Income Tax Appellate Tribunal - Delhi
Siri Guru Ram Dass Rice Co. , Karnal vs Department Of Income Tax on 31 March, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'G' NEW DELHI
BEFORE SH.G.D.AGRAWAL, VICE PRESIDENT
AND
SMT DIVA SINGH, JUDICIAL MEMBER
I.T.A .No.-3870/Del/2009
(ASSESSMENT YEAR- 2006-07)
ITO, vs Siri Guru Ram Dass Rice Co.,
Ward-4, Sector-12, Kaithal Road, Karnal.
Karnal. PAN-AAFFS0720A
(APPELLANT) (RESPONDENT)
CO No.-369/Del/2009
(In I.T.A .No.-3870/Del/2009)
(ASSESSMENT YEAR- 2006-07)
Siri Guru Ram Dass Rice Co., vs ITO,
Kaithal Road, Karnal. Ward-4, Sector-12,
PAN-AAFFS0720A Karnal.
(APPELLANT) (RESPONDENT)
Appellant by Sh. B.R.R.Kumar, Sr. DR
Respondent by Sh. P.S.Sharda, Adv.
Date of Hearing 11.03.2015
Date of Pronouncement 31 .03.2015
ORDER
PER DIVA SINGH, JM
By the present appeal filed by the Revenue the correctness of the order dated 01.07.2009 of CIT(A), Karnal pertaining to 2006-07 assessment year Is assailed on the following grounds:-
1. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs.13,88,728/- made on account of unexplained investment in building for difference in the cost of construction shown by the assessee and that determined by the V.O. for the year under consideration on the basis of reference made u/s 142A.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs.25,000/- made on various counts such as fall in G.P. rate from 36.71 % to 27.88%, failure to furnish evidence for claim of production of chhilka and driage at 27.2% as against 26.82% of last year, fall in production of rice from 10.87% of last year to 10% and on account of under valuation of closing stock of bardana.2 I.T.A .No.-3870/Del/2009
& CO No.-369/Del/2009
3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law on facts in reducing the addition of Rs.81,000/- made u/s 40(a)(ia) for non-deduction of tax at source to Rs. 45,000/- as required u/s 194C of the I.T. Act.
4. That the appellant craves for permission to add, delete or amend the grounds of appeal, before or at the time of hearing of appeal."
2. The relevant facts of the case are that the assessee returned an income of Rs.2,93,685/- by way of filing return on 30.10.2006 which was subjected to a scrutiny assessment. The facts relatable to the first issue are found discussed at paras 2 to 2.2 at pages 1 to 4 of the assessment order. A perusal of the same shows that the assessee is earning income from running a rice mill. The AO noticed from the details of the fixed assets filed that the assessee had shown increase in building account at Rs.21,61,172/- as compared to Rs.17,37,148/- in the preceding year. He further observed that net addition of Rs.46,54,495/- in machinery a/c had also been shown. In view thereof a reference to the DVO u/s 142 was made in respect of investment in building and also in respect of plant and machinery. On the receipt of the DVO's Report vide letter No.-VO/CHD/IT/2008-09/I-619/518 dated 15.12.2008 and subsequent year wise break-up report dated 17.12.2008 which determined the total value of investment for the year under consideration at Rs.42,69,877/- as against Rs.21,61,172/- shown by the assessee the AO confronted the same to the assessee. The assessee as per record is found to have replied vide letter dated 22.12.2008 objecting to the reference being made to the DVO in view of the fact that the day to day record of construction supported by vouchers of each expense had been maintained and no discrepancy or mistake in regard thereto had been pointed out. For ready-reference, we extract the submissions from pages 2 & 3 of the AO:-
"Even on merits proposal of your good self to make an addition of the difference of the cost of construction incurred by the assessee, by keeping day to day account and maintaining full vouchers to the tune of Rs.28,81,149/- and arrived at by the D.V.O., Chandigarh Rs.42,69,877/- by taking the same as gospel truth is not tenable.
