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TMI Blog2016 (1) TMI 1104X X X X Extracts X X X X X X X X Extracts X X X X ..... ter already concluded. The ITAT having considered the material placed before it, rightly set-aside the order passed under Section 263 of the Act, as not sustainable. Accordingly, the assessee's appeal is allowed as the consequential order passed under Section 143(3) read with Section 263 of the Act does not survive for consideration as having become infructuous. No exception can be found with the well reasoned order passed by the ITAT. - Decided against revenue - ITA Nos. 68/2014 c/w 67/2014 - - - Dated:- 21-1-2016 - N. K. Patil And S. Sujatha, JJ. For the Appellant : Sri K V Aravind, Adv For the Respondents : Sri A Shankar M Lava, Advs JUDGMENT These appeals are filed by the revenue under Section 260A of the Income Tax Act, 1961 (the Act for short) assailing the common order passed by the Income Tax Appellate Tribunal (ITAT), Bangalore Bench C relating to the assessment year 2006-07. 2. The facts in brief: - the assessee is a firm engaged in the business of formation and development of residential layouts and sale of sites. The assessee filed a return of income of ₹ 37,34,104, subsequently, revised at ₹ 2,77,39,713/-. In the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal was correct in holding that it was right in canceling the order u/s 263 as being bad in law as it was not in accordance with the conditions prescribed in section 263 and the very initiation of the proceeding was made without appreciating the decisions of the facts on record without appreciating the decisions of the SC in the case M/s. Malabar Industrial Co. Limited V/s CIT(2000) 243 ITR 83 and the High Courts in the cases of Mukur Corporation (1978) 111 ITR 312, (Gujarat) and CIT V/s Daga Entrade Private Limited [2010] 327 IRT 467 Guwahati? ITA No.68/2014 1. Whether the Tribunal was correct in holding that the assessment u/s 143/(3) r.w.s 263 is rendered infructuous as order u/s 263 has been cancelled without appreciating that the AO had not brought out anything on record while accepting the valuation of closing stock of work-in-progress to indicate he had applied his mind? . 4. Learned counsel Sri K V Aravind, appearing for the revenue would contend that the Assessing Officer had blindly accepted the valuation of closing stock of work-inprogress as submitted by the assessee, without application of mind. Having noticed the same, CIT being satisfied that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k-in-progress was accepted by the departmental authorities while concluding the assessment under Section 143(3) of the Act for the Assessment year 2007-08. The learned counsel pointing out the distinction between 'lack of inquiry' and 'inadequate inquiry' would contend that even if there was inadequate inquiry, that would not itself be a ground to the CIT to invoke Section 263 of the Act, merely because he has a different opinion in the matter. 8. It is further contended that explanation to Section 263 of the Act inserted by the Finance Act, 2015 with effect from 01.06.2015 provides that the order passed without making enquiries or verification which should have been made, would be a ground for the CIT to invoke the provisions of Section 263 subsequent to 01.06.2015, not relating to the assessment year in question. 9. Learned counsel also contended that the computation made by the CIT to arrive at the value of workin- progress if considered to be correct, the same would result in declaring the profit of the assessee at 31.80% as against the net profit of more than 8% declared by the assessee. The mode of calculation adopted by the assessee is explained through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nprogress report and the reasons for accepting the valuation of work-in-progress report declared by the assessee. In this background, we have examined the case on hand with reference to the tabulation chart furnished by the assessee which reads thus: M/s. SARAVANA DEVELOPERS PARTICULARS ASST-YEAR ASSTYEAR ASST-YEAR ASST-YEAR 2005-06 2006-07 2007-08 2008-09 Turnover (A) 3,365,000 44,220,398 43,882,100 11,781,000 Development Charges 10,342,310 41,260,000 35,927,100 2,755,000 Add:Opening W.I.P 8,010,730 10,929,625 10,326,700 10,34,310 49,270,730 46,856,725 13,081,700 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... + 361600 = 384000 sq. ft. The total unsold area as per the assessment year 2008-09 is 92403 sq. ft. Deducting the same from 384000 sq.ft., total sold area is 291597 sq. ft. Thus, the development expenses works out to ₹ 296.68/- per sq. ft. (8,65,11,032/2,91,597). 15. The method of computation adopted by the assessee is as follows: Net development expenses in respect of sites sold ₹ 3,52,56,499/- (Rs.4,12,60,000 Rs.60,03,501 closing work-in-progress) vis- -vis, the sites sold of 1,40,400 sq. ft. which works out to ₹ 251.11/- per sq. ft. 16. For the assessment year 2007-08, the development expenses allowed by the Assessing Officer are ₹ 3,40,01,131 relating to the sites sold of 1,13,557 sq. ft. The expenses works out to ₹ 299.41/- per sq. ft. An examination of these figures as reflected in the computation made above establishes that the development charges claimed by the assessee per sq. ft. is ₹ 251.11/- which is lower than ₹ 299.41/- accepted by the department for the assessment year 2007-08 while concluding the assessment under Section 143(3) of the Act. One mode of computation which we have examined, stated above at para.14, wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the Judgment of this Court in the case of Digital Global Soft Ltd. (supra), considering the judgment of this Court in Malabar Industrial Co. LTd. (supra) it is categorically held that even if an order of the Assessing Officer is erroneous, unless the said erroneous order is prejudicial to the interest of the revenue, the Commissioner could not have exercised the suo moto revisional power under Section 263 of the Act. 18. The Apex Court in the case of Malabar Industrial Co. LTd. (supra) has laid down the principles in the context of Section 263 of the Act. The relevant portion of para 5 of the said Judgment is reproduced below: A bare reading of this provision makes it clear that the prerequisite to exercise of jurisdiction by the CIT suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the Revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. Ig one of them is absent-if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the CIT computing the margin at more than 31% which is not normally workable in the business of real estate as pointed out by the learned counsel for the assessee and this view is also supported by the Division Bench Judgment of this Court in Dr.L.Narendra Prasad's case (supra) 21. The ITAT having considered the material placed before it, rightly set-aside the order passed under Section 263 of the Act, as not sustainable. Accordingly, the assessee's appeal is allowed as the consequential order passed under Section 143(3) read with Section 263 of the Act does not survive for consideration as having become infructuous. No exception can be found with the well reasoned order passed by the ITAT. 22. We have also noticed the amendment brought to Section 263 of the Act by Finance Act, 2015 with effect from 01.06.2015 by introducing an explanation which provides for invoking Section 263 even in cases where the order is passed by the Assessing Officer is without making inquiries or verifications but the same is not applicable to the case on hand. 23. For the foregoing reasons, the substantial questions of law raised in both the appeals are answered in favour of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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