2019 (12) TMI 681 - AT - Income Tax

Validity of revision order - whether the ld. Pr. CIT was justified in invoking revisionary jurisdiction u/s.263 of the Act in the facts and circumstances of the case? HELD THAT - The details of valuation of closing stock of each project has indeed been furnished by the assessee before the ld. AO during the course of assessment proceedings vide letter dated 27/06/2017, on which fact there is no dispute. We find that ld. AO had merely sought to bring to tax the notional rental income from the closing stock of un-sold flats in terms of Section 23 of the Act. Revenue was not able to bring on record any evidences that the assessment for A.Y.2014-15 were subsequently subjected to any reopening u/s 147 of the Act or revision proceedings u/s.263 of the Act. Hence, it could be safely concluded that the ld. AO while framing the assessment for the A.Y.2015-16 had merely adopted the same valuation method accepted by his predecessor for A.Y.2014-15 in assessee s own case. Hence, there cannot be any error on the part of the ld. AO in framing a possible view thereon. In any case, we would like to hold that the assessee had furnished the actual cost incurred in respect of this project which had been subsequently completed, before the ld. CIT during the revision proceedings wherein, the assessee was able to prove that the estimate made as on 31/03/2015 matched closer to the actual costs incurred in the project subsequently. There cannot be any prejudice that could be caused to the interests of the revenue also as it is merely a timing difference. Hence, it could be safely concluded that the ld. AO had duly applied his mind by accepting the valuation method adopted by the assessee in respect of Vrindavan Palms at ₹ 1500/- per sq.ft on an estimated basis as on 31/03/2015 on which there cannot be any interference and there cannot be any attribution of error on the part of the ld. AO. Hence, revision proceedings u/s.263 of the Act in respect of this project deserves to be quashed. There is no error in the order passed by the ld. AO in accepting the valuation of the assessee in respect of projects as on 31/03/2015 - the ld. CIT had erred in exercising revision jurisdiction u/s.263 of the Act in the facts and circumstances of the instant case. Appeal of the assessee allowed.

Summary

Issues:
1. Revisionary jurisdiction u/s.263 - Justification of invoking revisionary jurisdiction by ld. Pr. CIT in the case.

Analysis:
The appeal before the ITAT Mumbai concerned the revision order of the ld. Principal Commissioner of Income Tax-20, Mumbai u/s.263 of the Act for A.Y.2015-16. The key issue was whether the ld. Pr. CIT was justified in invoking revisionary jurisdiction u/s.263 of the Act in the given circumstances.

The assessee, an individual builder and developer, filed the return of income for A.Y.2015-16 declaring total income. The assessment was completed by the ld. AO u/s.143(3) of the Act, but later sought to be revised by the ld. Pr. CIT u/s.263 on the grounds of inadequate enquiry into the valuation of closing stock of properties. The ld. CIT issued a show-cause notice to the assessee, who responded by stating that the closing stock valuation was submitted during assessment proceedings and followed a consistent percentage completion method for real estate projects.

The ld. Pr. CIT contended that the ld. AO failed to verify the value of closing stock with respect to costs incurred for each project, setting aside the assessment as erroneous and prejudicial to revenue's interest. The assessee challenged this decision, leading to the appeal.

During the ITAT proceedings, it was observed that the assessee had provided details of the closing stock valuation to the ld. AO, with no dispute on this fact. The ITAT found that the ld. AO had accepted a similar valuation method in the previous assessment year, indicating no error in adopting the valuation method for the A.Y.2015-16. The ITAT concluded that there was no prejudice to the revenue's interest, as the valuation closely matched the actual costs incurred.

In specific projects like Vrindavan Palms, Vrindavan Residency, and Vrindavan Valley, the ITAT found no need for further attribution of costs, upholding the valuation method accepted by the ld. AO. The ITAT ruled that the ld. CIT erred in exercising revision jurisdiction u/s.263, and the appeal of the assessee was allowed.

In summary, the ITAT Mumbai held that the ld. Pr. CIT was not justified in invoking revisionary jurisdiction u/s.263, as the valuation of closing stock by the assessee was found to be acceptable and consistent with past practices, with no errors or prejudice to the revenue's interest.