ITO, Suryapet V. M/s. Sri Surya Constructions AV, Suryapet

ITA 1208/HYD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77928 (ITAT-HYDERABAD)
• Duration Of Justice: 44 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2014
• Appeal Filed By: Department
• Assessment Year: misc
• Appeal Filed On: 01-01-1970
• Court: TRIBUNAL
• Assessee Lawyers: S RAMA RAO
• Keywords: Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1207/HYD/11 : ASSTT. YEAR 2006 - 07 ITA N O.1208/HYD/11 : ASSTT. YEAR 2007 - 08 ITA NO.1209/HYD/11 : ASSTT. YEAR 2008 - 09 INCOME TAX OFFICER, SURYAPET V/S. M/S. SRI SURYA CONSTRUCTIONS, SURYAPET ( PAN - ABKFG 1420 P ) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SOLGY JOSE T.KOTTARAM DR RESPONDENT BY : SHRI S.RAMA RAO DATE OF HEARING 27.5.2014 DATE OF PRONOUNCEMENT 13.6.2014 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER: THESE THREE APPEALS BY THE REV ENUE ARE DIRECTED AGAINST THE COMMON ORDER OF THE COMMISSIONER OF INCOME - TAX(APPEALS) VI, HYDERABAD DATED 8.4.2011 FOR THE ASSESSMENT YEARS 2006 - 07 TO 2008 - 09. SINCE FACTUAL BACKGROUND AND THE ISSUES INVOLVED IN THESE APPEALS ARE COMMON, THESE APPEALS A RE BEING DISPOSED OF WITH THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.1207/HYD/2011 : ASSESSMENT YEAR 2006 - 07 2. THE ONLY EFFECTIVE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL RELATES TO AN ADDITION OF RS.85,00,000 MADE BY THE ASSESSING OFFICER, WHICH HAS BEEN DELETED BY THE CIT(A). 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM, WHICH CAME INTO EXISTENCE ON 11.9.2006 AND REGISTERED WITH THE REGISTRAR OF FIRMS, NALGONDA ON 4.12.2006. THERE ARE SEVEN PARTNERS I N THE PARTNERSHIP FIRM AND BEFORE FORMING THE PARTNERSHIP, THE SEVEN PERSONS JOINTLY PURCHASED 1100 SQ. YARDS ITA NO.1207 TO 1209/ HYD/201 1 M/S. SRI SURYA CONSTRUCTIONS, SURYAPET 2 OF LAND FROM ONE SMT. KODATI ANDAMMA AND OTHERS. THE AMOUNT SPENT IN ACQUISITION OF THE PROPERTY WAS RS.55,83,600. THERE WAS NO OTHER ACTIVITY DU RING THE PERIOD ENDED 31.3.2006 EXCEPT ACQUISITION OF THE SAID LAND AND ACCORDINGLY NIL RETURN OF INCOME WAS FILED SHOWING THE AMOUNT OF RS.55,83,600 AS THE WORK IN PROGRESS. THE ASSESSING OFFICER CONDUCTED SURVEY ACTION UNDER S.133A OF THE ACT ON 8.3.20 10. DURING THE SURVEY, HE FOUND CERTAIN SLIPS OF PAPER, THE MOST IMPORTANT OF WHICH WAS AFFIXED IN THE ASSESSMENT ORDER BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2006 - 07. BASED ON THE SAME, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE LAND WAS ACQUIRED FOR A TOTAL CONSIDERATION OF RS.85.00 LAKHS AND NOT RS.55,83,600 AND ACCORDINGLY TREATED THE AMOUNT OF RS.85 LAKHS AS INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2006 - 07. WITH THIS ADDITION, THE ASSESSING OFFICER DETERMINED THE TOTAL INCOME O F THE ASSESSEE AT RS.85,00,000 FOR THE ASSESSMENT YEAR 2006 - 07, VIDE ORDER OF ASSESSMENT DATED 27.12.2010 PASSED UNDER S.143(3) OF THE ACT. 4. ON APPEAL, THE CIT(A), WHILE DEALING WITH THE APPEAL FOR THE ASSESSMENT YEAR 2006 - 07, DELETED THE ADDITION O F RS.85,00,000 MADE BY THE ASSESSING OFFICER, IN THE FOLLOWING MANNER - 4. ..I FIND THAT THE YEAR UNDER CONSIDERATION IS THE FIRST YEAR OF ITS ACTIVITY. THE PARTNERSHIP FIRM CAME INTO EXISTENCE THROUGH A PARTNERSHIP DEED DATED 11.09.2006 RELEVANT FOR TH E ASSESSMENT YEAR 2007 - 08. INSOFAR AS ASSESSMENT YEAR 2006 - 07 IS CONCERNED, THERE WAS ONLY AN ORAL UNDERSTANDING BETWEEN THE PARTNERS AND THE INVESTMENT WAS MADE JOINTLY BY ALL THE PARTNERS IN ACQUISITION OF THE LAND. AS ON 31.03.2006, THE AMOUNT SPENT WAS ONLY ON PURCHASE OF THE PROPERTY AND THE SAME WAS ADMITTED BY THE PARTNERS. THEREFORE, I HOLD THAT THE INVESTMENT MADE IN ACQUISITION OF THE PROPERTY JOINTLY SHOULD ONLY BE CONSIDERED IN THE ASSESSMENT OF THE PARTNERS AND NOT IN THE ASSESSMENT OF TH E PARTNERSHIP FIRM. I AM FORTIFIED BY THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V/S. BHARATH ENGINEERING AND CONSTRUCTION COMPANY REPORTED IN 83 ITR 187 WHEREIN IT IS HELD THAT THE CASH CREDIT IN THE FIRST YEAR OF BUSINESS OF ENGINEERING CONSTRU CTION SHOULD BE TREATED AS THE CAPITAL RECEIPT AND CANNOT BE ADDED BY APPLYING THE PROVISIONS OF SEC.69 OF THE I.T. ACT. I AM ALSO FORTIFIED BY THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V/S. SMT.P.K.NOORJEHAN REPORTED IN 237 ITR 570 WHEREIN IT IS HELD THAT UNLESS THERE IS A POSSIBILITY TO EARN AN UNDISCLOSED INCOME THE PROVISION OF NEITHER SEC.68 NOR SEC.69 CAN BE APPLIED. THEREFORE, I AM OF THE VIEW THAT THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.85,00,000 IS NOT CORRECT AND IS ACCORDINGL Y DELETED. 5. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US IN APPEAL FOR THE ASSESSMENT YEAR 2006 - 07 . ITA NO.1207 TO 1209/ HYD/201 1 M/S. SRI SURYA CONSTRUCTIONS, SURYAPET 3 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, SUPPORTING THE ORDER OF THE OF SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE BY T HE ASSESSING OFFICER. HE SUBMITTED THAT THE LAND WAS PURCHASED BY THE FIRM ITSELF, AND IT WAS GOT REGISTERED IN THE NAME OF THE FIRM ONLY ON 18.3.2006, WHEREAS THE PARTNERSHIP WAS FROM BY VIRTUE OF DEED DATED 17.3.2006. THE LEARNED DEPARTMENTA L REPRESENTA TIVE FURTHER SUBMI T TED TH A T THE DECI S IONS RELIED UPON BY THE LE A RNED CIT(A) ARE NOT APPLICABLE TO TH E C A S E OF TH E ASSESSEE FIRM, AS T HE ASSESSEE HEREIN HAS NOT MAINTAINED BOOKS OF ACCOUNT, WHEREAS THE CASES RELIED UPON BY THE CIT(A) RELATE TO THE ASSESSEE S WHO MAINTAINED REGULAR BOOKS OF ACCOUNT. FURTHER, TH E ASSESSEE DID NO T FILE THE RETURN OF INCOM E TILL THE DATE OF SURVEY. HENCE, THE CIT(A) WAS NOT CORRECT IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER. 7 . THE LEARNED COUNSEL FOR THE ASS ESSEE ON THE OTHER HAND, STRONGLY SUPPORTED THE ORDER OF THE CIT(A). 8 . WE HAVE CONSIDERED THE RIVAL SUBMI S SIONS AND PERUSED THE IMPUGNED ORDERS O F TH E R E VENUE AUTHO R IT I ES AND OTH E R MATE R IAL ON RECORD. SINCE THE INVESTMENT HAS BEEN MADE BY TH E PARTNERS J OINTLY PRIOR TO THE FORMATION OF TH E PARTNERSHIP FIRM, WE AGREE WITH THE CIT(A) THAT ANY ADDITION ON ACCOUNT OF SUCH INVESTMENT SHOULD ONLY BE CONSIDERED IN THE ASSESSMENT OF THE PARTNERS AND NOT IN THE ASSESSMENT OF THE PARTNERSHIP FIRM. THE DECISIONS RELIED UPON BY THE CIT(A) IN THIS BEHALF CLEARLY SUPPORT THE CASE OF TH E ASSESSEE , AND THE POINT OF DISTINCTION BROUGHT OUT BY THE LEARNED DEPARTMENTAL REPR E SENTATIVE IS NOT MATERIAL FOR THE DETERMINATION OF TH E POINT IN DISPUTE IN THIS CASE. FURTHER, THE ASSESSMENT YEAR UN D ER CONSIDERATION, BEING TH E FIRST YEAR OF EXISTENCE OF TH E PARTNERSHIP, AS HELD BY THE APEX COURT IN TH E CA S E OF P.K.NOORJEHAN (SUPRA) , NO ADDITION OF THE MAGNITUDE INVOLVED IN THE PR E SENT CASE, COULD BE MADE IN TH E ASSESSMENT OF TH E F IRM, EITHER UNDER S.68 OR 69 OF TH E A C T. WE ACCOR D INGLY UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE, AND REJECT THE G R OUNDS O F TH E R E VENUE IN THI S APPEAL. ITA NO.1207 TO 1209/ HYD/201 1 M/S. SRI SURYA CONSTRUCTIONS, SURYAPET 4 9 . IN THE RESULT, THIS APPEAL FOR THE ASSESSMENT YEAR 2006 - 07 , BEING ITA NO.1207/HYD/2011, IS DISMIS SED. ITA NO.1208/HYD/2011 : ASSESSMENT YEAR 2007 - 08 ITA NO.1209/HYD/2011 : ASSESSMENT YEAR 2008 - 09 10 . FIRST GRIEVANCE OF THE REVENUE COMMON IN BOTH THESE APPEALS RELATES TO ADDITIONS MADE BY THE ASSESSING OFFICER, ON ACCOUNT OF DIFFERENCE IN THE COST OF CONSTRUCTION, WHICH HAS BEEN DELETED BY THE CIT(A). 11 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE - FIRM COMMENCED ITS BUSINESS ACTIVITY OF CONSTRUCTION OF FLATS, ADMITTED THE INCOME ON COMPLETION OF THE PROJECT. DURING THE FINANCIAL YEAR 200 6 - 07 RELEVANT FOR ASSESSMENT YEAR 2007 - 08, THE ASSESSEE AGREED TO SELL THREE FLOORS OF THE PROPERTY TO ONE SHRI GIRISH KUMAR, WHO PAID AN ADVANCE OF RS.15,00,000. THE SAID GIRISH KUMAR ALSO SPENT AN AMOUNT OF RS.30 LAKHS ON THE AREA PURCHASED BY HIM. THE ASSESSING OFFICER REFERRED THE MATTER OF VALUATION OF COST OF CONSTRUCTION TO THE VALUATION CELL, WHICH DETERMINED THE TOTAL COST OF CONSTRUCTION OF THE BUILDING AT RS.1,50,00,000. AS THE ASSESSEE ADMITTED EXPENDITURE OF RS.1,14,05,059, THE BALANCE WAS E PROPORTIONATELY TREATED AS THE INCOM E FOR BOTH THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09. IN THIS PROCESS, FOR THE ASSESSMENT YEAR 2007 - 08, THE ASSESSING OFFICER, MAKING AN ADDITION OF RS.9,83,500 ON ACCOUNT OF DIFFERENCE IN THE COST OF CONSTRUCTION, AND COMPLETED THE ASSESSMENT ON A TOTAL INCOME OF RS.10,09,000, VIDE ORDER OF ASSESSMENT DATED 27.12.2010 PASSED UNDER S.143(3) OF THE ACT. SO ALSO, FOR ASSESSMENT YEAR 2008 - 09 MAKING AN ADDITION OF RS.21,66,975 ON ACCOUNT OF DIFFERENCE IN THE COST OF CONSTRUCTION AND A FURTHER ADDITION OF RS.12,95,705 ON ACCOUNT OF UNEXPLAINED INTRODUCTION OF CAPITAL BY THE PARTNERS, COMPLETED THE ASSESSMENT ON A TOTAL INCOME OF RS.34,88,180, AS AGAINST RETURNED INCOME OF RS.25,500, VIDE ORDER OF ASSESSMENT DATED 27.1 2.2010 PASSED UNDER S.143(3) OF THE ACT. 12 . ON APPEAL, THE CIT(A) FOUND THAT SHRI GIRISH KUMAR CONFIRMED THE FACT THAT AN AMOUNT OF RS.30 - LAKHS WAS SPENT BY HIM AFTER TAKING POSSESSION OF THE ITA NO.1207 TO 1209/ HYD/201 1 M/S. SRI SURYA CONSTRUCTIONS, SURYAPET 5 THREE FLOORS OF THE BUILDING. IF THIS AMOUNT OF RS.30 LAKHS WERE TO BE REDUCED FROM THE COST OF CONSTRUCTION AS ARRIVED AT BY THE DEPARTMENTS VALUATION CELL AT RS.1,50,00,000, THE VALUE OF THE COST OF CONSTRUCTION INCURRED BY THE ASSESSEE WOULD COME DOWN TO RS.1,20,00,000 AS PER THE VALUATION CELL. SINCE THE ASS ESSEE HAS ALREADY RECORDED RS.1,14,05,509, THE DIFFERENCE WORKED OUT TO LESS THAN 5%. CONSIDERING THIS MARGINAL DIFFERENCE IN THE COST CLAIMED TO HAVE BEEN INCURRED AND ESTIMATED, THE CIT(A) WAS OF THE VIEW THAT NO ADDITION ON ACCOUNT OF DIFFERENCE IN THE COST OF CONSTRUCTION WAS CALLED FOR. HE ACCORDINGLY DELETED THE ADDITIONS MADE ON ACCOUNT OF DIFFERENCE IN THE COST OF CONSTRUCTION FOR BOTH THE YEARS. 13 . AGGRIEVED, REVENUE IS IN APPEAL BEFORE US FOR BOTH THE YEARS ON THIS ISSUE. 14. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE O R DER OF TH E ASSESSING OFFICER AND SUBMITTED THAT THE CIT(A) WAS NOT JU S TIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF UNDISCLO S ED INVESTMENT IN TH E CON S TRUCTION OF PROPERTY. HE ALSO SUBMI T TED THAT WHEN TH E ASSESSEE FIRM CONSTRUCTED THREE FLOORS COMPLETELY, THE T OT A L COST OF CON S TRUC T ION, WHICH WAS INCURRED BY THE ASSESSE E FIRM CA NNOT BE LESS THAN RS.1.50 CRORES. HE THEREFORE, SUBMI T TED THAT THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS COUN T FOR BOTH THE YE A RS SHOULD B E RESTORED. 15. THE LEARNED COUN S EL FOR THE ASSESSEE ON TH E OTH E R HAND, STRONGLY SUPPO R TED THE ORDER OF TH E CIT(A) AND SUBMI T TED THAT THE ADDITIONS MADE BY TH E ASSESSING OFFICER ON THIS COUNT ARE WHOLLY UNJUSTIFIED AND CA NNOT BE SUSTAINED. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AND OTHER MATERIAL AVAILABLE ON RECORD. IT IS EVIDENT FROM THE IMPUGNED ORDER OF THE CIT(A) THAT THE BUYER OF THE PROPERTY, SHRI GIRISH KUMAR, HAS CONFIRMED THE FACT OF RS.30 - LAKHS HAVING BEEN SPENT BY HIM AFTER TAKING POSSESSION OF THREE FLOORS OF THE BUILDING. AS SUCH THIS PART OF THE INVESTMENT CANNOT BE TAKEN AS THAT OF THE ASSESSEE . IF THIS AMOUNT I S REDUCED FROM TH E VALUE OF COS T OF ITA NO.1207 TO 1209/ HYD/201 1 M/S. SRI SURYA CONSTRUCTIONS, SURYAPET 6 CON S TRUCTION ESTIM A TED BY THE DEPARTMENTAL VALUATION OFFICER OF R S .1.50 CRORES, THE VALUE REM A INING O F R S .1,20, 00, 000 DOES NO T LEAVE MUCH OF A MARGIN ABOVE TH E COST OF CON S TRUC T ION OF RS .1,14,05, 509 DISCLOSED BY THE ASSESSEE ITSELF. CO N SIDERING TH E SMALLNESS OF TH E DIFFERENCE, WHICH IS LESS THAN 5%, THE ADDITION M A DE BY TH E ASSESSING OFFICER IS UNJUSTIF I ED AND UNCALLED FOR. FURTHER, THE CIT(A) HAS OBSERVED THAT THE D EPAR T MENT HAS NOT BROUGH T ON RECORD ANY EVIDENCE TO IN D I C ATE THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE OVER AND ABOVE WHAT HAS BEEN RECORDED IN THE BOOKS. IN THE CIRCUMSTANCES, WE AGREE WITH THE CIT(A) THAT THE ADDITIONS MADE BY TH E ASSESSING OFFICER CANNOT BE SUSTAIN E D. WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A) IN DELETING T HE ADDITIONS OF RS.9,83,500 FOR ASSESSMENT YEAR 2007 - 08 AND RS.21,66,975 FOR THE ASSESSMENT YEAR 2008 - 09 MADE BY THE ASSESSING OFFICER AND REJECT THE G R OUNDS OF THE REVENUE ON THIS ISSUE FOR BOTH THE YEARS. 17. WITH THE ABOVE FINDING ON THE COMMON I SSUE INVOLVED, THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2007 - 08, VIZ. ITA NO.1208/HYD/2011 IS DISMISSED. 18. THE ONLY OTHER ISSUE THAT SURVIVES FOR CONSIDERATION, IS IN TH E APPEAL FOR TH E ASSESSMENT YEAR 2008 - 09 AND IT RELATES TO DELETION OF ADDITION OF RS.12,95,704 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CAPITAL INTRODUCED. 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDER OF THE REVE NUE AUTHORITIES ON THIS ISSUE. THE ASSESSING OFFICER MADE THE IMPUGNED ADDITION OF R S.12,95,704, ON ACCOUNT OF CAPITAL INTRODUCED BY THE PARTNERS, ON THE GROUND THAT THE SOURCES FOR THE SAME COULD NOT BE EXPLAINED PROPERLY. WE FIND THAT THE CIT(A) DELETED THE SAID ADDITION MADE BY THE ASSESSING OFFICER , OBSERVING THAT THE PARTNERS HAVE INVESTED THE AMOUNTS FROM OUT OF THE EXISTING ASSETS AS ON 31.3.2007 AND OUT OF THE INCOME DERIVED BY THEM DURING THE YEAR UNDER CONSIDERATION. HE ALSO NOTED THAT THE INVESTMENTS WERE ALSO PROPERLY RECORDED IN THE BOOKS OF ACCOUNT OF THE PARTNERS AND WERE ALSO SHOWN IN THE BALANCE SHEETS FILED BY THEM ALONGWITH THEIR RETURNS OF INCOME BEFORE THE ASSESSING OFFICER. IN TH E ITA NO.1207 TO 1209/ HYD/201 1 M/S. SRI SURYA CONSTRUCTIONS, SURYAPET 7 ABSENCE OF ANYTHING TO THE CON T RARY BROUGHT ON RECO R D BY TH E R E VENUE TO DISPROVE THE ABOVE FINDINGS OF THE CIT(A), WE FIND NO JUSTIFIC ATION FOR THE ADDITION MADE BY TH E ASSESSING OFFICER ON THIS ASPECT. WE ACCOR D INGLY UPHOLD TH E O R DER OF THE CIT(A) AND REJECT THE GROUNDS OF TH E R E VENUE ON THIS ISSUE. 20. IN THE RESULT, APPEAL FOR THE ASSESSMENT YEAR 2008 - 09 , BEING ITA NO.1209/HYD/2 011, IS ALSO DISMISSED. 21. TO SUM UP, ALL THE THREE APPEALS OF THE REVENUE FOR ASSESSMENT YEAR S 2006 - 07 TO 2008 - 09 ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 13 TH JU N E , 2014 SD/ - SD/ - (CHANDRA POOJARI ) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/ - 13 TH JUNE, 2014 COPY FORWARDED TO: 1. M/S. SRI SURYA CONSTRUCTIONS, AV ENCLAVE, BEHIND WATER TANK, SURYAPET 508 213 . 2. INCOME TAX OFFICER SURYAPET 3. COMMISSIONER OF INCOME - TAX(APPEALS) VI, HYDERABAD 4. COMMISSIONER OF INCOME - TA X V HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S