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2016 (11) TMI 435 - ITAT KOLKATA

2016 (11) TMI 435 - ITAT KOLKATA - TMI - Revision u/s 263 - as per CIT(A) future development expenses were not verified by the AO at the time of assessment and that the future development expenses represents the cost which will be incurred in future and the therefore the same has not been crystallised in the year under consideration - Held that:- We disagree with the argument of the ld. AR that the twin conditions as specified under section 263 of the Act have not been satisfied for holding the .....

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(10) TMI 29 - DELHI High Court ) has held the order of the appeal in the aforesaid facts and circumstances as erroneous and prejudicial to the interest of revenue. In view of above we do not find any reason to interfere in the order of learned CIT passed under section 263 of the Act. Hence this ground of appeal of the assessee is dismissed. - ITA No. 523/Kol /2016 - Dated:- 21-9-2016 - Shri Waseem Ahmed, Accountant Member and Shri K.Narsimha Chary, Judicial Member By Appellant : Shri Pawan Kuma .....

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: (1) For that under the facts and circumstances of the case the assessment order passed u/s.143(3) 27-03-2015 by the Assessing Officer was not pre-judicial to the interest of revenue, as such Ld. Pr. Commissioner of Income Tax had erred in invoking Section 263 of The I. T. Act, 1961 in this case. (2) For that "future development expenses" claimed by the appellant assessee company were part of the cost of the Units sold in its construction project "Ashiana Aangan" and the re .....

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pment expenses" as accrued expenses for Units sold in the housing project and such view is permissible in law to which the Pr. Commissioner did not agree with and under these facts the assessment order cannot be treated as erroneous and pre-judicial to the interest of revenue. (5) For that the assessment order passed u/s.143(3) of the Act passed by the Assessing Officer is not pre-judicial to the interest of revenue as because the tax has been demanded based on book profit u/s.115JB which i .....

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er and modify the grounds of appeal before or at the time of appeal hearing. 2. The brief facts of the case as per the records as culled out before us. The assessee in the present case is a company and engaged in the business of real estate development and hospitality services. The assessee has filed its return of income on 29/09/2012 for the relevant assessment year under consideration disclosing an income of ₹ 6,73,68,866/- under the normal provisions of Income Tax Act under the business .....

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rofit was assessed for ₹ 8,11,75,620/- u/s 143(3) of the Act and for ₹ 72,63,25,956/- u/s 115JB of the Act. The assessment u/s 143(3) of the assessee was completed as on 27/03/2015. 3. The grounds raised by assessee from 1 to 6 have common issue and so we decided to adjudicate them together for the sake of convenience. The common issue raised by the assessee in this appeal is that ld. CIT erred in holding the order of the AO as erroneous and prejudicial to the interest of Revenue und .....

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future development expenses. In compliance to the notice the assessee submitted that in real estate business it is not possible to incur all the possible ascertained cost before the handing over the possession of units to the customers. The company follows mercantile accounting method and accordingly we have to follow the matching concept i.e. matching the cost with the revenue. The costs to be incurred are properly estimated by way of work orders or purchase orders. The expenses claimed as futu .....

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submitted the breakup of the future cost and the actual cost incurred as detailed below S.No Particulars Provision made (Future Expenses)Rs. 000 Actually incurred in next year Rs. 000 1 Door Fixing Work 261 261 2 Fabrication Work 102 102 3 Flooring Work 1442 1442 4 Painting Work 2587 2587 5 PHE work 633 633 6 Sundry Material 846 846 7 Wages 5738 5738 8 Incentive 2232 2232 Sub Total- A 13841 13841 Direct Project Expenses 9 Modular Kitchen 4283 4283 10 Air Conditioner 4361 4361 Sub Total- B 8644 .....

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d. CIT held the order erroneous and prejudicial to the interest of revenue. The ld. CIT accordingly directed the AO to make fresh assessment after making proper enquiry and giving opportunity to the assessee as per law. Being aggrieved by the order of the ld. CIT, the assessee is in appeal before us. 5. The ld. AR before us reiterated the submission made before the ld. CIT. (l) The assessee company is engaged in real estate development. At the time of handing over of possession of Units of housi .....

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complete works were based on work orders / purchase orders supported by proper engineering estimates etc. All such expenditures were booked in the books of accounts by the assessee company as "future development expenses". These are included in the Statement of Profit & Loss Accounts under the head "other projects related expenses". The provisions made in the books and actual amount incurred are narrated in the impugned assessment order uls.263. (2) Under the above facts .....

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t order should not be termed as erroneous assessment order. (3) "Future development expenses" are a cost of the Unit in the housing project. The entire income on sale of respective unit had been considered as revenue at the time of handing over of possession to the buyer. Therefore, under the mercantile system of accounting the entire cost of the unit has been charged to the Profit & Loss Accounts. There is no error in doing so. In view of the same and under the facts of the case t .....

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on book profit under Section 115JB. In view of the same irrespective of the consideration of future development expenses allowable or disallowable tax demanded under book profit provision would remain same. This shows that the assessment order passed by the assessing officer is not prejudicial to the interest of revenue. (5) The twin conditions of the assessment order, that impugned assessment order is erroneous and the assessment order is prejudicial to the interest of revenue, are required to .....

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s per accounting principles and provisions of section 145 of the Act. The AO has not applied his mind on the expenses of future cost at the time of assessment. The ld. DR vehemently supported the order of the ld. CIT. 7. We have heard the rival contentions of both the parties and perused the materials available on record. From the foregoing discussion we find that the assessee in the instant case has claimed future development expenses for an amount of ₹ 2,24,85,000/-. The same expenses we .....

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eration. 1. Whether the AO has conducted the enquiry at the time of assessment with the regard to the future development expenses. 2. Whether the future development expenses represent the cost which has been crystallized. 3. Whether the order of the erroneous and prejudicial to the interest of Revenue. From the perusal of the assessment records we find that the necessary enquiry has not been made by the AO at the time of assessment. In such circumstances various courts have held the order of the .....

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decision on the basis of the pleading and evidence which comes before it. The ITO is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous'' in s. 263 emerges out of this context. It is because .....

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members common in both. The fact that the company purchased the land but handed over construction work to the partnership even though the object of the company was to make such construction should naturally provoke a query as to why this was done. The partnership was required to be in existence as a genuine firm in the previous year before it could be registered under s. 185 of the Act. Such registration gives a substantial advantage to it for the purpose of taxation. In the very first assessmen .....

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the order of the ITO was erroneous because previous inquiries were not made by the ITO. Nor can it be said that it was necessary for the CIT himself to make such inquiry before cancelling the order of assessment.- Rampyari Devi Sarogi vs. CIT (1968) 67 ITR 84 (SC) : TC57R.202 and Tara Devi Aggarwal vs. CIT 1973 CTR (SC) 107 : (1973) 88 ITR 323 (SC) : TC57R.206 relied on CIT was justified in exercising his revisional jurisdiction on the ground that the ITO had not made sufficient enquiries befor .....

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in the year under consideration for some future activities which will begin after the financial year. The cost of such activities has already been ascertained on the basis of the contracts. We concur with the view of the ld. AR in so far the manner adopted by the assessee for the determination of the future cost. However we find that the documents/ contracts made by the assessee for the future cost have not been verified by the AO at the time of assessment. The argument of the ld. AR that the a .....

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