M/s Damini Resorts & Builders (P) Ltd., Ludhiana V. CIT (Central), Ludhiana

ITA 404/CHANDI/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80969 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 02-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 10-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Keywords: Revision of order; Audit objection; Proportionate interest; Difference of opinion; Block assessment; Change of opinion; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 142(1); 14A; 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 404/CHD/2012 ASSESSMENT YEAR: 2007-08 M/S DAMINI RESORTS & V THE CIT (CENTRAL), BUILDERS (P) LTD., LUDHIANA. 37, BASANT AVENUE, DUGRI ROAD LUDHIANA. PAN: AAACD6211B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI KUMA R RESPONDENT BY : SMT. JYOTI KUMARI DATE OF HEARING : 15.10.2014 DATE OF PRONOUNCEMENT : 31.10.2014 O R D E R PER BHAVNESH SAINI,JM THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORD ER OF LD. CIT, CENTRAL, LUDHIANA UNDER SECTION 263 OF THE INC OME TAX ACT DATED 21.02.2012 FOR ASSESSMENT YEAR 2007-08 ON THE FOLLOWING GROUNDS : 1. THAT THE LD. COMMISSIONER OF INCOME TAX (CENTRAL) HAS ERRED IN ASSUMING THE JURISDICTION U/S 263 OF THE I NCOME TAX ACT AND THEREBY SETTING ASIDE THE ORDER TO THE FILE OF TH E ASSESSING OFFICER TO FRAME THE ASSESSMENT DENOVO. 2. THAT WHILE SETTING ASIDE THE ORDER OF THE AO ON VARIOUS ISSUES, THE LD. IT (CENTRAL) HAS FAILED TO CONSIDER THE FACT THAT THE ASSESSMENT WAS FRAMED AFTER DUE APPLICATION OF MIND AND VERIFICATION MADE BY THE CONCERNED ASSESSING OFFICER AND, THEREFORE, THE FINDING OF THE CIT THAT THE ASSESSMENT HAVING BEEN FRAMED WITHOUT APPLICATION OF MIND BY THE AO IS AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THAT THE LD. CIT (CENTRAL) HAS FAILED TO APPRECIATE THE VARIOUS 2 REPLIES AND SUBMISSIONS WITH DOCUMENTARY EVIDENCES AS FILED BY THE ASSESSEE DURING THE COURSE OF PROCEEDINGS BEFORE HIM. 4. THAT THE LD. CIT (CENTRAL) HAVING SET ASIDE THE CASE T O THE ASSESSING OFFICER FOR COMPLETION OF ASSESSMENT DENOVO PROVES BEYOND ANY DOUBT THAT THE HE IS NOT OF CONFIRMED VIEW AND WHICH IS CONTRARY TO THE JUDGMENT OF JURISDICTIONAL HIGH COUR T I.E. PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S KANDA RICE M ILL AS REPORTED IN 178 ITR 446. 5. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUNDS OF APPEAL BEFORE THE APPEAL IS FINALLY HEARD OR DISPOSED OFF . 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT IN THIS CASE, RETURN OF INCOME WAS FILED DECLARING INCOME OF RS. 1,26,87,76 0/- AND ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E ACT VIDE ORDER DATED 29.12.2009 AT AN INCOME OF RS. 1,36,38, 920/- MAINLY BY DISALLOWING THE INTEREST OF RS. 8,52,164/ - ON INVESTMENT OF RS. 1.80 CR MADE WITH M/S DEV BUILDER S & COLONIZERS A SISTER CONCERN APART FROM DISALLOWING RS. ONE LAC ON ACCOUNT OF UNVOUCHED EXPENSES. THE LD. CIT FOUN D THAT SINCE IN THIS CASE, ASSESSMENT HAS NOT BEEN COMPLETED PRO PERLY AND VARIOUS ITEMS OF INCOME HAD NOT BEEN ADDED AND PROP ER ENQUIRIES HAVE NOT BEEN MADE, ASSESSING OFFICER SUB MITTED PROPOSAL FOR INITIATING PROCEEDINGS UNDER SECTION 2 63 OF THE ACT. THE LD. CIT, ON EXAMINING THE RECORD, FOUND THE ASS ESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERE ST OF REVENUE AND ACCORDINGLY, ISSUED SHOW CAUSE NOTICE UNDER SEC TION 263 OF THE ACT CALLING FOR THE OBJECTIONS FOR THE PROPOSED RE VISION OF THE ASSESSMENT UNDER SECTION 262 OF THE ACT. THE S HOW CAUSE NOTICE DATED 17.01.2012 (PB-52) IS REPRODUCED IN TH E IMPUGNED ORDER ON WHICH THE LD. CIT PROPOSED TO REVISE THE A SSESSMENT ORDER. THE LD. CIT CONSIDERED DEVELOPMENT EXPENSES AND EXTERNAL DEVELOPMENT CHARGES SHOULD BE PROPORTIONAT ELY ADDED 3 IN VALUATION OF THE CLOSING STOCK AND NOTED THAT ON LY PROVISIONS HAVE BEEN CREATED FOR DEVELOPMENT EXPENSES AND EXTE RNAL DEVELOPMENT CHARGES. THEREFORE, SAME ARE NOT ALLOW ABLE EXPENSES AND HAVE TO BE ADDED TO THE CLOSING STOCK. IT WAS ALSO OBSERVED THAT IN THE ORDER UNDER CONSIDERATION, ABO UT 11.5% OF THE LAND HAS BEEN SOLD AND BALANCE 88.5% OF THE LAN D IS APPEARING IN CLOSING STOCK. THEREFORE, 88.5% OF THE EXPENSES SHOULD BE ADDED TO THE CLOSING STOCK. IT WAS ALSO NOTED IN THE NOTICE THAT LAST YEAR EXPENSES CLAIMED ON THESE HEA DS, PROPORTIONATE TO SUCH EXPENSES RELATING TO LAND APP EARING IN CLOSING STOCK SHOULD HAVE BEEN ADDED TO THE CLOSING STOCK. 3. THE LD. CIT CONSIDERED ANOTHER ITEM TO BE THE DI SALLOWANCE OF EXPENSES UNDER SECTION 14A OF THE ACT AND NOTED THAT DISALLOWANCE AS PER RULE 8D TO BE MADE IN A SUM OF RS. 208,576/-. IT WAS ALSO NOTED THAT LOANS AND ADVANC ES HAVE BEEN GIVEN FOR WHICH NO NECESSARY DETAILS HAVE BEEN FILE D, THEREFORE PROPORTIONATE INTEREST TO BE DISALLOWED @ 12% UNDER SECTION 36(1)(III) OF THE ACT IN A SUM OF RS. 9,90,000/-. SUSPENSE ACCOUNT WAS CONSIDERED AND IT WAS FOUND THAT CASH I S UTILIZED BY THE DIRECTORS WHICH IS TO BE ADDED UNDER SECTION 2( 22)(E) OF THE ACT. PROVISION AGAINST DEVELOPMENT EXPENSES WAS CON SIDERED TO BE INCURRED ON PROVISION BASIS WHICH IS ALLOWED ONL Y ON ACTUAL INCURRING OF THE EXPENSES AND WAS THUS, DISALLOWABL E. MAINTENANCE DEPOSITS WERE ALSO CONSIDERED AND IT WA S FOUND THAT PROVISION MADE IN THIS YEAR AND LAST YEAR IT W AS VERY SMALL PROVISION MADE THEREFORE, A HUGE PROVISION HAS BEEN CREATED BY DEBITING TO SOME RECEIPTS WHICH IS NOT CLEAR FROM R ECORD. ONLY ACTUAL EXPENSES ARE ALLOWABLE AND NOT THE PROVISION . 4 PROFESSIONAL CHARGES AND TRANSFORMER EXPENSES WERE FOUND NOT AVAILABLE ON RECORD AND IT WAS CONSIDERED THAT THES E EXPENSES NEEDS TO BE TREATED AS PART OF THE TRADING ACCOUNT AND PROPORTIONATE PART OF SUCH EXPENSES MAY BE ADDED TO THE CLOSING STOCK OF LAND OF THE SOCIETY. 4. THE LD. CIT ALSO NOTED THAT ASSESSEE RECEIVED AD VANCES FROM THE CUSTOMERS WHICH IS TO BE TREATED AS TRADING REC EIPTS AND ACCORDINGLY EXPLANATION OF THE ASSESSEE ON THESE IT EMS WERE CALLED FOR. 5. THE ASSESSEE FILED DETAILED REPLY BEFORE LD. CIT DATED 25.01.2012 IN WHICH THE ASSESSEE RAISED VARIOUS OBJ ECTIONS WHICH HAVE BEEN DISCUSSED IN THE IMPUGNED ORDER. T HE ASSESSEE BRIEFLY EXPLAINED THAT IT HAS BEEN CARRYING ON BUSI NESS OF DEVELOPERS & COLONIZERS AND IS FOLLOWING PROJECT CO MPLETION METHOD OF ACCOUNTING REGULARLY FROM YEAR TO YEAR. THE VARIOUS DETAILS AND INFORMATION WERE SUBMITTED IN THE COURS E OF ASSESSMENT PROCEEDINGS AND ASSESSMENT HAS BEEN COMP LETED AFTER DUE APPLICATION OF MIND. FURTHER, ASSESSEE H AS TREATED VARIOUS ISSUES CONSISTENTLY SINCE INCEPTION OF THE COMPANY AND ACCORDING TO JUDGEMENT OF VARIOUS COURTS, NO CHANGE IN ACCOUNTING POLICY IS PERMISSIBLE. IT WAS STATED TH AT GROSS PROFIT OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDER ATION, IS 40% AS COMPARED TO 26% IN PRECEDING ASSESSMENT YEAR 2006-07. IT WAS SUBMITTED THAT ASSESSING OFFICER HAS APPLIED MIND AND PASSED THE REGULAR ASSESSMENT ORDER. THEREFORE, AS SESSMENT ORDER SHOULD NOT BE REVISED. THE ASSESSEE ALSO EXP LAINED THAT DEVELOPMENT EXPENSES AND EXTERNAL DEVELOPMENT EXPEN SES HAVE BEEN CLAIMED BECAUSE ASSESSEE IS ENGAGED IN DEVELOP MENT OF 5 PUDA APPROVED COLONIES SINCE 1996. AS PER CONDITIO NS IMPOSED BY PUDA AUTHORITIES, ASSESSEE IS UNDER OBLIGATION T O DEVELOP THE COLONY/AREA WITHIN STIPULATED TIME PERIOD RANGING F ROM 3 TO 5 YEARS AND THEREAFTER MAINTAIN THE AREA TILL ITS FIN AL COMPLETION AND HANDING OVER THE COLONY TO THE CIVIL AUTHORITIE S SUCH AS MUNICIPAL CORPORATION, NOTIFIED AREA COMMITTEE. IN THIS WAY, IRRESPECTIVE OF PLOT SOLD IN AN YEAR, THE ASSESSEE HAS TO DEVELOP THE COLONY AND IT IS A CONTINUED LIABILITY AND THER EFORE, ABOVE EXPENSES COULD NOT BE TREATED AS PROVISION FOR DEVE LOPMENT EXPENSES. FURTHER EXTERNAL DEVELOPMENT CHARGES ARE PAYABLE TO PUDA AS STATUTORY GOVERNMENT DUES AS PER APPROVAL G RANTED WHICH WERE PAYABLE TO THE GOVERNMENT ON SALE OF THE PLOTS AS PER ACCOUNTING POLICIES FOLLOWED CONSISTENTLY. AS PER ACCOUNTING POLICY ADOPTED BY THE ASSESSEE COMPANY, PAYMENT OF EXTERNAL DEVELOPMENT CHARGES IS ACCOUNTED FOR IN THE BOOKS O F ACCOUNT ON CASH BASIS AS PER NOTES ON ACCOUNTS WHICH WAS PART OF BALANCE SHEET FILED DURING THE COURSE OF ASSESSMENT PROCEED INGS. THE SAID EXPENSES ARE COVERED UNDER SECTION 43B OF THE ACT AND LAW PERMITS THEIR ALLOWABILITY ON ACTUAL PAYMENT BASIS AND THEREFORE, SAME WAS NOT INCLUDED IN THE CLOSING STOCK. AS THE EXPENSES ARE CLAIMED ONLY ON THE BASIS OF SALE OF PLOTS AND SALE PRICE CHARGED FROM THE PROSPECTIVE BUYER IS INCLUSIVE OF DEVELOPM ENT EXPENSES, MAINTENANCE EXPENSES AND EXTERNAL DEVELOPMENT CHARG ES ETC, THERE IS NO QUESTION OF ADDING THE SAME TO THE COST OF THE CLOSING STOCK. 6. THE ASSESSEE IN SUPPORT OF THIS CONTENTION, RELI ED UPON CERTAIN DECISIONS OF DIFFERENT BENCHES OF THE TRIBU NAL. IT WAS ALSO PLEADED THAT THE SAME PRACTICE IS FOLLOWED BY ASSESSEE 6 CONSISTENTLY AND COMPLETE DETAILS WERE PRODUCED BEF ORE ASSESSING OFFICER. THE LD. CIT, HOWEVER, DID NOT AC CEPT THE CONTENTION OF THE ASSESSEE AND WAS OF THE VIEW THAT ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND IS RE QUIRED TO ACCOUNT FOR THE EXPENSES ON ACCRUAL BASIS. FURTHER , THE PROVISION FOR DEVELOPMENT EXPENSES CANNOT BE ALLOW ED DEDUCTION/EXPENDITURE. THE LD. CIT WAS ALSO OF THE VIEW THAT EVEN IF CONSISTENT METHOD WAS FOLLOWED ON ACCOUNTIN G BUT THERE IS AN UNDER-STATEMENT OF THE INCOME IN THE YEAR IN CONSIDERATION, THEREFORE, ASSESSMENT ORDER WAS ERRO NEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE WAS ALSO OF THE VIEW THAT THESE EXPENDITURES SHOULD BE ADDED TO THE CLOSING STOCK AS THE NATURE OF THE EXPENSES MAY NOT BE RELE VANT. 7. THE LD. CIT ALSO DID NOT ACCEPT CONTENTION OF A SSESSEE WITH REGARD TO PAYMENTS OF EXTERNAL DEVELOPMENT CHARGES TO PUDA. AS REGARDS LOAN AND ADVANCES, THE LD. CIT NOTED THE SUBMISSION OF THE ASSESSEE THAT ADVANCES HAVE BEEN MADE FOR PU RCHASE OF LAND FOR BUSINESS PURPOSE ONLY AND THEREFORE, INTER EST CANNOT BE DISALLOWED. THE LD. CIT, HOWEVER NOTED THAT ASSESS ING OFFICER HAS NOT VERIFIED THIS ASPECT AND HAS NOT MADE ANY E NQUIRY. WITH REGARD TO THE SUSPENSE ACCOUNT, THE ASSESSEE SUBMIT TED THAT ABOVE ACCOUNT IS ON ACCOUNT OF SEARCH OPERATIONS AT THE OFFICE OF THE ASSESSEE AND THE CASE IS PENDING BEFORE SETTLEM ENT COMMISSION. THE SAID AMOUNT DOES NOT INCLUDE ADVAN CE TO THE DIRECTOR. THEREFORE, PROVISION OF SECTION 2(22)(E) OF THE ACT ARE NOT APPLICABLE. LD. CIT, HOWEVER NOTED THAT IT IS NOT CLEAR WHERE IS THE DESTINATION OF THE AMOUNT AND ASSESSING OFFI CER HAS NOT EXAMINED THIS FACT. AS REGARDS PROFESSIONAL CHARGES AND 7 TRANSFORMER EXPENSES, THE ASSESSEE EXPLAINED THAT T HESE WERE PAID TO PSEB ON ACCOUNT OF REGULAR AND UNINTERRUPTE D SUPPLY OF ELECTRICITY AND THEREFORE, THESE ARE NOT IN THE NAT URE OF EXPENSES AND DEVELOPMENT OF LAND. THE LD. CIT, HOWEVER NOTE D THAT NO ENQUIRIES HAVE BEEN MADE BY THE ASSESSING OFFICER O N THIS ISSUE. THE LD. CIT, WITH REGARD TO THE ADVANCES FROM THE C USTOMER NOTED THE SUBMISSION OF THE ASSESSEE THAT THE SAME WERE RECEIVED AS PART OF PROPOSED SALE OF PLOTS. THE ASS ESSEE, THEREFORE, PLEADED THAT SAME CANNOT BE TREATED AS P ART OF THE SALE UNTIL FULL AND FINAL PAYMENT IS RECEIVED OR RE GISTERED DEED IS EXECUTED IN FAVOUR OF BUYER AND NO POSSESSION IS GIVEN UNTIL RECEIPT OF FULL AND FINAL PAYMENT. THEREFORE, THE BASIC INGREDIENTS OF THE SALE ARE MISSING. THE ASSESSEE ALSO EXPLAINED THROUGH THE BALANCE SHEET REGARDING REVENUE RECOGNI TION THAT SALES ARE TAKEN INTO CONSIDERATION AT THE TIME OF F ULL PAYMENT IN RESPECT OF PLOTS SOLD. UNTIL THE FULL PAYMENTS ARE RECEIVED AND POSSESSION IS GIVEN TO THE BUYER, NO SALE IS BOOKED BY THE ASSESSEE. THE LD. CIT, HOWEVER NOTED THAT NO ENQUI RIES HAVE BEEN CONDUCTED BY THE ASSESSING OFFICER AND THE NOT E GIVEN ON REVENUE RECOGNITION IS CONTRADICTORY IN AS MUCH AS THE PAYMENT IS TREATED AS ADVANCE TILL THE FULL PAYMENT IS MADE WHILE ON OTHER HAND IN RESPECT OF PURCHASE, THESE ARE TAKEN INTO A CCOUNT WHEN SALE IS EXECUTED. . 8. THE LD. CIT RELIED UPON DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V FAIRDEAL TR ADERS AND NOTED THAT ADVANCES SHOULD BE CONSIDERED AS SALE. IN REGARD TO MAINTENANCE DEPOSITS, THE ASSESSEE SUBMITTED THAT P ROVISION FOR MAINTENANCE DEPOSIT WAS CREATED ON ACCOUNT OF SALE OF LAND/PLOT 8 AND VARIOUS EXPENSES ARE INCURRED BY DEBITING TO MA INTENANCE DEPOSIT ACCOUNT. LD. CIT, HOWEVER NOTED THAT ASSES SING OFFICER DID NOT VERIFY THIS FACT. THE LD. CIT ALSO ISSUED SHOW CAUSE NOTICE WITH REGARD TO DETAILS OF EXPENSES ON CONSTR UCTION AND CALLED FOR THE EXPLANATION OF THE ASSESSEE IN WHICH THE ASSESSEE EXPLAINED THAT DETAILS OF EXPENSES DEBITED AGAINST SALE OF PLOTS WERE FILED BEFORE ASSESSING OFFICER AND HAVE BEEN V ERIFIED. THE LD. CIT, HOWEVER DID NOT ACCEPT CONTENTION OF THE A SSESSEE AS NO ENQUIRIES HAVE BEEN MADE BY ASSESSING OFFICER ON TH IS ISSUE. THE LD. CIT THEREAFTER NOTED THAT VARIOUS REPLIES H AVE BEEN FILED BY THE ASSESSEE BEFORE ASSESSING OFFICER BUT THERE IS NO REPLY DATED 01.12.2009 AND EVEN ORDER-SHEET DOES NOT SHOW FILING OF SUCH REPLY, THEREFORE CONTENTION OF THE ASSESSEE IS NOT VERIFIABLE. SIMILARLY, LD. CIT NOTED THAT IN-FACT, ORDER-SHEET SHOWS FILING OF THE REPLIES ON 09.10.1009, 20.11.2009 AND 01.12.200 9. 9. THE LD. CIT ALSO NOTED THAT PROVISION FOR MAINTE NANCE WAS CREATED AGAINST SALE OF THE SCHOOL. THE ASSESSEE S UBMITTED THAT ASSESSEE COMPANY WAS UNDER AN OBLIGATION TO MAINTAI N ROADS/PARKS ETC. OF THE SCHOOL PREMISES FOR STIPULA TED PERIOD AND ALL THESE EXPENSES HAVE BEEN EXAMINED BY THE AS SESSING OFFICER BEFORE PASSING THE ASSESSMENT ORDER. THE L D. CIT, HOWEVER DID NOT ACCEPT CONTENTION OF THE ASSESSEE A ND WAS OF THE VIEW THAT ASSESSING OFFICER PASSED THE ASSESSMENT O RDER WITHOUT CONDUCTING ANY ENQUIRY AND HAS NOT EXAMINED VARIOUS ISSUES AS HAVE BEEN TAKEN UP IN THE SHOW CAUSE NOTICE. THERE FORE, THE ASSESSMENT ORDER WAS HELD TO BE ERRONEOUS AND PREJU DICIAL TO THE INTEREST OF REVENUE. THE LD. CIT ALSO NOTED TH AT IT IS NOT A CASE WHERE THE ASSESSING OFFICER HAS ADOPTED ONE OU T OF POSSIBLE 9 VIEWS. THEREFORE, ASSESSMENT ORDER WAS SET ASIDE A ND ASSESSING OFFICER WAS DIRECTED TO MAKE PROPER VERIFICATION AN D ENQUIRIES AFRESH BY GIVING REASONABLE AND SUFFICIENT OPPORTU NITY OF BEING HEARD TO THE ASSESSEE. 10. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND SUBMITTED THAT AS SESSEE IS IN THE BUSINESS OF DEVELOPERS AND COLONIZERS AND IS FO LLOWING PROJECT COMPLETION METHOD OF ACCOUNTING WHICH IS FO LLOWED CONSISTENTLY AND REGULARLY AND HAS BEEN ACCEPTED BY REVENUE DEPARTMENT. THE ASSESSEE SUBMITTED VARIOUS INFORMA TIONS AND DETAILS IN THE ASSESSMENT PROCEEDINGS WHICH HAVE BE EN CONSIDERED BY ASSESSING OFFICER BY APPLYING HIS MIN D. THE PROFIT RATE OF THE ASSESSEE WAS BETTER IN ASSESSMENT YEAR UNDER APPEAL AS COMPARED TO THE EARLIER YEARS. THE ASSESSEE IS ENGAGED IN THE DEVELOPMENT OF PUDA APPROVED COLONIES AND AS PER CO NDITION IMPOSED BY THEM, ASSESSEE IS UNDER OBLIGATION TO DE VELOP THE COLONY WITHIN STIPULATED TIME PERIOD AND TO MAINTAI N THE SAME TILL THE COLONY WAS HANDED OVER TO THE MUNICIPAL AU THORITIES. IN THIS WAY, IRRESPECTIVE OF PLOTS SOLD IN ANY YEAR, T HE ASSESSEE HAS TO DEVELOP THE COLONY AND IT IS A CONTINUED LIABILI TY. THEREFORE, THESE EXPENSES COULD NOT BE TERMED AS PROVISION FOR DEV ELOPEMENT EXPENSES. THE SAME METHOD IS CONSISTENTL Y ADOPTED BY ASSESSEE AND THAT EXTERNAL DEVELOPMENT CHARGES A RE ACCOUNTED FOR IN THE BOOKS OF ACCOUNT ON CASH BASIS AS HAVE BEEN DEMANDED BY THE AUTHORITIES WHICH IS ALLOWABLE DEDUCTION UNDER SECTION 43B OF THE ACT ON ACTUAL PAYMENT. TH EREFORE, THE ASSESSMENT ORDER COULD NOT BE SAID TO BE ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE. HE HAS SUB MITTED THAT 10 RULE 8D IS NOT APPLICABLE TO ASSESSMENT YEAR UNDER APPEAL, THEREFORE, DISALLOWANCE UNDER SECTION 14A IS NOT PE RMISSIBLE. THE ASSESSEE PRODUCED COMPLETE DETAILS WITH REGARD TO THE LOANS AND ADVANCES AND EXPLAINED THAT LAND WAS PURCHASED FOR BUSINESS ACTIVITIES, THEREFORE NO DISALLOWANCE COUL D BE MADE. HE HAS SUBMITTED THAT NO ADVANCES HAVE BEEN GIVEN T O THE DIRECTORS, THEREFORE, SECTION 2(22)(E WOULD NOT APP LY. WITH REGARD TO PROVISION FOR MAINTENANCE DEPOSIT, IT WAS CREATED ON SALE OF THE PLOTS OF LANDS AND WAS BUSINESS EXPENDI TURE. THE PROFESSIONAL CHARGES AND TRANSFORMER CHARGES HAVE B EEN PAID TO PSEB FOR REGULAR AND UNINTERRUPTED ELECTRICITY SUPP LY. THE ADVANCES FROM CUSTOMERS HAVE BEEN RECEIVED AGAINST THE PROPOSED SALE OF THE PLOTS. THE SALE IS NOT COMPLE TE TILL THE FULL PAYMENT IS MADE AND POSSESSION IS HANDED OVER TO TH E PROPOSED BUYERS. SINCE, PART AMOUNTS HAVE BEEN RECEIVED AS ADVANCES, THEREFORE, IT COULD NOT BE TREATED AS TRADING RECEI PTS FOR THE ASSESSEE. HE HAS FILED DETAILS OF THE EXTERNAL DEV ELOPMENT CHARGES IN THE PAPER BOOK TO SHOW THAT SAME HAVE BE EN PAID AS PER DEMAND RAISED BY THE STATE GOVERNMENT AUTHORITI ES AND SIMILARLY, DETAILS HAVE BEEN FURNISHED OF DEVELOPME NT EXPENSES. HE HAS RELIED UPON DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CALCUTTA COMPANY LTD. VS CIT 37 ITR 1 IN WH ICH IT WAS HELD THAT ON MAINTAINING MERCANTILE SYSTEM OF ACCOU NTING, EXPENDITURE IS ALLOWABLE ON ESTIMATE OF ACCRUED LIA BILITY TO BE DISCHARGED AT THE FUTURE DATE. HE HAS REFERRED TO DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS DHIR & CO. COLONISERS PVT. LTD. 288 ITR 561 IN WHICH IT WAS HELD, ONCE POSSESSION OF THE PLOTS WAS TRANSFERRED AND TH E TRANSFEREES 11 EVEN MADE CONSTRUCTIONS, THE DOMINION OVER THE PROP ERTY PASSED ON TO THE TRANSFEREES AND THE AMOUNTS RECEIVED BY T HE ASSESSEE COULD NOT BE HELD TO BE MERE DEPOSITS AND THE PROPE RTY TRANSFERRED COULD NOT BE HELD TO BE STOCK-IN-TRADE OF THE ASSESSEE. THE AMOUNTS RECEIVED BY THE ASSESSEE HAD TO BE REVE NUE RECEIPTS IN ITS HANDS. HE HAS HOWEVER SUBMITTED THAT IN THE CASE OF THE ASSESSEE SMALL AMOUNTS WERE RECEIVED AS ADVANCE FOR PROPOSED SALE OF THE PLOTS. THERE IS NO TRANSFER OF THE POS SESSION TO THE PURCHASER. WHENEVER SALE CONSIDERATION IS RECEIVED AND SALE DEED IS EXECUTED, POSSESSION IS TRANSFERRED TO THE BUYER AND IN THAT EVENT, THE RECEIPTS RECEIVED AS ADVANCE COULD BE TREATED AS TRADING RECEIPT IN THE CASE OF THE ASSESSEE. HE HAS , THEREFORE, SUBMITTED THAT THE JUDGEMENT IN THE CASE OF DHIR AN D CO. COLONISERS PVT. LTD. (SUPRA) WOULD NOT APPLY IN THE CASE OF THE ASSESSEE. HE HAS FURTHER SUBMITTED THAT EVEN THE S AID JUDGEMENT HAS BEEN OVER-RULED BY THE HON'BLE SUPREM E COURT IN THE CASE OF DHIR AND CO. COLONISERS PVT. LTD. V CIT VIDE ORDER DATED 26.10.2009. COPY OF THE DECISION IS FILED ON RECORD IN WHICH HON'BLE SUPREME COURT FOLLOWED ITS DECISION I N THE CASE OF CIT VS REALEST BUILDERS AND SERVICES LTD. 307 ITR 2 02. HE HAS RELIED UPON DECISION OF THE HON'BLE SUPREME COURT I N THE CASE OF CIT VS REALEST BUILDERS AND SERVICES LTD. (SUPRA) I N WHICH IT WAS HELD AS UNDER : IN CASES WHERE THE DEPARTMENT WANTS TO TAX AN ASSE SSEE ON THE GROUND OF LIABILITY ARISING IN A PARTICULAR YEAR, IT SHOULD ALWAYS ASCERTAIN THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IN THE PAST AND WHETHER THE CHANGE IN THE METHOD OF ACCOUNTING WAS WARRANTED ON THE .GROUND THAT PROFIT IS BEING UNDER-ESTIMATED UNDER THE IMPUGNED METHOD OF ACCOUNTIN G. IF THE ASSESSING OFFICER COMES TO THE CONCLUSION THAT THERE IS UNDER-ESTIMATION OF PROFITS, HE MUST GIVE FACTS AND F IGURES IN THAT REGARD TO DEMONSTRATE THAT THE IMPUGNED METHOD OF 12 ACCOUNTING ADOPTED BY THE ASSESSEE RESULTS IN UNDER-E STIMATION OF PROFITS AND IS THEREFORE REJECTED. OTHERWISE THE PRESUMPTION WOULD BE THAT THE ENTIRE EXERCISE IS REVENUE NEUTRA L. 11. THE LD. COUNSEL FOR THE ASSESSEE, THEREFORE, SU BMITTED THAT THERE WAS NO BASIS WHAT-SO-EVER FOR THE LD. CIT TO SET ASIDE THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO PB-33 WHICH IS NOTICE ISSUED BY ASSESSING OFFICER UNDER SECTION 142(1) ON DATED 16.06.2009 TO THE ASSESSEE ASKING THE COMPLETE PRODUCTION OF T HE BOOKS OF ACCOUNT, SUPPORTING DOCUMENTS, QUANTITATIVE DETAILS AND SITUATION OF THE FIXED ASSETS, RECORD OF INVENTORIE S MAINTAINED AND EXPLANATION AS PER ANNEXURE-A IN WHICH THE ASSE SSING OFFICER ASKED FOR THE EXPLANATION OF ASSESSEE AND D ETAILS ON BUSINESS ACTIVITY, QUANTITATIVE DETAILS OF CLOSING STOCK AND OPENING STOCK AND ALSO SUBSTANTIATE THEIR VALUES, E XPENSES CLAIMED, DETAILS OF LAND/PLOTS PURCHASED AND COPY O F THE AGREEMENTS AND REGISTRATION DEED OF THE PROPERTIES AND DETAILS OF THE PURCHASERS, DETAILS OF THE DEVELOPMENT EXPEN SES INCURRED ALONGWITH NATURE OF EXTERNAL DEVELOPMENT CHARGES IN CURRED WITH DETAILS, DETAILS OF THE PERSONS TO WHOM PLOTS HAVE BEEN SOLD, COMPLETE DETAILS OF PERSONS FROM WHOM ADVANCES AGAI NST PROPERTY HAVE BEEN RECEIVED WITH THEIR POSTAL ADDRE SSES, COMPLETE DETAILS OF INVESTMENTS MADE AND INTEREST P AID AND COMPLETE DETAILS OF LOANS AND ADVANCES. HE HAS SUB MITTED THAT ASSESSEE FILED DETAILS AND EXPLANATIONS. THE ASSES SEE FILED REPLY DATED 24.08.2009, PB-39 IN WHICH THE ASSESSEE FILED COMPLETE DETAILS OF ALL THE QUERIES RAISED BY THE ASSESSING OFFICER ON WHICH PROPOSED NOTICE IS GIVEN BY THE LD. CIT. PB-4 4 IS FURTHER REPLY DATED 06.11.2009 EXPLAINING THE DETAILS OF MA INTENANCE 13 DEPOSIT, DETAILS OF DEVELOPMENT RESERVE AND DETAILS OF LAND ADVANCES. PB- 46 IS REPLY DATED 01.12.2009 FILING DETAILS OF UTILIZATION OF MAINTENANCE RESERVE, UTILIZATION OF DEVELOPMENT RESERVE, BASIS OF REVENUE RECOGNITION AND BASIS OF VALUATION OF CLOSING STOCK. PB- 48 IS REPLY DATED 07.12.2009 FI LING COMPLETE DETAILS OF COLONIES DEVELOPED. PB- 49 AGAIN IS REP LY DATED 07.12.2009 FILING COMPLETE DETAILS OF PURCHASE AND SALE OF LAND. PB- 50 IS REPLY DATED 29.12.2009. THE LD. COUNSEL FOR THE ASSESSEE, THEREFORE, SUBMITTED THAT ASSESSEE FILED COMPLETE REPLIES AND DETAILS BEFORE ASSESSING OFFICER ON ALL THE ABOVE ITEMS ON WHICH LD. CIT ISSUED SHOW CAUSE NOTICE UND ER SECTION 263 OF THE ACT AT THE ASSESSMENT STAGE. THEREFORE, ASSESSING OFFICER APPLIED HIS MIND TO ALL THE FACTS AND MATER IAL ON RECORD. PB- 161 IS THE NOTICE ISSUED AFTER COMPLETION OF TH E ASSESSMENT WHICH WAS MERELY ISSUED ON RAISING AUDIT OBJECTION WHICH WAS ALSO REPLIED BY THE ASSESSEE. THE ASSESSEE MAINTAI NED SAME ACCOUNTING SYSTEM WHICH WAS MAINTAINED IN EARLIER Y EARS AND ACCEPTED BY THE REVENUE DEPARTMENT ON WHICH ALL THE ABOVE EXPENDITURES HAVE BEEN ALLOWED TO THE ASSESSEE AND ADVANCES FROM THE CUSTOMERS HAVE NOT BEEN TREATED AS TRADING RECEIPTS. THE LD. CIT WAS WRONG IN OBSERVING THAT EXPENDITURE SHOULD BE PART OF THE CLOSING STOCK BECAUSE IT WAS RELATED TO THE SALES. PB- 75 TO 83 ARE THE COPIES OF THE ASSESSMENT ORDERS IN THE CASE OF THE ASSESSEE UNDER SECTION 143(3) FOR PRECEDING ASS ESSMENT YEARS 2001-02 AND 2002-03 AND QUERIES RAISED BY THE ASSESSING OFFICER AT THE ASSESSMENT STAGE ON ALMOST IDENTICAL ITEMS ON WHICH PROCEEDINGS UNDER SECTION 263 HAVE BEEN INITI ATED, ASSESSING OFFICER ASKED FOR THE SIMILAR EXPLANATION AND WAS 14 SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND ACCEPTED THE RETURNED INCOME OF THE ASSESSEE. HE HAS SUBMITTED THAT THE SEARCH WAS ALSO CONDUCTED IN THE CASE OF THE ASSESS EE IN OTHER YEARS IN WHICH THE MATTER WAS REFERRED TO THE SETTL EMENT COMMISSION. THE DETAILS OF THE SAME WERE FILED AT PAGES 177 TO 194 IN WHICH THE SETTLEMENT COMMISSION ALSO ACCEPTE D THE CLAIM OF ASSESSEE FOR DEVELOPMENT EXPENSES AND MAINTENAN CE CHARGES. HE HAS SUBMITTED THAT ASSESSEE MAINTAINED MERCANTIL E SYSTEM OF ACCOUNTING AND ON SALE, THE ASSESSEE BOOKED THE EXP ENSES. THE EXPENSES HAVE NOT BEEN DOUBTED BY THE ASSESSING OFF ICER AND THE PROVISIONS HAVE NOT BEEN CONSIDERED PROPERLY BY LD. CIT AT THE PROCEEDINGS UNDER SECTION 283 OF THE ACT BEFORE HIM. THE ASSESSING OFFICER CONDUCTED PROPER ENQUIRIES INTO T HE MATTER NOT ONLY IN THE YEAR UNDER CONSIDERATION BUT ALSO IN TH E EARLIER YEARS AND ACCEPTED THE CLAIM OF ASSESSEE ON ALL THE ITEMS . HE HAS REFERRED TO PB- 60 TO 88 WHICH IS THE REPLY FILED B EFORE LD. CIT WHICH HAS NOT BEEN PROPERLY APPRECIATED BY THE LD. CIT. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON FOLLOWING DECI SIONS : I ) DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V ANIL KUMAR SHARMA REPORTED IN 335 ITR 83, IN WHICH IT WAS HELD AS UNDER : THERE IS A DISTINCTION BETWEEN 'LACK OF INQUIRY' AN D 'INADEQUATE INQUIRY'. IF THERE WAS ANY INQUIRY, EVEN INADEQUATE THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE COMMISSIONER TO PASS ORDERS UNDER SECTION 263 OF TH E INCOME-TAX 1961, MERELY BECAUSE HE HAS A DIFFERENT OPI NION IN THE MATTER: HELD, DISMISSING THE APPEAL, THAT THE PRESENT CASE WOULD NOT BE ONE OF 'LACK OF INQUIRY' EVEN IF THE INQUIRY WAS TERMED INADEQUATE. THE TRIBUNAL FOUND THAT COMPLETE DETAILS WERE FILED BEFORE THE ASSESSING OFFICER AND THAT HE APPLIED HIS MIND TO THE RELEVANT MATERIAL AND FACTS, ALTHOUGH SUCH APPLICATION OF MIND WAS NOT DISCERNIBLE FROM T HE ASSESSMENT ORDER. THE TRIBUNAL HELD THAT COMMISSION ER IN PROCEEDINGS UNDER SECTION 263 ALSO HAD ALL THESE DE TAILS 15 MATERIAL AVAILABLE BEFORE HIM, BUT HAD NOT BEEN ABLE TO POINT OUT DEFECTS CONCLUSIVELY IN THE MATERIAL, FOR ARRIV ING AT A CONCLUSION THAT PARTICULAR INCOME HAD ESCAPED ASSESSMENT ON ACCOUNT OF NON-APPLICATION OF MIND BY T HE ASSESSING OFFICER. THE TRIBUNAL WAS RIGHT AND THE OR DER OF REVISION WAS NOT VALID. II ) DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V HINDUSTAN MARKETING AND ADVERTISING CO. LTD. IN 341 ITR 180, IN WHICH IT WAS HELD AS UNDER : REVISION-POWER OF COMMISSIONER- ASSESSMENT AFTER ENQUIRY-NO ERROR IN ORDER-ORDER CANNOT BE REVISED ON GROUND ENQUIRY SHOULD HAVE BEEN MORE DETAILED-INCOME TAX ACT,1961 S. 263. III ) DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V SUNBEAM AUTO LTD. REPORTED IN 332 ITR 167 IN WHICH IT WAS HELD AS UNDER : HELD, DISMISSING THE APPEAL, (I) THAT THE ASSESSING OFFICER ALLOWED THE CLAIM ON BEING SATISFIED WITH TH E EXPLANATION OF THE ASSESSEE. SUCH DECISION OF THE ASSESSING OFFICER COULD NOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. THE ASSESSING OFFICER HAD CALLED FOR EXPLANATION ON THE VERY ITEM FROM THE ASSESSEE AND THE ASSESSEE HAD FURNISHED IT S EXPLANATION. THIS FACT WAS CONCEDED BY THE COMMISSIONER HIMSELF IN HIS ORDER. THIS SHOWED THAT THE ASSESSING OFFICER HAD UNDERTAKEN THE EXERCISE O F EXAMINING AS TO WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE REPLACEMENT OF DIES AND TOOLS W AS TO BE TREATED AS REVENUE EXPENDITURE OR NOT. THEREF ORE, IT COULD NOT BE SAID THAT IT WAS A CASE OF LACK OF INQUIRY. THE ACCOUNTING PRACTICE FOLLOWED FOR A NUM BER OF YEARS HAD THE APPROVAL OF THE INCOME-TAX AUTHORITIES. EVEN FOR FUTURE ASSESSMENT YEARS, THE VERY SAME ACCOUNTING PRACTICE WAS ACCEPTED. (II) THAT THE DIES WERE COMPONENTS OF THE MACHINES. THEY NEEDED CONSTANT REPLACEMENT, AS THEIR LIFE WAS NOT MORE THAN A YEAR. THE ASSESSEE ALSO EXPLAINED THAT SINCE THE PARTS WERE MANUFACTURED FOR THE AUTOMOBILE INDUSTRY, WHICH HAD TO WORK ON COMPLETE ACCURACY AT HIGH SPEED FOR A LONGER PERIOD, REPLACEMENT OF THE PARTS AT SHORT INTERVALS BECOMES IMPERATIVE TO RETAIN THE ACCURACY. WITH THE REPLACEMENT OF TOOLS AND DIES NO NEW ASSET COMES IN TO EXISTENCE NOR WAS THEIR BENEFIT OF ENDURING NATURE. THEY DID NOT EVEN ENHANCE THE LIFE OF THE EXISTING 16 MACHINE OF WHICH THE TOOLS AND DIES WERE ONLY PARTS . THEREFORE, THE VIEW TAKEN BY THE ASSESSING OFFICER WAS ONE OF THE POSSIBLE VIEWS AND THE ASSESSMENT ORDER PASSED BY HIM COULD NOT BE HELD TO BE PREJUDI CIAL TO THE INTERESTS OF THE REVENUE. THE OPINION OF THE ASSESSING OFFICER IN TREATING THE EXPENDITURE AS REVENUE EXPENDITURE WAS PLAUSIBLE AND THUS THERE WA S NO MATERIAL BEFORE THE COMMISSIONER TO VARY THAT OPINION AND ASK FOR FRESH INQUIRY. IV ) DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V RIETA BISCUITS CO. P.LTD. REPO RTED IN 309 ITR 154 IN WHICH IT WAS HELD AS UNDER : HELD, THAT THE ORDER OF THE TRIBUNAL SHOWED THAT T HERE WAS A FINDING OF FACT EARLIER PROCEEDINGS INITIATED UNDER SECTION 263 OF THE ACT AND PROCEEDINGS INITIATED SUBSEQUENTLY WERE ON THE SAME ISSUE. THE TRIBUNAL F OR THE ASSESSMENT YEAR 1983-84 HAD DECIDED IN FAVOUR O F THE ASSESSEE. THE SAID ORDER OF THE TRIBUNAL ON THE IDENTICAL ISSUE FOR THE ASSESSMENT YEAR 1983-84 WAS UPHELD BY THE HIGH COURT. ONCE THE ISSUE ON THE MER ITS HAD BEEN DECIDED AGAINST THE REVENUE ON THE SAME ISSUE DURING THE SUBSEQUENT ASSESSMENT YEAR, IT WAS NOT APPROPRIATE TO TAKE A DIFFERENT VIEW ON A TECHN ICAL REASON. V ) DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V KANDA RICE MILLS REPORTED IN 178 ITR 446 IN WHICH IT WAS HELD AS UNDER : HELD THAT A READING OF THE ENTIRE ORDER OF THE COMMISSIONER CLEARLY SHOWED THAT HE DID NOT FURNISH HIS OPINION OR CONSIDER THE CITED CASES OR THE ARGUMENT RAISED AND MERELY OBSERVED THAT THESE WERE THE POIN TS WHICH DESERVED CONSIDERATION AND AFTER SETTING ASID E THE ORDER OF THE INCOME-TAX OFFICER, ISSUED A DIRECT ION FOR MAKING ASSESSMENT AFRESH, WHICH WAS NOT PERMISSIBLE UNDER THE PROVISIONS CONTAINED IN SECTION 263 OF TH E ACT. THE COMMISSIONER HAD TO COME TO A FIRM DECISION THA T OF THE INCOME-TAX OFFICER WAS ERRONEOUS AND WAS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. SINCE NO DECISION ABOUT THE ERRONEOUS ' OF THE ORDER WAS FIR MLY TAKEN, THE TRIBUNAL WAS RIGHT IN VACATING 'THE ORDE R OF THE COMMISSIONER UNDER SECTION 263. 17 12. THE LD. COUNSEL FOR THE ASSESSEE, THEREFORE SUB MITTED THAT LD. CIT WAS NOT JUSTIFIED IN HOLDING THE ASSESSMENT ORDER TO BE ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE. 13. ON THE OTHER HAND, LD. DR RELIED UPON THE IMPUG NED ORDER AND SUBMITTED THAT THE PROVISIONS MADE FOR EXPENSES ARE NOT ALLOWABLE DEDUCTION AND EXPENSES SHOULD BE ADDED TO THE CLOSING STOCK. THE ASSESSING OFFICER DID NOT MAKE PROPER E NQUIRY ON ALL THE ITEMS TAKEN UP BY THE LD. CIT IN THE NOTICE UND ER SECTION 263 OF THE ACT. THE ASSESSING OFFICER HAS NOT VERI FIED ALL THE FACTS AT THE ASSESSMENT STAGE AND NO REPLY DATED 01 .12.2009 WAS AVAILABLE ON RECORD AS SUBMITTED BY LD. COUNSEL FOR THE ASSESSEE. THE PROCEEDINGS UNDER SECTION 263 OF THE ACT HAVE NOT BEEN INITIATED ON AUDIT OBJECTIONS. THE LD. DR CON TENDED THAT SINCE NO PROPER ENQUIRIES HAVE BEEN CONDUCTED AT AS SESSMENT STAGE, NO VERIFICATION OF DETAILS HAVE BEEN MADE AN D ASSESSING OFFICER PASSED THE ASSESSMENT ORDER IN HASTE MAKING NO ENQUIRY ON THE ITEMS, IT IS A CASE OF LOSS TO THE REVENUE, THEREFORE, ASSESSMENT ORDER WAS RIGHTLY HELD TO BE ERRONEOUS I N SO FAR AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE LD. DR, IN SUPPORT OF THE ABOVE PROPOSITION, RELIED UPON THE F OLLOWING DECISIONS : I) CIT VS ASSAM TEA HOUSE 344 ITR 507 (P&H) II) ADDL. CIT VS MUKUR CORPORATION 111 ITR 312 (GU J) III) GEE VEE ENTERPRISES V ADDL. CIT 99 ITR 375 (DEL) IV) RAMPYARI DEVI SARAOGI V CIT 67 ITR 84 (S.C) V) SMT. TARA DEVI AGGARWAL V CIT 88 ITR 323 (S.C) VI) MALABAR INDUSTRIAL CO. LTD. VCIT 243 ITR 83 (S.C) 18 VII) CIT VS JAWAHAR BHATTACHARJEE 341 ITR 434 (GAU) VIII) REGENCY SORAJ INFRASTRUCTURES V UNION OF INDIA & OR S. 345 ITR 105 (DEL) 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MA TERIAL AVAILABLE ON RECORD. BEFORE PROCEEDING FURTHER, IT WOULD BE RELEVANT TO MENTION HERE THAT THOUGH THE LD. CIT IS SUED SHOW CAUSE NOTICE UNDER SECTION 263 OF THE ACT ON DISALL OWANCE OF INTEREST UNDER SECTION 14A READ WITH RULE 8D OF THE IT RULES AND PROVISION AGAINST DEVELOPMENT EXPENSES BUT THE LD. CIT DID NOT GIVE ANY FINDING AGAINST THE ASSESSEE IN THE IMPUGN ED ORDER, THEREFORE, THESE COULD NOT BE CONSIDERED ADVERSE IN NATURE AGAINST THE ASSESSEE FOR SETTING ASIDE THE ASSESSME NT ORDER IN QUESTION. FURTHER, IT IS ADMITTED FACT THAT RULE 8 D IS NOT APPLICABLE FOR ASSESSMENT YEAR UNDER APPEAL FOR MAK ING DISALLOWANCE OF INTEREST UNDER SECTION 14A OF THE A CT, THEREFORE, ON THESE PROPOSED ISSUES, NO ADVERSE INFERENCE COUL D BE DRAWN AGAINST ASSESSEE FOR SETTING ASIDE THE REGULAR ASSE SSMENT ORDER. 15. THE LD. COUNSEL FOR THE ASSESSEE HAS FILED COPI ES OF SEVERAL STATUTORY NOTICES ISSUED BY ASSESSING OFFICER AT TH E ASSESSMENT STAGE AND REPLIES FILED BY THE ASSESSEE IN RESPONSE TO THE STATUTORY NOTICES. THESE NOTICES ISSUED BY THE ASS ESSING OFFICER AT THE ASSESSMENT STAGE CLEARLY SHOW THAT ALL THE I TEMS ON WHICH PROPOSED NOTICE UNDER SECTION 263 HAVE BEEN ISSUED AGAINST THE ASSESSEE, ASSESSING OFFICER CALLED FOR THE EXPLANAT ION OF THE ASSESSEE ALONGWITH THE DETAILS AND THE ASSESSEE FIL ED COMPLETE INFORMATION AND DETAILS BEFORE ASSESSING OFFICER WH ICH HAVE BEEN CONSIDERED AT ASSESSMENT STAGE IN WHICH NO INFIRMIT Y HAS BEEN 19 FOUND BY THE ASSESSING OFFICER. THE ASSESSEE EXPLA INED BEFORE ASSESSING OFFICER AS WELL AS BEFORE LD. CIT THAT DE VELOPMENT EXPENSES HAVE BEEN INCURRED FOR THE PURPOSE OF BUSI NESS AND SINCE IT WAS ASCERTAINED LIABILITY OF THE ASSESSEE TO BE INCURRED IN FUTURE, THEREFORE, PROVISION WAS MADE WHICH WERE ACCOUNTED FOR AT THE TIME OF MAKING SALES. THE EXTERNAL DEVE LOPMENT CHARGES WERE PAID TO THE PUDA AND ASSESSEE FURNISHE D COMPLETE DETAILS BEFORE ASSESSING OFFICER AS WELL AS BEFORE LD. CIT. THE STATUTORY PAYMENTS MADE TO GOVERNMENT AGENCIES ARE ALLOWABLE DEDUCTIONS UNDER SECTION 43B(A) OF THE ACT. THE AS SESSEE FOLLOWED CONSISTENTLY SAME METHOD OF ACCOUNTING NOT ONLY FOR ASSESSMENT YEAR UNDER APPEAL BUT IN EARLIER YEAR AS WELL ON WHICH THE REVENUE HAS ACCEPTED THE SAME ACCOUNTING STANDARD. THEREFORE, THERE IS NO CHANGE IN FACTS AND CIRCUMST ANCES NOTICED IN THE YEAR UNDER CONSIDERATION. THEREFORE, ON IDE NTICAL FACTS IF THE ASSESSING OFFICER HAS ACCEPTED CLAIM OF ASSESSE E OF DEVELOPMENT EXPENSES AND EXTERNAL DEVELOPMENT EXPEN SES, THE LD. CIT SHOULD NOT SUBSTITUTE THE VIEW OF THE ASSES SING OFFICER IN THE PROCEEDINGS UNDER SECTION 263 OF THE ACT. 16. THE LD. CIT ALSO, ON THE BASIS OF SALES MADE IN PERCENTAGE PROPOSED THAT EXPENDITURE TO THAT EXTENT COULD ONLY BE ALLOWED AS DEDUCTION. HOWEVER, HE HAS NOT GIVEN ANY BASIS HOW SAID METHOD WOULD BE RELEVANT IN THE CASE OF THE ASSESSE E. SINCE, IN THE LAST YEARS SAME ACCOUNTING STANDARD HAS BEEN AC CEPTED BY THE REVENUE DEPARTMENT, THEREFORE THE OPENING BALAN CES COULD NOT HAVE BEEN DISTURBED BY THE LD. CIT AND NO ADDIT ION COULD BE MADE TO THE CLOSING STOCK. THE ASSESSEE WITH REGAR D TO LOAN AND ADVANCES AND DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT 20 EXPLAINED THAT LAND HAS BEEN PURCHASED FOR BUSINESS PURPOSES ONLY, THEREFORE, NO DISALLOWANCE IS POSSIBLE UNDER SECTION 36(1)(III) OF THE ACT. THE LD. CIT, INSTEAD OF EXA MINING THE FACTS AND EXPLANATION OF THE ASSESSEE, MERELY STATED THAT ASSESSING OFFICER DID NOT MAKE ANY ENQUIRY OF THE SAME, THOUG H THE ASSESSING OFFICER HAS EXAMINED THIS ISSUE AS WELL A T THE ASSESSMENT STAGE WITH REFERENCE TO DISALLOWANCE OF THE INTEREST AND EXPENDITURE. FURTHER, THE ASSESSEE EXPLAINED T HAT NO ADVANCES HAVE BEEN GIVEN TO THE DIRECTORS IN ANY MA NNER. THEREFORE, SECTION 2(22)(E) OF THE ACT WILL NOT APP LY IN THE CASE OF THE ASSESSEE. THEREFORE, IT WAS MERELY A BALD STAT EMENT OF THE LD. CIT IN THE PROPOSED NOTICE THAT SUSPENSE ACCOUN T HAS BEEN CREATED ON WHICH CASH HAS BEEN UTILIZED BY THE DIRE CTORS. SUCH AN OBSERVATION WAS NOT WARRANTED WITHOUT EXAMINING REPLY OF THE ASSESSEE. FURTHER, THE ASSESSEE EXPLAINED WITH REG ARD TO PROVISION FOR MAINTENANCE DEPOSIT THAT THE SAME HAV E BEEN CREATED ON SALE OF THE PLOTS/LAND AND WERE NECESSAR Y EXPENSES. TRANSFORMER CHARGES HAVE BEEN PAID TO PSEB FOR REGU LAR SUPPLY OF THE ELECTRICITY. THESE POINTS HAVE NOT BEEN EXA MINED BY THE LD. CIT AND ALL THESE ITEMS HAVE BEEN TAKEN UP AT T HE TIME OF SCRUTINY BY THE ASSESSING OFFICER AND PROPER REPLIE S HAVE BEEN FILED BY THE ASSESSEE AT ASSESSMENT STAGE. WITH REG ARD TO ADVANCES FROM CUSTOMERS TREATED AS TRADING RECEIPTS , ASSESSEE WAS CALLED FOR TO EXPLAIN THIS ISSUE AT THE ASSESSM ENT STAGE WHICH IS EXPLAINED BY ASSESSEE AND ON THE SAME ACCO UNTING PRINCIPLE, THE CLAIM OF ASSESSEE HAS BEEN ACCEPTED IN EARLIER YEARS THAT ADVANCE RECEIPTS ARE NOT SALES AND SALES HAVE BEEN BOOKED ONLY ON FULL AND FINAL PAYMENT AND TRANSFER OF POSSESSION 21 TO THE BUYER. THE SIMILAR CLAIM IS ACCEPTED IN PRE CEDING ASSESSMENT YEAR 2001-02 AND 2002-03 BY THE ASSESSIN G OFFICER IN THE ORDERS UNDER SECTION 143(3) OF THE ACT. 17. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO RELIE D UPON DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F DHIR & CO. COLONISERS PVT. LTD. (SUPRA) IN WHICH THE HON'BLE S UPREME COURT FOLLOWED ITS DECISION IN THE CASE OF REALEST BUILDE RS & SERVICES LTD. (SUPRA) AND THE DECISION IN THAT CASE SUPPORT THE CASE OF THE ASSESSEE THAT ADVANCES HAVE NOT BEEN RIGHTLY TREATE D AS TRADING RECEIPTS. 18. CONSIDERING THE ABOVE MATERIALS ON RECORD AND T HE INVESTIGATION CARRIED ON BY THE ASSESSING OFFICER A T THE ASSESSMENT STAGE WOULD CLEARLY REVEAL THAT THE ASSE SSEE FOLLOWED PROJECT COMPLETION METHOD OF ACCOUNTING REGULARLY A ND COMPLETE DETAILS HAVE BEEN FILED OF TRADING RECEIPTS AND EXP ENSES BEFORE ASSESSING OFFICER WHICH HAVE BEEN EXAMINED AND ACCE PTED BY ASSESSING OFFICER. THE PROFIT RATE OF THE ASSESSEE IS BETTER AT 40% AS COMPARED TO EARLIER YEARS OF 26%. THE SYSTE M OF ACCOUNTING IS SAME AND ASSESSING OFFICER HAS ACCEPT ED THE EXPLANATION OF THE ASSESSEE ON THE SAME ISSUES IN P RECEDING ASSESSMENT YEAR 2001-02 AND 2002-03 UNDER SECTION 1 43(3) OF THE ACT. THERE IS NO CHANGE IN FACTS AND CIRCUMSTA NCES NOTED BY US. THE EXPENSES HAVE NOT BEEN DOUBTED BY THE LD. CIT. THE ASSESSEE PRODUCED COMPLETE BOOKS OF ACCOUNT AND MAT ERIAL BEFORE ASSESSING OFFICER AT THE ASSESSMENT STAGE WH ICH HAVE BEEN EXAMINED AND EVEN ON THE DEVELOPMENT AND MAINT ENANCE EXPENSES, THE SETTLEMENT COMMISSION HAS ACCEPTED CL AIM OF ASSESSEE FOR BLOCK ASSESSMENT PROCEEDINGS. THESE F ACTS AND 22 CIRCUMSTANCES CLEARLY SUPPORT THE CASE OF THE ASSES SEE THAT ASSESSING OFFICER CONDUCTED PROPER ENQUIRY AT THE A SSESSMENT STAGE ON ALL THE ITEMS AND THE LD. CIT MERELY ON CH ANGE OF OPINION AND MERELY SUBSTITUTING HIS OPINION WITH TH E OPINION OF THE ASSESSING OFFICER, PROCEEDED WITH THE PROCEEDIN GS UNDER SECTION 263 OF THE ACT. THE ASSESSEE ALSO FILED COM PLETE DETAILS AND REPLIES BEFORE LD. CIT WHICH HAVE NOT BEEN PROP ERLY APPRECIATED ON ALL THE ABOVE ITEMS. THE LD. DR CON TENDED THAT THE REPLY OF THE ASSESSEE DATED 01.12.2009 WAS NOT FOUND ON THE RECORD BUT THE LD. CIT AT PAGE 17 OF THE IMPUGNED O RDER SPECIFICALLY MENTIONED THAT IN-FACT THE ORDER-SHEET SHOWS FILING OF THE REPLIES ON 09.10.2009, 20.11.2009 AND 01.12. 2009. THEREFORE, THERE IS NO BASIS TO SAY THAT NO REPLY O N 01.12.2009 HAD BEEN FILED. IT IS, THEREFORE, CLEAR CASE WHERE LD. CIT IN THE PROCEEDINGS UNDER SECTION 263 OF THE ACT HAS NOT CO NSIDERED EXPLANATION OF THE ASSESSEE IN PROPER PERSPECTIVE. THE ORDER OF REVISION, WITHOUT CONSIDERING EXPLANATION WAS HELD TO BE NOT VALID BY HON'BLE GAUHATI HIGH COURT IN THE CASE OF SMT. LILA CHOUDHURY V CIT 289 ITR 226 IN WHICH HON'BLE GAUHAT I HIGH COURT HELD AS UNDER : HELD, THAT IN THE ORDER THE COMMISSIONER HAD NOT RECO RDED ANY OPINION THAT THE ORDER OF ASSESSMENT OF THE PETIT IONER FOR THE ASSESSMENT YEAR 1992-93 WAS ERRONEOUS AND PREJU DICIAL TO THE INTERESTS OF THE REVENUE. THAT WAS THE OPINIO N RECORDED IN THE NOTICE DATED AUGUST 14/19,1996, BUT T HE OPINION BEING RECORDED IN A NOTICE ISSUED TO THE PETI TIONER ASKING TO SHOW CAUSE, MUST BE UNDERSTOOD TO BE REBUT TABLE. SUCH OPINION WAS REQUIRED TO BE REITERATED AFTER HE ARING THE PETITIONER AND AFTER HOLDING THE NECESSARY ENQUIRY. ON RECEIPT OF THE SHOW-CAUSE NOTICE, THE PETITIONER SUBMITTED AN ELABORATE REPLY. THE COMMISSIONER ON RECEIPT OF THE REPLY OF T HE PETITIONER COULD NOT HAVE IGNORED THE SAME. RATHER, IT WAS INCUMB ENT ON THE COMMISSIONER TO CONSIDER THE EXPLANATIONS OFFERED AND ON THAT BASIS TO RECORD HIS OPINION/CONCLUSION. MOREOVER, THE COMPETENT CRIMINAL COURT HAD SON-IN-LAW OF THE PETIT IONER FROM 23 ANY LIABILITY ON ACCOUNT OF THE HOUSE PROPERTY IN QU ESTION HOLDING IT TO BELONG TO THE PETITIONER. THE FINDINGS RE CORDED BY THE CRIMINAL COURT IN THIS REGARD COULD NOT BE BRUSH ED ASIDE. HENCE, ANY DE NOVO PROCEEDINGS AT THIS STAGE WOULD BE FUTILE. THE ORDER OF REVISION HAD TO BE QUASHED. THE ASSESSM ENT OF THE PETITIONER FOR THE ASSESSMENT YEAR 1992-93 MADE BY ORDER DATED MAY 16,1994, HAD TO BE CONSIDERED COMPLETE AND FINAL. 19. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CI T V GABRIEL INDIA LTD. 203 ITR 108 HELD AS UNDER : HELD, THAT THE INCOME-TAX OFFICER IN THIS CASE HAD MA DE ENQUIRIES IN REGARD TO THE NATURE OF THE EXPENDITURE IN CURRED BY THE ASSESSEE. THE ASSESSEE HAD GIVEN A DETAILED EXPLANATI ON IN THAT REGARD BY A LETTER IN WRITING. ALL THESE WERE PART OF THE RECORD OF THE CASE. EVIDENTLY, THE CLAIM WAS ALLOWE D BY THE INCOME-TAX OFFICER ON BEING SATISFIED WITH THE EXPLANA TION ASSESSEE. THIS DECISION OF THE INCOME-TAX OFFICER COULD NOT BE HELD TO BE ERRONEOUS' SIMPLY BECAUSE IN HIS ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. MOR EOVER, IN THE INSTANT CASE, THE COMMISSIONER HIMSELF, EVEN AFTER INITIATING PROCEEDINGS FOR REVISION AND HEARING ASS ESSEE, COULD NOT SAY THAT THE ALLOWANCE OF THE CLAIM OF TH E ASSESSEE WAS ERRONEOUS AND THAT THE EXPENDITURE WAS NOT REVE NUE EXPENDITURE BUT AN EXPENDITURE OF CAPITAL NATURE. H E SIMPLY ASKED THE INCOME-TAX OFFICER TO RE-EXAMINE THE MATTE R. THAT WAS NOT PERMISSIBLE. THE TRIBUNAL WAS JUSTIFIED IN SE TTING ASIDE THE ORDER PASSED BY THE COMMISSIONER OF INCOM E-TAX IT SECTION 263. 20. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V DEEPAK MITTAL 324 ITR 411 HELD AS UNDER : CHANGE OF OPINION BY REAPPRAISING THE EVIDENCE IS NOT WITHIN THE PARAMETERS OF REVISIONAL JURISDICTION OF THE COMMISSIONER UNDER SECTION 263 OF THE INCOME TAX ACT,1961. HELD, DISMISSING THE APPEAL THAT THE TRIBUNAL HAD F OUND THAT THE ASSESSING OFFICER HAD GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE WAS ENGAGED IN THE PROCESS OF MANUFACTURING OF PRODUCTS AND ACCORDINGLY HE HAD GRANTED CONCESSION UNDER SECTION 80IB. THE CLAIM OF THE ASSESSEE HAD BEEN FOUND TO BE GENUINE. THE ASSESSIN G OFFICER HAD ALSO EXAMINED THE VARIOUS WORKERS OF TH E ASSESSEE AND THEN RECORDED THE FINDING. THE ASSESS ING OFFICER WAS JUSTIFIED IN GRANTING THE SPECIAL DEDUC TION UNDER SECTION 80IB. THE ORDER OF REVISION DISALLOWI NG THE SPECIAL DEDUCTION WAS NOT VALID. 24 21. THE HON'BLE SUPREME COURT IN THE CASE OF MALABA R INDUSTRIAL CO. LTD. V CIT 243 ITR 83 HELD AS UNDER : EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER, CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EXAMPLE, WHEN AN INCO ME-TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN L AW AND IT HAS RESULTED IN LOSS OF REVENUE OR WHERE TWO VI EWS ARE POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN ONE V IEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANN OT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE IN TERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. 22. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ABOVE DISCUSSION AND DECISIONS, IT IS CLEAR THAT THE ASSE SSING OFFICER HAS ACCEPTED THE CLAIM OF ASSESSEE ON RAISING A PRO PER QUERY AND DOCUMENTS/DETAILS PRODUCED BEFORE HIM ON WHICH THE PROPOSED PROCEEDINGS UNDER SECTION 263 HAVE BEEN INITIATED. THE SIMILAR CLAIMS HAVE BEEN ACCEPTED IN EARLIER YEARS BY THE A SSESSING OFFICER. THEREFORE, WHEN THE ASSESSING OFFICER ADO PTED ONE OF THE COURSES ADMISSIBLE IN LAW, THE VIEW TAKEN BY TH E ASSESSING OFFICER WAS HELD NOT TO BE UNSUSTAINABLE IN LAW. T HE LD. CIT SHOULD NOT SUBSTITUTE THE OPINION OF THE ASSESSING OFFICER ON THE SAME FACTS IN PROCEEDINGS UNDER SECTION 263 OF THE ACT. IT WOULD, THEREFORE NOT GIVE REVISIONAL JURISDICTION T O THE LD. CIT TO SET ASIDE THE ASSESSMENT ORDER IN QUESTION. 23. IN VIEW OF THE ABOVE DISCUSSION, WE ARE SATISFI ED THAT ASSESSING OFFICER HAS PROPERLY ENQUIRED INTO THE CL AIM OF ASSESSEE ON ALL ABOVE ITEMS AT THE ASSESSMENT STAGE AND HAS CARRIED OUT PROPER VERIFICATION. THEREFORE, LD. CI T WAS NOT JUSTIFIED IN INVOKING JURISDICTION UNDER SECTION 26 3 OF THE ACT. THE DECISIONS CITED BY LD. DR WOULD NOT, THUS SUPPO RT THE CASE 25 OF THE REVENUE. IN VIEW OF THE ABOVE DISCUSSION, W E SET ASIDE THE IMPUGNED ORDER UNDER SECTION 263 OF THE ACT BECAUSE THE ASSESSMENT ORDER DATED 29.12.2009 COULD NOT BE SAID TO BE ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND QUASH THE SAME. 24. RESULTANTLY, THE ORIGINAL ASSESSMENT ORDER DATE D 29.12.2009 UNDER SECTION 143(3) OF THE ACT IS RESTO RED. 25. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2014. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31 ST OCTOBER,2014. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH