S. S. ENTERPRISES, MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX 25(3), MUMBAI

MA 586/MUM/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7542 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 12 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 20-03-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2014-2015
• Appeal Filed On: 07-11-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 195; 264; 254(2); 48; 13; 153; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) M.A. NO. 586/MUM/2019 (ITA NO. 2649/MUM/2018) ASSESSMENT YEAR: 2014 - 15 S.S. ENTERPRISES, GROUND F LOOR, CHANDRA VILLA, NEHRU ROAD, VILE PARLE (E), MUMBAI - 400057. VS. ASST. COMMISSIONER OF INCOME TAX - 25(3), ROOM NO. 6 01, C - 10, 6 TH F LOOR, PRATYAKSHKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI - 400051. PAN NO. AADFS4279G APPELLANT RESPONDENT ASSESSEE BY : MR. VIJAY MEHTA, AR REVENUE BY : MR. UODAL RAJ SINGH, DR DATE OF HEARING : 03 /01/2020 DATE OF P RONOUNCEMENT : 20/03/2020 ORDER PER N.K. PRADHAN, A.M. BY MEANS OF THIS MISCELLANEOUS APPLICATION (MA), THE APPLICANT SEEKS RECALL OF THE ORDER DATED 28/10/2019 PASSED BY THE ITAT G BENCH MUMBAI (ITA NO. 2649/MUM/2018) FOR THE ASSESSMENT YEAR (AY) 2014 - 15. IN PART - I, HERE - IN - BELOW, WE MENTION THE CONTENTIONS OF THE LD. COUNSEL OF THE APPLICANT, IN PART - II, THE SUBMISSIONS OF THE LD. DEPARTMENTAL REPRESENTATIVE ( DR ) AND IN PART - III, THE REASONS FOR OUR DECISION. M/S S.S. ENTERPRISES MA NO. 586/MUM/2019 2 I 2. THE CONTENTIONS OF THE LD. COUNSEL FOLLOW THE WRITTEN SUBMISSION DATED 0 6 .11.2019 FILED BY THE APPLICANT BEFORE THE TRIBUNAL. THEREFORE, WE REFER BELOW THE SAID WRITTEN SUBMISSION. IT IS STATED THAT SINCE THE AFORESAID ORDER OF THE TRIBUNAL CONTAINS MISTAKES APPARENT FROM RECORD, THE PRESENT APPLICATION U/S 254(2) IS BEING PREFERRED. IT IS EXP LAINED THAT DURING THE COURSE OF HEARING, THE LD. DR, IN THE REJOINDER POINTED OUT TWO DIFFERENT WORKINGS GIVEN BY THE ASSESSEE AND SUBMITTED THAT THE FIGURES OF ANTICIPATED LOSS ARE NOT RELIABLE. IT IS FURTHER STATED THAT DURING THE COURSE OF HEARING IT W AS EXPLAINED THAT THERE DID NOT EXIST ANY DIFFERENCE BETWEEN THE TWO WORKINGS BUT FOR THE FACT THAT THE PRESENTATION OF WIP IN ONE WORKING IS WITH PROFIT DECLARED IN THE EARLIER YEARS WHEREAS THE OTHER INCOME IS WITHOUT CONSIDERING SUCH PROFIT ; THE TRIB UNAL THEREFORE, DIRECTED THE ASSESSEE TO FILE THE PROFIT CHART AND TAX AUDIT REPORT OF EARLIER YEARS, WHICH WERE SUBMITTED ON THE SAME DAY. IT IS STATED THAT, HOWEVER, THE DECISION HAS BEEN ARRIVED AT BY THE TRIBUNAL AGAINST THE ASSESSEE WITHOUT CONSIDERIN G THE SAID EXPLANATION GIVEN IN THE REJOINDER, HOLDING THAT THE WORKINGS FILED BY THE ASSESSEE SHOWS TWO DIFFERENT FIGURES AND HENCE NOT RELIABLE. THE LD. COUNSELS EXPLAINS THAT THE TRIBUNAL, WITHOUT CONSIDERING EXPLANATION OF THE ASSESSEE , HAS OBSERVED IN PARA 7 (ON PAGE 14) OF THE IMPUGNED ORDER WE FOLLOW THE RATIO LAID DOWN IN THE ABOVE CASE LAWS RELIED ON BY THE LD. COUNSELS. HOWEVER, WE FIND THAT THE WORKINGS OF TOTAL ESTIMATED LOSS ON THE PROJECT S.S. HOUSE AS WORKED OUT BY THE ASSESSEE ARE NOT B ASED ON SUPPORTING COMPUTATION AND THERE ARE WIDE VARIATIONS AS DISCUSSED INFRA. ELABORATING FURTHER, IT IS STATED THAT THE TRIBUNAL, IN PARA M/S S.S. ENTERPRISES MA NO. 586/MUM/2019 3 7.7 (PAGE 21) OF THE ITAT ORDER, HAS FURTHER OBSERVED THAT AN EXAMINATION OF WORKING OF TOTAL ESTIMATED LOSS ON THE PROJECT S.S. HOUSE AS WORKED OUT BY THE ASSESSEE CLEARLY INDICATES THAT IT SUFFERS FROM BASIC DEFICIENCIES VIZ. (I) TOTAL COST INCURRED TILL 31.03.2014 RS.91,07,85,390/ - OR RS.97,88,86,048/ - IS NOT A RELIABLE ONE, AS THE ASSESSEE IS STICKING TO TWO F IGURES WITHOUT SUPPORTING COMPUTATION AND (II) TOTAL ESTIMATED LOSS OF RS.3,95,51,736/ - OR RS.10,84,31,736/ - IS NOT A RELIABLE ONE, AS THE ASSESSEE IS STICKING TO TWO FIGURES, WITHOUT SUPPORTING COMPUTATION. THE LD. COUNSEL SUBMITS THAT THE ABOVE FINDIN G HAS BEEN ARRIVED AT WITHOUT CONSIDERING THE EXPLANATION OF THE ASSESSEE THAT THE DIFFERENCE OF RS.6.81 CRORES IS NOTHING BUT PROFIT OFFERED BY THE ASSESSEE IN EARLIER YEARS AND NOT CONSIDERING THE SUBMISSION MADE DURING THE COURSE OF HEARING CONSTITUTES MISTAKE APPARENT FROM RECORD. IT IS FURTHER SUBMITTED THAT THE TRIBUNAL HAS RECORDED A FINDING IN RESPECT OF REASONS FOR COST ESCALATION DUE TO DELAY AND DISPUTES, IN PARA 7.4.1 (PAGE 18) OF THE IMPUGNED ORDER BY OBSERVING BUT NO DETAILS ON THE ABOVE WERE FILED BEFORE THE AO; SIMILAR OBSERVATIONS REGARDING WANT OF SUPPORTING COMPUTATION AND PRUDENT ESTIMATE OF ADDITIONAL COST HAS BEEN MADE BY THE TRIBUNAL IN PARA 7.7 (PAGE 21) WHICH HAS BEEN REFERRED TO HEREINABOVE. IT IS ALSO EXPLAINED THAT THIS WAS NEITHER THE CASE OF THE AO OR THE CIT(A) NOR THIS WAS ARGUED BY THE DEPARTMENT OR PUT TO THE ASSESSEE DURING THE COURSE OF HEARING; ON THE CONTRARY, A CHART WAS SUBMITTED BY THE ASSESSEE DURING THE COURSE OF HEARING DEPICTING COST INCURRED DURING THE NEXT FOUR ASSESSMENT YEARS AND THE ULTIMATE LOSS IN THE PROJECT OF RS.1,89,96,299/ - . FURTHER, IT IS STATED THAT THE DEPARTMENT HAS NOT DISTURBED THE FIGURES OF COST INCURRED BY THE ASSESSEE AS WELL AS NET LOSS RETURNED BY THE ASSESSEE OVER NEXT FOUR YEARS AND D ECIDING AN ISSUE M/S S.S. ENTERPRISES MA NO. 586/MUM/2019 4 WITHOUT PUTTING IT TO THE ASSESSEE AND NOT CONSIDERING FACTS AVAILABLE ON RECORD AMOUNTS TO MISTAKE APPARENT ON THE RECORD. IN VIEW OF THE ABOVE, THE LD. COUNSEL SUBMITS THAT THE FINDINGS RECORDED BY THE TRIBUNAL CONSTITUTE MISTAKE APPAR ENT ON RECORD WHICH MAY BE RECTIFIED U/S 254(2) IN THE INTERESTS OF JUSTICE AND EQUITY. IN THIS REGARD, RELIANCE IS PLACED BY HIM ON THE DECISION IN DCIT V. MANU P. VYAS (2013) 32 TAXMANN.COM 176 (GUJ) STATING THAT IN THIS CASE, AS IN THE CASE OF THE ASSES SEE, CERTAIN ISSUES WERE DECIDED BY THE TRIBUNAL WITHOUT NOTICE TO THE ASSESSEE AND SINCE IN THE PROCEEDINGS TAKEN U/S 254(2) OF THE ACT, THE ORDER PASSED U/S 254(1) WAS RECALLED, THE DISPUTE WAS CARRIED TO THE HONBLE HIGH COURT BY THE REVENUE ; IN THOSE PROCEEDINGS, THE HONBLE HIGH COURT HELD THAT THE TRIBUNAL COMMITTED NO ERROR IN EXERCISING POWER OF RECTIFICATION. SIMILAR RELIANCE IS PLACED BY HIM ON THE DECISION IN DCIT V. RAJENDRA M. VYAS (2013) 33 TAXMANN.COM 345 (GUJ) AND HONDA SIEL POWER PRODUCTS LTD. V. CIT 295 ITR 466 (SC). IN VIEW OF THE ABOVE, THE LD. COUNSEL SUBMITS THAT THE TRIBUNAL MAY (A) RECALL THE ORDER DATED 28.10.2019 AND TO LIST IT FOR HEARING AND DISPOSAL IN ACCORDANCE WITH LAW ; AND/OR (B) PASS ANY OTHER ORDER AND/OR DIRECTION AS THIS TRIBUNAL MAY DEEM FIT AND PR OPER IN THE FACTS AND CIRCUMSTANCES OF THE CASE. II 3. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITS THAT THE MATCHING PRINCIPLE REQUIRES RECORDING EXPENSES IN THE SAME ACCOUNTING PERIOD IN WHICH THE REVENUES WERE EARNED AS A RESULT OF THE EXPENSES ; EXPENSE RECOGNITION, SIMILAR TO REVENUE RECOGNITION, HAS A BALANCE SHEET EFFECT AND IN THIS VIEW, EXPENSE RECOGNITION IS SIMULTANEOUS M/S S.S. ENTERPRISES MA NO. 586/MUM/2019 5 WITH A DECREASE IN AN ASSET OR AN INCREASE IN A LIABILITY. THUS IT IS STATED BY HIM THAT IN THE PRESENT CASE, THE REVERSAL OF PROFITS DECLARED IN THE EARLIER YEARS ON ACCOUNT OF ESTIMATED LOSS OF RS.6,81,13,166/ - IN WIP FOR THE IMPUGNED ASSESSMENT YEARS BY THE ASSESSEE HAS DISLOCATED THE MERCANTILE SYSTEM OF ACCOUNTING, THE MATCHING PRINCIPLE. IN VIEW OF T HE ABOVE , THE LD. DR SUBMITS THAT THERE IS NO MISTAKE APPARENT FROM RECORD IN THE IMPUGNED ORDER PASSED BY THE TRIBUNAL. HE SUBMITS THAT THE TRIBUNAL HAS NO POWER TO REVIEW ITS ORDER IN THE GARB OF SECTION 254(2) OF THE ACT. III 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISIONS ARE GIVEN BELOW. IN THE INSTANT CASE, IT WAS THE CONTENTIONS OF THE LD. COUNSEL DURING THE HEARING ON 01.08.2019 THAT THE ASSESSEE - FIRM WAS U NDERTAKING THE CONSTRUCTION OF ITS COMMERCIAL PROJECT KNOWN AS S.S. HOUSE, WHICH WAS COMPLETE TO THE EXTENT OF APPROX 90%. THE ASSESSEE HAS REGULARLY AND CONSISTENTLY FOLLOWED THE METHOD OF PERCENTAGE COMPLETION, ALL OVER THE YEARS, TO RECOGNIZE REVENUE FROM THE SAID PROJECT AND THE SAID METHOD WAS ALSO APPLIED DURING THE YEAR UNDER APPEAL. PRIOR TO THE YEAR UNDER APPEAL, THE ASSESSEE HAD OFFERED TOTAL PROFITS AGGREGATING TO RS.6,81,13,165/ - TILL AY 2012 - 13. DURING THE YEAR UNDER APPEAL, WHEN THE ASSESSEE WAS WORKING OUT THE REVENUE RECOGNITION, THE RESULTS AS EMERGED SHOWED A NET ESTIMATED LOSS OF MORE THAN RS.3.95 CRORES TILL AY 2014 - 15. FURTHER THERE WAS AN ACTUAL LOSS OF RS.2,62,68,079/ - IN AY 2015 - 16. THE WORKING OUT OF LOSS OR PROFIT FOR AY 2014 - 15 W AS BASED ON THE PRINCIPLES OF ESTIMATION. M/S S.S. ENTERPRISES MA NO. 586/MUM/2019 6 FURTHER, THE LD. COUNSEL EXPLAIN ED THAT THE ASSESSEE HAD INCURRED A TOTAL LOSS FROM THE AFORESAID PROJECT DUE TO THE FACT THAT THE PROJECT GOT DELAYED BEYOND THE EXPECTED DATE OF COMPLETION WHICH WAS FURTHER DUE TO CERTAIN MODIFICATIONS CARRIED OUT IN THE INTERNAL LAYOUT OF THE COMMERCIAL OFFICES; FURTHER THERE WERE CERTAIN DISPUTES BETWEEN THE PARTNERS INTER SE , DUE TO WHICH THE PROJECT GOT DELAYED. ALSO IT WAS ARGUED THAT THE ASSESSEE HAS CORRECTLY REVERSED THE PROFITS DECLARED TILL AY 2012 - 13, AS THE NET RESULT FROM THE PROJECT WAS A L OSS AND IT HAD CORRECTLY FOLLOWED THE PRINCIPLES LAID DOWN IN THE GUIDANCE NOTE. AS PER THE SAID GUIDANCE NOTE, IF THERE WERE FUTURE EXPECTED LOSSES, I.E. WHEN THE PROBABLE COSTS ARE LIKELY TO EXCEED THE PROBABLE REVENUES, THEN IN SUCH A CASE, THE ESTIMATE D LOSSES SHOULD BE IMMEDIATELY RECOGNIZED NOT WAITING FOR THE ACTUAL LOSSES TO OCCUR. SUCH LOSSES CAN ALSO BE RECOGNIZED WHICH ARE LIKELY TO BE INCURRED, DUE TO REVISION IN THE ESTIMATES, WHICH PRINCIPLE THE ASSESSEE HAS RIGHTLY FOLLOWED, WHILE ASCERTAININ G THE PROFITABILITY FOR THE YEAR UNDER A PPEAL. IT WAS THUS STATED THAT THE SAID GUIDANCE NOTE CLEARLY LAYS DOWN THE CRITERIA THAT THE ESTIMATES CAN BE REVISED SUBSEQUENTLY AND THE REVENUES PREVIOUSLY RECOGNIZED CAN BE REVERSED DUE TO SUCH REVISION IN ESTIM ATES. REFERRING TO PARA 5.9 OF THE SAID GUIDANCE NOTE I.E. THE CHANGES TO ESTIMATES REFERRED TO IN PARAGRAPH 5.8 ABOVE ALSO INCLUDE CHANGES ARISING OUT OF CANCELLATION OF CONTRACTS , IT WAS EXPLAINED THAT THE SAID WORDS SIGNIFY THAT CANCELLATION OF CO NTRACTS AND OTHERS ARE INCLUDED AND THAT BY ITSELF DOES NOT INFER, ONLY IN SUCH CASES THE ESTIMATES CAN BE REVISED AS THE WORD MENTIONED IS INCLUDE. THUS THE LD. COUNSEL ARGUE D THAT THE REVISION OF OTHER ACCOUNTS ARE ALSO COVERED IN THE INTERPRETATION OF THE SAID GUIDANCE NOTE. M/S S.S. ENTERPRISES MA NO. 586/MUM/2019 7 THUS IT WAS EXPLAINED THAT THE AO HAS FAILED TO READ THAT THE SAID GUIDANCE NOTE WHICH MENTIONS THAT AN ENTERPRISE MAY CHOOSE TO APPLY THIS GUIDANCE NOTE FROM AN EARLIER DATE PROVIDED IT APPLIES THIS GUIDANCE NOTE TO ALL TRANSAC TIONS WHICH COMMENCED OR WERE ENTERED INTO ON OR AFTER SUCH EARLIER DATE. THUS THE LD. COUNSEL SUBMIT TED THAT AS THE GUIDANCE NOTE ISSUED BY THE ICAI IS APPLICABLE TO THE INSTANT CASE, THE ASSESSEE HAS RIGHTLY FOLLOWED THE SAME AND THEREFORE, THE ORDER P ASSED BY THE LD. CIT(A) BE AFFIRMED. 4.1 IN THE REASONS FOR THE DECISION, W E HAVE MENTIONED IN THE IMPUGNED ORDER THAT IN CIT V. A. GAJAPATHY NAIDU , (1964) 53 ITR 114 (SC), IT IS HELD THAT INCOME IS TAXABLE WHEN IT ACCRUES OR IS EARNED, IF THE ASSESSEES ACCOUNTS ARE MAINTAINED ON THE MERCANTILE BASIS. A PROFIT CAN BE SAID TO HAVE ACCRUED OR A LIABILITY OR LOSS CAN BE SAID TO HAVE BEEN INCURRED ONLY WHEN THE PROFIT IS EITHER ACTUALLY DUE OR THE LIABILITY BECOMES ENFORECEABLE. FURTHER, IT IS HELD IN CIT V. ASSOCIATED COMMERCIAL CORPORATION , (1963) 48 ITR 1 (BOM) THAT A MERE CLAIM TO A PROFIT OR TO A LIABILITY IS NOT SUFFICIENT TO MAKE THE PROFIT TO ACC RUE OR THE LIABILITY TO BE INCURRED FOR THE PURPOSES OF THE INCOME TAX ACT. IT IS ALSO CLARIFIED IN MORVI INDUSTRIES LTD. V. CIT , (1971) 82 ITR 835 (SC) THAT ONCE ACCRUED, IT IS LIABLE TO THE CHARGE EVEN IF, SUBSEQUENTLY, IT IS FORGONE AND NOT REALIZED. W HEN A STATUTE BRINGS TO CHARGE CERTAIN INCOME, ITS INTENTION IS TO ENFORCE THE CHARGE AT THE EARLIEST POINT OF TIME. THE SAME IS CLARIFIED IN DECISION IN T.N.K. GOVINDARAJULU CHETTY V. CIT (1973) 87 ITR 22 (MAD), AFFIRMED IN (1987) 165 ITR 231 (SC). WE H AVE STATED IN THE IMPUGNED ORDER THAT AS THE ASSESSEE IS FOLLOWING CONSISTENTLY PERCENTAGE COMPLETION METHOD, ACCOUNTING STANDARD (AS) - 7 (REVISED) IS APPLICABLE WHICH ALLOWS ONLY PERCENTAGE OF M/S S.S. ENTERPRISES MA NO. 586/MUM/2019 8 COMPLETION METHOD FOR CONSTRUCTION CONTRACTS AND THE BASIC INGR EDIENTS OF THE ABOVE METHOD ARE (I) THE RECOGNITION OF REVENUE AND EXPENSES BY REFERENCE TO THE STAGE OF COMPLETION OF A CONTRACT IS CALLED THE PERCENTAGE OF COMPLETION METHOD, (II) THE CONTRACT REVENUE IS MATCHED WITH THE CONTRACT COSTS INCURRED IN REAC HING THE STAGE OF COMPLETION, (III) THIS RESULTS IN THE REPORTING OF REVENUE, EXPENSES AND PROFIT THAT CAN BE ATTRIBUTED TO THE PROPORTION OF WORK COMPLETED, (IV) THIS METHOD PROVIDES USEFUL INFORMATION ON THE EXTENT OF CONTRACT ACTIVITY AND PERFORMANCE DU RING A PERIOD, (V) CONTRACT REVENUE IS RECOGNIZED AS REVENUE IN THE STATEMENT OF PROFIT AND LOSS IN THE ACCOUNTING PERIODS IN WHICH THE WORK IS PERFORMED, (VI) CONTRACT COSTS ARE USUALLY RECOGNIZED AS AN EXPENSE IN THE STATEMENT OF PROFIT AND LOSS IN THE A CCOUNTING PERIODS IN WHICH THE WORK TO WHICH THEY RELATE IS PERFORMED, (VII) HOWEVER, ANY EXPECTED EXCESS OF TOTAL CONTRACT COSTS OVER TOTAL CONTRACT REVENUE IS RECOGNIZED AS AN EXPENSE IMMEDIATELY. THE YEAR - WISE DETAILS OF PROFIT DECLARED ON THE PROJECT S.S. HOUSE FILED BY THE ASSESSEE ARE GIVING BELOW : SR. NO. A.Y. PROFIT DECLARED (RS.) 1. 2010 - 11 RS.2,65,93,359/ - 2. 2011 - 12 RS.1,95,32,020/ - 3. 2012 - 13 RS.2,19,87,786/ - TOTAL RS.6,81,13,165/ - A PERUSAL OF THE WIP ACCOUNT FOR THE YEAR ENDED 31.03.2014 SHOWS THAT THE WIP WAS SHOWN AT RS.97,88,86,048/ - AND FROM THE SAME THE ABOVE AMOUNT OF RS.6,81,13,165/ - WAS REDUCED ON ACCOUNT OF REVERSAL OF PROFITS DECLARED IN THE EARLIER YEARS ON ACCOU NT OF ESTIMATED LOSS EXPECTED. M/S S.S. ENTERPRISES MA NO. 586/MUM/2019 9 IN THE IMPUGNED ORDER, WE HAVE EXTRACTED THE RELEVANT PARAGRAPHS OF THE GUIDANCE NOTE, WHICH ARE AS UNDER : 5.7 WHEN IT IS PROBABLE THAT TOTAL PROJECT COSTS WILL EXCEED TOTAL ELIGIBLE PROJECT REVENUES, THE EXPECTED LOSS SHOULD BE RECOGNIZED AS AN EXPENSE IMMEDIATELY. THE AMOUNT OF SUCH A LOSS IS DETERMINED IRRESPECTIVE OF: (A) COMMENCEMENT OF PROJECT WORK; OR (B) THE STAGE OF COMPLETION OF PROJECT ACTIVITY. 5.8 THE PERCENTAGE OF COMPLETION METHOD IS APPLIED ON A CUMULATIVE BASIS IN EACH REPORTING PERIOD TO THE CURR ENT ESTIMATES OF PROJECT REVENUES AND PROJECT COSTS. THEREFORE, THE EFFECT OF A CHANGE IN THE ESTIMATE OF PROJECT COSTS, OR THE EFFECT OF A CHANGE IN THE ESTIMATE OF THE OUTCOME OF A PROJECT, IS ACCOUNTED FOR AS A CHANGE IN ACCOUNTING ESTIMATE. THE CHANGED ESTIMATES ARE USED IN DETERMINATION OF THE AMOUNT OF REVENUE AND EXPENSES RECOGNIZED IN THE STATEMENT OF PROFIT AND LOSS IN THE PERIOD IN WHICH THE CHANGE IS MADE AND IN SUBSEQUENT PERIODS. 5.9 THE CHANGES TO ESTIMATES REFERRED TO IN PARAGRAPH 5.8 ABOVE A LSO INCLUDE CHANGES ARISING OUT OF CANCELLATION OF CONTRACTS AND CASES WHERE THE PROPERTY OR PART THEREOF IS SUBSEQUENTLY EARMARKED FOR OWN USE OR FOR RENTAL PURPOSES, IN SUCH CASES ANY REVENUES ATTRIBUTABLE TO SUCH CONTRACTS PREVIOUSLY RECOGNIZED SHOULD B E REVERSED AND THE COSTS IN RELATION THERETO SHALL BE CARRIED FORWARD AND ACCOUNTED IN ACCORDANCE WITH AS 10, ACCOUNTING FOR FIXED ASSETS. IN THE INSTANT CASE, THE ASSESSEE HAS STATED THAT IT HAD INCURRED A TOTAL LOSS FROM THE AFORESAID PROJECT DUE TO TH E FACT THAT THE PROJECT GOT DELAYED BEYOND THE EXPECTED DATE OF COMPLETION WHICH WAS FURTHER DUE TO CERTAIN MODIFICATIONS CARRIED OUT IN THE INTERNAL LAYOUT OF THE COMMERCIAL OFFICES AND FURTHER THERE WERE CERTAIN DISPUTES BETWEEN THE PARTNERS INTER SE DUE TO WHICH THE PROJECT GOT DELAYED. BUT NO DETAILS ON THE ABOVE WERE FILED BEFORE THE AO. M/S S.S. ENTERPRISES MA NO. 586/MUM/2019 10 WE HAVE MENTIONED IN THE IMPUGNED ORDER THAT A SALIENT FEATURE OF ACCOUNTING PRINCIPLES IS THAT A REVERSING ENTRY IS THE EXACT REVERSE OF THE ADJUSTING ENTRY TO WHICH IT RELATES, THE AMOUNTS AND THE ACCOUNTS ARE THE SAME ; THE DEBITS AND CREDITS ARE JUST REVERSED. WE ARE ALSO REMINDED THAT ONE CAN REVERSE ADJUSTING ENTRIES ONLY FOR ACCRUALS, SUCH AS SALARIES PAYABLE AND UNBILLED REVENUE, WITH EVIDENCE. DURING THE COURSE OF HEARING, THE LD. COUNSEL FILED AN WORKING OF TOTAL ESTIMATED PROFITS AS ON 31.03.2014 OF THE PROJECT S.S. HOUSE. THE LD. DR ALSO FILED AN WORKING OF TOTAL ESTIMATED PROFITS AS ON 31.03.2014 OF THE PROJECT S.S. HOUSE GIVEN BY THE LD. COUNSEL TO HIM. THOSE DETAILS HAVE BEEN REPRODUCED AT PARA 7.5 & 7.5.1 OF THE IMPUGNED ORDER. WE HAVE CLEARLY MENTIONED THAT THE PERCENTAGE OF COMPLETION WOULD BE ESTIMATED BY COMPARING TOTAL COST INCURRED TO DATE WITH TOTAL COST EXPECTED FOR THE ENTIRE CONTRACT AND WE HAVE GIVEN AN ILLUSTRATION AT PARA 7.6.1 IN THE IMPUGNED ORDER. ON THE BASIS OF THE ABOVE FACTS, IT HAS BEEN CLEARLY STATED IN THE IMPUGNED ORDER THAT AN EXAMINATION OF THE WORKING OF TOTAL ESTIMATED LOSS ON THE PROJECT S.S. HOUSE AS WORKED OUT BY THE ASSESSEE CLEARLY INDICATES THAT IT SUFFERS FROM BASIC DEFICIENCIES VIZ. (I) TOTAL COST INCURRED TILL 31/03/2014 RS. 91,07,85,390/ OR RS. 978,886,048/ - IS NOT A RELIABLE ONE, AS THE ASSESSEE IS STICKING TO TWO FIGURES, WITHOUT SUPPORTING COMPUTATION, AND (I I) TOTAL ESTIMATED LOSS OF RS. 3,95,51,736/ - OR RS.108,431,736/ - IS NOT A RELIABLE ONE, AS THE ASSESSEE IS STICKING TO TWO FIGURES, WITHOUT SUPPORTING COMPUTATION, (III) THERE IS NO PRUDENT ESTIMATE OF ADDITIONAL COST FOR COMPLETION OF THE PROJECT. M/S S.S. ENTERPRISES MA NO. 586/MUM/2019 11 THE MAT CHING PRINCIPLE REQUIRES RECORDING EXPENSES IN THE SAME ACCOUNTING PERIOD IN WHICH THE REVENUES WERE EARNED AS A RESULT OF THE EXPENSES. AS THIS IS NOT PRESENT IN THE INSTANT CASE, WE CAME TO A FINDING THAT THE REVERSAL OF PROFITS IN THE EARLIER YEARS ON A CCOUNT OF ESTIMATED LOSS EXPECTED OF RS.6,81,13,166/ - IN WIP FOR THE IMPUGNED ASSESSMENT YEAR BY THE ASSESSEE DISLOCATES THE MERCANTILE SYSTEM OF ACCOUNTING, THE MATCHING PRINCIPLES AND AS - 7 - REVISED. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORED THE ORDER PASSED BY THE AO. 4.2 IN THE INSTANT CASE, AS MENTIONED ABOVE, THE EXPLANATIONS GIVEN BY THE ASSESSEE HAVE BEEN DULY CONSIDERED. IN THE IMPUGNED ORDER ALL THE SUBMISSIONS AND EXPLANATIONS BY THE ASSESSEE HAVE BEEN SUMMARIZED AND THEN A FINDING HAS BEEN ARRIVED AT. THE ISSUE HAS BEEN DECIDED AFTER CONSIDERING THE FACTS IN ENTIRETY AVAILABLE ON RECORD. IN FACT FULL OPPORTUNITY HAD BEEN GIVEN TO THE ASSESSEE TO MAKE SUBMISSIONS. THEREFORE, THE PRESENT CASE IS DISTINGUISHABLE FR OM THE DECISION IN MANU P. VYAS (SUPRA) AND RAJENDRA N. VYAS (SUPRA) RELIED ON BY THE LD. COUNSEL. 4.3 IN HONDA SIEL POWER PRODUCTS LTD . (SUPRA), THE HONBLE SUPREME COURT HELD THAT NON - CONSIDERATION OF A DECISION OF CO - ORDINATE BENCH PLACED BEFORE THE TRIBUNAL AMOUNTS TO MISTAKE APPARENT FROM RECORD WITHIN THE MEANING OF S. 254(2); TRIBUNAL WAS THEREFORE JUSTIFIED IN EXERCISING ITS POWE RS UNDER S. 254(2) WHEN IT WAS POINTED OUT THAT AN ORDER OF THE CO - ORDINATE BENCH PLACED BEFORE THE TRIBUNAL WAS NOT CONSIDERED BY IT WHILE PASSING THE ORIGINAL ORDER. FURTHER, IT HELD THAT : THE PURPOSE BEHIND ENACTMENT OF S. 254(2) IS BASED ON THE FUN DAMENTAL PRINCIPLE THAT NO PARTY APPEARING BEFORE THE TRIBUNAL, BE IT AN ASSESSEE OR THE M/S S.S. ENTERPRISES MA NO. 586/MUM/2019 12 DEPARTMENT, SHOULD SUFFER ON ACCOUNT OF ANY MISTAKE COMMITTED BY THE TRIBUNAL. THIS FUNDAMENTAL PRINCIPLE HAS NOTHING TO DO WITH THE INHERENT POWERS OF THE TRIBUNAL. O NE OF THE IMPORTANT REASONS FOR GIVING THE POWER OF RECTIFICATION TO THE TRIBUNAL IS TO SEE THAT NO PREJUDICE IS CAUSED TO EITHER OF THE PARTIES APPEARING BEFORE IT BY ITS DECISION BASED ON A MISTAKE APPARENT FROM THE RECORD. 'RULE OF PRECEDENT' IS AN IMPO RTANT ASPECT OF LEGAL CERTAINTY IN RULE OF LAW. THAT PRINCIPLE IS NOT OBLITERATED BY S. 254(2). WHEN PREJUDICE RESULTS FROM AN ORDER ATTRIBUTABLE TO THE TRIBUNALS MISTAKE, ERROR OR OMISSION, THEN IT IS THE DUTY OF THE TRIBUNAL TO SET IT RIGHT. ATONEMENT T O THE WRONGED PARTY BY THE COURT OR TRIBUNAL FOR THE WRONG COMMITTED BY IT HAS NOTHING TO DO WITH THE CONCEPT OF INHERENT POWER TO REVIEW. IN THE PRESENT CASE, THE TRIBUNAL WAS JUSTIFIED IN EXERCISING ITS POWERS UNDER S. 254(2) WHEN IT WAS POINTED OUT TO T HE TRIBUNAL THAT THE DECISION OF THE CO - ORDINATE BENCH WAS PLACED BEFORE THE TRIBUNAL WHEN THE ORIGINAL ORDER CAME TO BE PASSED BUT IT HAD COMMITTED A MISTAKE IN NOT CONSIDERING THE MATERIAL WHICH WAS ALREADY ON RECORD. THE TRIBUNAL HAS ACKNOWLEDGED ITS MI STAKE, IT HAS ACCORDINGLY RECTIFIED ITS ORDER. THE HIGH COURT WAS NOT JUSTIFIED IN INTERFERING WITH THE SAID ORDER. FOR THE AFORESTATED REASONS, THE IMPUGNED JUDGMENT OF THE HIGH COURT IS SET ASIDE AND THE ORDER PASSED BY THE TRIBUNAL ALLOWING THE RECTIFIC ATION APPLICATION FILED BY THE ASSESSEE IS RESTORED. IN THE INSTANT CASE, WE HAVE DULY CONSIDERED , IN THE IMPUGNED ORDER, THE DECISIONS RELIED ON BY THE LD. COUNSEL IN CIT V. VIRTUAL SOFT SYSTEMS LTD. (2018) 404 ITR 409 (SC), ACIT V. M/S ITD CEMENTATION INDIA LTD. (ITA NO. 3669/MUM/2011 FOR AY 2004 - 05 BY ITAT, MUMBAI), DREDGING INTERNATIONAL N.V. V. ADIT (2011) 48 SOT 430 (MUMBAI), AARTS MODULE V. ITO (ITA NO. 9302/BOM/92 FOR A.Y. 1984 - 85). THEREFORE, THE INSTANT CASE IS DISTINGUISHABLE FROM THE ABOVE DECISION RELIED ON BY THE LD. COUNSEL. 4.4 FOR GUIDANCE, WE MAY REFER HERE TO THE DECISION IN CIT V. RAMESH ELECTRIC & TRADING CO. (1993) 203 ITR 497 (BOM) , WHEREIN THEIR LORDSHIPS OF THE HONBLE BOMBAY HIGH COURT HAVE HELD: M/S S.S. ENTERPRISES MA NO. 586/MUM/2019 13 UNDER S. 254(2) OF THE IT ACT, 1961, THE TRIBUNAL MAY, WITH A VIEW TO RECTIFYING ANY MISTAKE APPARENT FROM THE RECORD, AMEND ANY ORDER PASSED BY IT UNDER SUB - S (1) WITHIN THE TIME PRESCRIBED THEREIN. IT IS AN ACCEPTED POSITION THA T THE TRIBUNAL DOES NOT HAVE ANY POWER TO REVIEW ITS OWN ORDERS UNDER THE PROVISIONS OF THE IT ACT, 1961. THE ONLY POWER WHICH THE TRIBUNAL POSSESSES IS TO RECTIFY ANY MISTAKE IN ITS OWN ORDER WHICH IS APPARENT FROM THE RECORD. THIS IS MERELY A POWER OF AM ENDING ITS ORDER. IN THE PRESENT CASE, IN THE FIRST ORDER, THERE IS NO MISTAKE WHICH IS APPARENT FROM THE RECORD AT ALL. THE TRIBUNAL WAS REQUIRED TO DECIDE WHETHER THE COMMISSION PAYMENT OF RS.54,000 WAS DEDUCTIBLE UNDER S. 37. AFTER EXAMINING THE CIRCUMS TANCES, THE TRIBUNAL CAME TO A CONCLUSION THAT IT WAS NOT SO DEDUCTIBLE. THE TRIBUNAL CANNOT, IN EXERCISE OF ITS POWER OF RECTIFICATION, LOOK INTO SOME OTHER CIRCUMSTANCES WHICH WOULD SUPPORT OR NOT SUPPORT ITS CONCLUSION SO ARRIVED AT. THE MISTAKE THE TRI BUNAL IS ENTITLED TO CORRECT IS NOT AN ERROR OF JUDGMENT BUT A MISTAKE WHICH IS APPARENT FROM THE RECORD ITSELF. THE TRIBUNAL HAS, PATENTLY, FAR EXCEEDED ITS JURISDICTION UNDER S. 254(2) IN REDECIDING THE ENTIRE DISPUTE WHICH WAS BEFORE IT, IN THIS FASHION , AND THE TRIBUNAL HAS COMMITTED A GROSS AND INEXPLICABLE ERROR. FAILURE BY THE TRIBUNAL TO CONSIDER AN ARGUMENT ADVANCED BY EITHER PARTY FOR ARRIVING AT A CONCLUSION IS NOT AN ERROR APPARENT ON THE RECORD, ALTHOUGH IT MAY BE AN ERROR OF JUDGMENT. 4.5 AS NARRATED HEREINABOVE AT PARA 4 TO 4.1 , THE ARGUMENTS OF THE ASSESSEE DURING THE COURSE OF HEARING IN ITA NO. 2649 /MUM/201 8 FOR THE IMPUGNED ASSESSMENT YEAR HAVE BEEN EXAMINED AT LENGTH AND THEN THE ORDER HAS BEEN PASSED. NO FACT HAS BEEN LOST SIGHT OF. NO ARGUMENT HAS BEEN LOST SIGHT OF. A PERUSAL OF THE ABOVE FACTS CLEARLY INDICATE THAT THE APPLICANT HAS NOT POINTED OUT ANY MISTAKE APPARENT FROM THE RECORD. A MISTAKE APPARENT ON THE RECORD MUST BE AN OBVIOUS MISTAKE AND NOT SOMETHING WHICH CAN BE ESTA BLISHED BY A LONG DRAWN PROCESS OF REASONING ON POINTS ON WHICH THERE M/S S.S. ENTERPRISES MA NO. 586/MUM/2019 14 MAY BE CONCEIVABLY TWO OPINIONS. A DECISION ON A DEBATABLE POINT OF LAW IS NOT A MISTAKE APPARENT FROM THE RECORD. THIS VIEW IS SUPPORTED BY THE DECISION OF THE HONBLE SUPREME COURT IN T.S. BALARAM, ITO V. VOLKART BROS ., (1971) 82 ITR 50 (SC), MASTER CONSTRUCTION CO. P. LTD. V. STATE OF ORISSA , AIR 1966 SC 1047, KARAM CHAND THAPAR & BROS. (COAL SALES) LTD. V. STATE OF U.P. (1976) TAX LR 1921, 1927 (SC) AND CCE V. ASCU LTD ., (2003) 9 SCC 230, 232. WE MAY REFER HERE TO THE DECISION IN ACIT V. SAURASTRA KUTCH STOCK EXCHANGE LTD . (2008) 305 ITR 227 (SC) , WHEREIN THE HONBLE SUPREME COURT RELYING ON ITS DECISION IN PATEL NARSHI THAKERSHI & ORS. VS. PRADYUMANSINGHJI ARJUNSINGHJI (1971) 3 SCC 84 4, HARI VISHNU KAMATH VS. SYED AHMAD ISHAQUE (1955) 1 SCR 1104, SATYANARAYAN LAXMINARAYAN HEGDE & ORS. VS. MALLIKARJUN BHAVANAPPA TIRUMALE (1960) 1 SCR 890 AND SYED YAKOOB VS. K.S. RADHAKRISHNAN & ORS. (1964) 5 SCR 64A HELD THAT : PATENT, MANIFEST AND S ELF - EVIDENT ERROR WHICH DOES NOT REQUIRE ELABORATE DISCUSSION OF EVIDENCE OR ARGUMENT TO ESTABLISH IT, CAN BE SAID TO BE AN ERROR APPARENT ON THE FACE OF THE RECORD AND CAN BE CORRECTED WHILE EXERCISING CERTIORARI JURISDICTION. AN ERROR CANNOT BE SAID TO B E APPARENT ON THE FACE OF THE RECORD IF ONE HAS TO TRAVEL BEYOND THE RECORD TO SEE WHETHER THE JUDGMENT IS CORRECT OR NOT. AN ERROR APPARENT ON THE FACE OF THE RECORD MEANS AN ERROR WHICH STRIKES ON MERE LOOKING AND DOES NOT NEED LONG DRAWN OUT PROCESS OF REASONING ON POINTS WHERE THERE MAY CONCEIVABLY BE TWO OPINIONS. SUCH ERROR SHOULD NOT REQUIRE ANY EXTRANEOUS MATTER TO SHOW ITS INCORRECTNESS. TO PUT IT DIFFERENTLY, IT SHOULD BE SO MANIFEST AND CLEAR THAT NO COURT WOULD PERMIT IT TO REMAIN ON RECORD. IF THE VIEW ACCEPTED BY THE COURT IN THE ORIGINAL JUDGMENT IS ONE OF THE POSSIBLE VIEWS, THE CASE CANNOT BE SAID TO BE COVERED BY AN ERROR APPARENT ON THE FACE OF THE RECORD. M/S S.S. ENTERPRISES MA NO. 586/MUM/2019 15 4.6 IN FACT, NOT A SINGLE ERROR IN THE IMPUGNED ORDER HAS BEEN POINTED OUT BY THE APPLICANT. WHAT THE APPLICANT WANTS IS A REVIEW OF THE ORDER PASSED BY THE TRIBUNAL. THE TRIBUNAL IS A CREATURE OF THE STATUTE. THE TRIBUNAL CANNOT REVIEW ITS OWN DECISION UNLESS IT IS PERMITTED TO DO SO BY THE STATUTE. THE HONBLE SUPREME COURT HAS HELD IN PATEL NARSHI THAKERSHI V. PRADYUMANSINGHJI ARJUNSINGHJI [AIR 1970 SC 1273] THAT THE POWER TO REVIEW IS NOT AN INHERENT POWER. IT MUST BE CONFERRED BY LAW EITHER SPECIFICALLY OR BY NECESSARY IMPLICATION. IT IS A SETTLED LAW THAT THE TRIBUNAL HAS NO POWER TO REVIEW ITS ORDER IN THE GARB OF SECTION 254(2) OF THE ACT AS HELD IN CIT V. GLOBE TRANSPORT CORPN. [1992] 195 ITR 311 (RAJ) (HC), CIT V. ROOP NARAIN SARDAR MAL [2004] 267 ITR 601 (RAJ) (HC), CIT V. DEVILAL SONI [2004] 271 ITR 566 (RAJ) (HC), JAINARAIN JEEVRAJ V. CIT [1980] 121 ITR 358 (RAJ.) (HC), PRAJATANTRA PRACHAR SAMITI V. CIT [2003] 264 ITR 160 (ORISSA) (HC), CIT V. JAGABANDHU ROUL [1984] 145 ITR 153 (ORISSA) (HC), CIT & ANR. V. ITAT & ANR. [1992] 196 ITR 640 (ORISSA) (HC), SHAW WALLACE & CO. LTD. V. ITAT & OTHERS [1999] 240 ITR 579 (CAL) (HC), CIT V. SUM AN TEA & PLYWOOD INDUSTRIES PVT. LTD. [1997] 226 ITR 34 (CAL) (HC), ITO V. ITAT & ANR. [1998] 229 ITR 651 (PAT.) (HC), CIT & ANR. V. ITAT & ANR. [1994] 206 ITR 126 (AP) (HC), ACIT V. C. N. ANANTHRAM [2004] 266 ITR 470 (KAR) (HC). 5. IN VIEW OF THE FACTUAL SCENARIO AND POSITION OF LAW DELINEATED HEREINBEFORE, THE PRESENT MA, BEING DEVOID OF MERIT, IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20/03/2020 SD/ - SD/ - ( SAKTIJIT DEY ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 20/03/2020 RAHUL SHARMA, SR. P.S. M/S S.S. ENTERPRISES MA NO. 586/MUM/2019 16 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (ASSISTANT REGISTER) ITAT, MUMBAI