DCIT, NEW DELHI vs. M/S. LANDBASE INDIA LTD., NEW DELHI

PER CHANDRA MOHAN GARG, JUDICIAL MEMBER

These appeals by the Revenue and cross objections by

the assessee are directed against the order of the CIT(A,

dated 22/05/2009 for A.Ys 2001-02 and 2003-04.

2 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 2. First we shall take up the cross objections raised by the

assessee. The assessee has raised similarly worded following

grounds of appeal:

“1. That on the facts and circumstances of the case, the CIT(A) has erred in upholding the validity of the order of assessing officer passed under section 143(3) read with section 147 of the Income-tax Act, 1961 (‘the Act’), without appreciating that the order of assessing officer was beyond jurisdiction, bad in law and void-ab-initio.

1.1 That on the facts and circumstances of the case, the CIT (A) has erred in holding that the issue regarding legality of proceedings under section 147 of the Act could not be raised since the validity thereof was not challenged before the assessing officer.

1.2 That on the facts and circumstances of the case, the CIT (A) failed to appreciate that initiation of proceedings was barred by limitation prescribed in the proviso to section 147 of the Act and consequently the assessment order was illegal and bad in law

1.3 That on the facts and circumstances of the case, the CIT(A) has erred in not appreciating that the reassessment proceedings were initiated by the assessing officer on a mere change of opinion and there was no failure on the part of appellant to disclose truly and fully all material facts necessary for assessment and consequently, the assessment order was illegal and bad in law.

1.4 That on the facts and circumstances of the case, the CIT(A) has erred in holding that the order passed by assessing officer was after independent application of mind, without appreciating that the re-assessment proceedings were initiated on the opinion of audit party, which is not permissible under law.

3 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 1.5 That on the facts and circumstances of the case, the CIT(A) has erred in not appreciating that reassessment proceedings were initiated by the assessing officer under section 147 of the Act without forming a reasonable belief that income of the appellant had escaped assessment, which a pre-requisite condition for validly initiating proceedings under that section.”

December, 2007 on various grounds. The assessee originally filed return of income on 30th October, 2001, declaring loss of Rs.

20,72,84,983. Assessment was originally completed u/s 143(3) of the Income tax Act, 1961 [for short, 'the Act'] vide order dated 29th March,

2004 assessing the loss of the assessee at Rs.20,71,55,977 after making

certain disallowances. Thereafter, reassessment proceedings were initiated u/s 147 of the Act vide notice dated 30th October, 2006

issued u/s 148 of the Act, on the basis of certain audit objections

after obtaining approval of the appropriate authorities. In response to the said notice, the assessee filed return vide letter dated 27th

November 2006, requesting the assessing officer to treat the return

originally filed as return filed in response to notice under section 148 of the I.T. Act. In the aforesaid background facts, the assessee has

challenged the validity of the reassessment order on the following

four grounds:

4 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 (a) The reassessment proceedings were initiated on a mere change

of opinion, which is not permissible in law;

(b) In terms of proviso to section 147 of the Act, proceedings

under that section could be validly initiated beyond the period of four

years from the end of the relevant year only if there was any failure

on the part of the appellant to disclose fully and truly all material

facts necessary for assessment. That being not so in the present case,

the prerequisite condition for initiating reassessment proceedings, in

terms of proviso to section 147 of the Act, were not

fulfilled/satisfied;

(c) The impugned reassessment proceedings were initiated

u/s 147 of the Act without forming a reasonable belief that

income of the appellant had escaped assessment which is a

pre requisite condition for validly initiating proceedings

under that section.

(d) The impugned reassessment proceedings were initiated

on the opinion of the audit party which is not permissible in

law.

the original assessment was completed u/s 143(3) of the Act

5 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 after due application of mind on the claims made by the

assessee in the return and/or during the assessment

proceedings. It was further contended that the assessment

proceedings were initiated on the basis of mere change of

opinion which is not permissible in law.

appellant submitted that the assessment order is illegal and bad in

law:

* Indian and Eastern Newspaper Society v. CIT: 119 ITR 997 (SC) CIT v. Lucas T.V.S. Ltd. 249 ITR 306 (SC) ❖ Adani Exports V. DCIT: 240 ITR 224 (Guj.) ❖ CIT V. Mettur Chemical & Inds. Corpn: 242 ITR 119 (Mad.) ❖ Waldies Limited V. ITO: 246 ITR 29 (Cal.) ❖ ITO V. Jiyajeerao Cotton Mills Ltd: 247 ITR 122 (Cal.) ❖ CIT V. Sambhar Salt Limited: 262 ITR 675 (Raj.) ❖

The submissions filed by the appellant were forwarded to the

assessing officer for comments' who submitted his remand report vide letter No. ACIT/Circle(4)/2009-10/279 dated 15th October,

2008. In the remand report, the assessing officer has not

commented on the submissions filed by the appellant on the

aforesaid issue for the assessment year being illegal and bad in law.

However, during the course of personal hearing, the assessing

6 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 officer supported the assessment order and submitted that the

reassessment proceedings were initiated by independent

application of mind and after obtaining approval from the Ld. Addl. CIT and CIT on 5 October, 2006 and 27th October, 2006,

respectively. The AO accordingly submitted that the objection of

the appellant is without merit and should be dismissed.

the submissions made earlier also referred to the decision of the

Delhi High Court in the case of Haryana Acrylic Manufacturing Co.

vs. CIT in support of its contention that the reassessment

proceedings are illegal and bad in law.

has held as under:

““The submissions of the A.R. of the appellant and the arguments made by the Assessing Officer in the course of appellate proceedings have carefully been considered. After careful consideration of the rival submissions, I agree with the arguments of the Assessing Officer that the validity of the notice under sectionT48 cannot be challenged at this stage. The conduct of the appellant in submitting all the relevant information and complying with all the requirements, the

7 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 notices issued under section 148 / 143(2) and 142(1) have made it clear that he did not have any objection for re- opening the assessment proceedings at the initial stage. Subsequently also, no objection was taken in the course of assessment proceedings. However, the appellant had challenged the validity of the re-opening of the assessment proceedings only at the time of the filing of the appeal which is not only after thought and appeared to have been raised only for the sake of raising a ground of appeal. Even on the merit of the facts, I am of the view that AO has been justified in issuing the notice under section 148 of the Income Tax Act, 1961. Although the initial source of information was the audit objection but same has not been made the basis for re-opening the assessment proceedings. It was independent application of mind on the various facts as pointed out by the audit authority warranting the issuance of notice under section 148 as some of the issues involved in the appeal were altogether omitted in the course of original assessment proceedings of on some of the issues there was not full and true disclosure of the information. In totality of all these facts and circumstances, I dismiss appellant's appeal on ground nos. 1 and 2.”

both the years. Thus the Revenue filed appeals challenging the

conclusion of the ld. CIT(A) on merits wherein the first appellate

authority directed the AO to delete the addition made on account of

8 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 difference between budget cost of flats, prior period interest

expenditure, excess depreciation on land and capital gain on

agreement to sale dated 17.3.2003 in A.Y 2001-02. The Revenue has

also filed appeal for A.Y 2003-04 wherein the ld. CIT(A) granted relief

to the assessee on merits directing the AO to delete addition made by

the AO on account of long term capital gain made by the AO u/s 32 of

the Act, addition on account of excess depreciation claimed by the

assessee on golf course. The assessee has also filed cross appeals

challenging the validity of reopening u/s 147 of the Act and notice u/s

148 of the Act for both the years.

allegations of the assessee to the reopening of assessment are similarly

worded, which has been reproduced hereinabove. For the sake of

clarity in our findings, we are considering the rival arguments of both

the sides in view of the facts and circumstances of A.Y 2001-02.

relevant material on record. The ld. AR reiterating submissions of the

assessee placed before the ld. CIT(A), contended that the ld. CIT(A)

has erred in upholding the validity of assessment order without

9 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 appreciating that the order of reassessment was beyond jurisdiction,

bad in law and void ab initio. The ld. AR vehemently pointed out that

the ld. CIT(A) has erred in holding that the issue regarding legality of

proceedings u/s 147 of the Act could not be raised since the validity

thereof was not challenged before the AO. The ld. AR also pointed out

that in the present cases, the ld. CIT(A) failed to appreciate that the

initiation of proceedings was barred by limitation prescribed in proviso

to section 147 of the Act and consequently the assessment order was

illegal and bad in law. The ld. AR reiterating his written submissions

dated 28.10.2015 also contended that the reassessment proceedings

were initiated by the AO on a mere change of opinion and there was no

failure on the part of the assessee to disclose truly and fully all

material facts necessary for assessment and thus the assessment order

was illegal and bad in law. The ld. AR also pointed out that the first

appellate authority was not correct in holding that the order passed by

the AO was after independent application of mind without appreciating

that reassessment proceedings were initiated on the opinion of audit

party which is not permissible under law. The ld. AR read out all three

points mentioned in the reasons recorded by the AO. The ld. AR lastly

pointed out that reassessment proceedings were initiated by the AO

without forming a reasonable belief that income of the assessee has

10 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 escaped assessment which is a pre requisite condition for initiating

proceedings validly.

relevant operative part of the impugned first appellate order and

contended that from the reasons recorded it is amply clear that the AO

was not guided by the observations of the audit party and he applied

his mind independently while recording satisfaction for initiation of

proceedings. The ld. DR also pointed out that the assessee did not

raise any objection during the assessment proceedings challenging the

validity of reassessment proceedings and issuance of notice u/s

147/148 of the Act. Therefore, this legal contention was not

maintainable before the ld. CIT(A) at first appellate stage. The ld. DR

also pointed out that the AO made independent application of mind on

various facts as pointed out by the audit authority while issuing notice

u/s 147 of the Act because some of the important issues involved in

the appeal were altogether omitted during the course of assessment

proceedings and there was not a full and true disclosure of information

regarding depreciation claimed by the assessee, the assessee

understated the sale proceeds resulting into escapement of

proceedings and the assessee also claimed prior period expenditure

which also shows that the assessee did not disclose full and true 10

11 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 particulars of its income for the relevant period. Therefore, reopening

of assessment and issuance of notice was valid and the first appellate

authority rightly rejected the legal objection of the assessee in this

regard.

the view that the AO initiated reassessment proceedings by recording

following reasons:

“During the course of assessment proceedings it was seen that the Assessee claimed depreciation on golf course at the rate of 25% under category of plant and machinery. The golf course is a structure of building in which various sports facilities have been provided to the members of the assessee company. The depreciation is admissible on the golf course at the rate of 10% as in the case of building, it is seen from depreciation schedule that the depreciation was claimed on golf course at Rs.2,42, ,64,813/- as against the admissible depreciation at Rs 1,04,93,770/- It has been held by Supreme Court in the case of CIT Vs Anand Theatre (244 ITR 192) that building is not a plant and even if it is to be construed as plant only that part of the building housing the auditorium and furniture and fittings found therein should be construed as plant and not the entire building. In this particular case, only sports facilities have been provided : he members. At most the equipment of sports may be considered for allowing depreciation as plant and machinery unless the assessee has separately claimed the depreciation on these

12 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 equipments. Thus excess depreciation has been allowed at Rs 1,37,71,043/-. Thus the income to the extent of Rs 1,37,71,043/- has escaped assessment.

3.1 The details in this regard filed during the course of assessment proceedings were examined. The assessee worked out the sale consideration on the basis of proportion of budgeted expenditure to the actual expenditure and applied the proportion to actual sales. However in this working the assessee reduced actual expenditure from proportioned sales proceeds which is not only incorrect but it is not based on any accounting or legal principles. It is also not sanctioned by the accounting standards prescribed by ICAI. There is no basis for this computation. This working is neither based on mercantile basis of accounting nor on any other provisions of law or accountancy. Thus the assessee company has under stated the sales proceeds by 3,89,33,267/- which has escaped assessment.

3.2 The assessee company has claimed interest at Rs 61,11,162/- in respect of loan advanced by M/s Gilt Facilities Private Limited. There was a over delayed completion of projects and retention of money collected by the assessee

13 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 companion on behalf of M/s Gilt Facilities Private Ltd. After settlement the interest of 61.11,162/- was considered payable to the creditors. It was claimed during the course of assessment proceedings but this component of interest related to only assessment 2004-05 and not to any earlier assessment year. However the details during the assessment proceedings clearly showed that there is meticulous working of year wise interest on the amount of loan need to the assessee company. The interest of Rs 61,11,162/- is not admissible an the assessment year as it is prior period expenditure which is not admissible. Thus the income of Rs 61,11,162/- has escaped the assessment.”

undisputedly, reopening of assessment and issuance of notice has been

initiated beyond four years of prescribed period and hence, as per first

proviso to section 147 of the Act, no action shall be taken under this

section after expiry of four years from the end of relevant A.Y unless

any income chargeable to tax has escaped assessment for such A.Y by

reason of failure on the part of the assessee to make a return u/s 139

or in response to notice issued u/ss (1) of section 142 or section 148 or

to disclose fully and truly all material facts necessary for his

assessment for the A.Y under consideration. In view of said provision,

for initiation of reassessment proceedings it was the duty of the AO to

record a satisfaction that any income chargeable to tax has escaped 13

14 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 assessment by reason of failure on the part of the assessee to disclose

fully and truly all material facts. In the reasons recorded it was alleged

that the assessee had wrongly claimed deprecation on golf course. In

this regard the ld. AR pointed out that the assessee has shown golf

course under the head ‘assets’ in the audited financial statements and

not as a ‘part of building’ and as per tax audit report, depreciation on

golf course was shown at Sl. No. 3 and rate of depreciation was 25%.

The ld. AR also pointed out that the assessee furnished detailed break

up of addition to golf course and vide letter filed on15.3.2004, the

assessee certified that no depreciation has been claimed on the value

of land on which golf course has been constructed.

pointed out that on account of sale of apartments, the AO is referring

to the income from Laburnum Project undertaken by the assessee and

profit from the said project was consistently been accounted as per

percentage completion method. The ld. AR pointed out that vide Note

No. 7, Revenue recognition Schedule XXI significant accounting policies

of the audited accounts for the year ended on 31.3.200, the assessee

clearly mentioned that revenue on account of sale of land and

constructed apartments is accounted for on the basis of percentage

completion method and regarding Labunum Project, the assessee filed

15 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 detailed note in February 2004 with the details of profit on the project

booked during the year under consideration. The ld. AR also pointed

out that vide letter dated 15.3.2004 available at page 20 of the

assessee’s paper book, the assessee also furnished detailed working of

the apartment amounting to Rs. 11.09 crores which was declared in

the relevant profit and loss account. Therefore, on this count also,

there was fully and truly all disclosure by the assessee. Therefore,

reassessment beyond four years is not permissible.

February 2004, the assessee furnished a detailed note on accrual on

interest and justified its allowability after explaining the entire

background of the sale alongwith detailed justification. The ld. AR

also pointed out that the assessee also filed copy of the agreement

dated 16.8.1995 entered into with Gilt Facilities P. Ltd. which is

available at pages23 to 26 of assessee’s paper book and again furnished

detailed justification of interest and its allowability during A.Y 2001-

18 of the assessee’s paper book. The ld. AR also pointed out that vide

letter March 2004, available at pages 21, 22 and 27-45 of the

assessee’s paper book, the assessee furnished detailed background of

16 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 interest paid to M/s Gilt Facilities P. Ltd and legal justification for

allowability of entire interest paid during A.Y 2001-02. Therefore, it

cannot be alleged that the income of the assessee had escaped

assessment by reason of the failure on the part of the assessee to

disclose fully and truly all material facts necessary for the assessee.

on the similar material and reopening of assessment cannot be held as

valid when without any tangible material, and without application of

mind, the AO held that there is escapement of income. For this

proposition, the ld. AR placed reliance on the ratio of the decision of

Hon'ble Supreme Court in the case of CIT Vs. Kelvinator of India Ltd

320 ITR 561 [SC]. The ld. AR reiterating its submission again pointed

out that as per first proviso to section 147 of the Act, reopening of

assessment is not permissible after expiry of four years from the end of

relevant A.Y unless any income chargeable to tax has escaped

assessment by the reason of failure to disclose fully and truly all

material facts necessary for assessment. The ld. AR lastly alleged that

the AO initiated reassessment proceedings only on the report of audit

party of the department and without applying his mind he proceeded

to initiate reassessment proceedings which is not a legal and fair

approach. 16

17 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 17. Replying to the above, the ld. DR fairly accepted that original

order of assessment was passed u/s 143(3) of the Act and notice u/s

148 of the Act was issued beyond the period of four years. He also

vehemently pointed out that the AO can take permissible view when

two treatments are permissible and one view has been taken by the

assessee but when the claim is not systematic, then two-views theory

will not apply and allegation of change of opinion cannot be made

against the AO. The ld. DR pointed out that as per audited financial

results of the assessee, in the Schedule forming part of the balance

sheet [APB page 297] golf course has been shown separately which is

not as per provisions of the Act. The assessee should have specifically

mentioned that the Golf course falls either in building or plant and

machinery and this conduct of the assessee shows that the assessee did

not file truly and fully all material facts for claiming depreciation on

golf course and hence, the AO has validly reopened the assessment and

issued notice u/s 147/148 of the Act.

2003-04 and submitted that assessee has not challenged this order

dated 28.2.2006 and subsequent to that the AO issued notice u/s 148

of the Act on 30.10.2006 which clearly shows that reopening of

18 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 assessment for earlier year was consequent to the subsequent

assessment order of A.Y 2003-04. The ld. DR pointed out that original

assessment order for A.Y 2001-02 available at pages 49 and 50 of the

paper book dated 29.3.2004 was

that as per order for A.Y 2003-04, the assessee accepted that the golf

course is a building and depreciation was allowed thereon @ 10%

whereas the assessee claimed depreciation @ of 25% which is not

sustainable. The ld. CIT-DR also drew our attention towards Revenue

PB pages 29 and 30 and read out audit objections raised in the case of

assessee for A.Y 2001-02. The ld. DR on the second issue recorded in

the reasons pointed out that as per pages 4 to 12 of APB, the profit

position for the F.Y. commencing from 1989-99 to 2003-04 it is amply

clear that entire sale was completed in F.Y. 2000-01. Therefore,

calculation placed at page No. 6 is incorrect and wrong and note on

Labunum property placed at APB page 9, the profit for the F.Y. 2000-

01 has arrived on the basis of the matching of the Revenue for the

number of apartments sold in the F.Y. 200-01 with the corresponding

cost of the apartments. But this calculation was factually incorrect as

the assessee only accounted 90% of the sale price and 98% of the cost

19 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 for calculation of profitability from Labunum Project for the year

which is not a correct approach and thus the assessee should be held

liable for not disclosing truly and fully all particulars of its income

during the assessment proceedings and for this reason, reassessment

beyond five years is permissible.

recorded in the reasons, the assessee has to make claim as prior period

interest expenditure and tax auditor should mention this glaring fact in

the report and on this count also, the income of the assessee escaped

assessment for the relevant A.Y by the reason of failure of the assessee

for not disclosing truly and fully all relevant material facts for its

assessment. The ld. DR pointed out that the reassessment proceedings

were not initiated only on the basis of audit report of the Revenue, but

it was consequent to the assessment order for A.Y 2003-04 dated

28.2.2006 and due application of mind, the AO held that reassessment

proceedings has to be initiated.

Revenue and contended that reasons recorded by the AO for reopening

of assessment has to be read without any support and no

20 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 supplementation or substitution or deletion therein or therefrom is

permissible. He placed reliance on the decision of the Hon'ble Bombay

High Court in the case of Hindustan Lever Ltd Vs. ACIT 268 ITR 332

[Bom] to support this contention. The ld. AR also pointed out that

there is no reference of subsequent assessment order for 2003-04 in

the reasons recorded and the issue of depreciation on golf course as

decided by the AO has not been accepted by the assessee because the

assessee is agitating this issue continuously and regularly. The ld. AR

placing reliance on the decision of Hon’ble High Court of Delhi in the

case of CIT Vs. Usha International, 348 ITR 485 [Del] contended that

where an AO incorrectly or erroneously applies law or comes to a

wrong conclusion, then initiation of reassessment proceedings will be

invalid on the ground of change of opinion. The ld. AR further placing

reliance on the decision of Hon’ble High Court of Delhi in the case of

Haryana Acrylic Manufacturing Co.[supra] submitted that notice after

four years u/s 148 of the Act and there is no indication in the reasons

recorded about failure on the part of the assessee to disclose fully and

truly all material facts for its assessment, then notice in such a

situation is not a valid notice. The ld. AR of the assessee again took us

through para 28 of the said decision of the Hon’ble High Court and

contended that since there was no failure to make the return, the

21 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 escapement of income cannot be attributed to such failure and when

the assessee had disclosed fully and truly all material facts necessary

for assessment then no action u/s 148 of the Act could have been

taken after four years period as per provisions of the Act.

Hon’ble High Court in the case of CIT Vs. Purolator India Ltd 343 ITR

155 para 10 to support this contention that there is no indication that

the assessee has failed or omitted to disclose the material and primary

facts, then reassessment proceedings beyond four years are not

permissible. The ld. Counsel placing reliance on the plethora of

decision including decision of Hon'ble Supreme Court in the case of

Indian and Eastern Newspaper Society Vs. CIT 119 ITR 996 [SC]

submitted that the opinion of internal audit party of the department

on a point of law cannot be regarded as an information within the

meaning of section 147(b) of the Act.

plethora of decisions including decision of Hon'ble Supreme Court in

the case of P.V.S. Beedies Pvt. Ltd 237 ITR 13 [SC] & decision in the

case of Ess Kay Engg. Com. (P) Ltd 247 ITR818 [sc] and Hon'ble High

Court of Madras in the case of First Leasing Co. of India Ltd 241 ITR 248

22 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 [Madras] and vehemently contended that after considering the ratio of

its own decision in the case of Indian and Eastern Newspaper Society

[supra], it was held that the audit report has to be construed as if

relevant provision of law had been brought to ITO’s notice, then the

said report constituted information within the meaning of section

147(b) of the Act. She also contended that when audit party had

merely pointed out a fact which had been overlooked by the AO, and

this was not a case of information on a question of law, then reopening

of case u/s 147(b) of the Act on the basis of factual information given

by the internal audit party was valid in law.

Supreme Court in the case of Maharaj Kumar Kamal Singh Vs. CIT 35

ITR 1 [SC] contended that the assessee has accepted assessment order

for A.Y 2003-04 dated 28.2.2006 and contended that subsequent orders

of Hon'ble Supreme Court, Hon'ble High Court, Tribunal and Revenue

authorities in assessee’s own case was information within the meaning

of section 34(1)(b) of the I.T. Act, 1922 which is a corresponding

section of section 147 of the Act and in the present case notice u/s 148

of the Act dated 30.10.2006 was issued after said assessment order

passed in assessee’s own case for AY 2003-04 which validly empower

the AO for reopening of assessment beyond four years. 22

23 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 25. On a careful consideration of the above contentions,

first of all, we may point out that all the decisions relied

upon by both the parties are pertaining to old provision of

section 147 of the Act which has been amended by the

Finance Act, 1987 w.e.f 1.4.1989. In the present case,

undisputedly and admittedly, the reopening and initiation of

reassessment proceedings has been proceeded after internal

audit report of the department and after assessment order

passed u/s 143(3) of the Act for AY 2003-04. But, from the

reasons recorded by the AO as reproduced hereinabove, there

is no mention of audit report and subsequent assessment

order and the AO has applied his own mind for stating

reasons for reopening of assessment and initiation of

proceedings u/s 147 of the Act and consequent to that notice

u/s 148 of the Act has been issued to the assessee.

adjudication to us is as to whether reopening of assessment

and reopening of assessment proceedings beyond four years

was validly initiated in the present case. The crux of the

contention of the ld. Counsel for the assessee is that the

assessee disclosed all material facts truly and fully during 23

24 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 the assessment proceedings by way of submitting audited

financial statement, tax audit report vide letter dated

February 2004, vide letter 15.3.2004 and copy of the opinion

dated 22.4.2002 on the issue of deprecation claimed on golf

course @ 25%. He further contended that on the issue of

income from Labunum Project, the assessee besides above

documents filed vide note No. VII in Schedule 21 of

significant accounting policy and on third issue of interest

expenditure, the assessee besides above documents, also

filed another letter in March 2004 furnishing detailed

background of interest paid and legal justification for

allowability of entire interest paid during A.Y. 2001-02. After

submitting above, the ld. AR vehemently pointed out that

there was no failure on the part of the assessee to disclose

fully and truly all material facts necessary for assessment.

Therefore, reopening of assessment and initiation of re

assessment proceedings and issuance of notice u/s 147/148 of

the Act was not valid. Thus, the same should be quashed.

as noted above and vehemently submitted that while the

assessee is not disclosing basis of depreciation charged and 24

25 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 claimed on golf course, not showing actual income from

Labunum Project and not placing proper and true details

about the interest charged, then it has to be held that the

income of the assessee had escaped assessment by the reason

of failure on the part of the assessee to disclose fully and

truly all material facts necessary for assessment.

point out that in the case of Som Dutt Builders Pvt. Ltd Vs.

DCIT, 98 ITD 78 [Kol] ITAT Kolkata Bench ‘C’ held that

reopening of a case by the AO on the basis of substantial

pointed out by the Revenue audit is permissible under law

and change of opinion comes to rescue of assessee only

where the AO has taken one of the permissible view at the

time of original proceedings and a wrong appreciation of

facts and law cannot be held as permissible view and that

can always be changed for proper appreciation of law and in

this situation, initiation of reassessment proceedings was

within the mandate of law.

26 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 29. In the present case, the AO considered material placed

on record by the assessee during original assessment

proceedings and accepted the claim of the assessee regarding

depreciation, interest paid during the relevant period and

accepted the income shown by the assessee from Labunum

Project relying on the details filed by the assessee.

by the counsels and reasons for reopening of assessment, it is

amply clear that the assessee did not classify the golf course

as per provisions of the Act as to whether it is part of

‘building’ or ‘plant and machinery’ and claimed depreciation

@ 25% which was allowed @ 10% only in A.Y. 2003-04 and

thus, in our considered opinion it can safely be presumed

that the assessee did not disclose all material facts fully and

truly for the claim of deprecation on golf course.

of the ld. CIT-DR that the assessee did not properly disclose

income from Labunum Project as per percentage completion

method because page No. 4 of the assessee’s paper book

reveals that entire sales was completed upto A.Y. 2001-02

27 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 and only there was a sale of Rs. 3,10,99,749/- in F.Y. 2001-

02 which is less than 2% of the total sales which resulted into

under statement of income from sale of apartments of Rs.

3.89 crores. From the assessee’s paper book page 89, note

on Labunum profitability it has been mentioned that profit

for the F.Y. 2000-01 has been arrived on the basis of

matching the revenue for the number of apartments sold in

the F.Y. with the corresponding cost of the apartment and to

support this factual contention, the assessee also enclosed a

statement on profitability from Labunum Project which

reveals that total sale value was of Rs. 174.99 crores whereas

the Revenue recognised from sales was 171.10 crores

resulting into understatement of sale receipts by Rs. 3.89

crores and this treat6metn given by the assessee was not in

accordance with the well accepted principles of percentage

of completion accounting method. Thus, these facts clearly

establish the mistake apparently showing that there was

failure on the part of the assessee to disclose all relevant

facts necessary for assessment truly and fully for the period

under assessment. Hence, the AO was well within his valid

jurisdiction while issuing notice u/s 148 of the Act beyond

28 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 four years for initiation of proceedings of reassessment u/s

147 of the Act.

settlement of interest in respect of loan advanced by M/s

Gilt Facilities P. Ltd, the amount of interest including Rs.

61,11,162/- was related to prior period and not for A.Y 2001-

proceedings available at pages 31 to 45 of assessee’s paper

book, it is amply clear that on 16.4.2001, Gilt Facilities

confirmed the calculation forwarded by the assessee that an

amount of Rs. 1,28,74,844/- was accepted as due from the

assessee to M/s Gilt Facilities P. Ltd as interest on surplus

money lying with the assessee. This calculation undisputedly

includes impugned amount which clearly shows that the

interest amount of Rs. 61.11 lakhs was not related to A.Y

2001-02. In our considered opinion, from the correspondence

copy of the agreement dated 16.8.1995 between the assessee

and M/s Gilt Facilities P. Ltd it is clear that an agreement

was entered with the said company and because there was a

delay on the part of the assessee company, therefore, as per

agreement, M/s Gilt Facilities P. Ltd vide letter dated 28

29 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 16.2.2001 demanded interest on unutilised amount @ 25% per

annum and the assessee vide reply dated 20.3.2001 informed

M/s Gilt Facilities P. Ltd that interest @ 16% per annum is

acceptable and finally vide letter date 31.3.2001, M/s Gilt

Facilities P. Ltd accepted the proposal of the assessee and

this liability stood crystallised during the period under

consideration. In view of above facts, it cannot be said that

the assessee did not disclose truly and fully all material facts

on the issue of interest claim. Therefore, on the third count,

action of the AO cannot be held as valid for assuming

jurisdiction to reopen the assessment and to issue the notice

u/s 147/148 of the Act. To sum up, as we have observed

earlier that the income of the assessee escaped assessment

due to the reason of failure on the part of the assessee in

disclosing fully and truly all material facts pertaining to

depreciation on golf course and on the issue of income from

sale of Labunum Project. Therefore, on these two counts,

action of the AO to initiate reassessment proceedings u/s 147

of the Act and issuing notice u/s 148 of the Act against the

assessee for A.Y 2001-02 beyond four years cannot be held as

invalid assumption of jurisdiction and finally part conclusion

30 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 of the ld. CIT(A) on legal contention and objection of the

assessee are upheld. Since facts and circumstances of the

A.Y 2003-04 on the issue of claim of depreciation on golf

course are similar to the A.Y 2001-02 and this fact was fairly

accepted by the ld. AR and thus our conclusion for A.Y 2001-

02 as noted above, would apply mutatis mutandis for A.Y

2003-04 also. Consequently, cross objection of the assessee

for both the years are jettisoned.

Revenue appeal ITA No. 3549/Del/2009 for A.Y 2001-02 and

4847/Del/2009 for A.Y 2003-04

general in nature. Remaining grounds for A.Y 2001-02 read

as under:

“2. On the facts and in the circumstances of ht case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 3,89 crores made by the AO on account of Rs. 3,89,33,267/- being the difference between the budget cost of the flats.

2.1 The ld. CIT(A) has not appreciated the fact that the assessee has debited 98% of the budget cost and only 90% sales have been charged in P & L account.

31 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 3. On the facts and in the circumstances of ht case and in law, the ld. CIT(A) has erred in treating prior period interest as expenditure of the year under consideration.

4.1 The ld. CIT(A) has erred in treating golf course as plant.

5.1 The CIT(A) erred in holding that neither sale nor transfer of possession was complete when the agreement to sale was executed on 17.3.2003.”

32 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 34. Grounds Nos. 1 and 4 of the Revenue are of general in

nature which require no adjudication. Remaining effective

grounds read as under:

“2. On the facts and in the circumstances of ht case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 8,12,14,136/- made by the AO on account of long term capital gain.

2.1 The CIT(A) erred in ignoring the fact that the AO has made the addition in accordance with the provisions of section 32 of the I.T. Act.

3.1 The CIT(A) ignored the fact that depreciation on Golf Course is to be allowed @ 10% as applicable for buildings under the provisions of Income tax Act, 1961.

Ground Nos. 2 and 2.1 for A.Y 2001-02

both the sides and carefully perused the relevant material on

record. The ld. CIT-DR contended that the AO rightly made

33 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 addition of Rs. 3.89 crores by holding that the actual cost

incurred by the assessee was reflected at Rs. 156.15 crores

which was stated to be incurred to the extent of 98% of the

budgeted total cost of the project and it was not known as to

how and in what manner the assessee considered 98% of the

total revenue at Rs. 171.10 crores as chargeable to the profit

and loss account against the profit actually incurred till

31.3.2001. The ld. DR vehemently contended that neither

any provision of balance amount of cost to be incurred nor

any justification of recognition from sale existed. Therefore,

the assessee suppressed in recognition of revenue from sale

value of project to the extent of 3.89 crores which was

rightly taxed in the hands of the assessee whereas the ld.

CIT(A) granted relief to the assessee without any justified

basis or reasons. Therefore, impugned order may be set

aside by restoring that of the AO.

conclusion of the ld. CIT(A) and submitted that the assessee

had recognised total revenue of rs 174.16 crores from

financial year 1998-99 to 2002-03 by following percentage

completion method and assessee’s accounting method is 33

34 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 consistent and regular. Therefore, first appellate authority

rightly held that there was no suppression in recognition of

revenue from Labunum project which has already been

offered for taxation in the succeeding year.

are recognised each period based on the construction

progress. She further elaborated that in this situation

construction cost and gross profit earned to date are

accumulated in the asset account and progress billing are

accumulated in a liability account. Therefore, the assessee

did not properly follow the percentage completion method in

letter and spirit. Therefore, there was suppression in

recognition of revenue from sale in the Labunum Project.

The ld. CIT-DR vehemently pointed out that the income

offered to tax in subsequent year cannot demolish the

allegation of suppression in recognition of revenue in the

earlier year under consideration.

the view that the ld. CIT-DR granted relief to the assessee

only on this basis that the assessee is regularly following

35 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 percentage completion method consistently from F.Y 1998-99

to 2002-03 regularly but he has not deliberated or

adjudicated contention of the AO that in what manner the

assessee considered 98% of the total revenue as chargeable

to profit and loss account against the cost actually incurred

till 31.3.2001. It is also pertinent to note that the AO has

clearly mentioned that no evidence of any further cost to be

incurred in the said project was filed and how the vested

cost was taken as bench mark for ascertained cost whereas

the entire project was admitted to have been sold and

consideration is to be received till 31.3.2001. From the

statement submitted by the assessee during the assessment

proceedings, available at page 5 and 6 we observe that the

assessee has recorded total sales value of Rs. 174.99 crores

whereas sales value has been recognised @ 98% of Rs. 171.10

crores and proportionate project cost of Rs. 156.15 crores

has been debited to Profit and loss account and in our

humble understanding, this calculation is not in accordance

with percentage of completion method. If assessee has

incurred some more cost in the subsequent A.Ys, but the

total sales value was received during the year under

36 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 consideration, then the sales value has to be recognise

accordingly. In view of the above, we are of the considered

opinion that the issue requires examination and verification

at the end of the AO according to the percentage of

completion method consistently and regularly followed by the

assessee and accepted by the department. Therefore, this

issue is restored to the file of the AO for a fresh adjudication

after affording due opportunity of being heard to the

assessee.

Ground No. 3 of the Revenue for A.Y 2001-02.

contended that the details filed by the assessee during the

course of assessment proceedings clearly showed that there

was meticulous working of year-wise interest and the interest

of Rs. 61.11 crores was not admissible in the current year as

it was prior period expenditure. Therefore, the AO rightly

added the same to the income of the assessee. The ld. CIT-

DR pointed out that the first appellate authority gave relief

to the assessee without any basis. Therefore, the impugned

order may be set aside by restoring that of the AO. The ld.

AR strongly supported the impugned order and submitted that

37 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 the ld. CIT(A) after considering all relevant facts and remand

report of the AO rightly held that the liability to pay the said

interest accrued and crystallised during the year only

therefore, the same was allowable in the year under

consideration. The ld. Counsel pointed out that the ld.

CIT(A) was right in granting relief to the assessee by placing

on the decision of the Hon’ble High Court of Delhi in the case

of Shri Ram Pistons Ltd reported at 220 CTR 404 [Del]. The

ld. AR also pointed out that the ld. CIT(A) rightly considered

this fact that the entire amount of 1.28 crore was paid to

Gilt Facilities P. Ltd Facilities after deducting TDS which was

also deposited on 17.5.2001 and the recipient Gilt Facilities

P. Ltd offered this amount to in its return of income in A.Y

2001-02 only.

the view that the ld. CIT(A) has elaborately discussed facts

and circumstances of the case at page 16 last operative para

wherein it was noted that the alleged interest amount relates

to prior period however, it was accrued and crystallised

during the financial period under consideration and entire

38 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 amount was paid to Gilt was parted after deduction of tax at

source and same amount was offered to tax by the recipient

Gilt Facilities P. Ltd. From the copies of the agreement

dated 16.8.1995 and correspondence between the assessee

and M/s Gilt Facilities P. Ltd, it is clear that the issue of

interest was raised and settled during F.Y. 2000-01 and the

assessee paid interest to M/s Gilt Facilities P. Ltd as per

computation agreed between them. However, from the copy

of the chart showing the calculation of total interest amount

paid by the assessee to M/s Gilt Facilities P. Ltd reveals that

the impugned amount was related to prior period but during

the prior period there was no occasion for the assessee to

claim the same as expenditure because this liability was

accrued and crystallised after long conversation and

correspondence with the Gilt Facilities P. Ltd as per

agreement dated 16.8.1995 and the assessee paid amount

after deduction of tax and the same was offered to tax by

the recipient Gilt Facilities P. Ltd during A.Y 2001-01. We

are unable to see any apparent mistake or ambiguity in the

appellate order on this issue and thus we have no reason to

39 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 interfere with the same. Consequently, Ground No. 3 of the

Revenue being devoid of merits stands dismissed.

Ground No 4 and 4.1 for A.Y 2001-02 and Ground No. 3 & 3.1

for A.Y 2003-04 of the Revenue.

the ld. CIT(A) has erred in allowing depreciation @ 25% on

golf course under the category of plant machinery as against

10% as allowable in the case of building which includes golf

course. The ld. CIT-DR pointed out that the ld. CIT(A) has

erred in treating the golf course as plant and machinery

whereas the same is includible as building for the purpose of

deprecation. As per provisions of the Act, the ld. CIT-DR

pointed out that as per decision of the of Hon'ble Supreme

Court in the case of CIT Vs. Anand Theatre 2424 ITR 192 [SC]

building in not a plant and machinery. Even if it is to be

construed as plant only that part of the building can be put

in the category of plant and machinery not the entire

building. The ld. CIT-DR pointed out that golf course is a

structure of building in which various sports facilities have

been provided to the members of the assessee company and

the assessee wrongly claimed depreciation on golf course as

40 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 plant and machinery @ 25%. The ld. CIT-DR pointed out that

the ld. CIT(A) misunderstood the ratio of decision of the

Hon'ble Supreme Court in the case of Anand Theatre [supra]

as in that case, it was held that all the buildings cannot be

considered as plant and machinery. However, some building

using the auditorium and furniture and fitting found therein

should be construed as a plant. The ld. DR vehemently

pointed out that there was no basis for the ld. CIT(A) to treat

the golf course as plant and machinery. Therefore, he was

not justified in deleting the addition.

ld. CIT(A) rightly held that benefit of ratio of decision of

Anand Theatre [supra] rendered by Hon'ble Supreme Court is

not available for the Revenue as present case is pertaining to

golf course and not a theatre. The ld. AR supported the

action of the ld. CIT(A).

we note that the ld. CIT(A) granted relief with following

observations and conclusion:

41 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 “ Rival contentions have carefully been considered After considering the rival submissions I find a substantial support in the contention of the Id. A.R. of the appellant. It is a fact that the Assessing Officer has misconceived the facts of the case to some extent. In fact, the appellant has not claimed depreciation (a). 25% on the concrete path, driveways, interconnecting roads constructing around play grounds in the Golf Court as recorded by the Assessing Officer in its assessment order. The Golf Course consist of the open land with so many levels which has been prepared as per technical requirement as required to play the game ‘Golf. It includes expenses towards creating water tank, bunkers, fair ways, turf, rubs, grounds, installing proper erection system. landscaping etc.. Golf Course is a specialized superstructure on the land with various levels of undulation, holes, small ponds etc. as a specialized professional requirement for playing the Golf on the piece of land Therefore, cost of creating such technical requirement will certainly make the field of Golf Course as a ‘plant’ only. Although the various courts citations relied upon by the Id. A.R. of the appellant are not directly applicable to the facts of the case but there is an oblique reference for considering the Golf Course as a ‘plant’ only. As far as the reliance placed by the Assessing Officer in the decision of Hon’ble Supreme Court in the case of CIT vs. Anand Theater is concerned. I find that same is not applicable to the facts of the instant case at all. In that case it was clarified by the Hon’ble Supreme Court that all the buildings can not be considered as a ‘plant’. However, some buildings using the auditorium and furniture & fittings found

42 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 therein should be construed in a plant. In the case of the appellant, none of the building or any asset in the nature of building has been considered as ‘plant’. It is only a piece of land which has been prepared by putting several expenditures on various accounts to prepare it as per the technical requirements to play the game of Golf. In that context, it has also been noticed that the business of the appellant is to invite the players for playing the Golf and charging the fees for that. Therefore, the field so prepared was a business operated used by the appellant for carrying on its business of playing the Golf. In view of these facts and circumstances. I allow appellant’s claim of depreciation (a), 25% and direct the Assessing Officer to delete the addition made by him on ant of disallowance of the depreciation on the Golf Course.”

first part of the this para noted that golf course is a

specialised superstructure on the land with various level

undulation, holes, small points etc. as a specialised

profession requirement for playing golf on the piece of land.

Therefore cost of creating such technical requirement will

certainly make the field of golf course as a plant.

43 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 45. In the second part of above operative para, the ld.

CIT(A) held that the ratio of the decision of Hon'ble Supreme

Court in the case of CIT Vs. Anand Theatre is not applicable

and then jump to a conclusion that the business of the

assessee is to invite players for playing the golf and charging

the fee for that and thus the field so prepared was a business

operated used by the assessee for carrying on its business of

playing golf. In the last lines, without specifically pointing

out as to whether the golf course that is a piece of land with

many levels of undulation, holes, small ponds etc can be

categorised as a plant and machinery and not as a building.

The ld. CIT(A) jumped to a conclusion that the assessee’s

claim of depreciation @ 25% is allowed which is not a proper

and justified approach for a quasi-judicial authority. We

may point out that golf course has not been categorised in

the schedule of depreciation and the main dispute between

the assessee and the revenue is that the assessee is seeking

to place the golf course in the category of plant and

machinery whereas the Revenue wants to treat the same as

building.

44 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 46. At this juncture, we may point out that we are not in

agreement with the conclusion drawn by the ld. CIT(A) that a

piece of land having some landscaping for playing golf such

as various level undulation, holes, small ponds etc construed

a super structure which can be categorised as a plant and

machinery. If this view is accepted then every landscaping

having some special features for the purpose of its intended

use would become plant and machinery and every

construction of building for the purpose of sports would be

converted into plant and machinery. It is pertinent to note

that for creation of golf course, landscaping is done for in

various levels and some holes, ponds and walking path is

created but in our humble understanding this kind of piece of

land converted into a golf course by creating some

specialised facilities for playing golf cannot be put in the

category of plant and machinery.

ld. CIT(A) granted relief to the assessee without any basis

and without arriving to a conclusion as to whether golf

course is a plant and machinery or building. Therefore,

conclusion of the ld. CIT(A) is not sustainable as we are 44

45 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 unable to see any basis for the factual observations noted by

the ld. CIT(A) for putting the golf course in the category of

plant. Since the issue has not been adjudicated by the ld.

CIT(A) in a proper manner, therefore, this issue is restored

to the file of the AO for a fresh adjudication after affording

due opportunity of being heard to the assessee and without

being prejudiced from earlier orders and our observations in

this order.

AO, the ld. CIT-DR has placed reliance on plethora of

decisions including the decision of Hon'ble Supreme Court in

the case of CIT Vs. Anand Theatre [supra], CIT Vs. Gwalior

Rayon Silk Mfg. Mills 196 ITR 149 [SC] and decision of Hon’ble

High Court of Delhi in the case of Moradabad Toll Road Co.

Vs. ACIT [2014] 52 Taxmann.com 21 [Delhi] to establish that

golf course is not a plant and machinery and it is to be

categorised as a building and on the other hand, the ld. AR

has placed reliance on the case of decision of Hon'ble

Supreme Court in the case of CIT Vs. Karnataka Power

Corpn. 247 ITR 268 [SC], Scientific Engineering House P. Ltd

Vs. CIT 157 ITR 86 [SC] and decision in the case of Victory 45

46 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 Aqua Farm Ltd 61 Taxmann.com 166 [SC] and plethora of

decision to support the case of the assessee that golf course

is a plant and machinery and it is not a building.

Interestingly, no cited decision relied by both the parties are

related to golf course. Therefore, facts regarding this issue

have to be dealt in respect to golf course of 300 acres land

and how it became plant and machinery attracting 25%

depreciation. The AO has to examine these details to

ascertain the issue between the parties as stated above. We

also note that the assessee in its written submissions before

the authorities below as well as before the Tribunal has

submitted the details of construction on the 300 acres of

land converting it into a golf course, but these details have

not been submitted before the AO and the AO could not get

an opportunity to verify and examine the same. Therefore,

in our considered opinion, this issue requires detailed

verification and examination at the end of the AO after

affording due opportunity of hearing to the assessee and

without being prejudiced from the earlier assessment and

first appellate order. Needless to say that the AO would

examine all material facts on this issue and

47 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 after considering the mandate of the relevant provisions o of

the Act as well as the ratio of decisions relied upon by both

the parties shall decide the issue afresh in accordance with

law. Consequently, Ground No 4 and 4.1 for A.Y 2001-02 and

Ground No. 3 & 3.1 for A.Y 2003-04 of the Revenue are

allowed for statistical purposes by restoring the same to the

file of the AO.

Ground No 5 and 5.1 for A.Y 2001-02 and Ground No. 2 & 2.1

for A.Y 2003-04 of the Revenue.

supported the action of the AO and submitted that as per the

agreement to sale executed between the company and ITC

Ltd. in F.Y. 2000-01, 22.69 acres of land was sold to ITC Ltd.

for a consideration of Rs. 45 crores and assessee company

received entire consideration under this agreement during

A.Y 2001-02. The ld. DR further contended that the assessee

company had unconditionally and irrevocably transferred all

its rights and interest of ownership in the subject property in

favour of ITC Ltd. to the exclusion of others in the year of

agreement to sale only. Therefore, the transaction was

completed within A.Y 2001-02 and merely because for want

48 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 of some government approval if sale deed could not be

executed in favour of ITC Ltd, then also income accrued

therefrom was to be taxed as long term capital gain in the

hands of the assessee. The ld. CIT-DR also pointed out that

the ITC Ltd used the land as a possession and title holder and

also obtained loan by mortgaging the land. Therefore, the

AO was quite correct and justified in calculating long term

capital gain and taxing the same in the hands of the

assessee. The ld. DR vehemently contended that the ld.

CIT(A) granted relief to the assessee without any basis.

Therefore, impugned order may be set aside by restoring that

of the AO.

the first appellate order and also took us through the

relevant operative part of the ld. CIT(A) from pages 25 to 51.

The ld. AR pointed out that notional income cannot be

charged to tax especially when the transaction of sale of land

was not completed during the period under consideration and

the same was cancelled in subsequent F.Y 2009-10. Since the

agreement stands cancelled and entire amount stood

refunded to the assessee in F.Y. 2009-10. The ld. AR also 48

49 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 contended that the AO misunderstood the facts and held that

ITC Ltd obtained loan by mortgaging the land to various

banks and this mistake was corrected by the AO by filing

remand report to ld. CIT(A) wherein he fairly accepted that

the documentary evidence in support of averment of the

assessee that the assessee and the ITC Ltd, had actually

mortgaged the land to various banks and financial institutions

has been found to be correct. On this issue no other

argument was placed by the parties.

perusal of the assessment order, first appellate order and all

relevant material placed on record, we are of the considered

view that in order to tax capital gain u/s 45 of the Act, there

must be transfer of land or any other movable or immovable

property as defined in section 2(47) of the Act. In the

present case, the ld. CIT-DR could not controvert this fact

that neither the sale deed was executed nor possession of

the land was handed over to ITC Ltd and the land in question

continues to be in complete control of the assessee. We are

in agreement with the conclusion of the ld. CIT(A) that mere

50 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 receipt of entire sale consideration as an advance does not

make the agreement as effective transfer as defined in

section 2(47) of the Act. The ld. CIT-DR could not controvert

this fact that the assessee is regularly showing advance

amount as advance in its financial statements as the required

permission from DTCP could not be obtained to execute sale

deed in favour of the assessee to complete aforesaid

transaction. So far as the allegation of the AO regarding

mortgage by ITC Ltd is concerned, this fact was demolished

by the AO himself in the remand report filed to the ld. CIT(A)

during first appellate proceedings wherein it was stated that

the funds, in fact, were raised by the assessee and not by ITC

by mortgaging the land. From the record, it is apparent that

the assessee continuous to possess the land physically and it

could not be transferred to ITC Ltd till a valid permission is

received from DTCP. From the documentary evidence filed

by the assessee before the authorities below it is clear that

the land in question owned by the assessee is situated within

controlled area and same is governed by the provisions of

Punjab Scheduled Road and Controlled Areas Restrictions of

Unregulated Development Act, 1963 and Rules made

51 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 thereunder. In this situation, the assessee was prohibited

from doing any commercial activity on the land without

approval of DTCP and the assessee was legally prohibited

from parting with the possession and title of the land to ITC

or any other entity. In view of above noted facts, the ld.

CIT(A) was right in drawing conclusion that there was neither

sale of land nor transfer of possession as per clause (i) to (v)

of section 2(47) of the Act pertaining to sale of immovable

property and he rightly concluded that these provisions

covers a situation where registration of sale deed has been

completed. As per clause (v) of section 2(47), any

transaction involving the allowing of possession of any

immovable property to be taken or retained in part

performance of a contract of the nature referred to in

section 53A of the Transfer of Property Act, 1882, but in the

present case, the AO could not controvert this fact that the

possession of the land in question was not transferred to the

assessee and thus applicability of clause (v) of section 2(47)

of the Act as part performance of contract cannot be

inferred. On the basis of above discussion, we are unable to

see any perversity, ambiguity or any other valid reason to

52 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 interfere with the impugned order on this issue and thus we

uphold the same. Since facts and circumstances of A.Y 2003-

04 on this issue are similar to A.Y 2001-02, therefore, our

conclusion for A.Y 2001-02 would apply mutatis mutandis to

A.Y 2003-04 also. Consequently Ground Nos 5 and 5.1 for A.Y

2001-02 and Ground Nos. 2 & 2.1 for A.Y 2003-04 of the

Revenue are dismissed.

assessee for both the years are dismissed and appeal of the

Revenue on two issues are partly allowed for statistical

purposes, for both the years, in the manner as indicated

above.

The order is pronounced in the open court on 15.06.2016.

Sd/- Sd/-

(L.P. SAHU) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 15th June, 2016

VL/

53 ITA No. 3549 & 4847/Del/2009 CO No. 328/Del/2009 & 111/2010 Copy forwarded to: