In Principal Commissioner Of Income Tax (Central) V. M/S A2Z Maintenance & Engineering Services Ltd, the division bench of the elhi High court ruled that Accounting Standard (AS) -7 is a well-known and recognized method of Accounting.
The assessee-Company engaged in construction business, provided maintenance services such as housekeeping, security services, etc for the year under consideration. The return filed by the assesseewas duly accepted by the Assessing officer. However, the CIT(A) issued a notice under s. 263 stating that alleging that 11.98 croreswas 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.Accordingly, the assessment was revised on ground that the same is erroneous and prejudicial to the revenue, and remitted the matter for consideration to the A.O.
On appeal, the Appellate Tribunal quashed the order by upholding the validity of the accounting method.
Concurring with the findings of the ITAT, the division bench comprising of Justice S. Ravindra Bhat and Justice Najimi Waziri noted that the ruling was 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.
The bench further noticed the decision in Paras Buildtech India Pvt. Ltd. v. Commissioner of Income Tax wherein it was held that this method is a known and recognized method of accounting, and was approved as a proper one.
Read the full text of the Judgment below.
