I-T - Whether proceedings u/s 263 only on ground that AO has not assigned reasons for accepting valuation of work in progress can be sustained when Tribunal has recorded finding that AO has applied his mind to the case - NO: HC
By TIOL News Service
BANGALORE, FEB 03, 2016: THE issue is - Whether initiation of proceedings u/s 263 only on ground that the AO has not assigned any reasons for accepting the valuation of work-in-progress declared by the assessee, can be sustained, when the ITAT has recorded a finding that AO has duly applied his mind before accepting the figure shown by assessee. NO is the answer.
Facts of the case
The assessee is engaged in the business of formation and development of residential layouts and sale of sites. It had filed the return declaring income of Rs.37,34,104, which was subsequently revised at Rs.2,77,39,713/-. During assessment, the assessee again filed a revised income at Rs.37,34,104/- and the assessment u/s 143(3) was concluded accepting the returned income of Rs.37,34,014/-. The CIT thereafter observed that the assessment concluded by AO was erroneous and prejudicial to the interest of revenue. Accordingly, an order was passed u/s 263 setting aside the assessment order and directing the AO to adopt the work-in-progress at Rs.3,01,65,044/- instead of Rs.1,09,29,265/- adopted by the assessee. This order of the CIT was assailed by the assessee before the ITAT. In the meantime, pursuant to the directions of the CIT, the AO passed an order of assessment u/s 143(3) determining the total income of assessee at Rs.2,29,69,433/-. These two cases were clubbed and heard together before the ITAT, wherein the ITAT set-aside the order u/s 263. As far as the challenge made by assessee to the CIT's order, relating to the consequential order passed giving effect to the order u/s 263, assessee's appeal is allowed.
Having heard the parties, the High Court held that,
++ for the A.Y 2007-08, the development expenses allowed by the AO are Rs.3,40,01,131/- relating to the sites sold of 1,13,557 sq. ft. The expenses works out to Rs.299.41/- per sq. ft. An examination of these figures as reflected in the computation made above establishes that the development charges claimed by the assessee per sq.ft. is Rs.251.11/- which is lower than Rs.299.41/- accepted by the department for the A.Y 2007-08 while concluding the assessment u/s 143(3). One mode of computation which we have examined, works out to Rs.296.68/- per sq.ft. The development charges of Rs.251.11/- per sq.ft. claimed by the assessee is just and reasonable and does not result in any loss to the Revenue. Thus, the CIT invoking the provisions of Section 263 is uncalled for as the order passed by AO is no way prejudicial to the interest of Revenue. The revenue has miserably failed to satisfy us that the valuation of the work-in-progress accepted by the AO, is erroneous and prejudicial to the interest of the revenue. Yet another important aspect which is significant to notice is that the AO, accepting the valuation of the work-in-progress of the assessee for A.Y 2007-08, while concluding the assessment u/s 143(3) committed an error in taking the amount incurred in the current year of Rs.4,12,60,000/- and dividing it by entire area of the project of 3,84,000 sq.ft. while computing the work-in-progress value;
++ as discussed, the CIT proceeded to initiate proceedings u/s 263 only on the ground that the AO has not assigned any reasons for accepting the valuation of the work-in-progress declared by the assessee. As per the materials placed before the Tribunal in the records pertaining to the A.Y in question, a detailed examination is made by the Tribunal, Tribunal is of the view that the AO has applied his mind before accepting the figure declared by the assessee in the work-in-progress report. Such an order cannot be held to be erroneous and prejudicial to the interest of the revenue. It is not a case of 'lack of inquiry'. Further inquiry ordered by the CIT would amount to fishing/rowing inquiry in the matter already concluded. In the present case, the profit declared by the assessee works out to More than 8% that is normally adopted and accepted by the Department. However, in the computation of work-in-progress made by the CIT, the profit margin works out to more than 31.8% which is practicably not acceptable. Accordingly, on this count also, we are not inclined to accept the order passed by the CIT computing the margin at more than 31% which is not normally workable in the business of real estate as pointed out by the counsel for the assessee. The ITAT having considered the material placed before it, rightly set-aside the order passed u/s 263, as not sustainable.
(See 2016-TIOL-196-HC-KAR-IT)
