2018 (8) TMI 193 - AT - Income Tax

Reopening of assessments - Addition on sale of 12 flats - Held that - The assessee has furnished the assessment order dated 08.1.2008 in the paper book and from the assessment order, there was no noting regarding the verification of the parking fees collected by the assessee and the sale proceeds received for 9 flats and admission of income and the closing stock etc. The Ld.AR also did not establish with tangible evidence that the AO has examined the details and taken a conscious decision. Further, the assessment is reopened within 4 years from the end of relevant assessment year and the case does not fall under the proviso to section 147. Once the case does not fall under the proviso to section 147 the belief of the assessing officer is sufficient with regard to escapement of income. See M/s Rajesh Jhaveri Stock Brokers(2007 (5) TMI 197 - SUPREME COURT). On merits of addition it is established that as on the date of sale, the construction was not complete and there was a time limit for assessee to complete the construction. Since the assessee is following construction completion method, the assessee has admitted the certified value of construction of ₹ 31,40,950/- which works out to 72% of the sale value. The stage of completion of work was certified by the approved Panel Engineer and the AO has not brought on record to establish that the assessee has completed the construction more than the value certified by the engineer. Therefore, we hold that the assessee has correctly admitted the sum of ₹ 31,40,950/- towards the value of construction upto 31.03.2006, no further addition is required. The remaining sale proceeds were already admitted by the assessee in subsequent year in respect of 9 flats. Accordingly, we hold that the assessee has correctly, admitted the sale value in respect of 9 flats and no further addition is required. Therefore, the order of the Ld.CIT(A) is set aside and the addition made by the AO is deleted. The appeal of the assessee on this ground is allowed.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act.
2. Addition of ?12,19,050/- on sale of 12 flats.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:

The assessee challenged the validity of the notice issued under Section 148, arguing that the original assessment was completed under Section 143(3) and all necessary details were furnished during the original proceedings. The assessee contended that the reopening of the assessment was based on information already available in the assessment records, implying a mere difference of opinion by a subsequent Assessing Officer (AO).

The Tribunal referred to the Supreme Court judgment in the case of M/s Rajesh Jhaveri Stock Brokers, which clarified that for reopening an assessment under Section 147, the AO needs to have "reason to believe" that income has escaped assessment. The belief does not need to be based on conclusive evidence at the initiation stage. The Tribunal noted that the reopening was within four years from the end of the relevant assessment year and did not fall under the proviso to Section 147, which requires both conditions of escapement of income and failure to disclose material facts to be met.

The Tribunal held that the AO had sufficient cause to believe that income had escaped assessment, and thus, the notice issued under Section 148 was valid. The additional ground raised by the assessee was dismissed.

2. Addition of ?12,19,050/- on Sale of 12 Flats:

The AO observed discrepancies in the sale value of flats and the income admitted by the assessee. The assessee had constructed a four-storied building with 12 flats and sold 9 flats for ?53,23,000/-, while 3 flats remained unsold. The AO noted that the assessee admitted the structure value at ?31,40,950/- based on a panel engineer's report, against the actual sale consideration of ?69,81,824/-. The AO made an addition of ?25,51,204/- representing the difference between the sale value of 9 flats and the structure value, along with the value of unsold flats.

The assessee argued that they followed the contract completion method, admitting income based on the stage of completion. The Tribunal examined the details and noted that the assessee had admitted the entire sale proceeds of the project over three financial years (2005-06 to 2007-08) as per the stages of completion. The Tribunal observed that the construction was not completed at the time of sale and the assessee had correctly admitted the certified value of construction at ?31,40,950/-, which was 72% of the sale value.

The Tribunal held that the AO did not establish that the construction was completed beyond the certified value. Therefore, the assessee had correctly admitted the sale value in respect of 9 flats, and no further addition was required. The order of the CIT(A) confirming the addition was set aside, and the addition made by the AO was deleted.

3. Addition Related to Unsold Flats:

Regarding the remaining 3 flats, the CIT(A) confirmed an addition of ?10,38,260/- for the work in progress as of 31.03.2006. The assessee did not press this ground during the appeal hearing, and thus, it was dismissed as not pressed.

Conclusion:

The appeal of the assessee was partly allowed. The Tribunal validated the notice issued under Section 148 and deleted the addition related to the sale of 9 flats, while the addition related to the unsold flats was dismissed as not pressed.

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