M/s Satish Estate Pvt. Ltd., Ludhiana V. ACIT, Ludhiana

CO 47/CHANDI/2010

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7944 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 11 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-11-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 14-12-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Section: 143(3); 145; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE MS.SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 1282/CHD/2010 ASSESSMENT YEAR: 2006-07 ACIT, CIRCLE II, V M/S SATISH ESTATE P.LTD., LUDHIANA. SHOP NO.3, KIDWAI NAGAR, LUDHIANA. PAN: AACCS-5202R & C.O.NO. 47/CHD/2010 IN ITA 1282/CHD/2010 M/S SATISH ESTATE P.LTD., V ACIT, CIRCLE II, SHOP NO.3, LUDHIANA. KIDWAI NAGAR, LUDHIANA. (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI N.K.SAINI ASSESSEE BY : SHRI SUDHIR SEHGAL DATE OF HEARING : 06.11.2012 DATE OF PRONOUNCEMENT : 27.11.2012 ORDER PER MEHAR SINGH, AM THE PRESENT APPEAL FILED BY THE REVENUE AND THE CRO SS OBJECTIONS FILED BY THE ASSESSEE, ARE DIRECTED AGAI NST THE ORDER DATED 30.08.2010, PASSED BY THE LD. CIT(A) U/ S 250(6) OF THE INCOME-TAX ACT,1961 (IN SHORT 'THE ACT'). 2. IN APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N DELETING THE ADDITION OF RS. 75,00,000/- MADE BY AO ON ACCOUNT O F UNDERVALUATION OF CLOSING STOCK OF LAND AS THE CIVIL SUIT WAS FILED I N THE CIVIL COURT NEAR THE END OF FINANCIAL YEAR I.E. ON 18.03.2006, WHICH WOU LD HAVE NO IMPACT ON THE VALUE AND THAT THE EVENTS THAT TOOK PLACE IN THE SUBSEQUENT YEAR WOULD HAVE NO BEARING ON THE VALUE OF CLOSING STOCK AS ON 31.03.2006. 2 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N DELETING THE ADDITION OF RS. 75,00,000/- MADE BY AO ON ACCOUNT O F UNDERVALUATION OF CLOSING STOCK OF LAND AS THE ASSESSEE HAS NOT GIVEN ANY BASIS AS HOW HE ARRIVED AT THE THIS FIGURE. 3. THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND T HAT OF THE A.O. BE RESTORED. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED OFF. 3. IN CROSS OBJECTION, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THAT THE WORTHY COMMISSIONER OF INCOM E TAX (APPEALS),LUDHIANA HAS VERY RIGHTLY DELETED TH E ADDITION OF RS.75 LACS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF AL LEGED UNDER VALUATION OF CLOSING STOCK OF LAND. 2. THAT THE ADDITION WAS DELETED ON THE BASIS OF FACTS AND CIRCUMSTANCES OF THE CASE, SINCE THERE WAS A DISPUT E WITH REGARD TO THE VERY OWNERSHIP OF LAND IN MARCH, 2006, COUPLED WITH THE FACT THAT THE ENTIRE PROJECT BASED AT AMRITSAR WAS HELD UP AN D THE ASSESSEE COULD NOT CARRY ON THE BUSINESS OF REAL ESTATE. 3. THAT THE STOCK HAS BEEN VALUED AS PER MARKET OR COS T VALUE WHICHEVER IS LESS AND, THUS, THERE IS NO INFIRMITY IN THE ORD ER OF WORTHY COMMISSIONER OF (APPEALS). 4. THAT THE RESPONDENT CRAVES LEAVE TO ADD OR AMEND AN Y ROUND OF CROSS- OBJECTIONS BEFORE THE APPEAL IS FINALLY HEARD OR DI SPOSED OFF. 4. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS B EFORE THE BENCH, LD. 'DR' CONTENDED THAT THE CORE ISSUE INVOL VED IN THE APPEAL PERTAINS TO ADDITION OF RS.75,00,000/- MADE BY THE AO ON ACCOUNT OF UNDER-VALUATION OF CLOSING STOCK OF L AND WHICH WAS REVERSED BY THE CIT(APPEALS). THE LD. 'DR' STA TED THAT THE AO, IN PARA 3 OF THE ASSESSMENT ORDER DATED 13.10.2 009, PASSED U/S 143(3) OF THE ACT HAS FURNISHED DETAILS OF PURCHASE OF LAND AND THE LAND AT AMRITSAR, AS MENTI ONED AT S.NO. 3 & 5 AT PAGE 7 OF THE IMPUGNED ASSESSMENT OR DER, PERTAINS TO DISPUTE OF UNDER-VALUATION OF CLOSING S TOCK OF LAND. LD. 'DR', FURTHER, STATED THAT A CIVIL SUIT A GAINST THE 3 ASSESSEE APPELLANT WAS FILED ON 18.03.2006 BY M/S A MRITSAR RAYON & SILK MILLS PVT. LTD. HOWEVER, THERE WAS NO VERDICT OF THE COURT UPTO 31.03.2006, THE DATE OF VALUATION OF CLOSING STOCK OF LAND. LD. 'DR' SUBMITTED THAT THERE WAS N O INTERIM STAY IN RESPECT OF SUCH LAND FROM THE COURT UPTO 31 .3.2006. LD. 'DR', FURTHER, REFERRED TO PARA 2.3 AT PAGE 10 OF THE ORDER PASSED BY CIT(APPEALS) DATED 30.08.2010 WHICH CONTA INS FINDINGS OF LD. CIT(APPEALS). THE LD. 'DR' WAS OF THE OPINION THAT IN THE ABSENCE OF ANY INTERIM STAY BY THE COUR T, THE VALUATION OF THE LAND IN QUESTION CANNOT BE DONE, A S HAS BEEN DONE BY THE ASSESSEE. LD. 'DR' ALSO REFERRED TO PA GE 72, 74, 77, 89 AND 90 OF THE PAPER BOOK TO REFER TO CERTAIN DOCUMENTS IN THE MATTER. LD. 'DR', FURTHER, ARGUED THAT THERE WAS NO BASIS, WHATSOEVER FOR DETERMINATION OF THE QUANTUM OF RS.75 LACS, BY WHICH THE CLOSING STOCK WAS UNDER-VALUED. 5. LD. 'AR', ON THE OTHER HAND, REFERRED TO VARIOUS PAGES OF THE PAPER BOOK, SUCH AS 4, 25TO28, 33, 51 & 94. HE , ALSO, REFERRED TO MAP IN THE FIRST PAPER BOOK. LD. 'AR' FURTHER CONTENDED THAT DUE TO DISPUTE OR LITIGATION, MARKET VALUE OF THE LAND IN QUESTION HAD A DOWN-WARD SLIDE. THE AP PELLANT HAD MADE HUGE INVESTMENT BY WAY OF ADVANCES PAID IN RESPECT OF LANDS, JUST AT THE BACK OF THE LAND IN QUESTION AND THE APPELLANT WAS NOT IN A POSITION DUE TO CIVIL SUIT, TO DEVELOP THAT LAND AND CONVERT THE SAME INTO A COLONY. LD. 'AR', FURTHER, PLACED RELIANCE ON THE DECISION OF THE HON 'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PIRTHIPAL SINGH V GURDEV SINGH, CIVIL REVISION NO. 156 OF 1998 DATED 7.8.200 0. LD. 'AR', STATED THAT CIVIL SUIT WAS FILED, AS IS EVIDE NT FROM PAGE 4 31 OF THE PAPER BOOK ON 11.3.2006. IT WAS, FURTHER , POINTED OUT BY THE LD. 'AR' THAT STAY ORDER DATED 5.4.2006 IN THE CASE OF M/S AMRITSAR RAYON & SILK MILLS PVT. LTD. WAS PA SSED BY THE COMPETENT COURT, AS IS EVIDENT FROM PAGE 61 OF THE PAPER BOOK. IT WAS, FURTHER, ARGUED BY LD. 'AR' THAT ORD ER OF CIT(APPEALS) BE UPHELD AS IN THE NEXT YEAR, THE SAM E VALUE OF CLOSING STOCK OF LAND IN QUESTION HAS BEEN ACCEPTED WHILE PASSING ASSESSMENT ORDER FOR THE NEXT YEAR U/S 143( 3) OF THE ACT. LD. 'AR' PLACED RELIANCE ON THE DECISION OF I TATAMRITSAR BENCH IN ITO V KASHMIRI LAL BHARAT BHUSHAN, MUKTSAR (ITA NO.62/ASR/2001), CIT V CONTINENTAL DEVICES INDIA LT D. 196 ITR 571(DEL) & CIT V BENGAL JUTE MILLS CO.LTD. 107 CTR 34 (CAL). 6. WE HAVE PERUSED AND CONSIDERED THE RIVAL SUBMISS IONS, PAPER BOOK FILED BY THE ASSESSEE AND THE CASE LAWS CITED BY CONTENDING PARTIES. THE BRIEF FACTS OF THE CASE, A S CULLED OUT FROM THE RELEVANT RECORD, ARE THAT THE APPELLANT FI LED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07 ON 30.11.2006, DECLARING TAXABLE INCOME AT RS.38,83,86 2/-. ORIGINAL ASSESSMENT WAS COMPLETED U/S 143(3) ON 23 .11.2007 AT TOTAL INCOME OF RS.45,47,330/- . CONSEQUENT TO ORDER U/S 263 DATED 18.11.2008, THE AO FRAMED ASSESSMENT U/S 143(3) OF THE ACT ON 13.10.2009 AT AN INCOME OF RS.1,20,47 ,330/-. THE AO MADE AN ADDITION OF RS.75,00,000/- ON ACCOUN T OF UNDER-VALUATION OF THE CLOSING STOCK OF LAND BY THE ASSESSEE. 5 7. LD. CIT(APPEALS) REVERSED THE FINDINGS OF THE AO , AS IS EVIDENT FROM THE FINDINGS REPRODUCED HEREUNDER: 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSION OF THE AR. ASSESSEE IS DEALING IN REAL ESTATE. DURING THE YEAR AFTER TA KING INTO ACCOUNT THE OPENING STOCK, PURCHASES, SALES ASSESSING OFFICER NOTICED T HAT ASSESSEE HAS UNDERVALUED ITS CLOSING STOCK OF LAND BY RS. 75 LACS. THE WORKI NG OF THESE DETAILS HAVE BEEN STATED BY THE ASSESSING OFFICER ON PAGE 7 & 8 OF THE ASSES SMENT ORDER SHOULD NOT BE MADE. ASSESSEE SUBMITTED ITS REPLY WHICH HAS BEEN REPRODU CED BY/ THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. ASSESSEE CONTENDED BEFORE THE ASSESSING OFFICER THAT LAND PURCHASED FROM BALWINDER SINGH AND HARJINDER S INGH ;: FELL INTO LEGAL DISPUTE AS ONE M/S AMRITSAR RAYON SILK MILLS (P) LTD. FILED A SUIT AGAINST THE ASSESSEE STATING THAT THEY HAD ALREADY PAID SUM OF RS. 70 LACS AS BY ANA FOR THE SAME PROPERTY AND THEREFORE, CLAIMED THAT THE REGISTRATION EXECUTED I N ASSESSEE'S FAVOUR WAS NOT CORRECT. ON THE STRENGTH OF THE AGREEMENT M/S AMRITSAR RAYON & SILK MILLS (P) LTD. MADE FURTHER AGREEMENT TO SELL THE SAME LAND TO M/S FUTU RISTIC SOLUTIONS LTD. AND RECEIVED A SUM OF RS. 70 LACS FROM THEM. A STAY WAS GRANTED TO M/S AMRITSAR RAYON & SILK MILLS (P) LTD. BY VIRTUE OF WHICH ASSESSEE WAS DEBARRED F ROM MAKING THE SALES OF ANY LAND. ASSESSEE PAID RS. 70 LACS AND A FURTHER SUM OF RS. 70 LACS WAS KEPT IN BANK FDR. LATER ON COURT AND THEN THE HON'BLE PUNJAB AND HARYANA HI GH COURT CONFIRMED THE STAY. AS A RESULT OF ABOVE LEGAL PROBLEMS ASSESSEE COULD NOT DEVELOP THE COLONY AS THE DISPUTED LAND WAS AT THE FRONT. IN VIEW OF ABOVE ASSESSEE PA ID RS. 2,30,000/- (AS PER ASSESSEE IT IS ACTUALLY 2.30 CRORE) TO M/S FUTRUSTI C SOLUTIONS LTD. IN 2007 AND THEY IN TURN AGREED TO WITHDRAW ALL THE SUITS AND N OT TO PURSUE THE CASE BEFORE THE HON'BLE PUNJAB AND HARYANA HLGH COURT. IT WAS UNDER ABOVE CIRCUMSTANCES THAT THE ASSESSEE VALUED THE CLOSING STOCK OF LAND LESS BY RS. 75 LACS. 2.4 ASSESSING OFFICER WAS NOT SATISFIED WITH THE AB OVE EXPLANATION OF THE ASSESSEE. ASSESSING OFFICER HAS OBSERVED THAT CIVIL SUIT WAS| FILED BY M/S AMRITSAR RAYON & SILK MILLS (P) LTD. OH 18.3.20J6AND THERE WAS NOIJ VERDI CT UPTO 31.3.2006. ASSESSEE WAS ADOPTING COST PRICE METHOD FOR DETERMINING VALUATIO N OF CLOSING STOCK AND IT WAS NOT PERMITTED UNDER THE LAW TO CHANGE THE METHOD OF VA LUATION OF CLOSING STOCK. FURTHER THE ASSESSEE IS NOT PERMITTED TO SHIFT THE TAX LIAB ILITY OF A PARTICULAR YEAR TO A SUBSEQUENT YEAR. IN VIEW OF ABOVE ASSESSING OFFICER REJECTED VARIOUS CONTENTIONS OF THE ASSESSEE AND MADE ADDITION OF RS. 75 LACS. 2.5 ASSESSEE IN THE COURSE OF APPELLATE PROCEEDING S HAS FILED ITS DETAILED REPLY WHICH HAS BEEN REPRODUCED ABOVE. ASSESSEE AFTER REP EATING THE FACTS AND HISTORY OF THE CASE HAS STATED THAT AS A RESULT OF LEGAL DI SPUTE PRICE OF LAND HAD GONE DOWN WHICH HAS BEEN GIVEN EFFECT WHILE VALUING CLOSING S TOCK. FROM THE WHAT IS 6 DISCUSSED ABOVE AND DETAILED SUBMISSION OF THE ASSE SSEE, I AM OF THE OPINION THAT ASSESSING OFFICER WAS NOT RIGHT IN REJECTING ASSESS EE'S VARIOUS CONTENTIONS AND MAKING THE ADDITION OF RS. 75 LACS. IT IS A FACT THAT THER E WAS A LEGAL DISPUTE OVER THE LAND WHICH WAS IN FR ONT OF A BIG PIECE OF LAND ON WHICH ASSESSEE WANTED TO DEV ELOP A COLONY. UNLESS THE LEGAL DISPUTE IS RESOLVED ASSESSEE COULD NOT HAVE DEVELOPED THE COLONY WHICH AS CLAIMED BY THE ASSESSEE WOULD HAVE CAUSED HUGE LOSSES TO THE ASSESSEE. IT IS NOT A CASE OF PU RE LEGAL DISPUTE OVER LAND BUT COURT HAD ALSO GRANT ED THE STAY WHICH WAS CONFIRMED BY THE HON'BLE PUNJAB AND HARYANA HIGH COURT. ASSESSEE HAD PAID RS. 70 LACS TO M/S AMRITSAR RAYON & SILK M ILLS (P) LTD. AND ANOTHER RS. 70 LACS WERE KEPT ON BANK FDR TO COVER FURTHER LOSS ES. IN FACT AS CLAIMED AN AMOUNT OF RS. 2.30 CR. WAS PAID TO SETTLE THE DISPU TE. FROM WHAT IS STATED ABOVE IT CAN NOT BE SAID THE ASSESSEE DID NOT HAVE A CLEAR T ITLE OVER THE LAND AND THE SAME WAS NOT FREE FROM ALL ENCUMBRANCE. LAND WAS ENCUMBE RED BY LEGAL DISPUTE WHICH HAD MADE A DENT IN THE PRICE OF LAND. REGARDING ASS ESSING OFFICER'S CONTENTION THAT SUIT WAS FILED ON 18.3.2006 AND THERE WAS NO V ERDICT UPTO 31.3.2006 AND THEREFORE FILED OF SUIT HAD NO IMPACT ON THE VALUE OF THE IMPUGNED LAND SAME IN MY OPINION IS NOT TENABLE. ASSESSEE HAS STATED THAT IM MEDIATELY AFTER THE SUIT WAS FILED ON 18.3.2006 LAND BECAME A DISPUTED PROPERTY. THE F ACT OF DISPUTE WAS REPORTED IN THE NEWS PAPERS. LEGAL DISPUTE IN MY OPINION HAS AD VERSELY IMPACTED THE PRICE OF LAND. NOW COMING TO THE ISSUE OF UNDER VALUATION OF RS. 75 LACS ASSESSEE HAS ALREADY EXPLAINED THAT IT HAD PAID RS. 70 LACS TO