Income Tax Appellate Tribunal - Ahmedabad
Amit Estate Organizer, Anand vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH " B "
BEFORE SHRI N.S. SAINI,
SAINI, ACCOUNTANT MEMBER And
SHRI MAHAVIR SINGH, JUDICIAL MEMBER
Date of hearing 19-7-10: Drafted on:19-7-10
ITA No.1206,1207,1208,1209 &1210 /AHD/2008.
Assessment Year :1995-96,1996-97,1997-98
1998-99 &1999-00
M/s. Amit Estate Vs. Income Tax Officer,
Organizer, Ward-3,
7-8 Thakkar Arcade, Income Tax Office,
Sardar Gunj,Anand. Anand.
PAN/GIR No. : AADFA 9859 J
(APPELLANT) .. (RESPONDENT)
Appellant by : Shri S.N.Soparkar, Sr. Adv.
Respondent by: Shri K.Madhusudan,Sr.D.R.
ORDER
PER BENCH:-
These are the appeals filed by the assessee against the consolidated order of the Learned Commissioner of Income Tax(Appeals)-IV, Baroda dated 19-12-2007 for the above mentioned assessment years.
2. The common ground of appeal taken by the assessee in all the appeals reads as follows:-
"The Learned Commissioner of Income Tax( Appeals) has erred in law and on facts in confirming penalty levied under section 271(1)(c) by Learned Assessing Officer of `.3,84,220/-in Assessment Year 1995-96, `. 9,95,397/- in Assessment Year 1996-97, `.10,33,468/-in Assessment Year 1997-98, and `.5,92,712/- in Assessment Year 1998-99, `. 3,29,170/- in Assessment year 1999-00 on the addition of 5% of the cost of construction made on the basis of the report of the Departmental Valuation Officer (DVO) and confirmed by the order of the Third Member of the Hon'ble Income Tax Appellate Tribunal that is wholly unsustainable in law and on facts. Both the lower authorities have failed to appreciate the fact that the Appellant has neither furnished inaccurate particulars nor concealed any income and held that simply because addition is sustained, penalty is leviable. The penalty levied being without any merits and justification requires to be quashed."-2-
3. The Brief facts of the case are that the assessee is a firm of builder which carried out construction of housing project called "Ashlesh Bungalows" having 31 bungalows with common amenities and infrastructure facilities. The expenditure incurred on the cost of the construction was disclosed by the assessee as under :-
Assessment Year Expenditure(`)
1995-96 27,45,946/-
1996-97 67,39,422/-
1997-98 68,78,879/-
1998-99 45,22,750/-
The returns of income in respect of the above mentioned assessment years were processed under section 143(1)(a). No scrutiny assessments were made under section 143(3). Subsequently, on 28-11-2000 the Learned Assessing Officer issued notice under section 148 for reopening of the assessment for A.Y. 1997-98. During the reassessment proceedings, the Assessing Officer noted, that certain contra accounts called from various parties did not tally with the account of these parties in the books of the assessee. Certain other discrepancies in the books of accounts were noticed, viz. that the statement of closing stock WIP show details of only 33 units, whereas the scheme has 51 units, the materials purchased were not entered properly in the respective heads in the item-wise purchase register maintained by the assessee, opening and closing balance in the cash book written in pencil although the books were stated to have been audited and miscellaneous payments made and vouchers prepared were not signed by the person to whom the payments were stated to have been made. Considering these deficiencies in the books of accounts the A.O. rejected the books and referred the matter to the DVO for valuation. The DVO submitted his report according to which the year wise cost of construction was in excess of the construction, cost shown by the assessee. Such excess cost of construction came to `. 87,66,792/- for the entire project, the details of which are as under :-
-3-Sl. Period of Construction Fair cost of Difference No. construction cost shown construction (`.) by the as per DVO assessee (`) (`.) 1 7/93 to 3/94 13,64,923/- 18,33,939/- 4,79,016/- 2 4/94 to 3/95 27,45,946/- 37,06,493/- 9,60,547/- 3 4/95 to 3/96 67,39,422/- 92,27,910/- 24,88,488/- 4 4/96 to 3/97 68,78,879/- 94,57,014/- 25,78,135/- 5 4/97 to 3/98 45,22,750/- 62,16,218/- 16,93,468/- 6 4/98 to 12/98 15,44,733/- 21,21,871/- 5,77,138/-
2,37,96,445/- 3,25,63,445/- 87,66,792/-
The assessments were completed by the A.O.by making additions based on the difference in cost of construction of the various years as above. The additions were confirmed in appeal by the Learned Commissioner of Income Tax (Appeals).
