2018 (10) TMI 1523 - AT - Income Tax

Re-opening of assessment u/s. 147 / 148 - Held that - The assessee filed its return of income on 27/09/2009 declaring total income at ₹ 1,70,61,600/-. The Assessing Officer (AO) completed the assessment u/s 143(3) on 30/12/2011 assessing the total income at ₹ 12,25,11,130/-. After giving effect to the order of the CIT(A), the AO revised the total income to ₹ 2,28,60,465/-. Once, the original assessment is re-opened on some issue, the AO can reassess any issue which may come to his notice subsequently during the course of proceedings u/s. 147 of the Act as per Explanation-3 to section 147. Thus, we uphold the order of the ld. CIT(A) on the issue of reopening. Bogus purchases - estimating the profit to the extent of 12.5% of the purchases - Held that - We find that the AO has failed to find any fault on the sales made by the assessee. In the case of Simit P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT the Hon ble Gujarat High Court has held that where purchases were not bogus but were made from parties other than those mentioned in the books of account, not entire purchase price but only profit element embedded in such purchases can be added to income of the assessee. CIT(A) has rightly directed the AO to restrict the disallowance to 12.5% of the disputed purchases. We uphold the order of the ld. CIT(A) and dismiss the 1st ground of appeal filed by the revenue. Unsold flats as stock-in-trade used for purpose of business - CIT-A held that the unsold flats as stock-in-trade used for purpose of business - Held that - In order to give relief to Real Estate Developers, section 23 has been amended w.e.f. AY 2018-19 (FY 2017-18). By this amendment, it is provided that if the assessee is holding any house property as his stock-in-trade which is not let out for the whole or part of the year, the annual value of such property will be considered as Nil for a period up to one year from the end of the financial year in which a completion certificate is obtained from the competent authority. In the instant case, the assessee is a builder and developer. The issue of taxability is with regard to unsold flats. The AY is 2009-10. In view of the insertion of sub-section (5) in section 23 by the Finance Act, 2017, w.e.f. 01.04.2018 narrated hereinbefore, we uphold the order of the Ld. CIT(A) and dismiss the 2nd ground of appeal filed by the revenue. Addition u/s. 14A r.w. Rule 8D - Held that - AO has rightly made a disallowance of ₹ 18,393/- u/s. 14A r.w. Rule 8D(2)(iii) of the Income tax Rules, 1962. This is in line with the judgement of the Hon ble Bombay High Court in the case of Godrej & Boyce Mfg.Co.Ltd. vs. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT . Therefore, we set aside the order of the CIT(A) on the above issue and restrict the disallowance to ₹ 18,393/- in place of ₹ 18,829/- made by the AO. Thus, the 1st ground of appeal is partly allowed.

Summary

Issues:
1. Reopening of assessment u/s. 147/148 of the Income Tax Act.
2. Estimation of profit on disputed purchases.
3. Treatment of unsold flats as stock-in-trade.
4. Disallowance u/s. 14A r.w. Rule 8D of Income Tax Rules, 1962.

Issue 1: Reopening of Assessment
The Appellate Tribunal ITAT Mumbai addressed the issue of reopening the assessment for AY 2009-10. The AO re-opened the assessment based on information received regarding bogus purchase bills. The Tribunal upheld the AO's decision to issue a notice u/s. 148, citing specific information as the basis for reopening the assessment. The Tribunal referred to a Bombay High Court case to support the decision, emphasizing the need for further investigation during reassessment proceedings. The Tribunal concluded that once an assessment is reopened on an issue, the AO can reassess any related issue that arises during the proceedings under section 147 of the Act.

Issue 2: Estimation of Profit on Disputed Purchases
Regarding the estimation of profit on disputed purchases, the Tribunal considered the failure of the assessee to provide evidence of physical delivery of materials. The AO made an addition based on this lack of evidence. The Tribunal noted that the AO did not find fault with the sales made by the assessee. Citing relevant court cases, the Tribunal upheld the CIT(A)'s decision to restrict the disallowance to 12.5% of the disputed purchases, considering only the profit element embedded in such purchases.

Issue 3: Treatment of Unsold Flats as Stock-in-Trade
The Tribunal analyzed the treatment of unsold flats as stock-in-trade for a builder and developer. The AO computed deemed income from house property based on certain percentages, which the CIT(A) disagreed with. The Tribunal referred to various court decisions and the insertion of a new sub-section in the Act to provide relief to real estate developers. Following the law favoring the taxpayer, the Tribunal upheld the CIT(A)'s decision and dismissed the revenue's appeal on this issue.

Issue 4: Disallowance u/s. 14A r.w. Rule 8D
The Tribunal reviewed the disallowance made by the AO under section 14A r.w. Rule 8D concerning the investment in shares of group companies. The AO computed a disallowance, but the CIT(A) deleted a part of it based on the reserves and surplus available with the assessee. The Tribunal agreed with the CIT(A) on deleting a portion of the disallowance but upheld the disallowance under Rule 8D(2)(iii) in line with a Bombay High Court judgment. The Tribunal partially allowed the appeal on this issue.

In conclusion, the Tribunal dismissed the appeal for AY 2009-10 and partly allowed the appeal for AY 2011-12, based on the detailed analysis and decisions made on each issue presented before the Tribunal.