2017 (6) TMI 76 - AT - Income Tax

Reopening of assessment - reasons to believe - Held that - In the present case, the assessee has not informed to AO that construction work did not progress due to acquisition proceedings initiated by Government. As per Explanation 2 of Section147, it is very clear that due to non-disclosure of this by the assessee, the income chargeable to tax had escaped assessment. The assessee has not produced anything before the Commissioner of Income Tax (Appeals) to show as to how the assessee is entitled for deduction u/s.80-IB(10) of the Act. In view of the explanation (1) it does not mean that there was no default on the part of the assessee. Hence, reopening u/s.147 is held to be valid. The assessee has tried to take shelter under the exception provided in that section. But as stated above, when the assessee has not disclosed fully and truly the facts necessary for the assessment and there is no assessment u/s.143(3) of the Act, this proviso will not come to its rescue. Consequently, we hold that the entire reassessment proceeding in this case is valid and therefore, the action of the Assessing Officer is upheld. Disallowance u/s.80-IB(10) - Held that - In this case, admittedly, the project was not completed and it brought on record by the lower authorities that 66 customers out of 88 customers have chosen to take over the property on their own from the assessee. The project of assessee not at all completed when the project was not completed it is appropriate to withdraw the deduction already given to the assessee u/s.80-IB(10) of the Act. On this issue, we do not find any infirmity in the order of the Ld.CIT(A) and the same is confirmed. Hence, this ground of assessee s appeal is rejected.

Summary

Issues Involved:
1. Validity of the reopening of assessment under Section 147.
2. Disallowance of deduction under Section 80-IB(10) of the Income Tax Act.

Issue-wise Analysis:

1. Validity of the Reopening of Assessment under Section 147:

The primary contention by the assessee was that the reopening of the assessment was based on the same materials that were already on record during the original assessment completed under Section 143(3) on 30.12.2009. The assessee argued that this constituted a mere change of opinion, which is not permissible under Section 147. The assessee cited several case laws to support their argument, including CIT v. Kelvinator of India Ltd. and CIT v. Orient Craft Ltd.

The tribunal noted that the reopening of the assessment was based on the Assessing Officer's belief that income chargeable to tax had escaped assessment, which was supported by relevant material evidence. The tribunal emphasized that the concept of "reason to believe" is crucial and that the Assessing Officer must have a cause or justification to suppose that income has escaped assessment. The tribunal found that the Assessing Officer had sufficient material evidence to form this opinion, thus validating the reopening under Section 147.

The tribunal further observed that the assessee did not inform the Assessing Officer about the non-progress of the construction work due to government acquisition proceedings. This non-disclosure led to the conclusion that income chargeable to tax had escaped assessment, justifying the reopening. The tribunal upheld the validity of the reopening, stating that the reassessment proceedings were in accordance with the provisions of Sections 147 and 148 of the Income Tax Act.

2. Disallowance of Deduction under Section 80-IB(10):

The assessee claimed a deduction under Section 80-IB(10) for a housing project. However, the Assessing Officer disallowed the deduction, reasoning that the project was not completed within the stipulated time due to government acquisition proceedings, and thus, the assessee did not meet the necessary conditions for the deduction. The Assessing Officer also inferred that the assessee was a works contractor rather than a developer, further disqualifying the claim.

The Commissioner of Income Tax (Appeals) endorsed the Assessing Officer's view, noting that the project was not completed and that the assessee had not borne the investment risk as required for a developer under Section 80-IB(10). The tribunal upheld this decision, emphasizing that the project was not completed, and a significant number of customers had taken over the property on their own.

The tribunal concluded that since the project was not completed, the assessee was not eligible for the deduction under Section 80-IB(10). The tribunal found no infirmity in the order of the Commissioner of Income Tax (Appeals) and confirmed the disallowance of the deduction.

Conclusion:

The tribunal dismissed the appeal of the assessee, upholding both the validity of the reopening of the assessment under Section 147 and the disallowance of the deduction under Section 80-IB(10). The order was pronounced on 29th May 2017, at Chennai.