2010 (7) TMI 840 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reopening the assessment under section 147 of the Income-tax Act, 1961.
2. Alleged defiance of the Additional Commissioner of Income-tax's direction under section 144A.
3. Dispute over the expenditure on land development.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:
The primary issue was whether the Assessing Officer (AO) was justified in reopening the assessment under section 147. The original assessment was completed under section 143(3) after scrutinizing the audited books of account. The AO recorded reasons for reopening the assessment, citing doubts about the investment declared by the assessee on land development and discrepancies in share application money and up-front fee paid to IDBI. The assessee argued that the reasons did not conform to statutory language and were based on the same material available during the original assessment, making it a case of "change of opinion."

The Tribunal examined the facts and found that the AO had referred the matter to the District Valuation Officer (DVO) during the original assessment, but the report was received only after the assessment was completed. The DVO's report raised doubts about the authenticity of the declared expenditure, providing tangible material for reopening the assessment. The Tribunal held that the reopening was valid as there was no formation of opinion in the original assessment due to the absence of the DVO's report.

2. Alleged Defiance of the Additional Commissioner of Income-tax's Direction under Section 144A:
The assessee claimed that the AO acted in defiance of the Additional Commissioner's direction under section 144A. However, the Tribunal did not find it necessary to address this issue separately, as the validity of the reopening was upheld based on the first ground itself. Consequently, this ground was dismissed as infructuous.

3. Dispute over the Expenditure on Land Development:
The assessee challenged the AO's finding that the land development expenditure amounted to only Rs. 3,30,423 against Rs. 33,04,232 recorded in the books. The AO had disallowed the interest claimed by the assessee, treating it as pre-operative expenditure. The Commissioner of Income-tax (Appeals) partly allowed the assessee's appeal, estimating the expenditure at 10% of the amount shown in the books.

The Tribunal examined the arguments from both sides. The assessee argued that the expenditure was corroborated by the reports of the registered valuer and the DVO. The Revenue contended that the expenditure was inflated and not verifiable. The Tribunal found that the interest expenditure was considered as pre-operative and not claimed in computing the income, thus supporting the Commissioner's order. The Tribunal dismissed the ground as infructuous, noting that the issue was of academic interest only.

Appeals of the Revenue:
The Revenue appealed against the Commissioner's finding that the actual expenditure on land development was 10% of the amount debited in the books. The Tribunal held that the issue was of academic interest and that the Revenue could take action against the director, Shri Nidhish Prakash, as per law.

Appeals for the Assessment Year 1999-2000:
Both parties agreed that the issues in these appeals were identical to those for the assessment year 1998-99. The Tribunal applied the same orders to these appeals, dismissing them accordingly.

Conclusion:
The Tribunal upheld the validity of the reopening of the assessment under section 147, dismissed the issues regarding the defiance of the Additional Commissioner's direction and the expenditure on land development as infructuous, and applied the same findings to the appeals for the subsequent assessment year.