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TMI Blog2014 (3) TMI 721X X X X Extracts X X X X X X X X Extracts X X X X ..... rnished by the assessee along with the return, and it is only on the basis of mere change of opinion, that he has invoked the provisions of S.147 of the Act - the reopening of assessment is very much legal and valid, and the contentions of the assessee is without any merit. Cost of construction per sft has to be determined by dividing the total area received by it in terms of the development agreement, and there is no justification for adopting only the area which the assessee is claiming to be the saleable area - As observed by the CIT(A) in the order, after development, assessee has sold various flats and also sold the parking areas to the flat owners and as such it is not correct to say that there is less expenditure in developing a parking area and a lot more expenditure in developing the kitchen - it is neither practical nor feasible to break up the cost of construction and the sale price into individual elements like fittings, bedrooms etc. and to calculate capital gains on such individual elements - Such an exercise would also be redundant, since a flat consist of all areas which belong to the purchaser including common areas which are used by various purchasers - A lot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2005, However the assessee has adopted a rate of Rs.1131.40 per Sft (Rs.8,20,52,329/- divided by 72,523 Sft), which was incorrect as the assessee should have debited at Rs.911.70 per Sft. only for the area sold of 38,082 Sft. as on 31/03/2005. Hence the cost of built up area of 38,082/- Sft. sold in the year 2005-06 works out to Rs.3,47,19,459/- (Rs.911.70 x 38,082 sft) instead of Rs.4,32,20,009/- (Rs.1131.40 x 38,082 sft) debited to the profit and loss account which resulted in excess claim of expenditure to a tune of Rs.85,00,650/- (RsA,32.,20,009 minus Rs.3,47,19,359) which has to be brought to tax. 4. The Assessing Officer after brushing aside the submissions of the learned Authorised Representative of the assessee, disallowed the excess expenditure debited to Profit Loss Account towards cost of construction amounting to Rs. 66,86,572/-, and added the same to the loss returned by the assessee, giving the following reasons: Any construction activity is done, usually the cost of construction would be worked out dividing the construction value by total constructed area including the common area and parking area. This type of working is done particularly in the case of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arding the aforementioned issue. Important portions of the written submissions of the appellant were extracted by the CIT(A) in his order, which are as follows: In this regard, the Appellant at the outset submits that it had taken a site from MI5. Mogul Hotels Private Limited, 2) Diamond Builders, 3) M/s Estate Builders 4) M/s Aiwan Estates, 5) Mr. Mansoor Babukhan and 6) Mr.Mustafa Mod.Babukhan of 4.6381- sq. yards of site owned by them jointly in Municipal No.I-8-382 (part), 1-8-386 (part), 1-8- 388, 1-8-389, 1-8-436 (part) and 1-8-443 in S.P.Road, Begumpet, Secunderabad for development by agreeing to share the constructed area in 50:50 ratio. The Appellant constructed total area of 1,80,000 sq.ft consisting of sq.ft 1,45,046 of saleable area and 34954 sq.ft of Car parking area at Ground level including concerned area, Generator room and Office room. The said area was divided between the Land owners and the developer, ie., the Appellant in 50:50 ratio floor wise in an agreement dt.18.06.2003. As could be seen from the said agreement the Appellant got saleable area of 72523 sq. ft and 48 Car parkings. I) Appellant therefore arrived at cost per sq. ft taking into account Sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling where the builder will state that certain portion is free while the other is being charged for. The fact of the matter is the price of even the so-called free areas is incorporated in the actual sale price. In view of the above observations, the CIT(A) confirmed the findings of the Assessing Officer that the cost of construction has to be taken as a whole inclusive of all the common areas and upheld the calculation of Assessing Officer and addition made in this regard. 7. Aggrieved, the assessee is in appeal before us and has raised the following grounds of appeal: 1. The order of the CIT(A) is against law and facts of the case. 2. The learned CIT(A) ought to have appreciated that there were no reasons to believe that income got escaped the assessment and consequently, the reassessment proceedings ought to have been declared as null and void. 3. The learned CIT(A) ought to have appreciated that there was no allegation against the appellant that it has failed to disclose all material facts that were necessary for the purpose of assessment and therefore the learned CIT(A) ought to have quashed the reassessment proceedings. 4. The learned CIT(A) ought to have appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 485)-Del. (c) CIT V/s. Orient Craft Ltd. (354 ITR 536)-Del. (d) Balkrishna Hiralal Wani V/s. ITO (321 IGTR 519)-Bom. (e) Inductotherm (India) (P) Ltd. V/s. M.Gopalan DCIT (356 ITR 481)-Guj. (f) M/s. Telco Dadajee Dhackjee Ltd., Mumbai V/s. DCIT (ITA No.4613/Mum/2005)- Mumbai ITAT (g) Delta Air Lines INC V/s. ITO(International Taxation) (59 SOT 46)-Mum. (h) S.Ranjit Reddy V/s. DCIT (35 Taxmann.com. 415) (Hyd) Even from the reasons recorded, it cannot be concluded that the income got escaped from assessment and can by no stretch of logic lead a prudent person to form a reason to believe that income has escaped assessment. Thus, according to him, there are no jurisdictional conditions precedent prior to exercise of power to reopen the assessment under S.147 of the Act. He further submitted that it is not clear from the records whether the same assessing officer who recorded the reasons, issued the notice under S.148 of the Act or not. If a different assessing officer issued notice, the notice is liable to be declared null and void and deserves to be quashed. In support of this proposition reliance is palced on the following decisions- (i) Hyoup Food and Oi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of each of the areas, which together makes the saleable unit constructed. In support of his contentions, reliance is placed on the on the following decisions: 1. CIT V/s. Usha International Ltd. (348 ITR 483)-SC 2. Dr.Amin's Pathology Laboratory V/s. JCIT ( 252 ITR 673)-Bom. 3. Som Datt Builders (P) Ltd. V/s. DCIT (98 ITD 78)-Kol. 11. We have heard the arguments of both the parties, perused the material on record. We have also gone through the written submissions of the parties and the case-law relied upon before us. Assessment in this case has originally been completed under S.143(1) of the Act. Thereafter, the assessing officer noticed that the assessee has arrived at the cost of construction per sft at Rs.1131.40, by dividing total cost of Rs.8,20,52,329, by 72523 sft only, and not 90000 sft which is the total constructed area which came to the share of the assessee, out of the total area constructed by the developer, in terms of the Development Agreement. According to the assessing officer, cost of construction per sft should be arrived at Rs.911.69 per sft., by dividing the total cost of Rs.8,20,52,329 by 90,000 sft. which is the total area which came to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Apex Court in the case of Asst. CIT V/s. Rajesh Jhaveri Stock Brokers (P) Ltd (291 ITR 500), wherein after considering the provisions of section 143(1)(a), it was held that when the return was processed under section 143(1) of the Income-tax Act, it cannot be said that the Assessing Officer has taken any view on the claim made by an assessee and, consequently, in such circumstances, it may not be correct to say that the Assessing Officer has taken one of the possible views. It has been held by the Apex Court in that case as follows- 16. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso. 18. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued. 9. As against the above position, the case-law relied upon by the learned counsel for the assessee is distinguishable from the facts of the present case. In this view of the matter, since original assessment in this case has been done only under S.143(1) of the Act, respectfully following the above decision of the Apex Court in the case of Rajesh Zhaveri Stock Brokers (supra), we hold that merely because summary assessment has been done earlier in terms of S.143(1), it cannot be said that the assessing officer, has already applied his mind to the material furnished by the assessee alongwith the return, and it is only on the basis of mere change of opinion, that he has invoke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is claiming to be the saleable area. As observed by the CIT(A) in the impugned order, after development, assessee has sold various flats and also sold the parking areas to the flat owners and as such it is not correct to say that there is less expenditure in developing a parking area and a lot more expenditure in developing the kitchen. In any event, as observed by the CIT(A), it is neither practical nor feasible to break up the cost of construction and the sale price into individual elements like fittings, bedrooms etc. and to calculate capital gains on such individual elements. Such an exercise would also be redundant, since a flat consist of all areas which belong to the purchaser including common areas which are used by various purchasers. A lot of developers incorporate common swimming pools, clubs and many other facilities in their integrated development and charge each flat owner a corresponding price, even though by way of advertisement or selling technique, a builder would state that certain portions are free, while other is being charged. The reasons discussed by the Revenue authorities in the impugned orders for making the impugned addition of Rs. 66,86,572 are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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