M/s Star Realtech and Developers P. Ltd., Mohali V. Pr. CIT -1, Chandigarh

ITA 360/CHANDI/2022

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 5733 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 02-08-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 10-04-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: USING THIS CLEVER METHODOLOGY; WHICH SHOULD NOT HAVE
• Keywords: Capital asset converted into stock in trade; Revision of order; Audit objection; Retrospective amendment; Initiation of penalty proceedings; Difference of opinion; Assessment record; Change of opinion; TDS; Set aside
• Section: 263; 271(1)(c); 143(3); 142(1); 201; 143(2); 192; 44AB; 43; 48

Judgement Text

आयकर अपीलीय अिधकरण,च᭛डीगढ़ ᭠यायपीठ “बी” , च᭛डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH ᮰ी आकाश दीप जैन, उपा᭟यᭃ एवं ᮰ी िवᮓम ᳲसह यादव, लेखा सद᭭य BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM आयकर अपील सं./ ITA NO. 360/Chd/2022 िनधाᭅरण वषᭅ / Assessment Year : 2017-18 M/s Star Realtech and Developers P. Ltd. Showroom No. 12, Western Towers, Chajju Majra Road, Sector 126, Mohali बनाम The Pr. CIT-1 Chandigarh ᭭थायी लेखा सं./PAN NO: AAPCS3536B अपीलाथᱮ/Appellant ᮧ᭜यथᱮ/Respondent िनधाᭅᳯरती कᳱ ओर से/Assessee by : Shri Surinder Mahajan, C.A and Shri Samir Mahajan, C.A राज᭭व कᳱ ओर से/ Revenue by : Shri Sandip Dahiya, CIT, DR सुनवाई कᳱ तारीख/Date of Hearing : 03/08/2023 उदघोषणा कᳱ तारीख/Date of Pronouncement : 01/11/2023 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the Assessee against the order of the Ld. PCIT, Chandigarh-1 dt. 07/03/2022 pertaining to Assessment Year 2017-18. 2. In the present appeal, the assessee has raised the following grounds: “1. That order u/s 263 of the Act, passed by Learned Pr. Commissioner of Income Tax, Chandigarh-l('Ld. CIT'), is illegal & without jurisdiction. 2. That Learned Pr. Commissioner of Income Tax, Chandigarh-l('Ld. CIT') has grossly erred in holding that assessment order passed by the Assessing Officer ('AO') was erroneous and prejudicial to the interest of revenue. Action of the Pr. Commissioner of Income Tax, Chandigarh-l('Ld. CIT') in invoking provisions of section 263 of the Act is illegal & bad in law. 3. That on the facts and circumstances of the case, Learned Pr. Commissioner of Income Tax, Chandigarh-l('Ld. CIT')has grossly erred in law in holding that: a) Assessing Officer has failed to apply percentage of completion method for revenue recognition. b) Assessing Officer has failed to initiate penalty proceedings for the assessee's failure to get its account audited. 4. That the order of the Learned Pr. Commissioner of Income Tax, Chandigarh-l('Ld. CIT') u/s 263 is arbitrary, unjust, is based on assumptions & presumptions since no error existed or prejudice was caused to 2 revenue, therefore, the order of the Learned Pr. Commissioner of Income Tax, Chandigarh-l('Ld. CIT') passed u/s 263 of the Act deserves to be quashed. 5. That on the facts & circumstances of the case, Learned Pr. Commissioner of Income Tax, Chandigarh-l('Ld. CIT')has grossly erred in setting aside the assessment framed with the directions to pass fresh order after making requisite enquires and proper verification with regard to the issues mentioned in the order. Non issuance of specific directions for assessment to be framed clearly proves that it is a case of only change of opinion and the assessment framed is neither erroneous nor prejudicial to the interest of the revenue. 6. That the Appellant requests for leave to add or amend the grounds of appeal before the appeal is heard or disposed off.” 3. During the course of hearing, the ld AR has sought permission of the Bench to raise the following additional grounds of appeal: “1. That on the facts and circumstances of the case, proceedings initiated u/s 263 of the Act on the basis of audit objection and consequent order passed u/s 263 of the Act is opposed to judgment of Hon’ble Punjab and Haryana High Court in the case of COMMISSIONER OF INCOME TAX vs. SOHANA WOOLLEN MILLS HIGH COURT OF PUNJAB AND HARYANA (2008) 296 ITR 0238 wherein it has been held that mere audit objection, and merely because a different view can be taken are not enough to hold that the order of the AO is erroneous or prejudicial to the interest of the Revenue.” 4. It was submitted that the additional ground of appeal is purely a legal ground which can be raised at any time during the course of the appellate proceedings and reliance was placed on the decision of Hon’ble Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT 229 ITR 383. 5. The Ld. DR is heard, who did not raise any specific objection to the additional grounds so raised by the assessee. 6. After hearing both the parties and considering the material available on the record, we find that the additional grounds being a legal grounds the same is hereby admitted for necessary adjudication. 7. Briefly the facts of the case are that the assessee company has filed its return of income on 30/10/2017 declaring NIL income and claiming current year 3 losses of Rs. 77,07,593/-. The case of the assessee was selected for complete scrutiny under CASS and statutory notices under section 143(2) and 142(1) alongwith questionnaire were issued and after considering the information and the submissions so filed by the assessee, the returned income was accepted. 