AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (3) TMI 721
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.... assessment. In response to the said notice the assessee filed its return of income on 14/03/2011. Thereafter, notices u/s 143(2) were issued from time to time and the assessment was completed on 30.11.2011 u/s 143(3) r.w.s. 147 determining the total assessee's income at Rs. 53,21,175/-. 3. The reasons for reopening of assessment u/s 148 of the IT Act are furnished as under: "During the year of account, the assessee company which is engaged in construction activity has constructed a property known as Queens Plaza at Begumpet, Hyderabad on the land belonging to six co-owners under a Development Agreement on 50:50 basis. As per the Development Agreement, the assessee has received 90,000/- Sft. The total cost of the construction was Rs.8,20,52,329/- arrived at a rate of Rs.911.69 per Sft. Instead of debiting cost of construction per Sft. at the rate for the years ending 31/03/2004 and 31/03/2005, However the assessee has adopted a rate of Rs.1131.40 per Sft (Rs.8,20,52,329/- divided by 72,523 Sft), which was incorrect as the assessee should have debited at Rs.911.70 per Sft. only for the area sold of 38,082 Sft. as on 31/03/2005. Hence the cost of built up area of 38,082/- S....
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....efore the CIT(A) the appellant stated that it had entered into a development agreement with the builders for development of 4638 sq.yds. of site owned by them in Secunderabad. The appellant agreed with the developers to construct 1,80,000 sq. ft. of built up area and divide the same in the ratio of 50:50 between the appellant and others. 'Therefore, the appellant received 90,000 sq. ft. area. However, it was stated by the appellant that the actual built-up area for office space was only 72,523 sq. ft. and the balance pertains to car parking, electrical room, maintenance office and other common areas. It was contended that if an area of only 72,523 sq. ft. was taken the cost of construction would be Rs. 1131/-. Therefore, the appellant argued that its contention should be accepted the appellant also stated that it had entered into a supplementary agreement on 26.11.1999 with the owners regarding the aforementioned issue. Important portions of the written submissions of the appellant were extracted by the CIT(A) in his order, which are as follows: "In this regard, the Appellant at the outset submits that it had taken a site from MI5. Mogul Hotels Private Limited, 2) Diamond Bu....
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....rea and arriving at cost of construction per sq. ft at Rs.912/-." 6. After considering the submissions of the assessee, the CIT(A) observed though the expenditure involved in developing kitchen is much more when compared to thw expenditure involved in developing other areas, it is neither practical nor feasible to break up the cost of construction and the sale price into individual elements like fittings, bedrooms etc and to calculate capital gains in respect of each such individual elements. Further, he observed that the flat consists of all areas which belong to the purchaser including common areas which are used by the various purchases. A lot of developers incorporate common swimming pools, clubs and a host of common facilities in their integrated development. The CIT(A) also observed that they charge each flat owner a corresponding price and it is only a matter of advertisement or selling where the builder will state that certain portion is free while the other is being charged for. The fact of the matter is the price of even the so-called free areas is incorporated in the actual sale price. In view of the above observations, the CIT(A) confirmed the findings of the Assessi....
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.... tangible material to suggest that income has escaped assessment, much less to justify any belief of escapement of income assessable in the hands of the assessee. The proceedings for reopening the assessment were initiated merely on a fresh application of mind by the assessing officer to the very same set of facts and to the same material on record, as was available at the time of accepting the return of income under S.143(1) of the Act. It is further submitted that it is settled position of law that even in respect of assessment under S.143(1), re-assessment proceedings cannot be initiated in the absence of any tangible fresh material coming to possession of the assessing officer suggesting escapement of income from tax. In support of these contentions, he relied on the following decisions- (a) CIT V/s. Kelvinator of India Ltd. (320 ITR 561)-SC (b) CIT V/s. Usha International Ltd. (348 ITR 485)-Del. (c) CIT V/s. Orient Craft Ltd. (354 ITR 536)-Del. (d) Balkrishna Hiralal Wani V/s. ITO (321 IGTR 519)-Bom. (e) Inductotherm (India) (P) Ltd. V/s. M.Gopalan DCIT (356 ITR 481)-Guj. (f) M/s. Telco Dadajee Dhackjee Ltd., Mumbai V/s. DCIT (ITA No.4613/Mum/2005)- Mumbai IT....
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....ted that the Revenue ought to have seen that though the gross built-up area is 90,000 sq. ft. saleable/occupiable area was only 72523 sq. ft. and the balance area represents common areas which cannot be sold and parking area which was given to the buyers of the constructed area along with the office area. He, therefore, contended that the cost of construction is to be divided by 72523 sq. ft. only and not by 90000 sq. ft., which consists of several other areas which cannot be sold. 10. On the other hand, the learned Departmental Representative, strongly supported the orders of the Revenue authorities and submitted that the reopening of the assessment is very much legal and valid. He submitted that the total saleable area is not on record and therefore, initiation of reopening of assessment is valid, as the income has escaped assessment. He submitted that valuation cannot be done in respect of each of the areas, which together makes the saleable unit constructed. In support of his contentions, reliance is placed on the on the following decisions: 1. CIT V/s. Usha International Ltd. (348 ITR 483)-SC 2. Dr.Amin's Pathology Laboratory V/s. JCIT ( 252 ITR 673)-Bom. 3. So....
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....he assessment in its case. By working out the cost of construction per sft. on an incorrect basis, assessee has furnished inaccurate particulars of income, and consequently, the provisions of S.147 are clearly applicable. Under the provisions of S.143(1), what the assessing officer carries out is only a summary assessment. Therefore, on that basis, it cannot be said that the assessing officer has applied his mind, and the reopening of assessment is based on mere change of opinion. It is only in a regular assessment, that the assessing officer can be said to have applied his mind to the material on record and after detailed scrutiny thereof made the assessment. In a summary assessment under S.143(1), assessing officer cannot be said to have taken any view for or against the assessee, on the basis of material furnished with the return. We are supported in this behalf by the recent decision of the Apex Court in the case of Asst. CIT V/s. Rajesh Jhaveri Stock Brokers (P) Ltd (291 ITR 500), wherein after considering the provisions of section 143(1)(a), it was held that when the return was processed under section 143(1) of the Income-tax Act, it cannot be said that the Assessing Officer ....
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....sdiction under section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso. 18. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate pr....
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....sft. of constructed area which came to the share of the assessee, which worked out to Rs.8,20,52,329. By dividing this total cost of Rs.8,20,52,329 by 72,523 sft., assessee arrived at the cost of construction per sft. at Rs.1,131, whereas the assessing officer arrived at such cost of construction per sft. at Rs.911.69 by dividing the total cost by 90,000 sft. According to the assessing officer, cost of construction cannot be determined separately for different areas of components/facilities and it is the entire area of 90,000 that should be taken for arriving at the cost of construction per sft. 12. On careful consideration of the matter, we do not find merit in the contentions of the assessee. Cost of construction per sft has to be determined by dividing the total area received by it in terms of the development agreement, and there is no justification for adopting only the area which the assessee is claiming to be the saleable area. As observed by the CIT(A) in the impugned order, after development, assessee has sold various flats and also sold the parking areas to the flat owners and as such it is not correct to say that there is less expenditure in developing a parking area a....