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2016 (1) TMI 1104 - KARNATAKA HIGH COURT

2016 (1) TMI 1104 - KARNATAKA HIGH COURT - [2016] 387 ITR 239 - Revision u/s 263 - non assigning reasons for accepting the valuation of the work-in-progress by AO - Held that:- The twin test propounded by the Hon'ble Courts for invoking the provisions of Section 263 of the Act, are not satisfied in the present case. As discussed above, the CIT proceeded to initiate proceedings under Section 263 of the Act only on the ground that the Assessing Officer has not assigned any reasons for accepting th .....

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nquiry'. Further inquiry ordered by the CIT would amount to fishing/rowing inquiry in the matter already concluded. - The ITAT having considered the material placed before it, rightly set-aside the order passed under Section 263 of the Act, as not sustainable. Accordingly, the assessee's appeal is allowed as the consequential order passed under Section 143(3) read with Section 263 of the Act does not survive for consideration as having become infructuous. No exception can be found with the w .....

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ear 2006-07. 2. The facts in brief: - the assessee is a firm engaged in the business of formation and development of residential layouts and sale of sites. The assessee filed a return of income of ₹ 37,34,104, subsequently, revised at ₹ 2,77,39,713/-. In the course of assessment proceedings, the assessee filed a revised computation of income of ₹ 37,34,104/-. The assessment under Section 143(3) of the Act was concluded on 31.12.2008 accepting the return income of ₹ 37,34, .....

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see before the ITAT. In the meantime, pursuant to the directions of the CIT, (order under Section 263 of the Act), the Assessing Officer took up assessment proceedings for assessment year 2006-07 and passed an order of assessment under Section 143(3) of the Act determining the total income of the assessee at ₹ 2,29,69,433/- as against the income of ₹ 37,34,014/-. Aggrieved by the said order, the assessee preferred an appeal before the CIT (Appeals), which was dismissed against which, .....

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Act is set-aside by the Tribunal in the connected ITA No.620/Bang/2011. 3. Being aggrieved by the said judgment passed by the ITAT, revenue has preferred these appeals, raising the following substantial questions of law: ITA No. 67/2014 1. "Whether the Tribunal was correct in canceling the order of the CIT Under Section 263 of the IT.Act as bad in law holding that it was not in accordance with the conditions prescribed u/s 263 for initiation of the proceedings without appreciating that the .....

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SC in the case M/s. Malabar Industrial Co. Limited V/s CIT(2000) 243 ITR 83 and the High Courts in the cases of Mukur Corporation (1978) 111 ITR 312, (Gujarat) and CIT V/s Daga Entrade Private Limited [2010] 327 IRT 467 Guwahati? ITA No.68/2014 1. "Whether the Tribunal was correct in holding that the assessment u/s 143/(3) r.w.s 263 is rendered infructuous as order u/s 263 has been cancelled without appreciating that the AO had not brought out anything on record while accepting the valuatio .....

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idering the reply filed by the assessee to the show cause notice issued under Section 263 of the Act and hearing the authorized representatives of the assessee. The Tribunal failed to appreciate the fact that the closing value of work-in-progress has to be worked out based on the development charges during the year and the Assessing Officer, has brought on record that the project developed by the assessee was a single one on a contiguous land area. The assessee has not maintained any separate ex .....

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ssioner of Income Tax reported in 2000 (243) ITR 83 in support of his contention that the Assessing Officer passed the order of assessment accepting the work-in-progress statement of the assessee without application of mind to the case in all perspective. The order passed by the Assessing Officer is not only an erroneous order, but, is prejudicial to the interest of the revenue, the revenue losing tax lawfully payable by the assessee. 6. Per contra, learned counsel Sri A Shankar, appearing for t .....

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erial placed by the assessee in detail as regards the work-in-progress report. Considering the detailed explanation filed by the assessee for the queries made by the Assessing Officer, the closing work-in-progress report was accepted. This figure of closing work-in-progress was accepted by the departmental authorities while concluding the assessment under Section 143(3) of the Act for the Assessment year 2007-08. The learned counsel pointing out the distinction between 'lack of inquiry' .....

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he provisions of Section 263 subsequent to 01.06.2015, not relating to the assessment year in question. 9. Learned counsel also contended that the computation made by the CIT to arrive at the value of workin- progress if considered to be correct, the same would result in declaring the profit of the assessee at 31.80% as against the net profit of more than 8% declared by the assessee. The mode of calculation adopted by the assessee is explained through the tabular chart depicting the development .....

