2009 (12) TMI 937 - AT - Income Tax

Issues Involved:
1. Reopening of assessment u/s. 148 of the Income-tax Act, 1961.
2. Method of completion of projects.
3. Non-acceptance of various expenses claimed by the assessee.
4. Treatment of compensation paid to various persons as the cost of the project.
5. Allowance of expenses incurred in subsequent years as part of the project cost.
6. Computation of profit from the project based on receipts against the sale of flats.
7. Deletion of addition out of receipt from the project.

Issue-wise Detailed Analysis:

1. Reopening of Assessment u/s. 148 of the Income-tax Act, 1961:
The assessee challenged the reopening of the assessment made by the Assessing Officer (AO) u/s. 148. The AO issued the notice based on documents found during a survey u/s. 133A, indicating that the assessee's project was substantially complete by 31st March 1999, and thus profits should have been declared in A.Y. 1999-2000. The CIT(A) upheld the AO's action, stating that there was prima facie material to believe that income had escaped assessment. The Tribunal found no infirmity in the CIT(A)'s order, referencing the Supreme Court decision in ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., and upheld the reopening of the assessment.

2. Method of Completion of Projects:
The assessee argued that it followed the Project Completion Method, which had been accepted by the Department in previous years. The CIT(A) rejected this, stating that the project was substantially complete in the previous year relevant to A.Y. 1999-2000, as nearly all flats were sold and payments were received. The Tribunal agreed with the CIT(A), noting that accepting the assessee's claim would allow indefinite tax deferral by keeping a small part of the project incomplete.

3. Non-acceptance of Various Expenses Claimed by the Assessee:
The CIT(A) called for a remand report from the AO regarding the expenses claimed by the assessee. After reviewing the remand report and the assessee's submissions, the CIT(A) directed the AO to verify certain figures and recompute the profit from the project. The Tribunal upheld the CIT(A)'s directions, finding no infirmity in the order.

4. Treatment of Compensation Paid to Various Persons as the Cost of the Project:
The Revenue contested the CIT(A)'s direction to treat compensation paid to various persons as part of the project cost. The CIT(A) had called for a remand report and, after considering the evidence provided by the assessee, directed the AO to include the compensation as project cost. The Tribunal found no infirmity in the CIT(A)'s order, noting that the compensation was paid through cheques and the resale of flats resulted in higher receipts.

5. Allowance of Expenses Incurred in Subsequent Years as Part of the Project Cost:
The CIT(A) admitted additional evidence regarding expenses incurred after 31.3.1999 and called for a remand report. The AO objected, stating these expenses were incurred in subsequent years and were in the nature of repairs. The CIT(A) allowed an amount of Rs. 2,94,80,530 as part of the project cost. The Tribunal restored the issue to the AO for fresh adjudication, directing the AO to verify the evidence and ensure the expenses were not repairs.

6. Computation of Profit from the Project Based on Receipts Against the Sale of Flats:
The CIT(A) directed the AO to compute the profit from the project based on receipts from the sale of flats in various accounting years. The Tribunal restored this issue to the AO for fresh adjudication, in line with the directions given for the previous issue.

7. Deletion of Addition Out of Receipt from the Project:
The CIT(A) deleted the addition of Rs. 2,19,03,394, holding that it would result in double taxation as the receipt was already considered in A.Y. 1999-2000. The Tribunal restored this issue to the AO for fresh adjudication, consistent with the decision on the related issues.

Conclusion:
The Tribunal dismissed the assessee's appeal (I.T.A. No. 3568/Mum/2006), partly allowed the Revenue's appeal for statistical purposes (I.T.A. No. 3483/Mum/06), and allowed the Revenue's appeal for statistical purposes (I.T.A. No. 4396/Mum/06). The Tribunal directed the AO to re-examine several issues, ensuring a thorough and fair reassessment.

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