Income Tax Appellate Tribunal - Amritsar
Roshan Lal Arora, Amritsar. vs Income-Tax Officer, Kapurthala-Ii on 27 February, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR
(CAMP AT JALANDHAR)
BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND
SH. T.S. KAPOOR, ACCOUNTANT MEMBER
I.T.A No.163(Asr)/2015
Assessment Year: 2005-06
Roshan Lal Arora, Vs. Income Tax Officer,
Vasant Vihar, Kapurthala-II.
Kapurthala.
PAN:ADLPA-2155N
(Appellant) (Respondent)
Appellant by: Sh. Ashwani Kalia (Adv.)
Respondent by: Smt. Balwinder Kaur (DR.)
Date of hearing: 23.01.2017
Date of pronouncement: 27.02.2017
ORDER
PER T. S. KAPOOR (AM):
This is an appeal filed by assessee against the order of Ld. CIT(A), Jalandhar, dated 14.01.2015, for Asst. Year: 2005-06.
2. The following grounds of appeal has been taken by the assessee.
"(1) That the Ld. CIT(A), Jalandhar has erred in law and on facts in confirming the following additions for the alleged unaccounted investment in the purchase of:-
(i) Rice Sheller Land Rs.52,80,000/-
(ii) Rice Sheller Building Rs.4,60,980/-
(iii) Car and Truck Rs.14,3,425/-
(2) That the Ld. CIT(A), Jalandhar has erred in confirming the addition of Rs.90,416/-.
(3) That the order of Ld. CIT(A) is bad in law and on facts."2 ITA No.163(Asr)/2015
Asst. Year: 2005-06
3. The brief facts of the case as noted in the assessment order are that original assessment in this case was completed u/s 143(3)/147 of the Act at an income of Rs.1,60,29,429/-. The said assessment was completed on the basis of information that assessee had purchased a Rice Sheller being run under the name and style of M/s Gauri Shankar Rice & General Mills, Aujla Road, Kapurthala on 13.09.2004 for a sum of Rs.1.80 crore. The Assessing Officer, in the original assessment proceedings had observed that assessee had become partner in the firm of M/s Gauri Shankar Rice & General Mills w.e.f., 01.04.204 with 60% share after contributing a capital of Rs.50,000/-. The Assessing Officer further observed that on 31.08.2004, the original proprietor Sh. Madan Lal Aggarwal retired from partnership and the assessee became sole proprietor of M/s Gauri Shankar Rice & General Mills. From these facts, the Assessing Officer held that assessee had become sole proprietor of the firm and had become owner of Rice Sheller, therefore, he assessed the value of Rice Sheller including land and building at Rs.1.80 crores and made the additions accordingly. However, on a reference to Commissioner u/s 264, it was submitted that the land which the Assessing Officer had considered was not belonging to the Rice Sheller and only a part of the land measuring 8 Kanal and 17 Marla was belonging to M/s Gauri Shankar Rice & General Mills and in view of that, the Assessing Officer vide order dated 22.03.2013 completed the assessment after making addition to the income of assessee on account 3 ITA No.163(Asr)/2015 Asst. Year: 2005-06 of the following (i) land Rs.52,80,000/- (ii) building Rs.4,60,979/- (iii) Truck Rs.1,43,425/'- (iv) Car Rs.90416/-.