8. Subsequently, the assessment records were called for and examined by the Ld. Pr. CIT and a show cause under section 263 of the Act, dt 14/02/2022 was issued to the assessee. In response, the Ld. AR attended the proceeding on 18/02/2022 and filed written submission which were considered but not found acceptable to the Ld. Pr. CIT. The Ld. PCIT has set aside the assessment order for passing the denovo assessment after making requisite inquiry and verification. 9. Against the said findings and the direction of the Ld. Pr. CIT, the assessee is in appeal before us. 10. During the course of hearing, the Ld. AR submitted that the proceedings under section 263 were initiated on the basis of audit objection vide audit memo dt. 01/10/2020 and a copy therefore was placed on record. It was submitted that it is an established law that the proceedings under section 263 cannot be initiated on the basis of audit objection and in support, reliance was placed on the decision of Hon’ble Punjab & Haryana High Court in case of CIT Vs. Sohana Woolen Mills (2008) 296 ITR 238. 11. It was further submitted that the following issues were raised in the show cause notice dt. 14/02/2022: “3. That following issues were raised in show cause notice dated 14.02.2022 in respect of proceedings u/s 263 of the Act. a) Assessee has prima facie defaulted in deducting tax at source in respect of payments on account of commission and payments to contractors. b) No verification as to identity of the creditors,their credit worthiness and genuineness of the transactions towards loan raised at Rs. 3,75,86,500/- from related parties has been carried out. 4 c) No verification as to identity of the creditors, their credit worthiness and genuineness of the transactions towards loan and advances amounting to Rs. 15,55,000/- has been carried out. d) Assessee has not got his books of accounts audited u/s 44AB of the Act even though it has received advances against booking to the tune of Rs. 27,92,89,914/- during the year. e) Assessing Officer did not even care to go through the MOUs/Agreements signed by the assesseewith the purchasers from whom the advances are shown received against the sale of real estate. Penalty proceedings for failure to get account audited also needed to be initiated. 12. It was submitted that detailed submissions were filed before Pr. Commissioner of Income Tax, Chandigarh-1, Chandigarh vide letter dated 16.02.2022. Order u/s 263 of the Act was passed on 07.03.2022 wherein Pr. Commissioner of Income Tax, Chandigarh-1, Chandigarh in para 10 page 10 and 11 of the order issued directions to the Assessing Officer to make the assessment denovo after due consideration of the facts and law in this regard. Observations made in para 10 are as under: “Having considered the facts and circumstances of the instant case, I am of the considered opinion that the assessment order u/s. 143(3) of the Act dated 17.12.2019 passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue in accordance with the Explanation '2(a) below section 263(1) of the Act. as the order is passed without making inquiries or verification which should have been made, thus making the assessment order passed not only erroneous but also prejudicial to the interest of revenue. Accordingly, the impugned assessment order is set aside with the direction to the Assessing Officer to make requisite inquiries and proper verification with regard to the issues mentioned above and make the assessment de-novo after due consideration of the facts and law in this regard. The assessee is at liberty to adduce the facts as deemed relevant before the assessing officer at the time of assessment proceedings in consequence to this order. The Assessing Officer shall allow the assessee adequate opportunity of being heard and to make relevant submissions. It may be ensured that the fresh assessment order is passed within the prescribed time as stipulated under section 153(3) of the Act. 13. It was submitted that the issues raised in the order u/s 263 of the Act, stood already examined during assessment proceedings as detailed below: a) Questionnaire dated 03.10.2019 5 Assessee vide question no. 2 was asked to explain substantial difference in turnover as reported in service tax return and income tax return and vide question no. 7, was asked to clarify high closing stock. Assessee vide reply dated 14.10.2019made submissions on both the issues. b) Questionnaire dated 16.10.2019 Assessee vide question no. 1 was asked to file details of advances from customers received during the year and vide question no. 4 was asked to explain why books of accounts have not been got audited inspite of the factassessee has received during the year advances from customer to the tune of Rs. 12,50,53,178/-. Assessee vide reply dated 22.10.2019 made submissions on both the issues. c) Questionnaire dated 05.12.2019 Assessee vide question no. 1 was asked to file details of balance four customers from whom advances have been received. Assessee vide reply dated 09.12.2019 made submissions on the issue. d) Questionnaire dated 12.12.2019 Assessee was asked to prove genuineness of remaining four customersfrom whom advances have been received. Assessee vide reply dated 16.12.2019 made submissions on the issue. e) Issue as to application of percentage of completion method for determining profits and applicability of provisions of section 44AB of the Act have been examined by the Assessing Officer by calling details: i. Towards substantial difference between higher turnover reported in service tax returns as compared to income tax return. ii. Towards bifurcation of closing stock and also reasons for high closing stock. iii. Towards advances received from customers during the year alongwith details of flats/plot booked and service tax charged thereon. iv. Why books of accounts have not got audited u/s 44AB of the Act inspite of the fact that receipts from the customers during the year amounted to Rs.l2,50,53,178/-.” 14. It was further submitted that as per para 20 of ICDS III relating to construction contracts during the early stages of a contract, where the outcome of the contract cannot be estimated reliably contract revenue is 6 recognized only to the extent of costs incurred. The early stage of a contract shall not extended beyond 25% of the stage of completion. It was submitted that in the instant case only 21.28% of the contract has been completed and in view of the same no contract Revenue have been recognized during the year under consideration. 15. It was further submitted that the proceedings under section 263 cannot be initiated for non initiation of penalty proceedings and in support, reliance was placed on Hon’ble Punjab & Haryana High Court in case of CIT vs Subhash Kumar Jain (2010) 78 CCH 743 & CIT vs Rakesh Nain Trivedi (2015) 94 CCH 0186. 16. It was accordingly submitted that the order so passed by the ld PCIT be set-aside and that of the AO be restored. 17. Per contra, the Ld. CIT DR drawn our reference to the show cause notice issued under section 263 dt. 14/02/2022 and contents thereof read as under: “A perusal of the relevant assessment records reveals that the return of income was filed in this case on 30.10.2017 declaring Nil income and claiming current year loss at Rs.77,07,593/-. The case was selected for scrutiny through CASS, and a notice u/s 143(2) of the Income Tax Act, 1961 was issued on 08.08.2018. The assessment in this case was completed u/s 143(3) of the Income Tax Act, 1961 on 17.12.2019 at the returned income. 2. The assessee company is engaged in the business of trading and development of land. During the year under reference, it had not got his books of account audited u/s 44 AB of the Income Tax Act, 1961. A perusal of the assessment records reveals that the company had paid an amount of Rs.65,57,685/- towards Commission expenses, as disclosed at Sr. No. 22(ii) of ITR-6, and Rs.31,76,202/-towards contractor labour expenses, as disclosed at Sr. No. 38(4) of ITR-6. The above payments are liable to TDS as per the specific provisions of the Income Tax Act, 1961. However, the assessee has prime-facie defaulted in deducting the tax at source in respect of the given payments on account of commission and contractor labour. The assessing officer has clearly failed to pay attention to this issue in the course of assessment proceedings. No query whatsoever was raised by the Assessing Officer in respect of the commission and contractor labour, expenses, and the compliance with the TDS requirements in relation thereto. 3. The assessee had disclosed in its return that it had raised an amount of Rs. 3,85,76,500/- as loans and advances from the related parties. The AO failed to conduct any enquiries or verification to ascertain the identity of the creditors, their creditworthiness and the genuineness of the transactions. He accepted the 7 claim of the assessee at its face value without any verification. Since the accounts of the assessee are not even audited, this issue required a deep scrutiny and investigation. 4. Further, the assessee has shown "other loans and advances" amounting to Rs, 15,55,000/-, in respect of which again no enquiry or verification was conducted by the Assessing Officer during the course of assessment proceedings. Thus the identity of | the creditors, their creditworthiness remained totally uninvestigated in respect of these loans and advances. 5. It is further noted that the assessee has debited an amount of Rs. 27,92,89,914/- under the head "other loans and advances". During the course of : assessment proceedings it was claimed by the assessee that these were the j advances received from the customers against the bookings (presumably of Flats/houses being developed by the assessee). It is further noted that the assessee has not got its books of accounts audited as per the mandate of section 44AB of the Income Tax Act, 1961, even though it had received advances against the bookings to the tune of Rs. 27,92,89,914/- during the year. It is pertinent to note that the assessee has duly paid the Service Tax on the receipt of the said advances from the customers, but has chosen not to consider these receipts as a part of "gross receipts" within the meaning of Section 44AB of the Income Tax Act, 1961. It is an undisputed fact that the advances have been received by the assessee in the course of its normal business, which, of its own admission, is "of Real Estate Trading and Development." Thus the given gross receipts were clearly in the nature of trade receipts, amenable to audit requirements. The term "gross receipts" is mentioned as distinct from sales "and turnover" in Section 44AB of the Income Tax Act, 1961. It is not a prerequisite, for the purposes of section 44AB, that the gross receipts should necessarily have an element of income or profit during the year. In other Words, gross receipts per se warrant audit within the meaning of Section 44AB of the Income Tax Act, 1961. 5.1. Still further, it is noted that the assessee has returned a loss of Rs. 77,07,593/- during the year under consideration, and has also claimed the accumulated losses of Rs, 3,05,28,263/-. In this regard it is noted that the assessee has. debited all the expenses to P&L Account without taking into consideration the gross receipts on the receipt side. Thus the assessee has taken an undue advantage by debiting the expenses and booking business loss to be carried forward and to be set off against income of future years without correspondingly acknowledging the trading receipts I during the year. The Assessing Officer completely failed to take note of all these facts holistically. On the given facts, the A.O. should have applied the "percentage of completion method" for assessing the income earned during the year, since the assessee had debited all its expenses to the P&L Account. The assessee's plea of acknowledging the receipts only on the completion of project does not carry any force. As per the accepted norms of accounting, all the expenses are required to be deferred if the "completed contract method" is opted by the assessee. Here, on the contrary, is a case where the assessee is picking and choosing out of both the methods as per its convenience. While it is deferring the accounting of its receipts, it is claiming all the expenses in its accounts. The accumulated losses are also thus wrongly claimed by the assessee by using this clever methodology, which should not have been allowed by the Assessing Officer. The Assessing Officer did not even care to 8 go through the MOUs/Agreements signed by the assessee with the purchasers from whom the advances are shown received against the sale of the real estate. Had the assessing Officer done so, it would have been amply clear to him that here is a case where collections are reasonably assured, and the assessee has reasonably estimated the cost of its project and also the rate of project completion, since the prices of the property to be sold are already determined on the basis of which the advance bookings have been done by the assessee and the advance money has been received from the customers. Hence it is a clear case where percentage of completion method should have been adopted by the assessing officer not only for the year under consideration, but also for the earlier years. Accordingly the penal proceedings for the assessee's failure to gets its account audited also needed to be initiated in this case. But the assessing officer completely failed to do so. 6. In view of the discussion above, the order passed by the Assessing Officer prima-facie is erroneous in so far as it is prejudicial to the interests of the revenue, as the order has been passed without making requisite enquiries or verification which should have been made. 7. The assessee is hereby given an opportunity to explain as to why the above referred assessment order dated 17.12.2019 may not be cancelled under section 263 of the Income Tax Act, 1961 for making a fresh assessment.” 18. Further our reference was drawn to the audit memo dt. 01/10/2020 submitted by the Ld. AR as part of his paper book and it was submitted that the audit memo relates to certain minor Revenue audit objection relating to non deduction of TDS on commission and contractor labour expenses. It was accordingly submitted that the subject matter of the minor Revenue objection was limited to the non deduction of TDS on commission and contractor labour expenses whereas on perusal of the show cause notice, it can be appreciated that the same is not just restricted to the non deduction of TDS on account of commission and contractor labour expenses, it also talks about non verification of loans and advances amounting to Rs. 3,85,76,500/-, other loans and advances amounting to Rs. 15,55,000/- and another figure of other loans and advances received from the customer against the booking amounting to Rs. 27,92,89,914/-, claiming of huge expenses of Rs. 3,05,28,263/- and not getting the account audited under section 44AB of the Act. It was accordingly, submitted that the contention so advanced by the Ld. AR is not borne from the records and the Ld. Pr. CIT on examination of the relevant assessment records 9 has issued the show cause which shows due and independent application of mind by the Ld. Pr. CIT before issuance of the show cause notice. 19. Further, our reference was drawn to the provisions of Section 43CB of the Act introduced by the Finance Act 2018 with retrospective effect from 01/04/2017 and it was submitted that the AO has completely failed to take into consideration the relevant provisions which are applicable in respect of construction contract wherein it has been provided that the profit & gains shall be determined on the basis of percentage of completion method. It was submitted that AO has completely failed to invoke the relevant provision as well as inquired about method of accounting so followed by the assessee in respect of Revenue recognition. It was submitted that the assessee has debited huge expenses and the same have been claimed as business losses to be carry forward in the subsequent years without offering the contractual receipt during the year under consideration based on percentage of complete method. 