. CIT or ld. CIT only when any of the four conditions is satisfied and there is a clear finding of fact to that effect is recorded by the Ld. CIT, then only the legal consequence that AO's order is erroneous insofar as prejudicial to the revenue can be deemed or else it cannot be deemed. Then in that case only the assessment order framed by the Assessing Officer can be deemed to be erroneous insofar as prejudicial to the interest of the Revenue, not otherwise. To say it differently, the "opinion of Ld. Pr. CIT or CIT" cannot be read in isolation, and it has to be read with the four conditions stipulated under Explanation-2 as (a) to (d) and has to be read along with it. And only in the event that any one of the situation is satisfied and there is a finding of fact by the Ld. CIT to that effect in his sec. 263 order, then only the deeming provision of Explanation-2 can be pressed into service for rendering an assessment order as erroneous, insofar as prejudicial to the Revenue, which is the jurisdictional fact & law required for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risdiction in the event the assessment order is erroneous as well as prejudicial to the interest of the Revenue as discussed above and not otherwise. 16. So when we look at Explanation-2, we note that deeming fiction of law that the order of the Assessing Officer is deemed to be erroneous insofar as it is prejudicial to the interest of the Revenue only if in the opinion of the ld. PrCIT, which necessarily has to be a finding of fact in the four events discussed supra. Then legal consequence follows, if not it does not. So, the PrCIT has to make a finding of fact that the Assessing Officer passed the order not in accordance with any order, directions or instructions issue by the CBDT u/s 119 of the Act. So when the ld PrCIT has taken the aid of this deeming provision he has to give a finding of fact that the assessment order has been framed by the AO, not in accordance with any order, directions or instructions issued by the CBDT u/s 119 of the Act, which he has not spelled out. So we asked the Ld. CIT(DR) to tell us which order, direction of CBDT issued u/s 119 of the Act has not been followed by the AO, which he was not able to spell out. The Ld. Pr. CIT has simply made an averme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mon amenities in the building were not complete till 31.03.2014 even though civil construction within the individual apartments/units was complete. As per the Company's understanding with the flat purchasers, once the Company handed over possession of the individual flats/units to the purchasers it was the individual obligation of the flat purchasers to carry out the further civil construction 8s other engineering work inside the apartment at own cost. In the circumstances, after the Company handed over possession of the individual flat to flat purchasers, considerable civil work was carried out by the individual flat owners inside their apartment areas. For this purpose, considerable movement of men 85 material occurred in the common areas which were to be developed in a proper manner by the Company in terms of its contractual obligations under the Agreement. Since considerable civil work was being carried out inside the individual apartments which was causing wear 85 tear to the common areas of the building it was deemed prudent not to carry out the development of the common areas and amenities till civil work inside the individual apartments was not complete. However, under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nized in the accounts for the year ended 31.03.2014 under the 'project completion method' since the construction of the building was certified to be substantially complete. At the time of inspection of the project the said Architect also certified that although the building was in a substantially advanced stage of completion yet certain work/jobs were required to be carried out to fulfill Company's contractual obligation.' The said Architect also provided the estimate of cost & expenses which the Company would be required to incur to complete the project in all respect till obtaining the completion certificate. A copy of the Certificate issued by M/s. M/s. Saha & Associates has already been enclosed as (herein annexed as Annex-II) After the Certificate was received from M/s. Saha & Associates represented by its proprietor Mr. Bichitresh Saha the Company required Mr. Susanta Kumar Mukhopadhyay who was on Site Engineer employed for supervising the construction work to carry out site inspection and prepare a detailed cost estimate of the work to be completed in consultation with the Site Supervisors as also the Suppliers & Contractors who were to execute the pending works & jobs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laid in respect of claim of provision as in the present case of assessee before us, has been laid by the Hon'ble Supreme Court in Calcutta Company (supra) which was relied upon by the co-ordinate Bench of this Tribunal (Pune) in page 85-87 of PB can be seen as under: "In the case of ACIT Vs Ashok Buildcon Ltd (61Taxman.com 330 - Pune) dated 31.12.2014. In this case also the assessee was engaged in the business of civil construction and implementation of infrastructure projects. The assessee followed mercantile system of accounting. In 2001 Tamil Nadu Road Development Corporation awarded a composite contract which involved improvement/construction of road as well as maintenance of road. During the A.Y. 2003-04 the assessee completed the construction of the road but assessee continued to remain under obligation to maintain the road for 5 years free of cost. The assessee anticipated the expenses to be incurred on account of maintenance work and determined future foreseeable losses on account of such obligation at the certain amount and made provision therefore in its accounts for year ended 31.03.2003. The assessee's claim for deducting such provision was disallowed by the AO treati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e possibility of reduction or even extinguishment of the liability would not have the effect of converting liability into a contingent one. In computing its taxable profits of a particular year the assessee may properly deduct not only the payment actually made but also the amounts payable in the subsequent years." 19. Thus we note that the AO has rightly appreciated the claim of the deduction of provision for ₹5.75 crores. We also note that this Tribunal in DCIT vs. M/s. Ashiana Housing Ltd. ITA No. 714/Kol/2018 (for A.Y. 2013-14) has observed as under in similar case: "8. It appears that the AO could not appreciate the claim of the assessee in the light of method of accounting followed by the assessee perspective and disallowed the claim of the assessee on the ground that the provision made by the assessee represented unascertained liability which was not allowable as deduction in the case of the assessee following mercantile system of Recounting. He however ignored the fact that the provision was made by the assessee for the expenses in relation to the projects completed of which the revenue was recognised and since such expenses were duly identified by the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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