Principal Commissioner Of Income Tax(Central v. M/S A2Z Maintenance & Engineering Services Ltd

$~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. DileepShivpuri, Advocates.versusM/S A2Z MAINTENANCE & ENGINEERING SERVICES LTD., ..... Respondent Through: None. CORAM:HON'BLE MR. JUSTICE S. RAVINDRA BHATHON'BLE MR. JUSTICE NAJMI WAZIRI S. RAVINDRA BHAT, J. (Open Court) 1.The Revenue in this appeal under Section 260A of the IncomeTax Act, 1961 (‘the Act’) is urging that the ITAT fell into error inholding that Section 263 of the Act was invoked erroneously in thecircumstances of the case. 2.The Assessee is engaged in the constructions business.ForAssessment Year 2007-08, it had reported its transactions in its returnwhich were accepted in scrutiny assessment under Section 143(3) ofthe Act.The A.O. noted that the Assessee provided maintenanceservices such as housekeeping, security services, etc. and it acceptedthe returned income without any disallowance.Later the CIT(A) issued notice under Section 263 of the Act alleging that `11.98 croreswas shown as deferred revenue income by changing the method ofaccounting as per Accounting Standard (AS) -7, and it has resulted inlowering of profit.The CIT(A) finally made an order revising theassessment as erroneous and prejudicial to the revenue, and remittedthe matter for consideration to the A.O.The ITAT allowed theassessee’s appeal. The ITAT concluded that the invocation of Section263 of the Act was not warranted in the circumstances of the case. Itsdiscussion on this aspect is in paragraphs 11 & 14 of the impugnedorder. 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 thatwhether the assessee consistently followed thesameAccountingStandard(AS-7)throughsubsequent Assessment Years. When we analysewritten submissions of the assessee placed beforethe CIT dated 26.3.12 available at pages 207 to211 of the assessee's Paper Book, it is clear thatin column 'E' page 3, it has been explicitlymentioned that the audited accounts filed for thefinancialyearendingon31.3.08,31.3.09,31.03.10 & 31.3.11, it is clear that the assesseehasfollowedthesamesystemofrevenuerecognition i.e. AS-7 in all the subsequentAssessment Years. It was also submitted on behalfof the assessee that as per Assessment orderspassed u/s 143(3) of the Act on 29.10.10 forAssessment Year 2008-09 and on 13.5.2011 for2009-10, the Assessing Officer has accepted thereturned income of the assessee wherein theRevenue has been booked in accordance with thechanged method of accounting i.e. AS-7. In viewof these submissions, the Id. DR could not show ussameAccountingStandard(AS-7)throughsubsequent Assessment Years. When we analysewritten submissions of the assessee placed beforethe CIT dated 26.3.12 available at pages 207 to211 of the assessee's Paper Book, it is clear thatin column 'E' page 3, it has been explicitlymentioned that the audited accounts filed for thefinancialyearendingon31.3.08,31.3.09,31.03.10 & 31.3.11, it is clear that the assesseehasfollowedthesamesystemofrevenuerecognition i.e. AS-7 in all the subsequentAssessment Years. It was also submitted on behalfof the assessee that as per Assessment orderspassed u/s 143(3) of the Act on 29.10.10 forAssessment Year 2008-09 and on 13.5.2011 for2009-10, the Assessing Officer has accepted thereturned income of the assessee wherein theRevenue has been booked in accordance with thechanged method of accounting i.e. AS-7. In viewof these submissions, the Id. DR could not show us that the assessee did not follow AS-7 in thesubsequent Assessment Years and in view of thedocuments submitted by the assessee pertaining tosubsequent Assessment Years i.e. annual accountsand assessment orders for Assessment Year 2008-09, 2009-10, it is amply clear that the assesseeconsistently followed AS-7 for recognition ofrevenue which was changed w.e.f. 1.4.2006. that the assessee did not follow AS-7 in thesubsequent Assessment Years and in view of thedocuments submitted by the assessee pertaining tosubsequent Assessment Years i.e. annual accountsand assessment orders for Assessment Year 2008-09, 2009-10, it is amply clear that the assesseeconsistently followed AS-7 for recognition ofrevenue which was changed w.e.f. 1.4.2006. 16.Itisrelevanttomentionthattheassessment proceedings were completed underSection 143(3) of the Act on 15.12.2009 and theCIT issued impugned order u/s 263 of the of theAct on 12.3.12 and impugned order was passedon 27.3.12 and entire proceedings of issuance ofnotice and passing order were completed within15 days time. We further observe that in responseto the show cause notice u/s 263 of the Act, theassessee filed detailed written submissions spreadover 5 pages on 26.3.12 along with a Paper Bookand the CIT has only considered arguments of thelearned counsel of the assessee in regard toassessee's letters dated 20.10.09 and 30.10.09 andafter reproducing the contents of these letters, theCIT jumped to record his conclusion without anydeliberation on the detailed written submissionsand Paper Book of the assessee.xxxxxxxxx It is also relevant to mention that the CIT hasnot given any findings on the issue of consistencyinfollowingtheAS-7inthesubsequentAssessment Years and when he is issuing noticeon 12.3.12 and passing orders on 23.12.12, it isobvious that the copies of the annual accounts forthe year ending on 31.3.07, 31.3.08, 31.3.09,31.3.10 and also copies of the assessment ordersfor Assessment Year 2008-09 and 2009-10 (supra)were part of assessment records and if the same were taken into consideration in the light ofsubmissions and contentions of the assessee inresponse to notice u/s 263 of the Act, then the CITcould have noticed that the assessee is followingAS-7 not only in the Assessment Year underconsideration viz. 2007-08, but the same wasconsistentlyfollowedinthesubsequentAssessment Years for recognising revenue fromEngineeringBusinessSegmentwhereintheassesseecompanyhasfollowedpercentagecompletion method as prescribed under AS-7issued by ICAI for the accounting contractors. Atthe cost of repetition, we may also point out thatthe assessee furnished letters dated 20.10.09 and30.10.09 showing the cause of change of methodof recognition of deferred revenue as per AS-8instead of AS-9 along with detailed contact wiseworking which was considered by the AssessingOfficer while passing the impugned assessmentorder.It is also pertinent to mention that therewas a specific query from the Assessing Officerduring assessment proceedings vide order sheetentry dated 20.10.09 and 30.10.09 along withrelevant details.” 3.This Court notices that the ruling of the ITAT is largely basedupon the recognition of AS-7 in the given facts and circumstances ofthe 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 ParasBuildtech India Pvt. Ltd. v. Commissioner of Income Tax (2016) 382ITR 630 (Del) had noted that this method is a known and recognisedmethod of accounting, and was approved as a proper one. The Courthad also relied on CIT v. Bilahari Investment Pvt. Ltd. (2008) 299ITR 1 (SC). 4.Having regard to the factual findings of the ITAT, the Court isof the opinion that no substantial question of law arises. The appealis, therefore, dismissed. S. RAVINDRA BHAT, J FEBRUARY 08, 2017/acm NAJMI WAZIRI, J