ACIT, Hyderabad V. M.C.C.Projects Pvt Limited, Hyderabad

ITA 1121/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66424 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 01-02-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 23-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Assessee Lawyers: S RAMA RAO
• Keywords: Gross profit estimation; Capital asset; Depreciation; Search and seizure; Cost of acquisition; Revised return; Capital expenditure
• Section: 69C; 143(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.1093/ HYD/2010 : AS SESSMENT YEAR 2006-07 M/S.MCC PROJECTS PVT. LTD., HYDERABAD [PAN - AADCM 6098G] V/S. DY. COMMISSIONER OF INCOME-TAX CIRCLE 16(2), HYDERABAD (APPELLANT) (RESP ONDENT) ITA NO.1121/ HYD/2010 : AS SESSMENT YEAR 2006-07 ASST. COMMISSIONER OF INCOME-TAX CIRCLE 16(2), HYDERABAD V/S. M/S.MCC PROJECTS PVT. LTD., HYDERABAD [PAN - AADCM 6098G] (APPELLANT) (RESP ONDENT) ASSESSEE BY : S HRI S.RAMA RAO DEPARTMENT BY : SHRI Y.V.S.T.SAI DATE OF HEARING 10 .10.2012 DATE OF PRONOUNCEMENT 31.10.2012 O R D E R PER SANJAY ARORA, ACCOUNTANT MEMBER: THIS IS A SET OF CROSS APPEALS, I.E., BY THE ASSE SSEE AND THE REVENUE, ARISING OUT OF THE ORDER DATED 15.6.2010 BY THE COM MISSIONER OF INCOME TAX (APPEALS)- V, HYDERABAD (CIT(A) FOR SHORT), PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ITA NOS.1093 & 1121/HYD/2010 MCC PROJECTS PVT. LTD., HYDERABAD 2 ASSESSMENT UNDER SECTION 143(3) OF THE INCOME-TAX A CT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (AY) 2006-07 VIDE ORDER DATED 2 9/12/2008. 2.1 NARRATING THE FACTS OF THE CASE, THE LEARNED AR , ITS COUNSEL, WOULD SUBMIT THAT THE ASSESSEE, A COMPANY IN THE BUSINESS OF CIVIL CONSTR UCTION AND REAL ESTATE, WAS SUBJECT TO SURVEY U/S. 133A OF THE ACT ON 16.2.2006 . ADVERTING TO THE STATEMENT OF SHRI C.SIVARAMA PRASAD, DIRECTOR (IN ANSWER TO QUESTION NO. 10/PB PG. 81), IT WAS POINTED OUT BY HIM THAT A DISCLOSURE OF RS.75 LAKHS AND RS. 50 LAKHS WAS MADE FOR AYS 2005-06 AND 2006-07 RESPECTIVELY TO COVER UP VARIOUS DEFICI ENCIES. THE COMPANY ACCORDINGLY REVISED ITS RETURN FOR AY 2005-06, DECLARING AN ADD ITIONAL INCOME OF RS.75 LAKHS FOR THAT YEAR ON 19.9.2006 (PB PAGES 1, 2 ) TOWARD ADDITIONAL VALUE OF WORK-IN-PROGRESS (WIP) , PAYING TAX THEREON, AS COMMITTED. THE SAME WAS ACCE PTED BY THE REVENUE AS SUCH. THIS WAS FOLLOWED BY THE RETURN OF INCOME FOR AY 2006-07 ON 30.11.2006, ADMITTING AN INCOME OF RS. 134.63 LAKHS. THE SAME WAS SELECTED F OR SCRUTINY UNDER CASS. THE ASSESSEE CLAIMED THE INCREASED VALUE OF WIP (RS. 75 LACS) FOR THE PRECEDING YEAR (I.E., AY 2005-06) BY INCREASING CORRESPONDINGLY THE VALUE OF THE OPENING WIP FOR THE CURRENT YEAR. THAT WAS ONLY LOGICAL IN VIEW OF THE REVISED RETURN FOR AY 2005-06, OFFERING AN ADDITIONAL INCOME TOWARD ADDITIONAL VALUE OF WIP. H OWEVER, THE ASSESSING OFFICER (AO) DID NOT ACCEPT THE SAME, STATING THAT THERE WAS NO PROVISION IN THE ACT FOR ALLOWING DEDUCTION FOR ADDITIONAL INCOME OFFERED FOR EARLIER YEARS(S) TO COVER UP THE DEFICIENCIES IN THE BOOKS OF ACCOUNT. HE, FURTHER, ALSO SOUGHT TO D ISTURB THE VALUE OF THE CLOSING WIP FOR THE CURRENT YEAR, BY ALLOCATING THE ENTIRE INDIRECT EXPENDITURE INCURRED DURING THE YEAR OVER THE UNBILLED DIRECT EXPENDITURE (I.E., DIRECT COST OF MATERIAL AND CONSTRUCTION EXPENSES) IN THE RATIO OF SUCH UNBILLED AMOUNT TO T HE TOTAL OF SUCH (DIRECT) EXPENDITURE. THE ADDITIONAL VALUE, BY HIS CALCULATION, WORKED TO RS.84,92,683, WHICH IS THE SECOND ADDITION TO THE RETURNED INCOME MADE BY THE AO. HOW EVER, NO ADDITION TOWARDS RS.50 LAKHS OFFERED FOR THE YEAR (I.E., DURING SURVEY) WA S MADE BY HIM, IN VIEW OF THE ADDITION ON ENHANCEMENT IN THE VALUE OF WIP EXCEEDING RS.50 LAKHS. ITA NOS.1093 & 1121/HYD/2010 MCC PROJECTS PVT. LTD., HYDERABAD 3 2.2 THE ASSESSEE CARRIED THE MATTER IN APPEAL, AND WAS PARTLY SUCCESSFUL. QUA THE FIRST ADDITION OF RS.75 LAKHS, THE LEARNED CIT(A) WAS OF THE VIEW THAT THE OFFER FOR AY 2005- 06 WAS NOT MADE ON ACCOUNT OF ANY DIFFERENCE IN WIP OR STOCK. THE SAME WAS MADE ONLY TO COVER UP THE DEFICIENCIES FOUND IN THE VARIOUS E NTRIES IN ACCOUNTS AS WELL AS THE LOW GROSS PROFIT (GP) RATE. THE ASSESSEE, ACCORDINGLY, DID NOT FIND FAVOUR WITH THE LD. CIT(A) IN RELATION TO THE DISALLOWANCE OF RS.75 LAKHS. AS REGARDS THE SECOND ADDITION OF RS.84.93 LAKHS, I.E., ON ACCOUNT OF ALLOCATION OF I NDIRECT EXPENDITURE, I.E., AS AGAINST THE REGULAR PRACTICE OF VALUING WIP AT DIRECT EXPENDITU RE PLUS 10% THEREOF (TOWARD INDIRECT EXPENDITURE), HE OBSERVED THAT THERE WAS NO EVIDENC E TO SHOW THAT THE DISCREPANCY IN WIP AS WELL AS IN THE OTHER ASPECTS FOUND DURING THE SU RVEY, TO COVER WHICH ADDITIONAL INCOME WAS OFFERED AT RS.50 LAKHS, WAS NOT SUFFICIENT. THE RE HAD BEEN NO ATTEMPT BY THE AO TO SHOW THAT THE DISCREPANCIES FOUND OR DETECTED AMOUN T TO IN EXCESS OF RS.50 LAKHS. ACCORDINGLY, HE RESTRICTED THE ADDITION TO RS.50 LA KHS TOWARD RECONCILING THE VARIOUS DISCREPANCIES, INCLUDING QUA WIP. IT IS THUS, OVERWHELMINGLY APPARENT, THE LD. AR WOULD CONTINUE, THAT THE INCOME OFFERED DURING SURVEY WAS TOWARD WIP; THE REVENUE A CCEPTING IT TO THE EXTENT THE SAME IS FAVORABLE TO IT, WHILE DENYING IT WHEN IT COMES TO ALLOWING CREDIT FOR THE HIGHER VALUE OF OPENING WIP. THE ASSESSEE, THOUGH, IS UNDER NO O BLIGATION TO OFFER RS.50 LAKHS DECLARED DURING SURVEY PER ITS RETURN OF INCOME FOR THE CURRENT YEAR. THERE IS AN UNHEALTHY TENDENCY TO ELICIT CONFESSIONS DURING THE SURVEY AN D SEARCH OPERATIONS, WHICH HAS BEEN STRONGLY DISAPPROVED OF BY THE CBDT VIDE ITS CIRCUL AR NO.286/2/2003 DATED 10.3.2003, EXHORTING THE REVENUE OFFICERS NOT TO OBTAIN CONFES SIONS IN SUCH OPERATIONS, BUT TO CONCENTRATE ON COLLECTION OF EVIDENCE/MATERIAL DURI NG SUCH PROCEEDINGS, AND BASE THE ASSESSMENTS THEREON, PLACING A COPY THEREOF ON RECO RD. 2.3 THE LD. DEPARTMENTAL REPRESENTATIVE (DR), ON TH E OTHER HAND, RELIED ON THE IMPUGNED ORDER FOR THE DISALLOWANCE OF RS.75 LAKHS, ALLUDING TO PARAS 5.2 AND 5.3 THEREOF. NO MATERIAL TO SUBSTANTIATE ITS CLAIM REGARDING THE ADDITIONAL WIP WAS FURNISHED EVEN BEFORE THE LD. CIT(A); THE ASSESSEE AS MUCH AS NOT EVEN PROVIDING ANY DETAILS OF WIP ITA NOS.1093 & 1121/HYD/2010 MCC PROJECTS PVT. LTD., HYDERABAD 4 BEFORE ANY AUTHORITY. FOR THE SECOND ADDITION, THE AO HAD CLEARLY MADE A MORE SCIENTIFIC WORKING OF THE WIP THAN THE AD-HOC ADDITION OF 10% OF THE DIRECT EXPENDITURE INCLUDED BY THE ASSESSEE TOWARD INDIRECT EXPENDITURE IN VALU ING THE WIP AS AT THE YEAR END. THE SAME, THUS, OUGHT TO BE RESTORED, HE AVERRED. AS RE GARDS THE CIRCULAR BY CBDT, THERE IS NO EVIDENCE OF ANY CONFESSION HAVING BEEN ELICITED FROM THE ASSESSEE, WHO HAD BY ALL COUNTS MADE A VOLUNTARY ADMISSION UPON DETECTION OF SOME DISCREPANCIES, INCLUDING QUA THE LOWER RATE OF PROFIT. THE SAME, THEREFORE, CAN NOT COME TO ITS ASSISTANCE. HE WOULD THEN TAKE US THROUGH THE CELEBRATED DECISION BY THE APEX COURT IN THE CASE OF ANANTHARAM VEERASANGHAIAH & CO. V. CIT (1980) 123 ITR 457(SC), STATING THAT IT STANDS CLA RIFIED THEREIN THAT INTANGIBLE ADDITIONS, THOUGH CAN BE CA PITALIZED, INASMUCH AS THE INCOME ATTRIBUTABLE THERETO CAN BE TAKEN IN THE FORM OF A SECRET FUND AVAILABLE WITH THE ASSESSEE, BUT THE ONUS TO ESTABLISH THAT THE SAME WAS IN FACT AVAILABLE WITH THE ASSESSEE FOR BEING USED FOR ANY OTHER PURPOSE IS ONLY ON IT, AND WHICH HAS NOT BEEN DISCHARGED IN THE PRESENT CASE. THE ASSESSEE THUS COULD NOT IN LAW CLAIM BENE FIT OF THE DISCLOSURE, AND ITS CLAIM OF THE SAME REPRESENTING ADDITIONAL INVESTMENT IN WIP IS COMPLETELY UNSUBSTANTIATED. 2.4 IN REJOINDER, THE LD.AR WOULD SUBMIT THAT THE C ITED DECISION WAS IN THE CONTEXT OF PENALTY PROCEEDINGS AND, CONSEQUENTLY, RATHER, SUPP ORTS THE ASSESSEES CASE INASMUCH AS IT CLARIFIES THAT EVEN THE SO CALLED INTANGIBLE ADDITI ONS CAN BE CAPITALIZED OR, IN ANY CASE, STATED BY THE ASSESSEE AS CONSTITUTING A SOURCE DEP LOYED FOR SOME OTHER PURPOSE. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IALS ON RECORD. THE ADDITIONS IN RESPECT OF THE DISCLOSURE DURING THE SURVEY, WHICH THE ASSESSEE CLAIMS TO BE QUA WIP, WHICH FORM THE SUBJECT MATTER OF THE ASSESSEES APP EAL, AS WELL AS GROUNDS NOS. 2 TO 4 OF THE REVENUES APPEAL, WITH ITS GROUND NO.1 BEING GE NERAL IN NATURE, WARRANTING NO ADJUDICATION, BEING COMMON, WE WILL DISCUSS THE SAM E, AS WELL AS DECIDE THE SAME, TOGETHER. ITA NOS.1093 & 1121/HYD/2010 MCC PROJECTS PVT. LTD., HYDERABAD 5 3.1 WE MAY FIRST EXAMINE THE ASSESSEES STATEMENT ( THROUGH ITS DIRECTOR, SHRI C. SIVARAMA PRASAD) DURING THE SURVEY PROCEEDINGS (PB PAGES 79 TO 81 ), WHICH FORMS THE BASIS OF THE DISCLOSURE. THE RELEVANT QUESTION AND ANSWER ARE AS FOLLOWS- Q.10. AS SEEN FROM THE FINANCIAL STATEMENT OF MCC PROJECT S LTD, THE PROFIT ADMITTED ON CONTRACT RECEIPTS IS ONLY 5.80% AND THE RE ARE LAND PURCHASES TO THE EXTENT OF 84.95 LAKHS DURING THE Y EAR OF ACCOUNT. FURTHER, THERE IS A SHARE APPLICATION MONEY OF RS.2 .66 CRORES. WHAT DO YOU SAY ABOUT THE CORRECTNESS OF THE PROFIT ADMI TTED OF RS.1.39 CRORES AND THE SHARE APPLICATION MONEY . A. SO FAR AS THE SHARE APPLICATION MONEY IS CONCERNED I AM TO STATE THAT THE ENTIRE SHARE APPLICATION IS EXPLAINABLE AND ALL THE PERSONS ARE ASSESSED TO TAX. WITH REGARD TO THE CORRECTNESS OF THE PROFIT ADMITTED, I AM TO STATE THAT THE PROFIT ADMITTED IS ON SUB-CO NTRACT WORKS TAKEN FROM M/S. ECI ENGG. CONSTRUCTION CO. LTD., HYDERABA D WHICH IS REASONABLE. HOWEVER, IN ORDER TO PURCHASE PEACE FRO M THE DEPARTMENT AND IN ORDER TO AVOID LITIGATION, THE CO MPANY COMES FORWARD TO ADMIT AN INCOME OF RS.75 LAKHS (RUPEES S EVENTY FIVE LAKHS ONLY) FOR THE ASST. YEAR 2005-06 OVER AND ABO VE THE ADMITTED INCOME OF 1.39 CRORES AND RS.50 LAKHS (RUPEES FIFTY LAKHS ONLY) FOR THE ASST. YEAR 2006-07 OVER AND ABOVE THE ESTIMATED INCOME AS ON TODAY. THE COMPANY WILL PAY ADDITIONAL TAX AND FILE THE REVISED RETURN FOR THE ASST. YEAR 2005-06 BEFORE MARCH, 200 6. THE COMPANY WILL ALSO PAY ADVANCE TAX TAKING INTO ACCOUNT THE A DDITIONAL INCOME OFFERED OF RS.50 LAKHS (RUPEES FIFTY LAKHS) FOR THE ASST. YEAR 2006- 07 . THERE IS NO OTHER QUESTION IN THE SAID STATEMENT, E ITHER IN RELATION TO ANY DISCREPANCY IN ACCOUNTS, INCLUDING WIP OR ITS VALUA TION, OR INADEQUACY OF PROFITS DISCLOSED, OR SHARE APPLICATION MONEY, OR THE QUE STION ALSO ALLUDING TO - LAND PURCHASED BY THE ASSESSEE-COMPANY, IN THE SAID STATEMENT. IN FACT, EVEN THE LEARNED COUNSEL REFERRED ONLY TO THIS PART OF THE STATEMENT. THERE IS NO WHI SPER OF THE WIP OR ITS VALUATION, MUCH LESS OF ANY DISCREPANCY THEREIN, IN THE SAID STATEM ENT. AS SUCH, THE LD. CIT(A) IS CORRECT IN STATING SO, HOLDING THAT THE DISCLOSURE DURING S URVEY - IMPLYING THUS TO BE FOR BOTH THE YEARS - WAS NOT MADE ON ACCOUNT OF DIFFERENCE IN WI P OR STOCK. THE ASSESSEES CLAIM OF ITA NOS.1093 & 1121/HYD/2010 MCC PROJECTS PVT. LTD., HYDERABAD 6 THE SAID ASPECT HAVING ATTAINED FINALITY IN VIEW OF ITS REVISED RETURN FOR AY 2005-06, OFFERING ADDITIONAL INCOME (OF RS.75 LAKHS) TOWARD ADDITIONAL VALUE OF WIP IS WITHOUT MERIT. THIS IS AS THE SAME (REVISED RETURN) IS ONLY BASED ON, OR IN TERMS OF (OR OUGHT TO BE SO), THE DECLARATION MADE DURING THE SURVEY, AND WH ICH IS DE HORS AND WITHOUT REFERENCE TO ANY MATERIAL OR EVIDENCE AS TO WIP. THE REVISED RETURN, THUS, TO THE EXTENT IT IS INCONSISTENT WITH THE SAME CANNOT BE CONSIDERED AS IN PURSUANCE THERETO OR ARISING THERE- FROM. THE SAME WOULD THEREFORE REQUIRE A FINDING BY THE AO, ACCEPTING THE INCREASED VALUE OF THE CLOSING WIP FOR THAT YEAR, TO CLAIM FO R ITS INCLUSION AS A PART OF THE WIP FOR THE CURRENT YEAR. FURTHER, EVEN NO EVIDENCE TO SUBS TANTIATE ITS SAID CLAIM STOOD ADDUCED BY THE ASSESSEE EITHER IN THE ASSESSMENT PROCEEDINGS O R BEFORE THE FIRST APPELLATE AUTHORITY. THE ONUS, IN VIEW OF THE ADMITTED DISCREPANCIES IN ACCOUNTS, WHICH ARE NOT SPECIFIED IN GREATER DETAIL, TO EXHIBIT THAT THE SAME IS, FIRSTL Y, IN RELATION TO INVESTMENT IN WIP AND, SECONDLY, INCURRED DURING THE PREVIOUS YEAR RELEVAN T TO AY 2005-06, IS ON THE ASSESSEE AND HEAVY AT THAT, WHO HAS ABYSMALLY FAILED TO DISC HARGE THE SAME; ITS CLAIMS BEING DE HORS ANY MATERIAL OR EVIDENCE. IN OTHER WORDS, IN THE A BSENCE OF ANY DETAILS, SO THAT IT IS TOTALLY UNSUBSTANTIATED, THE ASSESSEES CLAIM OF TH E SAME BEING TOWARD ADDITIONAL VALUE OF WIP CANNOT BE ACCEPTED. 3.2 EVEN SO, AS A DIRECT COROLLARY, AN INCREAS E IN THE OPENING STOCK OF WIP FOR THE CURRENT YEAR, I.E., ASSUMING SO, UNLESS ITS ADJUSTM ENT IN ACCOUNTS IS EXPLAINED, WOULD RESULT IN A CORRESPONDING INCREASE IN THE CLOSING S TOCK AS WELL, SO THAT AN INCREASE IN THE OPENING STOCK SHALL BY ITSELF HAVE NO REVENUE EFFEC T. THE CLOSING STOCK (WIP) IN THE INSTANT CASE CONTINUES TO BE UNINFLUENCED BY THE IN CREASE IN THE OPENING STOCK, AND WHICH CANNOT BE, WHETHER THE SAID INCREASE IS ON ACCOUNT OF A VALUATION DIFFERENCE OR A QUANTITATIVE DIFFERENCE OR BOTH, EVEN WHICH, IN THE ABSENCE OF THE REQUISITE DETAILS OR MATERIALS, THOUGH VITAL AND BASIC TO THE ASSESSEES CLAIM, CONTINUES TO BE AN UNKNOWN FACTOR EVEN UP TO THE FINAL FACT FINDING STAGE. RAT HER, ANY UNDISCLOSED EXPENDITURE (I.E., ASSUMING ITS DETECTION DURING SURVEY), FORMING PART OF WIP, WHICH CONSTITUTES THE ASSESSEES STOCK-IN-TRADE, IS INADMISSIBLE U/S. 69C , SO THAT THE SAME WOULD STAND TO BE ITA NOS.1093 & 1121/HYD/2010 MCC PROJECTS PVT. LTD., HYDERABAD 7 INCLUDED IN THE ASSESSMENT FOR THE CURRENT YEAR, TH E SURVEY DATE BEING 16.02.2006 AND, FURTHER, NOT ALLOWED SET OFF AS EXPENDITURE. 3.3 IN FACT, PROFITS, INADEQUACY OF WHICH IS ALL UDED TO IN THE SAID STATEMENT, WOULD, RATHER THAN BEING AUGMENTED THEREBY, GET DEFLATED I N VIEW OF A PART OF THE DISCLOSURE, I.E., AS OFFERED BY THE ASSESSEE FOR THE IMMEDIATELY PREC EDING YEAR, BEING SOUGHT TO BE SET OFF AGAINST THE PROFIT FOR THE CURRENT YEAR, FOR WHICH, INEXPLICABLY, THE DISCLOSURE IS NOT HONOURED. THE DISCLOSURE, THUS, OPERATES AT CROSS P URPOSES WITH ITS PURPORTED INTENT, I.E., TO COVER UP THE DEFICIENCIES IN ACCOUNTS AND THE SH ORTFALL IN THE DISCLOSED PROFITS AND, THUS, IN THE TAX PAYABLE, WHICH BY IMPLICATION WOULD OBTA IN FOR BOTH THE YEARS UNDER REFERENCE. WE SAY SO AS IT NEEDS TO BE APPRECIATED THAT IF THE DIFFERENCE/S OR DISCREPANCY/S AS FOUND, OR TO COVER UP WHICH, INCLUDING LOW PROFIT (WHICH A GAIN IS ONLY THE OPERATING RESULT OF WORKING AS REFLECTED PER THE ACCOUNTS), THE SAID DI SCLOSURE IS MADE, DOES NOT ADD UP TO RS.125 LAKHS, BUT TO A LOWER AMOUNT, WHY WOULD IT B E MADE AT THAT (HIGHER) FIGURE. A LOWER FIGURE WOULD, IN ANY CASE, NEED TO BE JUSTIFI ED. THE ASSESSEE THOUGH ADMITS OF THE DISCLOSURE FOR RS.75 LAKHS FOR THE PRECEDING YEAR, YET MAKES AN OVERALL DISCLOSURE AT NIL VALUE, I.E., IN EFFECT, OR NO DISCLOSURE. WE HAVE A LREADY EXPLAINED THAT WHETHER CONSTRUED AS AN INVESTMENT OR AN EXPENDITURE, THE DISCLOSURE (AT WHATEVER AMOUNT) WOULD NOT ABATE, BUT SUBSIST, I.E., THE ADDITIONAL VALUE WOULD NOT G ET NEUTRALIZED OF ITS OWN, AS HAS BEEN SOUGHT TO BE DONE BY THE ASSESSEE BY APPLYING THE C LOSING STOCK-OPENING STOCK EQUATION. THIS IS AS THE ADDITIONAL VALUE OF THE OPENING STOC K (SAY, ON ACCOUNT OF UNDER-REPORTING OF PROFIT RATE) WOULD TRANSLATE INTO ADDITIONAL (VALUE OF) CLOSING STOCK AS AT THE END OF THE ACCOUNTING PERIOD, AND SO ON, UNLESS, OF COURSE, TH E SAME IS EXPLAINED WITH REFERENCE TO THE ACCOUNTS (SAY, AS WITH REFERENCE TO A DECLINE I N THE GROSS PROFIT RATE FOR THE SUCCEEDING PERIOD, OR A DECLINE IN VOLUME WITH THE G.P. RATE R EMAINING SAME, ETC.). RATHER, THAT THE ENTIRE UNDER-REPORTED PROFIT RESULTS IN AN INCREASE IN STOCK WOULD ITSELF REQUIRE A FINDING OF FACT, AND THERE CAN BE NO PRESUMPTION THAT THE UNDE R-REPORTED PROFIT MANIFESTS AS ADDITIONAL STOCK, NOT TO SPEAK OF BEING SO AT AN AM OUNT EQUAL TO THE PROFIT UNDER-REPORTED. THIS IS PRECISELY WHAT THE LD. DR TRIES TO IMPRESS UPON US WITH THE REFERENCE TO THE ITA NOS.1093 & 1121/HYD/2010 MCC PROJECTS PVT. LTD., HYDERABAD 8 DECISION IN THE CASE OF ANANTHARAM VEERASANGHAIAH & CO. V. CIT (SUPRA). FURTHER, IF AND TO THE EXTENT THE ADDITIONAL INVESTMENT IS ON ACCOU NT OF ADDITIONAL EXPENDITURE, SECTION 69C OF THE ACT WOULD GET ATTRACTED; ITS PROVISO EXCLUDING THE CLAIM OF THE SAME AS DEDUCTION. THE INCREASE IN THE CLOSING STOCK, WE MA Y CLARIFY, IS ONLY ON ACCOUNT OF ADMISSION OF THE CORRESPONDING EXPENDITURE THEREON, WHICH, WHERE NOT ADJUSTED AGAINST THE INCOME FOR THE YEAR, GETS CARRIED FORWARD IN TH E FORM OF UNBILLED EXPENDITURE. HOWEVER, AS THE EXPENDITURE IS NOT ADMISSIBLE, THER E IS NO QUESTION OF IT BEING ADJUSTED EITHER AGAINST THE INCOME FOR THE CURRENT OR ANY SU BSEQUENT YEAR, I.E., BY BEING CARRIED OVER AS UNBILLED EXPENDITURE, SO THAT IT WOULD RESU LT IN A NET INCREASE IN THE INCOME FOR THE YEAR OF EXPENDITURE, WITH NO IMPLICATION FOR ANY OT HER YEAR. 3.4 IN VIEW OF THE FOREGOING, WE FIND NO INFI RMITY IN THE IMPUGNED ORDER ON THIS SCORE, WHICH IS A SUBJECT MATTER OF ASSESSEES GROUND NO. 2 (GROUND NO.1 BEING GENERAL IN NATURE, WARRANTING NO ADJUDICATION) NOR HAS ANY BEE N BROUGHT TO OUR NOTICE, FOR US TO INTERFERE THEREWITH, I.E., IN RESULT. ON THE CONTRA RY, AS SOUGHT TO BE CLARIFIED HEREINABOVE, THE ASSESSEES CLAIM IS NOT MAINTAINABLE FROM ALL A NGLES. 4.1 AS REGARDS THE SECOND ISSUE, WE AGAIN FIND THE IMPUGNED ORDER TO BE IN AGREEMENT WITH THE MATERIAL ON RECORD AS WELL AS THE LAW IN T HE MATTER. ONCE IT HAS BEEN FOUND AS A FACT THAT THE DISCLOSURE MADE IN SURVEY HAD NO REFE RENCE TO WIP OR ITS VALUATION, THERE IS NO QUESTION OF DISTURBING THE ASSESSEES OPENING WI P FOR THE CURRENT YEAR WITH REFERENCE THERETO. THIS IS PRECISELY WHAT THE LD. CIT(A) HAS SAID. IN FACT, THE AO HAS, WHILE MAKING THE IMPUGNED ADDITION OF RS.84.93 LAKHS, CONCERNED HIMSELF WITH A DIFFERENT, NEW ASPECT, I.E., VALUATION OF WIP, DEEMING THE ALLOCATION OF I NDIRECT EXPENDITURE TO THE UNBILLED DIRECT EXPENDITURE AS MADE BY THE ASSESSEE, I.E., A T 10% OF THE DIRECT EXPENDITURE, AS INSUFFICIENT, SO THAT THE ENTIRE OF IT (INDIRECT EX PENDITURE), HAS TO BE ALLOCATED TO THE PROPORTIONATE EXTENT, I.E., IN THE RATIO OF UNBILLE D DIRECT EXPENDITURE TO THE TOTAL DIRECT EXPENDITURE. THIS IS A DIFFERENT MATTER, INDEPENDEN T OF THE SURVEY PROCEEDINGS AND FINDINGS THEREAT, WHICH IS ALSO APPARENT FORM THE F ACT THAT HE SUBJECTS THE INCREASE IN WIP ITA NOS.1093 & 1121/HYD/2010 MCC PROJECTS PVT. LTD., HYDERABAD 9 OF RS.75 LAKHS, AS BEING CLAIMED BY THE ASSESSEE, T O A FURTHER INCREASE BY 10% THEREOF, SO THAT THE SAID RS.75 LAKHS ONLY REPRESENTS DIRECT EX PENDITURE. HOWEVER, HE COMMITS AN ARITHMETICAL MISTAKE IN WORKING THE SHORTFALL IN TH E VALUATION PER THE METHOD ADOPTED BY HIM, IN THAT HE SUBJECTS EVEN THE OPENING WIP AS PE R BOOKS (RS.17.87 LAKHS) TO AN INCREASE BY 10%. THE SAME WOULD ONLY HAVE BEEN SIM ILARLY VALUED WHILE CLOSING THE ACCOUNTS FOR THE IMMEDIATELY PRECEDING YEAR, I.E., FOR THE YEAR ENDING 31.3.2005, SO THAT THERE WAS NO REQUIREMENT TO INCREASE IT ANY FURTHER ON THAT COUNT. THIS LEADS TO AN UNDERVALUATION TO THAT EXTENT, I.E., RS.1.79 LAKHS. HE ALSO COMMITS A CONCEPTUAL MISTAKE INASMUCH AS HE TELESCOPES THE ADDITION ON ACCOUNT O F VALUATION DIFFERENCE, WHICH ADMITTEDLY IS ON ACCOUNT OF INADEQUATE ALLOCATION O F INDIRECT EXPENDITURE, AGAINST THE DISCLOSURE OF RS.50 LAKHS, WHICH THOUGH WAS NOT RET URNED BY THE ASSESSEE. THE SAME (DISCLOSURE OF RS. 50 LACS), IRRESPECTIVE OF IT BEI NG RETURNED OR NOT, HAS, OR BEARS THE SAME CHARACTER AS THAT FOR RS.75 LAKHS FOR AY 2005-06, A S WOULD BE APPARENT FROM THE DISCLOSURE STATEMENT SUPRA . THE APPELLATE ORDER BY THE LD. CIT(A), H OLDING THAT THE DISCLOSURE OF RS.50 LAKHS FOR THE CURRENT YEAR AS TOWARD RECONCILING ALL DIFF ERENCES, WHILE REJECTING AN ATTEMPT BY THE AO TO DISTURB THE ASSESSEES VALUATION METHOD, THUS, HAS TO BE VIEWED AS CORRECTING THIS ANOMALY. WE FIND NO INFIRMITY THEREIN. THE FI RST LIMB, I.E., QUA RS.50 LAKHS, ACTUALLY FOLLOWS OUR FINDING QUA RS.75 LAKHS FOR THE PRECEDING YEAR AND, FURTHER, T HAT THE TWO AMOUNTS BEAR THE SAME CHARACTER, I.E., TOWARD RECON CILING THE DISCREPANCIES FOUND IN BOOKS OF ACCOUNT OR OTHER TRANSACTIONS ENTERED INTO BY THE ASSESSEE. 4.2 AS REGARDS THE DELETION OF RS. 84.93 LAKHS , FOR WHICH THE REVENUE IS IN APPEAL, THE SAID AMOUNT IS, WITHOUT DOUBT, NOT TOWARDS ANY DIFF ERENCE IN ACCOUNTS OBSERVED OR DETECTED IN SURVEY, SO THAT TO THAT EXTENT THE OBSE RVATION OF THE LD. CIT(A) IS OFF THE MARK, AND NEEDS TO BE MODIFIED, AND WHICH WE HEREBY CONFI RM. THE SAME, AS AFORE-STATED, IS ONLY ON ACCOUNT OF A DIFFERENCE IN VALUATION, BY AD OPTING A DIFFERENT METHOD, WHICH THE LD. DR HAS REMARKED AS MORE SCIENTIFIC. WE ARE UNAB LE TO MAKE ANY DEFINITE COMMENTS THEREON, I.E., AS TO THE MANNER AND EXTENT TO WHICH INDIRECT EXPENSES ARE TO BE LOADED TO ITA NOS.1093 & 1121/HYD/2010 MCC PROJECTS PVT. LTD., HYDERABAD 10 THE DIRECT EXPENDITURE IN VALUING THE INVENTORY AS AT THE END OF THE ACCOUNTING PERIOD, APART FROM STATING THAT SOME LOADING IS INDEED WARR ANTED. THIS IS SO AS SOME INDIRECT EXPENDITURE, VIZ. INTEREST COST, DEPRECIATION ON PL ANT AND MACHINERY OR EQUIPMENT, THOUGH PERIOD COSTS, DO INDEED CONTRIBUTE TO THE COST IN B RINGING THE INVENTORY OF GOODS BEING VALUED TO THEIR PRESENT STATE AND LOCATION; WHILE S OME ARE PURELY ADMINISTRATIVE COSTS, WHICH WOULD IN ANY CASE BE INCURRED OR ARE IN RELAT ION TO DIFFERENT FUNCTIONAL ASPECTS OF BUSINESS, VIZ. SALES; WHILE OTHERS ARE SEMI-VARIABL E IN NATURE, HAVING A RELATION THOUGH NOT LINEAR - WITH THE VOLUME OF PRODUCTION/ACTIVITY . THE MATTER IS ENTIRELY FACTUAL, TOWARD WHICH WE FIND NOTHING ON RECORD TO EVEN SUGGEST AN APPLICATION OF MIND BY THE ASSESSING OFFICER IN THIS REGARD. IN THIS VIEW OF THE MATTER, WE ARE BOTH INCAPACITATED AND DISINCLINED TO EVEN VENTURE TO ISSUE ANY FINDING. I N OTHER WORDS, THE ASSESSEES METHOD OF VALUATION, I.E., BY LOADING 10% OF THE DIRECT EXPEN DITURE TOWARD ALLOCATION OF INDIRECT EXPENDITURE, MAY OR MAY NOT BE ADEQUATE, BUT WE FIN D NOTHING ON RECORD TO HOLD IT AS INADEQUATE. FURTHER, THERE IS ALSO NOTHING ON RECOR D TO SHOW THAT THE CHANGED/ENHANCED ALLOCATION HAS BEEN INSISTED UPON AND APPLIED BY TH E REVENUE FOR THE SUCCEEDING YEARS AS WELL, AS ANY CHANGE HAS NECESSARILY TO BE REGULARLY FOLLOWED, OR ELSE WOULD LEAD TO A DISTORTION IN PROFITS ACROSS DIFFERENT YEARS. AS SU CH, WE CONFIRM THE ASSESSEES VALUATION METHOD FOR THE CURRENT YEAR, SO THAT NO INTERFERENC E THEREWITH, AS MADE BY THE AO, IS CALLED FOR. WE DECIDE ACCORDINGLY. 4.3 COMING TO THE ASSESSEES RELIANCE ON THE CBDT CIRCULAR SUPRA . EVEN AS OBSERVED DURING THE HEARING, TO NO REBUTTAL BY THE LD. AR, T HE SAME IS COMPLETELY MISPLACED. THIS IS AS THE ASSESSEE ITSELF HAS ACTED ON ITS ADMISSION, DECLARING AN ADDITIONAL INCOME OF RS.75 LAKHS FOR AY 2005-06. IT CANNOT BE, AS EXPLAINED TH EREAT, THAT A PART OF ITS DISCLOSURE; IT THUS CONFIRMING SOME DEFICIENCIES AND DISCREPANCIES , IS VOLUNTARY, AND THE OTHER NOT SO. THERE IS NOTHING TO SHOW OR INDICATE IT BEING NOT S O, I.E., VOLUNTARY. THIS IS PARTICULARLY INTRIGUING AS BOTH THE DISCLOSURES, I.E., FOR BOTH THE YEARS, ARE MADE TOGETHER, TOWARD THE SAME DEFICIENCIES, AND IN RESPONSE TO THE SAME QUES TION. RATHER, UNDER THE CIRCUMSTANCES, IT IS THE ASSESSEES CONDUCT THAT IS CONTUMACIOUS, WITH IT, WHILE OFFERING TO PAY TAX ON THE ITA NOS.1093 & 1121/HYD/2010 MCC PROJECTS PVT. LTD., HYDERABAD 11 DISCLOSED INCOME OF RS.125 LAKHS, COMPLIES WITH IT ONLY IN PART (RS.75 LAKHS), WHILE ALSO SEEKING TO NEUTRALIZE THE SAME AGAINST THE TAX PAID FOR THE FOLLOWING YEAR. THE ADMISSION OF DISCLOSURE WHICH OCCURS TOWARD THE END OF THE SECOND YEAR FOR THE FIRST YEAR, RATHER, LENDS CREDENCE TO THE MERITS THEREOF, SO THAT THE R ETRACTION FOR THE OTHER (SECOND) YEAR BECOMES INEXPLICABLE. THE ASSESSEE IS THUS ESTOPPED FROM TAKING SHELTER OF THE SAID CIRCULAR, WHICH IS ONLY TO PROTECT THE ASSESSEES FR OM HARASSMENT FROM REVENUE OFFICERS IN SEARCH AND SURVEY OPERATIONS, OF WHICH, EVEN AS POINTED OUT BY THE LD. DR BEFORE US, THERE IS NO CLUE IN THE INSTANT CASE, OR ANY POINTE D OUT TO US BY THE ASSESSEE. 5. THE NEXT GROUND (G # 5) OF THE REVENUES APPE AL IS IN RELATION TO DELETION BY THE LD. CIT(A) OF A DISALLOWANCE FOR RS. 2 LAKHS QUA ENTRY TAX MADE BY THE AO ON THE GROUND OF IT BEING CAPITAL EXPENDITURE, SO THAT IT WOULD W ARRANT BEING CAPITALIZED ALONG WITH THE PURCHASE COST OF THE MACHINERY, ON WHICH SAME IS PA ID. THE LD. CIT(A) ALLOWED RELIEF ON THE BASIS THAT THE SAME WAS PAID ON THE SHIFTING OF THE MACHINERY. WHEN CALLED UPON BY THE BENCH TO EXPLAIN THE BASIS OF THE SAID FINDING BY THE LD. CIT(A); HIS ORDER INDICATING NONE, THE LD. A.R. CONCEDED TO THE MATTER BEING RES TORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR PROPER VERIFICATION, AVERRING THAT ENTR Y TAX IS ALSO PAID ON OLD MACHINERY, WHEN MOVED/TRANSPORTED FROM ONE STATE TO ANOTHER. W E WONDER WHY, THEN, THE ASSESSEE DID NOT OR COULD NOT SUBSTANTIATE ITS CLAIM WITH EV IDENCE BEFORE EITHER AUTHORITY, WHO HAVE ALSO, WE ARE AFRAID TO SAY, NOT EXAMINED THE MATTER PROPERLY, ISSUING DEFINITE FINDINGS OF FACT. WHILE THE AO PRESUMES THAT ENTRY TAX IS ONLY FOR FRESH PURCHASE, THE LD. CIT(A) ADMITS AND ACCEPTS ASSESSEES EXPLANATION AT FACE V ALUE, I.E., DE HORS ANY MATERIAL. THE QUESTION IS NOT IF THE MACHINERY IS OLD OR NEW, AS THE ASSESSEE COULD WELL HAVE PURCHASED SOME OLD MACHINERY, BUT WHETHER IT IS A PURCHASE OR ACQUISITION OF A CAPITAL ASSET OR NOT. FURTHER, QUESTIONS INCIDENT TO THE ASSESSEES EXPLA NATION ARISE, AND WHICH ARE CONSPICUOUS BY THEIR ABSENCE: FROM WHERE TO WHERE, AND FOR WHAT PURPOSE, IS THE M ACHINERY BEING MOVED (?). THEN, AGAIN, THERE WOULD BE EXPENDITURE ON RE MOVAL AND SHIFTING, IF NOT ITS REINSTALLATION AS WELL. UNDER THE CIRCUMSTANCES, WE ONLY CONSIDER IT FIT AND PROPER THAT THE ITA NOS.1093 & 1121/HYD/2010 MCC PROJECTS PVT. LTD., HYDERABAD 12 MATTER IS RESTORED BACK TO THE AO FOR PROPER EXAMIN ATION AND A DECISION IN ACCORDANCE WITH LAW, CONSISTENT WITH THE FACTS OF THE CASE. W E DECIDE ACCORDINGLY. 6. THE SIXTH AND LAST GROUND OF THE REVENUES AP PEAL IS IN RESPECT OF DISALLOWANCE OF FEES PAID TO THE REGISTRAR OF COMPANIES. THE SAME H AS BEEN DISALLOWED BY THE ASSESSING OFFICER ON THE PREMISE THAT THE SAME IS PAID TOWARD INCREASE IN SHARE CAPITAL, OR IN ANY CASE REPRESENTS CAPITAL, NON-RECURRING EXPENDITURE. AS CLARIFIED BY THE ASSESSEE, WITH REFERENCE TO THE VARIOUS FORMS FOR WHICH THE FILING FEES STANDS PAID, AND TO WHICH REFERENCE WAS ALSO MADE BY THE LD. AR DURING HEARIN G, IT IS ONLY IN RESPECT OF REGISTRATION OF CHARGES, APPOINTMENTS OF DIRECTORS, ETC. NO CASE FOR DISALLOWANCE, UNDER THE CIRCUMSTANCES, IS MADE OUT, AND THE SAME STANDS RIG HTLY DELETED BY THE LD. CIT(A). WE DECIDE ACCORDINGLY, DISMISSING THE REVENUES GROUND NO.6. 7. IN THE RESULT, THE ASSESSEES APPEAL IS DISM ISSED, AND THE REVENUES APPEAL IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES . PRONOUNCED IN OPEN COURT ON 31- 10.2012 SD/- (SAKTIJIT DEY) SD/- (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/- OCTOBER 31, 2012 COPY FORWARDED TO: 1. M/S.MCC PROJECTS PVT. LTD., C/O SHRI S.RAMA RAO, FLAT NO.102, SHIRYA'S ELEGANCE, DOOR NO.3-6-643, ST REET NO.9, HIMAYATNAGAR, HYDERABAD 500029 2. 3. 4 5. DY./ASST COMMISSIONER OF INCOME-TAX, CIRCLE 16(2), HYDERABAD COMMISSIONER OF INCOME-TAX(APPEALS)-V, HYDERABAD COMMISSIONER OF INCOME-TAX-IV, HYDERABAD DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S./SPSJAIPUR