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Principal Commissioner Of Income Tax (Central) Vs. M/s A2z Maintenance & Engineering Services Ltd.
February, 20th 2017
$~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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