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TMI Blog2016 (6) TMI 1373X X X X Extracts X X X X X X X X Extracts X X X X ..... be held as invalid assumption of jurisdiction and finally part conclusion of the ld. CIT(A) on legal contention and objection of the assessee are upheld. Suppressed recognition of revenue from sale value of project - HELD THAT:- From the statement submitted by the assessee during the assessment proceedings we observe that the assessee has recorded total sales value of 174.99 crores whereas sales value has been recognised @ 98% of 171.10 crores and proportionate project cost of 156.15 crores has been debited to Profit and loss account and in our humble understanding, this calculation is not in accordance with percentage of completion method. If assessee has incurred some more cost in the subsequent A.Ys, but the total sales value was received during the year under consideration, then the sales value has to be recognise accordingly. The issue requires examination and verification at the end of the AO according to the percentage of completion method consistently and regularly followed by the assessee and accepted by the department. Therefore, this issue is restored to the file of the AO for a fresh adjudication after affording due opportunity of being heard to the assessee. Alleged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, conclusion of the ld. CIT(A) is not sustainable as we are unable to see any basis for the factual observations noted by the ld. CIT(A) for putting the golf course in the category of plant. Since the issue has not been adjudicated by the ld. CIT(A) in a proper manner, therefore, this issue is restored to the file of the AO for a fresh adjudication after affording due opportunity of being heard to the assessee and without being prejudiced from earlier orders and our observations in this order. Facts regarding this issue have to be dealt in respect to golf course of 300 acres land and how it became plant and machinery attracting 25% depreciation. AO has to examine these detai ls to ascertain the issue between the parties as stated above. We also note that the assessee in its written submissions before the authorities below as well as before the Tribunal has submitted the details of construction on the 300 acres of land converting it into a golf course, but these details have not been submitted before the AO and the AO could not get an opportunity to verify and examine the same. Therefore, in our considered opinion, this issue requires detailed verification and examination at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings under section 147 of the Act could not be raised since the validity thereof was not challenged before the assessing officer. 1.2 That on the facts and circumstances of the case, the CIT (A) failed to appreciate that initiation of proceedings was barred by limitation prescribed in the proviso to section 147 of the Act and consequently the assessment order was illegal and bad in law 1.3 That on the facts and circumstances of the case, the CIT(A) has erred in not appreciating that the reassessment proceedings were initiated by the assessing officer on a mere change of opinion and there was no failure on the part of appellant to disclose truly and fully all material facts necessary for assessment and consequently, the assessment order was illegal and bad in law. 1.4 That on the facts and circumstances of the case, the CIT(A) has erred in holding that the order passed by assessing officer was after independent application of mind, without appreciating that the re-assessment proceedings were initiated on the opinion of audit party, which is not permissible under law. 1.5 That on the facts and circumstances of the case, the CIT(A) has erred in not appreciating that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. AR submitted that in the case of the assessee the original assessment was completed u/s 143(3) of the Act after due application of mind on the claims made by the assessee in the return and/or during the assessment proceedings. It was further contended that the assessment proceedings were initiated on the basis of mere change of opinion which is not permissible in law. 5. Relying upon the following decisions, the Ld. Counsel for the appellant submitted that the assessment order is illegal and bad in law: * Indian and Eastern Newspaper Society v. CIT: 119 ITR 997 (SC) ❖ CIT v. Lucas T.V.S. Ltd. 249 ITR 306 (SC) ❖ Adani Exports V. DCIT: 240 ITR 224 (Guj.) ❖ CIT V. Mettur Chemical & Inds. Corpn: 242 ITR 119 (Mad.) ❖ Waldies Limited V. ITO: 246 ITR 29 (Cal.) ❖ ITO V. Jiyajeerao Cotton Mills Ltd: 247 ITR 122 (Cal.) ❖ CIT V. Sambhar Salt Limited: 262 ITR 675 (Raj.) The submissions filed by the appellant were forwarded to the assessing officer for comments' who submitted his remand report vide letter No. ACIT/Circle(4)/2009-10/279 dated 15th October, 2008. In the remand report, the assessing officer has not commente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice under section 148 as some of the issues involved in the appeal were altogether omitted in the course of original assessment proceedings of on some of the issues there was not full and true disclosure of the information. In totality of all these facts and circumstances, I dismiss appellant's appeal on ground nos. 1 and 2." 8. Further, the ld. CIT(A) granted relief to the assessee on merits in both the years. Thus the Revenue filed appeals challenging the conclusion of the ld. CIT(A) on merits wherein the first appellate authority directed the AO to delete the addition made on account of difference between budget cost of flats, prior period interest expenditure, excess depreciation on land and capital gain on agreement to sale dated 17.3.2003 in A.Y 2001-02. The Revenue has also filed appeal for A.Y 2003-04 wherein the ld. CIT(A) granted relief to the assessee on merits directing the AO to delete addition made by the AO on account of long term capital gain made by the AO u/s 32 of the Act, addition on account of excess depreciation claimed by the assessee on golf course. The assessee has also filed cross appeals challenging the validity of reopening u/s 147 of the Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is amply clear that the AO was not guided by the observations of the audit party and he applied his mind independently while recording satisfaction for initiation of proceedings. The ld. DR also pointed out that the assessee did not raise any objection during the assessment proceedings challenging the validity of reassessment proceedings and issuance of notice u/s 147/148 of the Act. Therefore, this legal contention was not maintainable before the ld. CIT(A) at first appellate stage. The ld. DR also pointed out that the AO made independent application of mind on various facts as pointed out by the audit authority while issuing notice u/s 147 of the Act because some of the important issues involved in the appeal were altogether omitted during the course of assessment proceedings and there was not a full and true disclosure of information regarding depreciation claimed by the assessee, the assessee understated the sale proceeds resulting into escapement of proceedings and the assessee also claimed prior period expenditure which also shows that the assessee did not disclose full and true particulars of its income for the relevant period. Therefore, reopening of assessment and issua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also not sanctioned by the accounting standards prescribed by ICAI. There is no basis for this computation. This working is neither based on mercantile basis of accounting nor on any other provisions of law or accountancy. Thus the assessee company has under stated the sales proceeds by 3,89,33,267/- which has escaped assessment. 3.2 The assessee company has claimed interest at ₹ 61,11,162/- in respect of loan advanced by M/s Gilt Facilities Private Limited. There was a over delayed completion of projects and retention of money collected by the assessee companion on behalf of M/s Gilt Facilities Private Ltd. After settlement the interest of 61.11,162/- was considered payable to the creditors. It was claimed during the course of assessment proceedings but this component of interest related to only assessment 2004-05 and not to any earlier assessment year. However the details during the assessment proceedings clearly showed that there is meticulous working of year wise interest on the amount of loan need to the assessee company. The interest of ₹ 61,11,162/- is not admissible an the assessment year as it is prior period expenditure which is not admissible. Thus the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... booked during the year under consideration. The ld. AR also pointed out that vide letter dated 15.3.2004 available at page 20 of the assessee's paper book, the assessee also furnished detailed working of the apartment amounting to ₹ 11.09 crores which was declared in the relevant profit and loss account. Therefore, on this count also, there was fully and truly all disclosure by the assessee. Therefore, reassessment beyond four years is not permissible. 15. Regarding third issue, the ld. AR pointed out that vide letter February 2004, the assessee furnished a detailed note on accrual on interest and justified its allowability after explaining the entire background of the sale along with detailed justification. The ld. AR also pointed out that the assessee also filed copy of the agreement dated 16.8.1995 entered into with Gilt Facilities P. Ltd. which is available at pages 23 to 26 of assessee's paper book and again furnished detailed justification of interest and its allowability during A.Y 2001- 02. Vide letter dated 15.3.2004 which is also available at pages 17 and 18 of the assessee's paper book. The ld. AR also pointed out that vide letter March 2004, available at pages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l material facts for claiming depreciation on golf course and hence, the AO has validly reopened the assessment and issued notice u/s 147/148 of the Act. 18. The ld. DR further took us through assessment order for A.Y 2003-04 and submitted that assessee has not challenged this order dated 28.2.2006 and subsequent to that the AO issued notice u/s 148 of the Act on 30.10.2006 which clearly shows that reopening of assessment for earlier year was consequent to the subsequent assessment order of A.Y 2003-04. The ld. DR pointed out that original assessment order for A.Y 2001-02 available at pages 49 and 50 of the paper book dated 29.3.2004 was 19. The ld. DR further took us through audit objection and submitted that as per order for A.Y 2003-04, the assessee accepted that the golf course is a building and depreciation was allowed thereon @ 10% whereas the assessee claimed depreciation @ of 25% which is not sustainable. The ld. CIT-DR also drew our attention towards Revenue PB pages 29 and 30 and read out audit objections raised in the case of assessee for A.Y 2001-02. The ld. DR on the second issue recorded in the reasons pointed out that as per pages 4 to 12 of APB, the profit posit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of CIT Vs. Usha International, 348 ITR 485 [Del] contended that where an AO incorrectly or erroneously applies law or comes to a wrong conclusion, then initiation of reassessment proceedings will be invalid on the ground of change of opinion. The ld. AR further placing reliance on the decision of Hon'ble High Court of Delhi in the case of Haryana Acrylic Manufacturing Co.[supra] submitted that notice after four years u/s 148 of the Act and there is no indication in the reasons recorded about failure on the part of the assessee to disclose fully and truly all material facts for its assessment, then notice in such a situation is not a valid notice. The ld. AR of the assessee again took us through para 28 of the said decision of the Hon'ble High Court and contended that since there was no failure to make the return, the escapement of income cannot be attributed to such failure and when the assessee had disclosed fully and truly all material facts necessary for assessment then no action u/s 148 of the Act could have been taken after four years period as per provisions of the Act. 22. The ld. AR further drew our attention towards the decision of Hon'ble High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration of the above contentions, first of all, we may point out that all the decisions relied upon by both the parties are pertaining to old provision of section 147 of the Act which has been amended by the Finance Act, 1987 w.e.f 1.4.1989. In the present case, undisputedly and admittedly, the reopening and initiation of reassessment proceedings has been proceeded after internal audit report of the department and after assessment order passed u/s 143(3) of the Act for AY 2003-04. But, from the reasons recorded by the AO as reproduced herein above, there is no mention of audit report and subsequent assessment order and the AO has applied his own mind for stating reasons for reopening of assessment and initiation of proceedings u/s 147 of the Act and consequent to that notice u/s 148 of the Act has been issued to the assessee. 26. The important next question posed to us for adjudication to us is as to whether reopening of assessment and reopening of assessment proceedings beyond four years was validly initiated in the present case. The crux of the contention of the ld. Counsel for the assessee is that the assessee disclosed all material facts truly and fully during the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation, interest paid during the relevant period and accepted the income shown by the assessee from Labunum Project relying on the details filed by the assessee. 30. On a vigilant perusal of documents and details referred by the counsels and reasons for reopening of assessment, it is amply clear that the assessee did not classify the golf course as per provisions of the Act as to whether it is part of 'building' or 'plant and machinery' and claimed depreciation @ 25% which was allowed @ 10% only in A.Y. 2003-04 and thus, in our considered opinion it can safely be presumed that the assessee did not disclose all material facts fully and truly for the claim of deprecation on golf course. 31. Further, we are also in agreement with the contention of the ld. CIT-DR that the assessee did not properly disclose income from Labunum Project as per percentage completion method because page No. 4 of the assessee's paper book reveals that entire sales was completed upto A.Y. 2001-02 and only there was a sale of ₹ 3,10,99,749/- in F.Y. 2001- 02 which is less than 2% of the total sales which resulted into under statement of income from sale of apartments of ₹ 3.89 crores. From ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd that interest @ 16% per annum is acceptable and finally vide letter date 31.3.2001, M/s Gilt Facilities P. Ltd accepted the proposal of the assessee and this liability stood crystallised during the period under consideration. In view of above facts, it cannot be said that the assessee did not disclose truly and fully all material facts on the issue of interest claim. Therefore, on the third count, action of the AO cannot be held as valid for assuming jurisdiction to reopen the assessment and to issue the notice u/s 147/148 of the Act. To sum up, as we have observed earlier that the income of the assessee escaped assessment due to the reason of failure on the part of the assessee in disclosing fully and truly all material facts pertaining to depreciation on golf course and on the issue of income from sale of Labunum Project. Therefore, on these two counts, action of the AO to initiate reassessment proceedings u/s 147 of the Act and issuing notice u/s 148 of the Act against the assessee for A.Y 2001-02 beyond four years cannot be held as invalid assumption of jurisdiction and finally part conclusion of the ld. CIT(A) on legal contention and objection of the assessee are upheld. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ht case and in law, the ld. CIT(A) has erred in deleting the addition of ₹ 60.54.840/- made by the AO on account of excess deprecation claimed by the assessee on golf course. 3.1 The CIT(A) ignored the fact that depreciation on Golf Course is to be allowed @ 10% as applicable for buildings under the provisions of Income tax Act, 1961. Ground Nos. 2 and 2.1 for A.Y 2001-02 35. Apropos these grounds, we have heard the arguments of both the sides and carefully perused the relevant material on record. The ld. CIT-DR contended that the AO rightly made addition of ₹ 3.89 crores by holding that the actual cost incurred by the assessee was reflected at ₹ 156.15 crores which was stated to be incurred to the extent of 98% of the budgeted total cost of the project and it was not known as to how and in what manner the assessee considered 98% of the total revenue at ₹ 171.10 crores as chargeable to the profit and loss account against the profit actually incurred till 31.3.2001. The ld. DR vehemently contended that neither any provision of balance amount of cost to be incurred nor any justification of recognition from sale existed. Therefore, the assessee suppre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment proceedings, available at page 5 and 6 we observe that the assessee has recorded total sales value of ₹ 174.99 crores whereas sales value has been recognised @ 98% of ₹ 171.10 crores and proportionate project cost of ₹ 156.15 crores has been debited to Profit and loss account and in our humble understanding, this calculation is not in accordance with percentage of completion method. If assessee has incurred some more cost in the subsequent A.Ys, but the total sales value was received during the year under consideration, then the sales value has to be recognise accordingly. In view of the above, we are of the considered opinion that the issue requires examination and verification at the end of the AO according to the percentage of completion method consistently and regularly followed by the assessee and accepted by the department. Therefore, this issue is restored to the file of the AO for a fresh adjudication after affording due opportunity of being heard to the assessee. Ground No. 3 of the Revenue for A.Y 2001-02. 39. The ld. CIT-DR supporting the action of the AO contended that the details filed by the assessee during the course of assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o claim the same as expenditure because this liability was accrued and crystallised after long conversation and correspondence with the Gilt Facilities P. Ltd as per agreement dated 16.8.1995 and the assessee paid amount after deduction of tax and the same was offered to tax by the recipient Gilt Facilities P. Ltd during A.Y 2001-01. We are unable to see any apparent mistake or ambiguity in the appellate order on this issue and thus we have no reason to interfere with the same. Consequently, Ground No. 3 of the Revenue being devoid of merits stands dismissed. Ground No 4 and 4.1 for A.Y 2001-02 and Ground No. 3 & 3.1 for A.Y 2003-04 of the Revenue. 41. Apropos these grounds, the ld. CIT-DR submitted that the ld. CIT(A) has erred in allowing depreciation @ 25% on golf course under the category of plant machinery as against 10% as allowable in the case of building which includes golf course. The ld. CIT-DR pointed out that the ld. CIT(A) has erred in treating the golf course as plant and machinery whereas the same is includible as building for the purpose of deprecation. As per provisions of the Act, the ld. CIT-DR pointed out that as per decision of the of Hon'ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndulation, holes, small ponds etc. as a specialized professional requirement for playing the Golf on the piece of land Therefore, cost of creating such technical requirement will certainly make the field of Golf Course as a 'plant' only. Although the various courts citations relied upon by the Id. A.R. of the appellant are not directly applicable to the facts of the case but there is an oblique reference for considering the Golf Course as a 'plant' only. As far as the reliance placed by the Assessing Officer in the decision of Hon'ble Supreme Court in the case of CIT vs. Anand Theater is concerned. I find that same is not applicable to the facts of the instant case at all. In that case it was clarified by the Hon'ble Supreme Court that all the buildings can not be considered as a 'plant'. However, some buildings using the auditorium and furniture & fittings found therein should be construed in a plant. In the case of the appellant, none of the building or any asset in the nature of building has been considered as 'plant'. It is only a piece of land which has been prepared by putting several expenditures on various accounts to prepare it as per the technical requirements to play the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is accepted then every landscaping having some special features for the purpose of its intended use would become plant and machinery and every construction of building for the purpose of sports would be converted into plant and machinery. It is pertinent to note that for creation of golf course, landscaping is done for in various levels and some holes, ponds and walking path is created but in our humble understanding this kind of piece of land converted into a golf course by creating some specialised facilities for playing golf cannot be put in the category of plant and machinery. 47. In view of above, we have no hesitation to hold that the ld. CIT(A) granted relief to the assessee without any basis and without arriving to a conclusion as to whether golf course is a plant and machinery or building. Therefore, conclusion of the ld. CIT(A) is not sustainable as we are unable to see any basis for the factual observations noted by the ld. CIT(A) for putting the golf course in the category of plant. Since the issue has not been adjudicated by the ld. CIT(A) in a proper manner, therefore, this issue is restored to the file of the AO for a fresh adjudication after affording due opportun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for statistical purposes by restoring the same to the file of the AO. Ground No 5 and 5.1 for A.Y 2001-02 and Ground No. 2 & 2.1 for A.Y 2003-04 of the Revenue. 49. Apropos these grounds, the ld. CIT-DR strongly supported the action of the AO and submitted that as per the agreement to sale executed between the company and ITC Ltd. in F.Y. 2000-01, 22.69 acres of land was sold to ITC Ltd. for a consideration of ₹ 45 crores and assessee company received entire consideration under this agreement during A.Y 2001-02. The ld. DR further contended that the assessee company had unconditionally and irrevocably transferred all its rights and interest of ownership in the subject property in favour of ITC Ltd. to the exclusion of others in the year of agreement to sale only. Therefore, the transaction was completed within A.Y 2001-02 and merely because for want of some government approval if sale deed could not be executed in favour of ITC Ltd, then also income accrued there from was to be taxed as long term capital gain in the hands of the assessee. The ld. CIT-DR also pointed out that the ITC Ltd used the land as a possession and title holder and also obtained loan by mortgaging th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complete aforesaid transaction. So far as the allegation of the AO regarding mortgage by ITC Ltd is concerned, this fact was demolished by the AO himself in the remand report filed to the ld. CIT(A) during first appellate proceedings wherein it was stated that the funds, in fact, were raised by the assessee and not by ITC by mortgaging the land. From the record, it is apparent that the assessee continuous to possess the land physically and it could not be transferred to ITC Ltd till a valid permission is received from DTCP. From the documentary evidence fi led by the assessee before the authorities below it is clear that the land in question owned by the assessee is situated within controlled area and same is governed by the provisions of Punjab Scheduled Road and Controlled Areas Restrictions of Unregulated Development Act, 1963 and Rules made thereunder. In this situation, the assessee was prohibited from doing any commercial activity on the land without approval of DTCP and the assessee was legally prohibited from parting with the possession and title of the land to ITC or any other entity. In view of above noted facts, the ld. CIT(A) was right in drawing conclusion that there w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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