Income Tax Appellate Tribunal - Lucknow
Yog Builders, Kanpur vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL,
B - BENCH, LUCKNOW.
Before Shri H.L.Karwa, Hon'ble Vice President and
Shri N.K.Saini, Accountant Member
I.T.A.Nos. 318, 319, 320 & 321(LKW.)/2010
A.Ys. : 2002-03, 2003-04, 2004-05 and 2005-06
The Dy.CIT, CC-I, vs. M/s.Yog Builders,
Kanpur. 123/1-F,Kalpi Road,
Kanpur.
PAN AAAFY3499D
(Appellant) (Respondent)
Appellant by : Shri Vivek Mishra, CIT(D.R.)
Respondent by : Shri Ashwani Kumar, C.A. and
Shri Sudhindra Jain, C.A.
O R D E R
PER H.L.KARWA, VICE PRESIDENT These four appeals by the Revenue involving common issue were heard together and are being disposed of by this common order for the sake of convenience. Firstly, we will take up I.T.A.No.318(LKW)/2010,wherein ground No.1 reads as under :
"1. That the CIT(Appeals) erred in holding without any basis that the interim report of the DVO was not a valid report and the AO could not have taken cognizance of the same."
2. Briefly stated, the facts of the case are that a search and seizure operation under Section 132(1) of the Income-tax Act,1961 (In short "the Act") was conducted by the Department on 1st December,2004 at the business and residential premises of Shri Amar Nath Gupta group of cases i.e. Amar Nath Gupta, M/s. Oil Emporium, M/s Yog Builders and M/s. Yog 2 International Pvt. Ltd., 123/F-1, Kalpi Road, Kanpur. During the course of assessment proceedings of the assessee group, certain seized material in form of loose papers, were found relating to M/s.Yog Builders and accordingly notice dated 16.10.2006 u/s 153C of the Act was issued and served on the assessee calling upon the assessee to file its return of total income for the assessment year under consideration. The assessee filed a written reply dated 9.11.2006 stating therein that regular return filed under Section 139(1) of the Act may be treated in compliance to notice u/s 153C of the Act. During the course of assessment proceedings, the AO made the addition of Rs.5,34,445 under the heads unexplained investment in Yog Tower, Civil Lines, Kanpur. The facts noted by the AO, in this connection, read as under :
"09 Unexplained investment in Yog Tower, Civil Lines, Kanpur In order to ascertain the correct value of investment in Yog Tower, a reference u/s 142A of the Income-tax Act, 1961 to the District Valuation Officer was made vide this office letter dated 6.8.2007. Thereafter, the District Valuation Officer, Income-tax department, Kanpur vide his report dated 24.8.2007 has valued the cost of investment, Year-wise break up of cost of investment is as under :
1 Financial Year Asstt. Year Declared cost Assessed cost (Rs.) (Rs.) 1 2001-02 2002-03 1650755 21,85,200 2 2002-03 2003-04 17057145 225,79,900 3 2003-04 2004-05 15265721 2,02,08,400 4 2004-05 2005-06 25819000 3,41,78,600 5 2005-06 2006-07 17207,739 2,27,79,300 6 2006-07 2007-08 40,17,728 53,18,600 During the course of assessment proceedings, the assessee firm vide this office letter dated 24.08.2007 was required to explain the difference between value of declared investment and assessed 3 investment made by the District Valuation Officer along with documentary evidence. In response the assessee has filed a written reply dated 24.08.2007. Primary objections of the assessee are that internal valuation report cannot be taken into cognizance, the changes have been taken place in the flats occupied by the purchasers, no undisclosed investment has been found vis-a-vis the books of account, valuation report on the basis of inspection in FY 2007-08 is relevant for the asstt. Year 2008-09. The report has been filed by the authority not competent to evaluate.
The fact of the matter that it is not a detailed report, cannot be brushed away. The only possibility in the matter is that as and when the detailed report is received it may be provided to the assessee. It will be done so. However, it does not nullify the cost of the construction as assessed by the DVO at Rs.7,91,52,100/- as against cost of construction declared by the assessee at Rs.5,97,92,621/- .
The assessee contention that the valuation on the basis of Inspection in FY 2007-08 is valid for asstt. Year 2008-09 has been taken care of by the DVO and he has separately assessed the cost of construction and the declared amount separately for the FY 2005-06 and FY 2006-07. However, the difference in the assessed cost and the declared amount has to relate to all the years in which the property was constructed. The objections raised are for the sake of objection only and carry no substance. As such the difference in the cost of investment assessed valuation report and the sum as disclosed by the assessee will be added back to the income of the assessee as unexplained investment in the respective years.
Addition Rs.5,34,445."
3. Aggrieved by the above addition, the assessee filed an appeal before the ld.CIT(A). Before, the ld.CIT(A), the assessee took the following line of arguments :
(i) That the inspection of the building is done in F.Y.2007-
08,whereas flats of the said building were sold much prior to the said date of inspection by the DVO, therefore, in the 4 intervening period what addition, renovation, construction or changes in the specifications have been done by the respective flat owners are neither in the knowledge of the assessee firm nor it has any connection with the same, therefore, the inspection is not relevant or the inference drawn on the basis of inspection of building is not relevant for assessment years 2002-03 to 2005-06.
(ii) That the interim report of the DVO relied upon by the AO is neither relevant nor can be used for the purpose of determination of income.
(iii) That unless a detailed valuation report as per the prescribed norms and on the prescribed format is provided to the assessee, the same is meaning less and cannot be objected to or explained with reference to the books of account and other supporting documents of the assessee firm.
(iv) That sketchy calculation purported to be valuation report by the
DVO is untenable in law and on facts and is highly
incompetent to give rise to any valid proceedings under the Act.
(v) That the books of account relating to principal business activities i.e. construction and development of real estate were properly maintained on a day to day basis and no inadvertent information relating to any financial irregularly whatsoever was found in the search operation conducted on 1.12.2004 at 5 the business and residential premises of the partners of the assessee firm. The books of account have not been rejected by the AO and from the assessment order also it will be clear that the difference between actual cost of construction as per books of account of the assessee firm and estimate given in terms of interim report dated 24th August,2007 of the DVO alone has been added in the income of the assessee firm.
(vi) That the cost of construction was fully disclosed in the books of account on day to day basis, which constituted stock in trade for the assessee firm, hence also the requirement for making a valid reference under law was neither fulfilled nor correctly interpreted by the AO.
(vii) That the interim report on the basis of which the addition of Rs.5,34,445 has been arbitrarily worked out and made to the income of the assessee is wholly illegal, because anything like interim report is not known to the law and is not cognizable.
(viii) That the multi-storied residential complex constituted stock-in-
trade and its sale price stands fully documented in which no discrepancy has been found, therefore, also any increase in its cost of construction, can only increase the debit side of the Profit & Loss Account to have the effect of reducing the margin of profit, thus, despite whatever approach had been adopted in the garb of Section 142A, it is not only illegal but also inconsequential.
64. The ld.CIT(A) has decided the issue vide paras 13 and 14 of the impugned order. The ld.CIT(A) has categorically stated that the books of account of the assessee have not been rejected by the AO for the relevant period, which also contain the cost of construction/investment. He further held that there was no adverse material available with the AO in respect of undisclosed investment in the said Project except for the interim valuation report submitted by the DVO. The relevant findings of the ld. CIT(A) are as under :
"13. I have considered the facts and circumstances of the case and the arguments of the appellant as noted above. There is no dispute that the report of DVO based on which addition has been made by the AO is not a detailed valid report as also noted by AO on page 4 para-3 of the assessment order. It is also accepted fact that most of the flats were sold on the date of inspection and some renovation, construction, repairs (whatsoever) cannot be ruled out by the owners of the flats for which appellant cannot be held responsible. This objection of the appellant has neither been addressed by AO nor by the DVO. It is also true that the books of account of the appellant have not been rejected by AO for the relevant period which also contain the cost of construction/investment. There is no adverse material available with the AO in respect of undisclosed investment in the said project except for the interim valuation report which is referred above. Under the circumstances, I find that the addition made by AO on the basis of incomplete/ sketchy valuation report without finding any discrepancy in the books of account in this behalf, is presumptive and contrary to the law. The AO has himself noted that "as and when the detailed report is received it may be provided to the assessee." It clearly shows that there are short comings, lacunas and deficiencies in the valuation report based on which such addition have been made. The decision argued by appellant referred above are also relevant and applicable to the facts of case. It was held that "Unexplained investment - Cost of construction - Addition on basis of report of departmental valuation officer - Claim for spreading amount over several years can be granted only on proof that investment was made in several years - Tribunal rejecting claim - Valuation of 7 asset - Question of fact - Not to be interfered with - Income-tax Act, 1961, S. 69B." [Sakti Tourist Home vs. CIT 308 ITR (Ker.)]. Further it was held that "Assuming but not accepting that some unexplained income has been invested in the construction, the fact remains that the business of the assessee construction. If we add on account of unexplained income in the investment, that will give rise to the cost of the construction and the result will remain the same i.e. "zero". Even otherwise also, this addition has been made on the basis of the Valuation Officer's report. Their Lordships have been considered the issue "whether reference can be made to any Valuation Officer to find out the cost". Their Lordship 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 sections 55(A), 131, 133(6), 142(2) and not for the purpose of finding out the cost. In view of these admitted facts, we answer the question in the affirmative, i.e., in favour of the assessee and against the Revenue". [CIT vs. Star Builders 294 ITR (Guj.)]
