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TMI Blog2024 (6) TMI 1127X X X X Extracts X X X X X X X X Extracts X X X X ..... ) TMI 10 - SUPREME COURT] has analyzed the provisions of section 263 and held that to invoke the provision of section 263 Commissioner has to satisfy two conditions, the first being order passed by the AO is erroneous and second being the order is prejudicious to the interest of the revenue. In the absence of any one of the conditions, the provision of section 263 of the Act cannot be invoked. Determination of method of revenue recognition and method of valuation of closing stock - There is no dispute or allegation about genuineness of sale value of the bungalow or cost of the project, or any other expenditure incurred by the assessee. Accordingly, we are of the considered opinion that there is no prejudice to the revenue caused due to the method adopted by the assessee. As such, the assessee has offered income from the project over the period and paid due taxes. The only difference here may arise as per the method adopted by assessee, the income which should have offered in the year by employing percentage completion method (PCIT method) was deferred in subsequent year but in such a scenario the assessee should have offered less income in subsequent year. Thus, it is a tax natural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only 6% of expected revenue. Besides, the assessee also received a considerable amount of Rs. 16,03,69,069/- as booking receipt and treated the same as an advance from the customers. As such, the assessee has recognized revenue against only 8 bungalows only out of 44 based on the sale deed registered during the year. As per the ld. PCIT, the assessee being in the business of construction of residential and commercial complex was required to recognize revenue on percentage completion method as provided under accounting standard 7 issued by the ICAI. However, the assessee has not explained the method of accounting employed for revenue recognition and neither did the AO raise any question in this regard. As per the ld. PCIT, the accounting standard 9 provides rules for revenue recognition in the course of business but method envisaged under AS-9 does not apply on revenue from special business being construction. The accounting guidelines issued by the ICAI also envisaged that the revenue from the business of real sate construction shall be recognized as per percentage completion method. However, the AO, without verifying correct method of revenue recognition and correct application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the AO to make fresh assessment. The Hon ble Supreme Court in the landmark judgment in the case of Malabar Industrial Co. Ltd vs. CIT reported in [2000] 243 ITR 83 (SC) has analyzed the provisions of section 263 of the Act and held that to invoke the provision of section 263 of the Act, the ld. Commissioner has to satisfy two conditions, the first being order passed by the AO is erroneous and second being the order is prejudicious to the interest of the revenue. In the absence of any one of the conditions, the provision of section 263 of the Act cannot be invoked. The relevant observation of the Hon ble Supreme Court is extracted as under: A bare reading of section 263(1) makes it clear that the pre-requisite to exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent - if the order of the ITO is erroneous but is not prejudicial to the revenue or if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r: 15. Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by any one of the accounting methods. Completed contract method is one such method. Similarly, percentage of completion method is another such method. 16. Under completed contract method, the revenue is not recognised until the contract is complete. Under the said method, costs are accumulated during the course of the contract. The profit and loss is established in the last accounting period and transferred to P L account. The said method determines results only when contract is completed. This method leads to objective assessment of the results of the contract. 17. On the other hand, percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognised under this method is determined by reference to the stage of completion of the contract. The stage of completion can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract. 18. The above indicat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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