2011 (2) TMI 1466 - AT - Income Tax

Summary

Issues Involved:
1. Validity of issuance of notice under Section 148 and assessment under Section 143(3) read with Section 147 for AY 1998-99.
2. Justification of addition of Rs. 19,67,575 by closing the contract on 31.03.1998.
3. Adhoc disallowance of site development expenses.
4. Treatment of difference between closing and opening work-in-progress for AY 2005-06.
5. Double taxation of profits for AY 2005-06.

Issue-wise Detailed Analysis:

1. Validity of Issuance of Notice under Section 148 and Assessment under Section 143(3) read with Section 147 for AY 1998-99:
The assessee contested the reopening of assessment, arguing that the assessments for subsequent years had been completed without making similar additions. The CIT(A) upheld the reopening, citing the Supreme Court's decision in CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd., which allowed reopening if income was processed under Section 143(1) without application of mind. The Tribunal found that the Assessing Officer had sufficient reason to believe that income had escaped assessment, thus justifying the reopening.

2. Justification of Addition of Rs. 19,67,575 by Closing the Contract on 31.03.1998:
The Assessing Officer added Rs. 19,67,575 to the income, presuming the project was substantially completed in AY 1998-99. The assessee argued that it followed the "Project Completion Method," and the project was not completed in AY 1998-99. The CIT(A) upheld the addition, stating that minimal expenditure was incurred after 1998-99. The Tribunal, however, found that the method of accounting adopted by the assessee was consistent and recognized under Accounting Standard-7. The Tribunal held that the Assessing Officer had no justification to change the method of accounting and reversed the addition of Rs. 19,67,575.

3. Adhoc Disallowance of Site Development Expenses:
The Assessing Officer made a 10% disallowance of site development expenses incurred in cash, which the CIT(A) scaled down to 5%. The Tribunal upheld this disallowance, noting that the assessee failed to verify and substantiate the expenditure.

4. Treatment of Difference between Closing and Opening Work-in-Progress for AY 2005-06:
The Assessing Officer treated the difference between closing and opening work-in-progress as income, disallowing the expenditure of Rs. 16,34,933 claimed by the assessee. The CIT(A) found that the project was considered completed in AY 1998-99, and taxing the difference in AY 2005-06 amounted to double taxation. The Tribunal restored the issue to the Assessing Officer for fresh adjudication, directing the assessee to prove that the expenditure was incurred for the construction and was genuine.

5. Double Taxation of Profits for AY 2005-06:
The CIT(A) suggested that the assessee take remedial measures by filing appropriate petitions regarding the double taxation of profits. The Tribunal did not interfere with this observation and directed the assessee to approach the Assessing Officer for fresh adjudication.

Conclusion:
- The appeal for AY 1998-99 was partly allowed, with the addition of Rs. 19,67,575 being reversed.
- The appeals for AY 2005-06 were restored to the Assessing Officer for fresh adjudication, with directions to resolve the issues based on the Tribunal's findings.