ACIT, Chandigarh V. M/s Mavi Promoters & Developers Pvt. Ltd., Morinda

ITA 1034/CHANDI/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90214 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-12-2015
• Assessment Year: misc
• Appeal Filed On: 08-11-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIRENDER GUPTA
• Assessee Lawyers: DR AMA RVEER SINGH
• Keywords: Cost of acquisition
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 1034/CHD/2013 ASSESSMENT YEAR: 2010-11 THE ACIT, VS M/S MAVI PROMOTERS & CIRCLE 2(1), DEVELOPERS PVT.LTD., ROOM NO. 414, 301, OLD BAZAR, 4 TH FLOOR, MORINDA. SECTOR 17-E, CHANDIGARH. PAN: AAECM 5740L (APPELLANT) (RESPONDENT) APPELLANT BY : DR. AMARVEER SINGH, DR RESPONDENT BY : SHRI VIRENDER GUPTA DATE OF HEARING : 08.07.2015 DATE OF PRONOUNCEMENT : 10.07.2015 O R D E R PER BHAVNESH SAINI,JM THE DEPARTMENTAL APPEAL IS DIRECTED AGAINST THE ORD ER OF LD. CIT(APPEALS) CHANDIGARH DATED 05.08.2013 FOR ASSESSMENT YEAR 2010-11 CHALLENGING THE ORDER OF LD . CIT(APPEALS) IN DELETING THE ADDITION OF RS. 70,00, 000/-. 2. BRIEF FACTS OF THE CASE ARE THAT A SURVEY U/S 13 3A OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO A S 'ACF) WAS CARRIED OUT AT THE PREMISES OF THE ASSESSEE ON 30.07.2009 AND DURING THE COURSE OF SURVEY, THE ASS ESSEE HAD SURRENDERED AN AMOUNT OF RS. 1,00,00,000/-. IN THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ANALY SED THE GROSS PROFIT RATE AND NET PROFIT RATE DECLARED BY T HE ASSESSEE 2 AND OBSERVED THAT THERE WAS SUBSTANTIAL DECREASE IN G.P. RATE. THE ASSESSING OFFICER ALSO OBSERVED THAT THE ASSESSEE HAD ENTERED THE AMOUNT OF SURRENDER IN ITS BOOKS OF ACCOUNTS BY CREDITING RS. 1,00,00,000/- TO 'SURREND ER INCOME' ACCOUNT UNDER THE HEAD 'MISCELLANEOUS INCOM E' IN THE PROFITS AND LOSS ACCOUNT AND CORRESPONDINGLY DE BITING RS. 70,00,000/- TO THE LAND PURCHASE' ACCOUNT, RS. 4,83,000/- TO 'DEVELOPMENT CHARGES' AND RS. 25,17,0 00/- TO CASH. THE ASSESSING OFFICER WAS OF THE VIEW THAT AS SESSEE HAD SUPPRESSED ITS INCOME TO THE EXTENT OF RS. 74,8 3,000/- AND SO SHE ASKED THE ASSESSEE TO EXPLAIN THE SAME A ND THE ASSESSEE HAD SUBMITTED AS UNDER : 'WITH REFERENCE TO YOUR QUERIES RAISED DURING THE ASSESSMENT PROCEEDINGS WE HAVE TO SUBMIT THAT DURING THE COURSE OF SURVEY IN OUR CASE WE HAD SURRENDERED AN AMOUNT OF RS.1,00,00,000/- WE HAVE DULY ENTERED THIS AMOUNT IN OUR BOOKS OF ACCOUNTS AS CREDITING AMOUNT OF RS.1,00,00,000/- TO THE SURRENDERED INCOME ACCOUNT UNDER THE HEAD MISC. INCOME AND CORRESPONDINGLY IN DEBITING RS. 70,00,000/- TO THE LAND PURCHASE ACCOUNT, RS. 4,83,000/- TO THE DEVELOPMENT CHARGES AND RS. 25,17,000/- TO CASH. HENCE, THE ENTIRE AMOUNT OF SURRENDER INCOME WAS ACCOUNTED FOR. DURING THE RELEVANT YEAR THERE WAS NO PURCHASE AND WE HAD AN OPENING STOCK IN HAND AT RS.4,66,80,903/- AGAINST SALEABLE AREA OF 23132 SQ.YDS AVERAGING AT RS. 2018 PER SQ.YDS FURTHER WE HAD NOT MADE ANY PURCHASE IN THE RELEVANT YEAR. FURTHER WE HAD SOLD 17044 SQ.YDS OUT OF THIS 23132 SQ.YDS DURING THE 3 YEAR AND WE HAD 6088 SQ.YDS OF SALEABLE AREA IN CLOSING STOCK AT THE END OF THE YEAR. WHILE VALUING THE CLOSING STOCK WE VALUED 6088 SQ.YDS @ 2018 AS ABOVE SAID AT RS. L,72,85,584/- AND FURTHER ADDED AMOUNT OF RS.70,00,000/-. HENCE, THE TOTAL VALUE OF CLOSING STOCK CAME TO RS.1,92,85,584/- TAKEN IN THE BALANCE SHEET. IN THIS WAY THE EFFECT HAS BEEN NEUTRALIZED. THE AMOUNT OFRS.25,17,000/- SURRENDERED IN CASH HAS NO BEARING ON THE PROFIT & LOSS ACCOUNT.' 3. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND CONCLUDED THAT THE ASSESSEE HAS SUPPRESSED ITS INCOME TO THE EXTENT OF RS. 70,00,000/- ON ACCOUNT OF LAND PURCHASE AND RS. 4,83,000/- ON ACCOUNT OF LAND DEVELOPMENT CHARGES A ND SHE ADDED THESE AMOUNTS TO THE TOTAL INCOME OF THE ASSE SSEE. 4. THE ADDITION WAS CHALLENGED BEFORE LD. CIT(APPEA LS) AND DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. COUNSEL FOR THE ASSESSEE HAS FILED WRITTEN SUBMISSI ON, RELEVANT PORTION OF WHICH IS REPRODUCED BELOW : 'IT IS HEREBY SUBMITTED THAT WE ARE VALUING OUR STOC KS AT COST OR MARKET PRICE WHICHEVER IS LESS AND IT IS BEING FOLLOWED CONSISTENTLY OVER THE YEARS. FOLLOWING THE ABOVE PRINCIPLE WE SHALL CALCULATE INCOME BY ALL VERSIONS AND IT SHALL BE CRYSTAL CLEAR THAT FINANCIAL RESULTS OF THE ASSESSEE SHALL NOT BE CHANGED AS CLA IMED BY THE LD' AO IN ANY CASE: CASE(I): TRADING ACCOUNT AS ON 31/03/2010 (BY TAKING INTO ACCOUNT THE ABOVE ENTRY AS PER ASSESSES VERSION) 4 CALCULATION OF VALUE OF CLOSING STOCK IN CASE (I) COST OF LAND IN OPENING STOCK (23132 SQ.YDS.) AVERAGE COST PER SQ. YD. (46680903/23132) AREA OF LAND IN CLOSING STOCK COST OF CLOSING STOCK (6088 X 2018) ADD: PURCHASE COST DEBITED ADD: LAND DEVELOPMENT TOTAL COST OF CLOSING STOCK IN THE ABOVE CASE WE CAN SEE THAT VALUE OF THE CLOS ING STOCK HAS BEEN TAKEN ON THE LOWER SIDE BY AMOUNT OF RS.483000 /- BY THE ASSESSEE WHICH MAY BE ADDED BACK AT THE MOST TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF UNDERVALUATION OF THE CLOSI NG STOCK AND IF IT IS ADDED THE GROSS PROFIT OF THE ASSESSEE SHA LL BE RS. 18846681 (18363681 + 483000). IN THE ABOVE CASE WE HAVE NOTED THAT AMOUNT OF SURRENDER INCOME HAS BEEN ACCO UNTED FOR OVER AND ABOVE THE NORMAL INCOME AND THE EFFECT OF RS. 7000000 HAS BEEN NEUTRALIZED BY REPRESENTING ON BOTH THE SIDES OF TRADING ACCOUNT. THIS FACT SHALL BE PRECISELY CLEAR IN A CASE (II) F OLLOWING AS UNDER : CASE (II): TRADING ACCOUNT AS ON 31/03/2010 (BY EXC LUDING FROM ACCOUNT THE ABOVE ENTRY AS PER LD' AO V ERSION) **CALCULATION OF VALUE OF CLOSING STOCK IN CASE (I) COST OF LAND IN OPENING STOCK (23132 SQ. YDS.) RS. 46680903 AVERAGE COST PER SQ. YD. (46680903/23132) RS. 2018 PARTICULARS DR. AREA SQ. YDS AMOUNT RS. PARTICULARS CR. AREA SQ. YDS AMOUNT RS. OPENING STOCK 2313 46680903 SALES 17044 43242000 PURCHASES 7000000 CLOSING STOCK * 6088 19285584 LAND DEVELOPMENT 483000 SURRENDER INCOME 10000000 GROSS PROFIT 18363681 TOTAL 2313 72527584 TOTAL 23132 72527584 RS. 46680903 RS. 2018 6088 SQ. YD. RS. 12285584 RS. 7000000 RS. 483000 RS. 19768584 PARTICULARS DR. AREA SQ. YDS AMOUNT RS. PARTICULARS CR. AREA SQ. YDS AMOUNT RS. OPENING STOCK 23132 46680903 SALES 17044 43242000 GRO SS PROFIT 18846681 CLOSING STOCK ** 6088 12285584 SURRENDER INCOME 10000000 TOTAL 23132, 65527584 TOTAL 23132 65527584 5 AREA OF LAND IN CLOSING STOCK 6088 SQ. YD. COST OF CLOSING STOCK (6088 X2018) RS. 1228558 4 TOTAL COST OF CLOSING STOCK RS. 12285584 IT IS NOTWORTHY THAT UNDER BOTH THE VERSIONS GROSS PROFIT OF ASSESSEE IS CALCULATED AT RS. 18846681 (IF ADDITION OF RS. 4830 00 IS MADE IN CASE I). THEREFORE THERE IS NO ANY DIFFERENCE AS A RESULT OF ACCOUNTING FOR ENTRY IN BOOKS OR NOT AND SUPPRESSION OF INCOME DO NOT ARISE AT ALL.' 5. THE LD. CIT(APPEALS), CONSIDERING THE SUBMISSION OF THE ASSESSEE AND MATERIAL ON RECORD, DELETED THE ADDITI ON. HIS FINDINGS IN PARA 3.3 AND 3.3.1 ARE REPRODUCED AS UN DER : 3.3. I HAVE CONSIDERED THE SUBMISSION OF THE LD. COUN SEL. THE APPELLANT HAD DISCLOSED ADDITIONAL INCOME OF RS. 1,00 ,00,000/- AT THE TIME OF SURVEY FOR WHICH IT HAD PASSED ACCOUN TING ENTRY AS UNDER: DEBIT LAND PURCHASE ACCOUNT RS. 7000000/- DEBIT LAND DEVELOPMENT CHARGES RS. 483000 /- DEBIT CASH IN HAND RS. 2517000/- THE APPELLANT HAS SUBMITTED TRADING ACCOUNT AS PER ITS OWN VERSION AND AS PER ASSESSING OFFICER'S VERSION TO P ROVE ITS POINT THAT AT LEAST THE ADDITION OF RS. 70,00,000/- HAD BEEN WRONGLY MADE BY THE ASSESSING OFFICER. IT IS SEEN T HAT THE APPELLANT HAD DULY ACCOUNTED FOR THE ADDITIONAL INC OME, DECLARED DURING SURVEY, IN ITS RETURN OF INCOME AND THE FINDING OF THE ASSESSING OFFICER THAT IT HAD SUPPRE SSED ITS INCOME TO THE EXTENT OF RS.70,00,000/- ON ACCOU NT OF LAND PURCHASE IS, IN FACT, NOT CORRECT. THEREFORE, THE ADDITION OF RS. 70,00,000/- MADE BY THE ASSESSING O FFICER IS DELETED. HOWEVER, THE DEDUCTION OF THE AMOUNT OF RS. 4,83,OOO/-REPRESENTING LAND DEVELOPMENT CHARGES HAS WRONGLY BEEN CLAIMED BY THE APPELLANT AND THE ADDIT ION MADE ON THIS ACCOUNT IS UPHELD. GROUND OF APPEAL NO. 2 IS ALLOWED AND GROUND OF APPEAL NO. 3 IS DISMISSED. 6 6. THE LD. DR RELIED UPON ORDER OF THE ASSESSING OF FICER AND SUBMITTED THAT ASSESSING OFFICER HAS MADE ADDIT ION ON ACCOUNT OF LAND PURCHASE WHICH WAS NOT PURCHASED DU RING THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS INC REASED ITS COST BY INCREASING EXPENSES AS WELL AS VALUE OF THE CLOSING STOCK. THIS FACT MAY APPEAR TO BE NEUTRAL IN THE YEAR UNDER CONSIDERATION BUT IN THE SUBSEQUENT YEAR , WHEN INFLATED VALUE OF THE CLOSING TOCK IS TAKEN AS OPEN ING STOCK, IT WOULD REDUCE THE PROFIT OF THE SUBSEQUENT YEAR. THE LD. DR, THEREFORE, SUBMITTED THAT LD. CIT(APPEALS) SHOU LD NOT HAVE DELETED THE ADDITION. 7. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND SUBMITTED THAT THE SURRENDER OF RS. 1 CRORE DUR ING THE SURVEY WAS SHOWN IN THE RETURN OF INCOME AND WAS INCORPORATED IN THE ACCOUNTS AS UNDER THE HEAD MISCELLANEOUS INCOME, THEREFORE, CORRESPONDING EN TRY OF RS. 70 LACS WAS MADE AS EXPENSES. IT WAS EXPLAINED BEFORE LD. CIT(APPEALS) THAT EVEN IF CORRESPONDING ENTRIES TAKEN AWAY, IT WOULD NOT HAVE ANY EFFECT ON THE PROFIT DE CLARED BY THE ASSESSEE. HE HAS SUBMITTED THAT IN THE SUBSEQU ENT YEAR 2011-2012, ASSESSEE HAS FILED THE RETURN OF INCOME SHOWING PROFIT OF RS. 11,22,638/- AND PAID THE TAXES. COPY OF THE ACKNOWLEDGEMENT IS FILED AT PAGE 83 OF THE PAPER BO OK. 8. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND MATERIA L ON RECORD. IN THE CASE OF THE ASSESSEE, SURVEY WAS CO NDUCTED UNDER SECTION 133A OF THE INCOME TAX ACT ON 30.07.2 009 I.E. 7 DURING THE PREVIOUS YEAR. DURING THE COURSE OF SUR VEY, ASSESSEE SURRENDERED RS. 1 CRORE. THE ASSESSEE FILE D RETURN OF INCOME AT RS. 1,06,26,575/- INCLUDING THE SURREN DERED AMOUNT OF RS. 1 CRORE AS MISCELLANEOUS INCOME. T HE ASSESSING OFFICER NOTED THE GP RATIO AND NET PROFIT RATIO IN PRECEDING ASSESSMENT YEAR 2008-09 AND 2009-10 IN WH ICH ASSESSEE HAS SHOWN NET PROFIT RATIO OF 2.82% AND 1. 62%. HOWEVER, IN ASSESSMENT YEAR UNDER APPEAL 2010-11, A FTER SURRENDERING MISCELLANEOUS INCOME OF RS. 1 CRORE, T HE NET PROFIT RATIO WAS SHOWN 24.33%. THUS, IT IS CLEAR T HAT AFTER MAKING SURRENDER OF MISCELLANEOUS INCOME OF RS. 1 C RORE IN THE RETURN OF INCOME, THE PROFIT OF THE ASSESSEE HA S SUBSTANTIALLY INCREASED. THE ASSESSEE SUBMITTED BE FORE LD. CIT(APPEALS) THAT RS. 70 LACS WAS SHOWN AS PURCHASE S AND SINCE ASSESSEE HAS MADE SURRENDER OF RS. 1 CRORE AS ADDITIONAL INCOME, THEREFORE, CORRESPONDING ENTRY S HALL HAVE TO BE MADE IN THE BOOKS OF ACCOUNT. THE CONTENTION OF THE ASSESSEE WAS, THEREFORE, CORRECT THAT ONCE SURRENDE RED INCOME IS INCLUDED IN THE BOOKS OF ACCOUNT, THE CORRESPONDING ENTRY SHALL HAVE TO BE MADE FOR THE P URPOSE OF PREPARATION OF PROFIT & LOSS ACCOUNT AND BALANCE SHEET. THE ASSESSEE ALSO FILED TWO DIFFERENT TRADING ACCOU NTS BY TAKING INTO CONSIDERATION SURRENDERED AMOUNT OF RS. 1 CRORE TO SHOW THAT IF NO CORRESPONDING ENTRY IS SHOWN, TH ERE IS NO EFFECT ON THE PROFIT DECLARED BY ASSESSEE. THESE F ACTS, THEREFORE, WOULD CLEARLY SHOW THAT ASSESSEE HAS HON OURED HIS COMMITMENT OF SURRENDERING RS. 1 CRORE AND PAYI NG TAX THEREON. THEREFORE, THERE WAS NO SUPPRESSION OF IN COME BY 8 RS. 70 LACS. WE, THEREFORE, FIND THAT LD. CIT(APPE ALS), ON PROPER APPRECIATION OF FACTS AND MATERIAL ON RECORD , CORRECTLY DELETED THE ADDITION OF RS. 70 LACS. IN THIS VIEW OF THE MATTER, WE DO NOT FIND ANY MERIT IN THE DEPARTM ENTAL APPEAL. THE SAME IS, ACCORDINGLY, DISMISSED. 9. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JULY,2015. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: JULY,2015. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH