Faith Builders & Realties P Ltd, Bhopal V. PR CIT-1, Bhopal

ITA 118/Ind/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 6412 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 24-02-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Opportunity of being heard; Period of limitation; Prejudicial to interest; Set aside
• Section: 263; 143(3); 13; 119; 101

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE HONBLE RAJPAL YADAV, VICE PRESIDENT AND SHRI MANISH BORAD, ACCOUNTANT MEMBER VIRTUAL HEARING ITA NO.118/IND/2020 ASSESSMENT YEAR:2015-16 F AITH BUILDERS & REALTIES, P. LTD., BHOPAL / VS. PR. CIT - 1 , BHOPAL (APPELLANT) (R ESPONDENT ) P.A. NO. AABCF7558A APPELLANT BY SHRI S.S. DESHPANDE, AR REVENUE BY SHRI S.B. PRASAD, CIT - DR DATE OF HEARING: 08.07.2021 DATE OF PRONOUNCEM ENT: 16.08.2021 / O R D E R PER MANISH BORAD, A.M: BY WAY OF THIS APPEAL, THE APPELLANT HAS CHALLENGED THE ASSUMPTION OF JURISDICTION U/S 263 OF THE INCOME TA X ACT 1961( HEREINAFTER REFERRED TO AS THE ACT FOR SHORT) BY LD. PR. CIT-1 BHOPAL VIDE ORDER DATED 31.01.2020.THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- FAITH BUILDERS & REALITIES LTD. 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE OF THE ASSESSEE THE LD. PR. CIT WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSMENT ORDER PASSED U/S 143(3) WAS ERRONEOUS AND/OR PREJUDIC IAL TO THE INTEREST OF THE REVENUE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE OF THE ASSESSEE THE LD. PR. CIT WAS NOT JUSTIFIED IN SETTING ASIDE T HE ORDER PASSED U/S 143(3) BY THE ASSESSING OFFICER BY INVOKING THE PROVISION O SECTION 263. 2. BRIEF FACTS OF THE CASE AS CULLED OUT FROM THE R ECORDS ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE REAL ESTATE BUSI NESS AND RECOGNIZES REVENUE ON REAL ESTATE TRANSACTIONS UNDE R PERCENTAGE COMPLETION METHOD. IT DECLARED TOTAL LOSS AT RS.1,0 4,87,333/- IN THE RETURN FILED ON 30.10.2015. THE CASE WAS SELECTED F OR SCRUTINY THROUGH CASS AND THE REGULAR ASSESSMENT WAS COMPLET ED U/S 143(3) OF THE ACT ON 24.10.2017, ASSESSED TOTAL LOS S AT RS.55,83,875/-. 3. SUBSEQUENTLY, LD. PR. CIT, BHOPAL INVOKED THE PR OVISIONS OF SECTION 263 OF THE ACT AND ISSUED FOLLOWING SHOW CA USE NOTICE TO THE ASSESSEE(RELEVANT EXTRACT IS REPRODUCED BELOW): PLEASE REFER TO THE ORDER U/S 143(3) OF THE IT ACT , 1961 DATED 24.10.2017 PASSED BY THE DCIT-1(1), BHOPAL FOR A.Y. 2015-16, ON PERUSAL FOR THE ASSESSMENT ORDER AND CASE RECORD, IT IS NOTICED THAT THE ASSESSEE COMPANY WAS ENGAGED IN THE REAL ES TATE BUSINESS AND REVENUE RECOGNIZED AS PER THE GUIDANCE NOTE (A) 23 (REVISED 2012) ON ACCOUNTING FOR REAL ESTATE TRANSACTIONS UN DER PERCENTAGE COMPLETION METHOD. FURTHER IT IS OBSERVED THAT ASSES SEE DISCLOSED SALE, CLOSING STOCK AND NET LOSS FOR RS.15,389,800/- , FAITH BUILDERS & REALITIES LTD. 3 RS.17,15,47,774/- AND RS.1,04,87,334/- RESPECTIVELY . THE ASSESSEE FURNISHED DETAILS AND METHOD OF REVENUE RECOGNITION OF PERCENTAGE COMPLETION METHOD AND RESISTED THE SALE, CLOSING STO CK AND CALCULATED NET LOSS OF RS.69,51,606/- AND CALCULATED T HE INCOME FROM THE PROJECT WHICH SHOULD BE RECOGNIZED FOR RS.1,36,48 ,310/- FOR THE F.Y. 2014-15 RELEVANT TO ASSESSMENT YEAR 2015-16 AGAIN ST RECAST AND ASSESSMENT LOSS OF RS.69,51,606/- WHICH WAS NOT IN ORDER. THE DIFFERENCE AMOUNT OF RS.2,05,99,916/-(1,36,48,310/- +69,51,606/-) WAS REQUIRED TO BE ADDED BACK TO THE INCOME OF THE ASS ESSEE WHICH WAS NOT DONE BY THE AO. THIS OMISSION RESULTED IN UNDE RASSESSMENT OF INCOME TO THE EXTENT OF RS.2,05,99,916/- INVOLVI NG NOTIONAL REVENUE