2017 (2) TMI 322 - AT - Income Tax

Reopening of assessment - spreading of unaccounted investments over the period of construction of the property - period of limitation - Held that - This Tribunal has to confine itself only to the assessment year for which the appeal is filed either by the assessee or by the Revenue relates to. Since the appeals relating to assessment years 2002-03 and 2003-04 are not pending before this Tribunal, this Tribunal is of the considered opinion that even a casual reference made by ITAT with regard to assessment years of construction cannot be treated as direction or finding. When this issue came before another co-ordinate Bench of this Tribunal in Emgeeyar Pictures Pvt. Ltd. (2016 (6) TMI 418 - ITAT CHENNAI ), on a majority opinion, this Tribunal found that when the assessment was barred by limitation, the Revenue cannot reopen the assessments by virtue of opinion expressed by higher forum at a later stage. This Tribunal is of the considered opinion that reopening of assessments under Section 147 for assessment years 2002-03 and 2003-04 are barred by limitation. Estimation of cost of construction - Held that - State Government has prescribed a rate for construction of building in the State. Central Government has also prescribed rate for construction of building. When there was a variation in the cost of construction between the State PWD and Central PWD, this Tribunal is of the considered opinion that the State PWD rate would be more relevant rather than Central PWD rate. The Central PWD rate might have been fixed by taking the cost of material available at the Headquarters, namely, New Delhi. The State PWD rate may be fixed on the basis of rate prevailing in a particular State. Adopting State PWD rate for construction may be preferable rather than Central PWD rate. Therefore, the orders of the lower authorities are set aside and the Assessing Officer is directed to estimate the cost of construction on the basis of State PWD rate.

Summary

Issues:
1. Reopening of assessments beyond the period of limitation under Section 147 of the Income-tax Act, 1961.
2. Estimation of cost of construction based on Central PWD rate versus State PWD rate.

Analysis:
1. The judgment dealt with three appeals against the orders of the Commissioner of Income Tax (Appeals) for assessment years 2002-03, 2003-04, and 2004-05. The main contention was the reopening of assessments beyond the limitation period. The representative for the assessee argued that the assessments for 2002-03 and 2003-04 were reopened after the expiry of the limitation period, citing a previous Tribunal order. The Departmental Representative, however, justified the reopening based on the need to apportion the cost of construction as per an ITAT order for the assessment year 2004-05. The Tribunal observed that there was no specific direction to reopen assessments for 2002-03 and 2003-04 and held that the reopening of assessments for those years was barred by limitation, following the precedent set in a previous case. Therefore, assessments under Section 147 for 2002-03 and 2003-04 were deemed invalid.

2. Regarding the assessment year 2004-05, the issue revolved around the estimation of the cost of construction. The Assessing Officer had computed the cost based on Central PWD rate, while the assessee argued for the State PWD rate. The Tribunal considered the relevance of both rates and concluded that the State PWD rate would be more appropriate due to regional cost variations. It was noted that the State PWD rate reflects local conditions better than the Central PWD rate, which is based on headquarters' costs. Consequently, the Tribunal directed the Assessing Officer to estimate the cost of construction using the State PWD rate. As a result, the appeals for 2002-03 and 2003-04 were allowed, and the appeal for 2004-05 was allowed for statistical purposes, emphasizing the adoption of the State PWD rate for cost estimation.

In summary, the judgment addressed the issues of reopening assessments beyond the limitation period and the estimation of construction costs based on Central PWD versus State PWD rates. The Tribunal ruled in favor of the assessee for assessments 2002-03 and 2003-04 due to limitation constraints, while directing the use of State PWD rate for cost estimation in the assessment for 2004-05.