2019 (1) TMI 340 - AT - Income Tax

Revision u/s 263 - Sundry Creditors have not been properly examined by the Assessing Officer - outstanding advances received against the booking of plots / flats / Showrooms - Held that - The power of revision can be exercised only where no inquiry as required under the law is done. It is not open to enquire in cases of inadequate inquiry. Regarding the advances from customers namely the Akash Cooperative Housing Society Ltd. it was found that these societies are registered in the year 1999 and have huge chunk of land which was acquired by these societies to colonize and allot the same to its members at cost to cost basis hence members of both the societies offered their respective ownership of land to the assessee company and transfer the required funds for further acquisition of land for the development of the same in the residential plots and later on to allot the same to the members of the society as per the list given by the respective societies. Hence we see no reason to examine the land cost and the sources obtained from these two societies. Regarding the other individuals in the instant case, AO has not conducted absolutely any enquiry pertaining to the advances received which gives rise to situation where the assessment was done without any enquiry. There is no such activity conducted by the Assessing Officer in the instant case. This proposition has been held by the Hon ble High Court of Karnataka in the case of CIT Vs. Infosys Technologies Ltd. 2012 (1) TMI 76 - KARNATAKA HIGH COURT . Similarly in the case of Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT held that an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the instant case the Assessing Officer has presumed without any basic enquiry that the details filed or in order, to that extent the order of AO can be treated as erroneous and the action of the Ld. PCIT referring the matter for re-examination can be well accepted. Non enquiry of validity of transactions of advances for land/ bianas / land pooling - Held that - The argument that the assessee has not claimed this expenditure cannot be treated as valid as the assessment does not restrict itself to the claims in the P&L Account but to the entire financial affairs of the assessee. The amounts which stands capitalized would certainly have an impact on the profits and the taxation in the subsequent years. The amounts spent and subsequently capitalized or taken as work in progress would certainly a matter of examination in the year in which the amounts were spent or brought in to the books as it will have a corresponding effect in the future years on the taxation. Hence ,the contention of the Ld. AR that Revenue is not affected cannot be accepted as the expenditure has not been claimed. AO has not conducted any preliminary enquiries about the genuineness of the advances received. Thus making it a fit case for revision under the provisions of Section 263. Assessing Officer has accepted the bianas received of ₹ 48.53 crores without conducting any enquiry or investigation and hence the Ld. PCIT has rightly invoked the provisions of Section 263. Income Tax paid in dispute - held that - this amount has been shown in the balance sheet as at 31/03/2011 and also as at 31/03/2012. Hence it can be conveniently taken that this amount cannot be an issue for investigation or examination for the year under consideration. Hence the action of the Ld. Pr. CIT on this ground cannot be held to be valid. Allowability of Site expenses - held that - we are not in agreement with the arguments of the Ld. DR that insufficient enquiry should be a reason for upholding of order under section 263. Ld. PCIT cannot determine as to what extent the enquiries have to be conducted for allowing an expenses as genuine. In this case, since the Assessing Officer has examined books of accounts, TDS details which allowed her to come to a reasonable conclusion, we cannot support the order of the Ld. PCIT on this ground. Interest free deposit from associated concern - Held that - As AR submitted that the assessee has no money invested in the shares of AB Apartments Pvt Ltd., we also find that the matter stands examined by the Assessing Officer with reference to the reply submitted by the assessee vide their letter dt. 10/06/2014. Further it is apparent from the records that the amount has been received by the assessee on 16/03/2010 hence cannot be a subject matter of proceedings under section 263 for the A.Y. 2012-13. Applicability of Section 40(a)(ia) pertaining to project expenses - Held that - Since prima facie the facts have been examined and the amounts have not been claimed in P&L Account, hence 40(a)(ia) provisions attract to the items of expenditure claimed in P&L Account, we don t find any merit in the order of the Ld. Pr. CIT on this issue. Applicability of wealth tax - Held that - We are not in agreement with the explanation of the Ld.AR that the motor cars be treated as stock in trade and hence to be exempted from the definition of the asset . The cars cannot be treated as stock in trade of the assessee in this case and neither the assessee claimed them as part of stock in trade. In fact they have been duly made an integral part of the fixed assets. However, this issue of Wealth Tax cannot be a subject matter of proceedings under section 263 of Income Tax Act,1961 which otherwise could well be taken care by the Section 25(2) of the Wealth Tax Act which the Ld. Pr. CIT failed to invoke. Hence, the revision proposed by the Ld. Pr. CIT on this ground is hereby held to be invalid.

Summary

Issues Involved:
1. Examination of advances received from individuals.
2. Examination of advances for land/bianas/land pooling.
3. Income tax paid in dispute.
4. Site expenses.
5. Interest-free deposit from associated concern.
6. Applicability of Section 40(a)(ia).
7. Applicability of wealth tax.

Detailed Analysis:

1. Examination of Advances Received from Individuals:
The first issue under section 263 pertains to current liabilities as on 31/03/2012. The Ld. Pr. CIT held that the Assessing Officer did not make necessary enquiries regarding the creditworthiness of the creditors and the genuineness of transactions, thus the issue remains unverified/unexamined. The Ld. AR submitted that the amounts were received from two cooperative housing societies and one associate concern, and details were furnished during the assessment proceedings. However, the Ld. DR argued that no enquiries were conducted, and the action of the Ld. Pr. CIT was in consonance with Explanation 2 of Section 263. The Tribunal found that the Assessing Officer failed to conduct any enquiry regarding the advances received from individuals amounting to ?37,38,17,271/-, making it a fit case for revision under Section 263.

2. Examination of Advances for Land/Bianas/Land Pooling:
The second issue relates to the non-enquiry of the validity of transactions of advances for land/bianas/land pooling amounting to ?48,53,04,581/-. The Pr. CIT held that the Assessing Officer had not made any enquiry regarding the validity of these transactions. The Ld. AR argued that the issue was properly enquired, and no loss of revenue could be attributed as the expenditure was not claimed. However, the Tribunal found that the argument that the expenditure was not claimed cannot be treated as valid as the assessment involves the entire financial affairs of the assessee. The Assessing Officer did not conduct any preliminary enquiries about the genuineness of the advances received, thus justifying the revision under Section 263.

3. Income Tax Paid in Dispute:
The third ground relates to the income tax paid in dispute amounting to ?77,78,920/-. The Tribunal found that this amount was shown in the balance sheet as at 31/03/2011 and 31/03/2012, thus it cannot be an issue for investigation for the year under consideration. Hence, the action of the Ld. Pr. CIT on this ground was not valid.

4. Site Expenses:
The fourth issue relates to site expenses amounting to ?3,52,26,858/-. The Ld. Pr. CIT held that the Assessing Officer did not make necessary enquiries about the nature and details of these expenses. The Ld. AR submitted that the site expenses were duly examined by the Assessing Officer. The Tribunal found that the examination of TDS certificates was not sufficient, but since the Assessing Officer examined the books of accounts and TDS details, the order of the Ld. Pr. CIT on this ground was not supported.

5. Interest-Free Deposit from Associated Concern:
The Ld. Pr. CIT held that the Assessing Officer did not examine the interest-free deposit of ?4 Crores received from AB Apartments Pvt. Ltd. with reference to Section 2(22)(e). The Ld. AR submitted that the assessee had no investment in the shares of AB Apartments Pvt. Ltd. and the amount was received on 16/03/2010, thus not a subject matter for the A.Y. 2012-13. The Tribunal granted relief to the assessee on this ground.

6. Applicability of Section 40(a)(ia):
The Ld. Pr. CIT held that the Assessing Officer did not make necessary enquiries regarding the applicability of Section 40(a)(ia) pertaining to project expenses. The Ld. AR submitted that the applicability of TDS was examined, and no deduction was claimed in the P&L Account. The Tribunal found that since the amounts were not claimed in the P&L Account, the provisions of Section 40(a)(ia) did not apply, thus the order of the Ld. Pr. CIT on this issue lacked merit.

7. Applicability of Wealth Tax:
The Ld. Pr. CIT held that the Assessing Officer failed to examine the wealth tax liability regarding fixed assets, mainly cars. The Ld. AR argued that motor cars used for business or held as stock in trade are exempt from wealth tax. The Tribunal found that the cars could not be treated as stock in trade and the issue of wealth tax cannot be a subject matter under Section 263 of the Income Tax Act, 1961. The revision proposed by the Ld. Pr. CIT on this ground was held to be invalid.

Conclusion:
The order of the Ld. PCIT was upheld regarding the examination of advances received from individuals amounting to ?37,98,17,271/- and advances for land/bianas amounting to ?48,53,04,581/-. The order was quashed on issues related to advances received from cooperative societies, AB Apartments Pvt. Ltd., income tax paid, site expenses, interest-free deposits, applicability of Section 40(a)(ia), and applicability of wealth tax.