Raya R.Govindarajan, Kumbakonam V. ACIT, Trichy

CO 41/CHNY/2011

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 6948 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 16 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 13-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 08-03-2011
• Court: TRIBUNAL
• Department Lawyers: M N MURTHY NAIK SR
• Assessee Lawyers: S SRIDHAR
• Keywords: Principle of natural justice; Retrospective amendment
• Section: 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NO. 184/MDS/2011 (ASSESSMENT YEAR : 2007-08) THE INCOME TAX OFFICER (OSD), CIRCLE I, KUMBAKONAM. (APPELLANT) V. SHRI RAYA R. GOVINDARAJAN, 46, J.P. KOIL WEST STREET, KUMBAKONAM 612 001. PAN : AABPR4957Q (RESPONDENT) C.O. NO. 41/MDS/2011 (IN I.T.A. NO. 184/MDS/2011) ASSESSMENT YEAR : 2007-08 SHRI RAYA R. GOVINDARAJAN, 46, J.P. KOIL WEST STREET, KUMBAKONAM 612 001. (CROSS-OBJECTOR) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE I, KUMBAKONAM. (RESPONDENT) REVENUE BY : SHRI M.N. MURTHY NAIK, SR.AR ASSESSEE BY : SHRI S. SRIDHAR DATE OF HEARING : 13.03.2012 DATE OF PRONOUNCEMENT : 23.03.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THE APPEAL FILED BY THE REVENUE, ITS GRIEVANCE IS THAT CIT(APPEALS) DELETED THE ADDITION MADE BY THE A.O. FOR DIFFERENCE IN I.T.A. NO. 184/MDS/11 C.O. NO. 41/MDS/11 2 COST OF CONSTRUCTION OF A BUILDING NAMED HOTEL RAY A ANNEXE, NEAR HEAD POST OFFICE, KUMBAKONAM. THE AMOUNT ADDED BY THE ASSESSING OFFICER UNDER SECTION 69 OF INCOME-TAX AC T, 1961 (IN SHORT 'THE ACT') WAS ` 59,51,090/-. AS PER THE REVENUE, LD. CIT(APPEALS) HAD FOLLOWED THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF K.K. SESHAIYER V. CIT (246 ITR 351), WHICH WAS RELEVANT ONLY WHEN PAYMENTS WERE MADE TO CONTRACTOR. AGAIN AS PE R REVENUE, ASSESSEE HAD NOT PRODUCED BOOKS OF ACCOUNTS OR VOUC HERS BEFORE THE A.O. OR VALUATION OFFICER AND THEREFORE, THE OB SERVATION OF THE LD. CIT(APPEALS) THAT NO DEFECTS WERE POINTED OUT IN SU CH BOOKS, WAS AGAINST PRINCIPLE OF NATURAL JUSTICE. AS PER THE R EVENUE, LD. CIT(APPEALS) HAD ACCEPTED THE WORKINGS OF THE ASSES SEE WITHOUT GIVING AN OPPORTUNITY TO THE A.O. AND THEREFORE, TH ERE WAS VIOLATION OF RULE 46A OF INCOME-TAX RULES, 1962. REVENUE IS ALS O AGGRIEVED THAT LD. CIT(APPEALS) ALLOWED DEDUCTION FOR SELF-SUPERVI SION AT THE RATE OF 10% AGAINST 7.5% ALLOWED BY HIM IN ANOTHER CASE. 2. SHORT FACTS APROPOS ARE THAT DURING THE COURSE O F ASSESSMENT PROCEEDINGS, ASSESSEE WAS CALLED UPON TO FURNISH DE TAILS OF COST OF CONSTRUCTION OF A BUILDING NAMED HOTEL RAYA ANNEXE CONSTRUCTED BY IT. ASSESSEE HAD ARRIVED A COST OF CONSTRUCTION AT ` 1,52,16,465/- I.T.A. NO. 184/MDS/11 C.O. NO. 41/MDS/11 3 AFTER DEDUCTING 10% FOR SELF-SUPERVISION. A.O. REF ERRED THE VALUATION OF THE PROPERTY TO VALUATION CELL OF THE DEPARTMENT AND SUCH