4. The Learned Assessing Officer thereafter issue notice and levied penalty under section 271(1)(c) of the Act for filing inaccurate particulars to conceal the income.
5. The Learned Authorised Representative of the assessee at the time of the hearing submitted that the Tribunal in the quantum appeal filed by the assessee reported as Amit Estate Organizer vs. ITO in (2008) 113 ITD 255 (Ahd) (TM) for Assessment Years 1995- 96 to 1998-99 confirmed the addition to the extent of 5% of the recorded cost of construction by observing as under:-
"The report of DVO in view of clear provisions of s. 142A(3) has to be used by the AO in making the assessment or reassessment. On the contrary, for making addition Department cannot place sole reliance on DVO report and make the addition of entire difference. It is not sacrosanct but an estimate by a technical person and taken in advisory capacity and as a mark of guidance. On the contrary the mistakes pointed out by the AO being very venial, might not justify the rejection of books of account under s. 145(3), but these would be relevant to make disallowances, and additions to that extent have to be made. The books of account can be relied upon for what that is recorded therein and not, for that which is not recorded in the books. For that rejection of books for defect found therein may not be relevant. DVO report shows a huge difference, a part of which of course is explained by the assessee but the other part remained unexplained. Therefore the Revenue cannot place full reliance on the DVO report and make addition for the entire difference. DVO report though of a technical expert, as aforesaid, has to be taken as a guidance and cannot be disregarded in view of the specific provisions of s. 142A(3) for taking into consideration the report of DVO in making -4- assessment or reassessment on giving the assessee an opportunity of being heard on such report. The report of registered valuer furnished by the assessee also supports the fact that construction cost recorded by the assessee in its books of account was lower by Rs. 1.51 lakhs, it would also not be justified to wholly rely on the accounts and making no addition at all. Keeping in view the totality of facts and circumstances of the case, it would be right to retain the addition to the extent of 5 per cent (five per cent) of cost of construction as recorded by the assessee in its books of account in respective assessment years under consideration, so as to cover unaccounted expenses with regard to observations made by the DVO in his report as well as the excess cost worked out by the own valuer of the assessee, as compared to the cost actually recorded by the assessee in its books of account."
6. Thereafter, the assessee filed Miscellaneous Application against the above order of the Tribunal being Miscellaneous Application Nos.295, 296, 302,329,330,331 and 332/Ahd/2008. The Tribunal vide its consolidated order dated 4-9-2009 passed in these Miscellaneous Applications deleted the addition of 5% of the construction cost in the Assessment Years 1995-96 to 1998-99 by observing as held as under :-
" These are seven Miscellaneous Applications filed by the assessee under Section 254(2) of the Income Tax Act, 1961 ("the Act" for short) seeking rectification of the orders of the Tribunal.
2. The first set of four Miscellaneous Applications in MA Nos.329 to 332/Ahd/2008 relate to the assessment year 1995-96 to 1998-99.In these applications it is the contention of the assessee that the observation of the Learned Judicial Member in para-30 of the order to the effect that Section 69C of the Act is clarificatory in nature and will be deemed to be applicable retrospectively and to all matters pending on that day and therefore the assessee will not be entitled to the deduction of the amount added as unexplained expenditure under Section 69C required rectification. The observation is based on the proviso to section 69C which was inserted by the Finance (No.2) Act, 1998 with effect from 1-4-1999.It is now pointed out that after the order of Tribunal, the Hon'ble Gujarat High Court has decided in the case of CIT vs. Star Builders, 294 ITR 338 and Krishna Textiles vs. CIT 310 ITR 227 that if any amount is added as unexplained investment or expenditure, it has to be allowed as deduction under Section 69C if it represents expenditure allowable in computing the profits of the business of the assessee. The contention of the assessee is that as held by the Supreme Court in ACIT vs. Saurashtra Kutch Stock Exchange, 262 ITR 146, non-consideration of the judgement of the jurisdictional -5- High Court, even when it was rendered after the order of the Tribunal, gives rise to a mistake apparent from the record and the order of the Tribunal should be corrected under Section 254(2) to confirm to the law laid down by the jurisdictional High Court.
