Income Tax Appellate Tribunal - Panji
Shradha Enterprise,, Rajkot-Gujarat vs The Income Tax Officer, Ward-2(4),, ... on 5 October, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL,
RAJKOT BENCH, RAJKOT
[CONDUCTED THROUGH E-COURT AT AHMEDABAD]
BEFORESHRI S.S. GODARA, JUDICIAL MEMBER
AND SHRI MANISH BORAD, ACCOUNTANT MEMBER
SN ITA AY Appellant Respondent
1 ITA No. 1998-99 ITO, M/s. Shraddha Enterprise,
33/Rjt/2011 Ward 2(4), 32, Ami Apartment,
Rajkot Opp. Girnar Cinema, Rajkot
PAN : AAHFS 4531 K
2 ITA No. 1998-99 Assessee Revenue
42/Rjt/2011
3 ITA No. 1999-00 Assessee Revenue
43/Rjt/2011
4 ITA No. 1999-00 Revenue Assessee
34/Rjt/2011
5 CO No. 1998-99 Assessee Revenue
25/Rjt/2011
(in ITA No.33/Rjt/2011)
6 CO No. 1999-00 Assessee Revenue
26/Rjt/2011
(in ITA No.35/Rjt/2011)
Assessee(s) by : Shri Chetan Agarwal, AR
Revenue by : Smt. Usha N. Shrote, Sr DR
सु न वा ई की ता री ख/ Date of Hearing : 21/09/2017
घोषणा की तारीख / Date of Pronouncement: 05/10/2017
आदे श/O R D E R
PER MANISH BORAD, ACCOUNTANT MEMBER:
ITA Nos. 33 & 42/Rjt/2011 are the cross appeals filed by the Revenue and assessee respectively against the order of the Commissioner of Income-tax (Appeals)-III, Rajkot dated 15.11.2010 for AY1998-99. ITA Nos. 34 & 43/Rjt/2011 are the cross appeals filed by the Revenue and assessee respectively against the order of the Commissioner of Income-tax (Appeals)-III, Rajkot dated 15.11.2010 for AY1999-2000.On receipt of notice in the Revenue's appeal for AYs 1998-99 and 1999-2000, the assessee-respondent has have filed Cross-Objections bearing Nos. 25 & 26/Rjt/2011.Since all these appeals involve ITA Nos. 33,34, 42, 43 & CO 25&25/Rjt/2011 Assessee - Shraddha Enterprise AY 1998-99 & 1999-2000
- 2- common issues, these were heard together and are being disposed of by this consolidated order for the sake of convenience.
2. At the time of hearing before us, the assessee did not press the cross- objections bearing CO Nos. 25 & 26/Rjt/2011; hence, they are dismissed being not pressed.
3. So far as the appeals of the Revenue are concerned, at the outset, the learnedcounsel for the assessee points out that the appeals of the Revenue need to be dismissed on account of low tax effect in view of the CBDT Circular No.21 of 2015 dated 10.12.2015. The learned Departmental Representative fairly admitted that the tax effect is less than the limit prescribed by the aforesaid CBDT Circular.
4. Having heard the rival contentions and having perused the material on record, we find that prima-facie the appeals of the Revenue are not maintainable in view of CBDT Circular No. 21/2015 in F.No.279/Misc. 142/2007-ITJ (Pt) dated 10th December 2015, vide which it has been provided that if the tax effect by virtue of the Commissioner of Income-tax (Appeals)'s order is below Rs. 10 lacs, then that order would not be challenged before the Tribunal in further appeal. The Board has provided exemptions at clause (8) of the Instructions wherein it has been provided that these instructions will not be applicable, if vires of any provisions has been quashed by impugned order or addition was made on some audit objections or the addition relates to undisclosed foreign assets/bank accounts, etc. We find that the present cases do not fall within the exemption clause and the tax is less than Rs.10 lacs. Therefore, the present appeals of the Revenue for AYs 1998-99 and 1999-2000 are not maintainable and hence dismissed.
5. Both appeals of the Revenue are thus dismissed in limine.
ITA Nos. 33,34, 42, 43 & CO 25&25/Rjt/2011 Assessee - Shraddha Enterprise AY 1998-99 & 1999-2000
- 3-
6. Now, the sole issue remains to be adjudicated is with regard to the addition confirmed by the ld. CIT(A) in respect of cost of construction of the property/building u/s 69C of the Act for assessment years 1998-99 and 1999- 2000.
