Delhi High Court
Cit vs Regency Park Property Management ... on 5 January, 2012
Author: Sanjiv Khanna
$~6
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 1991/2010
CIT ..... Appellant
Through Ms. Rashmi Kapoor, Adv.
versus
REGENCY PARK PROPERTY
MANAGEMENT SERVICES PVT LTD ..... Respondent
Through
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE R.V.EASWAR
ORDER
% 05.01.2012
The present appeal by the Revenue under Section 260A
of the Income Tax Act, 1961 (Act, for short) impugns the order
dated 1st January, 2010 passed by the Income Tax Appellate
Tribunal (Tribunal, for short) in ITA No. 2812/Del/2008 and
relates to assessment year 2005-06.
2. The impugned order passed by the tribunal allows the
appeal filed by the respondent-assessee and quashes/set
asides the order dated 1st July, 2008 passed by the
Commissioner of Income Tax (CIT, for short) under Section 263
of the Act. Having heard learned counsel for the parties, we
frame the following substantial question of law:
"Whether the Income Tax Appellate Tribunal
was right in setting aside/quashing the order
dated 1st July, 2008 passed by the
Commissioner of Income Tax under Section
263 of the Income Tax Act, 1961?"
3. We have heard learned counsel for the parties and
proceed with our decision.
4. Few facts may be noticed. The respondent-assessee had
given bid for purchase of a commercial plot for construction of a
shopping mall in Vasant Kunj, New Delhi to DDA on 15th
December, 1993. The bid being the highest, the respondent-
assessee deposited 25% of the bid amount on 15th December,
2003. The entire sale consideration was also paid during the
period relevant to the assessment year 2005-06 but the
perpetual lease deed was subsequently executed on 4th
October, 2006.
5. The tribunal has held that execution of the perpetual lease
deed is not relevant and material for deciding whether the
respondent assessee has commenced business activities. The
tribunal has held that the only business activity, which the
respondent company has undertaken, is to purchase the said
commercial plot and develop/carry out construction.
6. The tribunal has quashed the order under Section 263 of
the Act holding that the advertisement and publicity expenses of
Rs. 28,29,235/- relating to the commercial plot have to be
allowed in the assessment year in question. The tribunal has
further held that the CIT had erred in exercising revisional power
for the second reason, i.e., non-inquiry by the Assessing Officer
with regard to squared up loans.
7. CIT had not exercised power under Section 263 of the Act
on the ground that the business activities of the respondent-
assessee had not commenced but for the following reasons
recorded in the order dated 1st July, 2008:
"In the instant case, the assessee has not
disclosed which method assessee has
followed. It appears that assessee might be
following the „completion method‟ as
assessee has almost capitalized all
expenses except advertisement and some
other expenses. Since the assessee has
only one project in hand during the year, all
the expenses that are claimed in P&L
Account represents the cost that are
attributable to contract activity and has to be
allocated to the contract and not to be
allowed as revenue expenditure during the
year. Thus, AO‟s order allowing
advertisement expenses are erroneous as
AO has not enquired this aspect at all."
8. CIT had also specifically referred to Accounting Standard
7 and observed that the two modes are specified in the said
Accounting Standard, namely, completion method and
percentage method. CIT had recorded that the Assessing
Officer had not dealt with and examined whether the
respondent-assessee was following completion method or
percentage completion method and whether or not the said
expenditure could be claimed as an expense in the assessment
year in question. Thus, there was error on the part of the
Assessing Officer in not making verification and inquiries, which
were required and the assessment order was prejudicial to the
interest of the Revenue. The tribunal has completely ignored
the said aspect in the impugned order and has proceeded on an
entirely different basis which was not edifice and foundation of
the order passed by the CIT under Section 263 of the Act.
9. The second reason stated by the CIT was that the
Assessing Officer had failed to examine and inquire into fresh
loans amounting to Rs.11,92,13,195/-. The CIT observed that
no inquiry was conducted and the Assessing Officer had not
examined whether this amount was squared up or not. The
Assessing Officer concluded the proceedings in a hasty manner
as the assessment proceedings commenced on 4th October,
2007 and were completed on 30th November, 2007. The
assessment order merely records that nothing adverse had
come to notice.
10. It is well settled that failure to conduct necessary inquiry
and investigation makes an order erroneous as the Assessing
Officer is required to act as an Investigator. Such an order is
also prejudicial to the interest of the Revenue. The loan amount
is substantial. The CIT has held that inquiries were necessary
and required but were not made by the Assessing Officer. In
these circumstances, we feel that on the second ground also the
order passed by the tribunal cannot be sustained.
11. The CIT has not expressed final or conclusive opinion on
the two aspects. The matter has to be examined by the
Assessing Officer and only if the Assessing Officer is satisfied
any addition will be made. It is obvious that the respondent-
assessee has a right to produce relevant documents and
material before the Assessing Officer and explain their stance
and position. It cannot be presumed that the Assessing Officer
will ignore the evidence and material.
12. In view of the aforesaid findings, we answer the question
of law in negative and in favour of the Revenue and against the
respondent-assessee. There will be no order as to costs. We,
however, clarify that we have not expressed any opinion
whether or not any addition by the Assessing Officer would be
justified.
SANJIV KHANNA, J.
R.V. EASWAR, J.
JANUARY 05, 2012
VKR
