Court upholds Tribunal's decision on tax assessment, corrects valuation method, orders deletion of incorrect additions.

The court affirmed the decision of the Tribunal to proceed on merits despite the assessment order being set aside by the Commissioner under Section 263 of the Income Tax Act. Regarding the deletion of the addition made by the Assessing Officer, the court held that the Assessing Officer's valuation based on the builder's project cost was incorrect, and the agreed valuation of Rs. 800 per sq. ft. should be accepted. Consequently, the additions made by the Assessing Officer were ordered to be deleted. The court dismissed the appeal, ruling in favor of the assessee on both substantial questions of law.

---

---

Issues Involved:
1. Whether the Tribunal was correct in deciding the matter on merits when the assessment order was set aside by the Commissioner under Section 263 of the Income Tax Act.
2. Whether the Appellate Authorities were correct in holding that the addition of Rs. 53,26,567/- made by the Assessing Officer based on 18% of the project cost of Rs. 19.43 crores is liable to be deleted without considering the additional expenditure incurred by the assessee for extra amenities.

Issue-wise Detailed Analysis:

Issue 1: Tribunal's Decision on Merits Despite Assessment Order Set Aside
- The Tribunal's decision to proceed on merits despite the assessment order being set aside by the Commissioner under Section 263 of the Income Tax Act was challenged.
- The court noted that this issue was already addressed in ITA No.775/2009, where it was resolved in favor of the assessee.
- Therefore, the court reiterated its previous stance, affirming that the Tribunal was correct in deciding the matter on merits.

Issue 2: Deletion of Addition Made by Assessing Officer
- The core issue revolved around the calculation of gross consideration received by the assessee.
- The assessee declared the cost of construction at Rs. 800 per sq. ft. for 22,112 sq. ft., totaling Rs. 1,76,88,000/- for long-term capital gains, including a non-refundable deposit of Rs. 20,00,000/-.
- The Assessing Officer, however, used the builder's project cost of Rs. 19,79,237.54 and apportioned 18% of this cost to the assessee, resulting in a proportionate project cost of Rs. 3,49,70,263/- and made additions accordingly.
- The Appellate Commissioner found that the Assessing Officer did not reject the assessee's calculation but substituted it with a different valuation based on the builder's books, which included advertisement charges and amounts paid to the landlord and assessee for vacating the premises.
- The court noted that the valuation agreed upon in the Tripartite Agreement dated 23.8.2001 was Rs. 800 per sq. ft. and the cost of construction was not rejected by the Assessing Officer.
- The court held that the amounts paid to the landlord and the assessee for vacating the premises should not be included in the construction cost, and the agreed valuation of Rs. 800 per sq. ft. should be accepted.
- The court affirmed the Appellate Commissioner's decision that the additions made by the Assessing Officer were to be deleted, finding no infirmity in the reasoning.

Conclusion:
- The court dismissed the appeal, affirming the order passed by the Income Tax Appellate Tribunal, Bangalore Bench, in ITA No.1110/Bang/2008 dated 31.3.2009.
- Both substantial questions of law were answered in favor of the assessee and against the revenue.

---