TMI Blog2016 (7) TMI 377X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Act, 1961 in the Asstt.Year 2010-11. 2. Though the assessee has taken five grounds of appeal, but its grievance revolves around a single issue viz. that the ld.CIT has erred in taking action under section 263 of the Income Tax Act and cancelling the assessment order dated 24.12.2012 passed under section 143(3) of the Act, directing the ld.AO to make a fresh assessment order. 3. Brief facts of the case are that the assessee-company is engaged in the business of construction and education. It has filed its return of income electronically on 24.9.2012 declaring total income at ₹ 20,53,620/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) of the Income Tax Act was issued on 29.8.2011, which was duly served upon the assessee. The ld.AO, thereafter, issued notice under section 142(1) on 17.10.2011 and 3.9.2012. On scrutiny of the accounts, it revealed to the AO that the assessee had claimed deduction of ₹ 5,25,20,351/- under section 80IB of the Income Tax Act. According to the AO, vide order sheet dated 31.10.2012 the assessee was asked to submit complete details with respect to its claim. The assessee has submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide assessment order u/s 143(3) dated 20.12.2011 by the same A.O. Aggrieved by the disallowance, the assessee company went in appeal and the Ld.CIT(A) vide his order dated 26.06.2012 in Appeal No.CIT(A)-VIII/ITO Wd.4(3)/351/ll-12 deleted the addition in favor of the assessee relying upon the decision of the Hon. High Court in the case of Radhe Developers. The Department, however has preferred second appeal before the Hon.ITAT in Appeal No. 1997/AHD/2012 dtd. 05.11,2012 which is pending for the decision. Therefore, the AO has allowed assessee's claim of deduction u/s 80IB of the Act, without application of correct provisions of law and has taken inconsistent decision in light of the Department's stand on this issue in assessee's own case for earlier A.Y. 2. Notwithstanding the above, on perusal of the assessment records it is seen that the valuation of inventory as on 31.03.2010 is supported by Civil Engineer's Certificate dtd. 15.04.2010. As per the said certificate, the measurement of closing W.I.P. was reported at 7202 sq.mtrs having valuation of ₹ 7,59,99,133/- which works out to ₹ 10,552/- p.sq.mtr. it is seen that assessee had submitted simil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d.Commissioner has set aside the impugned order. He directed the AO to pass a fresh assessment order. 6. With the assistance of the ld. representatives, we have gone through the record carefully. Section 263 has a direct bearing on the controversy, therefore, it is pertinent to take note of this section. It reads as under:- 263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. [Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. After this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard. 8. Apart from the above principles, we deem it appropriate to make reference to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Sun Beam Auto reported in 227 CTR 113 and Gee Vee Enterprises Ltd vs. Addl. Commissioner of Income Tax (99 ITR 375). In the case of Sun Beam Auto, the Hon'ble High Court has pointed out a distinction between lack of inquiry and inadequate inquiry. If there is a lack of enquiry, then the assessment order can be branded as erroneous. The following observations of the Hon'ble Delhi High Court are worth to note: 12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case are such as to provoke an inquiry It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would made such an inquiry prudent that the word erroneous in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. 10. In the light of the above, let us examine the facts of the present case. According to the ld.Commissioner, Dharti Vikas Coop. Housing Society was given sanction for the development of project by AUDA on 30.3.2007. The land on which scheme of residential units were put up belonged to Dharti Vikas Coop. Housing Society, and it had applied for development of housing scheme on 10.4.2006. It got permission in its name on 30.3.2007 from AUDA. The assessee had contended that it has entered into two agreements with Dharti Vikas Coop. Housing Society on 12.4.2007. Prior to the entrance of agreement, there was an oral consent between both the parties. The ld.Commissioner has rejected this plea of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) 3. The party of the third Part is connected with the construction of business since many years and have experience of constructing residential houses. On top of page no 4 of the development agreement , it has been mentioned that assessee company is engaged in the business of development and construction of land and they have knowledge of constriction and development of land building along with project consultant, engineers, contractors, subcontractors, architect etc. (ii) 4. With the consent of The Party of the First and Second Part, The Party of the Third Part as a developer and builder wants to do a project/scheme of constructing residential houses having area less than 1500 sq.ft. For the middle class society In the second para of page no 4 it has been mentioned that society has entered into development agreement with assessee company for which oral agreement is also executed. (iii) 5. The Party of the First and The Party of the Third Part have executed one Agreement of Sale on 18-05-2000 accordingly on that basis the rights of agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oper after discussion with society has prepared building construction plan after appointing architect and if required, such plan will be revised and assessee company developer has to get approval of such plan from Ahmedabad Urban Development Authority. The assessee company developer has to construct building work on land as per plan and specification prepared by architect. The assessee company developer at its own responsibilities can divide land including internal roads and margins and construct common plot from buyers of units as per requirement and demand of scheme. (vi) Other important conditions of clause 11 of agreement as discussed in Radhe case. (1) To appoint Architect Engineers, Legal Advisor and such professionals whose services for completing this scheme is necessary and by deciding their area of operation to fix-up their remuneration and fees etc. and for that to bear all expenses, to execute agreements so that the construction work of this project can be completed successfully. At top of page no4 of the agreement, it has been mentioned that developer can construct with the help of engineers, contractors consultants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e prescribed time period and for the purpose of admitting the members in the scheme, to give advertisement of the total or partial scheme in local news paper or to print out its booklet, to place sign board, neon board on site the rights and authorities are hereby given to the Developer cum Building Contractor. As per clause 15 of the development agreement, it has been agreed that in order to attract and invite the proposed buyers for units developed, developer can give advertisement in pamphlet, broachers, magazine, daily news papers etc and further simple signboard and neon board can be kept at the sites. Further, developer can advertise scheme in different forms. (11)That the said Developer cum Building Contractor as per this scheme, whatever construction he shall do on the land described in Schedule shall be authorized to allot to the respective member and also out of this land deducting the constructed land and deducting the land of margin and passage whatever excess land that shall remain then Developer cum Building Contractor shall have right to allot that land. As per clause 22 of the agreement, it has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts actual possession shall be with Developer cum Building Contractor till the completion of this scheme and moreover till the total implementation of this agreement on the said land and the construction over it there shall be a contractual lien of the Developer cum Building Contractor. In the clause 1 of the agreement, it has been stated that assessee company has been given the direct and vacant possession of land for the development of project. Further as per clause 27 of the agreement, it has been agreed that till the date when entire construction on said land is completed and assessee company receives the money from different members, the possession of impugned land construction thereon will be with assessee company. At clause no 28, it has been stated that till the completion and transfer of construction over the land, ownership of such construction will rest upon developer. Further, till amount is not received towards any unit or not recovered, developer will have charge and lien over that unit and property of project. 19 Regarding the land, house and common facilities necessary deeds in favour of the persons purchasing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal vide ITA No.1197/Ahd/2012. The Tribunal has dismissed the appeal of the Revenue vide order dated 2.3.2016. According to the ld. counsel for the assessee, in a way, the issue in dispute is covered in favour of the assessee by the order of the Tribunal. He emphasised that for sake of argument, even if on the ground of non-consideration of any particular issue at the time of assessment proceedings, this order under section 263 is being upheld, then ultimately, following the order of the ITAT, the AO has to grant deduction to the assessee in the subsequent years. Where is the prejudice to the Revenue ? The judgment of the Hon ble Karnataka High Court in the case of CIT Vs. D.G. Gopala Gowda reported in 354 ITR 501 was referred by the ld.counsel for the assessee. 13. The ld.CIT_DR on this issue contended that when action under section 263 of the Act was initiated, order of the Tribunal was not in the picture. The ld.CIT was conscious of this fact, and therefore, has observed that the order of the CIT is under challenge before the Tribunal by the Revenue. 14. On consideration of all these aspects, we find that the issue in dispute is squarely covered in favour of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... underSection 80IB(10) of the Act. In view of the same, observation made by Assessing Officer regarding ownership of land cannot be accepted. 3.8. On careful consideration of various clauses of the development agreements, it is emanating that - (i) It was the responsibility of the appellant company to carry out development of the housing project at its own risk and rewards. (ii) Further, the plans prepared for the purpose of proposed construction of buildings were prepared by appellant- developer after appointing architect and the entire revised plan, if any required, and building use permission and all other approval required for development of the project was to be obtained by appellant-developer only. (iii) Appellant-developer was entitled to fix sale price of housing unit to proposed buyers in lieu of their allotment and even it was entitled to fix the mode of payment, time of payment as per its own requirement and considering the mode of payment, time of payment, area of unit, location and situation of unit, appellant was entitled to decide different rates for different buyers. In fact entire sales consideration has been received by the appellant company a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. In short, appellant has taken full risk of executing the housing project and was entitled to all the profit and gains including losses, if any, arising from sale of housing units, which proves beyond doubt that appellant is developer-cum- builder and not a contractor, as observed by the Assessing Officer. Appellant has not received any fixed remuneration from the Society and in fact it has purchased the land from the Society and acquired dominant control over the land. In view of the same, the entire risk of investment and expenditure were that of Assessee and Society for the purpose of development of housing project has not taken any risk but accepted only full price of land and nothing further. The profit and loss has accrued to Assessee hence explanation to Section 80IB with retrospective effect from 1st April, 2001 has no bearing on appellant. The facts of appellant's case are identical with the facts of case before the Hon'ble Gujarat High Court in case of Radhe Developers and respectfully following the decision of jurisdictional High Court and on facts and circumstances of appellant's case, disallowance of deduction under Section 80IB(10)made by Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired by the AO, and in reply dated 4.12.2012, the assessee has specifically pointed out before the AO that each residential unit is being having built up area of less than 1500 sq.feets approved in the plan. Contrary to this, the ld.CIT has not made reference to any document in the impugned order. We have considered this aspect also, and we find that the AO has inquired this aspect, more so, same plan was available in the Asstt.Year 2009-10, where the assessee was found to be eligible. This, reason is also not sufficient reason to uphold the order of the CIT under section 263 of the Income Tax Act. 16. Next reason assigned by the ld.CIT is that the assessee has inflated the value of stock of work-in-progress in the opening stock as well as in the closing stock. The ld.CIT made reference to the Engineer s certificate dated 15.4.2010 as well as 15.4.2009 and raised a suspicion that valuation of work-in-progress cannot be determined in both these years at standard rate. This suggests that the assessee must have inflated the value of work-in-progress. The assessee has contended that this observation is erroneous and without logic. The closing stock of WIP of the Asstt.Year 2009-10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment order. 17. The next reasons assigned by the ld.CIT are that the assessee has collected AEC/AUDA charges from the customers and student fees. The assessee has explained that as far as income from student fee is concerned, it has collected ₹ 3,21,500/- and incurred expenditure of ₹ 4,62,080/-, therefore, there is a loss in this activity and no income has travelled in the total income calculated for the purpose of section 80IB(10) claim. With regard to AEC/AUDA the assessee has contended that as and when the assessee made payment to AEC/AUDA for obtaining electricity connection and obtaining other permissions, the amounts collected from customers has been claimed as expenditure in the year in which it was incurred. Whenever such charges are required from the members, it has shown as income in the profit loss account. The assessee has shown all these details to the AO, and the ld.AO has duly gone through these details. 18. Taking into consideration all these aspects, we are of the view that the ld.AO, though, not made elaborate discussion with regard to the issue associated with section 80IB(10) claim, but has gone through all the details. It is discern ..... X X X X Extracts X X X X X X X X Extracts X X X X
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