VALUATION CELL VALUED THE BUILDING AT ` 2,13,60,204/-. WHILE WORKING OUT SUCH VALUATION, 7.5% WAS ALLOWED FOR SELF-SUPER VISION. ASSESSEE WAS PUT ON NOTICE IN THIS REGARD WHEREUPON IT FURNI SHED ITS OBJECTIONS TO THE VALUATION DONE BY THE DVO. AS PER THE ASSES SEE, STATE PWD RATE WHICH WAS ADOPTED IN THE VALUATION FURNISHED B Y IT, WAS THE CORRECT ONE. HOWEVER, THE A.O. WAS OF THE OPINION THAT THE CLAIM OF THE ASSESSEE WITH REGARD TO EXTERNAL ITEMS LIKE MOT OR AND FITTINGS, NAME BOARD, STAIRCASE, WHICH WERE ALREADY INCLUDED UNDER THE HEAD FURNITURE & FITTINGS IN ITS BALANCE SHEET, COULD NOT BE CONSIDERED SINCE IT WAS NOT SUPPORTED BY ANY EVIDENCE. AS PER THE A.O., ASSESSEES CLAIM FOR SELF-SUPERVISION AND MUNICIPAL CHARGES ALSO COULD NOT BE ACCEPTED. WITH REGARD TO THE ASSESSEE S REQUEST FOR CONSIDERING STATE PWD RATE, A.O. WAS OF THE OPINION THAT THE VALUATION CELL HAD FOLLOWED CPWD RATES, WHICH WAS A SCIENTIFIC METHOD AND SUCH RATES COULD NOT BE DEVIATED FROM. FROM THE SUM OF ` 2,13,60,000/-, FIXED BY THE DVO, THE A.O. GAVE FURT HER REDUCTION OF ` 1,92,445/- WITH REGARD TO FURNITURE AND FITTINGS IN CLUDED IN THE BALANCE SHEET AND ARRIVED A NET COST OF CONSTRUCTIO N AT ` 2,11,67,555/-. AFTER DEDUCTING ADMITTED COST OF ` 1,52,16,465/-, A I.T.A. NO. 184/MDS/11 C.O. NO. 41/MDS/11 4 SUM OF ` 59,51,090/- WAS CONSIDERED AS UNACCOUNTED INVESTMEN T AND ADDED UNDER SECTION 69 OF THE ACT. 3. IN ITS APPEAL BEFORE LD. CIT(APPEALS), FIRST CON TENTION OF THE ASSESSEE WAS THAT ASSESSING OFFICER HAD ISSUED A CO MMISSION TO VALUATION OFFICER UNDER SECTION 131(1)(B) OF THE AC T WITHOUT RECORDING ANY SATISFACTION. THEREFORE, ACCORDING TO ASSESSEE , THE REPORT OF THE VALUATION OFFICER COULD NOT BE CONSIDERED AT ALL. ASSESSEE ALSO SUBMITTED THAT BOOKS WERE NEVER REJECTED, BUT STILL , THE CASE WAS REFERRED TO VALUATION CELL AND FOR THIS PLACED RELI ANCE ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF K.K. SESHAIYER (SUPRA). AS PER THE ASSESSEE, WHEN PROPER BOOKS WE RE MAINTAINED, IT WAS NOT PERMISSIBLE TO REFER THE MATTER OF VALUATIO N TO THE VALUATION CELL. RELYING ON THE DECISION OF HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF CIT V. V.T. RAJENDRAN (288 ITR 312), AS SESSEE SUBMITTED BEFORE LD. CIT(A) THAT REPORT OF DEPARTMENTAL VALUA TION OFFICER COULD NOT BE MADE A BASIS FOR VALUATION SINCE VALUATION W AS NOT AN ARITHMETICAL APPRECIATION OF THE MATERIALS USED FOR CONSTRUCTION. RELIANCE WAS ALSO PLACED ON THE DECISION OF CO-ORDI NATE BENCH OF THIS TRIBUNAL IN THE CASE OF R.G. UMARANEE V. ACIT IN I. T.A. NOS. 757 & 758/MDS/2001, WHICH PERTAINED TO ASSESSEES WIFE. TO REINFORCE ITS I.T.A. NO. 184/MDS/11 C.O. NO. 41/MDS/11 5 ARGUMENT THAT THE CONSTRUCTION ACCOUNTED WAS COMPAR ABLE WITH STATE PWD RATE, ASSESSEE PRODUCED WORKINGS BEFORE LD. CIT (APPEALS) WHEREIN THE COST OF CONSTRUCTION WAS SHOWN AS ` 1,58,60,068/-. LD. CIT(APPEALS) WAS APPRECIATIVE OF THESE CONTENTIONS OF THE ASSESSEE. ACCORDING TO HIM, ASSESSING OFFICER HAD NOT REJECTE D THE BOOKS PRODUCED BY THE ASSESSEE. ASSESSEE HAD ALSO DEMONS TRATED THAT IF STATE PWD RATES WERE ADOPTED, THE AMOUNT AS PER ITS BOOKS WERE MORE OR LESS CORRECT. THE DIFFERENCE BETWEEN WHAT WAS RECORDED IN THE BOOKS AND WHAT COULD BE VALUED IF STATE PWD RAT ES WERE ADOPTED WAS LESS THAN 5%. BASED ON THESE OBSERVATIONS, HE DELETED THE ADDITION MADE BY THE A.O. 4. NOW BEFORE US, LEARNED D.R. SUBMITTED THAT FOR R EFERRING TO VALUATION CELL, IT WAS NOT ESSENTIAL THAT BOOKS SHO ULD HAVE BEEN REJECTED. SINCE SECTION 142A OF THE ACT, INSERTED BY FINANCE (NO.2) ACT, 2004 HAD RETROSPECTIVE EFFECTIVE FROM 15.11.72 , ACCORDING TO HIM, FOR MAKING AN ASSESSMENT OR RE-ASSESSMENT, WHERE ES TIMATE OF VALUATION OF INVESTMENT WAS REQUIRED TO BE MADE, AS SESSING OFFICER, COULD REFER THE ISSUE OF VALUATION TO VALUATION OFF ICER. IT WAS NOT NECESSARY THAT BOOKS, IF ANY PRODUCED BY THE ASSESS EE, HAD TO BE REJECTED BEFORE REFERRING THE VALUATION TO THE VALU ATION CELL. AS PER I.T.A. NO. 184/MDS/11 C.O. NO. 41/MDS/11 6 LEARNED D.R., ASSESSEE HAD NOT PRODUCED ANY BOOKS J USTIFYING THE COST OF CONSTRUCTION AND ASSESSING OFFICER WAS CORR ECT IN REFERRING THE MATTER TO THE VALUATION OFFICER. LEARNED D.R. ALSO POINTED OUT THAT ASSESSEE HIMSELF HAD WORKED OUT A VALUE BASED ON PW D RATES AND SUBMITTED BEFORE THE CIT(APPEALS). SUCH VALUATION FURNISHED BEFORE LD. CIT(APPEALS) SHOWED AN AMOUNT WHICH WAS HIGHER THAN WHAT WAS REFLECTED IN ITS BOOKS. 5. PER CONTRA, LEARNED A.R. STRONGLY SUPPORTED THE ORDER OF LD. CIT(APPEALS). 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. WITHOUT GOING INTO THE ASPECT WHETHER THE BOOKS OF ACCOUNTS WERE DEFECTIVE OR NOT, IT IS ADMITTED POSITION THAT THE ASSESSEE HAD SHOWN COST OF CONSTRUCTION AT ` 1,52,16,465/-. AGAINST THIS, VALUATION CELL OF DEPARTMENT HAD FIXED THE VALUE AT ` 2,13,60,000/-. IT IS ALSO AN ADMITTED POSITION THAT VALUATION CELL OF THE DEPART MENT HAD ADOPTED CPWD RATES. THIS IS CLEARLY MENTIONED BY THE ASSES SING OFFICER AT PAGE NO.4 OF THE ORDER. WE ARE OF THE OPINION THAT THE RATE ADOPTED BY CPWD COULD NOT ALWAYS BE CONSIDERED SACROSANCT, ESPECIALLY WHEN CONSTRUCTION IS IN AN AREA LIKE KUMBAKONAM. O N THE OTHER HAND, ASSESSEE HAD GIVEN A WORK-OUT BEFORE LD. CIT( APPEALS) AND AS I.T.A. NO. 184/MDS/11 C.O. NO. 41/MDS/11 7 PER SUCH WORK-OUT, IF PWD RATES WERE ADOPTED, COST OF CONSTRUCTION WOULD COME TO ` 1,58,60,068/-. AS HELD BY HONBLE JURISDICTIONAL H IGH COURT IN THE CASE OF V.T. RAJENDRAN (SUPRA), THERE WILL ALWAYS BE VARIATIONS BETWEEN VALUATION DONE ON PWD RATES AND CPWD RATES. THOUGH IT WAS ARGUED BY THE LEARNED D.R. THAT ASSES SEE HAD NOT PRODUCED HIS BOOKS, IT HAS BEEN MENTIONED BY THE AS SESSING OFFICER IN ASSESSMENT ORDER THAT ASSESSEE HAD CONSIDERED VA RIOUS ITEMS ACCORDING TO BOOKS WITH REGARD TO INTERNAL WATER SU PPLY, MARBLE FLOORING, FALSE CEILING, TILE CLADDING, ETC. THIS BEING SO, ARGUMENT OF THE ASSESSEE THAT BOOKS WERE THERE, APPEARS TO BE C ORRECT. NEVERTHELESS, IT ALSO COMES OUT FROM THE ASSESSMENT ORDER THAT ASSESSEE COULD NOT PRODUCE ALL EVIDENCE REGARDING S ELF-SUPERVISION, MUNICIPAL CHARGES, ETC. BEFORE THE ASSESSING OFFICE R. IN SUCH A SITUATION, CONSIDERING THE ENTIRE FACTS, WE ARE OF THE OPINION THAT THE AMOUNT RETURNED BY THE ASSESSEE, BASED ON PWD RATE COMING TO ` 1,58,60,068/- IS THE MOST ACCEPTABLE ONE. IT IS CL EARLY MENTIONED BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER THAT ASSESSEE HAD FURNISHED CASE LAWS FOR CONSIDERING STATE PWD RATES . ASSESSEE HAD ALSO SUBMITTED BEFORE THE A.O. THAT STATE PWD RATE WAS TO BE ADOPTED. IN SUCH A SITUATION, TO TAKE A PRESUMPTIO N THAT ASSESSEE HAD NOT GIVEN ANY WORK-OUT BASED ON PWD RATES WILL NOT BE I.T.A. NO. 184/MDS/11 C.O. NO. 41/MDS/11 8 APPROPRIATE. WE ARE, THEREFORE, OF THE OPINION THA T THE WORK-OUT OF THE ASSESSEE AS PER STATE PWD RATE ` 1,58,60,068/- HAS TO BE ACCEPTED AS MOST PROBABLE VALUE FOR THE CONSTRUCTION. IN OU R OPINION, THE ORDER OF LD. CIT(APPEALS) DELETING THE ADDITION IN WHOLE, THEREFORE, WAS CORRECT. ASSESSEE HAVING ADMITTED ` 1,58,60,068/- AS THE COST OF CONSTRUCTION UNDER STATE PWD RATE, ITS EARLIER CLAI M OF ` 1,52,16,465/- OUGHT NOT HAVE BEEN ACCEPTED IN TOTO. AN ADDITION TO THE EXTENT OF DIFFERENCE BETWEEN THESE SUMS OUGHT HAVE BEEN SUSTA INED. THEREFORE, WHILE SETTING ASIDE THE ORDER OF LD. CIT (APPEALS), WE DIRECT THE A.O. TO LIMIT THE ADDITION UNDER SECTION 69 OF THE ACT TO ` 6,43,603/- FOR UNDISCLOSED INVESTMENT IN COST OF CO NSTRUCTION. 7. APPEAL OF THE REVENUE IS, THEREFORE, PARTLY ALLO WED. 8. ASSESSEE HAS FILED A CROSS-OBJECTION. THROUGH T HIS CROSS- OBJECTION, ASSESSEE STRONGLY SUPPORTS THE ORDER OF LD. CIT(APPEALS). WE HAVE ALREADY PARTLY ALLOWED THE APPEAL OF THE RE VENUE. IN THE C.O., ESSENTIAL GROUND RAISED BY THE ASSESSEE IS TH AT BOOKS RELATING TO COST OF CONSTRUCTION WERE PRODUCED BEFORE THE A. O. AND THE ADDITION WAS MADE ARBITRARILY REJECTING SUCH BOOKS. THESE ASPECTS HAVE ALREADY BEEN CONSIDERED BY US WHILE ADJUDICATI NG THE APPEAL OF I.T.A. NO. 184/MDS/11 C.O. NO. 41/MDS/11 9 THE REVENUE. THE C.O., THEREFORE, IS DEVOID OF MER ITS AND IS TREATED AS DISMISSED. 9. IN THE RESULT, APPEAL FILED BY THE REVENUE IS PA RTLY ALLOWED AND C.O. FILED BY THE ASSESSEE IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 23 RD MARCH, 2012. SD/- SD/- (VIKAS AWASTHY) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 23 RD MARCH, 2012. KRI. COPY TO: (1) ASSESSEE (2) ASSESSING OFFICER (3) CIT(A), TIRUCHIRAPPALLI (4) CIT-II, TIRUCHIRAPPALLI (5) D.R. (6) GUARD FILE