RSG PROPERTIES PRIVATE LIMITED,PATIALA vs. PCIT, PATIALA

That the Ld. PCIT Patiala has erred in considering the order passed by the AO as erroneous as well as prejudicial to the interest of the Revenue.

That the Ld. PCIT Patiala has erred in passing the order u/s 263(1) of the Income Tax Act on the ground that assessment order was passed without making inquiries or verification whereas the order was passed after making full inquiries and with due application of mind.

Against the said findings and directions of the Ld. PCIT, the assessee is in appeal before us.

During the hearing, the ld AR submitted that during the course of assessment proceedings, all the documents as required by the AO were duly submitted namely Balance Sheet, P&L Account, details of Opening Stock and Closing Stock project wise, trading account etc. It was submitted that the complete details of development expenditure was submitted alongwith documentary evidence and reference was drawn to the assessee’s paper book as well as the notice dt. 03/07/2019 issued by the AO wherein he had specifically asked regarding the development expenditure, nature of business expenditure and change in inventory stock. It was submitted that all the necessary details were duly submitted during the course of assessment proceedings and therefore the matter has been duly examined by the AO during the course of assessment proceedings. 5.1 It was further submitted that from the perusal of the project wise trading account, it would reveal that the assessee had developed the land measuring 5950 Sq. Yards out of total land purchased measuring 7600 Sq. Yards and had incurred the development expenditure thereon amounting to Rs. 42,85,780/-. It was submitted that the land so developed was subsequently sold by the assessee company and the resultant sale proceeds have been duly reflected in the trading account. It was further submitted that the remaining land measuring 1649 Sq. Yards remained vacant wherein there was no development activity carried out during the year, hence the said land was valued at cost prices i.e; Rs. 1354/- per Sq. Yards which amounts to Rs. 22,33,142/- which has been shown by the assessee company as part of his closing stock. It was accordingly submitted that since no development activity was carried out on the remaining left over land measuring 1649 Sq. Yards, the land has to be taken at cost price and which has been rightly taken by the assessee while preparing its trading account which has been duly considered and examined by the AO. It was accordingly submitted that the matter relating to the development expenditure and the valuation of the closing stock has been duly examined by the AO. Therefore there is no basis for the Ld. PCIT to set aside the order so passed by the AO which has been passed after due application of mind. 5.2 It was further submitted that the Ld. PCIT has not carried out any further inquiry or verification and therefore the order so passed by the AO cannot be held to be erroneous as well as prejudicial to the interest of the Revenue and in support reliance was placed on various authorities on the subject.

Per contra, the Ld. CIT DR relied on the impugned order passed by the Ld. PCIT. It was submitted that during the course of assessment proceedings, the assessee had submitted before the AO that “the development expenditures were mainly on account of earth filling and lying of roads. No contractor was involved in the development. The vouchers regarding development expenditure are available for your inspection." It was submitted that the submissions of the assessee made during the assessment proceedings reveal that during the FY 2016-17, total development expenses incurred were Rs.73,86,680/- out of which development expenses to the tune of Rs.42,85,7807-were incurred at village Chaura land stock. But nowhere during the assessment proceedings, the assessee had specifically brought on record that the entire development expenses of Rs.42,85,7807- in respect of its land stock situated at village Chaura were incurred on 5950.91 sq.yards sold during the year under consideration (out of total 7600 sq.yards of land stock situated at village Chaura). Also, there is nothing on record which justifies the assessee's contention that the balance land stock of 1649.09 sq.yards was not developed during the FY 2016-17. It was submitted that the proportionate amount of development expenses of Rs.9,29,716 were required to be added back to the closing stock of assessee's land stock situated at village Chaura and the closing stock of the said land should have been taken at Rs.31,62,858/- in place of Rs.22,33,142/-. Thus, while passing the assessment order in this case for the A.Y.2017-18, the AO had not verified the aforesaid facts and has accepted the submissions of the assessee on face value without any verification. It was accordingly submitted that under the aforesaid circumstances, the order of the A.O. was rightly held as erroneous as the AO did not enquire/verify about the complete details/facts and documentary evidences and being taken less closing stock of land which has affected resultant profit thus being prejudicial to the interest of the Revenue.

We have heard the rival contentions and purused the material available on record. We find that as far as nature and quantum of development expenditure and claim thereof by the assessee while filing its return of income, the same has been examined by the Assessing officer as evident from the show- cause, the submissions and the contents of the assessment order where the AO has disallowed part of the development expenditure.

The issue which has been raised by the ld PCIT relates to valuation of the closing stock of land situated at Village Chaura. As far as valuation of closing stock is concerned, we find that there is no material on record which suggests that the matter has been enquired into or examined by the AO. There are no queries which have been raised by the AO and there are no submissions which could be said to have been filed in this regard. Further, how the closing stock has been valued and more so, the treatment of development expenditure vis-à- vis the closing stock is not apparent from the perusal of the trading account. There is no material on record which suggests that there has been part development in relation to land sold and in relation to remaining unsold land stock, there has been no development and even going by the nature of the development expenditure which is land filing and laying of roads, it seems odd that the developer will carry out land filing and laying of roads as and when the land is sold or proposed to be sold and not prior to selling the land. We