M/S M/S PINK CITY APARTMENTS PVT. LTD.,KOLKATA vs. CIT-I, KOLKATA, KOLKATA

This appeal by assessee is arising out of revision order of CIT-1, Kolkata vide M. No. CIT,Kol-1,Kol/263/2013-14/10945-47 dated 31.03.2014. Assessment was framed by ITO, Wd- 2(1), Kolkata u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2009-10 vide his order dated 26.12.2011.

The only issue in this appeal of assessee is against the order of CIT revising the assessment framed u/s. 143(3) of the Act dated 26.12.2011 u/s. 263 of the Act.

Briefly stated facts are that the assessee is a promoter developer. The assessee produced complete books of account along with the supporting vouchers i.e. purchase and sale vouchers and also stock registers, sales register along with details and documents explaining the returns of income. Original assessment was completed u/s. 143(3) of the Act for relevant AY 2009-10. The CIT(A) after perusing and examining the assessment records issued show cause notice for revising the assessment u/s. 263 of the Act dated 04.03.2014. The relevant show cause notice as reproduced in the order of CIT reads as under: “The assessee company is a developer of commercial building in Jaipur. The profit as per P&L A/c. consisted of profit on sale of shops and office spaces, rent and other income. During the year the gross profit from sale of shops/office space is only Rs. 10,07,803/- on sale of Rs. 5,48, 40, 000/- for which stock consumed of Rs.5,38,32, 197/- has been debited. The % of gross profit on it is only Rs.1.87% on cost, which is much lower than 3.81 % shown last year, as the sale during that year was Rs.8,86,,66,970/- and stock consumed for that year was Rs.8,54,12,704/-. The reasons for such low profit in development and sale of commercial property during this year has not been enquired into. It is also apparent from the quantitative details given in tax audit report vis-a-vis the closing stock details and the details of sales filed that out of 96 no. offices CM, 39 no. were sold during the year leaving behind 57 no. in closing stock which has been valued at Rs. 5,54, 00, 000/-. On such average cost, the cost of 39 units sold during the year works out to Rs.3,79,05,260/-. The cost of one flat which was in opening stock and sold during the year is Rs.27, 00, 000/-. There was no other sales. Therefore, the cost of stock consumed should have been Rs. 4, 06, 05, 263/-, but the assessee has debited Rs. 5,38,32,197/- as stock consumed. There may be different sizes of office spaces. But the details and particulars, including area/location etc., of office spaces sold or remaining in stock have not been obtained or examined. Such details and break up of 39 no. of office spaces remaining in closing stock are also not on record. Thus this important aspect has not been enquired into/investigated at all, particularly when the profit disclosed on development of commercial property is very low compared to the last year. The reasons for lower profit have not been enquired into either. There is no discussion on this issue. Moreover, as per copies of ledger a/cs. on record , there were cash credits totaling Rs.29.49 lakh in the name of Rameshwar Lal Goel on different dates, Rs.6.50 lakh in the name of Madanlal Kachlimal, HUF on 23.6.08, and Rs.2 lakh in the name of Malchand Pareek on 7.11.2008 in respect of cash received from them during the year. There are no narrations except 'cash received'. No details of documents in this respect are on record. Thus, the nature and sources of these cash credits have not been examined or considered.”

From the above show cause notice it is clear that the CIT was of the view that the order of AO is to be revised u/s 263 of the Act in respect to two aspects i.e. the AO has not made proper enquiry/investigation in respect to sale consideration of shops/offices and their sizes. Secondly, the cash credit totaling to Rs.24.49 lakhs in the names of Rameshwar Lal Goel, Madanlal Kachlimal, HUF and Malchand Pareek were not examined and no details were filed by the assessee. But the assessee before the CIT filed complete details which were filed before the AO during the course of original assessment proceedings i.e. the details of sales effected sq. ft. wise and date wise along with copy of sale agreements, bills and vouchers for consumption of raw material, details of cash credits and rent agreements and shareholding pattern etc. vide letter dated 25.03.2014. These details were never examined by the CIT vis-à-vis the assessment record it is apparent from the revision order passed by CIT wherein he has noted the following fact as under: “Further details of sales effected- sq.ft. & date wise, copy of sale agreements, bills & vouchers for consumption of materials, cash credits, rent agreements and shareholding etc. were called for Mr. O. P. Baid attended on 28.3.14 and filed letter dt. 25.3.14 which contained details of work in progress details in terms of sq.ft., bills & vouchers of additional cost, rent agreements, details 'of advances received against agreement, and shareholding details were submitted.”

We have heard rival submissions and gone through facts and circumstances of the case. Before us, ld. Counsel for the assessee stated that complete details in respect to sales effected of shops and offices including other details like sale agreements, bills and vouchers for consumption of material, cash credit details, rent agreements and shareholding pattern of the assessee company was completely filed which are available in the assessment records. The AO has framed assessment after examining all the details and Ld. Counsel for the assessee drew our attention to very first page of the assessment order that at least twenty hearings took place to examine these details and the assessment order is running into six pages discussing each and every fact. Even the advances and loans are also examined by the AO during the course of assessment proceedings. He drew our attention to the assessment order and the details filed before us in its paper book. Ld. Counsel for the assessee has filed complete details before the AO as is evident from the paper book filed before us. In term of the above, we are of the view that the CIT(A) has only invoked the provisions of section 263 of the Act for revision of assessment framed by AO u/s. 263 of the Act just to verify the details and according to CIT, these are not properly verified. It is not clear whether the CIT has part set aside the assessment order or limited set aside the order or complete set aside. From para 13 of CIT’s order the facts are not coming out whether the assessment framed by AO is erroneous and also prejudicial to the interest of revenue because the CIT is completely silent on this aspect. In any eventuality, the inadequate enquiry carried out by AO for framing assessment u/s. 143(3) of the Act cannot be subject matter of revision u/s. 263 of the Act as it is the opinion of the AO which will prevail in the assessment matters. For revising the assessment u/s. 263 of the Act, the CIT has to show that the order of the AO is erroneous as well as prejudicial to the interest of revenue, which is absent in the revision order passed by CIT u/s. 263 of the Act. In term of the above, we have no hesitation in quashing the revision order passed by CIT u/s. 263 of the Act. The appeal of assessee is allowed. 6. In the result, appeal of assessee is allowed. Order pronounced in the open court on 02.03.2016