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Income Tax Appellate Tribunal, DELHI ‘B’ BENCH,
Before: SHRI N.K. BILLAIYA, & MS ASTHA CHANDRA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
This appeal by the assessee is preferred against the order of the ld. CIT(A) - 3, New Delhi dated 11.02.2020 pertaining to A.Y. 2011-12.
2. The grievances of the assessee read as under:
“1. That having regard to the facts and circumstances of the case, the Hon’ble Commissioner of Income Tax (Appeals) has erred in law and on facts in dismissing the appeal of the assessee company wholly on untenable grounds.
2. That on facts and in the circumstances of the case and in law the CIT(A) was not justified in upholding validity of notice u/s 148 even though same was issued without recording proper reasons in terms of provisions of section 147 of the Act.
3. That on the facts and in the circumstances of the case and in law the CIT(A) has erred in confirming the action of the Assessing Officer in completing the re-assessment proceedings u/s 143(3)/147 of the Act, without disposing of the objections of the assessee to the reason recorded u/s 147 of the Act, by a speaking order, which is completely in disregarded to the direction of the Hon’ble Supreme Court in GKN Driveshafts (India) Limited vs. Income Tax Officer (2002) 259 ITR 10 (SC).
4. That on the facts and in the circumstances of the case, the Hon’ble Commissioner of Income Tax (Appeals) has erred in law in confirming the disallowance made by the Assessing Officer on account of provision of Expected Loss of Rs. 13,68,30,422/-.
5. That the appellant craves leave to add, alter, amend, change, vary substitute or raise any additional ground of appeal if it come necessary to do so in the interest of justice at the time of hearing.”
3. Vide letter dated 06.12.2023, the assessee sought permission to raise the following additional ground of appeal:
“However, for specific emphasis, the appellant before Hon’ble ITAT has raised definite legal grounds (Ground No. 2.1 to 2.3) challenging the assumption of jurisdiction u/s 147 and validity of the assessment order so passed.
The Ground No.2.1 to 2.3 are purely of legal nature and arise from assessment order which is subject matter of appeal and no new fact or evidence is required in relation to these grounds and accordingly the legal grounds so raised even if considered as additional ground may kindly be admitted in the interest of justice and in accordance with principle laid down by Supreme Court in the case of NTPC Ltd. 229 ITR 363.”
4. With this, the assessee challenges the assumption of jurisdiction u/s 147 of the Act and validity of the assessment order so passed.
Briefly stated, the facts of the case are that the assessee is engaged in the business of real estate development. Assessment u/s 143(3) r.w.s 143(3) of the Income-tax Act, 1961 [the Act, for short] was completed vide order dated 26.03.2014. Subsequently, a notice u/s 148 of the Act dated 31.03.2018 was issued by the ACIT, Circle -7(1), New Delhi, pursuant to which the assessee filed its return of income declaring loss of Rs. 3,54,54,299/-. Statutory notices were, accordingly, issued and served upon the assessee.
6. Reasons recorded for reopening the assessment read as under:
“Reasons for Initiating Proceedings u/s 147 in the case of M/s DLF New Gurgaon Home Developers Private Limited for the A.Y 2011-12 The assessee had filed its original E-Return of income on 28.09.2011 and subsequently filed revised return on 02.04.2012 declaring a loss of Rs 3,54,54,299/-. The case of the assessee was selected for scrutiny assessment under CASS and further notice u/s 143(2) was issued on 03.08.2012 Assessment in this case u/s 143(3) was completed on 26.03.2014 after accepting returned income of the assessee.
On perusal of the assessment record it has been observed that the assessee had made a provision of Rs. 13,68,30,422/- on account of provision of expected loss and debited the same in the Profit and Loss Account.
In this regard the Provision of section 145(2) states that provision made in the accounts for an accrued or known liability is an admissible deduction while other provisions do not qualify for deduction under the Act.
In this case the provision made by the assessee was not an ascertained liability the same should have been disallowed and added back to the income of the assessee within the meaning of provision of section 145(2) of the Income Tax Act, 1961 In view of the above, I have reason to believe that the income of Rs. 13,68,30,422/- has escaped assessment as defined by section 147 of the Act for assessment year 2011-12. The income chargeable to tax has escaped assessment for this year by the reason of the failure on the part of the assessee to disclose fully and truly all material facts. Therefore, it is a fit case for the issuance of notice u/s 148 of the Act for the Financial Year 2010-11 relevant to assessment year 2011-12. Since more than four years have passed from the end of the relevant assessment year, sanction of Pr. CIT-3, New Delhi is solicited u/s 151 (2) for issuing notice u/s 148.”
7. Since the reopening is done after 4 years from the end of the relevant A.Y, 1st proviso to section 147 applies.
8. During the course of original assessment proceedings, a detailed questionnaire dated 12.07.2023 was issued which reads as under:
“With reference to the assessment proceedings for the above said Assessment Year, you are required to furnish/produce the following information/documents on the date fixed for hearing:
1. Please furnish a complete attested copy of Digital-return filed by you for A.Y. 2011-12 on Internet alongwith financial statements i.e. profit & loss account, balance sheet, computation of income for the year ending 31.03.2011.
2. Please furnish copies of Certificate of Incorporation, Memorandum of Association & Articles of Association;.
3. Please furnish a detailed note on nature of business activities with past history & business process, details of income and asstt. of last 3 years. Copy of last order passed u/s 143(3) of the Act. may also be furnished.
4. Details/telephone numbers of all business premises including Regd. Office, Head Office, Corporate office, and all its branch/sales offices, godowns and factories.
5. Details of all Directors and Company Secretary of the company with their residential addresses, asstt. particulars and PAN, Copies of their returns of income filed for the year under asstt. their total shareholdings in the company and their bank account particulars.
Furnish a list of Key Management Personnel (KMP) as described in AS-18. Those persons who have authority enterprises. The list should be in the below mentioned format:
___________________________________________________________ Sl. Name & residential Designation Nature of Details of all the entities No address of (KMP) duties in which Director, Member, Copartner etc ___________________________________________________________ 1. 2. 3 4 5 ___________________________________________________________
Furnish the list of firms/companies/HUF or proprietary concern in which the Directors/share holders of your company have any interest /shareholding/association.
Complete details (a/c no, bank name & branch) of all bank accounts/FDRs being maintained/held by the company with bank reconciliation statements. Please also give copies of Bank A/c statements with detailed narration of all bank accounts maintained during the year.
9. Details of Additions made to and Sale of fixed assets with copies of bills/evidence of transactions above Rs.1 lac. The exact date of putting these assets for the business purpose be also explained.
10. Brief details of tax assessments for last four years with status of any appeals pending before appellate authorities in the following format: ___________________________________________________________ A.Y. Returned Assessed Income after order Income after order Issue Income income of CIT(A) of ITAT involved ___________________________________________________________
11. Please give names & addresses, amounts of sale/purchases/expenses of parties with whom transactions worth more than Rs. 10 lacs have been done.
Furnish item-wise and party-wise details of purchases made during the year of Rs. 10 lacs with complete current postal address and their PAN/Assessment particulars and current landline phone number. Please further state whether purchases/sale have been made though crossed cheque or by cash. If both the mode of payment of purchases/sale were made, please give bifurcation about the cash purchases and purchases made through cheque/DD.
12. (a) Quantitative/ Value-wise tally (Item wise) of opening stock/ inventory and closing stock/ inventory in the following format along with brief note and also explain whether provisions of section 145A have been followed or not? If so the impact of such adjustments to the profits of the business.
___________________________________________________________ Name of the Opening Stock Purchase Sales Closing Stock Item ___________________________________________________________ Qty/Value Qty/Value Qty/ Value Qty/ Value ___________________________________________________________ (b) Please give separate details of work in progress & basis of its valuation.
13. Please give complete details and evidence of income received from Dividends.
14. Please give complete details of rental income earned during the year along with details of premises let out, tenants and copies of TDS certificates issued by the tenant.
15. Names/Addresses./Amounts of all Sundry Creditors/Advances from Customers and Sundry Debtors exceeding Rs. 1 lac.
16. Details & Copies of accounts of Other Liabilities as shown in the Balance Sheet and necessary evidence in support of the payments thereof.
17. Details & Copies of accounts of Expenses payable as shown in the Balance Sheet and necessary evidence in support of the payments of liabilities subject to provisions of Section 43 B.
