2015 (8) TMI 1142 - AT - Income Tax

Reopening of assessment - Held that - There is no merit in the contentions of the assessee. As pointed out by the ld. DR that the AO has reopened the assessment, inter-alia, with regard to the income arising on sale of other assets. The AO has also made addition with regard to the sale of assets, and hence, we are of the view that the reopening has been done in accordance with law. Accordingly, we reject the contention of the assessee in this regard. - Decided against assessee. Disallowance out of electricity charges - Held that - We notice that the electricity charges of ₹ 7980/-pertain to residence of the assessee. Though the assessee has contended that he was using the residence as his office, yet no proof whatsoever was placed before us to substantiate the same. Under these circumstances, we are of the view that the ld. CIT(A) was justified in confirming the addition of ₹ 7980/- towards electricity charges.- Decided against assessee. Disallowance of telephone expenses - Held that - We notice that the assessee has claimed a sum of ₹ 1,03,939/- in aggregate as telephone expenses, which included residential phone also and the AO has disallowed 20% of the same towards personal use. Considering the activity of the assessee, we are of the view that the disallowance of 20% of the aggregate amount of telephone expenses is on higher side. Accordingly, we modify the order of ld. CIT(A) on this issue and direct the AO to restrict the disallowance to 10% of the telephone expenses claimed by the assessee. - Decided partly in favour of assessee. Assessment of profit on plot no.42 - Held that - The undisputed facts remains that the assessee has completed the project carried on plot no.42. However, while estimating the profit on the said project, the AO allocated administrative expenses equally on all the three projects viz Plot No.42 (which is completed), Plot No.57 and Plot No.76 (under progress). Under these set of facts, we are of the view that the AO was not justified in allocating the administrative expenses equally between all the three projects. Since the assessee has been selling flats constructed on Plot No.42, naturally he would have spent more time and energy in respect of this project. Accordingly, we are of the view that the major portion of the administrative expenses should be allocated to Plot No.42. Considering the status of each of the project, we are of the considered view that the allocation of administrative expenses would meet ends of justice, if it is allocated in the following manner, Plot No.42 70%, Plot No.57 20% and Plot No.76 10% Accordingly, we set aside the order of the ld. CIT(A) on this issue and direct the AO to recompute the profit on construction of flats on Plot No.42 by adopting the administrative expenses in the ratio cited above.- Decided partly in favour of assessee Profit from construction on flats on plot Nos. 57 and 76 - assessment of profit at 11 % - Held that - AR submitted that both the projects are at initial stages and hence no profit need to be estimated. However, the ld. AR failed to show about the stage of completion of project. In the absence of the details, we are not able to appreciate the contention of the ld. AR. At the same time, we notice that the estimate of profit from WIP made by the AO at 11% is on the higher side. Accordingly, we modify the order of ld. CIT(A) and direct the AO to estimate the profit from WIP of Plot Nos.57 and 76 at 8% of the WIP. While computing the WIP, the AO should adopt the figure of administrative expenses as per our direction given in the earlier paragraph. - Decided partly in favour of assessee.

Summary

Issues:
1. Reopening of assessment based on presumption without pointing out the specific income.
2. Disallowance of electricity charges related to business activities.
3. Disallowance of telephone expenses for personal use.
4. Assessment of profit on different plots.
5. Estimation of profit from construction on specific plots.

Reopening of Assessment:
The appeal challenged the initiation of reassessment proceedings based on reasons recorded by the Assessing Officer (AO). The AO reopened the assessment for the assessment year 2004-05, suspecting income had escaped assessment. The appellant contended that the AO reopened the assessment on presumption without specifying the income. However, the tribunal found that the AO had reopened the assessment concerning income from the sale of assets, not just work-in-progress (WIP). The tribunal upheld the reopening, stating that the AO had made additions related to the sale of assets, thus acting in accordance with the law.

Electricity Charges Disallowance:
The dispute involved the disallowance of electricity charges by the AO, which the appellant claimed were related to business activities. The tribunal noted that while the appellant asserted using the residence as an office, no evidence supported this claim. Consequently, the tribunal upheld the disallowance of electricity charges related to the residence.

Telephone Expenses Disallowance:
Regarding telephone expenses, the AO disallowed 20% for personal use, which the tribunal deemed excessive. The tribunal directed the AO to limit the disallowance to 10% of the claimed telephone expenses, considering the appellant's official usage.

Assessment of Profit on Plots:
The AO assessed profits from construction on different plots, allocating expenses equally among them. The tribunal disagreed with this approach, noting that the completed project on Plot No.42 required a different allocation of administrative expenses. It directed the AO to recompute the profit by assigning administrative expenses in a specific ratio for each plot.

Estimation of Profit from Construction:
The AO estimated profit from construction on specific plots at 11% of Work-in-Progress (WIP), which the tribunal deemed excessive. The tribunal directed the AO to estimate the profit at 8% of WIP for the relevant plots, considering the stage of completion and administrative expenses allocation.

In conclusion, the tribunal partly allowed the appeal, addressing various issues related to the assessment of income and expenses for the appellant's business activities.