EFFECT TO RS.22,55,449/-. KEEPING IN VIEW OF THE ABOVE, THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS CONSIDERED TO BE ERRONEOUS IS S O FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, AND THEREFOR E, I, PROPOSE TO INVOKE POWERS VESTED U/S 263 OF THE INCOME TAX ACT, 1961 IN RESPECT OF THE ORDER REFERRED TO ABOVE. YOU ARE HEREBY GIVEN AN OPPORTUNITY OF BEING HEARD AS PER SECTION 263(1) OF THE INCOME TAX ACT TO PRESENT YOURSELF IN PERSON OR THROUGH AN AUTHORIZED REPRESEN TATIVE ON 20.01.2020 AT 1:00PM TO EXPLAIN YOUR CASE. IN CASE NO REPLY IS RECEIVED BY STIPULATED DATE, IT WILL BE PRESUMED THAT YOU HAVE NOTHING TO SAY IN THE MATER AND A DECISION WILL BE T AKEN ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. 4. NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNA L CHALLENGING THE JURISDICTION OF LD. PCIT ASSUMED U/S 263 OF TH E ACT. 5. LD. COUNSEL FOR THE ASSESSEE APART FROM PLACING RELIANCE ON WRITTEN SUBMISSIONS PLACED ON RECORD AND RELEVANT E XTRACT REPRODUCED IN THE SUBSEQUENT PARAS AND ALSO SUBMITT ED THAT THE ISSUE OF METHOD ADOPTED FOR ASCERTAINING THE PROFIT BY THE ASSESSEE WAS SPECIFICALLY ENQUIRED BY LD. AO. THE ASSESSEE H AS DULY SUBMITTED THE DETAILS THAT IT IS CONSISTENTLY FOLLO WING THE PROJECT COMPLETION METHOD WHICH IS A DULY RECOGNIZED METHOD UNDER THE FAITH BUILDERS & REALITIES LTD. 4 PROVISIONS OF LAW. LD. AO HAS EXAMINED THE DETAILS AND APPLIED HIS MIND AND AFTER MAKING DUE VERIFICATION MADE THE ADD ITION OF RS. 35,35,727/- AND THUS ORDER PASSED BY THE LD. AO IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENU E. LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE FOLLOWING ARGUMENTS ME NTIONED IN THE WRITTEN SUBMISSIONS: IT IS HUMBLY SUBMITTED THAT SINCE THE ASSESSMENT HA S BEEN FRAMED AFTER DUE VERIFICATION OF THE FACTS AND MATERIAL ON RECORD, THE ACTION U/S. 263 IS BAD IN LAW. THE LD. A.O. HAS RAISED A S PECIFIC QUERY ABOUT THE METHOD OF COMPUTATION OF INCOME AND MADE THE ADDITION. ONCE THE CLAIM OF THE ASSESSEE IS CONSIDERED AFTER APPRECIATION OF ALL THE FACTS, THE ORDER CANNOT BE SAID TO BE ERRON EOUS. IN THIS CONNECTION ATTENTION IS DRAWN TO THE DECISION OF TH E HONBLE TRIBUNAL IN THE CASE OF ADITYA MUNDRA VS PCIT IN IT A NO. 632/IND/2019. ( PAGE 37 OF PB). 7A. THE OBSERVATIONS OF THE LD. P. COMMISSIONER ARE INCORRECT AND CONTRARY TO THE FACTS OF THE CASE AND THE INFORMATI ON ON RECORD. THE ASSESSEE HAD BEEN FOLLOWING THE COMPLETED CONTRACT METHOD AND NOT THE PERCENTAGE OF COMPLETION METHOD AS MENTIONE D IN THE NOTICE. THIS FACT IS OBVIOUS FROM THE ORDER OF THE LD. PCIT U/S 263 WHEREIN IN PAGE 4, FIRST PARA THE CIT HAS MENTIONED THAT DURING THE ASSESSMENT THE ASSESSEE HAS SUBMITTED THAT IT H AS FOLLOWED PROJECT COMPLETION METHOD. THIS FACT IS OBVIOUS FR OM THE LETTER DATED 18/09/2017 WHEREIN THE ASSESSEE HAS SPECIFICA LLY SUBMITTED THAT IT IS FOLLOWING THE COMPLETED CONTRA CT METHOD SINCE ITS INCEPTION. THIS LETTER HAS BEEN DISCUSSED BY TH E LD. AO IN PARA 3 PAGE 2 OF THE ASSESSMENT ORDER. 7B. IT IS FURTHER SUBMITTED THAT THE INCOME CALCULA TED AT RS. 1,36,48,310/- WAS THE GROSS PROFIT OF THE COMPANY F ROM THE INCEPTION OF THE BUSINESS TILL 31.03.2015. THE PROFIT OF THE COMPANY WOULD HAVE BEEN CALCULATED ONLY AFTER REDUCING THE INDIRECT EX PENSES. THE SAME IS OBVIOUS FROM THE CALCULATION ON RECORD WHEREIN DIRE CT EXPENSES INCURRED ON THE PROJECT TILL 31.03.2015 WERE CALCUL ATED AT RS. 18,20,91,992/- OUT OF WHICH RS. 10,31,99,121/- WAS RELATED TO THE COST ALLOCATED TO THE PORTION ON WHICH SALE OF RS. 11,68,47,432/- WAS TO BE RECOGNIZED. RS. 1,36,48,310/- ( RS. 11,68,47, 432/- (-) RS. 10,31,99,121/-) WAS THUS SALE PRICE LESS DIRECT EXP ENSES TILL FAITH BUILDERS & REALITIES LTD. 5 31.03.2015. ACCORDINGLY, THE AMOUNT OF RS. 1,36,48, 310/- DID NOT REPRESENT THE INCOME FOR THE YEAR. IN THE WRITTEN S UBMISSION FILED BEFORE THE LD. COMMISSIONER THE DETAILS WERE SUBMITTED. 7C. THE LD. PCIT FURTHER OBSERVED THAT NO REFERENC E TO DVO HAS BEEN MADE FOR CORRECT VALUATION OF THE PROJECT. IT IS SU BMITTED THAT THERE IS NO PRACTICE OF GETTING UNFINISHED PROJECTS VALUED BY T HE DVO. FURTHER THE VALUATION OF THE DVO IS ONLY AN ESTIMATE. 7D. THE CIT HAS NOT HELD THE ORDER TO BE ERRONEOUS AT ANY PLACE IN THE ORDER U/S 263. IN ABSENCE OF ANY FINDING REGARDING THE ASSESSMENT ORDER BEING ERRONEOUS, PROVISIONS OF SECTION 263 CO ULD NOT HAVE BEEN APPLIED. 7E. IT IS FURTHER SUBMITTED THAT THE ORDER IS NOT P REJUDICIAL TO THE INTEREST OF THE REVENUE. THE ONLY REFERENCE TO POSSIBLE LOSS WAS IN THE NOTICE ISSUED U/S 263 WHEREIN IT WAS ALLEGED THAT THE INCO ME FROM THE PROJECT SHOULD HAVE BEEN RECOGNIZED AT RS. 1,36,48,310/-. T HE ASSESSEE HAS FILED DETAILED SUBMISSION THAT THE AMOUNT OF RS. 1, 36,48,310/- REPRESENTED GROSS PROFIT FOR THE PERIOD 1.4.2012 TO 31.03.2015 AND TO ARRIVE AT THE NET PROFIT INDIRECT EXPENSES INCURRED ARE TO BE REDUCED. DURING F.Y 2014-15 ITSELF THE ASSESSEE HAD INCURRED INDIRECT EXPENSES OF RS. 1,59,31,769/- AND HAVE INCURRED TOTAL INDIRE CT EXPENSES OF RS. 3,51,11,474/- IN VARIOUS YEARS UPTILL 31.03.15. THE SE SUBMISSIONS HAVE NOT BEEN FOUND TO BE INCORRECT BY THE CIT. 6. RELIANCE WAS ALSO PLACED ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF ADITYA MUNDRA VS. PR. CIT IN ITANO.632/IND/2019 & OTHERS DATED 13.01.2021. 7. PER CONTRA LD. DEPARTMENTAL REPRESENTATIVE VEHEM ENTLY ARGUED SUPPORTING THE ORDER OF LD. PCIT. 8. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US CAREFULLY GONE THROUGH THE DECISIONS RELI ED BY THE LD. COUNSEL FOR THE ASSESSEE. WE OBSERVE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE REAL ESTATE BUSINESS. IT IS RECOGNIZ ING THE REVENUE FAITH BUILDERS & REALITIES LTD. 6 CONSISTENTLY ON PERCENTAGE COMPLETION METHOD. THE L D. AO HAD MADE AN ADDITION OF RS.35,35,727/- ON ACCOUNT OF PR OFIT RECOMPUTED BY APPLYING THE PERCENTAGE COMPLETION ME THOD AS AGAINST THE PROJECT COMPLETION METHOD ADOPTED BY TH E ASSESSEE. SUBSEQUENTLY, LD. PR. CIT ON GOING THROUGH ASSESSME NT RECORDS NOTICED THAT THE LD. AO HAS NOT CALCULATED THE CORR ECT INCOME AS PER THE PERCENTAGE COMPLETION METHOD AND ACCORDINGL Y ISSUED NOTICE U/S 263 OF THE ACT AND AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE SET ASIDE THE ASSESSMENT ORDER TO BE FRAMED DE NOVO IN LIGHT OF THE OBSERVATION MADE IN THE IMPUGNED ORDER . THIS FINDING OF LD. PR. CIT CAN STAND ONLY IF IT IS FOUND THAT THE ASSESSMENT ORDER IS ERRONEOUS SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE AND NO ENQUIRY HAS BEEN CONDUCTED BY THE LD. AO WITH REGAR D TO THE ISSUE RAISED IN THE SHOW CAUSE NOTICE ISSUED U/S 263 OF T HE ACT. 9. TO EXAMINE THIS ASPECT WHETHER LD. PCIT WAS JUS TIFIED IN HOLDING THE ORDER OF LD. A.O AS ERRONEOUS AND PREJU DICIAL TO THE INTEREST OF REVENUE, WE WILL FIRST GO THROUGH THE R ELEVANT PROVISION OF SECTION 263 OF THE ACT AND SETTLED JUDICIAL PRECEDE NCE:- 263. (1) THE PRINCIPAL COMMISSIONER OR COMMISSIONER MAY CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDING UNDER THIS ACT , AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ASSESSING OFFI CER IS ERRONEOUS IN SO FAITH BUILDERS & REALITIES LTD. 7 FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE RE VENUE, HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTE R MAKING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SU CH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT, OR CANCELLING THE ASSESSM ENT AND DIRECTING A FRESH ASSESSMENT. EXPLANATION 1.FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT, FOR THE PURPOSES OF THIS SUB-SECTION, (A) AN ORDER PASSED ON OR BEFORE OR AFTER THE 1 ST DAY OF JUNE, 1988 BY THE ASSESSING OFFICER SHALL INCLUDE (I) AN ORDER OF ASSESSMENT MADE BY THE ASSISTANT COMMISSIONER OR DEPUTY COMMISSIONER OR THE INCOME-TAX OFFICER ON T HE BASIS OF THE DIRECTIONS ISSUED BY THE JOINT COMMISSIONER UNDER SECTION 144A; (II) AN ORDER MADE BY THE JOINT COMMISSIONER IN E XERCISE OF THE POWERS OR IN THE PERFORMANCE OF THE FUNCTIONS OF AN ASSES SING OFFICER CONFERRED ON, OR ASSIGNED TO, HIM UNDER THE ORDERS OR DIRECTIONS ISSUED BY THE BOARD OR BY THE PRINCIPAL CHIEF COM MISSIONER OR CHIEF COMMISSIONER OR PRINCIPAL DIRECTOR GENERAL O R DIRECTOR GENERAL OR PRINCIPAL COMMISSIONER OR COMMISSIONER AUTHORIS ED BY THE BOARD IN THIS BEHALF UNDER SECTION 120; (B) 'RECORD' SHALL INCLUDE AND SHALL BE DEEMED ALW AYS TO HAVE INCLUDED ALL RECORDS RELATING TO ANY PROCEEDING UN DER THIS ACT AVAILABLE AT THE TIME OF EXAMINATION BY THE PRINCI PAL COMMISSIONER OR COMMISSIONER; (C) WHERE ANY ORDER REFERRED TO IN THIS SUB-SECTI ON AND PASSED BY THE ASSESSING OFFICER HAD BEEN THE SUBJECT MATTER OF A NY APPEAL FILED ON OR BEFORE OR AFTER THE 1ST DAY OF JUNE, 1988, THE POWERS OF THE PRINCIPAL COMMISSIONER OR] COMMISSIONER UNDER THIS SUB-SECTION SHALL EXTEND AND SHALL BE DEEMED ALWAYS TO HAVE EX TENDED 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 D EEMED 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 WITHO UT INQUIRING INTO THE CLAIM; (C) THE ORDER HAS NOT BEEN MADE IN ACCORDANCE WIT H ANY ORDER, DIRECTION OR INSTRUCTION ISSUED BY THE BOARD UNDER SECTION 119 ; OR (D) THE ORDER HAS NOT BEEN PASSED IN ACCORDANCE W ITH ANY DECISION WHICH IS PREJUDICIAL TO THE ASSESSEE, RENDERED BY THE JURISDICTIONAL HIGH COURT OR SUPREME COURT IN THE CASE OF THE ASS ESSEE OR ANY OTHER PERSON. FAITH BUILDERS & REALITIES LTD. 8 (2) NO ORDER SHALL BE MADE UNDER SUB-SECTION (1) A FTER 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-SECT ION (2), AN ORDER IN REVISION UNDER THIS SECTION MAY BE PASSED AT ANY T IME IN THE CASE OF AN ORDER WHICH HAS BEEN PASSED IN CONSEQUENCE OF, OR TO GIVE EFFECT TO, ANY FINDING OR DIRECTION CONTAINED IN AN ORDER OF THE APPELLATE TRIBUNAL, NATIONAL TAX TRIBUNAL, THE HIGH COURT OR THE SUPREME COURT. EXPLANATION.IN COMPUTING THE PERIOD OF LIMITATION FOR THE PURPOSES OF SUB- SECTION (2), THE TIME TAKEN IN GIVING AN OPPORTUNIT Y TO THE ASSESSEE TO BE REHEARD UNDER THE PROVISO TO SECTION 129 AND ANY PERIOD DURING WHICH ANY PROCEEDING UNDER THIS SECTION IS STAYED BY AN ORDER OR INJUNCTION OF ANY COURT SHALL BE EXCLUDED. 10. ON A BARE PERUSAL OF THE SUB-SECTION (1) WOULD REVEAL THAT THE POWERS OF REVISION GRANTED BY SECTION 263 TO THE LEARNED COMMISSIONER HAVE FOUR COMPARTMENTS. IN THE FIRST P LACE, THE LEARNED COMMISSIONER MAY CALL FOR AND EXAMINE THE R ECORDS OF ANY PROCEEDINGS UNDER THIS ACT. FOR CALLING OF THE RECO RD AND EXAMINATION, THE LEARNED COMMISSIONER WAS NOT REQUI RED TO SHOW ANY REASON. IT IS A PART OF HIS ADMINISTRATIVE CONT ROL TO CALL FOR THE RECORDS AND EXAMINE THEM. THE SECOND FEATURE WOULD COME WHEN HE WILL JUDGE AN ORDER PASSED BY AN ASSESSING OFFIC ER ON CULMINATION