The Income Tax Appellate Tribunal (ITAT), ordered a fresh examination on the consideration that Entire expenses claimed as Compensation and Tenant Payment are not to be capitalized as WIP (Work In Progress).
The assessee, M/s. Champion Dreams did not file its return of income for the year under consideration. It came to the notice of the AO that the assessee has sold two immovable properties for an amount of Rs.81,52,500/- during the year under consideration. Hence the AO reopened the assessment u/s 147 of the Act. In response to the notice issued u/s 148 of the Act, the assessee filed a return of income declaring NIL income. The AO completed the assessment accepting the return of income.
After hearing the assessee, the PCIT held that the assessment order is erroneous and prejudicial to the interests of the revenue in not considering the capitalisation of the amount of Rs.86,40,690/- on account of “Compensation and Tenant Payment” to the value of Work in Progress. Accordingly, the PCIT set aside the assessment order with the direction to pass fresh assessment order.
The assessee has filed the appeal challenging the revision order passed by PCIT and it relates to the assessment year 2011-12. In the grounds of appeal, the assessee is challenging the validity of the revision order passed by PCIT.
The Counsel for the assessee submitted that the assessing officer has reopened the assessment only to examine the taxation of sale of two flats, which has been duly examined, and further submitted that the PCIT has ventured into examining expenses claimed as “Compensation and Tenant Payment”, which was beyond the scope of the re-assessment proceedings. Hence the PCIT could not have made inquiries with regard to an issue, which was not within the scope of re-assessment proceedings at all. Accordingly, the Counsel contended that the impugned revision proceeding is illegal.
The Counsel for the Revenue submitted that the AO has not examined the correctness of the WIP declared by the assessee. He has simply called for details of sales and expenses. In response thereto, the assessee has only furnished the Profit and Loss account. The AO has not discussed anything about the nature of enquiry conducted by him. Hence it is not discernible as to whether the AO has applied his mind or not. Accordingly, submitted that the CIT has rightly initiated revision proceedings u/s 263 of the Act, and hence the order passed by him should be sustained.
The Bench consisting of B.R. Baskaran, Accountant Member and Pavan Kumar Gadale, Judicial Member observed that “We have noticed that the PCIT was not fully correct in holding that the entire expenses claimed as Compensation and Tenant Payment should be capitalised as WIP. Accordingly, we modify the directions given by PCIT and accordingly direct the AO to examine the correctness of computation of “Closing value of WIP” declared by the assessee, as the assessee has already sold two flats out of four flats.”
Ritika Agarwal appeared for the assessee and Ganesh Bare appeared for the Revenue.
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