2016 (7) TMI 201 - AT - Income Tax

Reopening of assessment - Held that - On a vigilant perusal of documents and details referred by the counsels and reasons for reopening of assessment, it is amply clear that the assessee did not classify the golf course as per provisions of the Act as to whether it is part of building or plant and machinery and claimed depreciation @ 25% which was allowed @ 10% only in A.Y. 2003-04 and thus, in our considered opinion it can safely be presumed that the assessee did not disclose all material facts fully and truly for the claim of deprecation on golf course. Further, we are also in agreement with the contention of the ld. CIT-DR that the assessee did not properly disclose income from Labunum Project as per percentage completion method because page No. 4 of the assessee s paper book reveals that entire sales was completed upto A.Y. 2001-02 and only there was a sale of ₹ 3,10,99,749/- in F.Y. 2001- 02 which is less than 2% of the total sales which resulted into under statement of income from sale of apartments of ₹ 3.89 crores. From the assessee s paper book page 89, note on Labunum profitability it has been mentioned that profit for the F.Y. 2000-01 has been arrived on the basis of matching the revenue for the number of apartments sold in the F.Y. with the corresponding cost of the apartment and to support this factual contention, the assessee also enclosed a statement on profitability from Labunum Project which reveals that total sale value was of ₹ 174.99 crores whereas the Revenue recognised from sales was 171.10 crores resulting into understatement of sale receipts by ₹ 3.89 crores and this treat6metn given by the assessee was not in accordance with the well accepted principles of percentage of completion accounting method. Thus, these facts clearly establish the mistake apparently showing that there was failure on the part of the assessee to disclose all relevant facts necessary for assessment truly and fully for the period under assessment. Hence, the AO was well within his valid jurisdiction while issuing notice u/s 148 of the Act beyond four years for initiation of proceedings of reassessment u/s 147 of the Act. On the third issue, the ld. AR fairly submitted that after settlement of interest in respect of loan advanced by M/s Gilt Facilities P. Ltd, the amount of interest including ₹ 61,11,162/- was related to prior period and not for A.Y 2001- 02. As per the details filed during the assessment proceedings available at pages 31 to 45 of assessee s paper book, it is amply clear that on 16.4.2001, Gilt Facilities confirmed the calculation forwarded by the assessee that an amount of ₹ 1,28,74,844/- was accepted as due from the assessee to M/s Gilt Facilities P. Ltd as interest on surplus money lying with the assessee. This calculation undisputedly includes impugned amount which clearly shows that the interest amount of ₹ 61.11 lakhs was not related to A.Y 2001-02. In our considered opinion, from the correspondence copy of the agreement dated 16.8.1995 between the assessee and M/s Gilt Facilities P. Ltd it is clear that an agreement was entered with the said company and because there was a delay on the part of the assessee company, therefore, as per agreement, M/s Gilt Facilities P. Ltd vide letter dated 16.2.2001 demanded interest on unutilised amount @ 25% per annum and the assessee vide reply dated 20.3.2001 informed M/s Gilt Facilities P. Ltd that interest @ 16% per annum is acceptable and finally vide letter date 31.3.2001, M/s Gilt Facilities P. Ltd accepted the proposal of the assessee and this liability stood crystallised during the period under consideration. In view of above facts, it cannot be said that the assessee did not disclose truly and fully all material facts on the issue of interest claim. Therefore, on the third count, action of the AO cannot be held as valid for assuming jurisdiction to reopen the assessment and to issue the notice u/s 147/148 of the Act. Addition being the difference between the budget cost of the flats - Held that - From the statement submitted by the assessee during the assessment proceedings, available at page 5 and 6 we observe that the assessee has recorded total sales value of ₹ 174.99 crores whereas sales value has been recognised @ 98% of ₹ 171.10 crores and proportionate project cost of ₹ 156.15 crores has been debited to Profit and loss account and in our humble understanding, this calculation is not in accordance with percentage of completion method. If assessee has incurred some more cost in the subsequent A.Ys, but the total sales value was received during the year under consideration, then the sales value has to be recognise accordingly. In view of the above, we are of the considered opinion that the issue requires examination and verification at the end of the AO according to the percentage of completion method consistently and regularly followed by the assessee and accepted by the department. Therefore, this issue is restored to the file of the AO for a fresh adjudication after affording due opportunity of being heard to the assessee. Treatment to prior period interest as expenditure of the year under consideration - Held that - The alleged interest amount relates to prior period however, it was accrued and crystallised during the financial period under consideration and entire amount was paid to Gilt was parted after deduction of tax at source and same amount was offered to tax by the recipient Gilt Facilities P. Ltd. From the copies of the agreement dated 16.8.1995 and correspondence between the assessee and M/s Gilt Facilities P. Ltd, it is clear that the issue of interest was raised and settled during F.Y. 2000-01 and the assessee paid interest to M/s Gilt Facilities P. Ltd as per computation agreed between them. However, from the copy of the chart showing the calculation of total interest amount paid by the assessee to M/s Gilt Facilities P. Ltd reveals that the impugned amount was related to prior period but during the prior period there was no occasion for the assessee to claim the same as expenditure because this liability was accrued and crystallised after long conversation and correspondence with the Gilt Facilities P. Ltd as per agreement dated 16.8.1995 and the assessee paid amount after deduction of tax and the same was offered to tax by the recipient Gilt Facilities P. Ltd during A.Y 2001-01. Depreciation on golf course - @ 25% under the category of plant machinery OR 10% as allowable in the case of building which includes golf course - Held that - Facts regarding this issue have to be dealt in respect to golf course of 300 acres land and how it became plant and machinery attracting 25% depreciation. The AO has to examine these details to ascertain the issue between the parties as stated above. We also note that the assessee in its written submissions before the authorities below as well as before the Tribunal has submitted the details of construction on the 300 acres of land converting it into a golf course, but these details have not been submitted before the AO and the AO could not get an opportunity to verify and examine the same. Therefore, in our considered opinion, this issue requires detailed verification and examination at the end of the AO after affording due opportunity of hearing to the assessee and without being prejudiced from the earlier assessment and first appellate order. Addition being the capital gain on agreement to sale - Held that - CIT(A) was right in drawing conclusion that there was neither sale of land nor transfer of possession as per clause (i) to (v) of section 2(47) of the Act pertaining to sale of immovable property and he rightly concluded that these provisions covers a situation where registration of sale deed has been completed. As per clause (v) of section 2(47), any transaction involving the allowing of possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882, but in the present case, the AO could not controvert this fact that the possession of the land in question was not transferred to the assessee and thus applicability of clause (v) of section 2(47) of the Act as part performance of contract cannot be inferred. On the basis of above discussion, we are unable to see any perversity, ambiguity or any other valid reason to interfere with the impugned order on this issue and thus we uphold the same.

Summary

Issues Involved:
1. Validity of reassessment proceedings under section 147 of the Income-tax Act.
2. Addition on account of difference between budget cost of flats.
3. Treatment of prior period interest expenditure.
4. Depreciation rate applicable to golf course.
5. Capital gain on agreement to sale dated 17.3.2003.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:
The assessee challenged the reassessment proceedings on multiple grounds, including being initiated on a mere change of opinion, barred by limitation, and without forming a reasonable belief that income had escaped assessment. The CIT(A) held that the reassessment was valid, noting that the AO had independently applied his mind and the issues were not fully disclosed by the assessee. The Tribunal upheld this view, emphasizing that the AO had validly initiated reassessment proceedings beyond four years due to the assessee's failure to disclose fully and truly all material facts necessary for assessment, particularly regarding depreciation on the golf course and income from the Laburnum Project.

2. Addition on Account of Difference Between Budget Cost of Flats:
The AO added ?3.89 crores to the income of the assessee, alleging suppression of revenue recognition from the Laburnum Project. The CIT(A) deleted this addition, accepting the assessee's consistent application of the percentage completion method. The Tribunal, however, found that the issue required further examination and verification by the AO, as the assessee's calculation did not align with the percentage completion method. The matter was remanded to the AO for fresh adjudication.

3. Treatment of Prior Period Interest Expenditure:
The AO disallowed ?61.11 lakhs as prior period expenditure. The CIT(A) allowed the expenditure, noting that the liability accrued and crystallized during the year under consideration, and the interest was paid after deducting TDS, which was also deposited. The Tribunal upheld the CIT(A)'s decision, agreeing that the liability was crystallized in the relevant financial year and the interest was correctly claimed.

4. Depreciation Rate Applicable to Golf Course:
The AO allowed depreciation on the golf course at 10% as a building, while the assessee claimed 25% as plant and machinery. The CIT(A) sided with the assessee, treating the golf course as plant and machinery. The Tribunal disagreed, noting that the CIT(A) did not provide a proper basis for categorizing the golf course as plant and machinery. The issue was remanded to the AO for fresh adjudication, emphasizing the need for detailed verification and examination.

5. Capital Gain on Agreement to Sale Dated 17.3.2003:
The AO taxed the entire consideration received from ITC Ltd. as long-term capital gain, arguing that the transfer was complete. The CIT(A) found that neither the sale deed was executed nor possession transferred, and the land was still under the assessee's control. The Tribunal upheld the CIT(A)'s decision, noting that the agreement did not result in a transfer as defined under section 2(47) of the Act, and the transaction was not complete.

Conclusion:
The Tribunal dismissed the cross objections of the assessee and partially allowed the Revenue's appeals for statistical purposes, remanding certain issues for fresh adjudication by the AO. The decision emphasized the importance of full and true disclosure by the assessee and the proper categorization of assets for depreciation purposes.