M/S. Vicky Realtors, Hyderabad vs Department Of Income Tax

ITA No.146/Hyd/14 : Assessment year 2007-08

Dy. Commissioner of Income- V/s. M/s. Vicky Realtors, Hyderabad tax, Circle-6(1), Hyderabad l (PAN - AAFFV 9070 N ) (Appellant) (Respondent)

Cross Objection No.25/Hyd/2014) (in ITA No.146/Hyd/14) : Assessment year 2007-08

M/s. Vicky Realtors, Hyderabad V/s. Dy. Commissioner of Income-tax, Circle-6(1), Hyderabad l (PAN - AAFFV 9070 N )

(Cross Objector) (Respondent)

Assessee by : Shri A.V.Raghuram

Department by : Shri Ramakrishna Bandi, DR

Date of Hearing 24.3.2015 Date of Pronouncement 10.4.2015

ORDER

Per P.M.Jagtap, Accountant Member :

This appeal is preferred by the Revenue against the order of the learned Commissioner of Income-tax(Appeals) IV, Hyderabad dated 8.11.2013 and the same is being disposed of alongwith the cross objection filed by the assessee being CO No.25/Hyd/2014.

2. The assessee in the present case is a partnership firm which is engaged in the business of real estate. The return of 2 ITA No.146/Hyd/2014 & CO 25/Hyd/2014 M/s. Vicky Realtors, Hyderabad

income for the year under consideration was filed by it on 31.10.2007, declaring total income of Rs.1,51,48,790. In the assessment originally completed under S.143(3) vide order dated 27.7.2009, the total income as declared by the assessee in the return was accepted by the Assessing Officer. Subsequently, the assessment was reopened by the Assessing Officer by issuing a notice under S.148 on 22.3.2012, after recording the following reasons-

"On verification of the records, it was seen that the assessee had purchased the immovable property consisting of semi-finished commercial complex named as 'OZONE'. This property consists of cellar + ground and four floors with a built up area of 58,179 Sq. Ft., along with undivided share of land admeasuring 1858.92 Sq. Yards situated at Punjagutta, Hyderabad. The total property was purchased for a total consideration of Rs.13,13,42,530/--.Out of the property purchase, the assessee sold ground floor admeasuring built up area of 11,664 Sq. Ft along with undivided share of land for a consideration of Rs.11,OO,OO,OOOj- and offered the same to tax. As per the details available on record, the cost of construction per square feet works out to Rs.2257.55 (Total 58,179 Sq. Ft with undivided land of 1858.92 Sq. Yards purchased for Rs.13,13,42,530). The cost of area sold works out to Rs.2,63,32,063 (11664 x Rs.2257.55) and therefore, the value of closing stock should be Rs.l0,50,09,938/- as against which the assessee shown only Rs.5,53,42,530/- which resulted in escapement of income."

3. In response to the notice issued by the Assessing Officer under S.148, a letter was filed by the assessee raising objection to the initiation of re-assessment proceedings. It was submitted by the assessee in the said letter that the issue relating to the valuation of closing stock was thoroughly examined while completing the assessment originally under S.143(3) and the re- opening of the assessment on the same issue was invalid, as it was prompted by a mere change of opinion. The Assessing Officer did not find merit in the submission made by the assessee and proceeded to complete the re-assessment under S.143(3) read 3 ITA No.146/Hyd/2014 & CO 25/Hyd/2014 M/s. Vicky Realtors, Hyderabad

with S.147 vide his order dated 31.3.2013 making therein, an addition of Rs.4,96,74,352 to the total income of the assessee on account of alleged under valuation of closing stock.

4. Against the order passed by the Assessing Officer under S.143(3) read with S.147, an appeal was preferred by the assessee before the learned CIT(A), challenging the validity of the said assessment as well as disputing the addition made therein on account of alleged under valuation of closing stock on merit. As regards the preliminary issue regarding relating to the validity of the reopening, it was submitted on behalf of the assessee before the learned CIT(A) that the Assessing Officer during the course of original assessment proceedings had raised a specific query regarding the basis of the cost relating to the portion of the property sold and the assessee had submitted a detailed submission that as the value of the ground floor of any commercial property was substantially higher than the upper floors, a valuation report was obtained determining the value of the ground floor at Rs.7.6 crores. It was submitted that after apportioning such value of the ground floor, the value of the remaining portion of the property being the closing stock, was adopted at Rs.5.53 crores, by the assessee and the same was accepted by the Assessing Officer during the course of original assessment proceedings, after taking into consideration all the facts of the case and the relevant material in the form of valuer's report. It was also submitted on behalf of the assessee before the learned CIT(A) that the inspection of the assessment record revealed that there was audit objection raised on this issue and in his reply dated 13.7.2010 submitted to the Audit Officer, the Assessing Officer himself had stated that this issue was duly examined during the course of original assessment proceedings. It was also brought to the notice of the learned CIT(A) by the assessee that the Assessing 4 ITA No.146/Hyd/2014 & CO 25/Hyd/2014 M/s. Vicky Realtors, Hyderabad

Officer in this regard had sent a report dated 29.1.2011 to the Additional CIT Range 6, Hyderabad, clearly stating that the audit objection was not acceptable, as the issue in question was duly examined during the course of original assessment proceedings. It was therefore, contended on behalf of the assessee before the learned CIT(A) that the issue having been duly examined by the Assessing Officer during the course of original assessment proceedings, the subsequent issue of notice under S.148 reopening the assessment on the same issue was based on a mere change of opinion, which was not permissible.

5. The learned CIT(A) found merit in the contentions raised on behalf of the assessee and keeping in view the valuation report furnished by the assessee as well as the letters sent by the Assessing Officer to the audit team as well as to the Additional CIT, she held that the reopening of assessment itself was not valid as the same was based on a mere change of opinion. Accordingly, the assessment made by the Assessing Officer under S.143(3) read with S.147 was cancelled by the learned CIT(A). Keeping in view the decision rendered by her on the preliminary issue holding the assessment made by the Assessing Officer under S.143(3) read with S.147 as invalid, the learned CIT(A) did not consider it necessary to decide the other issue raised by the assessee in its appeal on merits relating to the addition made by the Assessing Officer on account of alleged under-valuation of closing stock.

6. Aggrieved by the order of the learned CIT(A), Revenue has come in appeal before us, challenging the action of the CIT(A) in cancelling the assessment made by the Assessing Officer under S.143(3) read with S.147 holding the same to be invalid, while the assessee has filed its cross objection contending that the learned CIT(A) ought to have also decided the issue relating to the addition 5 ITA No.146/Hyd/2014 & CO 25/Hyd/2014 M/s. Vicky Realtors, Hyderabad

made by the Assessing Officer on account of under-valuation of closing stock on merits.

7. The Learned Departmental Representative while supporting the appeal of the Revenue submitted that the issue relating to the valuation of closing stock was not examined by the Assessing Officer during the course of original assessment proceedings as is evident from the order passed by him under S.143(3) . He invited our attention to the copy of the said order placed on record and submitted that there is nothing in the said order to show that the valuation of closing stock adopted by the assessee was accepted by the Assessing Officer after due examination and on application of mind. He contended that there was thus no formation of any opinion by the Assessing Officer on this issue and the question of reopening of assessment based on mere change of opinion does not arise.

8. The learned counsel for the assessee, on the other hand, invited our attention to the copy of the relevant order sheet placed at page 11 and 12 of his paper-book, to point out that copy of the relevant agreement for sale of portion of the property was specifically called for by the Assessing Officer, and the same was also duly furnished by the assessee. He submitted that even all other details and documents required by the Assessing Officer were furnished by the Assessing Officer from time to time, including the valuation report giving the basis of valuation of closing stock adopted by the assessee. He contended that the assessee had entered into only one transaction of purchase of property during the year under consideration and sale of portion thereof, and the Assessing Officer having obtained all the relevant details of the said transaction, it cannot be said that the issue of valuation of closing stock representing the remaining portion of the same property was 6 ITA No.146/Hyd/2014 & CO 25/Hyd/2014 M/s. Vicky Realtors, Hyderabad

not examined by the Assessing Officer. He submitted that in the letter written to the audit party as well as to the Addl CIT, the Assessing Officer himself had clearly stated that the issue relating to the valuation of closing stock was duly examined during the course of original assessment proceedings. He contended that this issue thus was duly examined by the Assessing Officer during the course of original assessment proceedings under S.143(3) and the reopening of the assessment on the same issue based on a mere change of opinion is not permissible in law, as held inter alia by the Hon'ble Supreme Court in the case of CIT V/s. Kelvinator India Ltd. (320 ITR 561).

9. In the rejoinder, the Learned Departmental Representative submitted that even the relevant order sheet entries recorded by the Assessing Officer do not show that the issue relating to the valuation of closing stock was specifically examined by the Assessing Officer. He also submitted that the valuation of closing stock adopted by the assessee was not correct and the view taken by the Assessing Officer in the original assessment while accepting the said valuation was not a possible view.

10. We have considered the rival submissions and perused the relevant material on record. It is observed that the assessee during the year under consideration purchased one property situated at Panjagutta, Hyderabad for Rs.13.13 cores and sold a portion of the said property, i.e. ground floor for consideration of Rs.11 crores. The cost of the portion of the said property sold during the year under consideration was taken by the assessee as Rs.7.6 crores, on the basis of a valuation report and the balance amount of Rs.5.53 crores being cost of the remaining portion of the property continued to be held by the assessee was shown as closing stock. During the course of original assessment 7 ITA No.146/Hyd/2014 & CO 25/Hyd/2014 M/s. Vicky Realtors, Hyderabad

proceedings under S.143(3), the relevant details and documents relating to these transactions were called for by the Assessing Officer, as is evident from the relevant order sheet entries, and since the issue relating to the valuation of closing stock adopted by the assessee was directly linked with these transactions, we find it difficult to accept the contention of the Learned Departmental Representative that the same was not examined by the Assessing Officer during the course of original proceedings Moreover, the Assessing Officer himself in the letters written to the audit team as well as to the concerned Addl.CIT had stated in very clear terms that the issue relating to the valuation of closing stock was duly examined during the course of original assessment proceedings. Having regard to all these facts of the case, we find ourselves in agreement with the learned CIT(A) that the issue relating to the valuation of closing stock having been examined by the Assessing Officer during the course of original assessment proceedings under S.143(3), the reopening of the assessment on the same issue was based on a mere change of opinion, which is not permissible in law, as held inter alia by the Hon'ble Supreme Court in the case of Kelivinator India Ltd. (supra), cited by the learned counsel for the assessee. We therefore, find no infirmity in the impugned order of the learned CIT(A) holding the assessment made by the Assessing Officer under S.143(3) read with S.147 as invalid and upholding the same, we dismiss the appeal filed by the Revenue.

11. As regards the cross objection of the assessee, we are of the view that once the assessment under S.143(3) read with S.147 made by the Assessing Officer is held to be invalid, the issue relating to the addition made therein on account of alleged under valuation of the closing stock becomes infructuous or academic and it is not expedient or necessary to decide the same as rightly held 8 ITA No.146/Hyd/2014 & CO 25/Hyd/2014 M/s. Vicky Realtors, Hyderabad

by the learned CIT(A). We therefore, find no merit in the cross objection of the assessee, and dismiss the same.

12. In the result, appeal of the Revenue as well as the Cross Objection of the assessee are dismissed.

Order pronounced in the court on 10th April, 2015

Sd/- Sd/-

(Saktijit Dey) (P.M.Jagtap) Judicial Member Accountant Member

Dt/- 10th April, 2015

Copy forwarded to:

1. M/s. Vicky Realtors, C/o.Shri K.Vasant Kumar, A.V. Raghu Ram, Advocates Flat No.610, 6th Floor, Babukhan Estate, Basheerbagh, Hyderabad-1.

2. Dy. Commissioner of Income-tax Circle 6(1), Hyderabad

3. Commissioner of Income-tax(Appeals) IV Hyderabad

4. Commissioner of Income-tax III, Hyderabad

5. Departmental Representative, ITAT, Hyderabad.

B.V.S