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TMI Blog2022 (8) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... ject completion basis which is a generally acceptable accounting policy and is undisputed. Investment made by the assessee in the illiquid funds, in our view, this is the decision of the board to decide how the funds of the company to be utilised in its best interest and it is the affected party i.e., Lalitpur Power Generation Co Ltd, who had paid the contract price more than the certified work completion, can object the diversion of funds other than intended purpose. The revenue has no role to play how the funds are being utilized by the assessee, it can only analyse the method of accounting adopted consistently and offered the proper income for taxation. Beyond that they don t have any role to play and they are not expected to enter the shoes of the assessee how their affairs have to be carried out. In the given case, the Assessing Officer had verified the method of accounting in detail and the assessment was also selected (limited scrutiny- to verify contract receipt and current liabilities are genuine) for specifically to verify the recognition of revenue adopted by the assessee. It is fact on record that assessee is following recognised method accounting standard, AS- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,15,120/-. The return of income was processed u/s 143(1) of the Act. The case was selected for scrutiny and assessment order u/s 143(3) was passed on 30.12.2018 accepting the returned income. 3. The Principal Commissioner of Income Tax-2, Mumbai deliberated on the assessment records of the assessee for the year under consideration, viz. A.Y. 2016-17, and observed that one of the reasons for selection was to verify whether the liabilities were genuine or not. The Ld.PCIT in his order u/s 263 observed that, there was a huge balance in the name of Lalitpur Power Generation Co. Ltd at Rs. 632.75 crores which was claimed as advance received by the assessee and duly deducted TDS on the same. The total project cost was Rs.2057.32 crores, out of which 5% (i.e. Rs.103 crores) was to be paid in advance and rest was agreed to be paid at different stages of the project development. On examination of the records it was observed that assessee had shown Rs.632.75 crores as advance and the excess advance beyond 5% under current liabilities which should have taken to the profit and loss account. Secondly, the Ld.PCIT observed that the advance received for the purpose of the projects was diverte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easing the scope of work as described in Schedule I of the said agreement and revising the Contract Price to Rs.2,057.32 crore. The assessee submitted that the revenue of the construction projects are recognised on the basis of Accounting Standard (AS) - 7 'Construction Contract' issued by ICAI for revenue recognition from construction contract accounting its revenue based on completion of the physical proportion of the contract work. The assessee further submitted that the amount to the extent not recognized as revenue as per AS-7 is required to be shown as Current Liability and same will be recognized as revenue in subsequent years based on percentage of work completed. The assessee submitted the summary of revenue recognized by the assessee till AY 2016 -17 as follows: AY Turnover as per Audited Accounts excluding taxes O/s Balance of Advance from LPGCL as at year end 2012-13 2,86,62,05,180 1,76,85,76,940 2013-14 17,90,44,551 1,96,52,55,592 2014-15 96,12,83,580 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee object to para 2 of Notice which state that as per contract, the total project cost is Rs.2057.32 crores which as per letter dated 10. 12.2010 of Lalitpur Power was to be paid on different stage of project progress. In fact, the total project cost as per letter dated 10.12.2010 was Rs.787 crores. The original contract dated 10.12.2010 was subsequently amended vide agreement date 29.11.2014 wherein the total project cost was revised to Rs.2057.32 crore. In view of above submission, your honour would appreciate that Advance received from Lalitpur Power Generation Ltd of Rs.632.75 crore is rightly shown as Current Liability- by the assessee. 8. In respect of the investments made in the private limited companies, the assessee submitted that for furtherance of object of the company, it looks forward for similar opportunities in the said arena. For furtherance of the said object and as a strategic move for opening opportunities to increase the business of the company in short to medium term and also keeping the flexibility to exit if the prospect looks discouraging, it had invested in Zero Percent Optionally Convertible Debentures of few companies who are engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The Ld AR of the assessee controverted the reasons of the Ld.Pr.CIT and vehemently submitted that Assessing Officer had conducted detailed enquiry in the case of the assessee and also stated that as many as on eleven occasions the Assessing Officer heard the assessee and discussed the case and thus, he contended that the Ld. Assessing Officer had passed the order after due consideration of the facts and circumstances of the case. The Ld AR further contended that the pre-requisite for exercise of jurisdiction u/s 263 by the Ld. Pr.CIT shall be that the order of the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the Revenue. The relevant extract of the assessee s submission is as under: The learned PCIT must be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent, i.e. if the order of the AO is erroneous but is not prejudicial to the interests of Revenue or if it is not erroneous but is prejudicial to the Revenue, recourse cannot be had to s 263(1) of the Act just to re-examine or verify the issues already e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmination on the advances received and to frame a fresh assessment in accordance with law. 14. Aggrieved with the above order, the assessee preferred an appeal before us on the following grounds: - 1. On the facts and in the circumstances of the case, and in law, the Learned Pr. Commissioner of Income Tax ( Pr. CIT ) erred invoking the provision of Section 263(1) of the Act without appreciating the fact that the Learned Assessing Officer ( LAO ) passed order u/s 143(3) of the Act detailed inquiries/ after and making adequate verification/examination with respect to advance received from M/s Lalitpur Power Generation Ltd. of Rs 632.75 crore shown as Current Liability. 2. The Ld. Pr. CIT grossly erred in stating that no specific query has been raised by the Assessing Officer on the issue of nature of excess advance of Rs 632.75 crores shown in current liabilities claimed as advances received. In fact, the appellant had file various submission and supporting documents during the course of assessment proceeding before LAO with respect to such advances. 3. The Ld. Pr. CIT erred in not appreciating that the appellant has made genuine investments in three entities in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by issuing notices u/s.142(1) with respect to the issues on the basis of which the Ld. Pr.CIT exercised the revisional jurisdiction u/s.263 and that the assessee furnished all the details duly asked for and the replies were furnished to the A.O during the course of the assessment proceedings and that it was after taking cognizance of all the submissions and after being completely satisfied with respect to the reasons for selection for scrutiny assessment, that AO has passed the order u/s. 143(3) accepting the returned income. 17. It was the further submission of the Ld. A.R. before us that assessee has undertaken only one contract which was awarded by Lalitpur Power Generation Co. Limited (LPGCL) on 20.12.2010 for a value of Rs.787 crores which was further enhanced to Rs.2057.32 crores vide MOU dated 29.11.2014. He submitted that Ld. Assessing Officer never doubted the source of advances. In fact he accepted the revenue recognition policy consistently followed by the assessee in accordance with Accounting Standard (AS) 7 Construction Contracts for the advances received from LPGCL at regular intervals and which was offered as income on project completion basis in accordance wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer, in the absence of the necessary verifications, had failed to treat the advance received beyond 5% as income, had thus rightly held the assessment order is erroneous in so far as it is prejudicial to the interest of revenue within the meaning of s.263 of the Act and hence has rightly set aside the order. and revised the same u/s. 263 of the Act . 19. Considered the rival submissions and material placed on record. The Ld. Pr.CIT assumed jurisdiction u/s 263 and set aside the assessment order passed by the Assessing Officer u/s 143(3) on the ground that the assessment order passed by the AO is erroneous insofar as it is prejudicial to the interest of the revenue. The Ld. Pr.CIT assumed jurisdiction on the ground that the Assessing Officer has not carried out requisite enquiries and also not applied his mind with respect to revenue recognition in respect of the advances received by the assessee and with respect to and utilisation of these advances. On a careful consideration of the matter and as is evident from the face of record, the Assessing Officer has deliberated upon the facts and has examined the replies and the submissions made by the assessee during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the ground that the Assessing Officer has not conducted required enquiries and also not applied in mind. In the opinion of the Ld. Pr.CIT, the enquiries conducted by the Assessing Officer may be inadequate, but that by itself, would not be a ground for the Ld. Pr.CIT to revise assessment order passed by the Assessing Officer unless the Ld. Pr.CIT specifically points out that the Assessing Officer has grossly overlooked the issue during assessment proceedings. In this case, on perusal of details filed by the assessee, we find that the Assessing Officer has caused necessary enquiries and the assessee has filed all details to justify the recognition of revenue and treatment of advances received therein, therefore, we are of the considered view that the Ld. Pr.CIT was incorrect in terming the assessment order passed by the Assessing Officer as erroneous and prejudicial to the interest of the revenue. 20. In this regard, we may gainfully rely upon the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co Ltd vs CIT (2000) 243 ITR 83. The Hon'ble Supreme Court in the said case held that if order of the Assessing Officer is erroneous, but does not prejudice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-a-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying out enquiries or verification, which a reasonable and prudent officer would have claimed out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. 22. We may herein observe that a similar view, as hereinabove, had also been taken by the Hon ble High Courts in the following cases: - (i). CIT v. Late Shri Vijay Kumar Koganti (2020) 4 NYPCTR 606 (Madras HC) (ii). Commissioner of Income Tax Vs. Development Credit Bank Ltd (2010) 323 ITR 206 (Bombay HC) 23. We are aware of the fact that strictly speaking resjudicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g out any reasons to deviate from an accepted principle. Moreover, the impugned order of the Tribunal also records that the Revenue was not able to point out any distinguishing features in the present facts, which would warrant a different view in the subject assessment year from that taken in the earlier and subsequent assessment years. So far as the decision of Radhasoami Satsang (supra) is concerned, it is true that there are observations therein that restrict its applicability only to that decision and the Court has made it clear that the decision should not be taken as an authority for general applicability. 8. However, subsequently the Apex Court in Bharat Sanchar Nigam Ltd. v. Union of India [2006] 282 ITR 273 has after referring to the decision of Radhasoami Satsang (supra) has observed as under :-- 20. The decisions cited have uniformly held that res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The courts will generally adopt an earlier pronouncement of the law o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Assessing Officer not to question the revenue recognition policy followed by the assessee. There were no reasons to provoke such an inquiry. 25. Further, the revenue recognition policy followed by the assessee is in accordance with the Accounting Standard 7 Construction Contracts to recognise revenue on project completion basis which is a generally acceptable accounting policy and is undisputed. 26. With regard to investment made by the assessee in the illiquid funds, in our view, this is the decision of the board to decide how the funds of the company to be utilised in its best interest and it is the affected party i.e., Lalitpur Power Generation Co Ltd, who had paid the contract price more than the certified work completion, can object the diversion of funds other than intended purpose. The revenue has no role to play how the funds are being utilized by the assessee, it can only analyse the method of accounting adopted consistently and offered the proper income for taxation. Beyond that they don t have any role to play and they are not expected to enter the shoes of the assessee how their affairs have to be carried out. In the given case, the Assessing Officer had ..... X X X X Extracts X X X X X X X X Extracts X X X X
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