TMI Blog2016 (6) TMI 1373X X X X Extracts X X X X X X X X Extracts X X X X ..... e from sale value of project - HELD THAT:- From the statement submitted by the assessee during the assessment proceedings we observe that the assessee has recorded total sales value of ₹ 174.99 crores whereas sales value has been recognised @ 98% of ₹ 171.10 crores and proportionate project cost of ₹ 156.15 crores has been debited to Profit and loss account and in our humble understanding, this calculation is not in accordance with percentage of completion method. If assessee has incurred some more cost in the subsequent A.Ys, but the total sales value was received during the year under consideration, then the sales value has to be recognise accordingly. The issue requires examination and verification at the end of the AO according to the percentage of completion method consistently and regularly followed by the assessee and accepted by the department. Therefore, this issue is restored to the file of the AO for a fresh adjudication after affording due opportunity of being heard to the assessee. Alleged interest amount relates to prior period however, it was accrued and crystallised during the financial period under consideration and entire amount was paid to G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... putting the golf course in the category of plant. Since the issue has not been adjudicated by the ld. CIT(A) in a proper manner, therefore, this issue is restored to the file of the AO for a fresh adjudication after affording due opportunity of being heard to the assessee and without being prejudiced from earlier orders and our observations in this order. Facts regarding this issue have to be dealt in respect to golf course of 300 acres land and how it became plant and machinery attracting 25% depreciation. AO has to examine these detai ls to ascertain the issue between the parties as stated above. We also note that the assessee in its written submissions before the authorities below as well as before the Tribunal has submitted the details of construction on the 300 acres of land converting it into a golf course, but these details have not been submitted before the AO and the AO could not get an opportunity to verify and examine the same. Therefore, in our considered opinion, this issue requires detailed verification and examination at the end of the AO after affording due opportunity of hearing to the assessee and without being prejudiced from the earlier assessment and first a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case, the CIT (A) has erred in holding that the issue regarding legality of proceedings under section 147 of the Act could not be raised since the validity thereof was not challenged before the assessing officer. 1.2 That on the facts and circumstances of the case, the CIT (A) failed to appreciate that initiation of proceedings was barred by limitation prescribed in the proviso to section 147 of the Act and consequently the assessment order was illegal and bad in law 1.3 That on the facts and circumstances of the case, the CIT(A) has erred in not appreciating that the reassessment proceedings were initiated by the assessing officer on a mere change of opinion and there was no failure on the part of appellant to disclose truly and fully all material facts necessary for assessment and consequently, the assessment order was illegal and bad in law. 1.4 That on the facts and circumstances of the case, the CIT(A) has erred in holding that the order passed by assessing officer was after independent application of mind, without appreciating that the re-assessment proceedings were initiated on the opinion of audit party, which is not permissible under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction. (d) The impugned reassessment proceedings were initiated on the opinion of the audit party which is not permissible in law. 4. The ld. AR submitted that in the case of the assessee the original assessment was completed u/s 143(3) of the Act after due application of mind on the claims made by the assessee in the return and/or during the assessment proceedings. It was further contended that the assessment proceedings were initiated on the basis of mere change of opinion which is not permissible in law. 5. Relying upon the following decisions, the Ld. Counsel for the appellant submitted that the assessment order is illegal and bad in law: * Indian and Eastern Newspaper Society v. CIT: 119 ITR 997 (SC) ❖ CIT v. Lucas T.V.S. Ltd. 249 ITR 306 (SC) ❖ Adani Exports V. DCIT: 240 ITR 224 (Guj.) ❖ CIT V. Mettur Chemical Inds. Corpn: 242 ITR 119 (Mad.) ❖ Waldies Limited V. ITO: 246 ITR 29 (Cal.) ❖ ITO V. Jiyajeerao Cotton Mills Ltd: 247 ITR 122 (Cal.) ❖ CIT V. Sambhar Salt Limited: 262 ITR 675 (Raj.) The submissions filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initial source of information was the audit objection but same has not been made the basis for re-opening the assessment proceedings. It was independent application of mind on the various facts as pointed out by the audit authority warranting the issuance of notice under section 148 as some of the issues involved in the appeal were altogether omitted in the course of original assessment proceedings of on some of the issues there was not full and true disclosure of the information. In totality of all these facts and circumstances, I dismiss appellant's appeal on ground nos. 1 and 2. 