20. It was submitted that no inquiry whatsoever was conducted by the AO during the course of assessment proceedings in this regard and even the Ld. AR has not pointed out any specific inquiry so conducted by the AO during the course of assessment proceedings and even in terms of the submissions made before this Bench, no specific argument has been taken regarding non applicability of provisions of Section 43CB of the Act. 21. It was further submitted that the assessee has shown an amount of Rs. 27,92,89,914/- under the head “Advance from customers” which have been received in the course of his normal business dealing and thus the same form part of his gross receipt and the provisions of Section 44AB are clearly attracted in the instant case. 22. It was accordingly, submitted that there is no infirmity in the order so passed by the Ld. Pr. CIT wherein the assessment order has been set aside for 10 denovo assessment after making requisite inquiry and verification of the fact and applying the relevant provisions as applicable thereto specially the provisions of Section 43 CB of the Act. 23. Further reliance was placed on the decision of Hon’ble Supreme Court in case of CIT Vs. Pavilley Projects (P.) Ltd. [2023] 149 taxmann.com 115, decision of Hon’ble Punjab & Haryana High Court in case of Pr. CIT Vs. Venus Woollen Mills [2019] 105 taxmann.com 287, another decision of Hon’ble Punjab & Haryana High Court in case of Shri Ramesh Kumar Vs. CIT in ITA No. 396 of 2019 and the decision of the Cuttack Bench in case of Hi-tech & Promoters (P.) Vs. Pr. CIT [2020] 117 taxmann.com 965. 24. We have heard the rival contentions and purused the material available on record. Firstly, we refer to the contention advanced by the ld AR that the impugned revisionary proceedings have been initiated based on the audit objection and therefore, the same cannot be sustained as there is no independent application of mind by the ld PCIT and in support, reliance has been placed on the decision of the Hon’ble Punjab and Haryana High Court in case of Sohana Woollen Mills (supra). 25. On a careful reading of the said decision of the jurisdictional High Court, we find that the proposition of law as laid down by the jurisdictional High Court is that “Mere Audit Objection and merely because a different view could be taken were not enough to say that the order of the AO was erroneous or prejudicial to the interests of the Revenue.” A plain reading of the said decision makes it clear that the two reasons being considered by the Hon'ble High Court i.e. Audit Objection and the possibility of the Revisionary Authority having a view different from the view taken by the AO were by itself not sufficient to warrant the exercise of Revisionary Powers u/s 263. The decision proceeds on the well accepted legal position of law, namely the order sought to be set aside by the ld. PCIT must necessarily meet the twin requirements of pointing out the error in 11 the order passed and such an error which is also prejudicial to the interests of the Revenue. By merely citing an audit objection and setting out facts that a different view is also possible on the same set of facts has been held to be not a valid exercise of the revisionary powers u/s 263 of the Act. Thus, we find that the Hon'ble High Court in the aforesaid decision did not lay down the proposition that in any case where there is an Audit Objection, the ld. PCIT is barred to consider exercising powers u/s 263. For the sake of completeness, we reproduce para 7 from the aforesaid decision: "7. A reference to the provisions of s. 263 of the Act shows that jurisdiction thereunder can be exercised if the CIT finds that the order of the AO was erroneous and prejudicial to the interest of Revenue. Mere audit objection and merely because a different view could be taken, were not enough to say that the order of the AO was erroneous or prejudicial to the interest of the Revenue. The jurisdiction could be exercised if the CIT was satisfied that the basis for exercise of jurisdiction existed. No rigid rule could be laid down about the situation when the jurisdiction can be exercised. Whether satisfaction of the CIT for exercising jurisdiction was called for or not, has to be decided having regard to a given fact situation." 26. Thus, we are of the view that the contention advanced by the Ld AR that merely because there is an Audit Objection, the exercise of powers u/s 263 is invalid, cannot be accepted. What we understand from the aforesaid decision and various other decisions cited on this proposition is that a mechanical exercise of revisionary powers u/s 263 by the Revisionary Authority by merely citing the Audit Objection cannot be said to be a valid exercise of Revisionary Powers. The ld. PCIT is required to give an independent finding considering the record. The error in the order of the AO, that too such an error which is prejudicial to the interests of the Revenue, has to be pointed out by the Revisionary Authority in the order and the onerous power cannot be exercised mechanically and arbitrarily. 