Details of Unsecured/Secured/Squared-up loans with names/ addresses/where assessed/PAN no. along with confirmations/ statements of accounts. Please also give a chart of Unsecured Loans containing details regarding opening balance, amounts received, repaid, Interest, Rate of Interest and closing balance. Complete details of transactions made in contravention to section 26955 and 269T of the IT Act, 1961. Furnish the following evidence of unsecured loan taken fresh and repayment of loan made during the year:
i) Furnish the copy of account of all persons from whom unsecured loan was obtained or to whom the repayment of loan was made, as appearing in the books of account along with complete current address of the lender with their phone numbers, PAN and copy of ITR alongwith computation of income. ii) Furnish the mode of receipt of loan from persons or mode of repayment of loan to persons alongwith copy of bank statements of the sundry creditors.
19. Complete details and justification of payments made u/s 40A(2)(b).
Please furnish copies of accounts of the Directors of the Company/others specified u/s 40A(2)(b) in company's books of accounts.
(a) Details of Share Capital/Share Application Money/Share Premium received during the year with names/addresses/proofs of identity/Ward-Circle/ PAN no./confirmations of subscribers.
(b) Details of Share Application money introduced during the year with names/addresses/proofs of identity/Ward-Circle/ PAN no./confirmations of subscribers. Give a chart of opening balance of share application money, received during the year, paid back during the year and closing balance.
(i) Details of subscribed and paid-up share capital in the following format: ___________________________________________________________ S. No. Name & Address of No. of shares Value of PAN & Designation of Shareholder held Shares Assessing Officer Where presently assessed to tax ___________________________________________________________ (ii) Share confirmation letters in respect of shares allotted/applied for but pending allotment, during the period 01.04.2010 to 31.03.2011 in duplicate. The share confirmation statements should be complete in all respects and should indicate interalia mode of payment, cheque No, date and bank on which drawn, PAN, designation of the Assessing Officer with whom presently assessed to tax and the complete postal address of the Shareholder.
(ii) Treatment of share issue expenses, If any, in the books of account ie. whether it is treated as capital or revenue expenditure. If such expenses are treated as revenue expenses, show cause why the same should not be treated as capital expenditure.
Give a chart of investments showing opening balances, fresh Investments during the year, investments sold during the year, closing balances and profit/loss thereon. In case of shares, please give number of shares and price of each share.
Please give complete details of expenses exceeding Rs.10 lacs and Rs.1 lacs for single transaction along with reasons for increase over last year. Furnish the details of rents paid along with copy of rent agreement if any? Also state whether the payment of rent was made to the person related directly or indirectly to any of the director(s) or not. Traveling & Conveyance expenses have been claimed. Please furnish the bifurcation expenditure incurred on inland & abroad traveling. Also state who visited the abroad and how much expenditure has been incurred on the visit(s), with purpose of visit. Details of payments made in cash in violation of section 40A(3).
Please give a complete chart of Loans & Advances; given showing opening balances, given during the year, received back during the year, interest accrued, TDS deducted and closing balances. Please furnish the name and address of persons to whom the advances were made and to justify that the loans and advances have been made for the purposes of business activities only. Also explain whether any interest has been charged on the advance. If no interest has been charged, please explain as to why the proportionate interest should not be disallowed out of the finance charges paid.
Please furnish the details of TDS on the various payment made by you during the year. In case of failure to deduction of tax at source or short deduction of tax at source, you are hereby required to show cause as to why the expenditure to the extent of non-deduction of tax source should not be disallowed out of the payments made under various head of expenditure.
Furnish detail of making TDS during the previous year as under:
___________________________________________________________ Section Amount on Amount on TDS amount Date of paying which TDS which no TDS corresponding made TDS ___________________________________________________________ 1 2 3 4 5 ___________________________________________________________ 192 194-A 194-I 194-C 194-H 194-K 195
Please give details of Income, if any, from Loans & Advances.
Please give details of Employees & share, Employer share, dates of deposit & dates of realisation of cheques of PF & ESI for all months.
Copies of D-Mat account maintained by the company for the relevant previous year.
A detailed note on gross profit and net profit ratios of last three years along with detailed reasons for change be furnished.
Resolution for remuneration to directors.
Details of immovable properties with complete address including the properties purchased during the year alongwith sources of investment thereof.
Details of other income credited to profit and loss account.
Please furnish the computation of the Book Profits. Please furnish Calculation/Report u/s. 115JB of the Income Tax Act in Form 298 as per Rule 408 of the IT Rules.
Please furnish the detail of A/c of Bad debt - Penalty A/c in the following Format:
_______________________________________________________ Name Address Amount Copy of Account Date when accounted as sales/income _______________________________________________________ 1 2 3 4 5 ________________________________________________________
Give details of the professional fees paid in the following format:
___________________________________________________________ S. No. Name and Amount Paid T.D.S. Nature of service Address rendered ___________________________________________________________
Furnish a chart of parties giving details of receipts of TDS in following proforma. Also furnish a reconciliation of amount received as per TDS certificate & gross receipts shown in trading A/c with evidences (if so required). If receipt as per TDS is more, then explain as to why the gross receipt as per TDS certificate may not be considered as your gross contractual receipt and income.
Sl. Name & Nature Total amount Total TD Total Total Reaso N address of work credited/ paid amount S amount amount of ns o of perform to you during credited/ am included TDS party/ded ed the year as paid to you oun in claimed uctor per TDS during the t income/ Reasons certificate year as turnover for Total amount per TDS difference credited/ paid certificat in col. 4, 5 to you during e Total and 7 the year if it amount during the is different credited/ current from figures paid to you year of during the col. 4 year if it is different from figures of col. 4 1 2 3 4 5 6 7 8
You are also requested to show cause as to why the disallowances/ additions made in the earlier years be not made in this year also.
Books of Accounts, Stock Registers, all original Bank statements and all bills of sales/purchases/expenses for verification will be called subsequently.
The date fixed for hearing is 22-07-2013 at 11:00AM. Further, the above details may be produced in the same serial number as per the questionnaire above.”
Point 3 is relevant wherein the Assessing Officer asked the assessee to furnish a detailed note on nature of business activities, details of income and assessment of last 3 years and at Point 12, the Assessing Officer asked the assessee to furnish quantitative/value wise tally of opening stock/inventory and closing stock /inventory.
The assessee furnished point wise reply with evidences which reads as under:
“Respected Madam, This is in continuation of our earlier submissions filed at the last hearing held in response to the questionnaire issued by your goodself for the assessment year 2011-12.
In this connection, we wish to submit the balance information /details/documents as under-
1. With regards to query no. 6 related to provide details of Key Management Personnel (KMP), we are enclosing herewith details for the same as per Annexure-1.
2 With regards to query no. 8 related to provide the details all banks maintained by the assessee company along with bank reconciliation, we are enclosing herewith the same as per Annexure- II.
3 With regards to query no. 12 related to provide details of inventory / work in progress, it is submitted that assessee company is in Real Estate Sector and follows the Percentage of Completion Method (POCM) prescribed by the Institute of Chartered Accountants of India to recognize the Revenue. We are enclosing herewith details for the same as per Annexure-III. With regards to brief note and explanation whether provisions of section 145A have been followed or not, it is submitted that provisions of section 145A of the Income Tax Act, 1951 were duly complied with and there is no deviation from the method of valuation prescribed under section 145A of the Income Tax Act, 1961.
With regards to query related to valuation of project in progress, it is submitted that project in progress are valued at lower of cost and net realizable value. Cost includes cost of land, development rights, materials, services and other related overheads Net Realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.
With regards to query no. 18 related to provide details of unsecured /secured loans, it is submitted that during the year under assessment, there was no unsecured / secured loan in the assessee company. As such, this query is not applicable to the assessee company 5 With regards to query no. 20 related to provide copies of accounts of the company / others specified u/s 40A(2)(b) of the Income Tax Act, 1961, it is submitted that the same are available for your kind verification.
6 With regards to query no. 34 related to provide details of other income credited in profit and loss account, we are enclosing herewith the same as per Annexure- IV.
7. With regards to query no. 38 related to provide details of receipts of TDS, it is submitted that the assessee company has claimed TDS refund based on the TDS Certificates received from the parties 8 With regards to query no. 39 related to show cause as to why the disallowances / additions made in the earlier years be not made in this year also, it is submitted that as per Assessment orders passed u/s 143(3) of the Income Tax Act, 1961 for the assessment year 2010-11, returned income was accepted 9 With regards to query no. 40 related to provide books of account and stock register etc., it is submitted that the same are available for your kind verification. Reply of the remaining queries will be provided at next date of hearing please.
We hope, you will please find the above in order. However, in case you desire any further information or clarification, we shall be glad to furnish the same on hearing from you.” XXXX “Respected Madam, This has reference to the queries raised by your goodself, during the course of Assessment hearings on the above cited subject for the assessment year 2011-12, wherein we are required to furnish certain information/details/documents.
In this connection, we wish to submit the required information /details/documents as under:
With regards to query related to details of Commission and Brokerage along with copy of bills, we are enclosing herewith details for the same along with copy of bills towards major amount of brokerage amount as per Annexure-1.
With regards to query related to details of Purchase and Sale, we are enclosing herewith details for the same as per Annexure-II.
With regards to query related to provide details of inventory, it is submitted that assessee company is in Real Estate Sector and follows the Percentage of Completion Method (POCM) prescribed by the Institute of Chartered Accountants of India to recognize the Revenue. We are enclosing herewith details for the same as per Annexure-III.
We hope, you will please find the above in order. However, in case you desire any further information or clarification, we shall be glad to furnish the same on hearing from you.”
The assessee furnished details of Provision for Expected Loss as under:
Under the head “Significant Accounting Policies” in Schedules forming part of the financial statement for the year ended 31.03.2011, auditors have explained the method of revenue recognition which reads as under:
3. Revenue recognition a) Revenue from sale of constructed properties and developed plots :Revenue from sale of constructed properties and developed plots is recognized on the Percentage of Completion method. Total Sale consideration as per the agreements to sell entered into for constructed properties and developed plots is recognized as revenue on the basis of percentage of actual project costs incurred thereon to total estimated project cost, subject to such actual cost incurred being 30 per cent or more of the total estimated project cost in case of constructed properties and developed plots. Project cost includes cost of land (including development rights), government approval cost, construction costs and development/ construction materials of such properties. The estimates of the saleable area and project costs are reviewed periodically and any effect of changes in estimates is recognized in the period such changes are determined. However, when the total project cost is estimated to exceed total revenues from the project, the loss is recognized immediately.
In the Profit and Loss Account for the year ended 31.03.2011, under the head “Expenditure”, there is a specific mention of provision for “Expected Loss” which is further explained under the Schedule 10 of the Provisions.
After considering these facts, alongwith relevant documentary evidences, the Assessing Officer completed assessment vide order dated 26.03.2014.
From the above, it can be concluded that during the original assessment proceedings, specific queries were raised to which specific replies were filed by the assessee duly explained in its financial statement of Accounts as mentioned elsewhere. Therefore, we do not find any reason for reassessing the income by invoking provisions of Section 147 of the Act as no new material has been brought on record.
This is also clear from the reasons recorded for reopening assessment mentioned elsewhere when Para 2 starts with “On perusal of assessment record…”. Thus, it can be seen that nothing new has been brought on record and the Assessing Officer has reopened the assessment on perusal of assessment record which is nothing but a change of opinion. Therefore, without any tangible new material, reopening has to be quashed as held by the Hon'ble Supreme Court in the case of Kelvinator of India Limited 320 ITR 561 wherein it has been held as under:
When a regular order of assessment is passed in terms of section 143 (3) of the Act, a presumption can be raised that such an order has been passed on application of mind. An order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving premium to an authority exercising quasi-judicial function to take benefit of its own wrong. Section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceedings upon a mere change of opinion.
Considering the facts in totality, we set aside the notice issued u/s 148 of the Act, thereby setting aside the assessment order dated 19.12.2018 framed u/s 143(3) r.w.s 147 of the Act as the assumption of jurisdiction is bad in law, so as the assessment order.
18. Since we have decided the appeal on the point of law, we do not find it necessary to dwell into the merits of the case.
In the result the appeal of the assessee in is allowed.
The order is pronounced in the open court on 14.12.2023.