14. In view of the facts and for the reasons noted above, I hold that the addition made by AO is suffering from lack of sufficient and appropriate evidence/material for this purpose which otherwise also cannot be made as per law laid down in the above referred decisions. I find that for the reasons enumerated above in para-12 of this order from (a) to (g), as also argued by the appellant, deserve merit. Therefore, considering the facts and circumstances of the case, Ground No. (iii)(a) of appeal is allowed and AO is directed to delete the addition of Rs.5,34,445."
.
5. We have heard the rival submissions and have also perused the materials available on record. In the instant case, the ld.CIT(A) has categorically stated that the report of the DVO based on which addition was made by the AO is not a detailed report as also noted by the AO on page 4 para 3 of the assessment order. We find substance in this submission of Shri Ashwani Kumar, C.A. and Shri Sudhindra Jain, C.A.,ld. Counsels for the assessee that the interim report on the basis of which the addition of 8 Rs.5,34,445 has been arbitrarily worked out and made to the income of the assessee, is wholly illegal, because anything like, interim report, is not known to the law and is not cognizable. Therefore,the ld.CIT(A) has correctly observed that there were shortcomings, lacunas and deficiencies in the valuation report based on which impugned addition has been made. On this score alone the ground of appeal of the Revenue deserves to be rejected. Even otherwise also; the assessee has a strong case in its favour. In this regard, we may observe that the assessee has maintained regular books of account. We find that the cost of construction was fully disclosed in the books of account on day to day basis, which constituted stock-in-trade for the year under consideration. The books of account regularly maintained by the assessee were subject to audit and the Auditors have not given any adverse remarks in the audit report. In the instant case, the AO had not cared to look into the books of account regularly maintained by the assessee. In fact, the AO has not pointed out any specific defect/discrepancy in the books of account regularly maintained by the assessee relating to the cost of construction of the building in question. In our view, the interim valuation report of the DVO is only information and estimate of cost of construction carried on by the assessee and this report also suffers from material defects as pointed out by the ld. CIT(A) in para 13 of the impugned order. A similar issue came up for consideration before this Bench of the Tribunal in the case of Dy.CIT vs. Rohtas Projects Ltd. (2010) 133 TTJ (Lucknow)(UO) 89 and the Tribunal held (Head Note) as under :
" It is true that for the purpose of making addition towards unexplained investment, the AO was under legal obligation to verify the books and vouchers maintained by the assessee in support of the cost of construction shown by the assessee and at the same time, the AO should have pointed out specific defects in the books of account 9 regularly maintained by the assessee. It is seen that the assessee vide its letter dt. 26th March, 1998 has requested the AO to ignore the report of the DVO and proceed with the assessment of actual amount spent duly supported by vouchers/bills as per audited books of account. It seems that the AO had not acceded to the request of the assessee. The AO has made the addition merely on the basis of the valuation report by the DVO. The AO did not care to look into the books of account regularly maintained by the assessee, which were duly supported by bills and vouchers. There is no dispute that the books of account maintained by the assessee were duly audited. In fact, the AO has not pointed out any specific defect/discrepancy in the books of account regularly maintained by the assessee relating to the cost of construction of the building in question. The valuation report of DVO is only information and estimate of cost of construction carried on by the assessee and this report also suffers from material defects as pointed out by the CIT(A) in para 9 of the impugned order. The Revenue has also not pointed out a single instance to show that the assessee has actually incurred expenditure more than that recorded in the books of account. Consequently no addition is called for.- K.K. Seshaiyer vs. CIT (2001) 166 CTR (Mad) 527 : (2000) 246 ITR 351 (Mad) and CIT vs. Hotel Joshi (1999) 157 CTR (Raj) 369: (2000) 242 ITR 478 (Raj) relied on."
5.1 In our view, the decision of this bench of the Tribunal rendered in the case of Rohtas Projects Ltd.(supra) is squarely applicable to the facts of the present case. In that case also the AO made the addition on the basis of report of the DVO and did not care to look into the books of account regularly maintained by the assessee, which were duly supported by bills and vouchers. In that case also, the Revenue has not pointed out a single instance to show that the assessee has actually incurred expenditure more than that recorded in the books of account. Keeping in view those facts, the Tribunal concluded that the valuation report of the DVO is only information and estimate of cost of construction carried on by the assessee; without pointing out any specific defects in the books of account regularly 10 maintained by the assessee, which are duly audited the AO was not justified in making the addition on account of cost of construction merely on the basis of report of DVO. While reaching the above conclusion, the Tribunal has also referred to the decision of the Hon'ble jurisdictional High Court in the case of CIT vs. Meerut Cement Co.(P.) Ltd. (2006) 202 CTR (All.)_ 506 wherein the Hon'ble Allahabad High Court held that the report of the DVO suffered from material defects and the Revenue has not pointed out a single instance of unrecorded expenditure, addition under Section 69B made only on the basis of DVO's report could not be sustained. The Hon'ble jurisdictional High Court also held that if the assessee maintained regular books of account in the regular course of business and necessary entries relating to the expenditure towards cost of construction are entered in the books of account, which are open to verification and its correctness is not doubted, it should be accepted. The Hon'ble High Court further held that in case of doubt, the assessing authority can refer the matter to the Valuation Cell for determination of cost of construction and rely upon such report as an evidence, but it is open to the assessee to challenge the correctness of such valuation report and in case if it establishes that such report is not correct and reliable, expenditure shown in the construction as per the books of account is liable to be accepted.
In view of the above, we do not find any infirmity in the finding of the ld.CIT(A) and therefore, we uphold the order of the ld.CIT(A) on this issue.
6. Ground No.2 of the appeal reads as under :
"2. That the CIT(Appeals) erred in holding that cash credit of rupees ten lakhs introduced in the garb of trade advance was genuine credit and that the creditworthiness and the identity of the creditors was established only by filing copy of return of previous year and 11 PAN."
7. While making the assessment, the AO made the addition of Rs.10 lacs observing as under:
" During the course of assessment proceedings, notices u/s 133(6) dated 18.07.2007 to the above parties were issued requiring them to file copies of their bank account, income-tax return etc. However, neither any party attended nor any reply has been received in this office from these parties. Further, the assessee vide this office letter dated 3.8.2007 was also required to prove the creditworthiness of the parties from whom deposits were taken. In support of this, the assessee contended that it had received a sum of Rs.5,00,000/- from Rajiv Shukla and Rs.5,00,000/- from Ashish Pandey against booking of flats but due to inability of making further payments by the above parties the answering assessee has no option but to refund the money of the said parties. In support of this, the assessee filed affidavits and also copies of Income tax returns. The assessee could give any other concrete evidence in support of creditworthiness of these parties. Further, the copies of return of income filed have been perused and found these pertain to asstt. year 2001-02 with declaration of meager income of around Rs.50,000/-. Also no computation of income was filed along with returns of income and no copies of capital account were filed. No bank account of the parities has been filed by the assessee. Therefore, the contention of the assessee is not accepted.
In view of above, it appears that the depositors were not available at their respective addresses. None of the depositors is residing at the address given by the bank. Registered notices were sent to confirm the existence of the donors but of no use. It is also noticed that all the depositors were having accounts with People Cooperative Bank, Arya Nagar, Kanpur and frequent transfer of funds to each other accounts are noticed. Often cash was deposited in the one of the depositor account which was routed to number of other accounts and from one among the accounts, cheques were issued to the beneficiaries. The accounts were introduced by Shri Manoj Shukla in most of the cases. The address of the Shri Manoj Shukla was also found to be bogus. The cash was introduced in one of the accounts and then routed the same to the different accounts.12
Therefore, in view of above discussion, a sum of Rs.10,00,000/- is considered as unexplained deposits and the same is added to the total income of the assessee."
(Rs.10,00,000) .