27. In the instant case, we find that though it is a matter of record that there is a revenue audit objection where the subject matter was limited to the non deduction of TDS on commission and contractor labour expenses whereas on 12 perusal of the show cause notice issued by the ld PCIT, it is noted that the same is not just restricted to the non deduction of TDS on account of commission and contractor labour expenses but it also talks about non verification of loans and advances amounting to Rs. 3,85,76,500/-, other loans and advances amounting to Rs. 15,55,000/- and another figure of other loans and advances received from the customers against the booking amounting to Rs. 27,92,89,914/-, claiming of huge expenses of Rs. 3,05,28,263/- and not getting the account audited under section 44AB of the Act. We therefore find that the revenue audit objection could be the initial trigger where the matter was brought to the notice of the ld PCIT, at the same time, on perusal of the assessment records, the ld PCIT came across other matters which prima facie shows that the assessment order so passed by the AO was erroneous in so far as prejudicial to the interest of the Revenue. The ld PCIT has thereafter recorded specific prima facie findings as to why he feels that the assessment order so passed is erroneous in so far as prejudicial to the interest of the Revenue. The same thus reflects due appreciation of assessment records and independent application of mind on part of the ld PCIT and it can’t be held by any stretch of imagination that the ld PCIT has relied merely on audit objection and initiated the proceedings u/s 263 of the Act. 28. Now, coming to specific findings of the ld PCIT in the impugned order. The ld PCIT has referred to non-accounting for and not offering profits on percentage of completion method by the assessee company and has referred to the provisions of Section 43CB of the Act introduced by the Finance Act 2018 with retrospective effect from 01/04/2017 relevant for the impugned assessment year and detailed findings are given in para 5 of the impugned order which reads as under: “5. Not showing profit on Percentage of Completion Method: 5.1 It is noted that the assessee has returned a loss of Rs. 77,07,593/- during the year under consideration, and has also claimed the accumulated losses of Rs. 13 3,05,28,263/-. In this regard it is noted that the assessee has debited all the expenses to P&L Account without taking into consideration the gross receipts on the receipt side. Thus the assessee has taken an undue advantage by debiting the expenses and booking business loss to be carried forward and to be set off against income of future years without correspondingly acknowledging the trading receipts during the year. The Assessing Officer completely failed to take note of all these facts holistically. On the given facts, the A.O. should have applied the "percentage of completion method" for assessing the income earned during the year, since the assessee had debited all its expenses to the P&L Account. The assessee's plea of acknowledging the receipts only on the completion of project does not carry any force. An express provision u/s 43 CB has been enacted in the Income Tax Act by Finance Act, 2018 w.e.f. 01.04.2017 which reads as under: Computation of income from construction and service contracts. 43CB. (1) The profits and gains arising from a construction contract or a contract for providing services shall be determined on the basis of percentage of completion method in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145: Provided that profits and gains arising from a contract for providing services,— (i) with duration of not more than ninety days shall be determined on the basis of project completion method; (ii) involving indeterminate number of acts over a specific period of time shall be determined on the basis of straight-line method. 5.2 As per the provisions of section 43 CB read with 145(2) of the Income Tax of the Act, the profits and gains are required to be determined on the basis of percentage of completion method. The assessee company was required to adopt POC method of revenue recognition and, therefore, revenue and expenses in respect of its business had to be recognised as per the stage/percentage of completion project(s). 5.3 The assessee has shown large advances from customers and routed them to balance sheet without declaring correct revenue as per POCM. As per the accepted norms of accounting, all the expenses are required to be deferred if the "completed contract method" is opted by the assessee. Here, on the contrary, is a case where the assessee is picking and choosing out of both the methods as per its convenience. While it is deferring the accounting of its receipts, it is claiming all the expenses in its accounts. The accumulated losses are also thus wrongly claimed by the assessee by using this clever methodology, which should not have been allowed by the Assessing Officer. The Assessing Officer did not even care to go through the MOUs/Agreements signed by the assessee with the purchasers from whom the advances are shown received against the sale of the real estate. Had the assessing Officer done so, it would have been amply clear to him that here is a case where collections are reasonably assured, and the assessee has reasonably estimated the cost of its project and also the rate of project completion, since the prices of the property to be sold are already determined on the basis of which the advance bookings 14 have been done by the assessee and the advance money has been received from the customers. Hence it is a clear case where percentage of completion method should have been adopted by the assessing officer not only for the year under consideration, but also for the earlier years. Accordingly the penal proceedings for the assessee's failure to gets its account audited also needed to be initiated in this case. But the assessing officer completely failed to do so. 5.4 It is pertinent to mention that the assessee's written submissions are completely silent in respect of the given issue, even though the said issue was mentioned at length in Para 5.1 of the show cause notice u/s 263, dated 14.02.2022.” 29. During the course of hearing, the ld AR was specifically asked whether any query has been raised by the AO regarding accounting of revenues on percentage completion method as mandated by Section 43CB as applicable for the impugned assessment year 2017-18. In response, the ld AR fairly submitted that no such specific query or any enquiry was conducted by the AO during the course of assessment proceedings though details of customers from whom the advances were taken have been enquired into and necessary submissions duly filed during the assessment proceedings. We therefore agree with the findings of the ld PCIT and the contentions advanced by the ld CIT DR that the AO has failed to take into consideration the relevant provisions of section 43CB which are applicable in respect of construction contract wherein it has been provided that the profit & gains shall be determined on the basis of percentage of completion method. We therefore find that it is a case where the relevant provisions mandating accounting and determination of revenues on percentage completion method and resultant income has been completely left out by the AO from examination even though it was a case of complete scrutiny and the facts as reflected in the financial statements where the advances from customers continued to be shown in the balance sheet and the cost/expenses incurred during the year have been claimed in the profit/loss account which shows clearly the necessity for closer examination thereof. The order so passed by the AO is clearly erroneous in so far as prejudicial to the interest of the Revenue and the findings of the ld PCIT in this regard are 15 therefore upheld and the various contentions advanced by the ld AR are dismissed. 30. Regarding findings of the ld PCIT that the assessee had not got its books of accounts audited as per the mandate of section 44AB of the Income Tax Act, 1961, even though it had received advances against the bookings to the tune of Rs. 12,50,53,178/- during the year and the AO has failed to take note of this fact and failed to initiate appropriate penalty proceedings, the limited contention which has been raised by the ld AR is that the ld PCIT cannot direct the AO to initiate penalty proceedings for non getting the accounts audited. We find force in the said contention that penalty proceedings for not getting the accounts audited are independent and separate of the assessment proceedings and non-initiation thereof during the course of assessment proceedings cannot be a basis for invoking jurisdiction u/s 263 of the Act. The Hon’ble Punjab & Haryana High Court in case of CIT vs Rakesh Nain Trivedi (supra) in case of non-initiation of penalty proceedings u/s 271(1)(c) and the powers of the ld CIT u/s 263 has held as under: 6. It may be noticed that the said issue is no longer res integra. This Court in Commissioner of Income Tax v. Subhash Kumar Jain (2011) 335 ITR 364 agreeing with the view of High Courts of Delhi in Additional CIT v. J.KD.'Costa (1982) 133 ITR 7 (Del), Commissioner of Income Tax v. Sudershan Talkies (1993) 201 ITR 289 (Del) and Commissioner of Income Tax v. Nihal Chand Rekyan (2000) 242 ITR 45 (Del) , Rajasthan in Commissioner of Income Tax v. Keshrimal Parasmal (1986) 157 ITR 484 (Raj) , Calcutta in Commissioner of Income Tax v. Linotype & Machinery Ltd. (1991) 192 ITR 337 (Cal) and Gauhati in Surendra Prasad Singh and others v. Commissioner of Income Tax (1988) 173 ITR 510 (Gau.) whereas dissenting with the diametrically opposite approach of Madhya Pradesh High Court in Additional Commissioner of Income Tax v. Indian Pharmaceuticals (1980) 123 ITR 874 (MP), Additional Commissioner of Income Tax v. Kantilal Jain (1980) 125 ITR 373 (MP) and Addl. CWT v. Nathoolal Balaram (1980) 125 ITR 596 (MP) had concluded that where the CIT finds that the Assessing Officer had not initiated penalty proceedings under Section 271(l)(c) of the Act in the assessment order, he cannot direct the Assessing Officer to initiate penalty proceedings under Section 271(l)(c) of the Act in exercise of revisional power under Section 263 of the Act. The relevant observations recorded therein read thus:- "9. Now adverting to the second limb, it may be noticed that the Delhi High Court in judgment reported in Addl. CIT vs. J.K.D.'Costa (1981) 25 CTR (Del) 224 : (1982) 133 ITR 7 (Del) has held that the CIT cannot pass an order under s. 263 of the Act 16 pertaining to imposition of penalty where the assessment order under s. 143(3) is silent in that respect. The relevant observations recorded are: "It is well established that proceedings for the levy of a penalty whether under s. 271(l)(a) or under s. 273(b) are proceedings independent of and separate from the assessment proceedings. Though the expression "assessment" is used in the Act with different meanings in different contexts, so far as s. 263 is concerned, it refers to a particular proceeding that is being considered by the Commissioner and it is not possible when the Commissioner is dealing with the assessment proceedings and the assessment order to expand the scope of these proceedings and to view the penalty proceedings also as part at the proceedings which are being sought to be revised by the Commissioner. There is no identity, between the assessment proceedings and the penalty proceedings; the latter arc separate proceedings, that may, in some cases, follow as a consequence of the assessment proceedings. As the Tribunal has pointed out, though it is usual for the ITO to record in the assessment order that penalty proceedings are being initiated, this is more a matter of convenience than of legal requirement. All that the law requires, so far as the penalty proceedings are concerned, is that they should be initiated in the court of the proceedings for assessment. It is sufficient if there is some record somewhere, even apart from the assessment order itself, that the ITO has recorded his satisfaction that the assessed is guilty of concealment or other default for which penalty action is called for. Indeed, in certain cases it is possible for the ITO to issue a penalty notice or initiate penalty proceedings even" long before the assessment is completed though the actual penalty order cannot be passed until the assessment finalised. We, therefore, agree with the view taken by the Tribunal that the penalty proceedings do not form part of the assessment proceedings and that the failure of the ITO to record in the assessment order his satisfaction or the lack of it in regard to the leviability of penalty cannot be said to be a factor vitiating the assessment order in any respect. An assessment cannot be said to be erroneous or prejudicial to the interest of the revenue because of the failure of the ITO to record his opinion about the leviability of penalty in the case." 10. Special leave petition against the said decision was dismissed by the Apex Court ((1984) 147 ITR (St) 1. The same view was reiterated by the Delhi High Court in CIT vs. Sudershan Talkies (1993) 112 CTR (Del) 165 : (1993) 201 ITR 289 (Del) and followed in CIT vs. Nihal Chand Rekyan (1999) 156 CTR (Del) 59 : (2000) 242 ITR 45 (Del). The Rajasthan High Court in CIT vs. Keshrimal Parasmal (1985) 48 CTR (Raj) 61 : (1986) 157 ITR 1984 (Raj), Gauhati High Court in Surendra Prasad Singh & Ors. vs. CIT (1988) 71 CTR (Gau) 125 : (1988) 173 ITR 510 (Gau) and Calcutta High Court in CIT vs. Linotype & Machinery Ltd. (1991) 192 ITR 337 (Cal) have followed the judgment of Delhi High Court in J.K.D's Costa's case (supra). 11. However, Madhya Pradesh High Court in Addl. CIT vs. Indian Pharmaceuticals (1980) 123 ITR 874 (MP) which has been followed by the same High Court in Addl. CIT vs. Kantilal Jain (1980) 125 ITR 373 (MP) and Addl. CWT vs. Nathoolal Balaram (1980) 125 ITR 596 (MP) has adopted diametrically opposite approach. 12. We are in agreement with the view taken by the High Courts of Delhi, Rajasthan, Calcutta and Gauhati, and express our inability to subscribe to the view of Madhya Pradesh High Court. 17 13. Accordingly, it is held that the initiation of proceedings under s. 263 was not justified. The Tribunal was right in holding that after examining the record of the assessment in exercise of powers under s. 263, where the CIT finds that the AO had not initiated penalty proceedings, he cannot direct the AO to initiate penalty proceedings under s. 271(l)(c) of the Act." 7. In view of the above, equally we are unable to subscribe to the view adopted by Allahabad High Court in Surendra Prasad Aggarwal's case (supra) where judgment of Madhya Pradesh High Court in Indian Pharmaceuticals' case (supra) noticed hereinbefore has been concurred with. 8. Accordingly, it is held that the initiation of proceedings under Section 263 of the Act was not justified and we uphold the order of the Tribunal cancelling the revisional order passed by the CIT. 31. Though the aforesaid decision has been rendered by the Hon’ble High Court in context of non-initiation of penalty proceedings u/s 271(1)(c) and the powers of the ld CIT u/s 263, the legal proposition laid down therein applies equally in the instant case. Therefore, respectfully following the same, the findings of the ld PCIT in para 6 of the impugned order are thus set-aside to this limited extent and the contentions of the ld AR are accepted. 32. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 01/11/2023. Sd/- Sd/- आकाश दीप जैन िवᮓम ᳲसह यादव (AAKASH DEEP JAIN) ( VIKRAM SINGH YADAV) उपा᭟यᭃ / VICE PRESIDENT लेखा सद᭭य/ ACCOUNTANT MEMBER AG Date: 01/11/2023 आदेश कᳱ ᮧितिलिप अᮕेिषत/ Copy of the order forwarded to : 1. अपीलाथᱮ/ The Appellant 2. ᮧ᭜यथᱮ/ The Respondent 3. आयकर आयुᲦ/ CIT 4. आयकर आयुᲦ (अपील)/ The CIT(A) 5. िवभागीय ᮧितिनिध, आयकर अपीलीय आिधकरण, च᭛डीगढ़/ DR, ITAT, CHANDIGARH 6. गाडᭅ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar