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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO& SHRI D.S. SUNDER SINGH
आदेश /O R D E R PER D.S. SUNDER SINGH, Accountant Member: This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], Visakhapatnam vide I.T.A.No.783/11-12/ITO, Wd.-3/RJY/2013-14 dated 29.08.2013 for the assessment year 2006-07.
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Ground No.1 and 4 are general in nature which does not require specific adjudication.
During the appeal hearing, the Ld.AR did not press Ground No.3, therefore Ground No.3 is dismissed as not pressed.
Ground No.2 is related to the addition of Rs.12,19,050/- on sale of 12 flats. The assessee is in the business of construction and sale of flats and for the assessment year 2006-07, the assessee filed the return of income admitting total income of Rs.12,970/- and the assessment was completed u/s 143(3) on 08.01.2008 on total income of Rs.1,12,970/-. Later on, the Assessing Officer (AO) found that the assessee had purchased vacant land for a consideration of Rs.11,46,460/- and had constructed a four storied building consisting of 12 flats with a total plinth area of 10,708 sq.ft. in G+3 structure. Out of 12 flats 9 flats consisting of 8250 sq.ft. were sold to nine other parties for a consideration of Rs.53,23,000 under different documents. Remaining 3 flats consisting of 2458 sq.ft. were remained unsold. The AO noticed from the profit and loss account that against the sale of 12 flats for a consideration of 43,90,620/- and the site value of Rs.12,49,670/-, the assessee had admitted the structure value at
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Rs.31,40,950/- for impugned assessment year as per the report of panel engineer against the actual sale consideration of Rs.69,81,824/-. Further, the AO also found that the assessee has received the parking area separately amounting to Rs.10,54,944/-, but not admitted the same as income. Therefore, having reason to believe that the income chargeable to tax has escaped assessment, the AO has issued the notice u/s 148 and taken up the case for assessment. In the reassessment proceedings, the AO made the addition of Rs.25,51,204/- representing the difference between the sale value of 9 flats amounting to Rs.43,60,000 and the structure value of 9 flats i.e Rs.31,41,950 and the value of unsold flats amounting to Rs.12,97,824/- aggregating to Rs.25,50,874/- and completed the assessment.
Aggrieved by the order of the AO, the assessee went on appeal before the Ld.CIT(A) and the Ld.CIT(A) partly allowed the appeal of the assessee.
Against the order of the CIT(A), the assessee is in appeal before this Tribunal. The assessee raised additional ground challenging the validity of issue of notice u/s 148 of the Act. The assessee argued that in this case, the assessment was completed u/s 143(3) by an order dated 08.01.2008 and the assessee had furnished the complete details before the AO. The
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assessee further submitted that it has submitted the profit and loss account in the original assessment proceedings as evidenced from the assessment order and the AO reopened the assessment basing on the information already available in the assessment records. The information with regard to the sale of the flats, admission of income is made available to the AO at the time of original assessment which was examined by the AO and completed the assessment. Therefore, the Ld.AR argued that there is no fresh information available to the assessee, hence reopening of assessment is due to difference of opinion of the later AO, hence argued that notice issued u/s 148 is bad in law and required to be quashed.
On the other hand, the Ld.DR supported the orders of the lower authorities.
We have heard both the parties and perused the material available on record. The assessee has furnished the assessment order dated 08.1.2008 in the paper book and from the assessment order, there was no noting regarding the verification of the parking fees collected by the assessee and the sale proceeds received for 9 flats and admission of income and the closing stock etc. The Ld.AR also did not establish with tangible
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evidence that the AO has examined the details and taken a conscious decision. Further, the assessment is reopened within 4 years from the end of relevant assessment year and the case does not fall under the proviso to section 147. Once the case does not fall under the proviso to section 147 the belief of the assessing officer is sufficient with regard to escapement of income. This view is upheld by the Hon’ble Supreme Court in the case of M/s Rajesh Jhaveri Stock Brokers 291 ITR 500 (SC). Hon’ble apex court in the case of Rajesh Jhaveri Stock Brokers held as under: 16. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction ITO v. Selected Dalurband Coal Co. (P.) Ltd. [1996] 217 ITR 597 (SC); Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC). 17. The scope and effect of section 147 as substituted with effect from 1-4-1989, as also sections 148 to 152 are substantially different from the provisions as
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they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso.
Therefore, we hold that the additional ground raised by the Ld.AR is unsustainable and accordingly dismissed.
Ground No.2 is related to the addition of Rs.12,19,050/-. The difference between the sale consideration received by the assessee for 9 flats and the value admitted by the assessee in the profit and loss account was Rs.31,40,950/- . The AO found that the assessee has constructed 12 flats on a vacant site with total plinth area of 10708 sq.ft. in G+3 building. Out of 12 flats, 9 flats consisting of 8250 sq.ft. were sold to nine other parties for a total consideration of Rs.53,23,000/- under different documents. Remaining 3 flats consisting of 2458 sq.ft. were held with the
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assessee. The AO observed from the profit and loss account that the assessee has admitted structure value of 12 flats for Rs.31,40,950/- and the site cost instead of the sale value of 12 flats and the site cost aggregating to Rs.69,41,824/-, thereby short admission of Rs.25,51,204/-. The AO called for the explanation from the assessee and the assessee filed explanation stating that the assessee is following the contract completion method and the income is admitted as per the stage of completion. In the instant case, 3 flats were not sold and with regard to the 9 flats, the construction was not completed, pending completion of construction, the assessee has admitted the income on the basis of structure value as estimated by the panel engineer at Rs.31,40,950/-. Not being convinced with the explanation of the assessee, the AO made the addition of Rs.25,50,874/-.
Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) confirmed the addition of Rs.25,50,874/-. Against the order of the CIT(A), the assessee is in appeal before this Tribunal. 11. We have heard both the parties, perused the material placed on record. It is seen that the assessee has declared the receipts in the P&L account as under :
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(i) Sale of land relating to 9 flats : Rs.9,63,000/- (ii) Value of work completed in respect of : Rs.31,40,950/- 12 flats as per Engineer’s certificate (iii) Value of 3 unsold land site : Rs. 2,86,670/- ----------------- Rs.43,90,620/- ----------------- As against the above, the AO has felt that the contract value to be considered for assessment would be as follows :- (a) 9 flats land sale value = Rs.9,63,000/- (b) 9 flats constn. Agreement value = Rs.43,60,000/- (c) 3 unsold flats land value = Rs. 3,21,000/- (d) 3 flats land sale value = Rs.12,97,824/- (2458 sq.ft @ Rs.528/-) TOTAL = Rs.69,41,824/-
11.1 Thus there was difference of Rs.25,51,204/- which was brought to tax by the AO. During the appeal hearing, the Ld.AR submitted that the assessee is following contract completion method and for the assessment year under consideration, the assessee has admitted Rs.31,41,950/- certified value of construction relating to 9 flats, but not 12 flats. Therefore argued that the AO has misunderstood the facts that the assessee has
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admitted the value of work completed in respect of 12 flats. As per the agreement, the value of 9 flats was Rs.43,60,000/- which was sold during the year. Since the assessee has completed the construction partly, the assessee admitted the income as per the stage of completion of construction. The assessee also submitted the details in respect of completion of the project. The total value of sale value of 12 flats was Rs.53,23,000/- out of which the assessee has admitted a sum of Rs.31,40,950/- in the financial year 2005-06, Rs.16,81,050/- in the financial year 2006-07 and Rs.9,01,700 in the assessment year 2007-08 as per the information submitted by the assessee. The assessee has admitted the entire sale proceeds of the project during the financial year 2005-06 to 2007-08 as per the stages of completion. According to the Ld.AR Rs.31,40,950/- was related to the certified value of construction of 9 flats. Against which the assessee had entered into agreement for sale of flats at Rs.43,60,000/-. However, though the assessee has constructed 12 flats, the assessee has not disclosed the closing stock related to the remaining 3 flats for which the addition was made by the AO and confirmed by the Ld.CIT(A). Though the assessee raised ground No.3 agitating the addition but not pressed during the appeal hearing.
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From the information available on record, it is observed that the total project cost was Rs.53,23,000/- and the assessee had admitted the income during the financial year 2005-06, 2006—07 and 2007-08. The assessee has sold 9 flats during the financial year 2005-06. Both undivided share of land and the flats were sold on the same date. It is undisputed fact that in practice semi finished flats are sold in this line of business and enter in to a separate agreement for completion of the remaining structure. The assessee also had entered into agreement for construction on the same day of sale of the land. As per the construction agreement Clause No.7, the assessee should complete the construction within 12 months with a grace period of 90 days from the date of agreement. The agreements are entered with the vendees between period of August 2005 to March 2006 for various rates. The first agreement entered into by the assessee was on 24.08.2008 and all the construction agreements contain the similar clauses. Therefore, it is established that as on the date of sale, the construction was not complete and there was a time limit for assessee to complete the construction. Since the assessee is following construction completion method, the assessee has admitted the certified value of construction of Rs.31,40,950/- which works out to 72% of the sale value. The stage of
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completion of work was certified by the approved Panel Engineer and the AO has not brought on record to establish that the assessee has completed the construction more than the value certified by the engineer. Therefore, we hold that the assessee has correctly admitted the sum of Rs.31,40,950/- towards the value of construction upto 31.03.2006, no further addition is required. The remaining sale proceeds were already admitted by the assessee in subsequent year in respect of 9 flats. Accordingly, we hold that the assessee has correctly, admitted the sale value in respect of 9 flats and no further addition is required. Therefore, the order of the Ld.CIT(A) is set aside and the addition made by the AO is deleted. The appeal of the assessee on this ground is allowed.
With regard to the remaining 3 flats, the Ld.CIT(A) has confirmed the addition of Rs.10,38,260/- in respect of work in progress for the year ended 31.03.2006. Though assessee agitated the addition and raised ground No.3 in this appeal, during the appeal hearing the Ld.AR has not pressed this ground. Therefore ground No.3 is dismissed as not pressed.
In the result, appeal of the assessee is partly allowed.
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The above order was pronounced in the open court on 31st July, 2018.
Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर ससह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयकसदस्य/JUDICIAL MEMBER लेखासदस्य/ACCOUNTANT MEMBER धिशाखापटणम /Visakhapatnam ददिांक /Dated : 31 .07.2018 L.Rama, SPS
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आदेश की प्रधिधलधप अग्रेधर्ि/Copy of the order forwarded to:- 1. ननर्ााररती/ The Assessee- Manasa Associates, D.No.79-18-25, Omkar Street Rajahmundry 2. राजस्व/ The Revenue – Income Tax Officer, Ward-3, Rajahmundry 3. The Commissioner of Income Tax, Rajahmundry 4. The Commissioner of Income Tax(Appeals), Visakhapatnam 5. धिभागीयप्रधिधिधि, आयकरअपीलीयअधिकरण, धिशाखापटणम /DR, ITAT, Visakhapatnam 6.गाडाफ़ाईल / Guard file आदेशािुसार / BY ORDER // True Copy //
Sr. Private Secretary ITAT, VISAKHAPATNAM