BUILDCUBE CONSTRUCTIONS PVT LTD,MUMBAI vs. ITO, WARD 1(1) , THANE

PDF · subscribers
ITA 5015/MUM/2024Status: DisposedITAT Mumbai29 January 2025AY 2011-127 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal found that the 'reason to believe' for reopening was based on presumptions and lacked a rational connection or live link to actual income escapement. The difference in 'stock in progress' value was attributable to other duly accounted expenses like stamp duty and registration. Citing ITO vs. Lakhmani Mewal Das, the Tribunal held the reopening was invalid.

What were the facts?

The assessee, a real estate developer, filed its return for AY 2011-12 which was processed u/s 143(1). The assessment was reopened under Section 147 based on information that the assessee's 'stock in progress' was inflated compared to the land's agreement value, leading the AO to believe there was an unexplained investment.

What were the issues?

Whether the reopening of assessment under Section 147 was valid when the 'reason to believe' was based on presumptions and lacked a live link to income escapement, particularly when the difference in recorded values was due to duly accounted expenses.

Which sections of the Income-tax Act were involved?

Section 147,Section 143(1),Section 143(3),Section 2(40),Section 56(2)(x)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(2)Show list

Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.

Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI

Before: SHRI SAKTIJIT DEY & SHRI B.R. BASKARAN

The assessee has filed this appeal challenging the order dt.02-08-2024 passed by the Ld. Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [„Ld.CIT(A)‟] and it relates to AY. 2011-12. The assessee, inter alia, has challenged the validity of reopening of assessment.

2. The Ld.AR submitted thatthe assessee is a Private Limited Company engaged in the business of real estate development. The assessee filed its return of income for the year under consideration declaring a total income of Rs.3,13,170/-. It was processed u/s. 143(1) of the Act.

3. During the year under consideration, the assessee had purchased a plot of land from Koli Family. Based on this information, the AO reopened the assessment by recording the following reasons:-

REASON FOR REOPENING THE ASSESSMENT U/S 147 OF THE IT ACT, 1961 The M/s Buildcube Constructions Private Limited, PAN: AACCB3253H filed return of income for the AY 2011-12 on 29.09.2011 showing total income of Rs. 3,13,170/-. The return is duly processed u/s 143(1) of the I T Act on 24.01.2012.

2.

Information was received from DDIT(Inv.), Unit-IV(3), Thane vide letter no. Thn/ADIT(Inv.)-IV(3)/Information/2017-18 dated 07.03.2018 regarding purchase of plot of land from Smt. Kumudini Patil and 26 other persons of Koli family. As Smt. Kumudini Patil has received sale consideration of Rs. 22,50,000/- being 1/27th share in the property therefore, the total consideration of the land works out to Rs. 6,07,50,000/-(22,50,000/- x 17). The assessee company has increased its Stock in progress from NIL for A.Y. 2010-11 to Rs. 7,83,78,790/- in A.Y. 2011-12.

3.

The information received is perused carefully. It is seen that the agreement value of the said property is Rs.6,26,50,000/- whereas the assessee company has shown stock in progress at Rs.7,83,78,790/-. Thus, the stock in progress is inflated by an amount of Rs.1,76,28,790/- (78378790-62650000), which is unexplained investment of the assessee therefore required to be brought to tax.

4. In this case a return of income was filed for the year under consideration but no scrutiny assessment u/s 143(3) of the Act was made. Accordingly, in this case, the only requirement to initiate proceeding u/s 147 is reason to believe which has been recorded above.

5.

It is pertinent to mention here that in this case the assessee has filed return of income for the year under consideration but no assessment as stipulated u/s 2(40) of the Act was made and the return of income was only processed u/s 143(1) of the Act. In view of the above, provisions of clause (b) of explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment.

6.

In view of the above facts of the case, I have reason to believe that income of more than Rs.1 lakh has escaped assessment as per the provisions of section 147 of the IT Act, 1961, for AY 2011-12. Date: 26.3.2018 Sd/- (MILIND KEDARE) Income Tax Officer, Ward 1(1), Thane The assessee filed objections before the AO challenging the validity of reopening of assessment, but the same was disposed of by the AO rejecting the objections. The assessee also challenging the validity of reopening of assessment before Ld CIT(A) and did not succeed before him.

4.

