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TMI Blog2025 (4) TMI 597X X X X Extracts X X X X X X X X Extracts X X X X ..... tices u/s 143(2) and 142(1) of the Act were issued and served on the assessee, in response to which the assessee filed various details from time to time. The Assessing Officer completed the assessment u/s 143(3) of the Act on 29.09.2021 determining the total income of the assessee at Rs. 9,34,44,658/- wherein he made the addition of Rs. 8,07,12,818/- on account of receipt of on-money. 4. Subsequently, the Ld. PCIT on examination of assessment records noted that the assessee firm had claimed closing WIP of Rs. 252,43,02,336/-. The opening WIP for the year under consideration was of Rs. 298,73,05,649/-. The sales executed during the year is of Rs. 99,7035,201/- with gross profit of Rs. 9,96,4,403/-. Further, he noted that the assessee had debited prior period expenses of Rs. 1,94,62,062/- and liasoning charges of Rs. 1,28,500/- while computing the closing WIP for the year under consideration. However, no justification for addition of these expenses to the WIP has been submitted by the assessee firm. Further, on perusal of the assessment records, he observed that no justification for the allowability of these expenses to be added to the WIP has been called by the Assessing Officer. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses and the same should have been disallowed for A.Y. 2019-20. The AO failed to do the same during the assessment proceedings for the year under consideration and no verification on the aforesaid issue has been done in the assessment proceedings by the AO. As per explanation (2) to section 263(1) of the Act an order without making inquiries or verification which should have been made is deemed to be erroneous in so far as it is prejudicial to the interest of revenue. 04. Considering the above facts of the case it is seen that the AO has not examined and verified the above issues and therefore income has been under assessed. Therefore, assessment order u/s 143(3) of the Act dated 29.09.2021 passed by the AO for A.Y. 2019-20 appears to be erroneous in so far as it is prejudicial to the interest of revenue. 05. In view of the facts and circumstances mentioned above, the assessment order passed u/s 143(3) of the Act in the case of M/s Mahanagar Realty for A.Y, 2019-20 prima facie appears to be erroneous in so far as it is prejudicial to the interest of revenue in terms of the provisions of Explanation-(2)(a) to Section 263(1) of the Income Tax Act. I, therefore, intend to set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wishes to state that out of the total expense debited to prior period expense of Rs. 1.94 crores Rs. 1.76 are in the nature of Lifts erection, installation and commissioning charges charged by Otis Elevator Company (India) Ltd and balance expenditure are in the nature of labour charges for brick work and plastering works etc. A copy of ledger extract of amounts debited to ledger "Prior Period expense" is appearing on page no 212 to 213 of the paper book. The assessee wishes to state that the material and service for the above mentioned expense were received in earlier assessment years, however the invoices were received by the assessee during the year under consideration and hence, the same are recorded in the year under consideration. 3.3 The assessee also wishes to state that the assessment year under consideration is the first year where revenue is recognized from the real estate project undertaken by the assessee. Hence, the cost equivalent to the revenue recognized has to be allowed as expense. Your honour will appreciate that matching concept i.e. matching cost with revenue is the basic accounting concept. Hence, the cost pertaining to units sold during the year under cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Referring to the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC), he submitted that for invoking the jurisdiction u/s 263 of the Act, the twin conditions namely, the order is erroneous and the order is prejudicial to the interests of Revenue must be satisfied. However, in the instant case, although the order may be erroneous because of non-enquiry / verification by the Assessing Officer on the issue of work-in-progress, however, it is not prejudicial to the interest of Revenue since there is no loss to the Revenue by decreasing the work-in-progress. Rather by increasing the work-in-progress, there is more income meaning thereby, there is no loss to the Revenue. 10. Referring to the decision of the Hon'ble Delhi High Court in the case of PCIT vs. Delhi Airport Metro Express Pvt. Ltd. vide ITA No.705/2017, order dated 05.09.2017, the Ld. Counsel for the assessee drew the attention of the Bench to paras 10 and 11 of the order of the Hon'ble High Court and submitted that the Hon'ble High Court in the said decision has held that if the PCIT is of the view that the Assessing Officer did not undertake any enquiry, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or made any minimal enquiry and has simply set aside the order passed by the Assessing Officer. Further, by showing the work-in-progress at a higher figure, the assessee has shown more profit and paid more taxes meaning thereby there is no loss to the Revenue. Therefore, we find merit in the arguments of the Ld. Counsel for the assessee that although the order may be erroneous but it is definitely not prejudicial to the interest of Revenue. We find the Hon'ble Delhi High Court in the case of PCIT vs. Delhi Airport Metro Express Pvt. Ltd. (supra) has observed as under: "10. For the purposes of exercising jurisdiction under Section 263 of the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. In fact, if the PCIT is of the view that the AO did not undertake any inquiry, it becomes incumbent on the PCIT to conduct such inquiry. All that PCIT has done in the impugned order is to refer to the Circular of the CBDT and conclude that "in the case of the Assessee company, the AO was duty bound to calculate and allow depreciation on the BOT in conformity of the CBDT Circular 9/2014 but the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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