2016 (6) TMI 1373 - AT - Income Tax

Tribunal upholds reassessment under Income-tax Act, adds remand for further examination

The D.C.I.T., Circle – 4 (1), New Delhi Versus M/s Landbase India Ltd. And Vice-Versa

The D.C.I.T., Circle – 4 (1), New Delhi Versus M/s Landbase India Ltd. And Vice-Versa - TMI Issues Involved:1. Validity of the reassessment proceedings under section 147 of the Income-tax Act, 1961.2. Addition on account of difference between budget cost of flats.3. Treatment of prior period interest expenditure.4. Depreciation rate applicable on the golf course.5. Addition on account of long-term capital gain from the agreement to sell land.Issue-wise Detailed Analysis:1. Validity of the reassessment proceedings under section 147 of the Income-tax Act, 1961:The assessee challenged the reassessment proceedings initiated under section 147, arguing that the proceedings were based on a mere change of opinion, barred by limitation, and initiated without forming a reasonable belief that income had escaped assessment. The CIT(A) upheld the validity of the reassessment, stating that the notice under section 148 was issued after independent application of mind by the AO, not merely based on the audit party's opinion. The Tribunal supported this view, noting that the AO had validly initiated reassessment proceedings beyond four years due to the assessee's failure to disclose fully and truly all material facts, particularly regarding depreciation on the golf course and income from the Laburnum Project.2. Addition on account of difference between budget cost of flats:The AO added Rs. 3.89 crores to the assessee's income, alleging suppression in recognition of revenue from the Laburnum Project. The CIT(A) deleted this addition, stating that the assessee consistently followed the percentage completion method. The Tribunal, however, found that the issue required further examination and verification by the AO, as the assessee's method of recognizing revenue did not align with the percentage completion method principles. The Tribunal restored the issue to the AO for fresh adjudication.3. Treatment of prior period interest expenditure:The AO disallowed Rs. 61.11 lakhs as prior period expenditure. The CIT(A) allowed the deduction, noting that the liability to pay interest accrued and crystallized during the year under consideration. The Tribunal upheld the CIT(A)'s decision, agreeing that the interest liability was settled during the relevant period and the amount was paid after deducting TDS, which was also offered to tax by the recipient.4. Depreciation rate applicable on the golf course:The AO allowed depreciation on the golf course at 10% as a building, while the assessee claimed 25% as plant and machinery. The CIT(A) allowed the higher rate, treating the golf course as plant and machinery. The Tribunal disagreed, stating that the golf course, being a piece of land with landscaping, could not be categorized as plant and machinery. The issue was restored to the AO for fresh adjudication to determine the correct classification and applicable depreciation rate.5. Addition on account of long-term capital gain from the agreement to sell land:The AO taxed Rs. 41.82 crores as long-term capital gain from an agreement to sell land to ITC Ltd. The CIT(A) deleted the addition, noting that the sale was not completed, and the land remained in the assessee's control. The Tribunal upheld the CIT(A)'s decision, stating that mere receipt of sale consideration did not constitute a transfer under section 2(47) of the Act, as neither the sale deed was executed nor possession handed over to ITC Ltd.Conclusion:The cross objections of the assessee for both years were dismissed. The Revenue's appeals were partly allowed for statistical purposes, with issues regarding the difference in budget cost of flats and depreciation on the golf course being remanded to the AO for fresh adjudication. The additions on account of prior period interest expenditure and long-term capital gain were deleted, upholding the CIT(A)'s decisions.