Income Tax Appellate Tribunal - Pune
Nandu Antram Rajput, Pune vs Assessee on 5 August, 2016
आयकर अपील य अ धकरण, पुणे यायपीठ "बी" पुणे म
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
ी आर. के. पांडा, लेखा सद य एवं ी !वकास अव थी, या#यक सद य के सम$
BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM
आयकर अपील सं. / ITA Nos.1036 to 1041/PN/2014
#नधा&रण वष& / Assessment Years : 2006-07 to 2011-12
Nandu Antram Rajput, .......... अपीलाथ /
S.No.125, Arjun Heights, Appellant
Near Warje Jakat Naka,
Warje, Pune - 411 029
PAN No.AAPPR5684Q
बनाम v/s
DCIT Central Circle-2(3), Pune .......... यथ /
Respondent
अपीलाथ क ओर से / Assessee by : Shri Jayant G. Pendse &
Shri Shantanu Pendse
यथ क ओर से / Revenue by : Shri K.K. Mishra
सन
ु वाई क तार ख / घोषणा क तार ख /
Date of Hearing :08.06.2016 Date of Pronouncement:05.08.2016
आदे श / ORDER
PER R.K.PANDA, AM :
The above batch of 6 appeals filed by the assessee are directed against the common order dated 28-02-2014 of the CIT(A) Central, Pune relating to Assessment Year 2006-07 to 2011-12 respectively. Since common grounds are involved in these appeals, therefore, these were heard together and are being disposed of by this common order.
2. First we take up ITA No.1036/PN/2014 as the lead case. The first issue raised by the assessee in the grounds of appeal relate to the order of the CIT(A) in sustaining the addition of Rs.1,30,31,201/- on account of investment in the bungalow.
2
ITA Nos.1036 to 1041/PN/2014
3. Facts of the case, in brief, are that the assessee is an individual and engaged in the business of Builders and Developers under the name and style of the proprietary concern M/s. Sneha Construction. He had filed his return of income for different assessment years, the details of which are as under :
Asst. Year Date of filing Income Agricultural
of return declared income
2006-07 31-10-2006 1,35,78,686/- 79,020/-
2007-08 31-10-2007 78,37,860/-
2008-09 29-09-2008 46,84,427/-
2009-10 28-09-2009 51,57,660/-
2010-11 06-10-2010 1,22,67,446/-
2011-12 30-09-2011 8,68,48,281/-
4. A search u/s.132 of the Act was conducted in the case of the assessee on 12-10-2010. In response to the notice u/s.153A of the Act the assessee filed the return of income for different assessment years disclosing total income as under:
Asst. Year Date of filing Income Agricultural
of return declared income
2006-07 30-09-2011 1,57,90,687/- 79,020/-
2007-08 30-09-2011 97,18,671/- 59,700/-
2008-09 30-09-2011 1,43,21,943/-
2009-10 30-09-2011 1,27,98,327/- 29,482/-
2010-11 30-09-2011 2,52,20,651/- 29,482/-
5. The AO issued notice u/s.143(2) and notice u/s.142(1) along with questionnaires etc. to which the assessee responded and filed various submissions on different dates. From the various details furnished by the assessee the AO noted that assessee has offered for taxation additional income of different years on account of on-money received from sale of flats/shops. The AO noted that during the course of search action it was noticed that the assessee has made substantial investment in a bungalow at Survey No.302, Manewadi, Khanapur, Sinhagad Road, Taluka Haveli, District Pune.
6. Since the investment was huge and the investment shown in the records was less, the property was valued by hiring the services of an 3 ITA Nos.1036 to 1041/PN/2014 approved valuer during the search itself. The approved valuer Shri Ravindra Bapat gave valuation report according to which the property was valued at Rs.24,82,49,207/- which included the cost of plot at Rs.9,52,87,500/- and cost of construction at Rs.15,29,61,707/-. However, as per the records maintained by the assessee, the investment in bungalow was shown at Rs.3,20,08,627/- as on 31-03- 2010 including the cost of the land. The issue of valuation done by the approved valuer Shri Ravindra Bapat was raised at the time of search. The assessee in his statement recorded u/s.132(4) on 14-10-2010 had disclosed additional income of Rs.9 crores on account of undisclosed investment in the bungalow. As there was an admitted undisclosed investment, a reference was made to the DVO for obtaining the valuation report of the said farm house/bungalow. The DVO-II, Mumbai prepared and submitted an exhaustive valuation report in respect of the above mentioned property by giving the year wise cost of construction, the details of which are as under :
F.Y. Rs. 2005-06 1,70,26,504/- 2006-07 54,91,686/- 2007-08 6,43,49,709/- 2008-09 1,45,91,834/- 2009-10 1,92,19,267/- Total 12,06,79,000/-
7. In the valuation report, the DVO has stated that the following are not included in the estimate :
"(a) the movable items like furniture & fittings, chairs, tables, cots, light fittings, wall handing paintings etc.
(b) The cost of land.
(c) The small structure in memory of the assessee's parents, said to be built prior to start of work.
However, as per the DVO, this report includes the followings 4 ITA Nos.1036 to 1041/PN/2014 The cost of all normal services like Water supply, Sanitary, development works including the retaining walls, guard walls, WBM road, Gate, lawn, water tank, septic tank, mandir, swimming pool, porch, fountains, fixed wardrobes, false ceiling works, internal finishing works, lift, chandelier, generator set etc. & Extra item/Substitute items for richer specifications than normal as covered in the CBDT approved rates etc and plants and equipments as declared/provided details of which are as given in the Annexure."
8. In view of the above report, the AO asked the assessee to explain as to why the difference between the year-wise cost of construction as per the DVOs report and the investment/expenditure shown by the assessee should not be brought to tax as undisclosed income of the assessee. The year-wise difference as noted by the AO is as under :
F.Y. Year-wise Investment/ Difference
Estimated cost of Expenditure shown in the (being excess
construction as accounts by the assessee unaccounted
per DVO's investment made
Valuation Report by the assessee)
2005-06 1,70,26,504 Nil (Since the assessee 1,70,26,604
has shown only the cost
of land, at Rs.45,15,912/-
in the balance sheet)
2006-07 54,91,686 14,56,159 40,35,527
2007-08 6,43,49,709 1,70,66,533 4,72,83,176
2008-09 1,45,91,834 38,73,523 1,07,18,311
2009-10 1,92,19,267 50,96,500 1,41,22,767
Total 12,06,79,000 3,20,08,627 9,31,86,279
9. The assessee in response to the above submitted that :
"1. Rate considered for cost of construction (RCC) is on very higher side. The construction was started in the year 2006, the weight age for the same is not given while calculation of cost of construction. The cost of construction considered while calculation is Rs.2,382/- per sq.ft. You are kindly requested to look into the matter.
2. RCC compound wall structure is valued at Rs.132.33 (93.75+8.40_22.02+8.16) against 65.13, which is almost twice of the Government Registered Valuator Shri S.R. Nimbal.
3. All the specialized items, like stones, painting etc., valuation needs reconsideration; irrespective of fact that bills for the majority items are available the valuation is done on the subjective and/or Market value as on date.
4. Swimming tank and lawn work valuation need a special attention, as these are also coming under specialized items and valued by DVO at higher side.5
ITA Nos.1036 to 1041/PN/2014
5. No deduction/allowance on account of which brought savings in the cost of construction to the assessee by using experience of the assessee himself and his family members and free of cost use of shuttering and construction equipments available with them as they all are engaged in construction and development business activities. Further, the allowance given for supervision work is very less, i.e. only 3%, in normal case it should be at least 15% to 20%. We further demand to reduce the costing on account of architecture fees as assessee is engaged in the construction and development business.
6. The valuation report contains certain additions after the date of search, the same need to be excluded from the valuation."
10. However, the AO was not satisfied with the explanation given by the assessee. He observed that the assessee has not given any basis with supporting documents while raising the objection that the rate considered for cost of construction (RCC) is on the higher side. The assessee has also not given any alternate rate or alternate method for determining the rate for cost of construction. The assessee was present at the time of valuation by the DVO and he has not raised any such issue before the DVO. As regards the objection of the assessee to the value of RCC compound wall structure as per the report of the valuation made by Government Registered valuer Shri S.R. Nimbal is concerned, the AO noted that the basis of the valuation made by Shri S.R. Nimbal is not provided by them. He observed that the assessee has failed to show how the valuation done by DVO is wrong in his objection also. Therefore, there is no merit in his objection. As regards the objection of the assessee regarding the valuation of the specialized items, swimming tank and lawn work valuation is concerned he observed that the objections are very vague, unspecific and general in nature. Further, same are not supported by any documentary evidence. The AO also noted that the assessee has not given any justification with them to prove in respect of the demand that allowance should be given at the rate of 15% to 20% for self supervision work. No scientific and or technical basis for this payment 6 ITA Nos.1036 to 1041/PN/2014 made by them was provided. The assessee has also not specified as to what are the additions made after the date of search which need to be excluded from the valuation. He accordingly rejected various objections raised by the assessee in his letter.
