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2015 (12) TMI 462 - AT - Income TaxRevision u/s 263 - CIT held that the AO has failed to verify the correctness of loss declared by the assessee company in the construction project - Held that - AO after discussions made additions u/s 40(a)(ia) of the Act with respect to payment made directly by the buyer M/s Silverline Enterprise to M/s Sarovar Developers Private Limited on behalf of the assessee company being out of court settlement amount without deduction of TDS which was considered by the AO as having paid towards the development of the said property which addition was finally deleted by in Vidyasagar Investments Private Limited v. The ITO for assessment year 2010-11. It was also noted by the AO that the assesssee company has made balance payment of ₹ 6,05,60,000/- to M/s Sarovar Developers Private Limited towards construction of the project after deducting TDS as per the Act. Thus, it could not be said that the AO has not considered this project, its cost of construction, sale of project and other facts and circumstances surrounding this project which is the sole project undertaken by the assessee company, while framing the assessment order dated 01-03-2013 u/s 143(3) of the Act. The AO accepted the loss sustained by the assessee company in this project to be allowed to be set off against other income of the assessee after application of mind and considering relevant material on record which was one of the plausible view taken by the AO which view cannot be considered as an erroneous view. The CIT also has not brought on record that how the view undertaken by the AO could be considered as erroneous and prejudicial to the interest of Revenue. We, therefore, hold that the order passed by the CIT u/s 263 of the Act is not sustainable in law and is hereby set aside - Decided in favour of assessee.
Issues Involved:
1. Verification of the cost of construction and the resultant loss declared by the assessee. 2. Verification of the creditworthiness of the purchaser, M/s Silverline Enterprise. Issue-wise Detailed Analysis: 1. Verification of the Cost of Construction and Resultant Loss: The Principal Commissioner of Income Tax (CIT) issued a notice under section 263 of the Income Tax Act, 1961, questioning the cost of construction and the resultant loss declared by the assessee company. The CIT observed that the Assessing Officer (AO) did not verify the correctness of the loss declared by the assessee company in the construction project. The CIT noted that the assessee company showed a cost of construction of Rs. 8,88,02,711/- for a housing project in Gujarat, while the sale price was only Rs. 7,98,00,000/-, resulting in a loss of Rs. 90,02,711/-. Additionally, the CIT pointed out that the AO failed to investigate the comparative selling rate of immovable properties in the area and did not make any enquiry from the purchasing party. The CIT concluded that the AO accepted the loss declared by the assessee company without proper verification, making the assessment order erroneous and prejudicial to the interest of the Revenue. In response, the assessee company explained that the project faced delays and disputes, leading to increased costs and eventual sale at a lower price. The assessee argued that the AO had all the relevant details about the project during the original assessment proceedings and had applied his mind to the facts before allowing the loss. The assessee contended that the CIT was acting beyond its jurisdiction by questioning the AO's decision, which was a plausible view after due consideration of the material on record. The Tribunal observed that the AO had indeed considered the details of the project, including the dispute and the sale process, during the original assessment proceedings. The Tribunal noted that the AO's decision to allow the loss was based on a plausible view and could not be considered erroneous. The Tribunal held that the CIT had not demonstrated how the AO's view was erroneous and prejudicial to the interest of the Revenue. Therefore, the Tribunal set aside the CIT's order under section 263 and restored the AO's assessment order. 2. Verification of the Creditworthiness of the Purchaser: The CIT also raised the issue of non-verification of the creditworthiness of the purchaser, M/s Silverline Enterprise. The CIT observed that while the AO issued notices under section 133(6) to M/s Silverline Enterprise, there was no evidence of compliance with these notices. The CIT concluded that the AO failed to verify the creditworthiness of the purchaser, making the assessment order erroneous and prejudicial to the interest of the Revenue. The assessee company argued that the AO had verified the entire deal with M/s Silverline Enterprise and collected all necessary information, including the purchaser's creditworthiness. The assessee contended that the CIT could not substitute its opinion for that of the AO, who had already formed a plausible view after due consideration of the facts. During the Tribunal proceedings, the Departmental Representative (DR) did not press the issue of verification of the creditworthiness of the purchaser. The Tribunal, therefore, did not delve into this issue further and focused on the primary issue of the cost of construction and resultant loss. Conclusion: The Tribunal concluded that the AO had duly considered all relevant details about the project and the resultant loss during the original assessment proceedings. The CIT had not demonstrated how the AO's view was erroneous and prejudicial to the interest of the Revenue. Therefore, the Tribunal set aside the CIT's order under section 263 and restored the AO's assessment order, allowing the assessee's appeal.
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