7. Briefly stated, the relevant material facts are that the case of the assessee was re-opened u/s 148 of the Act for the reason that the Revenue had referred the valuation of the property named "Sagar Tower" to the valuation cell of the Department and the DVO had estimated the same at a high figure in respect of the construction cost. The assessee objected the re-opening of the assessment on various counts by making a detailed submission; however, the same did not find any favour with the learned Assessing Officer. He proceeded with re- opening of the assessment and with the help of DVO's report, made an addition of Rs.34,65,454/- in the assessment year 1998-99 and Rs.3,72,732/- in the assessment year 1999-00 being unexplained expenditure under Section 69C of the Act.
8. Aggrieved by the order of the Assessing Officer, assessee went in appeal before the ld. CIT(A), who after considering the submissions of the assessee, restricted the addition to Rs.12,41,579/- and Rs.1,22,980/- for AYs 1998-99 and1999-2000 respectively, after considering the 25% deduction for State PWD rates and the deduction on account of architecture fees etc..
9. Aggrieved by the aforesaid order of the ld. CIT(A), the assessee is further in appeal before us.
10. We have heard the rival contentions, perused the material placed before us and gone through the record carefully. Before us, the ld. Counsel for the ITA Nos. 33,34, 42, 43 & CO 25&25/Rjt/2011 Assessee - Shraddha Enterprise AY 1998-99 & 1999-2000
- 4- assessee pointed out that, for the assessment year 1998-99, the addition made u/s 69C towards cost of construction on the basis of DVO report is allowable as deduction u/s 37(1) as business expenditure. In support of his claim, he placed reliance on the following judgments in this regard:-
i. Krishna Textiles vs. CIT, 310 ITR 227 (Guj) Where the revenue contends that any amount found with another person belongs to assessee, the burden was on revenue to prove that the same by brining proper evidence on record which the revenue has failed to discharged, therefore, addition under section 69C could not be made.
Held : the burden was on the department to show that the money belonged to the assessee by brining proper evidence on record and the assessee could not be expected to call T and N in evidence to help the department to discharge the burden that lay upon it. The Apex Court, therefore, held that there was no evidence on the basis of which the Tribunal could come to the finding that the sum of Rs.1,07,350 was remitted by the assessee and that it represented the undisclosed income of the assessee. [para 14] So far as alternative contention is concerned, we are at pains to observe that the Tribunal has very cursorily dealt with the alternative contention of the assessee. If it is presumed that the payments by demand drafts were made by the assessee to GMDC, then as a natural corollary, further presumption could have been drawn that the said payments were made for purchases of raw materials like coal, lignite etc. It is an admitted position that the assessee was purchasing raw materials from GMDC and various payments were made by the assessee which were duly reflected in the books of accounts of GMDC. The Tribunal has rejected this contention only on the ground that in absence of any evidence, it cannot be presumed that the payments were made for business purposes. There is no relationship other than the business relationship between the assessee and GMDC. The Assessing Officer could have asked GMDC as to on what count, the said payments were made by the assessee. As a matter of fact, it has come on record that in lieu of the said payments, certain materials were dispatched by GMDC through their agents. Thus, there is no doubt about the fact that if the payments are made, such payments are only for business purposes. [para 20] Since there is an admitted position that the assessee was carrying on the business of coal and lignite and purchases were made from time to time from GMDC, in that case, even if any addition is required to be made under Section 69-C, the entire expenditure towards it has to be allowed as a deduction under Section 37(1) of the Act. The arguments canvassed by the ITA Nos. 33,34, 42, 43 & CO 25&25/Rjt/2011 Assessee - Shraddha Enterprise AY 1998-99 & 1999-2000
