Income Tax Appellate Tribunal - Hyderabad
M/S. Legend Estates (P) Limited, ... vs Department Of Income Tax on 6 December, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA Nos. 1265 & 1266/HYD/2012
Assessment Years: 2006-07 and 2007-08
Dy. Commissioner of Income-tax, ... Appellant
Circle - 16(1), Hyderabad.
Vs.
Legend Estates (P) Ltd., ...Respondent
Hyderabad.
(PAN - AAACL9640A)
Appellant by : Shri M.H. Naik
Respondent by : Shri A.V. Raghuram
Date of Hearing : 06/12/2012
Date of Pronouncement : 20/12/2012
ORDER
PER ASHA VIJAYARAGHAVAN, J.M.:
Both these appeals preferred by the Revenue are directed against the respective orders of the CIT(A)-V, Hyderabad, for the assessment years 2006-07 and 2007-08.
ITA NO. 1265/Hyd/2012
2. Briefly the facts of the case are that the assessee company is engaged in the business of construction and sale of residential flats. For the year under consideration, the assessee filed its return of income on 29/11/2006 admitting total income of Rs. 1,70,37,229/-. Original assessment u/s 143(3) of the Act was completed on 2 ITA NOs. 1265 & 1266/Hyd/2012 M/s Legend Estates (P) Ltd.
31/12/2008 determining the total income of the assessee at Rs. 1,90,48,117/-. Thereafter, the AO reopened the assessment and completed the same u/s 143(3) r.w.s. 147 of the Act determining the total income of the assessee at Rs. 6,52,65,559/- by making an addition of Rs. 4,62,17,439/- on account of difference in valuation of properties as unexplained income u/s 69 of the Act.
3. On appeal, before the CIT(A) the AR of the assessee stated that there was a survey u/s 133A of the Act at the premises of the assessee on 23/08/2006 and during the course of survey, certain payments and stocks were found to be unverifiable from the existing records. Accordingly, the matter was referred u/s 142A by the AO to the DVO. The DVO furnished the valuation report of construction at Rs. 55,83,06,733/-. According to the assessee's books of account the cost of construction was Rs. 38,58,53,602/-. The difference was worked out at Rs. 17,24,53,131/- and the same was apportioned among the FYs 2004-05 to 2008-09 and the amount attributable to the assessment year under consideration was Rs. 4,62,17,439/-. The AO made this addition u/s 69 of the Act.
4. Further, for the AY 2007-08 an addition of Rs. 6,51,01,056/- was made by the AO on account of difference in valuation of properties and the same was confirmed by the CIT(A). However, the ITAT, Hyderabad held that the reference of valuation to the DVO was ab-initio incorrect. Therefore, the AO cannot disturb the concluded assessments of other assessment years.
5. The CIT(A) following the order of the ITAT, Hyderabad in assessee's own case for AY 2007-08 in ITA No. 1542/-Hyd/2010, dated 30/03/2012, held that since the issue under consideration is 3 ITA NOs. 1265 & 1266/Hyd/2012 M/s Legend Estates (P) Ltd.
identical to that of AY 2007-08, the decision of the ITAT is applicable and, therefore, directed the AO to delete the addition.
6. Aggrieved, the revenue is in appeal before us and has raised the following grounds of appeal.
"1. The CIT(A) allowed assessee's appeal without going into the merits of the case. The order of the Hon'ble ITAT on which the CIT(A) relied upon is not acceptable for various deficiencies contained in their findings.
2. The CIT(A) erred on both facts and circumstances of the case in not considering the difference in valuation as unexplained investment in construction of buildings.
3. The CIT(A) ought to have appreciated the efforts of the AO that the difference in cost of construction was added as unexplained expenditure after giving assessee due opportunity of being heard.
4. The CIT(A) ought to have considered the fact that investment of unaccounted income in construction of flats has been correctly brought to tax invoking the provisions of sec. 69C of the Act, 1961.
5. The CIT(A) erred in law in granting relief to the assessee on the ground that unexplained expenditure u/s 69C does not fall under the ambit of the provisions of section 142A for reference to DVO. In fact the properties were referred to the DVO for the purpose of valuation of unaccounted investments made by the assessee into those properties. Therefore, the reference made is valid in law.
6. Even if the reference to the DVO is held to be bad in law, the information gathered with regard to valuation of properties can always be used as evidence for making assessment."
7. We have heard the arguments of both the parties and perused the record as well as gone through the orders of the authorities below. We find that the issue under consideration is squarely 4 ITA NOs. 1265 & 1266/Hyd/2012 M/s Legend Estates (P) Ltd.
covered by the decision of the ITAT, Hyderabad in assessee's own case in ITA No. 1542/Hyd/2010 for AY 2007-08 vide order dated 03/03/2012, a copy of which has been filed on record. The relevant findings of the ITAT are as follows:
12. We further find from the case records that even if a reference u/s.
142A is made by the Assessing Officer on certain consideration such as anything find during the course of survey u/s 133A of the Act or on the basis of a tax evasion petition or a reference is required to be made during the course of other proceedings or a report of the DVO is available to the AO before making an assessment or reassessment then same can be utilized only in accordance with sub-Sec.(3) of Sec. 142A i.e., the assessee has to be given an opportunity of being heard before such a report is utilized and in accordance with Sec.145 where books of account are required to be rejected by pointing out some apparent defects. In our considered view the provisions of Sec. 142A cannot be read in isolation to Sec.145. In other words, if books of account are found to be correct and complete in all respect and no defect is pointed out therein and cost of construction of building is recorded therein, then the addition on account of difference in cost of construction could not be made even if a report is obtained within he meaning of Sec.142A from the DVO. It is because the use of the report of the DVO obtained u/s.142A is not mandatory but is discretionary as the word used is 'may' therein. Accordingly, we are of the considered view that in the present case when AO has not rejected the books of account by pointing out any defects reference to the DVO will not be valid and, therefore, DVO's report could not be utilized for framing assessment even if such a report is considered to be obtained u/s.142A. Since reference to DVO being held as invalid, the assessment/ reassessment framed thereafter would also be invalid. Even otherwise, the issue of unexplained expenditure u/s.69C of the Act is not covered under the powers of Sec.142A of the Act and this issue is squarely covered in favour of the assessee and against the Revenue by the decision of Hon'ble Delhi High Court in the case of AAR PEE Apartments (P) Ltd. (supra). The Hon'ble Delhi High Court held as under:-
"6. Before we advert to the interpretation to the aforesaid provision we deem it proper to reproduce the following discussions detained in the order of Tribunal on this aspect:-
"The next point to be determined is whether the AO is justified in referring to the DVO for computing cost of construction claimed as revenue expenditure. Prior to insertion of Sec. 142A by Finance (No.2) Act, 2004 with retrospective effect from 15th Nov. 1972, the reference to DVO in assessment proceedings other than as permissible under s. 55A was held to be invalid as held by Hon'ble Supreme Court in the case off Smt. Amiya Bala Paul vs. CIT (2003) 182 CTR (SC) 489 : (2003) 262 ITR 407 (SC). Sec. 142A, was inserted with retrospective effect from 15th Nov., 1972, however, even under s. 142A, a reference can be made for assessment or
5 ITA NOs. 1265 & 1266/Hyd/2012 M/s Legend Estates (P) Ltd.
reassessment where an estimate of value of any investment referred to in s. 69 or s. 69B or the value of any bullion, jewellery or other valuable articles referred in s. 69A or 69B is required to be made. The AO may require the Valuation Officer to make an estimate of such value and report under s. 142A(1), for the purpose of making as assessment under Act, where an estimate of the value of any investment referred to in s. 69A or s. 69B or the value of any bullion, jewellery or other valuable article referred to in s. 69A or s.69B is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him. Thus the power available under s. 142(1) is requiring the Valuation Officer to value any investment or bullion, jewellery or other valuable article referred in s.69, s 69A or s.69B of the Act,. These powers do not extend to estimate the amount of unexplained expenditure referred in s. 69C of the Act. Admittedly, in the present case the expenditure on construction are claimed and allowed as revenue expenditure and cannot be considered as an investment or bullion, jewellery etc. referred in s. 69, s. 69A or s.69B, of the Act. We accordingly hold that the reference to DVO is not in accordance with the provisions of s. 142A. Hence the decision of Hon'ble Supreme Court in the case of Smt. Amiya Bala Paul (supra) will still apply to hold that no addition can be made merely relying upon the value arrived at by DVO. In view of the above discussion, addition of Rs.19,69,881 is directed to be deleted."
7. We are in agreement with the aforesaid interpretation given by the Tribunal to Sec. 142(A) of the Act. Our discussion on this aspect proceeds as under:
8. Sec. 142(A) is to the following effect:-
"142A. For the purposes of making an assessment of reassessment under this Act, where an estimate of the value of any investment referred to in s 69 or s. 69B or the value of any bullion, jewellery or other valuable article referred to in s. 69A or s. 69B is required to be made, the AO may require the Valuation Officer to make an estimate of such value and report the same to b him."
9. It is clear from the reading of sub-s.(1) of this provision that it enables the AO to get the valuation done from the Valuation Officer in certain specific types of cases. These would be the cases wherein an estimate of the value of any investment referred to in s. 69 or s. 69B or the value of any bullion, jewellery or other valuable articles referred to in s. 69A or 69B is required. There is no mention about s. 69C of the Act. As is clear from the above, s 69A deals with unexplained money. Sec. 69B likewise relates to the amount of investment etc. not fully disclosed in books of accounts. On the other hand, the provision relates to unexplained expenditure is in s. 69C.
6 ITA NOs. 1265 & 1266/Hyd/2012 M/s Legend Estates (P) Ltd.
10. In the present case the AO had doubts about the expenditure incurred on the project. As pointed out above the assessee had shown the expenditure on the at Rs. 38,58,53,602. Since AO had doubted this expenditure, he referred the matter to DVO for the purpose of determining the cost of construction of said project. However, as pointed out above, for the purpose of getting himself satisfied about the purported unexplained expenditure under s. 69C powers under s. 1142A could not be invoked.
11. Learned Counsel for Revenue submitted that such a power could be traced to s. 69B of the Act which relates to amount of investment etc. not full disclosed in the books of accounts.
12. Her submission was that the expenditure" incurred should be considered as coming within the expression 'investment'.13. We cannot agree with this submission of learned counsel for Revenue. If investments could include within its fold he expenditure as well which is incurred by a businessman during the course of his business, there was no necessity of having a separate provision under s. 69C of the Act which deals With unexplained 'expenditure' and reads as under:
"69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of he AO satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year."
14. The scope and ambit of ss. 69B and 69C are altogether different. The connotation to the investment appearing in s. 69B has to be in the context of investments made in some property or any other type of investment and it could not be the business expenditure. The word 'investment' contained in s. 69B deals with investment in bullion, jewellery or other valuable articles, etc. if the contention of learned counsel for Revenue is accepted and the is given wider meaning as sought to be made out, the provisions of s. 69C shall be rendered otiose.
15. The learned counsel for Revenue however took another plea to buttress her submission. He submitted that having regard to the circumstances under which s. 142A was inserted by the Finance Act, 2004, it be deemed that the intention of legislature was to include even those un-explained expenditure stipulated in s. 69C. No doubt the need behind inserting s. 142A was to empower the AO to make a reference to the Valuation Officer as there was no such specific powers and existing provision contained in s. 131 were inadequate. However, even this statement of object and reason clearly confined and limited the reference "to hold a scientific, technical and expert investigation etc." Learned counsel for the 7 ITA NOs. 1265 & 1266/Hyd/2012 M/s Legend Estates (P) Ltd.
assessee has drawn our attention to CBDT circular issued by it explaining the Finance Bill, 2004 which specifically omits the word 'expenditure' as well as s. 69C. It is on this basis that the s. 142A was inserted in the form as it appears on the statute book now. If the intention was to include unexplained expenditure as contemplated in s. 69C of the Act as well this provision should have been specifically mentioned in s. 142A of the Act.
16. From the reading of sub-s.(1) of s. 142A, it is clear that the legislature referred to the provisions of ss. 69, 69A and 69B but specifically excluded 69C. The principle of casus omissus becomes applicable in a situation like this. What is not included by the legislature and rather specifically excluded, cannot be incorporated by the Court through the process of interpretation. The only remedy is to amend the provisions. It is not the function of the Court to legislate or to plug the loopholes in the law.
17. In the present case except the report of DVO on which the AO relied upon, there was nothing on record to suggest that there was any Of the evidence to disbelieve the expenditure shown by the assessee. In fact during the course of arguments, learned counsel for the assessee produced the assessment order which clearly demonstrates that the expenditure shown by the assessee from the time, when it was an on-going project, was examined and accepted by, the AO
13. In view of the above facts and the judgment of Hon'ble Delhi High Court in the case of AAR PEE Apartments Pvt. Ltd. (supra) we are of the considered view that the Legislature has not included unexplained expenditure stipulated in Sec.69C of the Act for invocation of provisions of Sec.142A of the Act. We further find that even the CBDT Circular issued by it, explaining the Finance Bill, 2004, specifically omitted the word 'expenditure' as well as Sec.69 from the ambit of Sec.142A of the Act as inserted in the form as it appears on the statue book. If the intention of the Legislature to include unexplained expenditure as contemplated in Sec.69C of the provision of Sec.142A should have been specifically mentioning the same. Further the cost of flat being shown by the assessee as current assets not as an investment, it cannot be subject matter of reference u/s. 142A. Even otherwise, the Assessing Officer referring the matter to the DVO for valuation of current assets in one assessment year, he cannot disturb the concluded assessments of other assessment years. Accordingly, we decide this issue in favour of the assessee and against the Revenue.
14. In view of the above decision on both the legal issues, we decide this appeal of the assessee in favour of the assessee and the issues on merits have become academic and needs no adjudication.
15. In the result, appeal of the assessee is allowed."
8 ITA NOs. 1265 & 1266/Hyd/2012 M/s Legend Estates (P) Ltd.
8. Since the issue under consideration is identical to that of AY 2007-08 in assessee's own case (supra), we find no infirmity in the order of the CIT(A) in directing the AO to delete the addition of Rs. 4,62,17,439/-. made u/s 69 of the Act, following the said decision of the ITAT in assessee's own case(supra). Therefore, we uphold the order of the CIT(A) and dismiss the grounds raised by the revenue.
9. In the result, appeal of the revenue is dismissed.
ITA NO. 1266/HYD/2012
10. Briefly, the facts of the case are that for the year under consideration, the assessee company filed its return of income on 01/12/2007 admitting total income of Rs. 1,78,23,580/-. The AO completed the assessment u/s 143(3) of the Act determining the total income of the assessee at Rs. 8,49,13,972/- by making the addition of Rs. 6,51,01,056/- u/s 69C of the Act, and also initiated penalty proceedings u/s 271(1)(c) of the Act stating that the assessee had furnished inaccurate particulars to the extent of Rs. 6,51,01,056/-. Accordingly, he levied a minimum penalty u/s 271(1)(c) of the Act on the said addition, amounting to Rs. 2,19,13,015/-.
11. On appeal, the CIT(A) held that since the ITAT in the quantum appeal deleted the addition made by the AO and confirmed by the CIT(A) by holding that the reference to the valuation cell was itself incorrect and legally untenable, the addition based on such valuation will stand deleted, the penalty levied on such non-existent addition also stands cancelled. Accordingly, he directed the AO to cancel the penalty.
9 ITA NOs. 1265 & 1266/Hyd/2012 M/s Legend Estates (P) Ltd.
12. Aggrieved, the revenue is in appeal before us challenging the deletion of penalty u/s 271(1)(c) made by the AO.
13. We have heard the arguments of both the parties and perused the record as well as gone through the orders of the authorities below. We find that the CIT(A), deleted the penalty levied u/s 271(1)(c) by the AO in respect of the addition of Rs. 6,51,01,056/- u/s 69C of the Act made by the AO, on the ground that the ITAT in the quantum appeal deleted the said addition, therefore, on such non-existent addition, the penalty so levied stands cancelled. Therefore, we do not find any infirmity in the order of the CIT(A) in deleting the penalty as the source of the addition for making penalty itself is deleted by the ITAT in the quantum appeal, hence, the penalty does not have legs to stand in the eye of law. Accordingly, we uphold the order of the CIT(A) on this count and dismiss the grounds raised by the revenue.
14. In the result, this appeal is dismissed.
15. To sum up, both the appeals of the revenue are dismissed.
Pronounced in the open court on 20 th December, 2012.
Sd/- Sd/-
(CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, Dated: 20 th December, 2012.
kv
10 ITA NOs. 1265 & 1266/Hyd/2012
M/s Legend Estates (P) Ltd.
Copy to:-
1) DCIT, Circle - 16(1), Room No. 612, 6 th Floor, Aayakar
Bhavan, Basheerbagh, Hyderbad.
2) M/s Legend Estates (P) Ltd., 6-3-1238, 6 th Floor, Legend
Apartments, Renuka Enclave, Raj Bhavan Road,
Somajigudan, Hyderabad.
3) The CIT (A)-V, Hyderabad
4) The CIT-IV, Hyderabad.
5) The Departmental Representative, I.T.A.T., Hyderabad.