2022 (5) TMI 886 - AT - Income Tax

Validity of reassessment proceedings - Excess claim of Work-in-Progress - HELD THAT - As provisions of Sec.148 of the Act has to invoked only when the A.O. has reason to believe that the income has escaped assessment. where as in the present case on perusal of the various clauses which the Ld. AR has referred in the hearing, it is very clear that the reasons for sharing expenses and revenue are supported with the evidences and in most of the cases it is revenue sharing inter se between the assessee and developer and there is no cost/ expenditure sharing by the developer. AR submissions are realistic and has referred to the clauses in the agreement in particular to show that no expenditure has been shared by the developer. We are of the opinion that the A.O. has ventured on a wrong assumption of facts though the agreement was available on hand with the A.O. in the original assessment proceedings. The AO has assumed that when the revenue is being shared, the cost/expenditure shall also be shared between the assessee and developer. Further there is no tangible material was brought to our knowledge by the Ld.DR to come to a conclusion that there is an income escaping the assessment. Thus reopening on the wrong assumption of facts by the assessing officer cannot be sustained. Accordingly, we find the reassessment is bad in law and quash the assessment order passed u/s 143(3) r.w.s 147 - Decided in favour of the assessee.

Summary

Issues:
Validity of reassessment proceedings - legal & jurisdictional issue

Analysis:
1. The appeal before the Appellate Tribunal ITAT Mumbai involved a cross appeal by the revenue and the assessee against the order of the Commissioner of Income Tax (Appeals). The assessee challenged the validity of reassessment proceedings, focusing on legal and jurisdictional issues. The grounds of appeal included disputing the notice issued under section 148 of the Income Tax Act, 1961, and questioning the disallowance of expenses related to opening work in progress.

2. The brief facts revealed that the assessee, a partnership firm engaged in real-estate development, filed its return of income for the assessment year 2010-11. The assessing officer subsequently issued a notice under section 148 based on the belief that income had escaped assessment due to discrepancies in work-in-progress claims. The original assessment was completed under section 143(3) of the Act, but the reassessment raised concerns regarding the sharing of revenue and expenses in a joint development project with another party.

3. The Appellate Tribunal considered the arguments presented by both parties. The assessee's representative contended that the reassessment was based on a wrong assumption of facts, as the original assessment had already considered the relevant information. It was highlighted that the agreement with the development partner did not mandate sharing of expenses, contrary to the assessing officer's interpretation. The Tribunal reviewed the clauses of the agreement to ascertain the nature of revenue and expense sharing.

4. After evaluating the submissions and the agreement clauses, the Tribunal concluded that the reassessment was invalid. It was noted that the assessing officer had incorrectly assumed cost-sharing based on revenue-sharing arrangements. The Tribunal found no tangible evidence supporting income escapement and deemed the reassessment to be legally flawed. Consequently, the assessment order under section 147 read with 143(3) was quashed in favor of the assessee.

5. The Tribunal's decision rendered the appeal by the revenue moot due to the invalidity of the reassessment proceedings. As a result, the revenue's appeal was dismissed, while the assessee's appeal challenging the reassessment was allowed. The order was pronounced on May 4, 2022, in favor of the assessee, emphasizing the legal and jurisdictional aspects of the reassessment process.