VAITHARA CONSTRUCTIONS P. LTD, MUMBAI V. ITO 10(3)(3), MUMBAI

ITA 159/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100573 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 27-11-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 07-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RANDHIR KUMAR GUPTA
• Keywords: Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 142(1); 147; 154

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI , , , BEFORE SHRI VIJAY PAL RAO , JUDICIAL MEMBER AND SHRI N.K . BILLAIYA, A CCOUNTANT M EMBER / I .T.A. NO . 159 & 154/MUM/2011 ( / ASSESSMENT YEAR : 2003 - 04 & 2004 - 05 M/S. VAITHARA CONSTRUCTIONS PVT. LTD., 303, MENAKA, GOSHALA ROAD, MULUND (W), MUMBAI - 400 080 / VS. THE ITO - 10(3)(3), MUMBAI ./ ./ PAN/GIR NO. : AAACV 5775G ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI NISHIT GANDHI / RESPONDENT BY : SHRI RANDHIR K UM AR GUPTA / DATE OF HEARING : 03 . 0 8 .2015 / DATE OF PRONOUNCEMENT : 07 .0 8 .2015 / O R D E R PER N.K. BILLAIYA, AM: TH ESE TWO APPEAL S BY THE ASSESSEE ARE DIRECTED AGAINST TWO SEPARATE ORDER S OF THE LD. CIT(A) - 22 , MUMBAI DT. 1 5 .10.201 0 PERTAINING TO ASSESSMENT YEAR S 200 3 - 0 4 & 2004 - 05 . BOTH THESE APPEALS HAVE COMMON GROUNDS OF APPEAL, THEREFORE, THEY WERE HEARD TOGETHER AND DISPOSE OF BY THIS COMMON ORDER FOR THE SAKE OF CONVEN IENCE. ITA. NO S . 154 & 159/M/2011 2 2. THE LD. COUNSEL FOR THE ASSESSEE REQUESTED THE BENCH TO CONSIDER THE FACTS OF ASSESSMENT YEAR 2004 - 05 FIRST. 3. GROUND NO. 1 IS NOT PRESSED AND IS ACCORDINGLY DISMISSED. 4. BY GROUND NO. 2 THE ASSESSEE HAS CHALLENGED THE JURISDICTION OF TH E AO FOR REOPENING OF THE COMPLETED ASSESSMENT U /S. 147 R.W.S. 148 PF THE ACT. 4.1. IN THIS CASE, THE ORIGINAL RETURN WAS FILED ON 31.3.2006 DECLARING TOTAL INCOME AT NIL. THE RETURN OF INCOME WAS ACCOMPANIED WITH PROFIT AND LOSS ACCOUNT, BALANCE SHEET A ND COMPUTATION OF TOTAL INCOME. THE OFFICER MADE ASSESSMENT U/S. 143(3) OF THE ACT VIDE ORDER DATED 29.12.2006 ASSESSING THE TOTAL INCOME AT RS. NI L . 4.2. SUBSEQUENTLY, THE ASSESSMENT WAS REOPENED U/S. 147 OF THE ACT. NOTICE U/S. 148 WAS ISSUED AND SERV ED UPON THE ASSESSEE. 4.3. DURING THE COURSE OF THE REASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN WHY THE INCOME SHOULD NOT BE ESTIMATED AT 15% OF THE ADVANCE FOR THE YEAR OVER AND ABOVE THE ADVANCES WHICH HAVE ALREADY BEE N CONSIDERED IN A.Y. 2003 - 04. THE AO FURTHER OBSERVED THAT IN A.Y. 2003 - 04, THE ASSESSEE HAS SHOWN ADVANCE AT RS. 2.71 CRORES AGAINST THE SALE OF FLAT AS COMPARED TO ADVANCES RECEIVED AT RS. 22.82 LAKHS IN ASSESSMENT YEAR 2002 - 03. ACCORDINGLY FRESH ADVA NCES IN A.Y. 2003 - 04 WERE TAKEN AT RS. 2.48 CRORES. THE AO FURTHER NOTICED THAT THE ASSESSEE HAS SHOWN GROSS WORK - IN - PROGRESS AT RS. 4.35 CRORES AND AS COMPARED TO GROSS WORK - IN - PROGRESS FOR A.Y. 2002 - 03 , T HE INCREMENTAL WORK IN PROGRESS WAS AT RS. 3.56 CRORES. APPLYING THE SAME LOGIC FOR THE YEAR UNDER CONSIDERATION, THE AO WAS OF THE FIRM BELIEF THAT IRRESPECTIVE ITA. NO S . 154 & 159/M/2011 3 OF THE YEAR OF COMPLETION OF THE PROJECT, INCOME HAS TO BE WORKED IN EACH YEAR DEPENDING ON THE RECEIPT, EXPENSES/WORK IN PROGRESS, STOCK - IN - TRADE ETC. THE OFFICER FOUND THAT THE ASSESSEE HAS NOT SHOWN ANY INCOME FROM ITS PROJECTS CLAIMING THAT IT IS FOLLOWING PROJECT COMPLETION METHOD. THE AO WAS OF THE OPINION THAT THE PROJECT COMPLETION METHOD AS ENVISAGED IN THE ORIGINAL AS - 7 CANNOT BE USED TO POSTPONE THE COMPUTATION OF INCOME AND CHARGING OF TAX EVEN WHERE THE SPAN OF THE PROJECT SPREADS OVER A NUMBER OF YEARS. THE AO ACCORDINGLY COMPUTED THE ASSESSED INCOME @ 15% ON THE ADVANCES RECEIVED AGAINST THE SALE OF FLAT AND ADDED RS. 18,68, 412/ - . 5. AGGRIEVED, ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). REOPENING OF THE ASSESSMENT WAS CHALLENGED WHICH WAS DISMISSED BY THE LD. CIT(A). ON MERITS OF THE CASE, THE LD. CIT(A) SIMPLY FOLLOWED THE FINDINGS GIVEN IN A.Y. 2003 - 04 VIDE ORDER DATED 15.10.2010. 6. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE ONCE AGAIN STRONGLY STATED THAT THE REOPENING OF COMPLETED ASSESSMENT WAS NOTHING BUT A CHANGE OF OPINION WITHOUT THERE BEING ANY NEW TANGIBLE MATERIAL EVIDENCE ON RECORD THEREFORE THE REASSESSMENT HAS TO BE QUASHED AND FIN DINGS OF THE FIRST APPELLATE AUTHORITY NEED TO BE SET ASIDE. 8. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE FINDINGS OF THE AO AS CONFIRMED BY THE FIRST APPELLATE AUTHORITY. 9. HAVING HEARD THE RIVAL PARTIES AT LENGTH, WE HAVE CAREF ULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. REASONS FOR REOPENING THE ASSESSMENT READ AS UNDER: ITA. NO S . 154 & 159/M/2011 4 IN THIS CASE, THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS. NIL WAS FILED ON 31/03/2006. THE RETURN OF INCOME WAS PROCESSED U /S. 143(1) ON 10/07/2006 ACCEPTING THE RETURNED INCOME AND ORDER U/S 147(3) WAS ALSO PASSED ON DATED 29/12/2006 ACCEPTING THE RETURN OF INCOME. THE ASESSEE'S NATURE OF BUSINESS IS THAT OF DEVELOPER AND BUILDER. ON VERIFICATION OF BALANCE SHEET FOR THE A.Y. 2004 - 05, IT IS SEEN THAT THE ASSESSEE HAS SHOWN CLOSING WORK IN PROGRESS AT GHATKOPER PROJECT AT 5,27,58,544/ - AND ADVANCES RECEIVED FROM CUSTOMER OF GHATKOPER PROJECT AT RS. 3,96,26,082/ - , BUT ASSESSEE HAS NOT OFFERED ANY INCOME ON THIS PROJECT . THE ASSESSEE HAS ALSO NOT INCLUDED THE TAX AUDIT REPORT ALONG WITH THE RETURN OF INCOME. THE ASSESSEE SHOULD HAVE TO TAKE AND OFFERED INCOME ON WORK IN PROGRESS/ ADVANCES RECEIVED FROM CUSTOMERS BECAUSE AS PER THE INCOME TAX ACT EACH YEAR IS SELF CONTAINED UNIT TO DETERMI NED THE INCOME. THE METHODOLOGY USED BY THE ASSESSEE IS INCORRECT TO HIDE THE ACTUAL INCOME OF THE PARTICULAR PROJECT. IN VIEW OF THE ABOVE I HAVE THEREFORE REASON TO BELIEVE THAT THE INCOME OF THE ASSESSEE CHARGEABLE TO TAX HAS ESCAPED ASSESSEMEN T FOR T HE SAID ASSESSMENT YEAR WIT.HIN THE MEANING OF SECTION 147 OF THE I.T. ACT ALONGWITH EXPLANATION 2(C) TO SECTION 147. THIS IS THEREFORE THE FIT CASE FOR ISSUE OF NOTICE U/ S 148 OF THE I.T.ACT. 10. A PERUSAL OF THE NOTICE ISSUED U/S. 142(1) OF THE ACT DUR ING THE COURSE OF THE ORIGINAL ASSESSMENT PROCEEDINGS, WE FIND THAT THE AO HAS MADE SPECIFIC QUERIES RELATING TO THE NATURE OF BUSINESS, THE BUSINESS ACTIVITIES, THE PROJECT UNDERTAKEN DURING THE YEAR UNDER CONSIDERATION AND COMPLETE DETAILS OF EXPENDITURE S DEBITED IN THE PROFIT AND LOSS ACCOUNT ALONGWITH DETAILS OF ADVANCES RECEIVED AGAINST PROJECT - WISE SALES. AFTER CONSIDERING THE DETAILS FURNISHED BY THE ASSESSEE, THE AO COMPLETED THE ORIGINAL ASSESSMENT U/S. 143(3) OF THE ACT , AFTER OBSERVING AT PARA - 3 OF HIS ORDER THAT THE DETAILS CALLED FOR WERE VERIFIED AND TESTED. THE ASSESSED INCOME WAS TAKEN AT NIL. 10.1. COMING BACK TO THE REASONS RECORDED TO THE REOPENING OF THE ASSESSMENT, THE AO HAS MENTIONED ON VERIFICATION OF BALANCE SHEET FOR ITA. NO S . 154 & 159/M/2011 5 THE A.Y. 2 004 - 05. . THUS , IT CAN BE SEEN THAT THE VERY BASIS FOR REOPENING THE ASSESSMENT IS THE BALANCE SHEET WHICH HAS BEEN THOROUGHLY EXAMINED BY THE AO DURING COURSE OF THE ORIGINAL ASSESSMENT PROCEEDINGS , WHEREIN THE AO ACCEPTED THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE , WHICH IS PROJECT COMPLETION METHOD. UNDISPUTEDLY, THERE IS NO NEW MATERIAL EVIDENCE ON RECORD TO SUPPORT THE REOPENING OF THE ASSESSMENT. IN OUR CONSIDERED OPINION, THE ASSESSEE WAS FOLLOWING A WELL RECOGNIZED METHOD OF ACCOUNTING WHICH IS PROJECT COMPLETION METHOD SUPPORTED BY THE ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA. 10.2. WE HAVE NO HESITATION TO HOLD THAT THE AO HAS NO TANGIBLE MATERIAL EVIDENCE TO SUPPORT THE REOPENING OF THE ASSESSMENT. THE ACTION OF THE AO IS AGAINST THE WELL SETTLED POSITION OF LAW AS LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF KELVINATOR OF INDIA 320 ITR 561. WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND QUASH THE REASSESSMENT PROCEEDINGS. GROUND NO. 2 IS ALLOWED. 11. SINCE WE HAVE QUASHED THE A SSESSMENT ORDER MADE ON THE BASIS OF THE NOTICE U/S. 148 OF THE ACT, WE DO NOT FIND IT NECESSARY TO GO INTO THE MERITS OF THE CASE. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 159/MUM/2011 - A.Y. 2003 - 04 13. AS MENTIONED ELSEWHERE, THE GRIEVANCE OF THE ASSESSEE IS IDENTICAL TO THE GRIEVANCE RAISED IN A.Y. 2004 - 05 WHICH HAS BEEN DECIDED BY U S IN ITA NO. 154/M/2011. THE ONLY DISTINGUISHING FACT FOR THE YEAR UNDER CONSIDERATION IS THAT IN THIS YEAR, THE ORIGINA L ASSESSMENT WAS MADE U/S. ITA. NO S . 154 & 159/M/2011 6 143(1) OF THE ACT. HOWEVER, THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS ORIENT CRAFT (2013) 354 ITR 536 DISTINGUISHING WITH THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ACIT VS RAJESH JHAVERI STOCK BROKE RS (2007) 291 ITR 700 AT PARA - 13 HELD AS UNDER: ' ... THE ASSUMPTION OF THE REVENUE THAT SOMEHOW THE WORDS 'REASON TO BELIEVE' HAVE TO BE UNDERSTOOD IN A LIBERAL MANNER WHERE THE FINALITY OF AN INTIMATION UNDER SECTION 143(1) IS .SOUGHT TO BE DISTURBED I S ERRONEOUS AND MISCONCEIVED. AS POINTED OUT EARLIER, THERE IS NO WARRANT FOR SUCH AN ASSUMPTION BECAUSE OF THE LANGUAGE EMPLOYED IN SECTION 147; IT MAKES NO DISTINCTION BETWEEN AN ORDER PASSED UNDER SECTION 143(3) AND THE INTIMATION ISSUED UNDER SECTION 1 43(1). THEREFORE IT IS NOT PERMISSIBLE TO ADOPT DIFFERENT STANDARDS WHILE INTERPRETING THE WORDS 'REASON TO BELIEVE' VIS - A - VIS SECTION 143(1) AND SECTION 143(3). WE ARE UNABLE TO APPRECIATE WHAT PERMITS THE REVENUE TO ASSUME THAT SOMEHOW THE SAME RIGOROUS STANDARDS WHICH ARE APPLICABLE IN THE INTERPRETATION OF THE EXPRESSION WHEN IT IS APPLIED TO THE REOPENING OF AN ASSESSMENT EARLIER MADE UNDER SECTION 143(3) CANNOT APPLY WHERE ONLY AN INTIMATION WAS ISSUED EARLIER UNDER SECTION 143(1). IT WOULD IN EFFECT PLACE AN ASSESSEE IN WHOSE CASE THE RETURN WAS PROCESSED UNDER SECTION 143(1) IN A MORE VULNERABLE POSITION THAN AN ASSESSEE IN WHOSE CASE THERE WAS A FULL - FLEDGED SCRUTINY ASSESSMENT MADE UNDER SECTION 143(3). WHETHER THE RETURN IS PUT TO SCRUTINY OR IS A CCEPTED WITHOUT DEMUR IS NOT A MATTER WHICH IS WITHIN THE CONTROL OF ASSESSEE; HE HAS NO CHOICE IN THE MATTER. THE OTHER CONSEQUENCE, WHICH IS SOMEWHAT GRAVER, WOULD BE THAT THE ENTIRE RIGOROUS PROCEDURE INVOLVED IN REOPENING AN ASSESSMENT AND THE BURDEN O F PROVING VALID REASONS TO BELIEVE COULD BE CIRCUMVENTED BY FIRST ACCEPTING THE RETURN UNDER SECTION 143(1) AND THEREAFTER ISSUE NOTICES TO REOPEN THE ASSESSMENT. AN INTERPRETATION WHICH MAKES A DISTINCTION BETWEEN THE MEANING AND CONTENT OF THE EXPRESSION 'REASON TO BELIEVE' 'IN CASES WHERE ASSESSMENTS WERE FRAMED EARLIER UNDER SECTION 143 (3) AND CASES WHERE MERE INTIMATIONS WERE ISSUED EARLIER UNDER SECTION 143(1) MAY WELL LEAD TO SUCH AN UNINTENDED MISCHIEF IT WOULD BE DISCRIMINATORY TOO. AN INTERPRETA TION THAT LEADS TO ABSURD RESULTS OR MISCHIEF IS TO BE ESCHEWED. ' ITA. NO S . 154 & 159/M/2011 7 1 4. THIS DECISION WAS FOLLOWED BY THE TRIBUNAL, MUMBAI BENCH IN THE CASE OF KOTAK MAHINDRA IN ITA NO. 2656/M/2013 WHEREIN ONE OF US (THE ACCOUNTANT MEMBER) WAS THE AUTHOR. RESPECTFULLY FO LLOWING THE DECISION OF THE HONBLE HIGH COURT AND THE CO - ORDINATE BENCH, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND QUASH THE REASSESSMENT MADE U/S. 147 OF THE ACT. FOR SIMILAR SIMILAR REASONS, WE DECLINE TO DECIDE THE ISSUE ON MERIT. 15. IN THE RESU LT, THE APPEALS FILED BY THE ASSESSEE IN ITA NO. 154/M/11 FOR A.Y. 2004 - 05 IS PARTLY ALLOWED AND ITA NO. 159/M/11 FOR A.Y. 2003 - 04 IS ALLOWED. OR DER PRONOUNCED IN THE OPEN COURT ON 7 TH AUGUST , 2015 SD/ - SD/ ( VIJAY PAL RAO ) (N.K. BILLAIYA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 7 TH AUGUST, , 2015 . . ./ RJ , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI