Income Tax Appellate Tribunal - Chennai
C.R.Selvaraj, Salem vs Assessee on 22 May, 2015
आयकर अपील य अ
धकरण, 'सी' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH, CHENNAI
ी चं पज
ू ार , लेखा सद य एवं
ी च ला नागे !साद, या"यक सद य के सम$
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER &
SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER
आयकर अपील सं./ I.T.A. No.100/Mds/2015
( नधा रण वष / Assessment Year : 2011-2012)
Shri. C.R. Selvaraj, The Income Tax Officer,
NSR Mall, Vs Ward I (1),
D.No.195, Salem Road, Namakkal.
Namakkal Town,
Namakkal Dist 637 001.
[PAN: BSJPS 7393N]
(अपीलाथ&/Appellant) (!'यथ&/Respondent)
अपीलाथ क ओर से / Appellant by : Shri. T.S. Lakshmi Venkataraman, C.A.,
यथ क ओर से / Respondent by : Shri. A.V. Sreekanth, IRS, JCIT.
सन
ु वाई क तार ख/Date of hearing : 16.04.2015
घोषणा क तार ख /Date of Pronouncement : 22.05.2015
आदे श / O R D E R
PER CHANDRA POOJARI, ACCOUNTANT MEMBER
This appeal filed by assessee is directed against the order of the Commissioner of Income Tax (Appeals), Salem, dated 14.11.2014 for the assessment year 2011-12.
:- 2 -: I.T.A.No.100/Mds/2015.
2. The assessee has raised the following grounds:-
"01. The order of the learned CIT(A) Salem dated 14.11.2014 in ITA No.263/2013-14 is opposed to the facts of the case and is not legally maintainable.
02. The learned CIT(A) is not justified in giving direction to the Assessing Officer to adopt state PWD rates in the place of CPWD rates as adopted by the valuation officer in estimating the cost of construction of the assessee's commercial complex at Namakkal.
03. The assessee has maintained regular books of accounts for his construction activity. The Assessing Officer in page 4 of the assessment order has rejected the books of accounts on the ground that the same were prepared now only with available bills and most of the bills/vouchers is supported by self made documents. The Assessing Officer while rejecting the books of accounts should pinpoint specific defects in the books of accounts and on general observation as above rejection of books is not legally sustainable.
04. The assessee produced quantitative details for the construction activity before the assessing officer which has not been rejected or found to be false. In view of this the addition towards cost of construction need to be deleted."
3. The brief facts of the case are that the assessee is an 'individual', derives income from rental income and lorry transport business carried out in the name of C.R. Transport & N.S.R. Transports. He had filed his return of income for the assessment year 2011-12 on 06.03.2012, admitting an income of H4,49,100/- and the same was processed u/s.143(1) of the Income Tax Act on 09.03.2012. Later the case was selected for scrutiny. On perusal of the return of income, it was found that the assessee has admitted cost of construction of H1,55,74,158/- and rental income of H63,889/- from Jayasurya Departmental store pvt.
:- 3 -: I.T.A.No.100/Mds/2015.
Ltd. (formerly known as Shri Kannan Departmental Stores). Further, it was observed by Assessing Officer that the value of the building admitted by the assessee is very low on compared with the building structure which is located at 196, Salem Main Road, Namakkal in the name of N.S.R. mall.
3.1 The building comprises of 5 Floors (Basement + Ground+ 3). This Income Tax Inspector was deputed by Assessing Officer to visit the assessee's building to verify the probable cost of construction. The Inspector visited the assessee's building and submitted his report on 10.07.2013. As per his report, the assessee has constructed commercial building at No.196, Salem Road, NSR Mall, Namakkal during the Financial year 2009-2010 and the building comprises of basement floor, ground floor & three floors. The total constructed area about 50,000 sq.ft. Further he reported that the probable cost of construction of commercial building is about 900 per sq.ft i.e. the total cost of construction is about H.4,50,00,000/- (50,000/- x 900). 3.2 Consequently, the assessee has filed a letter dated 19.07.2013 wherein it was stated that he has started to construct commercial shopping complex at Salem Road, Namakkal during the period of April'2009 and it was completed during the period September'2010. Then the rental income was arrived by way of letting out to Kannan :- 4 -: I.T.A.No.100/Mds/2015.
Departmental Stores Pvt Ltd' and given break-up details for the cost of construction of building is as under:-
A.Y. 2010-11 : H1,18,85,976/-
A.Y. 2011-12 : H 32,35,800/-
-------------------
Total : H1,51,21,776/-
-------------------
The assessee has not produced any books of account, bills/vouchers for cost of construction of building so far 19.07.2013. In the absence of the books of accounts, it was presumed by AO that the assessee has not maintained any books of accounts and bills/vouchers for cost of construction of building. Therefore to verify the actual cost of construction, the building was referred to the District Valuation Officer, Chennai on 25.07.2013 as per the provisions of Sec. 142A of the I.T.Act.
3.3 Further notice u/s 142(1) of the I.T.Act was issued by Assessing Officer on 18.09.2013 and posted for hearing on 04.10.2013. In response to the notice, the assessee's authorized representative Shri. T. Balasubramaniam, ITP appeared on 03.10.2013 with power of attorney along with cash flow statement, statement of affairs, capital account and name & address of the sundry creditors are produced. On this day, he has not produced any evidences for maintaining the books of account and bills/vouchers for cost of construction of building :- 5 -: I.T.A.No.100/Mds/2015.
admitted by the assessee. Further he was asked to produce the source for the cash deposits by the assessee at TMB and Kotak Mahindra Bank Ltd and the case was adjourn to 14.10.2013.
3.4 In the mean-time, the valuation report from the District Valuation Officer, Chennai received by Assessing Officer on 01.01.2014. As per the DVO report the cost of construction was worked out at H 6,55,43,700/- and after deducting the cost of the work carried out by the tenant, the cost of construction determined by the DVO works out to H 5,70,06,100/-. The cost of construction determined by the Valuation Cell works out to approximately H1,068 per sq. ft. 3.5 The assessee's representative has appeared before Assessing Officer on 02.01.2014 and copy of the Valuation Report was served on the representative, asked to file his comments on the same. Also he was asked to produce the copy of building plan, building approval, copy of land deed and supporting evidences for cost of construction admitted by the assessee i.e. breakup details of cost/quantity component-wise and case was adjourn to 09.01.2014. The Assessee's representative had appeared before Assessing Officer on 21.01.2014 and stated that the assessee was maintained the books of accounts and bills/vouchers for cost of construction however, he has not :- 6 -: I.T.A.No.100/Mds/2015.
produced of the same. Further, he filed reply along with copy of loan statement, source for cash deposits, copy of land deed and breakup details the cost/quantity component-wise which is as under:-
Item Cost (H.) Quantity
Cement 22,77,250 10756 Bans
Steel 37,39,671 137.06 Tone
Blue metal 6,05,200 436 units
Bricks 4,99,400 170250 No's
Labour 43,93,925 -
Sand 5,92,780 454 units
Electrical fittings 2,21,402 --
Grill Items 1,48,380 ---
Glass 72,340 ---
Lift 9,30,000 ---
Front Elevation 8,64,500 --
Paint . 65,155 ---
Sundry Building
4,97,896 --
items
Sundries 2,13,608 -
TOTAL 1,51,21,776
It was admitted facts that the assessee had undertaken construction of only the skeletal superstructure of the building and the interior work entirely was done by the tenant (flooring tiles, air conditioning, wood partitions, false ceiling, electrical wiring, internal painting, genset installation), the cost of construction admitted by the assessee hardly :- 7 -: I.T.A.No.100/Mds/2015.
worked out to H 280 per sq. ft. which was too low as compared to the market rate. Additionally, the scope of work carried out by the tenant was also independently ascertained along with the cost of such additional work. An analysis of the details by Assessing Officer as furnished by the assessee revealed that the labour component is shown as H. 43,93,925/- which hardly works out to H. 82/- per sq. ft. which is far less than the then prevailing market rate of close to H. 200/- per sq. ft. According to Assessing Officer, it was quite obvious that the assessee has understated his investment in the building. 3.6 After providing a copy of the Valuation Report by Assessing Officer , the assessee's representative filed a letter dated 03.02.2014 along with objection to the DVO report, date-wise quantity-wise materials purchases for construction of building, books of accounts and bills/vouchers are produced. The assessee has raised following objections is as under;
1)The assessee claimed that he has furnished vouchers to the extent of H.1,42,67,3331- which is almost the entire vouchers as opposed to the statement in the report that he had furnished only part vouchers
2). The DVO did not ask for quantity particulars from the assessee
3). Adoption of CPWD rates as against State PWD rates that too suitably reworked over the period of construction as against the 2011 CPWO rate adopted by the DVO.
:- 8 -: I.T.A.No.100/Mds/2015.
4). Adoption of architects fee at 2% of the cost when he had not availed the services of one.
5). The cost of construction in respect of the work done by the tenant (H. 85,37,600) is merely adopted as per details furnished to the Assessing Officer and deducted from the total cost without independent verification of the bills and vouchers
6). Reference to the Valuation Officer is made by the assessee's representative without rejecting the books of accounts. 3.7 Books of accounts for cost of construction produced by the assessee's representative verified by the Assessing Officer. According to Assessing Officer, the assessee has not maintained the books of account and bills/vouchers properly. It was observed by Assessing Officer that the books of accounts are prepared at the time of assessment only with the available bills and most of the expenses are supported with self made bills/vouchers. Hence the books of account and bills/vouchers produced cost of construction building are rejected by Assessing Officer. Further, the Assessing Officer observed as follows:-
1). While the assessee claims that almost all vouchers are produced, it is to be stated that the vouchers are available in respect of purchase of steel, cement, blue metal to some extent all the other vouchers are all self made and it is not corroborated.
2). Since it is not proved that the assessee engaged the services of an Architect, it is felt that to this extent relief can be given, which would amount to H. 6,47,465/- (The DVO has estimated the architect fee at 1 % only as against 2% mentioned by the assessee in his letter.
:- 9 -: I.T.A.No.100/Mds/2015.
3). It is pertinent to mention here that the assessee has not maintained regular books of accounts. The accounts purportedly maintained for the construction (Construction A/c) by itself would not qualify as books of accounts per se and the question of making a reference to the Valuation Cell only after rejecting the books of accounts does not arise in this case as was held in the case of Sargam Cinema Vs. CIT (2011) 197 TAXMANN203 (SC) quoted by the assessee.
3.8 The assessee was then examined under oath u/s 131 by Assessing Officer on 27.02.2014 to question and verify the various aspects of the construction of the building. The assessee has stated that the construction work was carried out by him personally under the direct supervision of his father Shri. C. Rangasamy (Reply to Q. No. 8) 3.9 In support of the cost admitted by assessee his accounts, the assessee also filed another Valuation Report dated 18.01.2014 of Shri. R. Sundarraj, a Registered Valuer as per which the cost of construction is worked out at H. 1,62,36,000/-.The assessee has sought to explain the difference of H. 11,14,224/- in the cost as per this report as compared with his accounts, as the low weightage given to the self- supervision done by him by the Registered Valuer (10%). 3.10 According to Assessing Officer the registered valuer has given the break- up of the material usage by the assessee and certain glaring inconsistencies are noted in this Valuation Report. The registered valuer has not provided for the sand used whereas the :- 10 -: I.T.A.No.100/Mds/2015.
assessee stated that 454 units of sand were used. Also the registered valuer has given the period of commencement and completion of building from April'2009 to March'2010 however the assessee stated that the period of commencement and completion of building from April'2009 to September'2010. There is also a difference in the constructed area which is shown at 53,331 sq.ft in the approved valuer's report as against an area of 57,347 sq.ft mentioned in the DVO's report. Thus, he rejected the valuation report from Registered valuer.
3.11 Accordingly, the Assessing Officer made an addition of H89,63,245/- towards cost of construction for the assessment year 2011-12. Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals).
4. The Commissioner of Income Tax (Appeals) placing reliance on the judgment of jurisdictional High Court in the case of CIT vs. Shri. Raya R. Govindarajan in ITA No.255/2014, dated 22.07.2014 observed that the Assessing Officer is justified in adopting the value as for the CPWD rates and confirmed the addition. Against this, the assessee preferred an appeal before us.
:- 11 -: I.T.A.No.100/Mds/2015.
5. The ld. Authorised Representative submitted that the Assessing Officer is not justified in referring the case to District Valuation Officer for determining the cost of construction of the building. He also submitted that the Assessing Officer rejected the books of accounts of the assessee on the reason that expenditures are supported by self made vouchers. According to the ld. Authorised Representative it cannot be a reason to reject the books of accounts unless he pinpoint specific defect in the books of accounts. Further, he submitted the written submissions as follows:-
(i) Skelton structure only provided to tenant after completing plastering.
(ii) Flooring, granite to steps, false ceilings, luxury light fittings and furniture fittings all are borne by the tenant Kannan departmental stores.
(iii) State PWD rates for determining the cost of construction in which there are A,B,C,D and D1 is the classification available depending upon the nature of construction.
:- 12 -: I.T.A.No.100/Mds/2015.
(iv) This Skelton building only comes under 01 classification. The following rates are applicable to adopt in valuation of cost.
Type A H. 3850/ sq. meter Type B H. 3135/ sq.meter Type C H. 2420/ Sq.meter Type D H. 2475/ Sq.meter Type D1 H. 2590/ Sq.meter.
If the D1 type of construction is adopted, the value works only at H. 1,48,16,071/-.
(v) Used only hollow bricks in construction, no wood is provided in the building, no window is provided. (vi) The site in which the building is come up, previously it was
ricemill drying yard. It was 12 Ft depth from the ground. Hence there was no expenses towards earthwork.
(vii) No Engineers was engaged in construction and more specifically architect was not engaged.
(viii) The construction of the complex was done during the years ended 31.3.2010 and 31.3.2011 in which years the cement, bricks, steels and Labour mansion were very very cheap when to compare to the present rate.
:- 13 -: I.T.A.No.100/Mds/2015. (ix) There is no indication in the DVO report under which classification he done in the valuation.
6. The assessee relied on the decision of the Delhi Highcourt dated 19.2.15 in the case of CIT Vs Nishi Mehra & others. A copy of the above decision is kept on record. The main findings in the above decision are as under:
a. The primary burden to prove under statementor concealment of income is on the revenue and it is only when such burden is discharged it would be permissible to rely upon the valuation given by the DVO.
b. An addition to wards under estimate of cost of construction cannot be made solely on the basis of report of the DVO. In view of the findings of the Delhi high court the addition made towards under estimate of cost of construction needs to be deleted.
c. Further reliance is placed on the order of ITAT, Lucknow bench 'A' dated 16/10/14 in the case of DCIT vs. Satish Cold Storage (36 ITR (Tribunal) 435 (Lucknow) and Sargam :- 14 -: I.T.A.No.100/Mds/2015.
Cinema vs. CIT 328 ITR 513 (SC).
d. In the course of proceedings before CIT(A) Salem, the assessee filed details of cost of construction as per state PWD rates according to which the cost of construction comes to H.1,48;16,071/-.
e. The directions of CIT(A) to the assessing officer is to adopt the values as per the state PWD rates and not to adopt CPWD rates as taken by the valuation officer.
f. A copy of working given to CIT (A) arriving at a cost of construction at H. 1,48,16;071 as per PWD rates was given to the assessing officer. The assessing officer has passed a revision order dated 07.01.15 to give effect to the order of CIT(A} and he has given a relief of H. 3390,280/-. The basis for arriving for at the above figure is not available in the revision order. No opportunity was given by the assessing officer to the assessee before passing the order dt 07.01.15.
g. As could be seen from page number 4 of the assessment order, the books of accounts for the cost of construction have been produced by the assessee. The assessing officer has :- 15 -: I.T.A.No.100/Mds/2015.
summarily rejected the same without pinpointing any specific defects in accounts which is not in accordance with the decision of the Supreme court in the case of Sargam cinema Vs CIT ( 2011 ) 197 Taxman 203. In the report of district valuation officer a sum of H85,37,600/- was given as deduction towards investment made by the tenant namely Kannan departmental store. The DVO has worked out the figures en the basis of the CPWD rates and has deducted the investment of H. 85,37,600/- made by tenant and has arrived at COSI of construction by assessee. The above method of working out the cost of construction for the assessee is not correct since the amount spent by the tenant is much more than the above figure of H. 85,37,600/- . A copy of DVO's report is enclosed.
h. He furnished a copy of Approved valuer report given by assesse is enclosed according to which the cost is H.1,62,36,000/-.
7. On the other hand, the ld. Departmental Representative submitted that assessee's books of accounts are not reliable. Hence, reference was made to DVO to determine the cost of construction of building situated at Salem Main Road, Namakkal. Further, he :- 16 -: I.T.A.No.100/Mds/2015.
submitted that most of the expenditures are supported by self made vouchers. Hence, the books of accounts are rejected.
8. We have heard both the parties perused the material on record. In this case the assessee admitted cost of construction of H1,55,74,158/- located at 196, Salem Main Road, Namakkal in the name of N.S.R. Mall. According to the Assessing Officer the cost admitted by assessee is very low on comparing with the building structure. The building comprised of basement/ground floor + 3 floors (5 floors). He had deputed an Inspector to visit and submit a report. The inspector submitted his report on 10.07.2013. According to him the cost of construction is about H4,50,00,000/-. Vide his letter dated 19.07.2013, the assessee objected the valuation report by the Inspector. The department vide letter dated 25.07.2013, referred the matter to the District Valuation Officer, Chennai as per the provisions of Sec. 142A of the Income Tax Act. Further he issued notice to the assessee on 18.09.2013 and the case was posted for hearing on 04.10.2013 by Assessing Officer. The assessee's representative appeared before the Assessing Officer on 03.10.2013 along with cash flow statement, statement of affairs, capital account and name and address of the sundry creditors. The assessee at that point of time not :- 17 -: I.T.A.No.100/Mds/2015.
produced books of accounts. Later the case was adjourned to 14.10.2013 by Assessing Officer. In meantime, the District Valuation Officer, Chennai gave a valuation report on 01.01.2014. He determined the cost of construction at H5,70,06,100/-. The assessee's representative appeared before the Assessing Officer on 02.01.2014 and Assessing Officer gave a copy of the valuation report to him and Assessing Officer called for copy of building plan, building approval, copy of land deed and supporting evidences for cost of construction with break up. The assessee's representative appeared on 21.01.2014 before the Assessing Officer and stated that assessee maintained books of accounts and bills/vouchers for the construction. However, he has not produced the same. Later, the assessee produced the books of accounts for cost of construction produced by the assessee's representative verified by the Assessing Officer. According to Assessing Officer, the assessee has not maintained the books of account and bills/vouchers properly. It was observed by Assessing Officer that the books of accounts are prepared at the time of assessment only with the available bills and most of the expenses are supported with self made bills/vouchers. Hence the books of account and bills/vouchers produced cost of construction building are rejected by Assessing Officer. Further, the Assessing Officer observed as follows:-
:- 18 -: I.T.A.No.100/Mds/2015.
1). While the assessee claims that almost all vouchers are produced, it is to be stated that the vouchers are available in respect of purchase of steel, cement, blue metal to some extent all the other vouchers are all self made and it is not corroborated.
2). Since it is not proved that the assessee engaged the services of an Architect, it is felt that to this extent relief can be given, which would amount to H. 6,47,465/- (The DVO has estimated the architect fee at 1 % only as against 2% mentioned by the assessee in his letter.
3). It is pertinent to mention here that the assessee has not maintained regular books of accounts. The accounts purportedly maintained for the construction (Construction A/c) by itself would not qualify as books of accounts per se and the question of making a reference to the Valuation Cell only after rejecting the books of accounts does not arise in this case as was held in the case of Sargam Cinema Vs. CIT (2011) 197 TAXMANN203 (SC) quoted by the assessee.
The assessee was then examined under oath u/s 131 by Assessing Officer on 27.02.2014 to question and verify the various aspects of the construction of the building. The assessee has stated that the construction work was carried out by him personally under the direct supervision of his father Shri. C. Rangasamy (Reply to Q. No. 8). According to Assessing Officer the registered valuer has given the break- up of the material usage by the assessee and certain glaring inconsistencies are noted in this Valuation Report. The registered valuer has not provided for the sand used whereas the assessee stated that 454 units of sand were used. Also the registered valuer has given the period of commencement and completion of building :- 19 -: I.T.A.No.100/Mds/2015.
from April'2009 to March'2010 however the assessee stated that the period of commencement and completion of building from April'2009 to September'2010. There is also a difference in the constructed area which is shown at 53,331 sq.ft in the approved valuer's report as against an area of 57,347 sq.ft mentioned in the DVO's report. Thus, he rejected the valuation report from Registered valuer.
9. As seen from the above, the assessee has produced the books of accounts before the Assessing Officer. The Assessing Officer has rejected the books of accounts on the reason that the books of accounts were prepared by assessee at the stage of assessment and most of the expenses are supported by self made bills/voucheH. Hence, the books of accounts and bills/vouchers against the construction were rejected and reference was made to DVO u/s.142A of the Act.
10. The section 142A reads as follows:-
"142A (1) for the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in section 69 of section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or :- 20 -: I.T.A.No.100/Mds/2015.
section 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''.
11. Under the provision of Section 142A(1), the Assessing Officer could refer the matter to DVO for ascertaining the cost of construction when the proceeding is pending before him. However, before referring to the DVO the Assessing Officer shall reject the books of accounts. Perusal of the assessment order shows that there is no reference to any material /evidence/ information on the basis of which it could be said that the cost of construction was shown by assessee was understand or anything above what was disclosed by assessee in the books of accounts. It is clear from the assessment order that the assessee had produced books of accounts to the Assessing Officer, the Assessing Officer rejected the books of accounts with reference to the cost of construction on the reason that expenditure are supported by self made vouchers/bills. We noticed that even before verifying the books of accounts maintained by the assessee and without pinpointing any defect in the books of accounts regarding cost of construction reference was made to the DVO for valuation. As seen from the assessment order and narrated :- 21 -: I.T.A.No.100/Mds/2015.
in the earlier para of this order, the assessee has maintained books of accounts and produced the same before the Assessing Officer. According to the Assessing Officer books of accounts was prepared at the time of assessment only. Various expenditures are supported by self made vouchers. But the Assessing Officer has not found out any defect in the books/records/bills/etc. Without causing any defects in books regularly maintained and without rejecting the books u/s.145 of the Act, there is no reason to refer the matter to D.VO on the presumption that the cost /investment in construction is low. The Assessing Officer could reject the books of accounts in the following possible three situation.
(a) Non-compliance with method of accounting in a consistent manner.
(b) Non-compliance with accounting standards prescribed under section 145 of the Income Tax Act.
(c) Accounts were maintained by an assessee, which were incomplete and incorrect.
Section 145 gives the power to reject the books results and estimate the income in certain circumstances. As the Assessing Officer examines the accounts of an assessee, he has to consider the following questions:-
1. Whether the assessee has regularly employed a method of accounting.
:- 22 -: I.T.A.No.100/Mds/2015.
2. Even if regular adoption of a method of accounting is there, whether the annual profits can properly be deducted from method employed;
3. Whether the accounts are correctly maintained; and
4. Whether the accounts maintained are complete in the sense that there is no significant omission therein.
If the answers to all the above four questions are in affirmative, then assessee's profits are to be computed on the basis of his accounts. In such case, neither the first proviso to section 145(1) nor section 145(2) can be invoked.
In the findings on question Nos.1, 3 and 4 are in affirmative, but finding in question No.2 is negative, first proviso to section 145(1) comes in and computation has to be made on such basis and in such manner as Assessing Officer, may determine.
If the findings on question No.1, 3 or 4 is in negative section 145(2) applies and Assessing Officer, may make a best judgment in manner provided for in section 144''. It is evident from the assessment order that the Assessing Officer was not in dispute with the method of accounting followed by the assessee or compliance with the accounting standards prescribed under the Income Tax Act. The only dispute, which made him invoke section 142A was the assumption that the assessee's expenditure were supported by self made vouchers. However, he could not substantiate anything to prove that its accounts were incomplete and incorrect.
:- 23 -: I.T.A.No.100/Mds/2015.
12. In our opinion, the Assessing Officer prejudged the issue as cost of construction declared by assessee is very low as on that reason he referred the valuation of construction to DVO which clearly show that there is no proper appreciation of the facts of the case. It was brought to our notice that the assessee has produced books of accounts, bills/vouchers showing cost of construction. According to Assessing Officer certain expenditure of the assessee were supported by self made vouchers. The assessee also produced details of loan availed/source for cash deposits, copy of land deed and break up details on cost of construction. The Assessing Officer also agreed that the assessee had undertaken construction of skeletal superstructure of the building and interior work of the building was entirely done by the tenant (flooring tiles, air conditioning, wood partitions, false ceiling, electrical wiring, internal painting, genset installation). However, the Assessing Officer has not ready to accept the same on the reason that certain expenditure were self made vouchers. In our opinion, in this line of business activity of civil construction, certain items of expenditure to a small and reasonable extent may not be supported with proper external evidence i.e. certain labour payments and purchase of materials such as bricks, sand etc., Undoubtedly, such items would be well within the acceptable limits of reasonableness.
:- 24 -: I.T.A.No.100/Mds/2015.
Anyhow, such items of expenditure would be well supported by self made vouchers. It be appreciated that such type of expenditure would be acceptable at the threshold on the basis of reasonableness. It is imperative to incur such expenditure and the same cannot be disputed by the Assessing Authorities. Test of reasonableness has been widely accepted in various judicial pronouncements for allowability of such expenditure in the hands of assessee. The learned Assessing Officer ignoring this basic approach of judicious evaluation projected the same issue as a warranting reason for rejection of book results. In such a scenario, if the learned Assessing Officer is in dispute with any particular item of expenditure as unverifiable, the same item should have been considered as specific addition in assessment. The general comment of the Assessing Officer clearly demonstrates that he could not quantify any specific expenditure as unverifiable which warrants for reference to the DVO. Inaction on the part of Assessing Officer to specifically quantify unverifiable expenditure for a specific addition in the assessment cannot empower such an Assessing Officer to resort to rejection of book results so as to invoke the provisions of Section 142A or 145. This particular reason relied upon by the Assessing Officer for rejecting the books is legally unsustainable as the same is not establishing any incompleteness or incorrectness of :- 25 -: I.T.A.No.100/Mds/2015.
assessee's accounts rather than he is preoccupied with a view that the cost of construction disclosed by the assessee is very low. Judicial precedence is categorically in favour of an assessee in this context by holding that such actions of Assessing Officers were held to be legally untenable. Absence of vouchers or the supporting evidence in respect of a particular item of expenditure cannot by itself empower an Assessing Officer to invoke provision of Section 142A or 145 of the Act in rejecting the books of account. In our opinion, rejection of books cannot be restored to simply on the basis of absence of some vouchers and failure to produce the same by the assessee. In other words, any such situation should only warrant a specific addition by the Assessing Officer if he comes to a conclusion that such expenditure had not been incurred or not verifiable. Instead of adopting this accepted approach if an Assessing Officer resorts to a convenient approach of rejecting the books in total before examining the same and referring the matter to DVO and such action would be illegal against the tenets of law. In our opinion, on account of mere absence of vouchers to substantiate entries for the accounts, account in total cannot be rejected. In this scenario a very general finding made by the Assessing Officer without any specific focus on any particular item of expenditure, entire accounts cannot be rejected under Section 145(3). Action of the :- 26 -: I.T.A.No.100/Mds/2015.
Assessing Officer clearly demonstrates that he could not gather any details or find any irregularity in maintenance of the books so as to justify rejection of books in toto. It was also established beyond doubt that Assessing Officer could not quantify any specific amount of expenditure for disallowance. Absence of some of the vouchers or self made vouchers was projected as a reason for rejection of books. If at all there was any lapse on the part of the assessee in respect of maintaining vouchers of a particular item of expenditure, the same may warrant, at the most a specific addition and nothing beyond that. A minor irregularity cannot be blown out of proportion to resort a convenient approach of the rejection of the book results so as to refer the matter to DVO. In view of the same, the reasoning offered by the Assessing Officer for rejecting the books as legally unsustainable proposition. Even on this issue, the learned Assessing Officer would have resorted to a more specific approach of identifying such expenditure, which are not acceptable and are on the higher side for disallowance instead of rejecting book results in toto. Courts have repeatedly held that reasonableness of the expenditure should be judged from the view point of the business carried on by the assessee and not from the view point of the revenue authorities.
:- 27 -: I.T.A.No.100/Mds/2015.
13. Thus in our opinion, in this case the assessee maintained books of accounts and duly furnished before the Assessing Officer and he has not appreciated the same and only on presumption that cost of construction was very low, he referred the matter to DVO without properly rejecting the books of accounts maintained by the assessee. In our opinion, reference to DVO u/s.142A(3) of the Act could be made when books of accounts are rejected by pinpointing defect therein. In other words, if the books of accounts are found to be correct and complete in all respect and no defect is pointed out therein and the cost of construction of building is recorded therein, addition referred u/s.142A (2) is not appropriate. Accordingly, we are of the considered view that in the present case when the Assessing Officer has not rejected the books of account by pin pointing any defects in the books of account reference to the DVO is not 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 of the Act. Since reference to DVO being held as invalid, the assessment thereafter based on that DVO report also be invalid. This view of our is fortified by following precedents:-
(i) DCIT vs. Satish Cold Storage 36 ITR (Tribunal) 435 (Lucknow) wherein held that Assessing Officer could not :- 28 -: I.T.A.No.100/Mds/2015.
refer the matter to DVO without books of account being rejected.
(ii) Sargam Cinema vs. CIT (328 ITR 513)(SC) wherein held that reference to DVO was made without rejecting the books of account, the reference to the D.V.O. itself is bad in law.
Accordingly, we are inclined to allow the appeal of the assessee.
14. In the result, the appeal of the assessee in ITA No.100/Mds/2015 is allowed.
Order pronounced on Friday, the 22nd day of May, 2015, at Chennai.
Sd/- Sd/-
(च ला नागे !साद ) (चं पज
ू ार )
(CHALLA NAGENDRA PRASAD) (CHANDRA POOJARI)
या"यक सद य/ JUDICIAL MEMBER लेखा सद य/ ACCOUNTANT MEMBER
चे"नई/Chennai.
#दनांक/Dated:22.05.2015.
KV
आदे श क त&ल'प अ(े'षत/Copy to: 1. अपीलाथ /Appellant 2. यथ / Respondent 3. आयकर आय* ु त (अपील)/CIT(A) 4. आयकर आय* ु त/CIT 5. 'वभागीय त न-ध/DR
6. गाड फाईल/GF.
:- 29 -: I.T.A.No.100/Mds/2015.