Devi Developers Pvt. Ltd., New Delhi V. CIT-V, New Delhi

ITA 2408/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58429 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 21-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S KRISHNA
• Assessee Lawyers: JITEN OBEROI
• Keywords: Cost of acquisition; Difference of opinion; Change of opinion
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B : NEW DELHI) BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.2408/DEL./2010 (ASSESSMENT YEAR : 2005-06) M/S. DEVI DEVELOPERS PVT. LTD., VS. CIT, DELHI V , (FORMERLY KNOWN AS PARUL DEVELOPERS PVT. LTD.) NEW DELHI. 3 RD FLOOR, UCO BANK BUILDING, PARLIAMENT STREET, NEW DELHI 110 001. (PAN : AACCP3450E) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M.P. RASTOGI, ADVOCATE AND SHRI JITEN OBEROI, CA REVENUE BY : SHRI S. KRISHNA, CIT DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF THE ORDER OF CIT, DELHI- V, NEW DELHI DATED 29.03.2010 FOR THE ASSESSMENT YE AR 2005-06. THE GROUNDS OF APPEAL READ AS UNDER :- 1) THAT THE ASSUMPTION OF JURISDICTION BY THE CIT U/S 263 OF THE INCOME-TAX ACT, 1961 (THE ACT) IS ARBITRARY, UN JUST AND BAD IN LAW. 2) THAT THE ASSESSMENT ORDER DATED 19TH DECEMBER 20 07 PASSED U/S 143(3) OF THE ACT, THE SUBJECT MATTER OF THE PROCEEDINGS U/ S 263 OF THE ACT, WAS PASSED BY THE AO AFTER MAKING PROPER ENQUIRIES AND WAS IN ACCORDANCE WITH LAW. HENCE ITA NO.2408/DEL./2010 2 THE ASSUMPTION OF JURISDICTION BY THE CIT U/ S 263 OF THE ACT IS WRONG AND BAD IN LAW. 3) THAT THE ORDER OF THE AO DATED 19TH DECEMBER 200 7 U/S 143(3) OF THE ACT, PASSED AFTER MAKING PROPER ENQUI RIES IN ACCORDANCE WITH LAW, WAS NOT ERRONEOUS AND PREJUDIC IAL TO THE INTEREST OF REVENUE AND HENCE PROCEEDINGS U/ S 263 OF THE ACT INITIATED BY THE CIT, IS WRONG AND NOT SUSTAINABLE UNDER THE LAW. 4) THAT THE ORDER OF THE AO U/S 143(3) OF THE ACT C ANNOT BE HELD ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF R EVENUE MERELY ON THE BASIS OF LACK OF ENQUIRY IN THE MANNER DESIR ED BY THE CIT AND CONSEQUENTLY THE ASSUMPTION OF JURISDICTION BY THE CIT U/ S 263 OF THE ACT IS NOT TENABLE UNDER THE LAW. 5) THAT THE AMOUNT OF RS.6,69,540/- BEING THE FINAN CIAL CHARGES INCURRED BY THE ASSESSEE ON BORROWED FUNDS HAD BEEN CORRECTLY ALLOWED BY THE AO UNDER THE LAW AND ACCOR DINGLY THE ORDER OF THE AO CANNOT BE TERMED AS ERRONEOUS AND P REJUDICIAL TO THE INTEREST OF REVENUE AND CONSEQUENTLY THE DIRECT ION OF THE CIT TO HAVE ADDED THE SAME TOWARDS THE CLOSING STOC K IS ARBITRARY, UNJUST AND BAD IN LAW. 6) THAT THE ASSUMPTION OF JURISDICTION U/ S 263 OF THE ACT BY THE CIT FOR MAKING DIRECTION TO THE AO FOR THOROUGH EXAMINATION AND INVESTIGATION INTO THE GENUINENESS OF THE TRANSACTIONS RELATING TO SALE AND PURCHASE OF SHARE S OF M/S G.R. INDUSTRIES GIVING RISE TO THE SAID SHORT TERM CAPIT AL GAIN, GENUINENESS OF THE COMPANY M/S G.R. INDUSTRIES AS A LSO THE CORRECTNESS OF UNPRECEDENTED RISE IN THE PRICE OF S HARES IS WRONG AND BAD IN LAW. 7) THE ABOVE GROUNDS OF APPEAL ARE INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. YOUR APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND O R WITHDRAW ANY OF THE GROUNDS OF APPEAL AT THE TIME O F HEARING. ITA NO.2408/DEL./2010 3 2. THE RETURN OF INCOME FILED ON 31.10.2005. RETUR N WAS PROCESSED UNDER SECTION 143(1) ON 06.10.2006. ORDER UNDER SECTION 143(3) WAS PASSED ON 19.12.2007. 3. THE LEARNED AR SUBMITTED THAT THE CIT ISSUED THE SHOW CAUSE NOTICE UNDER SECTION 263 TO THE ASSESSEE ON VARIOUS ISSUES . FINALLY, HE DIRECTED THE ASSESSING OFFICER TO MAKE THE ADDITION OF RS.6,69,5 40/- BEING THE FINANCIAL CHARGES INCURRED ON THE BORROWED FUNDS UTILIZED FOR ACQUISITION OF THE PROPERTY AT SUNDER NAGAR. THIS PROPERTY WAS FORMIN G PART OF THE CLOSING STOCK. THE CIT HAS DIRECTED THE ASSESSING OFFICER TO MAKE THE ADDITION OF RS.6,69,540/- BY HOLDING AS UNDER :- I HAVE CONSIDERED THE SUBMISSION OF THE LD. COUNS EL AND IT IS SEEN THAT THE FINANCIAL CHARGES OF RS.6,85,860/- DEBITED IN THE PROFIT & LOSS ACCOUNT BESIDES THE BANK CHARGES INCLUDES THE INTER EST OF RS.6,69,452/-PAID TO M/S ARAVALI SECURITIES AND FINANCIAL LTD. ON A L OAN OF RS. 90 LACS TAKEN FROM THEM. THIS LOAN HAS BEEN UTILIZED FOR PURCHASI NG THE SUNDER NAGAR PROPERTY WHICH IS FORMING A PART OF THE CLOSING STO CK. THE ASSESSEE HAS SUBMITTED THAT THE COMPANY'S HAS A POLICY TO VALUE STOCKS AT COST OR MARKET VALUE WHICHEVER IS LOWER, AND THAT ALL THE EXPENSES INCURRED DURING A YEAR FOR THE DEVELOPMENT OF THE SAID PROPERTY, BECOMES P ART OF THE COST OF THE PROPERTY. IN VIEW OF THIS SUBMISSION OF THE ASSESSE E ITSELF IT BECOMES CLEAR THAT THE INTEREST ON THE FUNDS BORROWED FOR THE SUN DER NAGAR PROPERTY IS A PART OF THE COST OF THE PROPERTY. IT IS WELL ESTABL ISHED PRINCIPLE THAT ALL THE EXPENSES INCURRED BY THE ASSESSEE FOR BRINGING ANY ITEMS OF ITS CLOSING STOCK TO ITS STATUS/POSITION AT THE END OF THE PREV IOUS YEAR HAS TO BE INCLUDED IN THE COST OF THE CLOSING STOCK AND THE CLOSING ST OCK IS TO BE VALUED ACCORDINGLY. IN VIEW OF THIS THE ASSESSING OFFICER SHOULD HAVE ADDED THE SUM OF RS.6,69,452/- TO THE CLOSING STOCK OF THE SU NDER NAGAR PROPERTY AND ACCORDINGLY MADE THE EQUAL AMOUNT OF ADDITION TO TH E INCOME OF THE ASSESSEE. SINCE THE ASSESSING OFFICER HAS FAILED TO DO SO THE ASSESSMENT ORDER IS ERRONEOUS & PREJUDICIAL TO THE INTEREST OF THE REVENUE TO THIS EXTENT. THE ASSESSING OFFICER IS ACCORDINGLY DIREC TED TO MAKE AN ADDITION OF RS.6,69,452/- TO THE INCOME OF THE ASSESSEE ON THIS ACCOUNT. ITA NO.2408/DEL./2010 4 THE LEARNED AR SUBMITTED THAT THE ASSESSMENT U/S 14 3(3) WAS COMPLETED ON 19.03.2007. THE ASSESSING OFFICER HAS ASKED THE DE TAILS WHICH WERE FURNISHED BY THE ASSESSEE AND AFTER DISCUSSION, THE ASSESSMENT WAS FINALIZED, THEREFORE, INVOKING THE PROVISIONS OF SECTION 263 B Y THE CIT IS NOT JUSTIFIED. THE ORDER PASSED BY ASSESSING OFFICER WAS NEITHER E RRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE. THE ORDER PASSED BY CI T IS BASED ON THE CHANGE OF OPINION HENCE NOT SUSTAINABLE IN LAW. LEARNED AR ALSO PLEADED THAT AS PER ACCOUNTING STANDARD AS-2 INTEREST AND BORROWING COS T ARE USUALLY NOT CONSIDERED AS RELATING TO BRINGING THE INVENTORIES IN THEIR PRESENT POSITION AND LOCATION, THEREFORE, USUALLY NOT INCLUDED IN THE CO ST OF INVENTORIES. HE PLEADED TO SET ASIDE THE ORDER OF CIT. 3. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT THE ASSESSMENT ORDER PASSED U/S 143(3) WAS ONLY A FIVE LINE ORDER. THE ASSESSING OFFICER HAS NOT SCRUTINIZED THE COST OF ACQUISITION OF INVENTORIES. THE ISSUE REGARDING THE FINANCIAL CHARGES PAID BY ASSESSEE FOR THE LOAN UTI LIZED TO ACQUIRE THE CLOSING STOCK HAS NOT BEEN RAISED BY THE ASSESSING OFFICER. HE HAD SUMMARILY PASSED THE ASSESSMENT ORDER. THIS ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER WAS NOT ONLY PRIMA FACIE ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTEREST OF REVENUE. HE SUBMITTED THAT THE ASSESSEE HAS DEB ITED RS.6,69,540/- AS FINANCIAL CHARGES IN THE PROFIT AND LOSS ACCOUNT. THESE FINANCIAL CHARGES WERE PAID TO ARAVALI SECURITIES AND FINANCIAL LTD. ON A LOAN OF RS.90 LACS. THIS ITA NO.2408/DEL./2010 5 LOAN WAS UTILIZED FOR PURCHASE OF SUNDER NAGAR PROP ERTY WHICH IS FORMING A PART OF THE CLOSING STOCK. HE ALSO PLEADED THAT TH E ASSESSEE COMPANY ITSELF HAS CLAIMED THAT IT IS FOLLOWING THE POLICY TO VALUE ST OCKS AT COST OR MARKET VALUE, WHICHEVER IS LOWER. HE PLEADED THAT ALL THE EXPENS ES INCURRED FOR THE DEVELOPMENT OF THE PROPERTY BECOME THE COST OF THE PROPERTY. IN VIEW OF THESE FACTS, THE INTEREST PAID ON THE FUNDS BORROWE D ON THE SUNDER NAGAR PROPERTY MUST ALSO BE ADDED TO THE COST OF THE PROP ERTY. BUT NOT DOING SO, ASSESSEE HAD UNDER VALUED THE CLOSING STOCK INVENTO RY WHICH HAD REDUCED THE TAXABLE INCOME. SINCE ASSESSING OFFICER HAD NOT IN QUIRED ABOUT THESE FACTS IN PROCEEDING UNDER SECTION 143(3), HENCE, THERE IS NO QUESTION OF CHANGE IN OPINION. ASSESSING OFFICER HAS NOT MADE ANY OPINIO N ON THIS ISSUE. HE PLEADED THAT THE ORDER OF THE CIT IS JUSTIFIED AS T HE ORDER OF THE ASSESSING OFFICER WAS NOT ONLY ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTEREST OF REVENUE. 4. WE HAVE HEARD BOTH THE SIDES. THE ASSESSING OFF ICER MADE THE ORDER UNDER SECTION 143(3) WHICH READ AS UNDER :- THE RETURN OF INCOME WAS FILED ON 31.10.2005 DECL ARING TOTAL INCOME OF RS.87,46,659/-. THE RETURN WAS PROC ESSED U/S 143(1) ON 06.10.2006. LATER ON THE CASE WAS SELECTE D UNDER SCRUTINY AND NOTICE U/S 143(2) WAS ISSUED AND SERVE D UPON THE ASSESSEE COMPANY ON 17.10.2006. IN RESPONSE TO THIS NOTICE SH. JITEN OBEROI C.A. & AR APPEARED, FURNISHED REQUISIT E DETAILS & DISCUSSED THE CASE. AT THE FACE OF THE ORDER, IT IS CLEAR THAT IT WAS P ASSED WITHOUT APPLYING THE MIND OR WITHOUT MAKING PROPER INVESTIGATION. THERE IS NOTHING ON RECORD ITA NO.2408/DEL./2010 6 WHICH COULD SHOW THAT ASSESSING OFFICER HAD INQUIRE D INTO FINANCIAL CHARGES PAID ON THE BORROWED FUND FOR PURCHASE OF PROPERTY WHICH IS FORMING PART OF CLOSING STOCK. ASSESSING OFFICER HAS ALSO NOT INQU IRED INTO THE METHOD OF VALUATION OF STOCK. HENCE, THERE WAS NO OPINION OF ASSESSING OFFICER IN RESPECT OF THIS ISSUE. THUS, THE ORDER OF CIT IS N OT BASED ON CHANGE IN OPINION. THE AMOUNT WHICH WAS PAID TO M/S. ARAVALI SECURITIES AND FINANCIAL LTD. ON THE LOAN OF RS.90 LACS WHICH WAS UTILIZED F OR ACQUIRING THE PROPERTY AT SUNDER NAGAR AND ASSESSEE IS FOLLOWING THE POLICY O F VALUING THE STOCK ON COST OR MARKET VALUE, WHICHEVER IS LOWER. THE ACCOUNTIN G STANDARD ONLY PROVIDES THAT USUALLY THE INTEREST AND BORROWED FUNDS ARE NO T CONSIDERED IN THE COST OF INVENTORIES BUT IN ASSESSEES CASE THE ASSESSEE ITS ELF IS FOLLOWING THE METHOD WHERE ALL COST RELATED TO STOCK ARE ADDED INTO COST . KEEPING THESE FACTS IN VIEW, WE FIND THAT THE ORDER PASSED BY THE ASSESSIN G OFFICER WAS NOT ONLY ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTEREST OF R EVENUE. SO FAR AS THE ISSUING DIRECTIONS FOR THOROUGH EXAMINATION AND INVESTIGATI ON IS CONCERNED, WE HOLD THAT THE ASSESSING OFFICER HAS PASSED A SUMMARY ORD ER WITHOUT LOOKING INTO THE ISSUE OF GENUINENESS OF TRANSACTIONS RELATING T O SALE AND PURCHASE OF SHARES OF G.R. INDUSTRIES. IT IS CLEAR FROM FACTS OF THE CASE THAT ASSESSING OFFICER HAS NOT APPLIED HIS MIND ON THIS ISSUE WHILE PASSING OR DER UNDER SECTION 143(3). THIS ORDER IS SUMMARY ORDER. THE RELEVANT FACTS HA VE NOT BEEN LOOKED INTO. IN VIEW OF THESE FACTS, WE UPHOLD THE ORDER OF CIT FOR DIRECTING ASSESSING ITA NO.2408/DEL./2010 7 OFFICER TO MAKE THOROUGH EXAMINATION AND INVESTIGAT ION ON THIS ISSUE. CONSIDERING THESE FACTS, WE SUSTAIN THE ORDER OF CI T AND DISMISS THE ASSESSEES APPEAL. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 6 TH DAY OF JANUARY, 2012. SD/- SD/- (U.B.S. BEDI) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 6 TH DAY OF JANUARY, 2012/TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-V, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.