8. On appeal, the ld.CIT(A) deleted the addition observing as under :
"9. The AO has forwarded the report in respect of unexplained entries for which addition of Rs.10,00,000/- was made but however no comments have been furnished in respect of said unexplained loan stated to be received from Shri Rajiv Shukla and Shri Ashish Pandey. It seems that the addition was made by AO for want of copy of return and bank account of the lender at the assessment stage. The AO relied on certain general information which is irrelevant to the specific transaction of loan of Rs.10 lakhs between the appellant and Shri Rajiv Shukla and Shri Ashish Pandey. As per the accounts and as per the record, the amount of Rs.10 lakhs has been recorded as advance received against booking of flats for which necessary documents were filed before AO but the addition has been made by AO as unexplained deposit in the hands of the appellant. The AO has doubted the creditworthiness of Mr. Rajiv Shukla and Mr. Ashish Pandey both the depositors. However, it is on record that both these persons were assessed to tax and their PANo. was available with the AO. The absence of a concluding enquiry on the point of creditworthiness does not establish or indicate that they were man without means. It is held in the case of M/s Kamal Motors vs. CIT 131 Taxman (Raj.) that "when the cash creditor is an Income-tax assessee, it cannot be said that he is not a man means". In this particular case, the transactions have taken place through banking channels and the identity of the persons also remains confirmed. Therefore, I do not find a fit case where section 68 can be applicable. It is seen that the appellant has furnished documents which show that Shri Rajiv Shukla and Shri Ashish Pandey had confirmed the transaction of deposit to the appellant, that he was assessed to tax at the time of transaction, and that the said transaction has taken place through banking channel. I find that the addition made by AO is without basis. The appellant has discharged its onus and duly explained the deposits of Rs.10 lakhs from Shri Rajiv Shukla and Ashish Pandey. Considering the legal position in this behalf as laid down in the decision in the case of CIT vs. Orissa Corporation Pvt. Ltd. (1986) 159 ITR page 78(SC)," the 13 AO is directed to delete the addition. Thus, Ground No.(iii)(a) of appeal is allowed."
9. We have heard the rival submissions and have also perused the materials available on record. It is well settled that in order ;to discharge the onus under Section 68 of the act, the assessee must prove the following:
(i) the identity of the creditor,
(ii) the capacity of the creditor to advance money, and
(iii) the genuineness of the transaction.
After the assessee has adduced evidence to establish prima facie the aforesaid, the onus shifts to the department. In our considered opinion, the mere furnishing of particulars, or the mere fact of payment by an account payee cheque or the mere submission of a confirmatory letter by the creditor is, by itself, not enough to shift the onus onto the department although these facts may, alongwith other facts, be relevant in establishing the genuineness of the transaction. Shri Vivek Mishra, ld.CIT(DR) pointed out that in the instant case, the assessee has not established creditworthiness and the identity of the creditors. At this stage, Shri Ashwani Kumar, C.A. and Shri Sudhindra Jain, C.A., ld. Counsels for the assessee agreed that the assessee will produce the creditors before the AO for examination if an opportunity is allowed by the Tribunal. Considering the entire facts and circumstances of the present case, we set aside the order of the ld.CIT(A) on this issue and remand the matter to the file of the AO with a direction to decide the issue afresh in accordance with law after examining the creditors. It is made clear that the assessee is free to adduce evidence before the AO in support of its case. It is needless to say that the AO will give an opportunity of being heard to the assessee.
14I.T.A.Nos.319, 320 and 321(LKW.)/2010
10. The effective common ground no.1 raised by the Revenue in these appeals reads as under :
"1. That the CIT(Appeals) erred in holding without any basis that the interim report of the DVO was not a valid report and the AO could not have taken cognizance of the same."
11. The facts of these years are similar to that of assessment year 2002- 03 except the amounts of addition. The rival submissions are also similar. In that view of the matter, the findings given in I.T.A.No.318(LKW)/2010 in respect of ground no.1 shall apply to the common ground raised in I.T.A.Nos.319, 320 and 321(LKW)/2010 with equal force. Accordingly, we dismiss I.T.A.Nos.319, 320 and 321(LKW)/2010.
12. In the result, I.T.A.No.318(LKW)/2010 is allowed partly for statistical purposes and I.T.A.Nos.319, 320 and 321(LKW) are dismissed.
The order pronounced in the open Court on 6.1.11.
Sd. Sd.
(N.K.Saini) (H.L.Karwa)
ACCOUNTANT MEMBER VICE PRESIDENT
January 6th ,2011.
Copy to the :
1. Appellant 2. Respondent 3. CIT(A) (4) CIT 5.DR.
A.R.,ITAT, Lucknow.
Srivastava.