8. Further, the ld. CIT(A) granted relief to the assessee on merits in both the years. Thus the Revenue filed appeals challenging the conclusion of the ld. CIT(A) on merits wherein the first appellate authority directed the AO to delete the addition made on account of difference between budget cost of flats, prior period interest expenditure, excess depreciation on land and capital gain on agreement to sale dated 17.3.2003 in A.Y 2001-02. The Revenue has also filed appeal for A.Y 2003-04 wherein the ld. CIT(A) granted relief to the assessee on merits directing the AO to delete addition mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has escaped assessment which is a pre requisite condition for initiating proceedings validly. 11. Replying to the above, the ld. CIT-DR drew our attention towards relevant operative part of the impugned first appellate order and contended that from the reasons recorded it is amply clear that the AO was not guided by the observations of the audit party and he applied his mind independently while recording satisfaction for initiation of proceedings. The ld. DR also pointed out that the assessee did not raise any objection during the assessment proceedings challenging the validity of reassessment proceedings and issuance of notice u/s 147/148 of the Act. Therefore, this legal contention was not maintainable before the ld. CIT(A) at first appellate stage. The ld. DR also pointed out that the AO made independent application of mind on various facts as pointed out by the audit authority while issuing notice u/s 147 of the Act because some of the important issues involved in the appeal were altogether omitted during the course of assessment proceedings and there was not a full and true disclosure of information regarding depreciation claimed by the assessee, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration on the basis of proportion of budgeted expenditure to the actual expenditure and applied the proportion to actual sales. However in this working the assessee reduced actual expenditure from proportioned sales proceeds which is not only incorrect but it is not based on any accounting or legal principles. It is also not sanctioned by the accounting standards prescribed by ICAI. There is no basis for this computation. This working is neither based on mercantile basis of accounting nor on any other provisions of law or accountancy. Thus the assessee company has under stated the sales proceeds by 3,89,33,267/- which has escaped assessment. 3.2 The assessee company has claimed interest at ₹ 61,11,162/- in respect of loan advanced by M/s Gilt Facilities Private Limited. There was a over delayed completion of projects and retention of money collected by the assessee companion on behalf of M/s Gilt Facilities Private Ltd. After settlement the interest of 61.11,162/- was considered payable to the creditors. It was claimed during the course of assessment proceedings but this component of interest related to only assessment 2004-05 and not to any earlier assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies of the audited accounts for the year ended on 31.3.200, the assessee clearly mentioned that revenue on account of sale of land and constructed apartments is accounted for on the basis of percentage completion method and regarding Labunum Project, the assessee filed detailed note in February 2004 with the details of profit on the project booked during the year under consideration. The ld. AR also pointed out that vide letter dated 15.3.2004 available at page 20 of the assessee s paper book, the assessee also furnished detailed working of the apartment amounting to ₹ 11.09 crores which was declared in the relevant profit and loss account. Therefore, on this count also, there was fully and truly all disclosure by the assessee. Therefore, reassessment beyond four years is not permissible. 