2018 (12) TMI 1587 - AT - Income Tax

Revision u/s 263 - Assessment u/s 153C - AO s power u/s 153A - Held that - D.R has placed his reliance on the provisions of Explanation given u/s 153A(2) in order to contend that all other provisions of the Act shall apply to the assessment framed u/s 153C. We have noticed that the scope of assessment u/s 153A in respect of unabated assessments has since been settled by Hon ble jurisdictional High Court in the case of Continental warehousing Corporation 2015 (5) TMI 656 - BOMBAY HIGH COURT . The Explanation given u/s 153A(2), in our view, does not expand the scope of assessment u/s 153A of the Act beyond what was interpreted by Hon ble Bombay High Court. Thus Pr. CIT was not correct in law in passing the impugned revision orders as the assessment orders passed by the AO in these years, which fall under the category of unabated years, cannot be held to be erroneous and prejudicial to the interests of revenue. Accordingly we quash the revision orders passed by Ld CIT(A) for all the years under consideration. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the revision order passed by the Principal CIT under Section 263 of the Income Tax Act.
2. Assessment of AY 2008-09 based on financial statements without considering the merger.
3. Non-treatment of Interest Income and Miscellaneous Receipts as 'income from other sources'.
4. Non-verification of expenditure debited in the P&L account and capitalization of the expenditure to the WIP.
5. Non-verification of advances received from customers and customer deposits towards the sale of flats.
6. Non-verification of interest expenditure.
7. Non-verification of correctness of the work in progress and its valuation.
8. Non-verification of ? 304.41 crores received through debentures issued to an overseas party.

Detailed Analysis:

1. Validity of the Revision Order under Section 263:
The assessee challenged the revision order passed by the Principal CIT, arguing that the assessment orders for the years under consideration were completed under Section 153C read with Section 143(3) of the Income Tax Act, following search proceedings conducted on the Hiranandani group. These assessments were classified as "unabated assessments," meaning the Assessing Officer (AO) could only make additions based on incriminating material found during the search. The Principal CIT, however, did not accept this argument, stating that the Revenue had challenged the relevant High Court decision by filing a Special Leave Petition before the Supreme Court. The Tribunal held that the Principal CIT was not correct in law in passing the revision orders, as the AO's power was limited to incriminating material found during the search.

2. Assessment of AY 2008-09 Based on Financial Statements Without Considering the Merger:
The Principal CIT noted that the AO failed to give effect to the merger with Stonewood Construction Pvt. Ltd. while assessing AY 2008-09. The Tribunal found that the AO's assessment was not erroneous or prejudicial to the interests of revenue as no incriminating material related to this issue was found during the search.

3. Non-Treatment of Interest Income and Miscellaneous Receipts as 'Income from Other Sources':
The Principal CIT observed that the AO did not treat interest income and miscellaneous receipts as 'income from other sources'. The Tribunal reiterated that no incriminating material was found during the search regarding this issue, and thus the AO's assessment could not be considered erroneous or prejudicial to the interests of revenue.

4. Non-Verification of Expenditure Debited in the P&L Account and Capitalization of the Expenditure to the WIP:
The Principal CIT criticized the AO for not verifying the expenditure debited in the P&L account and its capitalization to the work in progress (WIP). The Tribunal held that in the absence of incriminating material, the AO's assessment could not be considered erroneous or prejudicial to the interests of revenue.

5. Non-Verification of Advances Received from Customers and Customer Deposits Towards the Sale of Flats:
The Principal CIT found that the AO did not verify advances received from customers and customer deposits. The Tribunal concluded that since no incriminating material was found during the search, the AO's assessment could not be deemed erroneous or prejudicial to the interests of revenue.

6. Non-Verification of Interest Expenditure:
The Principal CIT noted that the AO did not verify the interest expenditure. The Tribunal held that the AO's assessment was not erroneous or prejudicial to the interests of revenue in the absence of incriminating material found during the search.

7. Non-Verification of Correctness of the Work in Progress and its Valuation:
The Principal CIT pointed out that the AO did not verify the correctness and valuation of the work in progress. The Tribunal found that without incriminating material, the AO's assessment could not be considered erroneous or prejudicial to the interests of revenue.

8. Non-Verification of ? 304.41 Crores Received Through Debentures Issued to an Overseas Party:
The Principal CIT criticized the AO for not verifying the receipt of ? 304.41 crores through debentures issued to an overseas party. The Tribunal held that in the absence of incriminating material, the AO's assessment could not be deemed erroneous or prejudicial to the interests of revenue.

Conclusion:
The Tribunal quashed the revision orders passed by the Principal CIT for all the years under consideration, stating that the AO's assessments for the "unabated years" were neither erroneous nor prejudicial to the interests of revenue in the absence of incriminating material found during the search. The appeals filed by the assessee were allowed.