2017 (2) TMI 595 - AT - Income Tax

Revision u/s 263 - Held that - Non verification of direct expenses as the project got occupancy certificate on 21.9.2010, the assessee in response to specific query filed necessary details of direct expenses vide Annexure-III filed copies of which are at pages 25 to 28 of the paper book. As in the show cause notice which is in respect of interest amount of ₹ 12.84 lakhs as direct expenses, we find from the paper book that third last item of expenses is interest on loan of ₹ 12,83,780/- which was also very much before the AO in the details of WIP of Kalamboli project as annexure-2. On non verification of genuineness of advances received from the customers, the AO called upon the assessee vide para 12 of the questionnaire dated 17.6.2011 to furnish the details of booking advances in specified format which was replied vide letter dated 20.9.2011 vide para 12 forming part of the assessee s paper book at pages 29 and 30. From the above facts on record it is abundantly clear that the revisionary powers were exercised by the CIT without examining the assessment record was not justified as every issue raised in the show cause notice was examined by the AO. The AO raised specific query and assessee has filed specific reply to each and every point with detailed annexure which are on assessment file. Under this circumstance, we are not in agreement with conclusions drawn by the Commissioner that the assessment order is erroneous and prejudicial to the interest of revenue. - Decided in favour of assessee

Summary

Issues Involved:
1. Invocation of revisionary jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Verification of the valuation of work in progress (WIP).
3. Verification of direct expenses.
4. Treatment of interest cost as direct expenses.
5. Examination of the source and genuineness of advances received from customers.

Issue-wise Detailed Analysis:

1. Invocation of revisionary jurisdiction under Section 263 of the Income Tax Act, 1961:
The primary issue is whether the Commissioner of Income Tax (CIT) was justified in invoking Section 263 to revise the assessment order passed under Section 143(3). The CIT issued a show cause notice citing various reasons for considering the assessment order erroneous and prejudicial to the interest of the Revenue. The assessee responded by arguing that the original assessment was conducted following the percentage of completion method as per Accounting Standard-7 and that all necessary details were provided and verified by the Assessing Officer (AO). The CIT, however, did not accept this contention and held that the AO did not properly verify the issues raised, thereby justifying the invocation of Section 263.

2. Verification of the valuation of work in progress (WIP):
The CIT contended that the AO did not verify the basis of estimating the valuation of WIP. The assessee countered that detailed calculations were submitted during the assessment proceedings, including the proportionate land cost and other direct expenses. The CIT found discrepancies in the proportionate land cost figures and noted that the gross profit estimation lacked a proper basis. Hence, it was concluded that the AO did not apply his mind adequately, rendering the assessment order erroneous and prejudicial to the interest of the Revenue.

3. Verification of direct expenses:
The CIT argued that the AO did not verify the direct expenses, especially since the project received its occupancy certificate after the assessment year in question. The assessee provided details of construction project expenses during the assessment proceedings, which were verified by the AO. Despite this, the CIT held that the AO's verification was insufficient, thus justifying the revision under Section 263.

4. Treatment of interest cost as direct expenses:
The CIT noted that the interest cost of ?12.84 lakhs should have been treated as direct expenses but was not properly verified by the AO. The assessee clarified that the interest on borrowed capital was included in the direct expenses and provided detailed workings during the assessment. However, the CIT found that the AO did not adequately verify this aspect, contributing to the assessment order being deemed erroneous and prejudicial to the Revenue.

5. Examination of the source and genuineness of advances received from customers:
The CIT highlighted that the AO did not examine the source and genuineness of advances received from customers. The assessee provided detailed lists of advances received, including customer names, addresses, booking dates, and amounts, during the assessment proceedings. The CIT observed significant discrepancies in the rates per square foot for flats sold on the same date and floor, which the AO did not investigate. This lack of inquiry led the CIT to conclude that the AO failed to apply his mind properly, making the assessment order erroneous and prejudicial to the Revenue.

Judgment:
The Tribunal found that the CIT's invocation of Section 263 was not justified as the AO had raised specific queries on all the issues mentioned in the show cause notice and the assessee had provided detailed responses. The Tribunal referred to precedents where it was held that if the AO has taken one of the possible views, the order cannot be deemed erroneous or prejudicial to the Revenue. Consequently, the Tribunal quashed the proceedings under Section 263 and upheld the original assessment order.

Conclusion:
The Tribunal allowed the appeal of the assessee, concluding that the assessment order was neither erroneous nor prejudicial to the interest of the Revenue as the AO had conducted a detailed examination of all relevant issues during the assessment proceedings.