2019 (7) TMI 1675 - AT - Income Tax

Reopening of assessment u/s 147 - estimating the income of the assessee firm at 25% on the advance received by the assessee from its customer - HELD THAT - The words 'reason to believe' cannot mean that the Assessing Officer should have finally ascertained the facts by legal evidence. They only mean that he forms a belief from the examination he makes or from any information that he receives. If he discovers or finds or satisfies himself that the taxable income has escaped assessment, it would amount to saying that he has reason to believe that such income had escaped assessment. The justification for his belief is not to be judged from the standards of proof required for coming to a final decision. A belief though justified for the purpose of initiation of the proceedings under section 147, may ultimately stand altered after the hearing and while reaching the final conclusion on the basis of the intervening enquiry. At the stage where he finds a cause or justification to believe that such income has escaped assessment, the Assessing Officer is not required to base his belief on any final adjudication of the matter. Thus it is evident that the AO has initiated the reassessment proceedings u/s 147/148 as per the provisions of the Act and all the conditions laid down for reopening has been fulfilled. Hence, this ground of the appellant fails and the ground of appeal is dismissed. Estimation of income - As in compliance of the agreement no registered sale deed was executed in the year under consideration and the amount of total area sold was also reduced from 34720 to 18954 sq.ft for the total consideration of ₹ 11,76,70,000/- instead of the original amount of ₹ 16,73,50,400/-. Therefore, the Assessing Officer has wrongly determined the profit @25% of ₹ 13,53,76,000/- without any basis or material in position merely on the basis of presumption which is not sustainable in the eye of law. Even otherwise, the sale deeds in dispute was executed in financial year 2015-16 for which the assessee has offered its income. Therefore, the ld.First Appellate Authority has rightly deleted the addition in dispute by passing the detailed order mention above. Therefore, no interference is called for in the well-reasoned order passed by the ld.First Appellate Authority in deleting the addition in dispute and we dismiss the Revenue appeal and uphold the impugned order. After going through the findings given by the ld.First Appellate Authority, which we have reproduced above, we fully agree with the same and uphold the impugned order for initiating the proceedings u/s.147 of the Income Tax Act and dismissed the appeal filed by the assessee.

Summary

Issues Involved:
1. Legality of reopening the assessment under sections 147/148 of the Income Tax Act.
2. Justification for the addition of ?3,38,44,000 by estimating the income at 25% on the advance received from customers.

Issue-wise Detailed Analysis:

1. Legality of Reopening the Assessment under Sections 147/148 of the Income Tax Act:

The assessee challenged the reopening of the assessment under sections 147/148, arguing that the Assessing Officer (AO) did not establish positively that any income had escaped assessment. The AO reopened the case based on the observation that the assessee had ?5,21,47,182 as work in progress and ?13,53,76,000 as advances from customers, but did not offer matching income on a percentage completion method per AS-7 for taxation. Additionally, the AO noted an inadmissible expenditure of ?3,76,496 under section 40A(3).

The assessee filed objections, which were disposed of by the AO. The First Appellate Authority upheld the AO's decision, stating that the reopening was justified as the AO had reason to believe that income had escaped assessment. The provisions of section 147 require the AO to have a cause or justification to think that income had escaped assessment, which was satisfied in this case. The reopening was based on information provided by the audit party, which is permissible under law.

The Tribunal agreed with the First Appellate Authority, noting that the AO had initiated reassessment proceedings as per the provisions of the Act, and all conditions for reopening were fulfilled. Therefore, the Tribunal dismissed the assessee's appeal on this ground.

2. Justification for the Addition of ?3,38,44,000 by Estimating the Income at 25% on the Advance Received from Customers:

The AO added ?3,38,44,000 to the assessee's income by estimating 25% of the advance received from customers, relying on the case of Param Anand Builders Pvt. Ltd. The assessee argued that the advance received was disclosed in the books as advances from customers and no sale deed was executed in the relevant assessment year. The First Appellate Authority found that the construction was ongoing, and the actual construction cost incurred was only 26% of the property value agreed to be sold.

The First Appellate Authority observed that the AO arbitrarily determined the profit at 25% without any basis or material, and the sale deed was executed in FY 2015-16 for a reduced area and consideration. The excess amount received was refunded. Therefore, the addition made by the AO was not sustainable.

The Tribunal upheld the First Appellate Authority's decision, noting that no registered sale deed was executed in the year under consideration, and the AO's determination of profit was merely presumptive. The Tribunal dismissed the Revenue's appeal and upheld the deletion of the addition.

Conclusion:

The Tribunal dismissed both the Revenue's and the assessee's appeals. The reopening of the assessment under sections 147/148 was upheld as justified, and the addition of ?3,38,44,000 was deleted as it was based on arbitrary estimation without any basis. The Tribunal's decision was pronounced on 17-07-2019.