F Harley & Co. Pvt. Ltd., Kolkata V. THE CIT, 1, KOLKATA, Kolkata

ITA 864/KOL/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9273 (ITAT-KOLKATA)
• Duration Of Justice: 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 21-11-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 28-04-2016
• Court: TRIBUNAL
• Department Lawyers: AVINASH MISHRA
• Assessee Lawyers: MIRAJ D. SHAH
• Keywords: Revenue expenditure
• Section: 143(3); 142(1); 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA [BEFORE SHRI M. BALAGANESH, AM & SHRI S. S. VISWAN ETHRA RAVI, JM] I.T.A NO.864/KOL/2016 ASSESSMENT YEAR: 2011-12 F. HARLEY & CO. PVT. LTD. VS. PR. COMMISSIONER O F INCOME-TAX, (PAN: AAACF3966D) CIRCLE-1, KOLKATA. ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 08.03.2017 DATE OF PRONOUNCEMENT: 08.03.2017 FOR THE APPELLANT: SHRI MIRAJ D. SHAH, AR FOR THE RESPONDENT: SHRI AVINASH MISHRA, CIT ORDER PER SHRI M. BALAGANESH, AM: THIS APPEAL BY ASSESSEE IS ARISING OUT OF REVISION ORDER OF PR. CIT-1, KOLKATA VIDE MEMO NO. PR.CIT-1/KOL/U/S.263/F.HARLEY & CO./2015-1 6/12005-07 DATED 07/11.03.2016. ASSESSMENT WAS FRAMED BY JCIT, RANGE-1, KOLKATA U/S . 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASS ESSMENT YEAR 2011-12 VIDE HIS ORDER DATED 18.03.2014. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CIT WAS RIGHT IN INVOKING REVISIONARY JURISDICTION U/S 263 OF THE AC T IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSES SEE IS COMPANY INCORPORATED ON 7.8.1986 ENGAGED IN THE BUSINESS OF MANUFACTURING O F ENGINEERING ITEMS AND FIRE RESISTANT CLOTH. IT HAS TWO FACTORIES SITUATED AT 1) SHREE HARI COMPLEX, OPPOSITE JALAN COMPLEX, GATE NO.1, JANGALPUR, P.O. ARGORI, P.S. SANKRAI, HOWRAH 711302 AND 2) 3/2, SOUTH TANGRA ROAD, KOLKATA 700046. THE RETURN OF INCOM E FOR THE ASST YEAR 2011-12 WAS ELECTRONICALLY FILED ON 31.10.2011 DECLARING TAXABL E INCOME OF RS. 3,49,56,960/- . THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES U/S 143( 2) AND 142(1) OF THE ACT WERE ISSUED AND SERVED ON THE ASSESSEE. SUBSEQUENTLY THE CASE WAS ASSIGNED TO JCIT, RANGE I, KOLKATA BY THE CIT, KOLKATA I VIDE HIS ORDER NO. 58/2013-14 DATED 26.9.2013. THE AUTHORIZED REPRESENTATIVE APPEARED FROM TIME TO TIME BEFORE TH E LD JCIT (AO) , FILED THE REQUISITE DETAILS AND THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 18.3.2014 DETERMINING 2 ITA NO.864/KOL/2016 F.HARLEY & CO. PVT. LTD.., AY 2011-12 THE TOTAL INCOME AT RS. 3,50,11,030/- . IN THE ASS ESSMENT, THE DISALLOWANCES U/S 36(1)(VA) AND U/S 14A OF THE ACT WERE MADE. THE LD CIT SOUG HT TO REVISE THE SAID ASSESSMENT TREATING THE SAME AS ERRONEOUS IN AS MUCH AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE ON THE GROUND THAT THE ASSESSEE HAD DEBITED A SUM O F RS. 4,75,91,267/- TOWARDS PROVISION FOR PURCHASES AND THAT THE SAME WAS NOT DISALLOWED IN THE ASSESSMENT WHICH RESULTED IN UNDERASSESSMENT OF INCOME. 4. THE ASSESSEE REPLIED BEFORE THE LD CIT THAT IT IS MAINLY IN THE BUSINESS OF AIR POLLUTION CONTROL SYSTEMS AND EXECUTION OF TURNKEY ENGINEERING PROJECTS. DURING THE FINANCIAL YEAR 2010-11 RELEVANT TO ASST YEAR 2011-1 2 , THE ASSESSEE HAD DEBITED A SUM OF RS. 4,75,91,267/- UNDER THE NOMENCLATURE PROVISION FOR PURCHASE AT THE YEAR END AND STATED THAT SIMILAR SUM OF RS. 2,14,53,425/- WAS DE BITED IN THE EARLIER YEAR WHICH WAS ALLOWED AS DEDUCTION AND ACCEPTED BY THE REVENUE. IT WAS STATED THAT THOUGH THE NOMENCLATURE USED WAS PROVISION BUT IN FACT THIS IS NOT THE CASE OF UNASCERTAINED LIABILITY BUT IT IS A CASE OF ASCERTAINED LIABILI TY. IT WAS EXPLAINED THAT THE ASSESSEE TOOK UP ENGINEERING PROJECTS WHICH WERE COMPLETED OVER A PERIOD OF MORE THAN ONE ACCOUNTING YEAR AND BILLING FOR A PROJECT WAS DONE AS PER BILL ING SCHEDULE WITH THEIR CUSTOMERS. WHILE FULL BILLING FOR AN ITEM IS DONE UPON ITS PAR T DISPATCH, THAT DISPATCH IS NOT COMPLETE, AS THE FINAL REQUIREMENT AT THE SITE IS DEPENDENT O N THE COMPLETION OF DETAILED ENGINEERING AND ACTUAL REQUIREMENT AT THE SITE TO SUIT CONDITIO NS (E.G. PIPING, CABLES, STELL SUPPORTS, CABLE TRAYS ETC). AS THE PROJECTS ARE TURNKEY IN N ATURE, THE ASSESSEE IS REQUIRED TO DISPATCH ADDITIONAL QUANTITIES TO COMPLETE THE WORK WITHOUT FURTHER BILLING. THEREFORE WHILE THE FULL BILLING FOR AN ITEM MAY BE COMPLETED IN ONE FINANCI AL YEAR, THE FULL COST FOR THAT ITEM COULD SPREAD BEYOND ONE FINANCIAL YEAR. IN ORDER TO MATC H THE ITEM WISE REVENUE CONCERNING EACH PROJECT WITH THE EXPECTED ITEM WISE EXPENSE / PURCHASE, A PROVISION FOR PURCHASE IS MADE ALTHOUGH THE EXPENSES ARE IN RELATION TO THE F INANCIAL YEAR 2010-11 AND FOR WHICH THE CONCERNED REVENUE OF THE PROJECT HAS ALREADY BEEN A CCOUNTED FOR. IT WAS EXPLAINED THAT IF THE COMPANY DID NOT FOLLOW THIS PRACTICE, IT WOULD BE PAYING TAXES ON AN UNREALIZED / INFLATED PROFIT IN THAT YEAR AND HAVING HIGHER COST BOOKING IN THE SUBSEQUENT YEAR, WITHOUT A MATCHING REVENUE. IT WAS FURTHER STATED THAT THE ASSESSEE COMPANY HAS BEEN FOLLOWING THIS PRACTICE YEAR ON YEAR AS IT ADOPTS THE PRINCIP LE OF REVENUE AND COST RECOGNITION IN THE SAME FINANCIAL YEAR IN CONSONANCE WITH THE MATCHING CONCEPT. THE ASSESSEE PLACED 3 ITA NO.864/KOL/2016 F.HARLEY & CO. PVT. LTD.., AY 2011-12 RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROL S INDIA (P) LTD VS CIT REPORTED IN (2009) 314 ITR 62 (SC) WHEREIN THE FOLLOWING THREE CONDITIONS WERE LAID DOWN BY THE HONBLE APEX COURT FOR RECOGNITION OF EXPENSES :- (I) AN ENTERPRISE HAS A PRESENT OBLIGATION AS A RES ULT OF PAST EVENT ; (II) IT IS PROBABLE THAT AN OUTFLOW OF RESOURCES WI LL BE REQUIRED TO SETTLE OBLIGATION ; AND (III) A RELIABLE ESTIMATE CAN BE MADE OF AMOUNT OF THE OBLIGATION IF THESE CONDITIONS ARE NOT MET, NO PROVISION CAN BE RECOGNIZED AS A PROVIS ION THUS PROVISION HAS TO BE MADE BASED ON RELIABLE ESTIMATION OF OBLIGATIONS. 4.1. IT WAS EMPHASIZED THAT THE ASSESSEE HAD NOT O NLY FULFILLED ALL THE ABOVE THREE CONDITIONS BUT HAD GONE BEYOND THE POINT THAT IT HA S NOT ONLY SCIENTIFICALLY ESTIMATED BUT MADE PROVISIONS IN THE ACCOUNTS ON THE BASIS OF THE INVOICES RECEIVED IN THE SUBSEQUENT ACCOUNTING YEAR ON ACCOUNT OF THOSE PROJECTS AND AC TUALLY INCURRED EXPENSES ON THAT ACCOUNT. IN OTHER WORDS THERE IS A DETERMINATION OF EXACT LIABILITY AND NOT EVEN ESTIMATED ONE. THE ASSESSEE ALSO PLACED RELIANCE IN SUPPORT OF ITS CLAIM ON THE FOLLOWING DECISIONS :- (I) HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS CHOLAMANDALAM INVESTMENT & FINANCE CO. LTD REPORTED IN (2009) 309 ITR 110 (MAD ) ; (II) HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V S ROTORK CONTROLS INDIA LTD REPORTED IN (2007) 293 ITR 311 (MAD) ; (III) HONBLE DELHI HIGH COURT IN THE CASE OF CONSO LIDATED PHOTO & FINVEST LTD VS CIT REPORTED IN (2006) 281 ITR 394 (DEL) ; (IV) HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS WHIRLPOOL OF INDIA LTD REPORTED IN (2011) 242 CTR 245 (DEL) ; 4.2. ACCORDINGLY THE ASSESSEE REPLIED THAT THERE I S NO ERROR IN THE CLAIM OF EXPENDITURE TOWARDS PROVISION FOR PURCHASES MADE BY THE ASSES SEE. IT WAS STATED THAT THE ASSESSEE HAD DULY MADE THE AFORESAID SUBMISSIONS VIDE LETTER DATED 7.3.2014 EVEN BEFORE THE LD JCIT (AO) DURING THE COURSE OF ASSESSMENT PROCEEDIN GS PURSUANT TO THE SPECIFIC QUERY RAISED BY THE LD AO IN THAT REGARD. THE ASSESSMENT FOLDER WOULD STAND TESTIMONY TO THE CLAIM MADE BY THE ASSESSEE IN THIS REGARD. IT WAS ALSO STATED THAT THE ASSESSEE HAD DULY EXPLAINED BEFORE THE LD AO THE REVENUE RECOGNITION IN RESPECT OF EACH OF THE PROJECTS EXECUTED BY IT AS UNDER:- 4 ITA NO.864/KOL/2016 F.HARLEY & CO. PVT. LTD.., AY 2011-12 5 ITA NO.864/KOL/2016 F.HARLEY & CO. PVT. LTD.., AY 2011-12 4.3. IT WAS STATED THAT THE ASSESSEE FILED THE FOL LOWING DETAILS BEFORE THE LD AO :- (A) STATEMENT SHOWING DETAILS OF ORDER VALUE, SALES TURNOVER AND CLOSING PROVISIONS OF RS. 4,75,91,267/- FOR REFERRED 3 JOBS : JOB NO. 2828 , 2883 AND 2885 ; (B) STATEMENT OF ESTIMATED COST OF MATERIALS FOR MU NDRA SEZ (JOB NO. 2828) , ADANI PETRONET (JOB NO. 2883) AND ADANI POWER (JOB NO.288 5) ; (C ) STATEMENT OF EXPENDITURE INCURRED POST FINANCI AL YEAR 2010-11 FOR EACH OF THE ABOVE THREE PROJECTS ; (D) SALES SUMMARY FOR THE YEAR ENDED 31.3.2011 TO P ROVE THAT THE REVENUE HAD BEEN RECOGNIZED IN RESPECT OF ABOVE THREE PROJECTS AND (E) BILL WISE SALES FOR THE ABOVE REFERRED THREE JO BS 4.4. IT WAS PLEADED THAT THE LD AO ON DUE EXAMINAT ION OF THE AFORESAID DOCUMENTS AND THE REPLIES OF THE ASSESSEE TOGETHER WITH THE RELAT ED CASE LAWS HAD ALLOWED THE CLAIM FOR PROVISION FOR PURCHASES IN THE ASSESSMENT. SINCE NO ADDITION WAS MADE IN THE ASSESSMENT TOWARDS THE SAME, THERE WAS NO OCCASION FOR THE LD AO TO DISCUSS ABOUT THE SAME IN THE ASSESSMENT ORDER. ACCORDINGLY, IT WAS PLEADED THAT MERE NON-DISCUSSION IN THE ASSESSMENT ORDER ABOUT A PARTICULAR ITEM WOULD NOT MAKE THE AS SESSMENT ORDER ERRONEOUS. IT WAS FURTHER PLEADED THAT SINCE DUE EXAMINATION HAS BEEN CARRIED OUT BY THE LD AO ON THE IMPUGNED ISSUE OF PROVISION FOR PURCHASES AND HEN CE THE ACTION OF THE LD CIT IN TRYING TO SUBSTITUTE HIS OWN OPINION ON THE SAME IS NOT PERMI TTED AND WARRANTED WITHIN THE MEANING OF SECTION 263 OF THE ACT. 5. THE LD CIT OBSERVED THAT IT IS SEEN FROM THE AS SESSMENT RECORDS THAT THE LD AO HAD NEITHER ASKED ANY QUESTIONS ABOUT THE PROVISIONS NO R THE ASSESSEE HAD GIVEN ANY EXPLANATION OR NOTE ABOUT THE SAME. ACCORDINGLY HE CONCLUDED THAT THE LD AO HAD NOT EXAMINED THE ISSUE AND HENCE NOT FORMED ANY VIEW ON THE SAME. HE STATED THAT THE CASE LAWS RELIED UPON BY THE LD AR ARE NOT APPLICABLE TO THE ASSESSEE AND ASSESSEE HAD NOT FULFILLED THE THREE REQUIREMENTS SPECIFIED IN THE D ECISION OF THE HONBLE APEX COURT IN THE CASE OF ROTORK CONTROLS INDIA P LTD VS CIT REPORTED IN (2009) 314 ITR 62 (SC). BASED ON THESE OBSERVATIONS, HE HELD THAT THE ORDER PASSE D BY THE LD AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ON THE G ROUND THAT NO ENQUIRIES WERE MADE BY THE LD AO NOR ANY EXPLANATION HAD BEEN OBTAINED BY HIM. ACCORDINGLY THE LD CIT PASSED AN 6 ITA NO.864/KOL/2016 F.HARLEY & CO. PVT. LTD.., AY 2011-12 ORDER U/S 263 OF THE ACT BY DIRECTING THE LD AO TO DO THE ADEQUATE EXAMINATION , KEEP THE DOCUMENTARY EVIDENCE ON RECORD AND TAKE A CORRECT V IEW OF THE PROVISIONS SHOWN IN THE RAW MATERIALS ACCOUNT AND COME TO A FRESH CONCLUSIO N. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS :- 1. FOR THAT ON THE BASIS OF MATERIALS ON RECORD T HERE WERE NO VALID PRE-CONDITIONS AND PRE- REQUISITES FOR INITIATION OF SECTION 263 OF THE INC OME TAX ACT, 1961 AND AS SUCH INVOCATION OF SUCH PROCEEDINGS BY THE LEARNED CIT IS VITIATED IN LAW. 2. FOR THAT ON FACTS AND ON THE BASIS OF MATERIALS ON RECORD, ORDER OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE SO AS TO WAR RANT EXERCISE OF POWER BY THE LEARNED CIT UNDER SECTION 263 OF THE INCOME TAX ACT, 1961. 3. FOR THAT IN THE FACTS AND CIRCUMSTANCES OF THE C ASE THE LEARNED CIT ERRED IN LAW BY HOLDING THAT 'PROVISION FOR PURCHASES' SHOULD BE DI SALLOWED. 4. FOR THAT IN THE FACTS AND CIRCUMSTANCES OF THE C ASE THE LEARNED CIT ERRED IN UNDERSTANDING THE TRUE NATURE OF MATCHING CONCEPT, WHICH WAS PROP ERLY TREATED BY THE ASSESSING OFFICER ON THE BASIS OF MATERIALS ON RECORD. 5. FOR THAT THE LEARNED CIT ERRED IN LAW IN HOLDING THAT THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF INCOME TAX ACT, 1961, IS ERRONEOU S AND PREJUDICIAL TO THE INTEREST OF REVENUE AND WRONGLY SET ASIDE THE ORDER OF ASSESSIN G OFFICER ON THE SPECIFIC ISSUE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 6. FOR THAT THE IMPUGNED ORDER PASSED BY THE LEARNE D CIT IS OTHERWISE ILLEGAL, UNLAWFUL AND BAD IN LAW AND IS LIABLE TO BE SET ASIDE. 7. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, A MEND OR WITHDRAW ANY GROUND OR GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF THE A PPEAL. 6. THE LD AR REITERATED THE SUBMISSIONS MADE BEFOR E THE LOWER AUTHORITIES AND VEHEMENTLY OBJECTED TO THE INCORRECT STATEMENT MADE BY THE LD CIT IN HIS ORDER THAT THE IMPUGNED ISSUE OF PROVISION FOR PURCHASES HAD NOT B EEN EXAMINED BY THE LD AO. HE PLACED RELIANCE ON THE RELEVANT PAGES OF THE PAPER BOOK PROVING THE FACT THAT THIS ISSUE WAS THREADBARE ANALYSED AND EXAMINED BY THE LD AO IN T HE COURSE OF ASSESSMENT PROCEEDINGS AND THE LD AO WAS THOROUGHLY CONVINCED WITH THE REV ENUE RECOGNITION OF THE ASSESSEE WITH FACTS AND FIGURES AND THE RELATED CASE LAWS RELIED UPON. HE ARGUED THAT THE LD CIT BOTH FROM THE SHOW CAUSE NOTICE AND FROM THE REVISION OR DER U/S 263 OF THE ACT IS ONLY TRYING TO SUBSTITUTE HIS OWN OPINION AGAINST THE OPINION FRAM ED BY THE LD AO WHICH IS NOT PERMISSIBLE U/S 263 OF THE ACT. HE FURTHER STATED THAT THE ISSUE UNDER DISPUTE AMONG OTHER DECISIONS, IS SQUARELY COVERED IN FAVOUR OF THE ASS ESSEE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF TAPARIA TOOLS LTD VS JCIT REPORTED IN (2003) 260 ITR 7 ITA NO.864/KOL/2016 F.HARLEY & CO. PVT. LTD.., AY 2011-12 102 (BOM) WHICH RECOGNIZED THE MATCHING PRINCIPLE IN REVENUE RECOGNITION AND REFERRED TO THE RELEVANT PARAGRAPH OF THE SAID JUDGEMENT. BAS ED ON THESE ARGUMENTS , HE STATED THAT THE ORDER OF THE LD AO CANNOT BE TERMED AS ERRONEOU S. IN RESPONSE TO THIS, THE LD DR VEHEMENTLY RELIED ON THE ORDER OF THE LD CIT. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE HAD MADE ELABORATE SUBMIS SIONS BEFORE THE LD JCIT (WHO WAS THE THEN AO WHO FRAMED THE ASSESSMENT U/S 143(3) OF THE ACT) VIDE LETTER DATED 7.3.2014 WHICH ARE ENCLOSED IN PAGES 1 TO 6 OF THE PAPER BOO K. THE ASSESSEE HAD ALSO ENCLOSED THE DETAILED ANNEXURES BEFORE THE LD AO CONTAINING (A) STATEMENT SHOWING DETAILS OF ORDER VALUE, SALES TURNOVER AND CLOSING PROVISIONS OF RS. 4,75,91,267/- FOR REFERRED 3 JOBS : JOB NO. 2828 , 2883 AND 2885 ; (B) STATEMENT OF ESTIM ATED COST OF MATERIALS FOR MUNDRA SEZ (JOB NO. 2828) , ADANI PETRONET (JOB NO. 2883) AND ADANI POWER (JOB NO.2885) ; (C ) STATEMENT OF EXPENDITURE INCURRED POST FINANCIAL YE AR 2010-11 FOR EACH OF THE ABOVE THREE PROJECTS ; (D) SALES SUMMARY FOR THE YEAR ENDED 31. 3.2011 TO PROVE THAT THE REVENUE HAD BEEN RECOGNIZED IN RESPECT OF ABOVE THREE PROJECTS AND (E) BILL WISE SALES FOR THE ABOVE REFERRED THREE JOBS . THE LD AO HAVING EXAMINED A LL THESE SUBMISSIONS TOGETHER WITH THE RELATED DOCUMENTS HAD ARRIVED AT A CONCLUSION THAT THE ASSESSEE HAD MADE A BONAFIDE CLAIM TOWARDS PROVISION FOR PURCHASES IN CONSONANCE WITH THE MATCHING CONCEPT IN REVENUE RECOGNITION. 7.1. WE FIND FROM THE DETAILS ENCLOSED IN PAGE 7 O F THE PAPER BOOK WHICH IS ENUMERATED HEREINABOVE, THAT THE ASSESSEE HAD BOOKED REVENUE F OR THE FOLLOWING PROJECTS AS UNDER:- MUNDRA SEZ 100% BILLING DONE AT RS 954 LACS ADANI PETRONET 96% BILLING DONE AT RS 717.12 LACS ADANI POWER 99% BILLING DONE AT RS 320.76 LACS. AGAINST THESE PROJECTS, HE HAD BOOKED THE EXPENDITU RE TO THE EXTENT OF PERCENTAGE OF COMPLETION OF BILLING IN ACCORDANCE WITH THE PERCEN TAGE OF COMPLETION METHOD FOLLOWED BY IT FOR ITS PROJECTS. THERE IS NO DISPUTE ON THE METHOD OF ACCOUNTING VIZ PERCENTAGE OF COMPLETION METHOD , FOLLOWED BY THE ASSESSEE. THE LAST COLUMN IN THE AFORESAID TABLE WOULD INDICATE THAT THE ASSESSEE HAD MADE PROVISION FOR THE EXPENSES TO BE INCURRED IN 8 ITA NO.864/KOL/2016 F.HARLEY & CO. PVT. LTD.., AY 2011-12 RESPECT OF EACH OF THE PROJECTS TO BRING IN LINE WI TH THE PERCENTAGE OF BILLING DONE TO SATISFY THE MATCHING CONCEPT OF REVENUE RECOGNITION. 7.2. WE AGREE WITH THE CONTENTION OF THE LD AR THA T SINCE THERE WAS NO DISALLOWANCE CONTEMPLATED BY THE LD AO IN THIS REGARD, THERE WAS NO OCCASION FOR HIM TO DISCUSS ABOUT THE SAME IN THE ASSESSMENT ORDER. THE LD DR BEFOR E US WAS NOT ABLE TO BRING IN ANY CONTRARY EVIDENCE TO PROVE THAT THE REQUISITE DETAI LS WERE NOT FILED BEFORE THE LD JCIT (AO) BY THE ASSESSEE AND ACCORDINGLY NOT ABLE TO REBUT T HE ARGUMENTS OF THE LD AR IN THIS REGARD. HENCE THE ACTION OF THE LD AO CANNOT BE CONSTRUED A S LACK OF ENQUIRY BY THE LD CIT WARRANTING REVISION U/S 263 OF THE ACT. WE FIND TH AT THE LD CIT WAS ONLY TRYING TO SUBSTITUTE HIS OWN OPINION BY REAPPRAISING THE VERY SAME EVIDENCE AVAILABLE ON RECORD AGAINST THE OPINION OF THE LD AO. THIS IN OUR CONS IDERED OPINION IS NOT PERMISSIBLE U/S 263 OF THE ACT. RELIANCE IN THIS REGARD IS PLACED ON T HE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS DEEPAK MIT TAL REPORTED IN 324 ITR 411 (P&H) . WE ALSO FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS DEV ELOPMENT CREDIT BANK LTD REPORTED IN 323 ITR 206 (BOM) HAD HELD THAT THE LD CIT CANNOT SUO MOTO REVISE AN ORDER ON THE GROUND THAT ENQUIRY WAS NOT CONDUCTED WHEN THE ASSESSMENT ORDER WAS PASSED AFTER CONSIDERING ALL DETAILS CALLED FOR AND FURNISHED BY THE ASSESSEE. WE ALSO FIND THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS HOND A SIEL POWER PRODUCTS LTD REPORTED IN 333 ITR 547 (DEL) HAD HELD THAT THE REVISION ORDER WAS NOT CORRECT A S THERE WAS NO MATERIAL TO INDICATE THAT THE LD AO HAD NOT APPLIED HIS MIND TO THE PROVISIONS OF THE ACT AND THERE WOULD BE PRESUMPTION THAT THE ASSESSM ENT ORDER HAD BEEN PASSED U/S 143(3) OF THE ACT BY THE LD AO AFTER PROPER APPLICATION OF MIND. WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GABRIEL IND IA REPORTED IN 203 ITR 108 (BOM) HAD HELD THAT THE DECISION OF THE LD AO COULD NOT B E HELD ERRONEOUS SIMPLY BECAUSE HE DID NOT MAKE AN ELABORATE DISCUSSION. THE LD CIT WAS IN ERROR IN ASKING THE LD AO TO RE- EXAMINE THE MATTER AND DIRECTING THE LD AO TO PASS A FRESH ORDER. RECENTLY THE HONBLE DELHI HIGH COURT IN THE CASE OF NTPC LTD VS CIT REP ORTED IN 106 DTR 73 (DEL) HAD HELD THAT WHERE THE LD AO PASSED THE ORDER AFTER PROPER ENQUIRY AND THE ABSENCE OF DISCUSSION REGARDING THE DOWNWARD REVISION OF SALES FIGURE DID NOT MAKE IT ANY LESS VULNERABLE TO CORRECTION U/S 263 OF THE ACT. 9 ITA NO.864/KOL/2016 F.HARLEY & CO. PVT. LTD.., AY 2011-12 7.3. WE ALSO FIND THAT THE DECISION RELIED UPON BY THE LD AR ON THE HONBLE BOMBAY HIGH COURT IN THE CASE OF TAPARIA TOOLS LTD VS JCIT REPORTED IN (2003) 260 ITR 102 (BOM) ON THE PRINCIPLES OF MATCHING CONCEPT IS SQUARELY APPLICABLE TO THE FACTS OF THE INSTANT CASE. IT WAS HELD THAT :- A. MATCHING CONCEPT 22. THE MERCANTILE SYSTEM OF ACCOUNTING IS BASED ON AC CRUAL. BASICALLY, IT IS A DOUBLE- ENTRY SYSTEM OF ACCOUNTING. UNDER THE MERCANTILE SY STEM OF ACCOUNTING, PROFITS ARISING OR ACCRUING AT THE DATE OF THE TRANSACTION ARE LIABLE TO BE TAXED NOTWITHSTANDING THE FACT THAT THEY ARE NOT ACTUALLY RECEIVED OR DEEMED TO BE RECE IVED UNDER THE ACT. UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE, BOOK PR OFITS ARE LIABLE TO BE TAXED. THE PROFITS EARNED AND CREDITED IN THE BOOKS OF ACCOUNT CONSTIT UTE THE BASIS OF COMPUTATION OF INCOME. THE SYSTEM POSTULATES THE EXISTENCE OF TAX INSOFAR AS MONIES DUE AND PAYABLE BY THE PARTIES TO WHOM THEY ARE DEBITED - KESHAV MILLS LTD . V. CIT [1953] 23 ITR 230 (SC) AT P. 239. THEREFORE, UNDER THE MERCANTILE SYSTEM OF ACCO UNTING, IN ORDER TO DETERMINE THE NET INCOME OF AN ACCOUNTING YEAR, THE REVENUE AND OTHER INCOMES ARE MATCHED WITH THE COST OF RESOURCES CONSUMED [EXPENSES]. UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, THIS MATCHING IS REQUIRED TO BE DONE ON ACCRUAL BASIS. U NDER THIS MATCHING CONCEPT, REVENUE AND INCOME EARNED DURING AN ACCOUNTING PERIOD, IRRE SPECTIVE OF ACTUAL CASH IN-FLOW, IS REQUIRED TO BE COMPARED WITH EXPENSES INCURRED DURI NG THE SAME PERIOD, IRRESPECTIVE OF ACTUAL OUT-FLOW OF CASH. IN THIS CASE, THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THIS MATCHING CONCEPT IS VERY RELEVANT TO COMPUTE TAXABLE INCOME PARTICULARLY IN CASES INVOLVING DRE. IT HAS BEEN RE COGNISED BY NUMEROUS JUDGMENTS. IN THE CASE OF CALCUTTA CO. LTD. V. CIT [1959] 37 ITR 1 (SC) THE FACTS WERE AS FOLLOWS : THE ASSESSEE BOUGHT LANDS AND SOLD THEM IN PLOTS. WHEN THE PLOTS WERE SOLD THE PURCHASERS PAID ONLY A PORTION OF THE PURCHASE PRICE AND UNDER TOOK TO PAY THE BALANCE IN INSTALMENTS. THE ASSESSEE, IN TURN, AGREED TO DEVELOP THE PLOTS WITHIN SIX MONTHS. IN THE RELEVANT ACCOUNTING YEAR, THE ASSESSEE ACTUALLY RECEIVED ONL Y RS. 29,392 TOWARDS SALE PRICE OF THE LANDS, BUT, IN ACCORDANCE WITH THE MERCANTILE SYSTE M OF ACCOUNTING FOLLOWED BY THE ASSESSEE, IT CREDITED IN ITS ACCOUNTS RS. 43,692 RE PRESENTING THE FULL SALE PRICE OF THE LANDS. AT THE SAME TIME, IT ALSO DEBITED RS. 24,809 AS EXP ENDITURE FOR THE DEVELOPMENT IT HAD UNDERTAKEN EVEN THOUGH, NO PART OF THAT AMOUNT WAS ACTUALLY SPENT. THE DEPARTMENT, THEREFORE, DISALLOWED THE EXPENDITURE OF RS. 24,809 ON THE GROUND THAT THE AMOUNT WAS NOT ACTUALLY SPENT. THE ASSESSEE ULTIMATELY SUCCEEDED I N THE SUPREME COURT. IT WAS HELD BY THE SUPREME COURT THAT THE EXPRESSION 'PROFITS OR GAINS ' IN SECTION 10(1) OF THE INCOME-TAX ACT, 1922 SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SE NSE AND THERE CAN BE NO COMPUTATION OF SUCH PROFITS AND GAINS UNTIL THE EXPENDITURE, WH ICH IS NECESSARY FOR THE PURPOSES OF EARNING THE RECEIPTS IS DEDUCTED THEREFROM. ACCORDI NGLY, THE SUPREME COURT TOOK THE VIEW THAT SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SY STEM OF ACCOUNTING AND SINCE THE ASSESSEE HAD CREDITED THE FULL SALE PRICE OF LANDS IN ITS ACCOUNTS AMOUNTING TO RS. 43,692, THE ASSESSEE WAS ENTITLED TO ESTIMATE THE EXPENDITU RE BECAUSE, WITHOUT SUCH ESTIMATION OF EXPENDITURE, IT WAS NOT POSSIBLE TO COMPUTE PROFITS AND GAINS . THIS CONCEPT IS ALSO APPLIED BY THE SUPREME COURT IN THE CASE OF MIIC LTD. UNDER FOLLOWING OBSERVATIONS: 'ORDINARILY, REVENUE EXPENDITURE WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED. IT CANNOT BE SPREAD OVER A NUMBER OF YEARS EVEN IF THE ASSESSEE HAS WRITTEN IT OFF IN HIS BOOKS, OVER A PERIOD OF YEARS. HOWEVER, THE FACTS M AY JUSTIFY AN ASSESSEE WHO HAS INCURRED EXPENDITURE IN A PARTICULAR YEAR TO SPREAD AND CLAIM IT OVER A PERIOD OF 10 ITA NO.864/KOL/2016 F.HARLEY & CO. PVT. LTD.., AY 2011-12 ENSUING YEARS. IN FACT, ALLOWING THE ENTIRE EXPENDI TURE IN ONE YEAR MIGHT GIVE A VERY DISTORTED PICTURE OF THE PROFITS OF A PARTICULAR YE AR. ISSUING DEBENTURES IS AN INSTANCE WHERE, ALTHOUGH THE ASSESSEE HAS INCURRED THE LIABI LITY TO PAY THE DISCOUNT IN THE YEAR OF ISSUE OF DEBENTURES, THE PAYMENT IS TO SECURE A BENEFIT OVER A NUMBER OF YEARS. THERE IS A CONTINUING BENEFIT TO THE BUSINESS OF TH E COMPANY OVER THE ENTIRE PERIOD. THE LIABILITY SHOULD, THEREFORE, BE SPREAD OVER THE PERIOD OF THE DEBENTURES.' (P. 803) THEREFORE, THE MATCHING CONCEPT, WHICH WE HAVE REFE RRED TO IS WELL RECOGNISED BY VARIOUS JUDGMENTS OF THE SUPREME COURT. IN THIS CASE, THE I SSUE IS WHETHER THE ENTIRE EXPENDITURE DISTORTS THE PROFITS OF A PARTICULAR YEAR. IN THIS CASE, WE ARE CONCERNED WITH COMPUTATION OF INCOME AND, THEREFORE, METHOD OF ACCOUNTING FOLLOWE D BY THE ASSESSEE IS RELEVANT BECAUSE ACCRUAL OF INCOME IS TO BE SEEN IN THE LIGHT OF MET HOD OF ACCOUNTING. 7.4. WE FIND FROM PERUSAL OF THE AFORESAID DECISIO NS IT WOULD CLEARLY EMERGE THAT AN ASSESSMENT ORDER IS NOT CAPABLE OF BEING REVISED IF ALL THE MATERIAL FACTS RELATING TO THE ASSESSMENT HAVE BEEN PLACED BEFORE THE LD AO AND NE CESSARY QUERIES WERE RAISED AND REPLIED. THE PRINCIPLES GOVERNING RE-ASSESSMENT PRO CEEDINGS THAT IT IS THE DUTY OF THE ASSESSEE TO PLACE NECESSARY FACTS BEFORE THE LD AO AND THE CORRECTNESS OR OTHERWISE IS AN INFERENTIAL FACT WHICH SHOULD BE DRAWN BY THE LD AO , IN OUR CONSIDERED OPINION, EQUALLY APPLIES TO REVISION PROCEEDINGS. 7.5. IN VIEW OF OUR AFORESAID FINDINGS IN THE FACT S AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE VARIOUS JUDICIAL PRECEDE NTS RELIED UPON HEREINABOVE, WE HOLD THAT THE LD CIT ERRED IN INVOKING REVISIONARY JURIS DICTION U/S 263 OF THE ACT AND ACCORDINGLY THE SAME IS HEREBY QUASHED. ACCORDINGLY THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 08.03.2017 SD/- SD/- (S. S. VISWANETHRA RAVI) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 8 TH MARCH, 2017 JD.(SR.P.S.) 11 ITA NO.864/KOL/2016 F.HARLEY & CO. PVT. LTD.., AY 2011-12 COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT F. HARLEY & CO. PVT. LTD., 5, RAMESHWAR SHAW ROAD, KOLKATA-700 014. 2 RESPONDENT CIT, CIRCLE-6, KOLKATA. 3. THE CIT(A), KOLKATA 4. 5. CIT, KOLKATA. DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .