Principal Commissioner Of Income ... vs Lanco Hills Technol Park Pvt Ltd
2022 Latest Caselaw 6760 Tel

         THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN
                                       AND
          THE HON'BLE SRI JUSTICE C.V.BHASKAR REDDY


                          I.T.T.A.No.326 of 2022

JUDGMENT: (Per the Hon'ble the Chief Justice Ujjal Bhuyan)


       Heard Mr. J.V.Prasad, learned Standing Counsel for

Income Tax Department appearing for the appellant.


2.     This appeal has been preferred by the revenue as the

appellant under Section 260A of the Income Tax Act, 1961

(briefly, 'the Act' hereinafter) against the order dated

07.09.2021 passed by the Income Tax Appellate Tribunal,

Hyderabad           'A'    Bench,         Hyderabad            (Tribunal)    in

I.T.A.No.1021/Hyd/2019 for the assessment year 2010-11.


3.     Appellant has proposed the following questions as

substantial questions of law:

       1.      Whether on the facts and in the circumstances of
       the case, the Tribunal is correct in upholding the orders
       of the Commissioner of Income Tax (Appeals) - 4?

       2.      Whether      information      devoid    of    corroborative
       evidence and supporting documents constitute true and
       full disclosure for the purpose of Section 147 of the Act?
                                   2


     3.    Whether on the facts and in the circumstances of
     the case, the Tribunal is correct in not considering the
     fact that full details of 'cancellation & price revision'
     were not disclosed by the assessee during the original
     assessment proceedings and therefore there was failure
     on the part of the assessee to fully and truly disclose all
     material facts for completion of assessment?


4.   Respondent before us is an assessee under the Act.

It is a private limited company engaged in the business of

development and sale of office space, residential buildings,

commercial complexes etc. For the assessment year

2010-11, it had filed return of income on 25.09.2010

admitting loss of Rs.29,24,79,084.00 after setting off long

term capital gain of Rs.3,85,41,685.00. Subsequently

respondent filed revised return of income on 27.09.2011

declaring higher loss of Rs.36,03,42,295.00 after setting off

long term capital gain of Rs.3,85,41,685.00. Assessing

officer passed the assessment order on 27.12.2012 under

Section 143(3) of the Act accepting the loss returned on

25.09.2010.

5. Later on, case of the respondent was reopened under

Section 147 of the Act by issuing notice under Section 148

dated 31.03.2016. Following the laid down procedure,

assessing officer completed the assessment on 27.11.2017

under Section 143(3) read with Section 147 of the Act by

disallowing the claim of Rs.113,19,93,808.00 towards

debiting to the profit & loss account due to reversal on

account of cancellation and price revision. It was held that

the same was not an acceptable method of revenue reversal

and was accordingly disallowed by adding the same back to

the returned income.

6. Aggrieved by the aforesaid order dated 27.11.2017,

respondent preferred appeal before the Commissioner of

Income Tax (Appeals) 4, Hyderabad (briefly referred to

hereinafter as 'CIT (A)'). By the appellate order dated

30.03.2019, CIT (A) allowed the appeal of the respondent

both on technical grounds as well as on merit. It was held

that action of the assessing officer in reopening of

assessment was bad in law; so also the addition of

Rs.113,19,93,808.00 made on account of reversal of

revenue due to price revision/cancellation. The same was

accordingly directed to be deleted. It was held as follows:

"8.9 From the above analysis it is clear that the appellant has reversed the revenue to the extent of Rs.40.76 crores on account of price revision which is

forming part of earlier years revenue recognition to that extent has tabulated below:

 Particulars                                Amount
 Relating to the F.Y 2007-08                Rs.21,93,36,107/-
 Relating to the F.Y 2008-09                Rs.23,34,05,718/-
 Less: Reversal of discount allowed         Rs. 4,50,96,754/-
 Total revenue reversed on account of       Rs.40,76,45,071/-
 reversal

This proves that to this extent it was already recognized by adopting original value of contract as existing in the AY 2008-09 when the real estate market was in upward swing. Now, the price being revised during the pending of the project before final conclusion of the sale, the revised price needs to be adopted to arrive at relevant revenues recognition as applicable to relevant assessment years. Considering this fact the same amount as applicable for reversal on account of offering the same as income the same needs to be reversed to the extent to reflect the true incomes of the appellant as qualified in the auditor report of this assessment year 2010-11. Hence, the price revision effect stands duly corrected in this assessment year as applicable as prudent accounting norms for arriving at correct picture of income and expenditure of the appellant as per percentage completion method. Hence, the appellant claim on merits on this issue of price revision adjustments as made in P&L Account is justified and hence, the grounds raised in this regard are allowed.

9. Further, on the issue of cancellation, it is noticeable that appellant strongly contends the case of cancellations where the relevant buyers could not proceed further due to economic recession prevailing

during the period and forcing the cancellations. On this issue the AO was of the view that such cancellations would benefit the appellant. These observations of the AO are not based on verifiable fact. It is a known fact in the real estate business during the times of recession most of the customers would like to take back the advances to the extent possible and even in few cases with interest on the advances given to the appellant. In such a scenario it would be improper to hold to the extreme view that cancellations will result in forfeiture of advances making no loss to the appellant. To maintain the reputation of the builder in the real estate market, it is a normal practice to instil confidence in many instances cancellations are accepted by returning the advances to the extent possible so as to attract at least new customers for sale of remaining unsold/cancelled flats in the best interest of appellant reputation. In view of these facts, the appellant contentions on cancellations that advances received have been admitted in earlier years stands reconcilable and seems reasonable. The AO has not brought on record any adverse findings on this issue contrary to the claims of appellant during the original assessment or at least during the re-visited assessment which clearly proves that no specific findings countering the claims of the appellant were made by the AO. Hence, on the similar analysis of accounting as above as in the issue of price revision, the effect of cancellation needs to be reversed in this assessment year to that extent to reflect true income and expenditure of appellant for the year under appeal as a going concern following percentage completion method. Accordingly, appellant succeeds on these grounds for revenue reversal involving cancellation adjustments to the extent of Rs.72.43 crores. As a

result, the appellant grounds of appeal on this issue are allowed on merits notwithstanding technical grounds on which appeal was allowed above. To sum up, the AO's action in reopening of assessment was bad in law and also the addition of Rs.113,19,93,808/- made on account of reversal of revenue on account of price revision/cancellation is not correct and hence directed to be deleted."

7. Revenue preferred appeal before the Tribunal against

the aforesaid order of CIT(A) dated 30.03.2019. By the

order dated 07.09.2021, Tribunal dismissed the appeal of

the revenue by upholding the order of CIT(A). Tribunal

held as follows:

"4. We have heard rival pleadings and perused the case file. We note first of all that the Assessing Officer recorded the following reasons for forming his opinion that the assessee's taxable income had escaped assessment:

"it is gathered from the information available with this office that the assessee was debited an amount of Rs.113,19,93,808/- towards 'Reversal on account of cancellation and price revision; and finally reported a book loss of Rs.38,28,51,371/-. The reduction of Rs.113,19,93,828/- towards Reversal on account of cancellation and price revision 'from the Profit and Loss Account for the year ended 31.03.2010 is irregular, the same need to be brought to tax. In view of the above, I have reason to believe that income has escaped assessment as per the provisions of section 147 of the IT Act."

5. There is hardly any dispute that we are in Assessment Year 2010-11 wherein the Assessing Officer had framed his section 143(3) regular assessment on 27.12.2012 followed by recording of the foregoing reasons culminating in issuance of section 148 notice dt.31.3.2016. This impugned reopening therefore has been initiated beyond the specified period of four years from the end of the relevant assessment year in light of section 147(1) 1st proviso. The said proviso stipulates that such a reopening would only be initiated if it is found that the assessee had not disclosed all the relevant particulars "fully" and "truly" before the Assessing Officer in the first round. Learned CIT-DR to dispute that the Assessing Officer's sole reopening reason has placed reliance on the assessee's books only regarding "reversal on account of cancellation and price revision (supra)". We therefore quote Hon'ble Bombay High Court's landmark decision in Hindustan Lever Limited Vs. R.B. Wadekar (2014) 268 ITR 332 (Bom) that an Assessing Officer's reopening reasons have to be read on standalone basis; as it is, without any scope of further improvement at a later stage by way of addition, deletion or substitution therein. We thus quote that to conclude that the impugned reopening has been rightly quashed by the CIT(A) as a mere change of opinion only. All this renders the latter issue on merits as academic.

No other argument has been pressed before us."

8. Thus, according to the Tribunal, the reopening was

initiated beyond the specified period of four years from the

end of the relevant assessment year. In the light of Section

147(1) first proviso of the Act, Tribunal further noted that

reopening of assessment is only permissible if the assessee

had not disclosed all the relevant particulars fully and truly

before the assessing officer. Relying on a decision of the

Bombay High Court in Hindustan Lever Limited v.

R.B.Wadekar1, Tribunal held that assessing officer's

reopening reasons have to be read on a standalone basis,

without any scope for further improvement at a later stage

by addition or deletion or substitution. Therefore, Tribunal

held that CIT(A) was justified in taking the view that

reopening of assessment was on account of mere change of

opinion.

9. We are in agreement with the views expressed by the

Tribunal.

10. The fact that the reopening of assessment was

ordered on mere change of opinion has been upheld by two

lower appellate authorities. It is evident that respondent

had disclosed fully and truly all material facts to the

assessing officer during the assessment proceeding on the

basis of which assessment order dated 27.12.2012 was

(2014) 268 ITR 332 (Bom)

passed under Section 143(3) of the Act. By change of

opinion holding that reduction of Rs.113,19,93,808.00

towards reversal on account of cancellation and price

revision and deducting the same from the profit and loss

account was irregular thereby having reason to believe that

taxable income had escaped assessment, the concluded

assessment could not have been reopened. At the stage of

third round of appeal we do not find any substantial

question of law for interference by the High Court under

Section 260A of the Act. We are, therefore, of the view that

there is no merit in this appeal.

11. Appeal is accordingly dismissed.

Miscellaneous applications pending, if any, shall

stand closed. However, there shall be no order as to costs.

______________________________________ UJJAL BHUYAN, CJ

______________________________________ C.V.BHASKAR REDDY, J 13.12.2022 vs