$~21
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgement delivered on:08.02.2017
+ ITA 452/2016, CM APPL. 26465/2016
PRINCIPAL COMMISSIONER OF INCOME TAX(CENTRAL)
..... Appellant
Through: Mr. Sanjay Kumar and Mr. Dileep
Shivpuri, Advocates.
versus
M/S A2Z MAINTENANCE & ENGINEERING SERVICES LTD.,
..... Respondent
Through: None.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE NAJMI WAZIRI
S. RAVINDRA BHAT, J. (Open Court)
1. The Revenue in this appeal under Section 260A of the Income
Tax Act, 1961 (`the Act') is urging that the ITAT fell into error in
holding that Section 263 of the Act was invoked erroneously in the
circumstances of the case.
2. The Assessee is engaged in the constructions business. For
Assessment Year 2007-08, it had reported its transactions in its return
which were accepted in scrutiny assessment under Section 143(3) of
the Act. The A.O. noted that the Assessee provided maintenance
services such as housekeeping, security services, etc. and it accepted
the returned income without any disallowance. Later the CIT(A)
ITA 452 of 2016 Page 1 of 5
issued notice under Section 263 of the Act alleging that `11.98 crores
was shown as deferred revenue income by changing the method of
accounting as per Accounting Standard (AS) -7, and it has resulted in
lowering of profit. The CIT(A) finally made an order revising the
assessment as erroneous and prejudicial to the revenue, and remitted
the matter for consideration to the A.O. The ITAT allowed the
assessee's appeal. The ITAT concluded that the invocation of Section
263 of the Act was not warranted in the circumstances of the case. Its
discussion on this aspect is in paragraphs 11 & 14 of the impugned
order. On merits, it examined the applicability of AS-7 for the given
year and concluded as follows:
"15. The next issue for our consideration is that
whether the assessee consistently followed the
same Accounting Standard (AS-7) through
subsequent Assessment Years. When we analyse
written submissions of the assessee placed before
the CIT dated 26.3.12 available at pages 207 to
211 of the assessee's Paper Book, it is clear that
in column 'E' page 3, it has been explicitly
mentioned that the audited accounts filed for the
financial year ending on 31.3.08, 31.3.09,
31.03.10 & 31.3.11, it is clear that the assessee
has followed the same system of revenue
recognition i.e. AS-7 in all the subsequent
Assessment Years. It was also submitted on behalf
of the assessee that as per Assessment orders
passed u/s 143(3) of the Act on 29.10.10 for
Assessment Year 2008-09 and on 13.5.2011 for
2009-10, the Assessing Officer has accepted the
returned income of the assessee wherein the
Revenue has been booked in accordance with the
changed method of accounting i.e. AS-7. In view
of these submissions, the Id. DR could not show us
ITA 452 of 2016 Page 2 of 5
that the assessee did not follow AS-7 in the
subsequent Assessment Years and in view of the
documents submitted by the assessee pertaining to
subsequent Assessment Years i.e. annual accounts
and assessment orders for Assessment Year 2008-
09, 2009-10, it is amply clear that the assessee
consistently followed AS-7 for recognition of
revenue which was changed w.e.f. 1.4.2006.
16. It is relevant to mention that the
assessment proceedings were completed under
Section 143(3) of the Act on 15.12.2009 and the
CIT issued impugned order u/s 263 of the of the
Act on 12.3.12 and impugned order was passed
on 27.3.12 and entire proceedings of issuance of
notice and passing order were completed within
15 days time. We further observe that in response
to the show cause notice u/s 263 of the Act, the
assessee filed detailed written submissions spread
over 5 pages on 26.3.12 along with a Paper Book
and the CIT has only considered arguments of the
learned counsel of the assessee in regard to
assessee's letters dated 20.10.09 and 30.10.09 and
after reproducing the contents of these letters, the
CIT jumped to record his conclusion without any
deliberation on the detailed written submissions
and Paper Book of the assessee.
xxx xxx xxx
It is also relevant to mention that the CIT has
not given any findings on the issue of consistency
in following the AS-7 in the subsequent
Assessment Years and when he is issuing notice
on 12.3.12 and passing orders on 23.12.12, it is
obvious that the copies of the annual accounts for
the year ending on 31.3.07, 31.3.08, 31.3.09,
31.3.10 and also copies of the assessment orders
for Assessment Year 2008-09 and 2009-10 (supra)
were part of assessment records and if the same
ITA 452 of 2016 Page 3 of 5
were taken into consideration in the light of
submissions and contentions of the assessee in
response to notice u/s 263 of the Act, then the CIT
could have noticed that the assessee is following
AS-7 not only in the Assessment Year under
consideration viz. 2007-08, but the same was
consistently followed in the subsequent
Assessment Years for recognising revenue from
Engineering Business Segment wherein the
assessee company has followed percentage
completion method as prescribed under AS-7
issued by ICAI for the accounting contractors. At
the cost of repetition, we may also point out that
the assessee furnished letters dated 20.10.09 and
30.10.09 showing the cause of change of method
of recognition of deferred revenue as per AS-8
instead of AS-9 along with detailed contact wise
working which was considered by the Assessing
Officer while passing the impugned assessment
order. It is also pertinent to mention that there
was a specific query from the Assessing Officer
during assessment proceedings vide order sheet
entry dated 20.10.09 and 30.10.09 along with
relevant details."
3. This Court notices that the ruling of the ITAT is largely based
upon the recognition of AS-7 in the given facts and circumstances of
the case and that in fact the matter had received scrutiny by the A.O.
at the stage of the original assessment. Besides, this Court in Paras
Buildtech India Pvt. Ltd. v. Commissioner of Income Tax (2016) 382
ITR 630 (Del) had noted that this method is a known and recognised
method of accounting, and was approved as a proper one. The Court
had also relied on CIT v. Bilahari Investment Pvt. Ltd. (2008) 299
ITR 1 (SC).
ITA 452 of 2016 Page 4 of 5
4. Having regard to the factual findings of the ITAT, the Court is
of the opinion that no substantial question of law arises. The appeal
is, therefore, dismissed.
S. RAVINDRA BHAT, J
NAJMI WAZIRI, J
FEBRUARY 08, 2017/acm
ITA 452 of 2016 Page 5 of 5
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