The Ld.AR advanced his arguments on this legal issue. He submitted that the AO has computed the consideration paid for purchase of the land at Rs. 6,26,50,000/-. He further noticed that the land was included in “stock in progress” and the value of stock in progress was shown at Rs.7,83,78,790/-as on 31-03-2011 in the books of account. Accordingly, the AO treated the difference of Rs.1,76,28,790/- (Rs.7,38,78,790/- (-) Rs.6,26,50,000) as un-explained investment by way of inflation of the value of “stock in progress”. The Ld.AR submitted that stock in progress accounted consisted of not only the purchase consideration of Rs. 6.26 crores, but also other expenses incurred by the assessee in the course of acquiring of land, viz., stamp duty value, registration charges, interest capitalization, other incidental expenses etc. in connection with the purchase of land. Further, all these expenses have been duly accounted for in the books of account. Hence, very reasoning given by the AO that there is inflation of expenses is against the facts. In fact, the details of stamp duty paid & registration charges paid by the assessee were very much available in the purchase deed itself. Further, since all these expenses have been duly accounted for in the Books of Account, the difference amount noted by the AO cannot considered as un-explained investment.

Accordingly, the Ld A.R submitted that the AO has reopened the assessee only on the basis of certain presumptions, which are against the facts and law also. The Ld.AR submitted that the information received by the AO could not have led him to form a belief that there was escapement of income. Hence, he contended that the reopening of assessment is not valid in the eyes of law. In this regard, he placed reliance on the decision rendered by the Hon‟ble Supreme Court in the case of ITO vs. Lakhmani Mewal Das [1976] 103 ITR 437 (SC).

5. The Ld.AR further submitted that the fact is that the AO, during the course of assessment proceedings, has accepted the value of Rs.7.84 crores shown as stock in progress in the books of account. He did not make any addition as mentioned in the reasons for reopening towards unexplained investment. However, the AO made addition of Rs.11.16 crores, being the difference between the purchase consideration and the stamp duty value. Presumably, the AO has applied the spirit of section 56(2)(x) of the Act, which came into force w.e.f. 01-04-2017 only. He submitted that the AO could not have made any other addition, if he did not make any addition on the issues mentioned in the reasons for reopening. In this regard, the Ld.AR placed his reliance on the decision rendered by the Hon‟ble Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd., [2011] 331 ITR 236 (Bombay).

6. The Ld.DR, on the contrary, submitted that the AO is required to form prima facie belief only at the time of reopening of assessment i.e., he need not conclusive prove that there was escapement of income. Accordingly, he submitted that the reopening of assessment is valid.

7.

We heard the parties and perused the record. We notice from the reasons recorded by the AO that the AO has found out a difference between purchase consideration noted in the Conveyance Deed and the stock in progress recorded in the Books of Account. He noticed that the stock in progress recorded in the Books of Account stood at Rs. 7.84 crores, as against the purchase consideration of Rs. 6.26 crores. The AO has taken the view that the difference represents inflation of expenses and also unexplained investment. We are unable to understand as to how the AO could draw such a conclusion. The question of unexplained investment will arise only only if the amount recorded in the Books of Account is less than the purchase consideration, which is not the case here. We notice that there is no material to show that there was inflation of expenses and hence the said observation made by the AO is based on presumptions only.

8.

The above discussion would show that the facts mentioned in the reasons for reopening of assessment would not lead to a conclusion that there was escapement of income as presumed by the AO. In that case, the reopening is not valid. In this regard, we may take support of the following observations made by Hon‟ble Supreme Court in the case of ITO vs. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) (supra): -

“As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far- fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words "definite information "which were there in section 34 of the Act of 1922 at one time before its amendment in 1948, are not there in section 147 of the Act of 1961 would not lead to the conclusion that action cannot be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. The powers of the Income-tax Officer to reopen assessment though wide are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income-tax authorities after the assessment has been completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, finality about orders made in judicial and quasi- judicial proceedings. It is, therefore, essential that before such action is taken the requirements of the law should be satisfied. The live link or close nexus which should be there between the material before the Income- tax Officer in the present case and the belief which he was to form regarding the escapement of the income of the assessee from assessment because of the latter's failure or omission to disclose fully and truly all material facts was missing in the case. In any event, the link was too tenuous to provide a legally sound basis for reopening the assessment. The majority of the learned Judges in the High Court, in our opinion, were not in error in holding that the said material could not have led to the formation of the belief that the income of the assessee respondent had escaped assessment because of his failure or omission to disclose fully and truly all material facts. We would, therefore, uphold the view of the majority and dismiss the appeal with costs.”

9.

Accordingly, we are of the view that the reopening of the assessment is bad in law as it is not supported by any credible material on record. Accordingly, we quash the assessment order passed by the AO.

10.

Since we have quashed the assessment order on the above said legal ground, we do not find it necessary to adjudicate other grounds raised by the assessee.

11.

In the result, the appeal filed by the assessee is allowed.

More judgments on Section 147

All 49,210 judgments and leading authorities on Section 147 →

Recent GST High Court judgments

Search GST case law →