15. Regarding third issue, the ld. AR pointed out that vide letter February 2004, the assessee furnished a detailed note on accrual on interest and justified its allowability after explaining the entire background of the sale along with detailed justification. The ld. AR also pointed out that the assessee also filed copy of the agreement dated 16.8.1995 entered into with Gilt Facil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, in the Schedule forming part of the balance sheet [APB page 297] golf course has been shown separately which is not as per provisions of the Act. The assessee should have specifically mentioned that the Golf course falls either in building or plant and machinery and this conduct of the assessee shows that the assessee did not file truly and fully all material facts for claiming depreciation on golf course and hence, the AO has validly reopened the assessment and issued notice u/s 147/148 of the Act. 18. The ld. DR further took us through assessment order for A.Y 2003-04 and submitted that assessee has not challenged this order dated 28.2.2006 and subsequent to that the AO issued notice u/s 148 of the Act on 30.10.2006 which clearly shows that reopening of assessment for earlier year was consequent to the subsequent assessment order of A.Y 2003-04. The ld. DR pointed out that original assessment order for A.Y 2001-02 available at pages 49 and 50 of the paper book dated 29.3.2004 was 19. The ld. DR further took us through audit objection and submitted that as per order for A.Y 2003-04, the assessee accepted that the golf course is a building and dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt this contention. The ld. AR also pointed out that there is no reference of subsequent assessment order for 2003-04 in the reasons recorded and the issue of depreciation on golf course as decided by the AO has not been accepted by the assessee because the assessee is agitating this issue continuously and regularly. The ld. AR placing reliance on the decision of Hon ble High Court of Delhi in the case of CIT Vs. Usha International, 348 ITR 485 [Del] contended that where an AO incorrectly or erroneously applies law or comes to a wrong conclusion, then initiation of reassessment proceedings will be invalid on the ground of change of opinion. The ld. AR further placing reliance on the decision of Hon ble High Court of Delhi in the case of Haryana Acrylic Manufacturing Co.[supra] submitted that notice after four years u/s 148 of the Act and there is no indication in the reasons recorded about failure on the part of the assessee to disclose fully and truly all material facts for its assessment, then notice in such a situation is not a valid notice. The ld. AR of the assessee again took us through para 28 of the said decision of the Hon ble High Court and contended that since there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue authorities in assessee s own case was information within the meaning of section 34(1)(b) of the I.T. Act, 1922 which is a corresponding section of section 147 of the Act and in the present case notice u/s 148 of the Act dated 30.10.2006 was issued after said assessment order passed in assessee s own case for AY 2003-04 which validly empower the AO for reopening of assessment beyond four years. 25. On a careful consideration of the above contentions, first of all, we may point out that all the decisions relied upon by both the parties are pertaining to old provision of section 147 of the Act which has been amended by the Finance Act, 1987 w.e.f 1.4.1989. In the present case, undisputedly and admittedly, the reopening and initiation of reassessment proceedings has been proceeded after internal audit report of the department and after assessment order passed u/s 143(3) of the Act for AY 2003-04. But, from the reasons recorded by the AO as reproduced herein above, there is no mention of audit report and subsequent assessment order and the AO has applied his own mind for stating reasons for reopening of assessment and initiation of proceedings u/s 147 of the Act and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible view at the time of original proceedings and a wrong appreciation of facts and law cannot be held as permissible view and that can always be changed for proper appreciation of law and in this situation, initiation of reassessment proceedings was within the mandate of law. 29. In the present case, the AO considered material placed on record by the assessee during original assessment proceedings and accepted the claim of the assessee regarding depreciation, interest paid during the relevant period and accepted the income shown by the assessee from Labunum Project relying on the details filed by the assessee. 30. On a vigilant perusal of documents and details referred by the counsels and reasons for reopening of assessment, it is amply clear that the assessee did not classify the golf course as per provisions of the Act as to whether it is part of building or plant and machinery and claimed depreciation @ 25% which was allowed @ 10% only in A.Y. 2003-04 and thus, in our considered opinion it can safely be presumed that the assessee did not disclose all material facts fully and truly for the claim of deprecation on golf course. 31. Further, we are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our considered opinion, from the correspondence copy of the agreement dated 16.8.1995 between the assessee and M/s Gilt Facilities P. Ltd it is clear that an agreement was entered with the said company and because there was a delay on the part of the assessee company, therefore, as per agreement, M/s Gilt Facilities P. Ltd vide letter dated 16.2.2001 demanded interest on unutilised amount @ 25% per annum and the assessee vide reply dated 20.3.2001 informed M/s Gilt Facilities P. Ltd that interest @ 16% per annum is acceptable and finally vide letter date 31.3.2001, M/s Gilt Facilities P. Ltd accepted the proposal of the assessee and this liability stood crystallised during the period under consideration. In view of above facts, it cannot be said that the assessee did not disclose truly and fully all material facts on the issue of interest claim. Therefore, on the third count, action of the AO cannot be held as valid for assuming jurisdiction to reopen the assessment and to issue the notice u/s 147/148 of the Act. To sum up, as we have observed earlier that the income of the assessee escaped assessment due to the reason of failure on the part of the assessee in disclosing fully an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was executed on 17.3.2003. 34. Grounds Nos. 1 and 4 of the Revenue are of general in nature which require no adjudication. Remaining effective grounds read as under: 2. On the facts and in the circumstances of ht case and in law, the ld. CIT(A) has erred in deleting the addition of ₹ 8,12,14,136/- made by the AO on account of long term capital gain. 2.1 The CIT(A) erred in ignoring the fact that the AO has made the addition in accordance with the provisions of section 32 of the I.T. Act. 3. On the facts and in the circumstances of ht case and in law, the ld. CIT(A) has erred in deleting the addition of ₹ 60.54.840/- made by the AO on account of excess deprecation claimed by the assessee on golf course. 3.1 The CIT(A) ignored the fact that depreciation on Golf Course is to be allowed @ 10% as applicable for buildings under the provisions of Income tax Act, 1961. Ground Nos. 2 and 2.1 for A.Y 2001-02 35. Apropos these grounds, we have heard the arguments of both the sides and carefully perused the relevant material on record. The ld. CIT-DR contended that the AO rightly made addition of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F.Y 1998-99 to 2002-03 regularly but he has not deliberated or adjudicated contention of the AO that in what manner the assessee considered 98% of the total revenue as chargeable to profit and loss account against the cost actually incurred till 31.3.2001. It is also pertinent to note that the AO has clearly mentioned that no evidence of any further cost to be incurred in the said project was filed and how the vested cost was taken as bench mark for ascertained cost whereas the entire project was admitted to have been sold and consideration is to be received ti ll 31.3.2001. From the statement submitted by the assessee during the assessment proceedings, available at page 5 and 6 we observe that the assessee has recorded total sales value of ₹ 174.99 crores whereas sales value has been recognised @ 98% of ₹ 171.10 crores and proportionate project cost of ₹ 156.15 crores has been debited to Profit and loss account and in our humble understanding, this calculation is not in accordance with percentage of completion method. If assessee has incurred some more cost in the subsequent A.Ys, but the total sales value was received during the year under consideration, then t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax at source and same amount was offered to tax by the recipient Gilt Facilities P. Ltd. From the copies of the agreement dated 16.8.1995 and correspondence between the assessee and M/s Gilt Facilities P. Ltd, it is clear that the issue of interest was raised and settled during F.Y. 2000-01 and the assessee paid interest to M/s Gilt Facilities P. Ltd as per computation agreed between them. However, from the copy of the chart showing the calculation of total interest amount paid by the assessee to M/s Gilt Facilities P. Ltd reveals that the impugned amount was related to prior period but during the prior period there was no occasion for the assessee to claim the same as expenditure because this liability was accrued and crystallised after long conversation and correspondence with the Gilt Facilities P. Ltd as per agreement dated 16.8.1995 and the assessee paid amount after deduction of tax and the same was offered to tax by the recipient Gilt Facilities P. Ltd during A.Y 2001-01. We are unable to see any apparent mistake or ambiguity in the appellate order on this issue and thus we have no reason to interfere with the same. Consequently, Ground No. 3 of the Revenue being devoid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant. It is a fact that the Assessing Officer has misconceived the facts of the case to some extent. In fact, the appellant has not claimed depreciation (a). 25% on the concrete path, driveways, interconnecting roads constructing around play grounds in the Golf Court as recorded by the Assessing Officer in its assessment order. The Golf Course consist of the open land with so many levels which has been prepared as per technical requirement as required to play the game Golf. It includes expenses towards creating water tank, bunkers, fair ways, turf, rubs, grounds, installing proper erection system. landscaping etc.. Golf Course is a specialized superstructure on the land with various levels of undulation, holes, small ponds etc. as a specialized professional requirement for playing the Golf on the piece of land Therefore, cost of creating such technical requirement will certainly make the field of Golf Course as a plant only. Although the various courts citations relied upon by the Id. A.R. of the appellant are not directly applicable to the facts of the case but there is an oblique reference for considering the Golf Course as a plant only. As far as the reliance placed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n @ 25% is allowed which is not a proper and justified approach for a quasi-judicial authority. We may point out that golf course has not been categorised in the schedule of depreciation and the main dispute between the assessee and the revenue is that the assessee is seeking to place the golf course in the category of plant and machinery whereas the Revenue wants to treat the same as building. 46. At this juncture, we may point out that we are not in agreement with the conclusion drawn by the ld. CIT(A) that a piece of land having some landscaping for playing golf such as various level undulation, holes, small ponds etc construed a super structure which can be categorised as a plant and machinery. If this view is accepted then every landscaping having some special features for the purpose of its intended use would become plant and machinery and every construction of building for the purpose of sports would be converted into plant and machinery. It is pertinent to note that for creation of golf course, landscaping is done for in various levels and some holes, ponds and walking path is created but in our humble understanding this kind of piece of land converted into a golf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been submitted before the AO and the AO could not get an opportunity to verify and examine the same. Therefore, in our considered opinion, this issue requires detailed verification and examination at the end of the AO after affording due opportunity of hearing to the assessee and without being prejudiced from the earlier assessment and first appellate order. Needless to say that the AO would examine all material facts on this issue and after considering the mandate of the relevant provisions o of the Act as well as the ratio of decisions relied upon by both the parties shall decide the issue afresh in accordance with law. Consequently, Ground No 4 and 4.1 for A.Y 2001-02 and Ground No. 3 3.1 for A.Y 2003-04 of the Revenue are allowed for statistical purposes by restoring the same to the file of the AO. Ground No 5 and 5.1 for A.Y 2001-02 and Ground No. 2 2.1 for A.Y 2003-04 of the Revenue. 49. Apropos these grounds, the ld. CIT-DR strongly supported the action of the AO and submitted that as per the agreement to sale executed between the company and ITC Ltd. in F.Y. 2000-01, 22.69 acres of land was sold to ITC Ltd. for a consideration of ₹ 45 cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and or any other movable or immovable property as defined in section 2(47) of the Act. In the present case, the ld. CIT-DR could not controvert this fact that neither the sale deed was executed nor possession of the land was handed over to ITC Ltd and the land in question continues to be in complete control of the assessee. We are in agreement with the conclusion of the ld. CIT(A) that mere receipt of entire sale consideration as an advance does not make the agreement as effective transfer as defined in section 2(47) of the Act. The ld. CIT-DR could not controvert this fact that the assessee is regularly showing advance amount as advance in its financial statements as the required permission from DTCP could not be obtained to execute sale deed in favour of the assessee to complete aforesaid transaction. So far as the allegation of the AO regarding mortgage by ITC Ltd is concerned, this fact was demolished by the AO himself in the remand report filed to the ld. CIT(A) during first appellate proceedings wherein it was stated that the funds, in fact, were raised by the assessee and not by ITC by mortgaging the land. From the record, it is apparent that the assessee continuous to posse ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
