TaxTMI 
TaxTMI 
2014 (12) TMI 1301
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....sing the assessment order in the case of firm and the partners 2.1 Brief facts of the case are : The assessee is a partnership firm which was reconstituted on multiple times. In the reconstitution process from time to time some partners were introduced and some retired; the process involved either bringing in lands; taking away land rights; bringing in or taking away capital. Thus the gamut of constitution and reconstitution was guided by land holding or financing partners. Since the assessments are framed u/s 153C read with sec 144 i.e. by way of best judgment assessments very sketchy assessment is available on record. History about the search assessment is search and seizure operations were carried out in Lashkary group of entities on 6-8-08 during the course thereof incriminating documents indicating undisclosed income of assessee were also found. On the basis thereof proceedings u/s 153C were initiated qua the assessee by service of notice to file the return of income in this behalf on 2-9-10, according to AO it was not complied. Thereafter, again a notice was served on another partner Shri Shanker Jethani who subsequently filed the nil return in Oct. 2010. In furtherance of....
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.... Thus, on purchases of Rs. 20817394/-, the firm has sought to add the expenses on the project of Rs. 11231406/- and Rs. 69930590 as revaluation. In the notes on accounts, it is written that "during the year, the closing stock of the firm has been enhanced to bring it near to its current market value by revaluation of the same and difference of cost and revalued price of Rs. 69930590/- has been credited to the capital account of the old partners of the firm in their old profit sharing ratio." 8. This act of the assessee is in blatant violation of the principles of accountancy. As per AS2, stock has to be valued at cost or net realizable value. Whichever is lower. By revaluing stock and adding the difference between revalued value and book value, the assessee has violated accounting principles. The undersigned is therefore not satisfied about the correctness or completeness of the accounts and hence, there is no option but to reject the books of accounts and recast the P&L A/c. However, as the assessee has no sales at all this year and as the interest income is to be charged as income from other sources, the net effect of recasting the P&L A/c will be nil. In toto, stock is ....
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..../- Revaluation expenses at Rs.6,99,30,590/- Total cost of the land Rs.10,20,09,390/- 2.4 Ld. AO after adverting to above facts at Page 7 of the order, disallowed the claim of development expenditure as well as the revaluation expenses and took the value of the closing stock of the project at actual cost of land only i.e. Rs. 2,08,17,394/-. It is contended that when the AO himself has disallowed these project expenses, order cannot be held to be erroneous and prejudicial to the interest of the revenue on this issue. Besides the balance sheet filed before the AO reflects under the head current liabilities an amount of Rs. 14,22,01,535/- as booking for flats. In view of these facts AO rejected books of accounts and proceeded to make the best judgment assessment as provided u/s 144. 2.5 During the course of proceedings u/s 263 it was explained that the booking amounts was financed by HDFC bank for booking of flats and most of the flat advance amount were received from HDFC bank loans advanced to purchasers. Due to some disputes the project could not be completed, consequently HDFC bank purchaser filed criminal cases and HDFC bank filed writ petition before Hon'ble Raj....
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....fter consideration of facts and application of his mind, has taken one view and CIT intends to superimpose another view after reconsideration. It is trite law that a plausible view adopted by AO is neither erroneous nor prejudicial to the interest of the revenue. Reliance is placed on Hon'ble Bombay High Court in case of DHFL Venture Capital Fund Vs. ITO 217 Taxman 116 holding that reopening for making protective assessment on the ground that a contingency may arise in future resulting into escapement of income is impermissible u/s 263 and amounts to rewriting of statutory provisions. The direction of ld. CIT to revenue the taxability of revaluation amount in the hands of the assessee as a measure of safeguarding revenue is outside the purview of section 263. 2.10 It is further contended that when the land in question is accepted as stock in trade, revaluing the said land and paying that amount to the retiring partners, cannot be taxed u/s 45(4) as the land holds the character of business asset i.e. stock in trade and is not a capital asset. Consequently the observations made by the ld. CIT in Para 10 to 10.4.1 of his order amounts to review of a finding of a quasi judicial auth....
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....ed the record of other searched entities of the group. The projections about the cost of land submitted by assessee in his written submission has nowhere been mentioned by AO. This was the precise reasons for Ld. CIT who on verification of record observed that there are various facets to the assessment which have not been inquired at all. Thus in several respects there is lack of inquiry and in some cases illogical conclusions. Some of these issues are Project expenses; Flat booking advances; Self revaluation of stock and claiming of the difference as expenses. It is a settled law that in these circumstances the order of AO is to be held as erroneous and prejudicial to the interest of revenue. Ld. DR further contends that it is very surprising on the part of assessee to challenge ld. CITs order as in real terms; it gives a fair chance to assessee to be heard on an assessment which is decided ex parte against him. In contradistinction assessee is challenging an order which apparently goes in his favor. Its challenge rather indicates that ex parte assessment is on facts which do not meet the eyes. Reliance in support of ld. CIT order is placed on:- i. Smt. Tara Devi Agrawal ....