OF ANY PROCEEDINGS OR DURING THE PENDEN CY OF THOSE PROCEEDINGS. ON AN ANALYSIS OF THE RECORD AND OF TH E ORDER PASSED BY THE ASSESSING OFFICER, HE FORMED AN OPINION THAT SUCH AN ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT ERESTS OF THE FAITH BUILDERS & REALITIES LTD. 9 REVENUE. BY THIS STAGE THE LEARNED COMMISSIONER WAS NOT REQUIRED THE ASSISTANCE OF THE ASSESSEE. THEREAFTER THE THIR D STAGE WOULD COME. THE LEARNED COMMISSIONER WOULD ISSUE A SHOW-C AUSE NOTICE POINTING OUT THE REASONS FOR THE FORMATION OF HIS B ELIEF THAT ACTION UNDER SECTION 263 IS REQUIRED ON A PARTICULAR ORDER OF THE ASSESSING OFFICER. AT THIS STAGE THE OPPORTUNITY TO THE ASSES SEE WOULD BE GIVEN. THE LEARNED COMMISSIONER HAS TO CONDUCT AN I NQUIRY AS HE MAY DEEM FIT. AFTER HEARING THE ASSESSEE, HE WILL P ASS THE ORDER. THIS IS THE FOURTH COMPARTMENT OF THIS SECTION. THE LEARNED COMMISSIONER MAY ANNUL THE ORDER OF THE ASSESSING O FFICER. HE MAY ENHANCE THE ASSESSED INCOME BY MODIFYING THE ORDER. 11. IT IS WELL SETTLED LAW THAT FOR INVOKING THE PR OVISIONS OF SECTION 263 OF THE ACT BOTH THE CONDITIONS THAT THE ORDER M UST BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE NEEDS TO BE SATISFIED. THIS RATIO STANDS LAID DOWN BY VARIOUS HON'BLE COURTS. 12. HON'BLE JURISDICTIONAL HIGH COURT OF MADHYA PRA DESH IN THE CASE OF H.H. MAHARAJA RAJA POWER DEWAS (1983) 15 TAXMAN 363 IN PARA 10 OF THIS ORDER HELD THAT HOWEVER, THE FIRST ARGUMENT, VIZ., THAT AN ASSESSMENT ORDER WITHOUT CO MPLIANCE WITH FAITH BUILDERS & REALITIES LTD. 10 THE PROCEDURE LAID DOWN IN SECTION 144B IS ERRONEOU S BUT NOT PREJUDICIAL TO THE INTERESTS OF THE REVENUE CONFERR ING REVISIONAL JURISDICTION ON THE COMMISSIONER UNDER SECTION 263( 1), HAS FORCE. UNDER SECTION 263(1) TWO PRE-REQUISITES MUST BE PRE SENT BEFORE THE COMMISSIONER CAN EXERCISE THE REVISIONAL JURISDICTI ON CONFERRED ON HIM. FIRST IS THAT THE ORDER PASSED BY THE ITO MUST BE ERRONEOUS. SECOND IS THAT THE ERROR MUST BE SUCH THAT IT IS PR EJUDICIAL TO THE INTERESTS OF THE REVENUE. IF THE ORDER IS ERRONEOUS BUT IT IS NOT PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE CO MMISSIONER CAN NOT EXERCISE THE REVISIONAL POWERS UNDER SECTION 263(1) OF THE ACT. THERE CANNOT BE ANY PREJUDICE TO THE REVENUE ON ACCOUNT O F THE ITO'S FAILURE TO FOLLOW THE PROCEDURE PRESCRIBED UNDER SECTION 14 4B, AND UNLESS THE PREJUDICE TO THE INTERESTS OF THE REVENUE IS SH OWN, THE JURISDICTION UNDER SECTION 263(1) CANNOT BE EXERCISED BY THE COM MISSIONER, EVEN THOUGH THE ORDER IS ERRONEOUS. THE ARGUMENT THAT SU CH AN ORDER MAY POSSIBLY BE CHALLENGED IN APPEAL BY THE ASSESSEE, A ND FOR THIS REASON IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, HAS NO MERIT. SECTION 263(1) CLEARLY CONTEMPLATES THAT THE ORDER OF ASSES SMENT ITSELF SHOULD BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND THIS PREJUDICE HAS TO BE PROVED BY REFERENCE TO THE ASSESSMENT ORDER ONLY . IT CANNOT BE FAITH BUILDERS & REALITIES LTD. 11 ARGUED THAT THERE IS SOME POSSIBILITY OF THE ASSESS MENT ORDER BEING CHALLENGED OR REVISED IN APPEAL AND, THEREFORE, ON ACCOUNT OF THIS CONTINGENCY, THE ORDER BECOMES PREJUDICIAL TO THE I NTERESTS OF THE REVENUE. [EMPHASIS SUPPLIED] 13. HONBLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. [2000] 243 ITR 83 ORDER PRONOUNCED ON 10.02.2000 HEAD NOTE 'SECTION 263 OF THE INCOME-TAX ACT, 1961 - REVISION - OF ORDERS PREJUDICIAL TO INTERESTS OF REVENUE - ASSESSMENT YE AR 1983-84 - WHETHER IN ORDER TO INVOKE SECTION 263 ASSESSING OF FICER'S ORDER MUST BE ERRONEOUS AND ALSO PREJUDICIAL TO REVENUE AND IF ONE OF THEM IS ABSENT, I.E., IF ORDER OF INCOME-TAX OFFICER IS ERR ONEOUS BUT IS NOT PREJUDICIAL TO REVENUE OR IF IT IS NOT ERRONEOUS BU T IS PREJUDICIAL TO REVENUE, RECOURSE CANNOT BE HAD TO SECTION 263(1) - HELD, YES - WHETHER IF DUE TO AN ERRONEOUS ORDER OF ITO, REVENU E IS LOSING TAX LAWFULLY PAYABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICIAL TO INTERESTS OF REVENUE - HELD, YES - ASSESSEE-COMPANY ENTERED INTO AGREEMENT FOR SALE OF ESTATE OF RUBBER PLANTATION - AS PURCHASER COULD NOT PAY INSTALLMENTS AS SCHEDULED IN AGREEMENT, EXT ENSION OF TIME FOR PAYMENT OF INSTALLMENTS WAS GIVEN ON CONDITION OF V ENDEE PAYING DAMAGES FOR LOSS OF AGRICULTURAL INCOME AND ASSESSE E PASSED FAITH BUILDERS & REALITIES LTD. 12 RESOLUTION TO THAT EFFECT - ASSESSEE SHOWED THIS RE CEIPT AS AGRICULTURAL INCOME - RESOLUTION PASSED BY ASSESSEE WAS NOT PLAC ED BEFORE ASSESSING OFFICER - ASSESSING OFFICER ACCEPTED ENTR Y IN STATEMENT OF ACCOUNT FILED BY ASSESSEE AND ACCEPTED SAME - COMMI SSIONER UNDER SECTION 263 HELD THAT SAID AMOUNT WAS NOT CONNECTED WITH AGRICULTURAL ACTIVITIES AND WAS LIABLE TO BE TAXED UNDER HEAD 'INCOME FROM OTHER SOURCES' - WHETHER, WHERE ASSESSING OFFI CER HAD ACCEPTED ENTRY IN STATEMENT OF ACCOUNT FILED BY ASSESSEE, IN ABSENCE OF ANY SUPPORTING MATERIAL WITHOUT MAKING ANY ENQUIRY, EXE RCISE OF JURISDICTION BY COMMISSIONER UNDER SECTION 263(1) W AS JUSTIFIED - HELD, YES 14. HONBLE GUJARAT HIGH COURT IN THE CASE OF SMT. MINALBEN S. PARIKH [1995] 215 ITR 81 ORDER PRONOUNCED ON 17.10.1994 PARA 12 FROM THE AFORESAID, IT CAN WELL BE SAID THAT THE W ELL- SETTLED PRINCIPLE IN CONSIDERING THE QUESTION AS TO WHETHER AN ORDER IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE OR NOT IS TO ADDRESS ONESELF TO THE QUESTION WHETHER THE LEGITIMATE REVENUE DUE TO THE EXCHEQUER HAS BEEN REALISED OR NOT OR CAN BE REALISED OR NOT IF HIS ORDERS UNDER CONSIDERATION ARE ALLOWED TO STAND. FOR ARRIVING AT THIS CONCLUSION, IT BECOMES NECESSARY AND RELEVANT TO CONSIDER WHETHER THE INCOME IN FAITH BUILDERS & REALITIES LTD. 13 RESPECT OF WHICH TAX IS TO BE REALISED, HAS BEEN SU BJECTED TO TAX OR NOT OR IF IT IS SUBJECTED TO TAX, WHETHER IT HAS BEEN S UBJECTED TO TAX AT A RATE AT WHICH IT COULD YIELD THE MAXIMUM REVENUE IN ACCORDANCE WITH LAW OR NOT. IF INCOME IN QUESTION HAS BEEN TAXED AN D LEGITIMATE REVENUE DUE IN RESPECT OF THAT INCOME HAD BEEN REAL ISED, THOUGH AS A RESULT OF ERRONEOUS ORDER HAVING BEEN MADE IN THAT RESPECT, IN OUR OPINION, THE COMMISSIONER CANNOT EXERCISE POWERS FO R REVISING THE ORDER UNDER SECTION 263 MERELY ON THE BASIS THAT TH E ORDER UNDER CONSIDERATION IS ERRONEOUS. IF THE MATERIAL IN THAT REGARD IS AVAILABLE ON THE RECORD OF THE ASSESSEE CONCERNED, THE COMMIS SIONER CANNOT EXERCISE HIS POWERS BY IGNORING THAT MATERIAL WHICH LINKS THE INCOME CONCERNED WITH THE TAX REALIZATION MADE THEREON. TH E TWO QUESTIONS ARE INTER-LINKED AND THE AUTHORITY EXERCISING POWER S UNDER SECTION 263 IS UNDER AN OBLIGATION TO CONSIDER THE ENTIRE M ATERIAL ABOUT THE EXISTENCE OF INCOME AND THE TAX WHICH IS REALIZABLE IN ACCORDANCE WITH LAW AND FURTHER WHAT TAX HAS IN FACT BEEN REAL ISED UNDER THE ALLEGED ASSESSMENT ORDERS.[EMPHASIS SUPPLIED] 15. AT THIS STAGE, BEFORE CONSIDERING THE MULTI-FOL D CONTENTIONS OF THE LEARNED REPRESENTATIVES, WE DEEM IT PERTINENT T O TAKE NOTE OF THE FUNDAMENTAL TESTS PROPOUNDED IN VARIOUS JUDGMENTS R ELEVANT FOR FAITH BUILDERS & REALITIES LTD. 14 JUDGING THE ACTION OF THE COMMISSIONER OF INCOME-TA X TAKEN UNDER SECTION 263. THE INCOME-TAX APPELLATE TRIBUNAL IN T HE CASE OF MRS. KHAIIZA S. OOMERBHOY V. ITO [2006] 101 TIJ 1095 (MUM), ANALYSED IN DETAIL VARIOUS AUTHORITATIVE PRONOUNCEMENTS INCLUDI NG THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V. CIT [2000] 243 ITR 83 (SC) AND HAS PROPOUNDED THE FOLLOWING BROADER PRINCIPLE TO JUDGE THE ACTION OF THE COMMIS SIONER OF INCOME-TAX TAKEN UNDER SECTION 263. (I) THE COMMISSIONER OF INCOME-TAX MUST RECORD SA TISFACTION THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. BOTH THE CONDITIONS MUST BE FULFILLED. (II) SECTION 263 CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING O FFICER AND IT WAS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTIO N WILL BE ATTRACTED. (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCOR RECT APPLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF ORDER BEI NG ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PRE JUDICIAL TO THE INTERESTS OF THE REVENUE AND IF THE ASSESSING OFFICER HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER L AW OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER H AS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER OF INCOME-TAX DOES N OT AGREE. IF CANNOT BE TREATED AS ERRONEOUS ORDER, UNLESS THE VIEW TAK EN BY THE ASSESSING OFFICER IS UNSUSTAINABLE UNDER LAW . (VI) IF WHILE MAKING THE ASSESSMENT, THE ASSESSING OFFICER EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DE TERMINE THE INCOME, THE COMMISSIONER OF INCOME-TAX, WHILE EXE RCISING HIS POWER UNDER SECTION 263 IS NOT PERMITTED TO SUBSTITUTE HIS ESTIMATE OF I NCOME IN PLACE OF THE INCOME ESTIMATED BY THE ASSESSING OFFICER. (VII) THE ASSESSING OFFICER EXERCISES QUASI-JUDICI AL POWER VESTED IN HIM AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH LAW AND ARRIVE AT A CONCLUSION, SUCH CONCLUS ION CANNOT BE FAITH BUILDERS & REALITIES LTD. 15 TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE COMMISSI ONER OF INCOME-TAX DOES NOT FEEL SATISFIED WITH THE CONCLUSION. (VIII) THE COMMISSIONER OF INCOME-TAX, BEFORE EXER CISING HIS JURISDICTION UNDER SECTION 263 MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. (IX) IF THE ASSESSING OFFICER HAS MADE ENQUIRIES DURING THE COURSE ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSU ES AND THE ASSESSEE HAS DETAILED EXPLANATION BY A LETTER I N WRITING AND THE ASSESSING ALLOWS THE CLAIM ON BEING SATI SFIED WITH THE EXPLANATION OF THE ASSESSEE, THE DECISION OF THE ASSESSING OFFICER CANNOT BE HELD TO BE SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. 16. AFTER GOING THROUGH THE SETTLED JUDICIAL PRECED ENTS AND THE PRINCIPLES LAID DOWN BY THE HON'BLE COURTS AND EXAM INING THE FACTS OF THE CASE IN LIGHT THEREOF, WE FIND THAT DURING T HE COURSE OF THE ASSESSMENT PROCEEDING, THE LD. AO SPECIFICALLY ASKE D THE ASSESSEE ABOUT THE METHOD ADOPTED FOR ASCERTAINING THE PROFI T. THE ASSESSEE VIDE ITS REPLY DATED 18/09/2017 ( PAGE 10A OF THE P APER BOOK) SUBMITTED THAT THE ASSESSEE HAS BEEN FOLLOWING THE COMPLETED CONTRACT METHOD SINCE ITS INCEPTION AND HAS BEEN AC COUNTING ITS SALES AS AND WHEN THE PROPERTY IS REGISTERED IN FAV OR OF THE BUYER. CONSEQUENTLY THE ASSESSEE HAS RECOGNIZED THE SALES OF RS. 1,53,89,800/- DURING THE YEAR. IT MAY BE MENTIONED THAT THE COMPLETED CONTRACT METHOD IS DULY RECOGNIZED METHOD AND HAS BEEN ACCEPTED AS ONE OF THE POSSIBLE METHODS WHICH CAN B E ADOPTED BY THE BUILDERS FOR DETERMINING THEIR INCOME FOR INCOM E TAX PURPOSES. FAITH BUILDERS & REALITIES LTD. 16 EVEN INSTITUTE OF CHARTERED ACCOUNTANT OF INDORE HA S ALSO ISSUED GUIDANCE NOTE 23(REVISED 2012) ON ACCOUNTING FOR RE AL ESTATE TRANSACTION AND PROJECT COMPLETION METHOD IS ALSO A N ACCEPTED METHOD. REFERENCE IN THIS REGARD WAS ALSO MADE TO V ARIOUS JUDGMENTS OF THE HON'BLE COURTS. THE LD. AO HOWEVER ASKED THE ASSESSEE TO FILE THE DETAILS AS PER PERCENTAGE OF C OMPLETION METHOD, WHICH WAS FILED. 17. FURTHER WHILE PASSING THE ORDER IN PARA 3 AT P AGE 2 DISCUSSED ABOUT THE LETTER FILED BY ASSESSEE DURING THE COURS E THE ASSESSMENT PROCEEDINGS AND MADE FOLLOWING OBSERVATION:- DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSEE WAS ASKED TO EXPLAIN THAT WHY PERCENTAGE OF COMPLETION METHOD HA S NOT BEEN ADOPTED FOR RECOGNIZING THE REVENUE. THE ASSESSEE VIDE HIS SUBMISSION DATED 18/09/2017 SUBMITTED THAT NOTWITHSTANDING THE ABOVE , THE ASSESSEE IS ENCLOSI NG HEREWITH A CHART CONTAINING THE CALCULATION OF THE REVENUE SUE FOR A Y 2015-16 AND IS ALSO ENCLOSING HEREWITH A RECASTED PROFIT / LOSS A/C WH ICH THE ASSESSEE WOULD HAVE EARNED HAD THE ASSESSEE FOLLOWED THE PERCENTAG E OF COMPLETION METHOD DURING THE YEAR IN COMPLIANCE TO THE DIRECTI ON ISSUED BY YOU.. AS PER THESE CALCULATION HAD THE ASSESSEE FOLLOWED THE PERCENTAGE O F COMPLETION METHOD THE ADDITIONAL SALES WOULD HAVE B EEN RECOGNIZED AT RS. 9,61,90,632/- AND THE LOSSES OF THE COMPANY WOULD H AVE BEEN REDUCED BY RS. 35,35,727/-. IT MAY BE SUBMITTED THAT THESE FIG URES OF SALES / PROFIT ARE RELATED TO THE SALES / PROFIT ON THE PROJECT UP TILL 31/03/2015 AND ARE NOT RELATED TO AY 2015-16 ONLY. THE ASSESSEE HIMSELF HAS ACCEPTED THAT THE LOSS OF THE COMPANY WILL REDUCED BY RS. 35,35,727/- BY APPLYING PERCENTAGE O F COMPLETION METHOD FOR RECOGNIZING THE REVENUE. ACCORDINGLY ADDITION O F RS. 35,35,727/- IS MADE TO THE TOTAL INCOME. FAITH BUILDERS & REALITIES LTD. 17 18. ON PERUSAL OF THE ABOVE OBSERVATION OF THE LD. AO AND VARIOUS SUBMISSIONS FILED BY THE ASSESSEE, IT IS VERY MUCH CLEAR THAT LD. AO HAS SPECIFICALLY ENQUIRED ABOUT THE TYPE OF METHOD ADOPTED BY THE ASSESSEE TO ASCERTAIN THE PROFIT FOR THE PROJECTS C ARRIED ON BY THE ASSESSEE. IT IS ALSO ON RECORD THAT THE ASSESSEE WA S CONSISTENTLY FOLLOWING THE PROJECT COMPLETION METHOD AND OFFERIN G THE TAX THEREON AND ALSO BEFORE THE LD. AO COMPLETE DETAILS WERE FILED TO RE- COMPUTE THE PROFIT AS PER THE PERCENTAGE COMPLETION METHOD AS ASKED BY THE LD. AO. ALL THESE DETAILS OF CALCULATI NG THE PROFIT UNDER THE PERCENTAGE COMPLETION METHOD WERE BEFORE THE LD . AO AND HE AFTER EXAMINING THE SAME MADE AN ADDITION OF RS.35, 35,727/-. UNDER THESE CIRCUMSTANCES, WHERE A DETAILED ENQUIRY HAS BEEN CONDUCTED ON PARTICULAR ISSUE (AS REFERRED BY LD. P R. CIT IN THE SHOW CAUSE NOTICE) AND THE LD. AO HAS MADE PROPER A PPLICATION OF MIND ON THE DETAILS FILED BY THE ASSESSEE AND CERTA INLY IT IS A CASE WHERE SUFFICIENT ENQUIRY HAS BEEN CONDUCTED. SO UND ER THESE FACTS THE ASSESSMENT ORDER CANNOT BE HELD TO BE ERRONEOUS SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE. WE ACCORDIN GLY QUASH THE FAITH BUILDERS & REALITIES LTD. 18 IMPUGNED ORDER FRAMED U/S 263 OF THE ACT AND RESTOR E THE ASSESSMENT ORDER U/S 143(3) OF THE ACT DATED 24.10. 2017. 19. IN RESULT, GROUNDS RAISED BY THE ASSESSEE ARE A LLOWED AND APPEAL FILED BY THE ASSESSEE IN ITANO.118/IND/2020 IS ALLOWED. ORDER WAS PRONOUNCED AS PER RULE 34 OF I.T.A.T. RUL ES 1963 ON .16.08.2021. SD/- (RAJPAL YADAV) SD/- (MANISH BORAD) VICE PRESIDENT A CCOUNTANT MEMBER INDORE; DATED : 16/08/2021 PATEL/PS COPY TO: ASSESSEE/AO/PR. CIT/ CIT (A)/ITAT (DR)/GUA RD FILE. BY ORDER ASSISTANT REGISTRAR, INDORE