4. Aggrieved with the order, the assessee filed appeal before Ld. CIT(A). The Ld. CIT(A) however, dismissed the appeal of the assessee by holding as under:
"6.4 I have considered the observations of the Assessing Officer as made by him in the assessment order as well as remand report. I have also considered written submissions of the assessee filed vide letter dated 27.08.2014 as well as his counter comments on the report of the Assessing officer on all the issues under reference. I have further considered the other material brought on record by the Ld. AR of the assessee. On careful consideration of the assessment order, written submissions of the assessee, comments of the Assessing Officer, counter comments of the assessee and other material on record, I am of the opinion that there is no force in any of the arguments taken by the Ld. AR of the assessee. Moreover, there remains no doubt that the land acquired by the assessee is purely commercial as Rice Sheller was being run on this land since 1990. The Assessing Officer has also valued the land as per the rates fixed by the district administration for commercial properties in the area. Although the DVO has valued the same land at Rs.9,95,625/- but in my opinion the DVO's valuation is not correct as the rates applied by him to value the property i.e. land are in respect of agriculture land whereas the property under consideration is commercial. Moreover, the Assessing Officer has not referred the case for valuation but the Assessing Officer of M/s Gauri Shanker Rice and General Mills has made the reference. In my further opinion, the reference made by other Assessing Officer is not binding on the Assessing Officer in this case. In view of these facts, the rates adopted by the Valuation Officer cannot be applied to the land on which Rice Sheller was running as the rates adopted by the Valuation Officer were in respect of agriculture land and not in respect of commercial land. In my considered opinion, the rates adopted by the other Assessing Officer have rightly been rejected. Moreover, the assessment order in the case of M/s Gauri Shanker Rice and General Mills is dated 28.03.2013 whereas the assessment in the case of the assessee has been framed on 22.03.2013. As various properties of Rice Sheller including Rice Sheller land were acquired by way of unaccounted transactions, 1 do not find any reason to interfere with various additions made by the Assessing Officer. From the computation of income and return of income filed by the assessee on 24.03.2010, it has been noticed that the assessee has shown entire lease rentals of Rs.1,55,000/- as his income. After including truck income of Rs.28,114/-, the business income has been shown at Rs.1,83,114/- and after claiming depreciation of Rs.1,46,730/- and other expenses of Rs.651/-, the net business income has been shown at Rs.35,733/- which has been included in the returned income. However, the assessee has not 4 ITA No.163(Asr)/2015 Asst. Year: 2005-06 taken any specific ground challenging the addition of Rs.90,416/- made by the Assessing Officer on account of undisclosed lease income. In view of these facts, addition of Rs.90,416/- cannot be interfered with.
6.5 In view of the above stated facts and in the circumstances of the case, I am of the consider opinion that the Assessing Officer is fully justified in making the impugned additions of Rs.52,80,000/-, Rs.4,60,980/- and Rs.1,43,425/- which have been challenged in appeal. The addition of Rs.90,416/- cannot be deleted in the absence of any specific ground challenging the addition. The additions of Rs.52,80,000/- on account of unaccounted investment in the purchase of Rice Sheller land, Rs.4,60,979/- in the purchase of Rice Sheller building and Rs.1,43,425- in the purchase of car and truck made by the Assessing Officer are upheld. In the result, grounds No. 2, 3 and 4 of appeal taken by the assessee are dismissed.
7. The ground No. 5 of appeal taken by the assessee is general in nature and do not require any adjudication at all.
8. As a result, appeal filed by the assessee is dismissed."
5. Aggrieved the assessee is in appeal before us.
6. At the outset, the Ld. AR submitted that Assessing Officer has made addition u/s 69 of the Act on account of investments out of unaccounted money whereas, the fact remains that assessee had not made any unaccounted investment and he had become only partner in the proprietorship firm with a capital investment of Rs.50,000/- and after the retirement of original partner had become proprietor by operation of law.
In this respect, our attention was invited to provisions of Sec.69 of the Act and it was argued that Sec.69 is applicable where the assessee had made any investment which is not recorded in the books of account maintained by him. It was submitted that in the present case, the assessee had become partner in the firm and capital invested by him was 5 ITA No.163(Asr)/2015 Asst. Year: 2005-06 duly accounted for in the books of the firm and therefore, the assessee had not made any unaccounted investment but had become partner in the firm by making investment by way of capital. It was submitted that no other payment at the time of joining as partner was made and the retiring partner has also categorically denied in his statement of having received any money from the appellant. It was further submitted that assessee had become sole proprietor of all the assets and all the liabilities were taken over as per Balance Sheet as on 31.08.2004 and as per Balance Sheet there were liabilities of Rs.19.50 lacs. It was argued that the authorities below has taken the value of Assets for making addition without taking into account the liabilities which is not correct. In this respect our attention was invited to the copy of Balance sheet as on 31.08.2004 placed at page 20 of the Paper Book. It was submitted that both assets and liabilities should have been considered as the assessee had taken over all liabilities also.
Regarding valuation of assets taken by the authorities below, it was submitted that in the case of M/s Gauri Shakar Rice & General Mills, the assessment was reopened u/s 148 and assessment was completed to assess the capital gain on the transfer of capital assets by way of sale of fixed assets on the dissolution of firm and in the assessment order, the value of land has been taken at Rs.9,95,625/- and in this respect our attention was invited to the copy of assessment order dated 28.03.2013 placed at (PB 24 to 26). It was further submitted that 6 ITA No.163(Asr)/2015 Asst. Year: 2005-06 in the same assessment order, the value of building has been taken at Rs.3,26,433/- and the value of Car and Truck has been taken at book values. The Ld. AR submitted that Assessing Officer arrived at the value of land in the case of M/s Gauri Shankar Rice & General Mills on the basis of a report from DVO which had estimated the value of land and building. The Ld. AR further submitted that the copy of valuation report prepared by DVO was also submitted to Assessing Officer. It was submitted that the DVO had taken the rates applicable to the agricultural land which the Ld. CIT(A) rejected holding that since Rice Sheller existed on that land, therefore, it was a commercial land. It was argued that authorities below were not justified into adopting one value for the purpose of calculation of capital gains in the hands of seller and adopting another value for the same assets in the hands of buyer.
Without prejudice it was submitted that the land was deadlocked and had no commercial value and in this respect our attention was invited to the submissions before the Ld. CIT(A) which has been noted by Ld. CIT(A) at page 11 of his order. It was further submitted that the land adjoining to the land of M/s Gauri Shankar Rice & General Mills was sold @ 9 lacs per acre. It was submitted that as the land fell into the same khasra in which the land of assessee fell, therefore, keeping in view all the facts and circumstances of the case, it was argued that the addition if any should have been made only to the extent of valuation adopted in the case of M/s Gauri Shankar Rice & General Mills. The Ld. 7 ITA No.163(Asr)/2015 Asst. Year: 2005-06 AR submitted that Revenue has not filed any appeal against the valuation of land and building which the Assessing Officer had taken on the basis of report of DVO. It was further argued that from the values ascertained by DVO, the values of such assets as appearing in the Balance Sheet should have been reduced.
Keeping in view all these facts and circumstances, it was argued that addition u/s 69 is not warranted as the assessee had not made any investment which has not been recorded in the books of accounts. It was further argued that at best the addition could have been made for difference in valuation of assets as determined by DVO with the values already outstanding in the Balance Sheet as on 31.08.2004.
7. As regards the other addition of Rs.90,416/-, the ld. AR submitted that assessee had declared full amount of lease of Rs.1,55,000/- in the profit and loss account and after crediting the other income as well as debiting the expenses had declared net profit of Rs.35,733/- in his return of income and in this respect our attention was invited to copy of P&L account placed at (PB-31). In view of the above fact and circumstances, it was submitted that the additions sustained by Ld. CIT(A) are not in accordance with law.
8. The Ld. DR, on the other hand, heavily relied upon the order of authorities below.
8 ITA No.163(Asr)/2015
Asst. Year: 2005-06
9. We have heard the rival parties and have gone through the material placed on record. We find that asssessee had become partner in the proprietorship firm of Sh. Madan Lal namely M/s Gauri Shankar Rice & General Mills with a capital investment of rs.50,000/-. After that the assessee became sole proprietor of M/s Gauri Shankar Rice & General Mills as original proprietor retired and thereby in fact the assessee became the owner of all properties and also became liable for all liabilities of the firm M/s Gauri Shankar Rice & General Mills. Therefore, by virtue of the original partner having retired from the firm of partnership business, the assessee had become owner and in possession of all assets belonging to M/s Garui Shankar Rice & General Mills and also became liable for the liabilities outstanding as per Balance Sheet as on 31.08.2004.
A perusal of Balance Sheet as on 31.08.2004 shows that assessee had fixed assets in the form of Land, Buildings, Truck & Car. The value of these items necessarily differs from the values as appearing in Balance Sheet specially land as the value of land as on the date when the assessee became owner must have been higher. Therefore, to the extent of difference in market value of these assets and WDV of these assets, the assessee can be said to have made deemed investments not recorded in his books of accounts. Therefore, the contention of assessee that assessee had not invested any amount which was not recorded in the books of account is not correct as automatically after the dissolution of partnership the assessee became owner of land, building and other 9 ITA No.163(Asr)/2015 Asst. Year: 2005-06 assets mentioned in the assessment order and any difference in the market values over WDV is deemed investment.
Now, the authorities below has applied the commercial rates of land for valuation of the land and has in fact ignored the valuation done by DVO and which has been accepted by the Department in the case of Gauri Shanakr Rice and General Mills represented by the earlier proprietor Sh. Madan Lal. The copy of assessment order in the case of M/s Gauri Shankar Rice & General Mills is placed at (PB 24 -26) wherein the value of land has been accepted at Rs.9,95,625/- and value of building has been accepted at Rs.3,26,433/-. Therefore, the Assessing Officer should have considered the valuation report of the DVO specially in view of the fact that the same report has been accepted in the case of M/s Gauri Shankar Rice & General Mills for calculation of capital gains in the hands of earlier proprietor. Such valuation done by DVO has not been challenged by the Revenue. The Ld. CIT(A) has valued the land on the basis of commercial rates by holding that since there was business activities running on the said land, the same land was a commercial land. Whereas the fact remains that the land in question was a deadlock land as is apparent from copy of lay out plan placed at (PB-30). For the sake of completeness the copy of lay out plan is made part of this order. 10 ITA No.163(Asr)/2015
Asst. Year: 2005-06 We further find that the land falling in the same Khasra has been sold at Rs.9,00,000/- per acre as is evident from the copy of sale deed 11 ITA No.163(Asr)/2015 Asst. Year: 2005-06 placed at (PB 27 to 30). The DVO has also valued the land measuring 8 K 17 Marla @ Rs.9,00,000/- per acre as is apparent from copy of valuation report placed at (PB page 23). Therefore, keeping in view all these facts and circumstances, we hold that the value of land and building for the purposes of estimating the addition should have been taken on the basis of the valuation report as prepared by DVO and as relied by Revenue in the case of M/s Gauri Shankar Rice and General Mills.
The other aspect of the arguments of the Ld. AR is that besides investments in assets of Land, Buildings, Truck & Car, the authorities below should have reduced the values of these assets as appearing in the Balance Sheet as on 31.08.2004 and should have reduced the liabilities being taken over by the assessee. In this respect, the reference to the balance sheet as on 31.08.2004 is quite relevant. For the sake of completeness the balance sheet as on 31.08.2004 taken over by assessee is reproduced below.
M/S Gauri Shankar Rice & Gen Mills
Aujla Road, Kapurthala
Balance Sheet 1.04.04 To 31.08.04
Sh. Roshan Lal(P) 48018.20 Sh. Madan La (P) 203166.99
Sh. Pawan Kumar 943234.31 Land A/c 222204.00
Sh. Om Parkash 30000.00 Building A/c 460979.00
Sh. Om Parkash & Santosh lata 236000.00 Car A/c 96539.00
SaviTariDevi 355573.00 Trunk A/C 46886.00
Sunita Gupta ' 352340.87 Cash in hand 427976.00
Madan Lai Vijay Kumar 18053.21 Bardana A/C 3555.00
Friends & Co. 17030.44 Katta A/C 372.00
OBC Kpt. 7180.89
FCI 34586.00
Maha Shakti Rice Mills 78000.00
12 ITA No.163(Asr)/2015
Asst. Year: 2005-06
PUNSUP 67495.00
Security A/c
DF&SC 50000.00
DF&SC 5020.00
PSEB 1257665.00
Telephone 20525.00
Punsup 150000.00
----------- -----------
Total 2000250.03 Total 2000250.03
Now in the above Balance Sheet, the land is appearing at Rs.2,22,204/- & building is appearing at Rs.4,60,979/- whereas the value of land as per DVO Report is Rs.9,95,625/- and that of building is Rs.3,26,433/-. The valuation of Car & Truck in the assessment of Sh. Madan Lal (the retiring partner) has been taken at Book Values. In view of the fact that assessee has taken over liabilities outstanding to the extent of Rs.19.50 lacs as per Balance Sheet as above the unaccounted investment should have been calculated by replacing the Book Values of land & building with the valuation made by DVO. Therefore, the unaccounted investment towards purchase of fixed assets is calculated as under:
Value of Valuation Difference
assets as as per DVO
appearing in Report
the Balance
Sheet as on
31.08.2004
1. Land 2,22,204/- 9,95,625/- 7,73,421/-
2. Buildings 4,60,979/- 3,26,433/- (-)1,34,546/-
13 ITA No.163(Asr)/2015
Asst. Year: 2005-06
The valuation of Building by DVO is on lower side as compared to WDV of Building as appearing in the Balance Sheet. Therefore, the same has to be ignored.
The entire value of land can not be taken as unaccounted investment in the hands of assessee in view of the fact that a part of investment is already reflected in the Balance Sheet at their written down values and therefore, these written down values has to be reduced from the values determined by DVO. Further, the value of Car & Truck cannot be said to be unaccounted in view of the fact that these were assessed written down values as appearing in the assets side of Balance Sheet and which cannot be said to be from unaccounted sources as the entire liabilities and assets has been taken over by assessee. Moreover, in the assessment of Sh. Madan Lal, the retiring party, the value of Car & Truck has been taken at Book Value. There is no unrecorded investment in building in view of the fact that value adopted by DVO is lower than the WDV as appearing in Balance Sheet.
In view of the above facts & circumstances, the Assessing Officer is directed to make addition of Rs.7,73,421/- being unrecorded investment in land being the difference in value of land adopted by DVO and the cost of land appearing in the Balance Sheet as on 31.08.2004.
10. In view of the above, Ground No.1 is partly allowed. 14 ITA No.163(Asr)/2015
Asst. Year: 2005-06
11. As regards the confirmation of another addition of Rs.90,416/-, we find that the Ld. CIT(A) has upheld the addition of Rs.90,416/- by holding that assessee had not taken any specific ground for challenging the same. From the assessment order, we find that Assessing Officer had made the addition of Rs.90,416/- by taking proportionate lease rent for 7 months @ Rs.1,55,000/- per year. In this respect, we find from the P&L Account placed at (PB-31) that assessee had already taken full lease money of Rs.1,55,000/- in his P&L Account. The Ld. CIT(A) himself has recorded these facts in his concluding para in his order. Therefore, once the Ld. CIT(A) observed that assessee had already declared total income in his P&L Account, the sustenance of addition on account of same income is not justified. In view of the above, the Ground No.2 is allowed.
12. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open Court on 27.02. 2017.
Sd/- Sd/-
(A.D. JAIN) (T. S. KAPOOR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated:27.02.2017.
/PK/ Ps.
Copy of the order forwarded to:
(1) The Assessee:
(2) The
(3) The CIT(A),
(4) The CIT,
(5) The SR DR, I.T.A.T.,
True copy
By order