Itta/326/2022 Of Principal Commissioner Of Income Tax-4 v. Lanco Hills Technol Park Pvt Ltd

IN THE HIGH COURT FOR THE STATE OF TELANGANAAT HYDERABAD TUESDAY, THE THIRTEENTH DAY OF DECEMBERTWO THOUSAND AND TWENry TWO PRESENT THE HONOURABLE THE CHIEF JUSTICE UJJAL BHUYANANDTHE HONOURABLE SRI JUST]CE C.V. BHASKAR REDDY INCOME TAX TRIBUNAL APPEAL NO: 326 OF 2022 Appeal under section 260A of the lncome Tax Act, 1961 againstthe order dated 07-09-2021 in |.T.A.No.1021l{ydl2019 forA.Y.No.2010-1 1 on the file of the lncome Tax Appellate TribunalHyderabad ["A" ]Bench, Hyderabad preferred against the order dated30-03-20 1 9 in Appea I No. 1 0'l 69i 1 7-1 SiAC lT, Cir-1 6( I )/C lT(A)-al Hyd I 1 8-19 on the file of the Commissioner of l*come Tax (Appeals) 4,Hyderabad preferred against the order of the Deputy Commissioner oflncome Tax, Circle-16('1), Hyderabad dated 27-12-2012 in PAN/GIRNo.AABCL122BR Between: Principal Commissioner of lncome Tax4, Hyderabad ...APPELLANT ANDLanco Hills Technol Park Pvt Ltd, LANCO House, Plot No.4 SoftwareUnits Layout, Hitechcity, Hyderabad ...RESPONDENT Counsel for the Appellant: SRl. J V PRASAD (SC FOR INCOME TAX)Counsel forthe Respondent: NONE APPEAREDThe Court delivered the following: JUDGMENTCounsel forthe Respondent: NONE APPEAREDThe Court delivered the following: JUDGMENT THE H: II'ttLE'I'HE C]{I]'F JUSTICE UJJAL BHIIYANAND THE TI)TI'BLE I;RI .TIIS'IICE C.V.BHASKAR REDDY LI' T.,1. Yci.326 of 2022 JUDGMENT: l; (. | [( ]rlon'),ie rh? [( ]1t, [' ]Justbe Ujjal Bhugai) Heard I\Ir J.V.Pras.rd, learned Standing Counsel forIncome Ta-x I)e'l,rlrtment appearing for the appellant. 2. This a1,per-1 ha.s br:,:r preferred by the revenue as theappellant unc r:r Section 260A of the Income Tax Act, 1961(briefly,'the Act'hereinalter) against the order dated07.O9.2O21 r:ss;ed by tht: Income Tax Appellate Tribunal,Hyderabad ['A' ]Ben,:h, Hyderabad (Tribunal)LNI.T.A.No.1O2L tLlyd/201'l br the assessment yea-r 2010-11. 3. Appellar.". has prop,rsed the following questions ilssubstantial c ri,:r;tions of lau, l. Wbether on the fzLcts and in the circumstances ofthe case h,: Tribuna.l is <:orrect in upholding the ordersof the Cc,rrnr ssioner of Income Tax (Appeals) - 4? 2. Whether inforrniLtion devoid of corroborativeevidence ru-rrl supporting documents constitute true andfull disclr;::': for t]-e Durpose of Section 147 of the Act? 3. Whether on the facts and in the circumstances ofthe case, the Tribunal is correct in not considering thefact that full details of tancellation & price revision'were not disclosed by the assessee during the originalassessment proceedings and therefore there rvas failureon ttre part of the assessee to fully arrd truly disclose allmaterial facts for completion of assessment? 4. Respondent before us is an assessee under the Act.It is a private limited company engaged in the business ofdevelopment and sale of office space, residential buildings,commercial complexes etc. For the assessment year2010-11, it had filed return of income on 25.09.2010admitting loss of Rs.29,24,79,084.00 after setting off longterm capital gain of Rs.3,85,41,685.00. Subsequentlyrespondent fiied revised return of income on 27 .O9.2Olldeclaring higher loss of Rs.36,03,42,295.00 after setting offlong term capital gain of Rs.3,85,41,685.00. Assessingofficer passed the assessment order on 27.12.2012 underSection 143(3) of the Act accepting the loss returned on25.O9.2010. 5. Later on, case of the respondent was reopened underSection 747 of the Act by issuing notice under Section 148dated 31.03.2016. Following the laid down procedure, /, assessinfl of l:('r complo,('cl the assessment on 27.11.2017under Sectiorr 143(3) rt-'aC with Section 147 of the Act bydisallowing tlrr: claim of Rs. I 13,19,93,808.00 towardsdebiting to t r e profit iir lo ss account due to reversal onaccount of c a rrr r:llation etnd price revision. It was held thatthe same wE s not an accept.able method of revenue reversalard was acccrdingly disallowed by adding the same back tothe returnec lr,lome. 5. Later on, case of the respondent was reopened underSection 747 of the Act by issuing notice under Section 148dated 31.03.2016. Following the laid down procedure, /, assessinfl of l:('r complo,('cl the assessment on 27.11.2017under Sectiorr 143(3) rt-'aC with Section 147 of the Act bydisallowing tlrr: claim of Rs. I 13,19,93,808.00 towardsdebiting to t r e profit iir lo ss account due to reversal onaccount of c a rrr r:llation etnd price revision. It was held thatthe same wE s not an accept.able method of revenue reversalard was acccrdingly disallowed by adding the same back tothe returnec lr,lome. 6. Aggrie',r:l by the rlbresaid order dated 27.1I.2017,respondent tr r'r l'erred a-ppeal before the Commissioner ofIncome Tax tf.rpeals) 1, Hyderabad (briefly referred tohereinafter as 'CIT (A)'t. By the appellate order dated30.03.2019, -lll' (A) allcvred the appeal of the respondentboth on teclLrrir:rrl ground s as well as on merit. It was heldthat action c. the a.srressing officer in reopening ofassessment i;irs bad trL law; so also the addition ofRs.113,19,93,8()8.00 rnzde on account of reversal ofrevenue dut lc price rr:rr sion/cancellation. The sarne wasaccordingly lirr:cted to be deleted. It was held as follows:"8.9 F r rnr the abo'.,c analysis it is clear that ttreappella;rr hts reverscrl the revenue to the extent ofRs.4O.75 cr',)res on ac()ount of price revision which is forming part of ea-rlier years revenue recognition to thatextent has tabulated below:extent has tabulated below: This proves that to this extent it was already recognizedby adopting original value of contract as existing in theAY 2008-09 when the real estate market was in upwardswing. Now, the price being revised during the pendingof the project before {inal conclusion of the sale, therevised price needs to be adopted to arrive at relevantrevenues recognition as applicable to reievantassessment years. Considering this fact the sameamount as applicable for reversal on account of offeringthe same as income the same needs to be reversed tothe extent to reflect the true incomes of the appellant asqualified in tlae auditor report of this assessment year2010-11. Hence, the price revision ellect stands dulycorected in this assessment year as applicable asprudent accounting norrns for arriving at correct pictureof income and expenditure of the appellant as perpercentage completion method. Hence, the appellantclaim on merits on this issue of price revisionadjustments as made in P&L Account is [justifred ]andhence, the qrounds raised in this resa-rd are allowed 9 . Further, on t]e issue of cancellation, it lsnoticeable that appellant strongly contends the case ofcancellations where the relevant buyers could notproceed further due to economic recession prevailingcancellations where the relevant buyers could notproceed further due to economic recession prevailing 9 . Further, on t]e issue of cancellation, it lsnoticeable that appellant strongly contends the case ofcancellations where the relevant buyers could notproceed further due to economic recession prevailingcancellations where the relevant buyers could notproceed further due to economic recession prevailing during t re periocl anc brcing the cancellations. On thisissue th: ^.O [-*'zrs ]c f -h,: view that such cancellationswould r :n :ht tJle a14rr:ii;rnt. These observations of theAO are r ot based on fact. It is a known fact in'zr'rifiable the reel [,rs,1:ate ]business during the times of recessionmost c f tlre custonlers would like to tal<e back theadvanc:; 1(| tfre ext,:n - possible and even in few caseswith intt lest on the advances given to the appellant. Insuch a sc,:nario it vrc,uld be improper to hold to theextrem,: rirrr that cancellations will result in forfeiture ofadvanc: ; r:aking no [c ss to the appellant. To maintainthe repatai.ion of the S rilder in the real estate market, itis a r [( ]rnlal practjc:e to instil conlidence in manyinstan( e s :alceilation,; are accepted by returning theadvanc: i t. the extent possible so as to attract at leastnew cL s.tcners for si:le of remaining unsold/calcelledflats int:,le trest interest of appellalt reputation. In viewof th,::.t: facts, 1le appellarrt contentions oncancell,r io':s that adr.ances received have been admittedin ear l er yea,rs strrnds reconcilable and seemsreasoni Ll ,le. The Atl has not brought on record anyadversr rnrtings on tn s issue contrary to the claims ofappella n : iuring the original assessment or at leastduring t t'e re-visite<l assessment which clearly provesthat n<, srp t:cific linrlin gs countering the claims of theappella:: [.,rere ]made by [t}re ]AO. Hence, on the similararlalysi r of accounting as above as in the issue of pricerevisior, llL,: effect of <:alcellation needs to be reversedin this rLssu:ssment y.ea-r: to that extent to reflect trueincome i:rri expendil"ur e of appellant for tJ.e year underappeal €Ls a goir 6l concern following percentagecomple'i ra nethod. r\,:cordingly, appellant succeeds onthese g-rrrrrds for rele,rue reversal involving cancellationadjustn rr:nls; to the [(-.):tent ]of Rs.72.43 crores. As a result, the appellant grounds of appeal on this issue a-reallowed on merits notwithstanding technical grounds onwhich appeal was allowed above. To sum up, the AO'saction in reopening of assessment was bad in 1aw andalso the addition of Rs. 113, i9,93,8O8/- made onaccount of reversal of revenue on account of pricerevision/cancellation is not correct and hence directedto be deleted." 7. Revenue preferred appeal before the Tribunal againstthe aforesaid order of CIT(A) dated 30.03.2019. By theorder dated O7.O9.2O27, Tribunal dismissed the appeal ofthe revenue by upholding the order of CIT(A). Tribunalheld as follows: "4. We have heard rival pleadings and perused thecase file. We note first of all that the Assessing Oflicerrecorded the following reasons for forming his opinionthat the assessee's taxable income had escapedassessment:"it is gattered from tte information auailable uith thisoffice tlnt fhe assessee uas debited an amount ofRs.113,19,93,808/ - toutards 'Reuersal on account ofcancellation and pice reuisiory and finallg reported abook loss of Rs.38,28,51,371/ -. The reduction ofRs.113,19,93,828/ - toutards Reuersal on account ofcancellation and pice reuision from the Profit and LossAccount for tle gear ended 31.03.2O10 is irregular, thesam.e need to be brought to tax. In uieut of the aboue, Ih-aue reason to belieue that income has escapedassessmen, as per the prouisions of section 147 of the ITAct." "4. We have heard rival pleadings and perused thecase file. We note first of all that the Assessing Oflicerrecorded the following reasons for forming his opinionthat the assessee's taxable income had escapedassessment:"it is gattered from tte information auailable uith thisoffice tlnt fhe assessee uas debited an amount ofRs.113,19,93,808/ - toutards 'Reuersal on account ofcancellation and pice reuisiory and finallg reported abook loss of Rs.38,28,51,371/ -. The reduction ofRs.113,19,93,828/ - toutards Reuersal on account ofcancellation and pice reuision from the Profit and LossAccount for tle gear ended 31.03.2O10 is irregular, thesam.e need to be brought to tax. In uieut of the aboue, Ih-aue reason to belieue that income has escapedassessmen, as per the prouisions of section 147 of the ITAct." 5. "i.,:rt, is hardll' any dispute that we are rnAssessln:nt Year 20 ttl [.1 ]1 wherein the Assessing Offrcerhad frrr ie,l his sec',ion 143(3) regular assessment on27.12.i( )': followerl b1, recording of the foregoingreasonri t t Jminating in issuance of section 148 noticed1.31.3.: t).5. This unpugned reopening therefore hasbeen ir iJated beyond the specified period of four yearsfrom tl r e rd of the relevant assessment year in light ofsection l4i(1) 1st pro/iso. The said proviso stipulatesthat s1r( h ,t reopenrnll rvould only be initiated if it isfound trat the asser;see had not disclosed all therelevart p rticulars "ftrlly" and "tru$ before theAssessrrll Officer in the first round. Leamed CIT-DR todisputr t1L at the l\sr;essing OIlicer's sole reopeningreason 1.rr.., placed rr:lizrnce on the assessee's books onlyregardin g [':'eversa1 ][(ur ]account of cancellation and pricerevision isupra)'. We therefore quote Honble BombayHigh Oou'-'s landma-k decision in Hindustal LeverLimiterl ['"/r; ]R.B. Wacekar (20l4l 268 ITR 332 (Bom)that aJ [q.ssessing ]Oflir:er's reopening reasons have to beread orr standalone basrs; as it is, without any scope offurther rn:rovement at a later stage by way of addition,deletio:r [,rr ]substitution therein. We thus quote that toconclul: lhat the impugned reopening has been rightlyquasher by the CIT(A) as a mere change of opinion only.A11 thit r:rLlers the latier issue on merits as academic.Nc, ,rther argumlnt has been pressed before us." 8. Thus, aLcr:ording t,c, the Tribunal, the reopening wasinitiated bel orrC the spe,:ified period of four years from theend of the r-r levant assessment year. In the light of Section 147(1) first proviso of the Act, Tribunal further noted thatreopening of assessment is only permissible if the assesseehad not disclosed a-11 the relevant particulars fuliy ald trulyreopening of assessment is only permissible if the assesseehad not disclosed a-11 the relevant particulars fuliy ald trulybefore the assessing officer. Relying on a decision of theBombay High Court in Hindustan Lever Limited vR.B.Wadekar1, Tribunal held that assessing officer'sreopening reasons have to be read on a staldalone basis,without any scope for further improvement at a later stageby addition or deletion or substitution. Therefore, Tribunalheld that CIT(A) was justified1n taking the view thatreopening of assessment was on account of mere change ofopln1on.Bombay High Court in Hindustan Lever Limited vR.B.Wadekar1, Tribunal held that assessing officer'sreopening reasons have to be read on a staldalone basis,without any scope for further improvement at a later stageby addition or deletion or substitution. Therefore, Tribunalheld that CIT(A) was justified1n taking the view thatreopening of assessment was on account of mere change ofopln1on. 9. We are in agreement with the views expressed by theTribunal. 10. The fact that the reopening of assessment wasordered on mere change of opinion has been upheld by twolower appellate authorities. It is evident that respondenthad disclosed fully and truly all material facts to theassessing officer during the assessment proceeding on thebasis of which assessment order dated 27.12.2012 was' [(2014) 26a ] [332 ][(Bom)] \ 9. We are in agreement with the views expressed by theTribunal. 10. The fact that the reopening of assessment wasordered on mere change of opinion has been upheld by twolower appellate authorities. It is evident that respondenthad disclosed fully and truly all material facts to theassessing officer during the assessment proceeding on thebasis of which assessment order dated 27.12.2012 was' [(2014) 26a ] [332 ][(Bom)] \ passed under liection 1+3(3) of the Act. By change ofopinion hoJc in11 that re duction of Rs.1 13,19,93,808.00towards rer r l'," ill or1 ;(r()o unt of cancellation and pricerevlslon an( rlt:Cucting tlre same from the profit and lossaccount was :-rt:gula. 111s1r:b1l having reason to believe thattaxable incr,r r e had escaped assessment, the concludedassessment cc,r"Lld not have been reopened. At the stage ofthird round ol appeal rve do not find any substantialopinion hoJc in11 that re duction of Rs.1 13,19,93,808.00towards rer r l'," ill or1 ;(r()o unt of cancellation and pricerevlslon an( rlt:Cucting tlre same from the profit and lossaccount was :-rt:gula. 111s1r:b1l having reason to believe thattaxable incr,r r e had escaped assessment, the concludedassessment cc,r"Lld not have been reopened. At the stage ofthird round ol appeal rve do not find any substantialquestion of lrru lor inte:]'erence by the High Court underSection 26Ot\ ctl the Act. 0,fc are, therefore, of the view thatthere is no nr()rjt in this a1rpeal.there is no nr()rjt in this a1rpeal. 11. Appeal rs. :ccordingl,, dismissed. Miscellanr,,rus appl ciLtions pending, if any, shall stand closed. F: rrwever, there shall be no order as to costs. I I HIGH COUII I' DATED:13,' Zt202Z JUDGMENI lTTA.No.3Z$ oI2022 DISMISSINIG I rI= ITTA 't)i5 9TATE O'a'1$I_l>oC)r1[I\\].a!,'4-\,/1,/\