- 5- learned Standing Counsel appearing for the revenue that if an addition on account of unexplained expenditure is made under Section 69-C, then the fact that deduction could not be allowed under Section 37(1) was obvious and automatic then there was no need of amending Section 69-C by adding the proviso which has come into force w.e.f. 01.04.1999, and is relevant to assessment year 1999-2000 onwards and has not been made retrospective in operation. The assessment year under consideration is admittedly 1987-88 to which the effect of this amendment will not be applicable. Thus, taking into consideration the totality of the facts and circumstances of the case, the revenue authorities are not justified in making and/or confirming the disputed addition in as much as even if the assessee did incur expenditure of Rs. 1,92,261/- in purchasing coal, lignite etc. from GMDC, the equivalent debit in the profit and loss account would neutralize each other and no addition could be made. [para 21] ii. Amit Estate Organizer vs. ITO - in ITA No.414/Ahd/2005 (ITAT, Ahmedabad) He further placed reliance on the judgment of Hon'ble jurisdictional High Court in the case of CIT vs. Star Builders, reported in [2007] 294 ITR 338 (Gujarat), wherein it was held as under:-
"Section 69 of the Income-tax Act, 1961 - Unexplained investments - Reference can be made to Valuation Officer for purpose of sections 55(A), 131, 133(6) and not for purpose of finding out Held that assuming but not accepting that some unexplained income had been invested in the construction, the fact remained that the business of the assessee was construction. If one added on account of unexplained income in the investment, that would give rise to the cost of construction and the result would remain the same i.e., "zero". Even otherwise also, the addition had been made on the basis of the Valuation Officer's report. The Supreme court has considered the issue "whether reference can be made to any Valuation Officer to find out the cost". They have taken the view in the case of Smt. Amiya Bala Paul v. CIT [2003] 262 ITR 407 (SC) that reference can be made to the Valuation Officer for the purpose of Section 55(A), 131, 133(6), 142(2) and not for the purpose of finding out the cost. Therefore, no addition could have been made in the instance case."
ITA Nos. 33,34, 42, 43 & CO 25&25/Rjt/2011 Assessee - Shraddha Enterprise AY 1998-99 & 1999-2000
- 6-
11. In light of above judgements, we have examined the facts of the instant appeal and find that an addition of Rs.12,41,579/- has been confirmed by the ld. CIT(A) for unexplained expenditure under Section 69C of the Act. The question before us is whether, for the year under appeal, the assessee is eligible to claim the impugned amount of unexplained expenditure as deduction against the income from business. We observe that the Revenue Authorities have not disputed this fact that the unexplained expenditure is in relation to the business of construction carried on by the assessee. Further, we find that following proviso to Section 69C of the Act was inserted by the Finance (No. 2) Act, 1998 with effect from 01.04.1999. The proviso "provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.".The proviso referred above has been inserted with effect from 01.04.1999, which clearly means that before this amendment, the assessee was eligible to claim the unexplained expenditure as deduction against the income from business. We, therefore, respectfully following the judgements of the Hon'ble Gujarat High Court in the case of Star Builders and Krishna Textiles (supra) and in the given facts and circumstances of the case, delete the addition of Rs.12,41,579/- and accordingly allow this ground of appeal for Assessment Year 1998-99.
12. With regard to the addition of Rs.3,72,732/- made by the Assessing Officer u/s. 69C of the Act for Assessment Year 1999-2000 on account of unexplained expenditure, the ld. CIT(A) sustained the same to Rs.1,22,980/- by re-worked out the cost of construction at Rs.7,49,255/- instead of the cost of construction estimated by the DVO at Rs.9,99,007/-.
13. At the time of hearing before us, ld. Counsel for the assessee submitted that the books results were accepted by the Assessing Officer for the year under ITA Nos. 33,34, 42, 43 & CO 25&25/Rjt/2011 Assessee - Shraddha Enterprise AY 1998-99 & 1999-2000
- 7- consideration and did not point out any defects in the books of accounts of the assessee. Thus, he pleaded that the reference to the DVO is invalid as the books of accounts were not rejected by the Revenue Authorities. To support his contentions, he also placed reliance on the following judgments:-
i. Sargam Cinema vs. CIT, 328 ITR 513 (SC) "In the present case, we find that the Tribunal decided the matter rightly in favour of the assessee inasmuch as the Tribunal came to the conclusion that the assessing authority could not have referred the matter to the Departmental Valuation Officer (DVO) without the books of account being rejected. In the present case, a categorical finding is recorded by the Tribunal that the books were never rejected. This aspect has not been considered by the High Court. In the circumstances, reliance placed on the report of the DVO was misconceived."
ii. Goodluck Automobiles (P) Ltd vs. ACIT, 359 ITR 306 (Guj.) "12. The facts of the present case may be examined in the light of the statutory scheme discussed hereinabove as well as the decision of the Supreme Court in Sargam Cinema (supra). In this regard, a perusal of the assessment order reveals that the Assessing Officer has categorically recorded a finding to the effect that the accounts are duly audited and complete details are available. From the tenor of the order of the Assessing Officer, it is apparent that he has made the reference to the Valuation Officer merelyto seek expert advice regarding the cost of construction. There nothing in the assessment order to suggest that the Assessing Officer had any doubt regarding the cost of construction or that he was not satisfied regarding the correctness or completeness of the books of account. Before making the referen ce to the Valuation Officer for ascertaining the fair price of construction, theAssessing Officer does not appear to have ascertained the correctness or otherwise of the cost of construction shown by the assessee in its books of account. Thus, prior to making the reference to the Valuation Officer, the Assessing Officer has not ascertained as to what was the defect in the cost of construction disclosed by the assessee in its returns of income. Moreover, itisapparent that the only reason for making the addition under section 69 of the Act is that there is a difference in the cost of construction as determined by the ValuationOfficer and as shown by the assessee. At nostage of the assessment proceedings does the Assessing ITA Nos. 33,34, 42, 43 & CO 25&25/Rjt/2011 Assessee - Shraddha Enterprise AY 1998-99 & 1999-2000
- 8- Officer appear to have mentioned that the books of account are defective orthatthe cost ofconstruction as shown in the booksof account is not thetrue cost of construction. Thus, while making the reference to the Valuation Officer, the Assessing Officer has not recorded any defect in the books of account nor has he rejected the same. Except forthe difference in the estimated cost determined by the Valuation Officer andthe actual cost as shown by the assessee, the Assessing Officer has not brought any material on record to establish that the assessee had made any unaccounted investment in the construction of thebuilding in question and that the books of account do not reflect the correct cost of construction. Under the circumstances, there was no occasion for the Assessing Officer to make a reference to the Valuation Officer. As held by the Supreme Court in the case of Sargam Cinema(supra),unless the books of accounts are rejected, the Assessing Officer cannot make a reference to the Valuation Officer. The reference made to the Valuation Officer, not beingin consonance with the provisions of law, was, therefore, invalid. Accordingly, the report made by the Valuation Officer pursuant tosuch an invalid reference could not have been made the basis for addition under section 69 of the Act."
iii. CIT vs. Vijaykumar D. Gupta, 365 ITR 470 (Guj) "Addition made by AO under Section 69B for unexplained investment in house property on the basis of Valuation Officer's report without rejecting books of assessee was invalid"
14. From the perusal of above judgements, it has been consistently held that the Assessing Authority could not have referred the matter to the DVO without books of accounts being rejected. In the instant appeal, we find from the perusal of the assessment order that the Assessing Authority has not given any finding in order to reject the books of accounts of the assessee. This fact has not been disputed at any stage during the course of proceedings before the lower authorities as well as before us. We, therefore, respectfully following the aforesaid judgements of the Hon'ble Apex Court as well as Hon'ble Gujarat High Court (supra) and in the given facts and circumstances of the case, are of the view that the action of the Assessing Officer of making reference to the ITA Nos. 33,34, 42, 43 & CO 25&25/Rjt/2011 Assessee - Shraddha Enterprise AY 1998-99 & 1999-2000
- 9- DVO is invalid as the books of accounts were not rejected by him. We, therefore, hereby delete the addition of Rs.1,22,980/- for Assessment Year 1999- 2000 also and accordingly allow this ground of appeal of the assessee.
15. In the result, the appeals of the Revenue for both assessment years, i.e. AYs 1998-99 and 1999-2000, are dismissed and that of assessee are allowed; whereas the Cross-objections filed by the assessee are dismissed.
Order pronounced in the Court on 5th October 2017 at Ahmedabad.
Sd/- Sd/-
(S.S. GODARA) (MANISH BORAD)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated, 05/10/2017
आदे श की प्रितिलिप अग्रेिषत/Copy of the Order forwarded to :
1. अपीलाथीर् / The Appellant
2. प्र यथीर् / The Respondent.
3. संबंिधत आयकर आयुक्त / Concerned CIT
4. आयकर आयुक्त (अपील)/ The CIT(A)-
5. िवभागीय प्रितिनिध,आयकर अपीलीय अिधकरण ,राजोकट/DR,ITAT, Rajkot
6. गाडर् फाईल /Guard file.
आदे शानुसार/ BY ORDER, TRUE COPY सहायक पंजीकार (Asstt.Registrar) आयकर अपीलीय अिधकरण ITAT, Rajkot