ITAT deletes Additions u/s 68 and 69C and expunges direction given by CIT(A) to AO to Reopen Assessment of earlier year [Read Order]

The Income Tax Appellate Tribunal (ITAT), Lucknow Bench, has deleted the addition made u/s 69C and 68 of the Act.

The assessee firm, M/s Sahara City Homes- Bareilly, engaged in the business of construction and development of the township, real estate, etc, was formed in A.Y. 2011-12. M/s. Sahara Prime City Limited (SPCL) who was one of the partners, contributed WIP to the firm. The firm also acquired WIP from Sahara India Commercial Corporation Ltd. (SICCL) vide MOU dated 30.03.2011. In addition, certain customer advances and other items were also acquired. The Assessing Officer made an addition u/s 69C of the Act in A.Y. 2012-13 which comprised of the WIP acquired in the last year and addition made during the year on the ground that valuation report of WIP has not been obtained. The Assessing Officer also made addition u/s 68 of the Act in respect of other items. The assessee furnished complete details of the acquisition of WIP before CIT(A). The CIT(A) called for a remand report.

The Assessing Officer, in the remand report, did not draw any adverse inference in respect of the details furnished by the assessee. However, the CIT(A) did not agree with the remand report observing that the valuation report of WIP was not obtained, and directed the Assessing Officer to send a fresh remand report after obtaining a valuation from DVO. The Assessing Officer in the second remand report stated that valuation by DVO could not be carried out because of the non-co-operation of the assessee. The CIT(A) upheld all the additions made by the Assessing Officer and also directed the Assessing Officer to issue notice u/s 148 of the Act for A.Y. 2011-12.  

The Hon’ble Tribunal consisting of Shri A. D. Jain, Vice President, and T. S. Kapoor, AM, examined all the documents filed by the assessee and concluded that the price of WIP was fixed as per the MOU, and as per the said MOU, valuation of WIP was not mandatory. Hence, the observation of CIT(A) is incorrect. In any case, it is beyond comprehension as to how addition can be made u/s 69C of the Act if the party does not carry out the valuation. ITAT further held that the assessee has filed all the evidence including financials in support of the amount of WIP which have not been controverted by lower authorities. ITAT further noted that assessment orders u/s 143(3) of the Act were passed in the case of SICCL and SPCL for A.Y. 2011-12 wherein the transfer of WIP and other items from these entities to the assessee was accepted. In any case, no addition u/s 69C can be made in respect of the opening balance of WIP since the said assets were not received in the current year. With regard to the addition made to WIP during the year also, complete details were filed by the assessee which has not to be controverted by the lower authorities. ITAT further held, relying on a plethora of judicial pronouncements, that the direction given by CIT(A) to reopen A.Y. 2011-12 is not correct and contrary to the provisions of law. The CIT(A) has to decide the matter only relating to the assessment year before him and has no power to give direction for any other year. ITAT further held that having confirmed the addition in A.Y. 2012-13, the CIT(A) could not have come to the conclusion that the same income has escaped assessment in A.Y. 2011-12.

The coram headed by the Vice President A.D.Jain and Accountant Member, T.S.Kapoor has deleted the addition u/s 69C and 68 of the Act and held that the direction issued by the CIT(A) to the Assessing Officer to reopen the assessment for Assessment Year 2011-12 is held to be unsustainable and is hereby expunged.

To Read the full text of the Order CLICK HERE

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