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omes to more than ₹ 251.11/- as claimed by the assessee and in any event, there is no loss to the revenue to initiate proceedings under Section 263 of the Act. In such circumstances, the Tribunal setting aside the order passed by the CIT, does not call for interference by this Court. 10. In support of his contention learned counsel placed reliance on the following Judgments: (1) COMMISSIONER OF INCOME_TAX vs SUNBEAM AUTO LTD.([2011] 332 ITR 167 (Delhi)) (2) COMMISSIONER OF INCOME-TAX AND A .....

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of sites. The assessee had purchased lands measuring about 16.07 acres in survey numbers 52, 103 and 106 at Neralur, Balegaranahalli Village, Attibele Hobli, Anekal Taluk, The firm as stated to have developed a portion of the land of about 22407 sq. ft. during the period relevant to assessment year 2005-06. Subsequently, the assessee entered into an agreement with M/s Best Constructions for marketing the sites. The project was approved by BMRDA to an extent of 3,84,000 sq. ft. out of which the a .....

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on hand with reference to the tabulation chart furnished by the assessee which reads thus: M/s. SARAVANA DEVELOPERS PARTICULARS ASST-YEAR ASSTYEAR ASST-YEAR ASST-YEAR 2005-06 2006-07 2007-08 2008-09 Turnover (A) 3,365,000 44,220,398 43,882,100 11,781,000 Development Charges 10,342,310 41,260,000 35,927,100 2,755,000 Add:Opening W.I.P 8,010,730 10,929,625 10,326,700 10,34,310 49,270,730 46,856,725 13,081,700 Less:Closing W.I.P 8,010,730 10,929,625 10,326,700 3,773,378 Net Development charges 2,3 .....

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q ft. Developmental Charges relating to unsold Sites to be taken as closing work in progress 2,21,200*1144.10=Rs.2,52,38,920 Land cost of unsold sites Total Cost/Total land 85,55,060/3,84,000*2,21,200= ₹ 49,26,124 Closing work in progress Land cost+Developmental Charges 49,26,124+2,52,38,920=Rs.3,01,65,044 14. It is also noticed by us that the ITAT has called for the records of assessment of the relevant assessment year and examined the various details, questionaire (1) called by the Asses .....

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73,378/-, the net development charges would be ₹ 8,65,11,032/-. The total land area sold + unsold is 22400 + 361600 = 384000 sq. ft. The total unsold area as per the assessment year 2008-09 is 92403 sq. ft. Deducting the same from 384000 sq.ft., total sold area is 291597 sq. ft. Thus, the development expenses works out to ₹ 296.68/- per sq. ft. (8,65,11,032/2,91,597). 15. The method of computation adopted by the assessee is as follows: Net development expenses in respect of sites sol .....

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elopment charges claimed by the assessee per sq. ft. is ₹ 251.11/- which is lower than ₹ 299.41/- accepted by the department for the assessment year 2007-08 while concluding the assessment under Section 143(3) of the Act. One mode of computation which we have examined, stated above at para.14, works out to ₹ 296.68/- per sq. ft. The development charges of ₹ 251.11/- per sq. ft. claimed by the assessee is just and reasonable and does not result in any loss to the revenue. .....

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ress of the assessee for the assessment year 2007-08, while concluding the assessment under Section 143(3) of the Act. CIT, committed an error in taking the amount incurred in the current year of ₹ 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. 17. In Sunbeam's case (supra), Delhi High Court placing reliance on the Judgments of the Apex Court in the case of Parashuram Pottery Works Co.Ltd. vs ITO ((1977) 106 I .....

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r in treating the expenditure as revenue expenditure was plausible and thus, there was no material before the CIT to vary that opinion and ask for fresh inquiry by invoking Section 263 of the Act. The Division Bench of this Court in the case of D G Gopala Gowda (supra) while considering the power of revision conferred under Section 263 of the Act has held that the condition precedent for exercising the revisional power under Section 263 of the Act is that the order under revision should not only .....

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judicial to the interest of the revenue, the Commissioner could not have exercised the suo moto revisional power under Section 263 of the Act. 18. The Apex Court in the case of "Malabar Industrial Co. LTd." (supra) has laid down the principles in the context of Section 263 of the Act. The relevant portion of para 5 of the said Judgment is reproduced below: A bare reading of this provision makes it clear that the prerequisite to exercise of jurisdiction by the CIT suo motu under it, is .....

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oubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the Revenue .....

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e Assessing Officer 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 assessment year in question, a detailed examination is made by the Tribunal, Tribunal is of the view that the Assessing Officer 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 prejudici .....

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