11. The AO further noted that a magnificent bungalow has been constructed by the assessee which was valued by valuer Shri Ravindra Bapat, an approved valuer, according to which the value of the Bungalow was Rs.24,82,49,207/-. The AO further noted that in his statement recorded u/s.132(4) on 14-10-2010 the assessee in response to question No.22 had admitted that the cost of construction of the bungalow is at Rs.12 crores and Rs.9 crores out of the same is unexplained. Thus, the assessee on his own had agreed to disclose additional income of Rs.9 crores under this head. Even as per the valuation report of the DVO, cost of construction of the bungalow is Rs.12,06,79,000/-. Therefore, he noted that there is no merit in assessee's version that the valuation report is wrong. In view of the above, the AO held that the year-wise investment figure worked out by the DVO has to be adopted while determining the undisclosed income of the assessee under this head. Considering the above, the AO made addition of Rs.1,70,26,504/- to the total income of the assessee on account of the difference between the estimated cost of construction as per the DVO's report and the cost shown by the assessee for construction.
12. Similar additions have been made by the AO for different assessment years on account of unexplained investment in the bungalow the details of which are as under :
7
ITA Nos.1036 to 1041/PN/2014 A.Y. Investment as Investment as Difference per DVO per assessee 2006-07 1,70,26,504 -- 1,70,26,504 2007-08 54,91,686 14,56,159 40,35,527 2008-09 6,43,49,709 1,70,66,533 4,72,83,176 2009-10 1,45,91,834 38,73,523 1,07,18,311 2010-11 1,92,19,267 50,96,500 1,41,22,767
13. Before CIT(A) it was submitted that the report prepared by the approved valuer Shri Ravindra Bapat, which was prepared hurriedly and reflected the cost of the construction of the farm house/bungalow at exorbitantly high value of Rs.24,82,49,000/-, was obtained and used by the department to pressurize the assessee to disclose the amount of Rs.9 crores in the statement recorded on 14-10-2010 u/s.132(4) of the I.T. Act. Leading questions were put to the assessee with malicious intent to obtain the required answers although the same were not backed by any corroborative evidence. It was submitted that the AO and the DVO totally ignored the report of M/s. S.R. Nimbal and Associates, Registered Valuer and not even a single word has been mentioned about this report in the assessment orders. As per the report of the said registered valuer which was obtained by the assessee, the value of the bungalow including land was Rs.7.10 crores. It was submitted that it is clear from the report of the DVO itself that the AO did not even forward the said report to the DVO. It was submitted that such rejection of the report of M/s. S.R. Nimbal and Associates was grossly unjustified and this was done because the said report was not satisfying the condition of the I.T. Department as regards to disclosure to be obtained on account of bungalow at Khanapur, i.e. Rs. 9 crores. It was submitted that the AO being a quasi-judicial authority should have followed the principles of natural justice and should have atleast carried out a comparison between the 2 valuation reports when 2 contradicting reports were to be made. It was also brought to the notice of the CIT(A) that no information was 8 ITA Nos.1036 to 1041/PN/2014 provided as to whether the report of M/s. S.R. Nimbal was accepted or rejected.
14. The assessee submitted that the AO had referred the matter to the DVO on 25-04-2012 without intimation to the assessee. Further, many items which have been considered by the DVO in his report were fixed/constructed/developed subsequent to 31-03-2010, i.e. date upto which the DVO has estimated value of construction of the bungalow. The assessee filed various details of bills and vouchers which were incurred on the bungalow/farm house pertaining to the period after 31-03-2010 but taken into account by the DVO as having been invested prior to 31-03-2010. The total of such expenditure was to the tune of Rs.1.89 crores.
15. The assessee further submitted that the DVO used CPWD indices for 1992 instead of CPWD indices of 2007 or 2009 which had become available. It was submitted that the construction was started only in the middle of 2007. Had the DVO used CPWD indices of 2007 then the mathematical error caused because of usage of 1992 indices could have been avoided and the bungalow would have been valued at much lower figure. It was submitted that the assessee being a Builder, Promoter and Developer was able to take advantage of his technical knowledge, knowledge of availability of cheap labour, quality of material, discount on bulk purchases etc. to achieve considerable economy in construction cost. However, the DVO did not take into account all these factors and had allowed 3% as self supervision charges. It was argued that the prices and rates utilized by the DVO are very exorbitant and he has taken the highest market value. It was argued that considering the business of the assessee as Promoter and Developer, and considering his domain knowledge, expertise, contacts 9 ITA Nos.1036 to 1041/PN/2014 etc. self supervision charges should have been granted between 15% to 20%.
16. It was further argued that the DVO had inappropriately used closing balances of construction work in the books of the assessee as the basis for actual work in progress. Further, the DVO did not discuss his findings with the assessee before submitting the same to the AO. It was argued that the AO has mechanically accepted the DVO's report without judicious scrutiny. Before accepting the DVOs valuation, the AO should have cross verified by reference to the source of income unearthed during the search and seizure operation and whether sufficient sources were available to the assessee for making investments in the impugned property to the extent estimated by the DVO. It was argued that the AO has not rejected the assessee's books of account which is a pre-requisite condition of making a reference to the DVO u/s.142A. This shows that he has partly accepted and relied upon the closing balances of work in progress on which basis he has allocated the cost of construction works made out by the DVO and made additions to income for the various assessment years which is not justified. It was submitted that reference to the DVO could not be made without rejecting the books of account. For the above proposition he relied on the decision of Hon'ble Supreme Court in the case of Sargam Cinema Vs. CIT reported in 328 ITR 513 and CIT Vs. Lucknow Public Educational Society reported in 339 ITR 588. Various other decisions were also cited by the assessee before the CIT(A).
17. However, the CIT(A) was not fully satisfied with the arguments advanced by the assessee. After considering the submissions made by the assessee he noted that the DVO has included all costs as per plinth area rates upto the time of valuation, i.e. early 2013 and spread the 10 ITA Nos.1036 to 1041/PN/2014 same over F.Y. 2005-06 to 2009-10. After considering the various details submitted by the assessee he directed the AO to allow deduction to the extent of 5% of the estimated value worked out by the DVO on account of expenditure incurred after 31-03-2010. Thus, he allowed relief of Rs.60,33,950/- on this count. He also directed the AO to grant set off of additional income disclosed in the return filed in response to notice u/s.153A as available to the assessee to explain the source of investment.
18. So far as self supervisions charges is concerned, he directed the AO to increase the same to 6% as against 3% allowed by him. Thus, he rejected all other arguments before him and sustained an amount of Rs.6,52,99,320/- for various years, the details of which are as under:
A.Y. Amount Less: Relief Less: Relief Less : Set off Addition added by AO allowed allowed on for income sustained @3% of account of disclosed in Cost (See Expenditure 153A return Para 12.35) after 31-03- (see para 2010 (see 12.46) Para 12.31) 2005-06 Nil Nil Nil Nil Not Applicable 2006-07 1,70,26,504/- 6,81,900/- 11,02,403/- 22,12,000/- 1,30,31,201/- 2007-08 40,35,527/- 1,61,611/- 2,61,270/- 8,79,000/- 27,33,646/- 2008-09 4,72,83,176/- 18,94,166/- 30,62,230/- 42,70,000/- 3,80,56,780/- 2009-10 1,07,18,311/- 4,29,220/- 6,93,904/- 27,04,667/- 68,90,520/- 2010-11 1,41,22,767/- 5,65,451/- 9,14,143/- 80,55000/- 45,88,173/-
2011-12 Nil Nil Nil Nil Nil Total 9,31,86,285/- 37,32,348/- 60,33,950/- 1,81,20,667/- 6,52,99,320/-
19. Aggrieved with such part relief given by the CIT(A) the assessee is in appeal before us. However, the Revenue has not filed any appeal.
20. The Ld. Counsel for the assessee strongly objected to the order of the CIT(A) in sustaining the addition on account of undisclosed investment in the Bungalow for different assessment years. Referring to the statement of facts and grounds of appeal filed before the Ld.CIT(A) for the A.Y. 2006-07 he submitted that the acquisition of 11 ITA Nos.1036 to 1041/PN/2014 land was going on till 26-03-2006 and the assessee had paid Rs.22,08,656/- in the month of March as Nazarana charges. Without the Nazrana charges construction activity is not permitted. Further the permission was received by the assessee vide letter dated 15-05-
2006, ie. during the F.Y. 2006-07. The plan of building as per the architect was received by the assessee on 7-04-2006. Without the said plan construction activity of the farmhouse/bungalow was not possible. Although the said plans were submitted to the DVO, however he has not considered the same.
21. Referring to Para 12.12 of the order of the CIT(A), the Ld. Counsel for the assessee drew the attention of the Bench to the submission made before the CIT(A) wherein the above facts were narrated. However, he has not considered the same. He submitted that the assessee has started only developing the hilly portion of the land by way of constructing approachable road to reach the top of the hill and levelling the top of the said hill during F.Y.2005-06. However, there was no development work like construction of retaining walls, water coolers, gutters along side of road and other work of levelling of land which started and got finished only in the middle of the year 2007. Referring to Para 12.3 of the said letter he submitted that although all the details were given before the CIT(A), however, he has not considered the same and went by the report of the DVO and thereby sustained the addition of Rs.1,30,30,201/- for the A.Y. 2006-
07. He submitted that the additional income declared for A.Y.2006-07 is sufficient enough to meet the construction of the approach road to reach the hill top and the levelling work etc. which has been carried out towards the fag end of F.Y.2005-06 relevant to A.Y. 2006-07. Therefore, no addition is called for during A.Y.2006-07. 12
ITA Nos.1036 to 1041/PN/2014
22. So far as the addition sustained by the Ld.CIT(A) on the basis of valuation report given by the DVO is concerned, he submitted that there are serious lapses in the said report of the DVO. He submitted that despite the availability of guidelines for valuation of immovable properties in 2009 CPWD rates, the DVO has adopted CPWD indices of 1992. Referring to the comparative table of rates used by the DVO and the rates as per 2009 guidelines, he submitted that if the 2009 rate is adopted, then there is a difference of Rs.1,29,31,475.85. He submitted that although the same was brought to the notice of the Ld.CIT(A), however he rejected the same on the ground that the same is yet to be approved by the CBDT. He submitted that non approval of the CBDT 2007 specifications or 2009 specification cannot be a ground for sustaining the addition when the construction of the farmhouse/bungalow has taken place during the period 2006-07 to 2012-13.
23. He submitted that the DVO inspected the farm house/bungalow on 23-01-2013 and submitted his report on 28-02-2013. At the time of the inspection of the DVO the construction activity was still going on. However, he has given his report regarding the construction of the bungalow upto F.Y. 2009-10 and has considered the construction activity that has taken place till the date of his inspection as constructed during the F.Y. 2005-06 to F.Y.2009-10. He submitted that the expenditure incurred after the date of search till the date of inspection of the bungalow cannot be added as undisclosed investment expenditure during F.Y. 2005-06 to 2009-10. He submitted that although the above points were raised before the Ld.CIT(A) he has simply allowed a relief of 5% of the estimated value on adhoc basis and gave a relief of Rs.60,33,950/- only.
13
ITA Nos.1036 to 1041/PN/2014
24. The Ld. counsel for the assessee submitted that the assessee in his return of income filed in response to notice u/s.153A has disclosed the additional income for different assessment years starting from 2006-07 to 2010-11. He submitted that although the assessee has declared additional income of Rs.3,43,23,198/- for different assessment years the Ld.CIT(A) has given relief of only Rs.1,81,20,667/- as set off for income disclosed in 153A return. He submitted that the assessee has disclosed an amount of Rs.3,43,23,198/- as additional income during the period from 2006-07 to 2010-11 whereas the Ld.CIT(A) has granted set off the amount of Rs.1,81,20,667/- only. Thus, the amount of Rs.1,62,03,531/- remained to be given set off which the Ld.CIT(A) has failed to do. He accordingly submitted that the additional income declared in the return filed in response to notice u/s. 153A should be made available to the assessee to meet the construction of the farm house/bungalow
25. The Ld. Counsel for the assessee submitted that the assessee has maintained proper books of account and has disclosed the investment towards the construction of the farmhouse/bungalow and year-wise investment was shown in the balance sheet. The books of account of the assessee were not rejected. Therefore, the AO could not have made a reference to the DVO without rejecting the book results. For the above proposition, he relied on the following decisions :
1. Sargam Cinema Vs. CIT reported in 328 ITR 513 (SC)
2. CIT Vs. Lucknow Public Educational Society reported in 339 ITR 588 (All)
3. Smt. Tarawati Debi Agarwal Vs. ITO reported in 162 ITR 606 (Cal)
4. CIT Vs. Smt. Suraj Devi reported in 328 ITR 604 (Del)
5. K.P. Varghese Vs. ITO & Another reported in 131 ITR 597
6. Shanti Complex Vs. ITO reported in 63 ITD 181 (Pat)
7. Dr. G. Premalatha Vs. DCIT - ITA No.200/Hyd/2014
8. Smt. Seema Gupta Vs. DCIT - ITA No.1619/Del/2008
9. CIT Vs. Bharat Aluminium Co. Ltd. reported in 303 ITR 256 14 ITA Nos.1036 to 1041/PN/2014
26. Referring to page 158 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the return of income for A.Y. 2011-12 and submitted that the assessee has suo-moto disclosed an amount of Rs.7,20,95,852/- as voluntary disclosure. He submitted that since the construction activity was going on, therefore, it is quite possible that certain expenses remained payable and the assessee can be considered to have paid a part of such expenditure in the subsequent years. The amount disclosed as voluntary disclosure in A.Y.2011-12 also proves that the assessee has paid certain amount in the subsequent year.
27. Referring to following chart the Ld. Counsel for the assessee submitted that there are obvious mistakes in valuation of the property leading to excess valuation.
Sr.No. Particulars Observations Paper book
page reference
1 Sr.No.3 In the description, the dome area is given as 212,213
131.77 sqm whereas for computation, area taken is 182.74 sqmt. Hence the actual cost should be Rs.5,57,277.73 instead of Rs.7,72,838/- (further reduction 32.5% for extra services+ deduction of indexation +5% for interior location). Hence, excess valuation comes as follows:
Particulars As per Actual Excess
DVO Area valuation
Dome Area for 182.74 131.77 50.97
valuation
Basic Value 772,838.00 557,277.73 215,560.27
Add for extra 251,172.35 181,115.26 70,057.09
services @32.5%
Sub Total 1,024,010.35 738,392.99 285,617.36
Add for indexation 3,440,674.78 2,481,000.45 959,674.32
@(336/100)
Add for interior 172,033.74 124,050.02 47,983.72
location @5%
Total Valuation 3,612,708.51 2,605,050.48 1,007,658.04
15
ITA Nos.1036 to 1041/PN/2014
Sr.No. Particulars Observations Paper book
page reference
2 Services Development works including filter water 213 & 200
extra supply, hot water sewer, levelling, storm
water. The area is taken as 22500 sqmt
whereas the DVO observes in summary on
page 200 is 1690.10 sqm. To this may be
added Mandir 52.58 sqm & gate 49.82 sqm
totalling to 1792.0 sqm. At the rate adopted by
DVO of Rs.141.65 the excessive valuation is as
under : (further deduction of indexation +5%
for interior location)
Particulars As per Revised Value Net Effect
DVO
Basic Rate 141.65 141.65 --
Adopted
Area 22,500.00 1,792.00 20,708.00
Value 3,187,125.00 253,836.80 2,933,288.20
Add for indexation 10,708,740.00 852,891.65 9,855,848.35
@(336/100)
Add for interior 535,437.00 42,644.58 492,792.42
location @5%
Total Valuation 11,244,177.00 895,536.23 10,348,640.77
Sr.No. Particulars Observations Paper book
page reference
3 Item RCC Water Tank with capacity of 17,000 litres 223
No.54 @ Rs.10 per lt.
Particulars As per Actual Net Effect
DVO Area
Water tank 17,000 17,000 --
capacity (Litres)
Rate 10 10 --
Value 1,700.00 170,000 1,530,000
Add for 127,500 12,750 114,750
contingencies etc.
@7.5% (item
No.75)
Total Valuation 1,827,500 182,750 1,644,750
Net difference in valuation (total of difference in above items :
1,30,01,048.81
16
ITA Nos.1036 to 1041/PN/2014
28. He submitted that the assessee himself is a Builder/Contractor. He knows where the quality materials are available at cheap rate. Since he is an expert in this line of business, he is expected to know how to construct his own farm house/bungalow at cheap rate. He submitted that the DVO had granted only 3% self supervisions charges which was accepted by the AO. The Ld.CIT(A) enhanced the rate to only 6%. He submitted that when the valuation of construction of building is estimated, the appellate authorities grant self supervision charges ranging from 15% to 20%. However, in the instant case, the same has been allowed only at 6%. (i.e. AO 3% and further relief of 3% by the CIT(A). He accordingly submitted that self supervision charges @15% to 20% may be granted to the assessee.
29. The Ld. Counsel for the assessee submitted that when bills and vouchers for certain high value items were available the DVO was not justified in estimating the cost of construction without giving the benefit of rates of those items. He accordingly submitted that if all these things are considered, then no addition is called for on account of unexplained investment in the construction of the farm house/bungalow at Khanapur, Sinhaghad Panshet Road, Pune.
30. The Ld. Departmental Representative on the other hand heavily relied on the order of CIT(A). He submitted that the Ld.CIT(A) has already granted substantial relief and the Department is not in appeal. Therefore, his order being in consonance with facts and law, the addition should be upheld and the grounds raised by the assessee should be dismissed.
31. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions 17 ITA Nos.1036 to 1041/PN/2014 relied on by the Ld. Counsel for the assessee. We find the assessee in the instant case is a Promoter, Builder and Developer. A search u/s.132 of the I.T Act was conducted in his case on 12-10-2010. During the course of search, it was noticed that the assessee has made substantial investment in farm house/bungalow at Manewadi, Khanapur, Sinhagad Panshet Road, Taluka Haveli, District Pune. At the time of search, the Department hired the services of an approved valuer who valued the bungalow at Rs.24,82,49,207/- which included the cost of plot at Rs.9,52,87,500/- and cost of construction at Rs.15,29,61,707/-. Since the assessee in his balance sheet as on 31-03-2010 has recorded the investment at Rs.3,20,08,627/- the assessee was confronted. The assessee in his statement recorded u/s.132(4) on 14-10-2010 had disclosed additional income of Rs.9 crores on account of undisclosed investment in the bungalow. Subsequently, since the assessee did not honour the disclosure in the returns filed for the A.Y. 2006-07 to 2010-11 the AO made a reference to the DVO for obtaining the valuation report of the farmhouse/bungalow. The DVO gave his report determining the investment by the assessee in the farm house at Rs.12,06,79,000/- from F.Y. 2005-06 to 2009-10. Since the assessee had shown investment of Rs.3,20,08,627 including the cost of land at Rs.45,15,912/-, the AO made addition of Rs.9,31,86,279/- being the difference between the valuation determined by the DVO and the investment declared by the assessee from A.Y. 2006-07 to 2010-11, the details of which are already given at Para 8 of this order.
32. We find before CIT(A) the assessee raised the objection regarding consideration of expenditure incurred after the date of search and before the date of inspection by the DVO for which the Ld.CIT(A) allowed only 5% of the cost of property on estimate as expenditure 18 ITA Nos.1036 to 1041/PN/2014 incurred after the date of search. So far as the objection of the assessee regarding granting of self supervision charges at 3% is concerned, the Ld.CIT(A) allowed the same at 6 %. As regards the objection of the assessee for non granting of set off of the additional income declared in the return filed in response to notice u/s.153A the Ld.CIT(A) granted relief of Rs.1,81,20,667/-. Various other objections of the assessee were rejected by the CIT(A) for which the assessee is an appeal before us. It may be pertinent to mention here that the revenue has not filed any appeal.
33. It is the submission of the Ld. Counsel for the assessee that the AO could not have referred the matter to the DVO without rejecting the books of account. It is also his submission that Ld. CIT(A) is not justified in giving only 5% of the estimated value of the bungalow as expenditure incurred after 31-03-2010 till the date of inspection when assessee had substantial expenditure during that period. Further, it is also the submission of the Ld. counsel for the assessee that the self supervision charges at 6% is very low. Further, it is his submission that the Ld.CIT(A) also is not justified in not granting set off of the entire additional income disclosed in the return u/s.153A. Apart from the above, it is also the submission of the Ld. counsel for the assessee that the DVO's method of valuing the property is erroneous in view of certain glaring computational error and application of the 1992 rates as against 2009 rates available.
34. So far as the argument of the Ld. Counsel for the assessee that the AO could not have referred the matter to the DVO is concerned, we find the said argument is not applicable to the facts of the present case. The various decisions relied on by the Ld. Counsel for the assessee are also distinguishable and not applicable to the facts of the 19 ITA Nos.1036 to 1041/PN/2014 present case. Therefore, the plea of the assessee that the AO could not have referred the matter to the DVO is misplaced under the facts and circumstances of the case.
35. However, we find some force in the argument of the Ld. Counsel for the assessee regarding the manner and method of valuation and the mistakes committed by the DVO and the Ld.CIT(A). There is no dispute to the fact that the assessee in its balance sheet as on 31-03- 2006, a copy of which is placed at paper book page 8 read with page 12, has shown the cost of land at Khanapur at Rs.45,15,912/- and no investment on account of construction of the same has been disclosed. We find before the Ld.CIT(A) the assessee has made the following submission which has been reproduced by the Ld.CIT(A) at para 12.12 of the order:
"2.12 During appellate proceedings, the appellant, vide detailed written submissions dated 31/12/2013 (filed on 23/1/2014) contended as below-
'A. Addition on account of Valuation of Bungalow at Khanapur
1. The appellant and his wife Mrs. Samina Nandu Rajput has purchased 4 hectar 96.1 R (12.25 acre) land at S.No.302B/1 Khanapur Manerwadi Tal. Haveli, Dist. Pune from Mr.Ashokkumar V. Surtwala in the on 03rd August 2000 the said land was 'Ramoshi Vatan' agricultural land. The said land was been released on 15/05/2006 by Haveli Tahasildar's office after charging fees of Rs.21,62,556/- (challan dated 09/03/2006) as per Revenue laws applicable in Maharashtra. Enclosed letter of Tahasildar dated 15/05/2006 and copy of Index II dated 04/08/2000. The said land has around 6 acre road level and around 4.5 acre elevated location and the balance land is unusable. In this manner the appellant incurred a total cost of Rs.41,46,556/- (Rs. 19,84,000/- + Rs.21,62,556/-) on the land.
2. The appellant has started developing the hilly portion of the land by way of constructing approachable road to reach the top of the hill and leveling the top of the said hill in the financial year 2005-06. Further since this development was carried for construction of farm house bungalow along with lawn. Therefore development work like construction of retaining walls, water clearance gutters along side of road and other works of leveling of land was started and it got finished by the middle of the year 2007.
3. Subsequently final architectural plan was prepared on 17/06/2006 and actual work on foundation of the bungalow was commenced in the year of 2008 which is evident from the architect's 20 ITA Nos.1036 to 1041/PN/2014 plan drawn up by Monish Shah & Associates dated 26/07/2008. The said plan has been approved by Grampanchayat Manerwadi Tal Haveli, Dist. Pune on or after 26/07/2008, from which date foundation of bungalow commence. (copy of approved plan is enclosed herewith).
4. The appellate respectfully state that till the actual sanction of Grampanchayat, site development wok was carried out like land development/ levelling, road development and retaining wall construction was in progress and cost incurred up to 31/03/2007 is of Rs.59,72,071/- as per the books of accounts.
5. On 12/10/2010 search and seizure operations were carried at the appellant's residence u/s.132 of the Income Tax Act. At the time of search substantial construction work of the bungalow/farm house was completed. The pending work included fall ceiling work in some room, hand painting work, lift fitting etc.
6. The Income tax Department appointed Mr. Ravindra Bapat a Registered Valuer to estimate the value of the bungalow; who visited the site along with search tea of the Income tax Dept. on 13/10/2010. Subsequently Mr. Ravindra Bapat submitted valuation report certifying the cost of the plot and construction of the farm house / bungalow at Rs,24,82,49,000/- Which was on the basis of many assumptions, limitations etc. The cost was worked out taking into account on the basis of recent transactions for broadly comparable properties in the vicinity and he submitted his report on 18/10/2010 with following note.
"--- The cost incurred is made at the request of the Income Tax Department. Pune and is prepared solely for use of Income Tax Department. We understand that the report will not be copied or released for external circulation without permission of the author. This report has been prepared as per information provided by the department. We have not verified the same with the original documents. No responsibility will be accepted to any third party, who may acquire and choose to make use of or rely on, the whole or any part of the report contents."
It seems that Mr. Bapat himself did not want to be used his report to be used by any external person/authority other than Income Tax Department and the said report was prepared with one visit to site and same was submitted within 5 days from the date of visit. The said report of Mr. Bapat has been used by the search team to obtain and pressurize the appellant to record the statement on 14/10/2010 this fact has been noted by Learned AO page 5 under Para 4.1 of assessment orders for period AY 2006-07 to AY 2010-11 which reads as follows.
"- the issue of valuation done by the approved valuer Shri Bapat was raised at the time of search In view of this the assessee, in his statement recorded on 14/10/2010 disclosed additional income of Rs. 9 crore on account of undisclosed investment in the bungalow.-"
This proves that the appellant was orally pressurized on the basis of Mr. Bapat's report which was exorbitantly highly valued to record additional disclosure of Rs.9 crore from the appellant. 21
ITA Nos.1036 to 1041/PN/2014 Otherwise has the IT Dept. accepted the said report then it would have very difficult to establish the difference between disclosure obtained and valuation of the Mr. Bapat of Rs.3 crore why same was waived off. Hence, said report was not accepted and it was solely utilize to get additional disclosure from the appellant.
7. Further appellant respectfully bring to notice of Your Honour that even questions framed to record the statement of the appellant was with malice and malicious intention and to obtain intended answers to get maximum disclosure from the appellant without having any corroborative evidences.
8. Your honor will notice usage of selective question and answers recorded by the learned AO to complete the assessment in respect of addition to be carried out on account of bungalow. There is also clear proof that the Dept. has recorded statement of the assessee to exploit his ignorance and the circumstances at the same time of search to get predetermined disclosure of Rs.15 crore either from himself or his family members. This fact is on the page No.11 and 12 which are the photo copies of the statement recorded by the search team which are inserted and used in the assessment order for the period from A. Y. 2006-07 to A. Y. 2010-11
9. Subsequent to Mr. Bapat's report and after the closure of search proceeding the appellate was disturbed and puzzled how could he use such huge amount for construction of the farm house/bungalow; as he does not have any other source of income. Hence, he decided to obtain true picture of the cost of the bungalow and he appointed M/s. S.R. Nimbal & Associates Registered Valuer to carry out the valuation of the said bungalow.
10. M/s. S.R. Nimbal & Associates prepared the report on item to item cost basis and by measuring work by usage of counts, measuring tapes weights etc. His report has provided detailed calculations of cement bags, area measurements for painting etc. and also adding 7% contingencies and worked out 7.10 crore as the cost of the bungalow including land. The said report was submitted to learned AO but learned AO and DVO did not accept the same. Further, the learned AO has totally ignored the Registered Valuer report and not even single word was mentioned about this report in the assessment orders.
11. An arbitrary rejection of Register Valuer M/s S. R. Nimbal & Associates report by the learned AO is because of the fact it was not satisfying the objective of the IT Dept. as regards to disclosure to be obtain on account of bungalow at Khanapur i.e Rs.9 crore The appellant respectfully draws your honor's attention to the fact that the learned AO has not even checked whether procedure adopted by the Registered Valuer is proper and reasonable to arrive at appropriate estimate cost of construction of bungalow. Further learned AO at feast should have carried out comparisons between two valuation report as regards to method adopted by Registered Valuer M/s S.R. Nimbal & Associates and learned DVO to appreciate which method provides appropriate calculation of cost of construction. Learned AO being quasi judicial authority, it is imperative upon him to follow rules of natural justice hence, he should have been adopted comparisons of two reports before taxing that amount which is escape from taxation and determine more appropriate estimate of cost of construction of the farm house/bungalow rather than notional amount worked out on the basis of market value of the construction as estimated by learned DVO.
22
ITA Nos.1036 to 1041/PN/2014
12. The learned AO referred the matter to DVO without intimation to appellant. This reference was made on 25/04/2012 which can be confirmed from DVO's valuation report. The appellant was not been provided any information about register valuer S.R. Nimbal report whether same has been accepted or rejected and why the reference to the DVO has been preferred. The DVO himself bring this fact on record on page No.3 stating as follows :
".... As the assessee has not responded to the notice and telephonic contacts, the undersigned proposed for the inspection of the property as there were reminders and pressure from the AO's (and his superiors) side from November onwards to complete the valuation immediately (the reason for sending the reference only in April 2012 to this office by the AO, in spite of having two contradicting reports received by him, i.e. one of Aug 2010 obtained by the department and one submitted by the assessee in 2011 is not known)..."
Further DVO mentioned on page No.4 of his report about AO's action of not forwarding valuation report submitted by the assessee in the following words.
"...The Assessing Officer has forwarded a copy of the valuation report of the Registered Valuer, Shri Ravindra B. Bapat appointed/engaged by the department. However, the details etc. obtained through the assessee/valuer provided as stated by the valuer were not forwarded to this office in spite of repeated requests to the AO (ACIT/DCIT/JCIT). The valuation report submitted by the assessee was also not forwarded to this office....."
This indicates that learned AO desperately and with malafide intention suppressed Registered Valuer M/s. S.R. Nimbal & Associates valuation report. It is clear that the learned AO was polluting the mind of DVO's to get valuation report not to the true fact by providing exorbitantly valued valuation report of Mr. Bapat which report he himself is not believing to be correct because of the methodology adopted by Mr. Bapat and report usage condition stated in the valuation report. As stated herein above and with the cost of repetition the appellate states that Mr. Ravindra Bapat prepared the report in hurry still the learned AO was forwarding the same report and not other report submitted by the appellant.
13. The learned DVO had started work of valuation by visiting the site on 23/01/2013 and submitted report on 28/02/2013. In between he had called the appellant to produce details about title documents of the land, any valuation report and bills of expenditure all of which was submitted by the appellant on 14/01/2013 and 23/01/2013. The appellant draws your kind attention that the appellant only submitted the report of M/s. S.R. Nimbal's report to DVO.
14. The appellant respectfully bring to your honor's kind attention that many items which are considered by DVO in his report were fixed or constructed developed subsequent to 31/03/2010 the day for which DVO has alleged estimate value of construction of the bungalow. The list of the items is annexed herewith which has been carried out subsequent to 31/03/2010.
23
ITA Nos.1036 to 1041/PN/2014
15. The DVO has used CPWD indices of 1992 instead of CPWD available indices of 2007. The learned DVO after estimating the cost of construction on the basis of CPWD indices of 1992 mathematically worked out/calculated/estimated on the basis of weighted average cost indexed value of construction at Rs.12,06,79,000/- under the assumption that the work started from 1/00/2005 and was completed on 31/3/2010. This fact of starting commencement of work is not correct since actual construction work was started in the middle of 2007. As stated here above on the date of visit to the site by DVO the finishing work of bungalow was going on.
16. Had the DVO used CPWD indices of 2007 then mathematical error caused because of usage of indices of 1992 could have been eliminated and cost of bungalow would have been much lesser than actually calculated by DVO. The calculations on the basis of 2007 indices are annexed herewith. Further the DVO's report has gone wrong because of non consideration of work carried out after 31/03/2010 and inappropriately allowing deduction of 3% instead of minimum 20% for the supervision carried out by the appellant (being himself builder and developer and promoted for past 25 years). Further the appellant had taken the advantage of having knowledge of availability of cheap labour and best quality material which was purchased at low cost since he could take advantage of bulk purchase of construction materials. Further the appellant being from Rajasthan he has full knowledge of availability of specialized workers from Rajasthan at low cost. These facts have not been correctly appreciated by the DVO while estimating the cost of construction.
17. The prices and rates utilized by the DVO are very exorbitant and he had taken highest market value as if the learned DVO was carrying out valuation for capital gains and he has forgotten that the reference is u/s.142A with mandate to estimate cost of construction for the purpose to calculate undisclosed income which is always required to be calculated with relation to the cash flow of the person as well as available bills and surrounding area market rates of the construction materials. Further the appellant respectfully states that the appellant being a builder, Developers and contractor and having done construction work on large scale in the surrounding area he has taken the advantages of bulk purchase of construction materials and low cost of labour. Therefore the bungalow cost is much lesser to the appellant than had this bungalow been constructed by any other person than the appellant.
18. Further learned DVO has inappropriately used closing balance of construction work in the books of appellant as base for actual work in progress. In fact when learned AO has rejected books of accounts if at all than such type of usage cant be take and it cannot be considered actual work in progress to spread the cost of construction among the various financial years.
19. The appellant respectfully state that the DVOs report does not show correct and true cost of construction and same was not discussed with the appellant before submitting to learned AO. Learned DVO has not calculated cost of construction on the basis of availability of many other factors to the appellant and the valuation report is not correct to the extent it is back dated calculation as on 31/03/2010 after the approx. 3 years gap. This fact has been recorded by learned DVO in his report that the calculations need to be adjusted for the cost of construction worked out by him; since the same was calculated upto the date of report, i.e. Feb 2013. 24
ITA Nos.1036 to 1041/PN/2014
20. The learned AO has mechanically accepted DVO's report without judiciously scrutinizing whether report reflects correct approximate estimate of actual cost to the appellant. Further the learned AO has intentionally avoided to communicate the appellant before the reference to DVO u/s.142A and this way purposefully he did not give opportunity to the appellant to argue why reference should not be made to the DVO. Further the learned AO has not given chance or not commented on why valuation report submitted by appellant should be considered for the working of cost of construction. The learned AO has not commented on what grounds M/s. S.R. Nimbal & Associates report was not considered and it is very much evident from AO's order that he was happy to get DVO's report of Rs.9 crore additions than the book recorded value and to hush up the matter. Further he has totally misguided and relied on the appellant's statement recorded by the search team which was obtained by misuse of Mr. Bapats report, which in turn has not been relied upon by learned AO. The learned DVO and even Mr. Bapat himself was doubtful about his own calculations because of lack of information and time within which he has estimated cost of construction.
21. The learned AO has not rejected books of accounts of the appellant which is prerequisite condition to make reference u/s.142A to DVO. Further partly he has accepted and relied upon construction closing balances to work out work in progress on which basis he has allocated cost of construction worked by DVO and added the income to appellants return income for the various assessment years. These additions are based upon inappropriate judicious scrutiny and not providing sufficient proper opportunity to the appellant to confront DVO's report and to establish correctness of the valuation report submitted by the appellant.
22. Further the appellant respectfully states that before accepting DVOs valuation report as a base for addition to the returned income of the appellant he should have been found out approximate cash inflow to cross check investments calculated by the DVO and then and then only addition should have been effected. The appellant bring to the your Honors kind notice that all the sources of the income have been surfaced through search by the search team u/s.132. In such circumstance there cannot be presumed that additional sources are left out from the search. Hence, it is necessary to work out cash flow statement on the basis of search data to find out available money to invest in a construction of the bungalow."
36. However, we find despite the above submission before the Ld.CIT(A) he has not deliberated upon on this issue and has gone by the report of the DVO which has been accepted by the AO. Since the submission of the assessee has not been rebutted at any place, therefore, we find merit in the submission of the Ld. Counsel for the assessee that construction activity cannot start until and unless the land is released by the Haveli Tahsildar office. Since the land has been released on 15-05-2006 and the first architectural plan was prepared 25 ITA Nos.1036 to 1041/PN/2014 on 17-06-2006 we find force in the submission of the Ld. counsel for the assessee that construction activity has not started during F.Y. 2005-06 relevant to A.Y.2006-07. Whatever activity has been done is construction of approach road to reach to the top of the hill and levelling the top of the said hill. This in our opinion can be met out of the additional income disclosed in the return of income filed in response to notice u/s.153A for A.Y.2005-06 and 2006-07. Therefore, we are of the considered opinion that Rs.1,30,30,201/- towards construction of the bungalow which the Ld.CIT(A) sustained out of the addition of Rs.1,70,26,504/- made by the AO is uncalled for. We accordingly direct the AO to delete the addition of Rs.1,30,30,201/- from A.Y. 2006-07.
37. Now coming to the argument of the Ld. Counsel for the assessee that the DVO has considered the entire expenditure incurred up to his date of visit on 23-01-2013 as expenditure incurred during the F.Y. 2006-07 to 2009-10 is concerned, we find some force in the same. Admittedly, the search took place on 12-10-2010. The assessee in his balance sheet as on 31-03-2010, a copy of which is placed at paper book page 143 read with page 148 has shown land cost and development expenditure at Rs.3,20,08,627/-. The AO based on the report of the DVO valued the property at Rs.12,06,79,000/- and made the addition of Rs.9,31,86,279/- being the difference between the value declared by the assessee in his balance sheet as on 31-03-2010 and the value determined by the DVO. He has completely ignored the investment made after 31-03-2010 till the date of search and thereafter till the date of visit of the DVO.
38. From the various details furnished by the assessee in the paper book, we find the assessee in his balance sheet as on 31-03-2011, a 26 ITA Nos.1036 to 1041/PN/2014 copy of which is placed at paper book page 161, has disclosed such investment at Rs.7,10,68,339.50 thereby investing further amount of Rs.3,90,59,712/- between 01-04-2010 to 31-03-2011. We find the Ld.CIT(A) has only allowed an amount of Rs.60,33,950/- being 5% of the estimated value of the property. Although the assessee has stated before him that an amount of Rs.1.89 crores was incurred on the farm house/bungalow after 31-03-2010 till the date of search he has rejected the same on the ground that the assessee was unable to adduce any cogent evidence in support of his claim that an amount of Rs.1.89 crores was incurred on the farm house/bungalow.
39. As mentioned earlier, from the details furnished by the assessee in the balance sheet, the assessee has made investment of Rs.3,90,59,712/- between 01-04-2010 to 31-03-2011 as per the balance sheet filed. However, the same cannot be fully allowed under the facts and circumstances of the case. Considering the totality of the facts of the case, benefit of Rs.2,00,00,000/- on estimate on account of expenditure after 31-03-2010 as against Rs.60,33,950/- allowed by the CIT(A) in our opinion will meet the ends of justice. We hold and direct accordingly.
40. Now coming to the amount of self supervision charges, we find the DVO has granted only 3% of the value of the property as self supervision charges which has been enhanced to 6% by the CIT(A). The assessee in the instant case is admittedly engaged in the business of Promoters, Builders and Developers. He is aware of the places where material and labour is available at cheap rate. Therefore, he is most likely to save substantial amount on account of material and labour cost as compared to an ordinary person. The various Benches of the Tribunal are granting self supervision charges varying from 10% 27 ITA Nos.1036 to 1041/PN/2014 to 15%. Considering the fact that the assessee himself is a Builder- cum-Promoter, therefore, he is supposed to have substantial savings on this account. In view of the above, we are of the considered opinion that the relief granted by the CIT(A) on account of self supervision charges at 6% as against 3% allowed by the AO appears to be on the lower side. We are of the considered opinion that self supervision charges at 12.5% of the value of the property determined by the DVO in the instant case will meet the ends of justice. We accordingly direct the AO to allow self supervision charges of Rs.1,50,84,875/- being 12.5% of the estimated value of the property by the DVO at Rs.12,06,79,000/-. Thus the assessee gets relief of Rs.1,14,64,505/- being the difference between the self supervision charges given as per this order and the self supervisions charges granted by the DVO.
41. Further, we find the assessee in his return in response to notice u/s.153A has declared additional income for different assessment years totaling to Rs.3,43,24,198/-, the details of which are as under :
Asst. Year Additional Other income
income
2006-07 22,12,000/- NIL
2007-08 8,79,000/- 10,01,810/- (sale of flat)
2008-09 42,70,000/- 53,67,516/- (Sneha Paradise Profit)
2009-10 49,36,000/- 27,04,667/- Sneha Paradise Profit)
2010-11 80,55,000/- 41,50,245/- Sneha Paradise Profit)
7,47,960/- cancellation charges
2,03,52,000/- 1,39,72,198/-
Total 3,43,24,198/-
42. We find from the order of the CIT(A) at page 53 that he has given set off of only Rs.1,81,21,667/-. We do not find any reason as to why the entire undisclosed income should not be allowed as being available to the assessee to meet the cost of investment towards the farm house/bungalow. There is no material at the disposal of the revenue that the additional income disclosed has been utilised otherwise. 28
ITA Nos.1036 to 1041/PN/2014 Under these circumstances and considering the totality of the facts of the case and considering the fact that the assessee has declared additional income of Rs.3,43,24,198/- during the period from A.Y. 2006-07 to 2010-11 in his returns filed in response to notice u/s.153A the same in our opinion should be available to the assessee for investing in the bungalow. We, therefore, direct the AO to give set off of Rs.3,43,24,198/- as against Rs.1,81,21,667/- allowed by the Ld.CIT(A).
43. So far as the contention of the assessee that the DVO has considered the 1992 rates as against 2007 and 2009 rates which were available in public domain is concerned, we also find some force in the above. Admittedly, the construction of the building has started during the period from 2006-07 which continued till 2010-11 and thereafter. Therefore, adoption of 1992 schedule of rates and multiplying the same by cost inflation index as against the available rate of 2007 or 2009 will give a distorted figure. The Ld. Counsel for the assessee filed a chart showing that because of these faulty method adopted by the DVO, the difference comes to Rs.1,82,41,436/-. However, since the assessee has not maintained any books of account on day-to-day basis towards the investment in the bungalow, therefore, the property has to be valued by following the method of valuation/guidelines issued by various agencies. It is also a fact that the CPWD rates are higher than the local PWD rates. Further, we find some force in the submission of the Ld. Counsel for the assessee that instead of adopting 1992 rates and multiplying the same by cost inflation index the DVO could have adopted the current schedule of rates prescribed by CPWD and brought it down or made suitable adjustments. Since the assessee during the course of search in his statement recorded u/s.132(4) has also made a statement that the investment in the bungalow is about 29 ITA Nos.1036 to 1041/PN/2014 Rs.12 crores, therefore, the valuation report filed by him from a registered valuer under the facts and circumstances of the case cannot be accepted. In view of the various lacunae pointed out by the Ld. Counsel for the assessee due to non adoption of the current schedule of rate and due to some calculation error the report filed by the DVO also cannot be accepted. In our opinion the investment in the property should be computed by reducing the various arithmetical inaccuracies in the report of the DVO and further adjusting the same to the 2007 indices or 2009 schedule of rates as against the 1992 rate adopted by the DVO. The obvious arithmetical errors as pointed by the Ld. Counsel for the assessee, the details of which are already reproduced at Para 27 comes to Rs.1,30,01,048.81. Similarly, the difference due to adoption of 1992 rates as against 2009 guidelines gives a difference of Rs.1,29,31,475/-. Thus, according to the Ld. Counsel for the assessee the differences comes to Rs.2,59,32,523.81 (i.e. Rs.1,30,01,048.81 +1,29,31,475. Since the investment in the property has been estimated in absence of maintenance of proper books of account, therefore, there is bound to be some difference in the estimation. The amount calculated by the Ld. Counsel for the assessee at Rs.2.59 crores cannot be accepted in toto. However, it also cannot be rejected because of certain obvious calculation mistakes and adoption of 1992 schedule of rates. Considering the totality of the facts of the case a further reduction of 20% from the value adopted by the DVO may be allowed to meet the ends of justice. This comes to Rs.2,41,35,800/- as against Rs.2,59,32,523/- calculated by the Ld. Counsel for the assessee. This in our opinion will meet the ends of justice. We hold and direct accordingly.
44. In the light of our above observations, we find the investment in the property can be determined as under :
30
ITA Nos.1036 to 1041/PN/2014 Amount determined by the DVO 12,06,79,000 Less : investment shown by the 2,74,92,715 assessee upto 31-03-2010 (excluding the cost of land 9,31,86,285 Less: set off of additional income as 3,43,24,198 per para 42 of this order 5,88,62,087 Relief on account of expenditure 2,00,00,000 after 31-03-2010 as per para 39 3,88,62,087 Less : Relief on account of self 1,14,64,505 supervision charges as per Para 40 2,73,97,582 Less: Mistakes/Calculation errors as 2,41,35,800 per Para 43 of this order Undisclosed investment to be added 32,61,782 for different years
45. The above amount of undisclosed investment in our opinion has to be apportioned to different assessment years between A.Y. 2007-08 to 2010-11 in the ratio of investment shown by the assessee which is as under :
A.Y. Amt. declared Unexplained investment
by assessee to be sustained finally
2007-08 14,56,159/- 5.30% 1,72,875/-
2008-09 1,70,66,533/- 62.08% 20,24,914/-
2009-10 38,73,523/- 14.08% 4,59,259/-
2010-11 50,96,500/- 18.54% 6,04,734/-
2,74,92,715/- 100 32,61,782/-
46. The AO shall verify the above computation and make suitable adjustment if any calculation mistake is found. He shall restrict the addition as directed. The ground raised by the assessee for A.Y. 2006- 07 is thus allowed and for other years partly allowed as per the table above.
47. The next issue raised by the assessee in the grounds of appeal for A.Yrs. 2006-07, 2008-09 and 2010-11 relate to the order of the CIT(A) in confirming the addition made by the AO u/s.40A(3). 31
ITA Nos.1036 to 1041/PN/2014
48. Facts of the case, in brief, are that the AO during the course of assessment proceedings noted that the assessee has incurred certain expenses in cash for which a set off has been given while computing assessee's undisclosed investment/cash/income. For A.Y. 2006-07, Rs.5,55,000/- is the amount of such cash expenditure which has been allowed while computing his unaccounted income as shown in the chart of year-wise break up of disclosure. For A.Y. 2008-09, Rs.4 lakhs is the amount of such cash expenditure and for A.Y.2010-11 the amount is Rs.7,40,483/-. The AO invoking the provisions of section 40A(3) of the I.T. Act disallowed 20% of such expenditure being Rs.1,11,000/- for A.Y. 2006-07, Rs.4 lakhs for A.Y. 2008-09 and Rs.7,40,483/- for A.Y. 2010-11. The AO further noted that on 19-03- 2013 the assessee has filed a letter dated 18-03-2013 in Tappal contending that undisclosed income disclosed by him for the A.Yrs. 2005-06 to 2009-10 of Rs.2,06,99,420/- has been invested by him in the Khanapur bungalow. He observed that the stand has been taken by the assessee for the first time at the fag end of assessment proceedings. No credible evidence in support of his claim has been given. He further observed that during the course of search no evidence was found to indicate that the cash generated has been invested in the bungalow. The assessee has purchased over 250 acres of land in Srivardhan and has also acquired several other immovable properties. Therefore, the possibility of the assessee using the cash collected for purchase of these immovable properties cannot be ruled out. In absence of any credible evidence the AO rejected the version of the assessee and accordingly made addition u/s.40A(3) as mentioned above.
49. Before the CIT(A) it was submitted that under the provisions of section 40A(3) disallowance can only be made when an assessee incurs 32 ITA Nos.1036 to 1041/PN/2014 expenditure which is otherwise deductible under the other provision of the Act for computing business income and payment in respect of the same has been made otherwise than by account payee cheque or Demand Draft in excess of Rs.20,000/- at one time.
50. However, the CIT(A) was also not convinced with the arguments advanced by the assessee and upheld the disallowance made by the AO. According to him, the proposition that section 40A(3) will have no application where the cash payments were related to unaccounted transactions is no longer acceptable in view of the decision of Hon'ble Gujarat High Court in the case of CIT Vs. Hynoup Food and Oil Industries Ltd. reported in 290 ITR 702, the decision in the case of Hon'ble A.P. High Court in the case of S. Venkata Subba Rao Vs. CIT reported in 173 ITR 340, the decision of Hon'ble Punjab and Haryana Court in the case of CIT Vs. Sai Metal Works reported in 241 CTR 377 and the decision of the Mumbai Bench of the Tribunal in the case of ITO Vs. D.D.Hazare reported in 48 ITD 595 (Bom.) etc.
51. Aggrieved with such order of the CIT(A) the assessee is in appeal before us.
52. The Ld. Counsel for the assessee strongly challenged the order of the CIT(A). Relying on various decisions he submitted that nature of expenditure incurred is capital expenditure and therefore provisions of section 40A(3) are not applicable. Referring to the decision of Hon'ble Madhya Pradesh High Court in the case of CIT Vs. Purshottamlal Tamrakar reported in 270 ITR 314 he submitted that provisions of section 40A(3) cannot be applied where the AO applies net profit rate in computing the income of the assessee.
33
ITA Nos.1036 to 1041/PN/2014
53. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A).
54. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee before completion of the assessment on 28-03-2013 vide his letter dated 18-03-2013 had submitted before the AO that undisclosed income disclosed by him for the A.Yrs. 2005-06 to 2009-10 amounting to Rs.2,06,99,420/- has been invested by him in the Khanapur bungalow. According to the AO, since the stand has been taken by the assessee for the first time at the fag end of the assessment proceedings and since no credible evidence in support of this claim has been given, he rejected the claim of the assessee that no disallowance u/s.40A(3) can be made.
55. It is the submission of the Ld. Counsel for the assessee that the amount involved in question has been invested in the construction of the farm house which is a capital expenditure and therefore provisions of section 40A(3) are not applicable. We find merit in the above submission of the Ld. Counsel for the assessee. In the preceding paragraphs, we have already held that the additional income disclosed by the assessee is available to him for investment in farm house/bungalow. Thus, the expenditure is capital in nature. It has been held in various judicial decisions that provisions of section 40A(3) are not applicable to capital expenditure. Therefore, we hold that the CIT(A) was not justified in confirming the disallowance made by the AO u/s.40A(3) of the I.T. Act. We accordingly set aside the order of the CIT(A) and the grounds raised by the assessee for A.Yrs. 2006-07, 2008-09 and 2010-11 on this issue are allowed.
34
ITA Nos.1036 to 1041/PN/2014
56. The next issue in A.Y. 2011-12 relates to the order of the CIT(A) in confirming the rejection of relief on account of excess disclosure in gold amounting to Rs.37,24,917/-.
57. Facts of the case, in brief, are that during the course of search and seizure in the case of the assessee jewellery valued at Rs.1,65,60,991/- was found out of which jewellery valued at Rs.1,36,61,002/- was seized. The assessee in the return filed for A.Y. 2011-12 has offered an amount of Rs.67 lakhs for taxation on account of disclosure in excess gold ornaments found. Vide letter dated 15-03- 2013 it was submitted that there is excess declaration by approximately Rs.37,24,917/-. According to the AO the said claim was not supported by any documentary evidence and is also very vague and confusing. Further, the same was made at a very later stage of the assessment proceedings for which the AO held that the same cannot be accepted. The AO further noted that at the time of release of jewellery the assessee was asked to reconcile the seized jewellery item- wise. It was submitted by the assessee that item-wise reconciliation is not possible due to departmental valuer not doing item-wise valuation. However, item-wise valuation was done just before the release of jewellery against bank guarantee. With this valuation report the assessee could have done item-wise reconciliation with the purchase bills. However, the same has not been done. He further noted that although the assessee has disclosed an additional income of Rs.67 lakhs during the current year on account of jewellery but still some part of the jewellery stands unexplained. The AO further noted that the fact that cannot be denied is that there may be some excess disclosure during the year on account of bungalow at Kahanpur as major part of the investment has been taxed during the earlier years on account of DVO's report. Keeping in view this fact the AO had not 35 ITA Nos.1036 to 1041/PN/2014 made any separate addition on this head.
58. Before the CIT(A) the assessee submitted that the AO has not appreciated the basic presumption as regards the streedhan of each married female in the family that 500 gms gold ornaments should be allowed as investment not belonging to the assessee. It was submitted that in the assessee's case there are two married ladies, namely wife and daughter in law of the assessee. This way around 1000 gms gold ornaments and jewellery should be treated as received during the marriage time as per the guidelines issued by CBDT. Similarly, 100 gms of gold jewellery per member of the family should be treated as having been received during the time of marriage and cannot be labeled as undisclosed income or unexplained investments. The family chart of the assessee was given which is as under :
Sr.No. Name Relation Qty of Gold
in Gms
A Samina Nandu Rajput Wife 500
B Riya Arjun Rajput Daughter in law 500
C Nandu Antaram Rajput Appellant 100
D Arjun Nandu Rajput Son 100
E Nakul Nandu Rajput Son 100
Total 1300
It was argued that before the AO it was submitted that the minimum amount of above quantity has been received by female members during the course of the marriage. Therefore, the value of such jewellery amounting to Rs.37 lakhs which was inadvertently disclosed in the return for A.Y. 2011-12 should be given credit. It was submitted that the assessee during the course of search proceedings as well as at the time of assessment proceedings has informed to the department that the gold and ornaments belonging to his married daughter were in the custody of the assessee on account of Dasara festival which was concluded 4 days prior to the date of search proceedings. It was 36 ITA Nos.1036 to 1041/PN/2014 accordingly argued that such gold amount belonging to 2 married daughters cannot be included in his account.
59. However, the CIT(A) was not satisfied with the arguments advanced by the assessee and dismissed the ground raised before him on this issue by observing as under :
"53.3 I have given careful consideration to the above contention of the appellant. CBDT Instruction No.1916 dated 11-5-1994 states that in the case of a person not assessed to wealth-tax gold jewellery and ornaments to the extent of 500 gm. per married lady, 250 gm per unmarried lady and 100 gm per male member of the family need not be seized. The relevant of this instruction while completing assessments in search cases has been a matter of dispute. In Nem Chand Daga v. ACIT [2005] 1 SOT 515 (Delhi), ITAT Delhi pointed out that the instruction nowhere states that such jewellery found should be treated as explained and no addition towards the same should be same. The instruction only speaks that ornaments to the extent of 250 gm. In the hands of an unmarried lady and 100 gm. in the case of male person should not be seized. However, in certain other cases including the decision of the Hon. Gujarat High Court in CIT Vs. Ratanlal Vyaparilal Jain [Tax Appeal Nos. 661 & 662 of 2009), it has been held that the benefit of the instruction should be given to the appellant.
53.4 In the present case, however, the claim put forward by the appellant is inadmissible on facts. It is noteworthy that in the present case no addition as such has been made by the AO on account of excess jewellery. What the appellant is seeking to claim is relief out of the income he himself had declared in his return of income as "Disclosure in Excess Gold". In this regard, it is noteworthy that the search action in this case took place on 12/10/2010, the return of income was filed on 30/09/2011, i.e. nearly a year later making the said 'excess disclosure" of jewellery and the same was sought to be withdrawn to the extent of Rs.37,24,917/- vide letter dated 15/03/2013, nearly one and half years after filing the return and about 2 weeks before the end of the limitation period. Under the circumstances, on the very face of facts, I am of the view that the appellant is not entitled to any relied on this ground. Besides, the decision of the Hon. Supreme Court in Goetze India Ltd. Vs. CIT (2006) 284 ITR 323 (SC) is also against him. As such, this ground of appeal is hereby dismissed."
60. Aggrieved with such order of the CIT(A) the assessee is in appeal before us.
61. The Ld. Counsel for the assessee referring to Page 759 of the paper book drew the attention of the Bench to the list/inventory of jewellery found and submitted that the same includes jewellery/gold ornaments of his daughter Shweta V. Bire valued at Rs.19,50,000/-. 37
ITA Nos.1036 to 1041/PN/2014 Further, entire jewellery has been added in the hands of the assessee without giving any credit to the female members of the family. He submitted that the CIT(A) was not justified in summarily rejecting the claim of the assessee merely because he had inadvertently made the declaration. Relying on various decisions he submitted that the Revenue authorities cannot take advantage of the ignorance of the taxpayer.
62. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A).
63. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find in the instant case jewellery valued at Rs.1,65,60,991/- was found at the time of search out of which jewellery valued at Rs.1,36,61,002/- was seized. The assessee in the return filed for the A.Y. 2011-12 has offered an amount of Rs.67 lakhs for taxation on account of disclosure in excess gold ornaments. However, during the course of assessment proceedings, the assessee vide letter dated 15-03-2013 submitted that there is excess declaration of approximately Rs.37,24,917/-. We find the AO rejected the same on the ground that the same was not supported by any documentary evidences and is also very vague and confusing. Further, he held that the letter was filed towards fag end of the completion of assessment proceedings and the assessee has not reconciled the seized jewellery item wise. We find before CIT(A) the assessee requested to allow appropriate relief on account of jewellery belonging to different family members as per CBDT Instruction. However, the CIT(A) rejected the claim of the assessee on the ground that CBDT Instruction No.1916 38 ITA Nos.1036 to 1041/PN/2014 dated 11-05-1994 only states for non seizure of jewellery and instruction does not say that such jewellery found should be treated as explained and no addition towards the same should be made. He further observed that in the instant case the search action took place on 12-10-2010 and the return was filed on 30-09-2011 by making excess disclosure of jewellery. Now the assessee vide letter dated 15-03-2013 cannot make a request for such relief. Relying on the decision of Hon'ble Supreme Court in the case of Goetz India Ltd. reported in 284 ITR 323 he rejected the claim of the assessee. It is the submission of the Ld. Counsel for the assessee that a clear glance at the Panchanama shows that jewellery valued at approximately Rs.19,50,000/- have been shown in the name of his daughter Sweta V. Bire. Further, some relief should have been granted to the different family members in the light of the CBDT Instruction No.1916 dated 11- 05-1994.
64. We find some force in the above arguments of the Ld. Counsel for the assessee. A perusal of the Panchanama, copy of which is placed at page 759 of the paper book, shows that the list/inventory of jewellery shows jewellery/gold ornaments valued at Rs.19,50,000/- in the name of Sweta V. Bire, daughter of the assessee. Further in our opinion some relief should have been granted to the assessee on account of jewellery belonging to different family members in the light of the CBDT Instruction No.1916 dated 11-05-1994. Merely because the assessee has made the claim towards the fag end of the assessment proceedings, the same cannot be a ground to reject the plea of the assessee for giving appropriate relief. The Hon'ble Bombay High Court in the case of Balmukund Acharya Vs. DCIT reported in 310 ITR 310 has held that the Apex Court and the various High Courts have ruled that the authorities under the Act are under an obligation to act in 39 ITA Nos.1036 to 1041/PN/2014 accordance with law. Tax can be collected only as provided under the Act. If any assessee, under a mistake, misconception or on not being properly instructed is over-assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. In view of the above discussion, we restore the issue to the file of the AO with a direction to decide the issue afresh in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. This ground by the assessee is accordingly allowed for statistical purposes.
65. The various other grounds were not pressed by the Ld. Counsel for the assessee. Therefore, these are dismissed as 'not pressed'.
66. In the result, the appeal filed by the assessee for A.Yrs. 2006-07 to 2010-11 are partly allowed and for A.Y. 2011-12 partly allowed for statistical purposes.
Order pronounced in the open court on 05-08-2016.
Sd/- Sd/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे Pune; दनांक Dated : 05th August, 2016. सतीश
आदे श क) *#त,ल!प अ-े!षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. The CIT(A) Central, Pune
4. The CIT Central, Pune
5.
$वभागीय 'त'न(ध, आयकर अपील य अ(धकरण, "बी" पुणे / DR, ITAT, "B" Pune;
6. गाड- फाईल / Guard file.
आदे शानस ु ार/ BY ORDER, // True Copy // // True Copy // //स या$पत 'त //True व/र0ठ 'नजी स(चव / Sr. Private Secretary आयकर अपील य अ(धकरण, पण ु े / ITAT, Pune