After hearing the rival contentions on this point, we are of the view that the Miscellaneous Applications should succeed. The order of the learned JM as regards the respective applicability of the proviso to Section 69C is contrary to judgement of the Hon'ble jurisdictional High Court in Krishna Textiles vs. CIT (supra) rendered on 18th July, 2008. In this judgement it has been held that the proviso to Section69C inserted with effect from 1-4-1999 is not retrospective in nature and is only prospective. The order of the learned JM on this point has to therefore be corrected to conform to the decision of the Hon'ble Gujarat High Court, which is the jurisdictional High Court. In ACIT vs. Saurashtra Kutch Stock Exchange Ltd. (supra) it has been held that an order of the Tribunal has to be rectified under section 254(2) in conformity with the judgement of the jurisdictional High Court and it was also held that even if the judgement of the High Court was rendered subsequent to the order of the Tribunal, the order of the Tribunal can be rectified under Section 254(2). In holding so, the Supreme Court approvingly cited a judgement of the Hon'ble Gujarat High Court in Suhrid Geigy Ltd. vs. CST, (1999) 237 ITR 834. In the light of the judgement of the Supreme Court and the Hon'ble Gujarat High Court and respectfully following them, we hold that the order of the learned JM, in so far as it says that the proviso to Section 69C applies retrospectively and is only clarificatory in nature calls for rectification under section 254(2). We rectify the same by holding that the said proviso is prospective in nature and therefore does not apply to any of the assessment years prior to the assessment year 1999- 2000.The years involved now are the assessment years 1995-96 to 1998-99. The proviso does not apply to these years with the result that the assessee will be entitled to the deduction of the amounts added as unexplained expenditure under the section without being affected by the proviso. The order of the Tribunal is rectified accordingly and the assessee's applications are allowed."
7. Therefore, it was the submission of the Learned Authorised Representative of the assessee that as the addition made in the Assessment Years 1995-96 to1998-99 were deleted therefore, the penalty levied in those years has to be deleted since the very basis for levy of penalty does not survive. As regards the Assessment Year 1999-00 it is submitted that the addition was sustained at 5% -6- of the cost of construction on estimate basis by rejecting the books of the assessee. As the addition was made on estimate basis the assessee cannot be made liable to penalty u/s. 271(1) (c) of the Act.
8. On the other hand, the Learned Departmental Representative vehemently opposed the submissions of the Learned Authorised Representative of the assessee. He relied on the decisions of the Hon'ble Calcutta high Court in the case of Loknath Chowdhury vs. CIT reported in 155 ITR 291 (Cal) and Rahmat Development & Engg. Corporation vs. CIT reported in 130 ITR 602 (Cal) and submitted that penalty can be levied in a case of estimated addition made in the case of the assessee.
9. We have heard the rival submissions and perused the materials available on record. In the instant case the assessee is engaged in the business of development and sale of real estates. During the assessment years under consideration the Learned Assessing Officer made addition in all the years on the ground that expense shown for construction of real estates was lesser than the cost estimated by the DVO and therefore, the difference amount was added to the income of the assessee. The Learned Assessing Officer thereafter, also levied penalty under section 271(1)(c) in all the assessment years in respect of the addition on assessment.
10. On appeal, Learned Commissioner of Income Tax (Appeals) confirmed the levy of penalty under section 271(1)(c) for all the assessment years under consideration.
11. Before us, the Learned Authorised Representative of the assessee pointed out that the Tribunal vide its order dated 27th August,2007 passed in ITA Nos.414 to 417/Ahd/2005 and order dated 4-9-2009 in Miscellaneous Application Nos.329 to 332/Ahd/2008 for all the years under consideration except for the assessment year 1999-00 deleted the addition on the ground that the excess expenditure is also allowable as deduction to the assessee. Thus it was contended by the Learned Authorised Representative of the assessee that for the assessment years 1995-96 to 1998-99 the addition made was deleted by the Tribunal -7- in quantum appeal and therefore, penalty levied under section 271(1)(c) cannot stand alone. The Learned Departmental Representative fairly conceded the above position. We find that the very basis for which penalty under section 271(1)(c) was levied for assessment years 1995-96 to 1998-99 became non existent and therefore the penalty levied cannot survive. We therefore,delete the penalty levied under section 271(1)(c) for the Assessment Years 1995-96 to 1998-99.
12. In respect of the assessment year 1999-00 it is observed that the Learned Assessing Officer made addition of `. 5,77,138/- in assessment on account of lesser expenditure disclosed by the assessee. The Learned Assessing Officer accordingly levied penalty of `.3,29,170/- under section 271(1)(c) of the Act. On appeal, against the assessment order this Tribunal vide its order dated 18- 2-2009 passed in ITA No.750/Ahd/2005 deleted the aforesaid addition and directed the Learned Assessing Officer to restrict the addition to 5% of the construction expenses declared by the assessee. The construction expenses for the year under consideration declared by the assessee was `.15,44,733/- and therefore the addition ultimately made comes to `.77,237/-only. Thus, at the maximum the penalty under section 271(1)(c) can be levied only in respect of tax amount involved on the above `.77,237/- only.
13. The Learned Authorised Representative of the assessee explained that the above addition was made on estimate only and the variation of 5% on the basis of valuation report cannot be called as willful negligence on the part of the assessee. He further submitted estimate. He contended that the assessee cannot be said to have evaded any tax by declaring lesser amount of otherwise allowable expenditure. By no stretch of imagination it can be held that the assessee could have evaded any genuine payment of tax by reporting less expenditure which is allowable as deduction to the assessee in computing its taxable income. Therefore, penalty under section 271(1)(c) which is leviable for concealment of income or for furnishing inaccurate particulars of -8- income with the object of evading payment of genuine tax is not exigible in the instant case. For this, he placed reliance on the decision of Hon'ble Supreme Court in the case of K.C.Builders & Another vs ACIT (2004) 265 ITR 562 (SC).On the other hand the Learned Departmental Representative submitted that the penalty is leviable under section 271(1)(c) in respect of estimated addition of `.77.237/- in view the decision of the Hon'ble Calcutta High Court in the case of Loknath Chaudhry vs. CIT (1985) 155 ITR 291 (Cal) and Rehmat Development & Engg. Corporation vs. CIT (1981) 130 ITR 602 (Cal).
14. We find that it is not in dispute that the construction expenses incurred by the assessee is otherwise allowable as deductible expenditure to the assessee. Thus, no tax can be said to have been avoided by the assessee by reporting lesser amount of deductible expenditure. Further, in the instant case, the amount of expenditure which was held as lesser reported by the assessee was based on estimate only and no material was brought on record to show that the assessee had actually incurred more expenses which was not recorded in the books of account. Further it is observed that the aforesaid cited two decisions of the Hon'ble Calcutta High Court by the Revenue are distinguishable on fact in as much as the expenditure which was held as lesser reported by the assessee was otherwise allowable as deductible Revenue expenditure in the hands of the assessee which was not the fact of those two cases which were before the Hon'ble Calcutta High Court. The Hon'ble Supreme Court in the case of K. C. Builders & Another (supra) had held to the effect that penalty under section 271(1)(c) is leviable where the assessee with an intention or desire tried to hide or conceal the income so as to avoid imposition of tax thereon. In view of the above in our considered opinion penalty under section 271(1)(c) is not exigible for the lesser expenditure reported by the assessee which was but for the provisions of Section 69C was allowable to the assessee as deduction from its taxable income. We therefore, delete the penalty levied under -9- section 271(1)(c) for the Assessment Year 1999-00 also. Thus, all the appeals of the assessee are allowed.
Order signed, dated and pronounced in the Court on 23rd July,2010 Sd/- Sd/-
( MAHAVIR SINGH) ( N.S. SAINI )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; On this 23rd day of July, 2010
Patki
Copy of the Order forwarded to :
1. The Appellant 2. The Respondent
3. The CIT Concerned 4. The ld. CIT (Appeals)-IV,Baroda.
5. The DR, Ahmedabad Bench 6. The Guard File.
BY ORDER,
स᭜यािपत ᮧित //True Copy// (Dy./Asstt.Registrar), ITAT, Ahmedabad
Date Initials
1. Draft dictated on 19.07.2010 -------------------
2. Draft Placed before authority 19.07.2010 -------------------
3. Draft proposed & placed 19.07.2010 ------------------- JM
Before the Second Member
4. Draft discussed/approved ------------------- JM
By Second Member
5. Approved Draft comes to P.S --------------------
6. Kept for pronouncement on ---------------- --------------------
7. File sent to the Bench Clerk --------------------
8. Date on which file goes to the ---------------- --------------------
9. Date of dispatch of Order ---------------- ---------------------