Yearwise investment by the assessee is i.e. during 2004-2005 Rs.17,37,148/- and during F.Y. 2005-06 Rs. 28,81,149 and not Rs. 21,61,172/- (F.Y. 2005-06) as shown by the DVO. It appears that the DVO could not see the figure of Rs.4,90,0001- , which was received by the assessee as incentive given by the APEDA. Hence, the alleged 3 I.T.A .No.-3870/Del/2009 & CO No.-369/Del/2009 difference is Rs. 13,88,7281- Rs.42,69,877 minus Rs. 2881149) and not Rs. 21,08,705 as mentioned in your notice.
In this connection it is submitted that D.V.O. has calculated the value on estimate basis by adopting the specifications of government godowns and applied the same rates which are prevalent in cities. Whereas the assessee got it constructed at V.Dabri under self- supervision by procuring the entire material himself and have the total purchases vouched and the total payments to the labour are also vouched. The specification of the godowns are not the same as that of the government in respect of the godowns, rolling shatters, thickness of floors, plastering, platform of the phar etc. Hence, the difference shown by the D.V.O. is not logical at all because that is a guess and estimate work whereas the assessee has got it done in his own supervision.
Moreover Sir, D.V.O. has made an addition of Rs.1,63,269/- regarding builders profit. This should have been deducted instead of making addition of it. Further rebate for self supervision & procurement of material is generally allowed at 10% whereas DVO has allowed this at 7.5% only.
Moreover Sir, Each and every item of this construction have been shown in the account books including the labour work and the learned D.V.O. could not point out any thing which is lacking and not found in the vouchers and how can be say that the valuation shown by the assessee is not correct and how can he claim that his estimated value is correct. The claim of the assessee is based on the reality whereas the valuation made by the D.V.O. is guesswork and estimation, which can not be taken as gospel truth and hence the difference cannot be added."
2.1. Not convinced with the explanation offered the addition of Rs.13,88,728/- was made by the AO.
3. In appeal before the CIT(A) summarized the facts as under:-
3. "The facts of the case are that the assessee had shown addition in the building account of Rs. 21,61,172/- during the year and Rs.17,31,148/- in the preceding year, whereas, the factory building was not complete as yet but for the purpose of knowing the investment in the factory building, AO made reference to the DVO. The DVO valued the investment in the building at Rs.77,02,000/- in total out of which he apportioned Rs. 42,69,877/- for the year under consideration and therefore, AO held that assessee had shown less investment in the factory building during the year upto Rs. 21,08,705/-. Whereas, the assessee claimed that reference u/s 142A is not valid and further claimed that the valuation by the DVO is merely an estimate, whereas, assessee has kept all the records and day to day detail of construction expenses which supporting evidence in which no discrepancy or mistake has been pointed out by the AO or the DVO and therefore, objected to the value estimated by the DVO. Whereas, the AO did not agree with the objections of the assessee and finally held that Rs.
13,88,728/- is the net difference in the expenditure shown by the assessee and the valuation estimated by the DVO and therefore, made addition of Rs. 13,88,7281- to the income of the assessee."
4 I.T.A .No.-3870/Del/2009& CO No.-369/Del/2009 3.1. The record shows that the CIT(A) after going through a marathon exercise of bringing all facts on record and confronting the same to the concerned parties and taking into consideration the re-joinder and again confronting the same to the parties ad infinitum came to the following conclusion which is under challenge by the Revenue:-
4. "I have considered the facts of the case and the submissions of the assessee. The assessee has objected that reference u/s 142A is not as per law because AO has not recorded the reasons for making the reference, whereas, as per section 142A there is no such requirement and the only condition is that after receiving the report from the DVO, the AO should give the opportunity to the assessee which has been given in the case of the assessee by the AO and therefore, the reference u/s 142A has been rightly made, hence this objected of the assessee is rejected.
