By TIOL News Service:

NEW DELHI, AUG 26, 2016: THE issue before the Apex Court is - Whether the failure of a builder to disclose the exact size and actual assets of a plot before the commencement of new construction, in its return, consitutes sufficient reasons to believe that income chargeable to tax has escaped assessment, for purpose of invoking Explanation 2(c)(iv) of Section 147. YES IS THE ANSWER.

Facts of the case:

The assessee, a partnership firm, is engaged in the business of construction of buildings and development of real estate. In the year 2000, the assessee firm was engaged in developing two housing projects on a plot of village Kondiwita in Andheri (East) Mumbai. The said plot was acquired by the assessee originally as a capital asset but portion thereof was converted at different points of time into stock-in-trade. Consequent to filing of return by assessee, the same was taken up for scrutiny and a notice u/s 148 was served on the assessee alleging that the assessee's income chargeable to tax for the A.Y 2001-02 has escaped assessment within the meaning of Section 147. Thereafter, an assessment was passed determining the total income at Rs. 12,36,393/- after allowing deduction u/s 80-1B(10). The AO in the reasons for reopening stated that he had found that the assessee had not correctly disclosed the actual assets of the said plot and hence was not entitled for deduction u/s 80(1B)(10). It was noted that the information regarding the actual size of the plot used for the construction was only available in the valuation report and hence the case was covered under Explanation 2(c)(iv) of Section 147.

The Supreme Court has held that,

++ it is seen that in the communication addressed by the assessee to the AO, only the value of the land is stated and in support, a certificate from the registered Architect & Engineer is filed. It is clear from the above that this information was supplied as there was some query about the value of the land. Obviously, while going to this document the AO would examine the value of the land. However, the reason for issuing notice u/s 148 was that the assessee had not correctly disclosed the actual assets of the plot and hence, it was not entitled for deduction u/s 80(1B)(10). The AO itself has mentioned in the notice u/s 148 that such information was available only in the valuation report. Giving the information in this manner shall be of no help to the assessee as the AO was not expected to go through the said information available in the valuation report for the purpose of ascertaining the actual construction of the plot.

++ on the facts of this case, therefore, we find that the Revenue was right in reopening the assessment and the High Court has rightly dismissed the writ petition of the assessee challenging the validity of the reopening notice, by observing that as there was no true disclosure of the exact size of the plot when the new construction commenced, it prima facie cannot be said that there were no reasons to believe. The information was in the annexures and consequently the explanation 2(c)(iv) of Section 147 will apply. The question is whether the assessee considering the size of the plot and part of it having already been developed could claim the benefit u/s 10-1B(10). The issue as to whether the size of the plot of land has to be considered at the time the new construction is being put up or whether the building already constructed including various deductions like R.G. Area, set back had to be considered in computing the size of the plot is an issue which we do not propose to answer at this stage in the exercise of our extra ordinary jurisdiction. Therefore, there seems no merit in this appeal.

(See 2016-TIOL-129-SC-IT)