M /S AMRITSAR RAYON & SILK MILLS (P) LTD. AND FINALLY THE MATTER WAS SETTLED A T RS. 2.30 CR. IN FACT M/S AMRITSAR RAYON & SILK MILLS (P) LTD. HAD FILED A SU IT FOR RECOVERY OF RS. 1,08,00,000/- BEING THE DOUBLE OF ADVANCE AMOUNT PA ID AS EARNEST MONEY TO THE TUNE OF RS. 54 LACS. IN VIEW OF ABOVE DISCUSSION, I AM OF THE OPINION ASSESSEE HAS RIGHTLY VALUED THE CLOSING STOCK OF AFORESAID LAND LESS BY RS. 75 LACS . NOW COMING TO THE ISSUE OF METHOD OF VALUATION OF CLOSING STOC K WHICH ASSESSING OFFICER SAYS WAS COST PRICE I , IN EARLIER YEARS, ASSESSEE HAS S TATED THAT THERE IS NO CHANGE IN THE METHOD OF VALUING OF CLOSING STOCK. IT HAS CONS ISTENTLY BEEN FOLLOWING METHOD OF VALUING CLOSING STOCK AS COST OR MARKET PRICE WHICHEVER IS LESS. IN FACT TAX AUDIT REPORT FOR THE A.Y. 2006-07 COPY OF WHICH HAS BEEN FILED IN THE COURSE OF APPEAL PROCEEDINGS SHOWS METHOD OF VALUATION OF CLOSING ST OCK AS COST OR NET REALIZABLE VALUE WHICHEVER IS LESS . AGAINST THE COLUMN 'DETAILS OF DEVIATION, IF ANY FR OM THE METHOD OF VALUATION PRESCRIBED UNDER SECTION 145 A AND EFFECT THEREOF ON THE PROFIT AND LOSS' IT IS CLEARLY MENTIONED NIL. IT IS THEREF ORE, CLEAR THAT THERE IS NO CHANGE IN THE METHOD OF VALUATION OF CLOSING STOCK AS ALLE GED BY THE ASSESSING OFFICER. IN ANY CASE ASSESSING OFFICER HAS NOT SUBSTANTIATED HI S OBSERVATION THAT THE ASSESSEE HAS CHANGED THE METHOD OF CLOSING STOCK. 7 2.6 IN VIEW OF ABOVE, I AM OF THE OPINION THAT AS SESSEE HAS RIGHTLY AND CORRECTLY VALUED ITS CLOSING STOCK AND ASSESSING OFFICER THER EFORE WAS NOT JUSTIFIED IN MAKING THE ADDITION OF RS. 75 LACS AND THE SAME IS DELETED . 8. IT IS EVIDENT THAT THE COMPANY M/S AMRITSAR RAYO N &SILK MILLS PVT. LTD. FILED A SUIT AGAINST THE ASSESSEE O N 11.03.2006 WHICH HAD AN ADVERSE IMPACT ON THE MARKET VALUE OF THE IMPUGNED ASSET. THE REVENUE, ITSELF DID NOT CHALLE NGE THE OPENING STOCK OF THE IMPUGNED ASSET IN THE SUBSEQUE NT ASSTT. YEAR, WHILE PASSING THE ASSESSMENT ORDER U/S 143(3) , AND ACCEPTED THE SAME, AS CONTENDED BY THE LD. 'AR'. H AVING REGARD TO THE ABOVE DISCUSSED LEGAL AND FACTUAL POS ITION OF THE CASE AND ALSO PERUSING THE FINDINGS OF THE AO, AND THE CIT(APPEALS), IN THE MATTER, WE ARE OF THE CONSIDER ED OPINION THAT THE ORDER PASSED BY THE CIT(APPEALS), DOES NOT SUFFER FROM ANY INFIRMITY AND, HENCE, THE SAME IS UPHELD A ND THE APPEAL OF THE REVENUE IS DISMISSED. 9. AS FAR AS THE CROSS OBJECTIONS OF THE ASSESSEE I S CONCERNED, THE SAME ARE BEING SUPPORTIVE IN NATURE OF THE FINDINGS OF THE CIT(APPEALS), AND, HENCE, THE SAME ARE DISMISSED. 10. IN THE RESULT, APPEAL OF THE REVENUE AND C.O. O F THE ASSESSEE, ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH NOV.,2012. SD/- SD/- (SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 27 TH NOV.,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT ,DR ASSISTANT REGISTRAR, ITAT CHANDIGARH.