Assessee has also referred to section 69 and claimed that addition can not be made u/s 69 by reference to the investment to the DVO unless the books of accounts are rejected and for this purpose, assessee has relied on the judgment of Hon'ble ITAT, Jaipur 'A' Bench in the case of ITO vs, Agency Rajasthan Pvt. Ltd., 117 TTJ 542 (Jaipur), it is true that books of accounts have not been rejected, whereas, assessee has maintained complete books of accounts claiming that each voucher of the expenditure has been made. Hon'ble ITAT in the said case has held as follows:-
''Head Note Income from undisclosed sources. Addition under s. 69. Cost of construction. Without pointing out any specific defects in the books of accounts or rejecting them, addition made by AO on account of cost of construction on the basis of report of D VO obtained under an invalid reference was rightly deleted by CIT(A). CIT(A) was justified in observing that higher plinth area was taken by DVO, that PWD rates should have been applied as against CPWD rates and that expenditure should have been spread over the period of construction consisting of more than one year"
The case law cited by the assessee as above squarely applies to the case of the assessee because the addition has been made on account of unexplained investment and therefore, naturally u/s 69, though the section has not been specifically mentioned but books of accounts have not been rejected.
Even on merit of the case, the assessee has pointed out various mistakes in the report of the DVO and assessee has also filed the valuation report by a chartered engineer but the DVO has not given any satisfactory reply to the submissions of the assessee and the valuation report but he merely insisted on supply of structural drawings and architectural drawings. The assessee started construction on 01.08.2004 and claimed to have completed the construction of the factory building (sheller) on 31.03.2008 which is spread over four assessment years, i.e. AY 2005-06 to AY 2008-09, whereas, AO neither made any reference to valuer nor made any other addition to the income of the assessee in any other year except the AY 2006-07 for Rs. 13,88,728/-and the DVO has also spread the cost of 5 I.T.A .No.-3870/Del/2009 & CO No.-369/Del/2009 construction on two years, i.e on AY 2005-06 and 2006-07 only. The DVO inspected the factory building on 05.11.2008 when the building was completely constructed.
The assessee claimed to have spent Rs. 4,37,249/- during F.Y. 2006-07 and Rs. 5,98,548/- during F.Y. 2007-08 upto 10.08.2008 and therefore, assessee incurred expenditure of Rs. 10,35,797/- during the period relevant to A.Y. 2007-08 and 2008-09. The detail of such expenditure is claimed to have been filed before the AO and the DVO both and the same has again been filed during appellate proceedings also and it has also been mentioned in the valuation report submitted by the assessee from chartered engineer. Whereas, the DVO has not given any benefit of this expenditure to the assessee, therefore, there is no doubt that assessee has shown further expenditure on construction of factory building to the extent of Rs.10,35,797/- during the period relevant to A.Y. 2007-08 and 2008-09, whereas, no benefit of the same has been given by the DVO or the AO to the assessee, hence the addition to the extent of Rs. 10,35,797/- can not be made because it stands explained and reflected in the books of accounts of the assessee but this definitely shows that the DVO has not applied his mind properly to the facts of the case.
The DVO has added 2% of the estimated investment on account of builder effort amounting to Rs. 1,63,269/-, whereas, no basis of it has been given in the valuation report. In the comments, the DVO has claimed that it is for obtaining drawings and other engineering details etc by the builder but there is no evidence to have spent money for any such expenditure by the assessee and therefore, such an addition to the estimated cost of construction is unwarranted.
The assessee has objected since beginning that the rate applied by the DVO are CPWD rates applicable to the first class godowns, whereas, the construction of the assessee's sheller is not of that quality but the DVO has neither given the detail as to why he applied this rate nor has given the composition of the rate applied by him and therefore, it is not possible for the assessee to further analyze the difference in the estimated cost calculated by the DVO and the expenditure shown by the assessee. The assessee has claimed that the plinth height in the case of the assessee is far less than the standard godowns. It is also claimed that the expenditure required for creating a strong plinth in case of godowns is much more than the case of the assessee, whereas, the DVO has merely claimed that it has taken the height of the plinth as per site but no explanation w.r.t. the quality difference has been given. Further differences on account of provisions for rolling shutter, number of bays, the quality of the rat proof platforms applicable in case of god owns but not in the case of the assessee and other defects like less number of side walls etc. are the points on which DVO has not given any satisfactory explanation or comment, whereas, such defects are specifically pointed out by the assessee and therefore, it is clearly a wrong application of godowns rates of construction to the case of the assessee because assessee has merely constructed the building for the sheller and godown and sheller building are quite different from each other in quality and other technical aspects.
Therefore in view of the above discussion after reducing the estimated cost on account of various defects pointed out and discussed 6 I.T.A .No.-3870/Del/2009 & CO No.-369/Del/2009 as above, if any difference remains then such a difference is bound to be there because DVO has merely estimated the cost of construction, whereas, the assessee has shown the actual expenditure incurred. Hence in view of the above discussion, no addition can be made on the basis of the estimate of construction furnished by the DVO.
In view of the above discussion, it is clear that the addition of Rs.13,88,728/- on account of unexplained investment in factory building was made without rejecting the books of accounts and only on the basis of the DVO's report, whereas, the DVO's report is full of defects and loop holes which have not been satisfactorily explained by the DVO, therefore, the addition of Rs.13,88,728/- is deleted and the ground of appeal of the assessee is allowed."
4. The Ld. Sr. DR heavily relied upon the assessment order and submitted that the challenge posed by the assessee that a reference to the DVO could not have been made is incorrect in law. It was also his submission that all the arguments of the assessee had been met by the DVO as such the impugned order may be set aside and the assessment order upheld.
5. The Ld. AR relied upon the submissions advanced before the CIT(A) and detailed arguments and counter arguments recorded in the impugned order submitted that firstly no defect in the details maintained of the books has been pointed out by the AO or by the Sr. DR in support of his action thus in the absence of any factual inaccuracy the impugned order may be upheld which shows and reliance was placed upon the impugned order.
6. We have heard the rival submissions and perused the material available on record. On a consideration of the totality of the facts, circumstances and the arguments of the parties before the Bench, we are of the view that in the facts as they stand no inference is called for the impugned order. A perusal of the extract of the reasoning with which we are in concurrence shows that no defect in the books of accounts has been pointed out by the department. The fact of assessee incurring expense of Rs.10,35,797/- during the period 2007-08 & 2008-09 assessment years has not been factored in by the DVO. The finding on record in regard thereto has not been upset by the Revenue in any manner before us. The application of rate by way of applying CPWD rates which are applicable to First class godowns as opposed to the quality of construction supervised by the assessee being entirely different stand unassailed on record. Whereas the specific difference in regard to the quality of construction, number 7 I.T.A .No.-3870/Del/2009 & CO No.-369/Del/2009 of bays, quality of rate proof platforms etc. which are considered in the case of godowns were found not applicable to the quality of construction of the assessee also remains unassailed. In view thereof we find no good reason in finding of the impugned order while coming to the said conclusion, we find the CIT(A) at page 3 to 6 in the impugned order has extracted the detailed arguments and the comments of the AO which too have been extracted at page
6. This has been followed by the comments of the DVO extracted at page 7 of the impugned order including the assessee's re-joinder to these comments which is found extracted at pages 8 to 10 in the impugned order alongwith the extract of valuation report, relied upon by the assessee from the Chartered Engineer determining the total investment of Rs.46,67,400/-. It is seen that the CIT(A) has forwarded the same to the DVO whose comments are extracted in the impugned order at page 10 and has also considered the assessee's re- joinder dated 08.05.2009 at pages 11 to 12 which was again confronted to the DVO vide letter dated 09.06.2009 whose comments are found to have been sent by letter dated 17.06.2009 are also found extracted at page 13 and the assessee's final re-joinder dated 24.06.2009 extracted at page 14 it is seen that only after this mammoth exercise, the CIT(A) concluded the issue in assessee's favour. Being satisfied with the reasoning and finding contained therein which we have already addressed Ground No.-1 of the Revenue is dismissed.
7. The facts relatable to Ground no-2 are found discussed at pages 4 to 5 of the assessment order in para 3 wherein the AO made a lump-sum addition of Rs.25,000/- on account of fall in GP from 36.71% to 27.88%. The argument of the assessee that it was due to fall in production of rice shown at 10% in the year under consideration as against 10.87% in the immediately preceding assessment year and also the argument that the percentage of the receipt of driage and chhilka was 27.2% as against 6.82% was not accepted by the AO.
8. In appeal before the First Appellate Authority, the CIT(A) considering the arguments of the assessee and the comments of the AO came to the following conclusion:-
7. "I have considered the facts of the case and the submissions of the assessee. The AO has not found any defect in the books of accounts, whereas, complete books of accounts were produced before 8 I.T.A .No.-3870/Del/2009 & CO No.-369/Del/2009 the AO and the same are audited, therefore, the addition is without any basis and without even rejection of books of accounts, hence it is merely a guess work, therefore, it is deleted and the ground of appeal of the assessee is allowed."
9. Aggrieved by this the Revenue is in appeal before the Tribunal. Ld. Sr. DR places reliance on the assessment order and the Ld. AR relies upon the impugned order.
10. Considering the material facts on record in the light of the submissions advanced, we find no good reason to interfere to the order of the CIT(A) where evidently books of accounts had not been rejected and no defect in the books of accounts maintained has been pointed out either by the AO or the Sr. DR in the present proceedings. In the afore-mentioned peculiar facts and circumstances, in the absence of any specific argument in the facts as they stand we dismiss the departmental ground.
11. The facts relatable to the next issue agitated by the Revenue are found discussed at page 5 para 5 of the assessment order and for ready-reference the same is reproduced hereunder:-
5. "In the P&L A/c, the assessee has claimed freight expenses at Rs.11,62,940/-. The details of these expenses have been obtained. These expenses include an expenditure of Rs.45,000/- paid in cash on 20.02.2006 on account of freight charges of boiler from Bombay to Karnal and Rs.36,000/- paid in cash on 31.03.2006 on account of freight charges of machinery from Delhi to Karnal. Vide order sheet entry dated 16.10.2008, the assessee was required the reason for not deducting TDS on payments exceeding Rs.20,000/- on account of freight. In response to this query, the assessee has furnished the Xerox of the freight vouchers of Rs.12,000/- each totaling Rs.36,000/-
paid on 31.03.2006 but no reasons for non-deduction of TDS either from the payment of Rs.45,000/- or from the lumpsum payment of Rs.36,000/- have been given which has been made on the same date at one occasion to one Sh. Ram Pal. Accordingly, since the payments have been made exceeding Rs.20,000/- each and no TDS has been deducted as required u/s 194C of the IT Act, the addition for the total amount of Rs.81,000/- is made as per provisions of Section 40(a)(ia) of the I.T.Act, 1961."
12. Considering the facts when the issue was agitated before CIT(A) he upheld the disallowance of the payment of Rs.45,000/- as it was a payment against a single builty. However qua the payment of Rs.36,000/- claimed by the assessee he found that it consisted of payment against three freight vouchers of Rs.12,000/- each and hence consisted of three independent contracts 9 I.T.A .No.-3870/Del/2009 & CO No.-369/Del/2009 consequently he concluded that TDS was not required to be deducted. Aggrieved by this the Revenue is in appeal before the ITAT.
13. The Ld. Sr. DR relying upon the assessment order did not controvert the facts on record. The Ld. AR relied upon the impugned order.
14. We have heard the rival submissions and perused the material on record. In the light of the facts on record which stand unassailed, we find no good reason for inferring with the finding arrived at in the impugned order. Being satisfied with the findings on facts which remain unassailed the departmental ground is dismissed.
15. In the result the appeal of the Revenue is dismissed.
16. Qua the issues filed on the Cross Appeal, no arguments were advanced by the Revenue the same is also rejected.
17. In the result the appeal and the C.O. of the assessee are both dismissed.
The said order was pronounced in the Open Court on 31st March, 2015.
Sd/- Sd/-
(G.D.AGRAWAL) (DIVA SINGH)
VICE PRESIDENT JUDICIAL MEMBER
Dated: the 31st March, 2015
*Amit Kumar*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI