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Income Tax Appellate Tribunal - Ahmedabad

Amal Finance Pvt.Ltd.,, Mumbai vs Assessee on 20 June, 2012

                IN THE INCOME TAX APPELLATE TRIBUNAL
                         'B' BENCH - AHMEDABAD

          (BEFORE S/SHRI D. K. TYAGI, JM AND T. R. MEENA, AM)

                            ITA No.1421/Ahd/2009
                                 A. Y.: 2004-05

     Amal Finance Pvt. Ltd.,        Vs   The Income Tax Officer,
     Gurukul Cooperative Housing         Ward 1 (1), 1st Floor,
     Society,                            Aayakar Bhavan,
     F-P/145, Ram Mandir Road,           Race Course Circle,
     Vile Parle (East), Mumbai           Baroda
     PA No. AABCA 5920 B

             (Appellant)                          (Respondent)

            Appellant by       Shri S.N. Soparkar with
                               Mrs. Urvashi Sodhan, ARs
            Respondent by      Dr. Jayant Jhaveri, Sr. DR.

                      Date of hearing: 20-06-2012
                   Date of pronouncement: 29-06-2012

                                   ORDER

PER T. R. MEENA: This is assessee's appeal for assessment year 2004-05 arising out of the order of the learned CIT(A)-I, Baroda in appeal No. CAB-I/132/08-09 dated 27-03-2009.

2. The assessee in ground No.1 and 2 of the appeal challenged the validity of reopening u/s 147 of the IT Act on the ground that it was reopened on the basis of reference to the DVO u/s 148 of the Act, but grounds No.1 and 2 of the appeal have not been pressed by the assessee, therefore, the same are hereby dismissed as not pressed.

ACIT Patan Circle Vs Unjha Pharmaceuticals Pvt. Ltd.

3. Ground No.3 of the appeal of the assessee is against addition of Rs.23,16,120/- u/s 69 B of the Act as additional purchase cost of his property. The brief facts of the case are that during the year the assessee purchased flat No.1403, 14th floor in the building known as 'Vainganga' situated at Plot No.66, 66-A, vide C.S. NO.787, 1-787 at Sir Pochkhanwala Road, Worli, Mumbai 400 030 admeasuring about 950 Sq. Ft. carpet area on 6-12-2003 for a consideration of Rs.62 lacs. The said property was referred to Government Approved Valuer to know the correct value of the said immovable property as on date of purchase under section 142 A of the Act. The District Valuation Officer estimated the fair market value at Rs.1,77,80,600/-. Thus, there was a difference of Rs.1,15,80,600/-. The AO gave show cause notice on this difference. The assessee replied on 23-10-2005 which has been considered on pages 4 and 5 of the assessment order. The main submission of the assessee that the valuation report is mere opinion; the DVO had not considered the valuation of the stamp duty valuation authority, there is hardly any difference in the stamp duty valuation and the sale consideration and it is very nominal, as per section 50C of the IT Act sale consideration has to be assessed in the case of seller and not in the case of purchaser. After considering the reply of the assessee the learned AO added Rs.1,15,80,600/- u/s 69 B of the Act in the income of the assessee on account of unexplained investment in the property.

4. Being aggrieved by the order the AO, assessee filed first appeal before the learned CIT(A)-I, Baroda who had given detailed reasoning on page 4, 5, 6 and 7 of his order and the learned CIT(A) ITA No.1421/Ahd/2009(AY: 2004-05) 3 ACIT Patan Circle Vs Unjha Pharmaceuticals Pvt. Ltd.

held that reference made to the DVO was as per law but the AO should have also considered the other aspects of the case which was raised by the assessee in the form of objections at the time of assessment proceedings. He further observed that the learned AO relied on the DVO's report and the assessee relied on Registered Valuer's Report. There is wide variation between both the values determined by the experts. The DVO has considered evidences of comparable cases situated far away whereas the assessee has given comparable case of the same society. As per the learned CIT(A)'s opinion, it was reasonable to add Rs.2,3,16,120/- u/s 69B of the Act. Therefore, he deleted the balance amount of Rs.52,66,480/- from the income of the assessee.

5. Now, the revenue is in appeal before us and the learned Counsel for the assessee Shri S. N. Soparkar, Sr. Advocate filed paper book in which written reply for this addition has been submitted which is reproduced as under:

"3) Grounds of appeal 3 Addition Rs.1,15,80,600/- being the difference between the valuation made by the Government Valuer and the agreement value under section 69B Further facts are as under:-

ACIT Patan Circle Vs Unjha Pharmaceuticals Pvt. Ltd.

        i) the flat purchased for                         Rs.62,00,000
        ii) Stamp duty levied on                          Rs.63,40,500
        iii) Value as per Department's valuer            Rs.1,77,80,600
        iv) Difference proposed for addition u/s. 69B    Rs.1,15,80,600
        [ (iii) - (i)
        v) Difference in value between stamp duty           Rs.1,40,500
        valuation and agreement value
        vi) Difference in terms of % [v] above                    2,22%
        Rs.1,40,500 X 100/ Rs.63,40,500

LAO has added the difference solely on the basis of the valuation report given by the Department's Valuation Officer who has not cited any sale instance of December 2003 and has cited the sale instance of 2001 and 2002.

The appellant has paid samp duty at the time of purchase of the property. The Stamps Authority valued the property at Rs.63,40,500/-. This is based on the Ready Reckoner. This is evident on the basis of the stamped document whereby such purchase is made. The said valuation is done by the Stamp Authority under section 33 of the Stamp Act as adjudication. This document was also made available to the valuation officer, but he has not referred this value and has not said as to why this accepted method is not acceptable to him.

The LAO and the Deptt. Valuer failed to appreciate that the land on which the building is constructed is Collector's Land and the permission is to be obtained before any transfer. Thus it is not a freehold land and the 'building1 only belongs to the Society.

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.

Reliance was placed on the following decisions for the proposition that if regular books of maintained, no addition can be made under s. 69B/69C only on the basis of the report of the DVO.

ACIT Patan Circle Vs Unjha Pharmaceuticals Pvt. Ltd.

(i) Nishant Housing Development (P) Ltd. vs. Asstt. CIT (1995) 52 ITD 103 (Pat)

27. The case law is, therefore, overwhelmingly in favour of the assessee that the cost of as per books cannot be rejected and on estimate made without first bringing the case under proviso to s. 145(1) or under s. 145(2). The case has been brought under neither of these. We, therefore, hold that the cost of construction as per assessee's books the rejected and a higher estimate cannot be made either on the basis of the DVO or any other case considered comparable. The additions sustained by the CIT(A) are, therefore, deleted on this preliminary issue.

(ii) Shri Har Sarup Cold Storage & General Mills vs. ITO (1988) 27 ITD 1 (Del)(TM)

9. For these reasons, I am of the opinion that "the ITO not having pointed out any defects in the account books, should not have rejected the accounted version and the CIT(A) having found that the valuation made by the DVO was excessive to a great extent, should have examined the matter in greater detail and in any case should have found out defects in the accounted version and not having done that, his order also suffers from the same defects as that of the ITO" and that the view expressed by the learned JM placing reliance upon another order of the Tribunal taking a similar view is more acceptable, I, therefore, agree with the view expressed by the learned JM.

(iii) ITO Vs. Pitamber Industries (P) Ltd. (1992) 42 ITD 373 (Del) When the assessee maintained books of account and recorded investment in those books of it becomes compulsory as per the legislative mandate that the ITO should point out defects in the maintenance of those books of account. It is not open to him to ignore the evidence provided by these entries in the books of account and go only by the valuation given by the Valuation Officer. When the ITO proposes to go by the Valuation Officer's report, it means that the books of account maintained by the assessee and produced by him in support of cost of ITA No.1421/Ahd/2009(AY: 2004-05) 6 ACIT Patan Circle Vs Unjha Pharmaceuticals Pvt. Ltd.

construction within the meaning of s. 143(3) of the IT Act, require specific comment to reject the material as unreliable. The ITO can only make the assessment after rejecting the evidence produced by the assessee in support of his return. The assessee can, therefore, offer the books of accounts maintained by him in support of his cost of construction. The ITO must look into that evidence and point out the defects to falsity and unreliability of these evidences. It is only after the evidence is rejected on the specific point, the ITO will get the power to estimate the cost of construction and rely upon the report of the Valuation Officer. The unreliability of the books of account without showing defect in that, cannot be taken for granted.

(iv) Shiv Engg. Works vs. ITO (1990) 53 Taxman 109 (Jp)(Mag) Sec. 69 of the IT Act, 1961--Unexplained investment--Asst. yr. 1981-82--Assessee had started construction of building in 1971 and completed it in December 1981--Finding cost of construction disclosed by assessee unsatisfactory, ITO referred matter to valuation cell-- Difference of Rs.66,509 between valuation as worked out by valuation cell and as disclosed by the assessee was added to total income of assessee--Whether since ITO was not able to point out any defects in books of accounts maintained by assessee, he was not justified in rejecting book results and substituting figures, even if they were alleged to be figures of undisclosed investment based on report of an expert and, thus, aforesaid amount of was not assessable in hands of assessee--Held, yes.

(v) ITO Vs Dreamland Enterprises (1995) 81 Taxman 143(Ahd)(Mag) Sec. 69 of the IT Act, 1961--Unexplained investment--Asst. yr. 1987-88--Whether, when of construction declared by assessee was supported by regular books of account and correctness of which was not disputed by AO or Departmental Valuation Officer bringing any specific material on record, CIT(A) was fully justified in holding that could be validly made on account of any understatement of cost of construction merely on the basis of ITA No.1421/Ahd/2009(AY: 2004-05) 7 ACIT Patan Circle Vs Unjha Pharmaceuticals Pvt. Ltd.

difference between actual cost disclosed by assessee, which was by regular books of account and vouchers, and estimate of cost of on made by DVO, particularly in a case where assessee had submitted details both in terms of quantity and value to DVO as well as AO--Held, yes.

In the following decisions, it was held that when the assessee maintained accounts regularly, addition cannot be made on the basis of the report of the DVO without pointing out any in the books:

(a) Shekhar Chand & Sons (1988) 32 TTJ (Del) 570

(b) Western Estate (1994) 209 ITR 343 (Cal)

(c) Vindaban Chitra Mandir (1994) 209 ITR 520 (All)

(d) Nishant Housing Development (P) Ltd. (1995) 52 ITD 103 (Pat.)

(e) Smt. Uma Devi Jhawar: (1996) 218 ITR 573 (CAL) From the aforesaid judgments, the following proposition would emerge:

(a) For the purpose of making an addition, towards unexplained investment, the AO is under legal obligation to verify th4e books and vouchers maintained by the assessee in support of the consideration shown by him and point out specific defects;

(b) Upon rejection of the books or upon pointing out defects, the AO would acquire the right to refer the matter to the Valuation Officer, if so required; and

(c) When the assessee produces registered valuer's report based on the sale instance of the same building and also of the Stamp Authority, it cannot be simply reject4ed without giving cogent reasons.

In view of the above explained facts merely on the basis of the Department's valuation report the addition cannot be made. LAO has failed to prove that the valuation report of the Approved valuer and the Stamp Duty valuation are not correct. The addition needs to be deleted."

ACIT Patan Circle Vs Unjha Pharmaceuticals Pvt. Ltd.

Another side, the learned DR for the revenue vehemently argued to confirm the order of the learned CIT(A) and that no further relief should be given to the assessee.

6 We have perused the orders of the authorities below, written submission and arguments from both the sides. The assessee had purchased the flat at Rs.62 lacs but Stamp Valuation Authority had valued the said flat for stamp duty purposes at Rs.63,40,500/-. The learned AO has not brought on record any other evidence except the report of the DVO that the assessee has paid more than agreed consideration. The assessee filed comparable cases of the same society or nearby area; whereas the DVO has taken comparable cases of quite far away area. Therefore, we are of the considered view that no addition could be made u/s 69 of the Act in the absence of any cogent evidence. Accordingly, we delete the addition confirmed by the learned CIT(A).

7. In the result, the appeal of the assessee is allowed.

Order pronounced in the open Court on 29-06-2012 Sd/- Sd/-

              (D. K. TYAGI)                        (T. R. MEENA)
           JUDICIAL MEMBER                     ACCOUNTANT MEMBER

Lakshmikant/-
 ITA No.1421/Ahd/2009(AY: 2004-05)                                           9

ACIT Patan Circle Vs Unjha Pharmaceuticals Pvt. Ltd.

Copy of the order forwarded to:

1. The Appellant

2. The Respondent

3. The CIT concerned

4. The CIT(A) concerned

5. The DR, ITAT, Ahmedabad

6. Guard File BY ORDER Dy. Registrar, ITAT, Ahmedabad

1. Date of Dictation: 26-06-2012

2. Date on which the typed draft is placed before the Dictating Member: 27-06-2012 other Member:

3. Date on which approved draft comes to the Sr. P. S./P.S.:

4. Date on which the fair order is placed before the Dictating Member for pronouncement:

5. Date on which the fair order comes back to the Sr. P.S./P.S.:

6. Date on which the file goes to the Bench Clerk:

7. Date on which the file goes to the Head Clerk:

8. The date on which the file goes to the Assistant Registrar for signature on the order:

9. Date of Despatch of the Order: