DCIT 3(3)(1), MUMBAI V. CONCAST (I) LTD, MUMBAI

ITA 3301/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9915 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 14-06-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 01-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V VIDHYADHAR
• Keywords: Rule of consistency
• Section: 263

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -GBENCH MUMBAI , . . , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND C. N. PRASAD,JUDICIAL MEMBER ./I.T.A./3300 & 3301/MUM/2015, /ASSESSMENT YEAR: 2007-08 & 2008-09 DY. CIT-CIRCLE-3-(1)(1) ROOM NO.607, 6TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. VS. M/S. CONCAST (I) LTD. 47/48, JOLLY MAKER CHAMBER-II NARIMAN POINT, MUMBAI-21 PAN:AAACC 1759 M ( /APPELLANT) ( / RESPONDENT) / REVENUE BY: SHRI V. VIDHYADHAR- DR /ASSESSEE BY: SHRI HARSH KOTHARI / DATE OF HEARING: 12/07/2017 / DATE OF PRONOUNCEMENT: 06/09/2017 , / PER RAJENDRA A.M. - CHALLENGING THE ORDERS,DATED 27/02/2015 OF THE CIT (A)-8,MUMBAI THE ASSESSING OFFICER(AO)HAS FILED THE APPEALS FOR ABOVE-MENTIONE D TWO ASSESSMENT YEARS (AY.S).ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF DESIGN,ENGINEERING, SUPERVISION OF ERECTION AND COMMISSIONING OF CONTINUOUS CASTING MA CHINE AND PROVIDING ENGINEERING SERVICES.THE DETAILS OF DATES OF FILING OF RETURNS, RETURNED INCOMES, DATE OF ASSESSMENTS ETC. CAN BE SUMMARISED AS UNDER: ASSESSMENT YEAR DATES OF FILING OF RETURNS RETURNED INCOMES DATE OF ASSESSMENTS ASSESSED INCOM E 2007-08 29.10.2007 RS.8.54 CRORES 24.12.2009 RS.9.5 9 CRORES 2008-09 19.9.2008 RS.24.21 CRORES 20.12.2010 RS.25. 54 CRORES ITA/3300/MUM/2015,AY.2007-08: 2. EFFECTIVE GROUND OF APPEAL IS ABOUT DELETING THE AD DITION OF RS. 1.01 CRORES,BEING INCOME ACCRUED BUT NOT OFFERED TO TAX.DURING THE ASSESSMEN T PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD RAISED TOTAL BILLS OF RS. 67.75 CRORES AS ON 31/03/2007, THAT IT INCLUDED ADVANCE BILLING OF RS. 2.06 CRORES, THAT IT HAD NOT RAISED BILLS, AMOUNTING TO RS. 1.04 CRORES FOR THE WORK DONE, THAT THE ASSESSEE HAD CREDITED TO RECEIP T OF RS. 66.73 CRORES [RS. 67.75 CRORE(-) RS. 2.06 CRORES, (-) RS. 1.04 CRORES] TO THE P&L ACCOUN T. HE DIRECTED THE ASSESSEE TO FILE EXPLANATION IN THAT REGARD. THE ASSESSEE STATED THA T THE AMOUNT SHOWN AS ADVANCE BILLING DID NOT REFLECT ITS INCOME AS THE REVENUE WAS BEING RE COGNISED ON THE BASIS OF PERCENTAGE OF WORKS COMPLETED. BUT, THE AO WAS NOT CONVINCED WITH THE EXPLANATION AND HELD THAT THE ABOVE KIND OF METHOD OF ACCOUNTING WAS PROPER IN TH E CASE OF DEVELOPERS, THAT IN THE CASE OF 3300 & 3301/M/15 CONCAST (I) LTD. 2 THE ASSESSEE THE BILLS WERE RAISED ON CONTINUOUS BA SIS FROM TIME TO TIME DEPENDING UPON PROGRESS IN THE PROJECT, THAT WHAT THE ASSESSEE WAS MEANING AS ADVANCE WAS BASICALLY DIFFERENCE BETWEEN THE BILLED AMOUNT AND THE AMOUNT OFFERED AS INCOME WAS A RESULT OF INTERNAL EXERCISE FULLY IN CONTROL OF THE ASSESSEE, THAT IT WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THAT THE INCOME IN CASE OF THE CONTRACT OR WOULD ACCRUED AT THE TIME OF RAISING THE BILLS.THEREFORE, HE CONSIDERED THE BILLED AMOUNT OF RS. 67.75 CRORES AS INCOME ACCRUED TO THE ASSESSEE AS ON 31/03/2007 IN RESPECT OF PARTLY COMP LETED PROJECTS. FINALLY,HE BROUGHT THE DIFFERENCE OF RS. 1.01 CRORES TO TAX. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA)AND MADE ELABORATE SUBMISSI ONS. AFTER CONSIDERING THE ASSESSMENT ORDER AND THE SUBMISSION OF THE ASSESSEE, HE HELD T HAT ACCOUNTING STANDARD (AS)-7 WAS APPLICABLE IN CERTAIN EVENTUALITIES,THAT THE ASSESS EE WAS FOLLOWING AS-7, THAT THERE WAS NO JUSTIFICATION FOR ADDING AN AMOUNT OF RS. 1.01 CROR ES TO THE INCOME OF THE ASSESSEE. 4. DURING THE COURSE OF HEARING BEFORE US, THE DEPARTM ENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE AO. THE AUTHORISED REPRESENTATIVE (AR) THAT THE ASSESSEE WAS FOLLOWING THE SAME METHOD OF ACCOUNTING AND SINCE 2003-04,THAT TH E AO HAD ACCEPTED THE METHOD TILL 2006-07. HE REFERRED TO THE ORDERS OF THE AO FOR TH E AY.S 2004-05,2005-06,2009-10 TO 2011- 12 AND STATED THAT THE AO HAD PASSED ORDERS U/S.143 (3) OF THE ACT FOR ALL THE ABOVE AY.S.HE RELIED UPON THE CASES OF BILHARI INVESTMENT (299 IT R 1),HILLVIEW INFRA (384 ITR 451) AND JAYANTILAL INVESTMENTS (ITA/515/MUMBAI/2010,AY.2007 -08,DATED 09/05/2014). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE IS FOLLOWING AS-7 FOR DETERMINING ITS PROF IT, THAT THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE HAD BEEN ACCEPTED BY THE AO IN THE PRECEDING AND THE SUCCEEDING YEARS, THAT THE AO HIS NOT BROUGHT ON RECORD THE REASONS FOR NO T FOLLOWING THE SAME METHOD OF ACCOUNTING FOR THE YEAR UNDER CONSIDERATION. AS PER THE SETTLED PRINCIPLES OF TAXATION IT IS OPEN TO AN ASSESSEE TO DECIDE/ADOPT A REGULAR METHOD OF ACCOUNTING,AS THE BASIS FOR ADOPTING ANY METHOD IS TO ASSERTED THE PROFITS OF A PARTICULAR Y EAR. PERCENT IS COMPLETION METHOD IN RESPECT OF CONTRACT WERE UNDERTAKEN BY AN ASSESSEE IS ONE O F THE RECOGNISED METHOD OF ACCOUNTING. IN THIS METHOD THE RECOGNITION OF REVENUE AND EXPENSES ARE WITH REFERENCE TO THE STAGE OF COMPLETION OF A CONTRACT AND CONTRACT REVENUE IS MA TCHED WITH THE CONTRACT COSTS INCURRED IN REACHING THE STAGE OF COMPLETION.IN THIS METHOD PAY MENTS AND ADVANCES RECEIVED FROM CUSTOMERS ARE NOT DETERMINATIVE OF THE STAGE OF COM PLETION OF CONTRACT. AS THE AO HAD NOT 3300 & 3301/M/15 CONCAST (I) LTD. 3 POINTED OUT THE DEFECT AS TO HOW THE METHOD ADOPTED BY THE ASSESSEE RESULTED IN DISTORTED PICTURE OF PROFIT FOR THE YEAR UNDER APPEAL,SO,THER E WAS NO JUSTIFICATION FOR REJECTING THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE.RULE OF CONSISTENCY IS ONE OF THE WELL- RECOGNISED PRINCIPLES OF TAXATION JURISPRUDENCE AND AS PER THE SAID RULE THE AO SHOULD NOT DISTURB THE FINDINGS OF EARLIER YEARS WITHOUT ASSIG NING A JUSTIFIABLE REASON. WE WOULD LIKE TO REFER TO THE CASE OF A2Z MAINTENAN CE AND ENGINEERING SERVICES LTD. OF THE HONORABLE DELHI HIGH COURT (392 ITR 273). IN THAT M ATTER THE ASSESSEE WAS ENGAGED IN THE CONSTRUCTION BUSINESS.FOR THE AY.2007-08, THE TRANS ACTIONS IN ITS RETURN WERE ACCEPTED IN THE SCRUTINY ASSESSMENT U/S.143(3) OF THE ACT. THE AO N OTED THAT THE ASSESSEE PROVIDED MAINTENANCE SERVICES SUCH AS HOUSEKEEPING AND SECUR ITY SERVICES AND ACCEPTED THE RETURNED INCOME WITHOUT ANY DISALLOWANCE. THE COMMISSIONER I SSUED NOTICE U/S.263 OF THE ACT TAKING THE VIEW THAT RS. 11.98 CRORES SHOWN AS DEFERRED RE VENUE INCOME BY CHANGING THE METHOD OF ACCOUNTING IN ACCORDANCE WITH AS-7 RESULTED IN LOWE RING OF PROFIT. THE TRIBUNAL HELD THAT THE INVOCATION OF SECTION 263 OF THE ACT WAS NOT WARRAN TED IN THE CIRCUMSTANCES OF THE CASE. DISMISSING THE APPEAL FILED BY THE DEPARTMENT,THE H ONORABLE HIGH COURT HELD THAT THE RULING OF THE TRIBUNAL WAS LARGELY BASED UPON THE RECOGNIT ION OF AS-7 IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE AND THAT IN FACT THE MATT ER HAD RECEIVED SCRUTINY BY THE ASSESSING OFFICER AT THE STAGE OF THE ORIGINAL ASSESSMENT,THA T THE METHOD WAS A KNOWN AND RECOGNISED METHOD OF ACCOUNTING AND WAS APPROVED AS A PROPER O NE,THAT THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE EXERCISE OF POWER U/S.263 OF THE A CT WAS NOT WARRANTED. IN THE CASE OF BILHARI INVESTMENT (SUPRA) THE HONOR ABLE SUPREME COURT HAS HELD AS FOLLOW: EVERY ASSESSEE IS ENTITLED TO ARRANGE ITS AFFAIRS AND FOLLOW THE METHOD OF ACCOUNTING, WHICH THE DEPARTMENT HAS EARLIER ACCEPTED. IT IS ONLY IN THOS E CASES WHERE THE DEPARTMENT RECORDS A FINDING THAT THE METHOD ADOPTED BY THE ASSESSEE RESULTS IN DISTO RTION OF PROFITS THAT THE DEPARTMENT CAN INSIST ON SUBSTITUTION OF THE EXISTING METHOD. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT T HE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY. THEREFORE, CONFIRMI NG THE SAME WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. ITA/3301/MUMBAI/2015-AY.2008-09 . 6. FOLLOWING OUR ORDER FOR THE EARLIER YEAR, WE UPHOLD THE ORDER OF THE FAA, AS THE FACTS AND CIRCUMSTANCES FOR THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THE FACTS OF EARLIER YEAR EXCEPT FOR THE AMOUNT INVOLVED. EFFECTIVE GROUND OF APPEAL FOR THE YEAR UNDER CONSIDERATION IS DECIDED AGAINST AO. 3300 & 3301/M/15 CONCAST (I) LTD. 4 AS A RESULT APPEALS FILED BY THE ASSESS ING OFFICER FOR BOTH THE AY.S STAND DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH SEPTEMBER , 2017. 6 TH , 2017 SD/- SD/- ( . . / C.N.PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 06.09.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.