V.V.R. Housing Pvt. Ltd., Hyderabad V. DCIT, Circle 3(3), Hyderabad

ITA 1681/HYD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69899 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 28-12-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K S RAJENDRA KUMAR
• Assessee Lawyers: S RAMA RAO
• Keywords: Unexplained investment; Unexplained expenditure; Reasonable cause
• Section: 40A(3); 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 1681/HYD/2010 ASSESSMENT YEAR 2006-07 M/S. VVR HOUSING PVT. LTD. HYDERABAD PAN: AACCV1648N VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-3(3) HYDERABAD APPELLANT RESPONDENT ITA NO. 222/HYD/2011 ASSESSMENT YEAR 2006-07 THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-3(3) HYDERABAD VS. M/S. VVR HOUSING PVT. LTD. HYDERABAD PAN: AACCV1648N APPELLANT RESPONDENT ASSESSEE BY: SRI S. RAMA RAO REVENUE BY: SRI K.S. RAJENDRA KUMAR DATE OF HEARING: 1 2 .0 9 .2013 DATE OF PRONOUNCEMENT: 08.11.2013 O R D E R PER CHANDRA POOJARI, AM: THE ABOVE APPEALS ARE CROSS APPEALS DIRECTED AGAIN ST THE ORDER OF THE CIT(A), GUNTUR DATED 13.10.2010 FOR A.Y. 2006-07. 2. FIRST WE WILL TAKE UP ASSESSEE'S APPEAL IN ITA NO. 1681/HYD/2010. 3. THE SOLITARY EFFECTIVE GROUND IN ASSESSEE'S APPEAL IS WITH REGARD TO SUSTAINING AN ADDITION OF RS. 1,32,16,943 BY THE CIT(A) U/S. 40A(3) OF INCOME-TAX ACT, 1961 ON THE REASON THAT THE ASSESSEE DID NOT EXPLAIN ANY REASONS AS TO WHY THE PAYMENTS HAVE BEEN MADE IN CASH. ITA NO. 1681/HYD/2010 & ANR. M/S. VVR HOUSING PVT. LTD. ======================== 2 4. BRIEF FACTS OF THE ISSUE ARE THAT THERE WAS A SURVE Y IN THE CASE OF THE ASSESSEE ON 13.3.2008. AS SEEN FROM THE MATE RIAL GATHERED DURING THE COURSE OF SURVEY, WHICH IS MARKED AS ANNE XURE A/VVR/2 PAGE 10, AN AMOUNT OF RS. 3,84,00,000 HAS BEEN PAID IN CASH TO M/S. CSK REALTORS DURING THE FINANCIAL YEAR 2005-06. THI S PAYMENT RELATES TO THE LAND PURCHASED FROM CSK REALTOR FOR THE VENTURE SAM (SHAMSHABAD AIRPORT MEADOWS). OUT OF THIS A SUM OF R S. 1,56,40,000/- IS STATED TO RELATE FOR THE YEAR ENDI NG 31.3.2006 IN RESPECT OF LAND PURCHASED AT SR. NO. 11 AND 12 MENT IONED ABOVE TO THE EXTENT OF 5.31 ACRES AND 3.17 ACRES AMOUNTING T O 9.08, ACRES OF LAND AND THE BALANCE HAS BEEN TREATED AS ADVANCE BY 'THE ASSESSEE. AS PER PAGE NO. 13 OF THE IMPOUNDED MATERIAL ANNEXUR E A/VV/2, THE COST OF THE ABOVE LAND OF 9.08 ACRES IS MENTIONED B Y THE ASSESSEE THEREIN AT RS. 1,84,00,000/-. DURING THE COURSE OF SURVEY ON 13.03.2008 IN THE STATEMENT GIVEN BY SMT. P. UMA DE VI, CHIEF ACCOUNTS OFFICER OF WR HOUSING PVT. LTD. IN REPLY TO QUESTION NO. 6 SHE HAS STATED AS UNDER: 'IN THE FINANCIAL YEAR 2005-06 THE COMPANY HAS PAID RS. 3.84 CRORES. IN 2006-07 RS. 5.5 CRORES IS PAID TO C SK REALTORS AND 2007-08 THE COMPANY HAS PAID TILL NOW RS. 6,05,82,665/-. THE COMPANY HAS PURCHASED 53 ACRES O F LAND AT RS. 24 LACS PER ACRE AS PER THE AGREEMENT O F SALE ENTERED INTO BY BOTH THE PARTIES. HOWEVER, CSK REALTORS PVT. LTD. DEMANDED TO REVISE THE PRICE TO RS. 34 LAKHS PER ACRE AS THE PROJECT OF SAM IS CONTINUI NG FOR 3 YEARS. AS PER THE DEMAND THE COMPANY IS PAYING TILL NOW AND AROUND RS. 1.5 CRORE IS YET TO BE PAID . THE SOURCES FOR THE CHEQUE PAYMENTS IS OUT OF COMPANY'S BANK AMOUNT AND PART OF THE CASH PAYMENTS ARE MADE OUT OF THE CASH BOOK. FOR THE FINANCIAL YEAR 2005-0 6 AND 2006-07 ALL CASH PAYMENTS ARE ACCOUNTED IN BOOK S. OUT OF RS. 6.05 CRORES OF FINANCIAL YEARS 2007-08 AROUND RS. 3 CRORE IS MADE OUT OF UNACCOUNTED INCOM E OF THE COMPANY AND IS NOT REFLECTED IN THE CASH BOO K OF THE COMPANY. REMAINING RS. 2 CRORES IS PAID FROM TH E CASH BOOK. I ADMIT RS. 3 CRORE AS THE UNACCOUNTED C ASH INVESTMENT AND OFFER IT TO TAX AS ADDITIONAL INCOME . ' ITA NO. 1681/HYD/2010 & ANR. M/S. VVR HOUSING PVT. LTD. ======================== 3 5. FROM THE PERUSAL OF THE ABOVE STATEMENT IT IS OBSER VED THAT THE LAND FROM CSK REALTORS IS PURCHASED AT A PRICE OF RS. 34 LAKHS PER ACRE. THUS, THE CASH PAYMENT IN RESPECT OF THE ABOVE LAND HAS TO BE TAKEN AT RS. 3,08,72,000. THE ASSESSEE WAS ASKED DURING THE COURSE OF SCRUTINY PROCEEDINGS TO EXPLAIN WHETHER T HE ABOVE PAYMENTS WERE MADE IN CASH. THE ASSESSEE ADMITTED A T THE TIME OF SURVEY THAT THE ABOVE PAYMENTS ARE MADE IN CASH. BU T, NOW THE ASSESSEE PRODUCED CASH BOOK IN WHICH THE PAYMENTS I N CASH ARE RECORDED AT RS. 20000/- EACH EVERY DAY TO ALL THE L ANDLORDS FOR ALL THE PAYMENTS TO THE TUNE OF RS. 3,84,00,000/- WHICH INC LUDES THE ABOVE AMOUNT OF RS. 3,08,72.000. IN THIS CONNECTION, PLEA SE REFER TO THE TOTAL AMOUNT FURNISHED AT PARA 8 OF THIS ORDER FROM WHICH IT CAN BE OBSERVED THAT THE ASSESSEE HAS MADE LUMP SUM PAYMEN TS IN LAKHS OF RUPEES ON EACH DAY BUT WHEN IT FOUND THAT IT WAS NO T HAVING CASH AND ALSO IN ORDER TO TAKE SHELTER UNDER THE PROVISI ONS OF SEC. 40A(3). THE ASSESSEE HAS RECORDED CASH PAYMENTS AT THE RATE OF RS. 20,000/- IN NUMBER OF TIMES. NOBODY TAKES RS. 3.84 CRORES OF CASH IN 1920 TIMES AT THE RATE OF RS. 20,000 EACH. THIS IS SURE LY HUMAN IMPROBABILITY. THE ASSESSEE RECORDED NUMBER OF PAYM ENTS JUST TO TAKE SHELTER UNDER SEC. 40A(3). AS THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SEC. 40A(3), 20% OF THE SAID AMOUNTS A RE DISALLOWED BY THE AO AND ADDED BACK TO THE INCOME RETURNED. DISAL LOWANCE ON THIS COUNT IS MADE AT RS. 61,74,400/- (RS. 3,08,72, 000 X 20 % ). THE ASSESSING OFFICER ADDED RS. 61,74,400 6. FURTHER IT WAS ALSO NOTICED THAT THE ASSESSEE HAS P URCHASED THE LANDS DURING THE YEAR WHOSE VALUE WAS MENTIONED AS RS. 5,38,60,000/-. OUT OF THIS, THE DISALLOWANCE U/S. 4 0A(3) IN RESPECT OF SAM LAND IS DISCUSSED IN THE ABOVE PARA. HOWEVER, WI TH REGARD TO OTHER LANDS, I.E., SAR 1 , SAR 2 AND JUKALA LANDS, T HE CASH PAYMENTS ARE AS UNDER: ITA NO. 1681/HYD/2010 & ANR. M/S. VVR HOUSING PVT. LTD. ======================== 4 SARI - RS. 1,17,60,000 SAR2 - RS. 2,34,50,000 JUKALA LAND - RS. 30,10,000 TOTAL - RS. 3,82,20,000 7. IN LINE WITH THE REASONS FOR DISALLOWANCE AS DISCUS SED IN THE PARA 10 ABOVE, 20% OF THE PAYMENTS OF RS. 3,82,20,0 00/ - PERTAINING TO SAR-1, SAR-2 AND JUKALA LANDS ARE ALSO DISALLOWED AND ADDED TO THE TOTAL INCOME WHICH WORKS OUT TO RS. 76,44,000/- . ADDITION: RS. 76,44,000. TOTALLY, HE ADDED U/S. 40A(3) OF THE ACT AN AMOUNT OF RS. 1,38,18,400. ON APPEAL THE CIT(A) OBSERVED THAT THE TOTAL PAYMENT IS AS FOLLOWS: PAYMENT TO CSK REALTORS - RS. 3,84,00,000 PAYMENTS TO OTHERS - RS. 3,83,19,715 TOTAL - RS. 7,67,19,715 8. OUT OF THIS, AN AMOUNT OF RS. 43,35,000 WAS PAID BY CHEQUE AND AN AMOUNT OF RS. 63,00,000 WAS OUTSTANDING AND NO PAYMENT WAS MADE. THUS, AFTER DEDUCTING A SUM OF RS. 1,06, 35,000, THE BALANCE AMOUNT IS ONLY RS. 6,60,84,715. THE CIT(A) WORKED OUT 20% OF THIS AT RS. 1,32,16,943 AND CONFIRMED THE SA ME U/S. 40A(3) OF THE ACT. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEF ORE US. 9. THE LEARNED AR SUBMITTED THAT THE ABOVE PAYMENTS WE RE MADE TO AGRICULTURISTS IN THE PLACES WHERE THERE AR E NO BANKING FACILITIES. BEING SO, THERE IS REASONABLE CAUSE FO R SUCH PAYMENT WHICH FALLS UNDER THE EXCEPTION PROVIDED UNDER RULE 6DD OF INCOME- TAX RULES, 1962 AND HE PRAYED TO DELETE THE ADDITIO N. HE FURTHER SUBMITTED THAT THE SELLERS WERE NOT ACCEPTING PAYME NTS BY CHEQUE AND MOST OF THE PAYMENTS WERE MADE BEFORE THE REGIS TRATION OF SALE DEED AND ON SUNDAYS AND HOLIDAYS. THE PAYMENTS ARE COVERED BY RULE 6DD(G) OF THE IT RULES). ACCORDING TO HIM, THE PAYMENTS ARE COVERED BY THE EXCEPTION PROVIDED IN THE ABOVE RULE AND THE ADDITION HAS TO BE DELETED. ITA NO. 1681/HYD/2010 & ANR. M/S. VVR HOUSING PVT. LTD. ======================== 5 10. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT TH E PAYMENTS ARE MADE TO THE PERSONS AT THE PLACES WHER E THERE ARE BANKING FACILITIES AND THERE IS NO RECORD TO SHOW T HAT THESE PLACES ARE NOT COVERED BY BANKING FACILITIES. THE PROVISI ONS OF SECTION 40A(3) ARE APPLICABLE AND THE DISALLOWANCE HAS TO BE SUSTAINED. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE CIT(A) OBSERVED THAT OUT OF THE PAYMENT OF RS. 7,67,19,715 AN AMOUNT OF RS. 43,35,000 WAS PAID BY CHEQUE AND AN AMOUNT OF RS. 63,00,000 WAS NOT PAID AND OUTSTANDIN G. BEING SO, THE CIT(A) CONSIDERED THE BALANCE AMOUNT OF RS. 6,60 ,84,715 FOR DISALLOWANCE U/S. 40A(3) AND DISALLOWED RS. 1,32,16, 943. THE CONTENTION OF THE ASSESSEE'S COUNSEL BEFORE US IS T HAT THESE PAYMENTS WERE MADE TO AGRICULTURISTS AND THERE ARE NO BANKING FACILITIES ARE AVAILABLE AT THE PLACE WHERE THE PAY MENTS WERE MADE. HOWEVER, IT IS OBSERVED BY THE CIT(A) THAT THE ASSES SEE BEING DEALER IN LAND AND THE PLACES WHERE THE PAYMENTS ARE MADE AND RECEIVED ARE HAVING BANKING FACILITIES. BEING SO, IT IS INC UMBENT UPON THE ASSESSEE TO MAKE PAYMENT BY CROSSED CHEQUES OR DDS. THE PLEA OF THE ASSESSEE BEFORE US IS THAT THE PAYMENTS WERE MA DE TO THE AGRICULTURISTS IN CASH AS BANKING FACILITIES WERE N OT AVAILABLE TO THEM. THERE IS NO MATERIAL ON RECORD TO SHOW THAT NO BANKING FACILITIES WERE NOT AVAILABLE AT THE PLACES WHERE T HE PAYMENT WERE MADE. 12. BEFORE US THE ASSESSEE STATED THAT THE IMPUGNED PAY MENTS WERE MADE TO JALADI KIRAN KUMAR, HYDERABAD (RS. 12, 02,755 AND RS. 19,04,565); V. VASUDEVA RAO, HYDERABAD (RS. 44,10,455 ); VELMATTI JAI PAL REDDY, PENJARLA (RS. 24,03,805); Y. RAM RED DY & ORS., INMULNARVA (RS. 18,63,710); AGEER VENKAT RAMANA, HYDE RABAD (RS. 2,01,18,625); P. ASHOK GOUD, TONDUPALLY (RS. 33,55,1 35); SURESH KUMAR AGARWAL, MALLAPUR (RS. 1,56,74,085) AND M. VIJA YA LAKSHMI AND V. PRABHA, JUKAL (RS. 30,26,580). ITA NO. 1681/HYD/2010 & ANR. M/S. VVR HOUSING PVT. LTD. ======================== 6 13. FURTHER, IT IS SUBMITTED THAT THESE PAYMENTS WERE M ADE IN EXCESS OF THE SALES CONSIDERATION SHOWN IN THE DOCU MENTS REGISTERED AND IT WAS PAID BECAUSE OF INSISTENCE OF THE RECIPI ENTS AND MOSTLY ON BANK HOLIDAYS. THIS CLAIM OF THE ASSESSEE AS BEING TOTALLY UNSUBSTANTIATED COMPRISING BALD STATEMENT ADVANCED ONLY TO MEET THE EXIGENCIES WITH A VIEW TO ALIGN ITS INFERENCE O F THE PROVISIONS OF THE STATUTE. MOST OF THE PARTIES MENTIONED HEREINA BOVE WERE IN HYDERABAD. THE PROPERTIES SOLD BY THEM MIGHT BE SI TUATED OUTSIDE HYDERABAD. BEING SO, IT CANNOT BE CONCLUDED THAT T HE RECIPIENTS WERE HAVING NO BANK ACCOUNTS OR ACCESS TO THE BANKI NG FACILITIES. AS SUCH IT CANNOT BE SAID THAT THE ASSESSEE'S CASE IS COVERED UNDER THE EXCEPTION PROVIDED IN RULE 6DD OF THE INCOME-TAX RU LES, 1962. EVEN CLAUSE (J) OF THIS RULE CANNOT BE APPLIED WHIC H IS PROVIDING AN EXCEPTION DUE TO NON ACCESS TO THE BANKING FACILITI ES CAUSING HARDSHIP TO THE PAYEE OR TO THE BUSINESS EXIGENCIES . BEING SO, THE ASSESSEE HAS FAILED TO ESTABLISH THE CIRCUMSTANCES NECESSITATING THE PAYMENT IN CASH. MORE SO, THE OMISSION OF THE ERST WHILE CLAUSE (J) OF RULE 6DD WHICH EXCLUDES THE GROUND OF HARDSHIP TO T HE PAYEE FROM MITIGATING CIRCUMSTANCES AND THE ASSESSEE'S CASE CO ULD SUCCEED ONLY ON IT ESTABLISHING THE SAME TO FALL WITHIN THE SPEC IFIC CLAUSE OF RULE 6DD. IN THE PRESENT CASE, THE ASSESSEE HAS FAILED TO ESTABLISH THE EXCEPTION PROVIDED IN RULE 6DD. BEING SO, WE DO NO T FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND THE SAME IS CONFIRMED. ACCORDINGLY, THIS GROUND IS DISMISSED. 14. ASSESSEE'S APPEAL IN ITA NO. 1681/HYD/2010 IS DISMISS ED. 15. NOW, WE WILL TAKE UP THE REVENUE APPEAL IN ITA NO. 2 22/HYD/ 2011. 16. THE FIRST GROUND IN THE REVENUE APPEAL IS WITH REGA RD TO DELETION OF ADDITION OF RS. 3,45,20,000 MADE ON ACC OUNT OF ITA NO. 1681/HYD/2010 & ANR. M/S. VVR HOUSING PVT. LTD. ======================== 7 UNEXPLAINED INVESTMENT EVEN THOUGH THE PAYMENTS ARE NOT RECORDED IN THE BOOKS OF ACCOUNT. 17. BRIEF FACTS OF THE ISSUE ARE THAT THE SEIZED MATERI AL PAGE NO. 14 OF ANNEXURE A/VVR/2 SHOWS THE PAYMENT TO CSK GROU P UNDER THE HEAD 'CSK LAND PAYMENT' AT RS. 3,84,00,000. HOWEVE R, THE ENTRY IN THE CASH BOOK SHOWS AN AMOUNT OF RS. 38,80,000. TH E DIFFERENCE WAS WORKED AT RS. 3,45,20,000 AND THE SAME WAS CONS IDERED FOR MAKING ADDITION BY THE AO AS UNEXPLAINED INVESTMENT. 18. ON APPEAL, THE CIT(A) DELETED THE ADDITION ON THE RE ASON THAT THERE WAS A PAYMENT OF RS. 3.84 CRORES WHICH WAS CO NSIDERED BY THE AO FOR DISALLOWANCE U/S. 40A(3) AND HE HAS DISALLOWED 20% OF THIS AMOUNT AT RS. 61,74,400. HE HAS ALSO OBSERVED THAT THE TOTAL PAYMENT TO CSK REALTORS IS ONLY RS. 3.84 CRORES. AS AGREED BY THE AO, THE ASSESSEE HAS ENTERED THIS AMOUNT ON VARIOUS DATES IN THE CASH BOOK EARLIER TO THE PAYMENT SO AS TO GET RID O F PROVISIONS OF SECTION 40A(3) BY SPLITTING THE CASH PAYMENTS INTO L ESS THAN RS. 20,000. HE AGREED THAT THE ASSESSEE'S CONTENTION T HAT THESE PAYMENTS WERE RECORDED MUCH EARLIER IN THE CASH BOO K BEFORE TO THE DATES OF PAYMENT RECORDED IN THE SLIP FOUND DURING THE SURVEY. HE WAS OF THE OPINION THAT THE PAYMENT IS ONLY RS. 3.8 4 CRORES TO CSK REALTORS AND THE EXPENDITURE IS EXPLAINED AND THERE IS NO NECESSITY OF MAKING FURTHER ADDITION. ACCORDINGLY, THE CIT(A) DELETED THE ADDITION. AGAINST THIS, THE REVENUE IS IN APPEAL BE FORE US. 19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE CIT(A) HAS GONE BY THE EXPLANATION OFFE RED BY THE ASSESSEE THAT THE TOTAL PAYMENT TO CSK REALTORS IS ONLY RS. 3.84 CRORES FOR WHICH THE AO INVOKED THE PROVISIONS OF S ECTION 40A(3) AND PAYMENTS WERE DULY EXPLAINED BY THE ASSESSEE BUT NE ITHER THE CIT(A) NOR THE AO HAD GONE THROUGH THE CASH BOOK OF T HE ASSESSEE BY INCORPORATING THE ENTRIES RELATING TO ACTUAL PAY MENTS TO CSK REALTORS AS PER THE SLIP FOUND DURING THE SURVEY. IF THERE IS ANY ITA NO. 1681/HYD/2010 & ANR. M/S. VVR HOUSING PVT. LTD. ======================== 8 NEGATIVE BALANCE IN THE CASH BOOK AFTER INCORPORATI NG THE ENTRIES AS PER THE SLIP MARKED AS A/VVR/2, THE SAME IS TO BE CON SIDERED AS UNEXPLAINED EXPENDITURE IN THE HANDS OF THE ASSESSE E. ACCORDINGLY, THIS ISSUE IS REMITTED BACK TO THE AO FOR FRESH CONS IDERATION. 20. THE NEXT ISSUE IS WITH REGARD TO DELETION OF ADDITI ON ON ACCOUNT OF UNEXPLAINED EXPENDITURE NOT RECORDED IN THE BOOKS OF ACCOUNT. 21. BRIEF FACTS OF THE ISSUE ARE THAT THE AO IN HIS ASSE SSMENT ORDER REFERRED TO THE MATERIAL IMPOUNDED DURING THE COURSE OF SURVEY. THE AO FOUND THAT CERTAIN ILLEGAL AMOUNTS HA VE BEEN PAID TO VARIOUS PEOPLE AGGREGATING TO RS. 53,80,000/-. TWO SHEETS OF PAPER WERE FOUND DURING THE COURSE OF SURVEY. IN ONE OF T HE PAPERS PAYMENTS MADE FROM 27.11.2005 TO 19.02.2006 AGGREGA TING TO RS. 14,50,000 WAS WRITTEN AND THE ANOTHER CONTAINED PAY MENTS AGGREGATING TO RS. 53,80,000/-. IN THE SHEET WHERE THE TOTAL AMOUNT OF RS. 53,80,000 IS FOUND, IT IS MENTIONED THAT PAY MENTS HAVE BEEN MADE AT RS. 25,000 AND RS. 17,000 PER ACRE FOR 65 A CRES. THE CONTENTION OF THE ASSESSEE IS THAT THERE IS A MISTA KE IN THE FIGURE ARRIVED AT THE FIGURE RS. 16,50,000 BUT IT IS ONLY RS. 14,50,000. IT IS ALSO CONTENDED BY THE ASSESSEE THAT THE TOTAL AMOUN T PAID DURING THE ENTIRE PERIOD TILL THE DATE OF SURVEY WAS RS. 53,80 ,000 AND THE PAYMENT MADE UP TO 31.03.2006 OUT OF THE SAID AMOUN T IS RS. 14,50,000. THEREFORE, THE ASSESSEE CONTENDED THAT T HE AMOUNT OF RS. 14,50,000 (WRONGLY TAKEN AS RS. 16,50,000) IS ALREA DY INCLUDED IN RS. 53,80,000 AND SHOULD NOT HAVE BEEN ADDED SEPARA TELY. THE ASSESSEE CONTENDS THAT THE COMPANY HAS AN ACCOUNT W ITH SRI SAI MAC SOCIETY AND WITHDRAWALS MADE ARE NOT RECORDED I N THE CASH BOOK. THE PAYMENTS HAVE BEEN MADE FROM OUT OF THE S AID WITHDRAWALS WHICH ARE NOT RECORDED IN THE BOOKS OF ACCOUNT. THE ASSESSEE ALSO FILED COPY OF THE CURRENT DEPOSIT STA TEMENT OF ACCOUNT OF SRI SAI MAC SOCIETY AND, THEREFORE, NO DISALLOWA NCE OF ITA NO. 1681/HYD/2010 & ANR. M/S. VVR HOUSING PVT. LTD. ======================== 9 EXPENDITURE CAN BE MADE. THE AMOUNT WITHDRAWN FROM SRI SAI MAC SOCIETY IS UTILIZED FOR THE PURPOSE AND, THEREFORE, THE AVAILABILITY OF CASH IS EXPLAINED AND HENCE NO ADDITION U/S 69 CAN BE MADE. 22. ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS MADE B Y THE ASSESSEE WITH REFERENCE TO THE ASSESSMENT ORDER AND THE REMAND REPORT, THE CIT(A) OBSERVED THAT THERE IS A MISTAKE IN TOTALLING OF THE FIGURE. THE TOTAL WORKS OUT TO RS. 14,50,000 AND N OT RS. 16,50,000. FURTHER, HE OBSERVED THAT THE AMOUNT OF RS. 14,50,0 00 IS ALREADY INCLUDED IN THE AMOUNT OF RS. 53,80,000. THEREFORE, THE ASSESSING OFFICER IS NOT CORRECT IN MAKING ADDITION OF RS. 16 ,50,000 AS CONTENDED BY THE ASSESSEE. THE SAID ADDITION IS ACCO RDINGLY, HE DELETED THE SAID ADDITION. 23. COMING TO THE ADDITION OF RS. 53,80,000, THE CIT(A) OBSERVED THAT THE CONTENTION OF THE ASSESSEE IS THAT THE AMO UNTS ARE WITHDRAWN FROM SRI SAI MAC SOCIETY AND THAT THE SAI D WITHDRAWALS ARE NOT RECORDED IN THE CASH BOOK, BUT WERE UTILIZE D IN INCURRING THE SAID EXPENDITURE. IT IS ALSO CONTENDED THAT THE SAI D AMOUNT IS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT. IN THE REMA ND REPORT, THE ASSESSING OFFICER DID NOT COUNTER THE ARGUMENT OF TH E ASSESSEE. WHEN THE AMOUNT IS NOT DEBITED TO THE PROFIT AND LO SS ACCOUNT, THE QUESTION OF DISALLOWANCE OF EXPENDITURE DOES NOT AR ISE. THE ONLY QUESTION IS WHETHER THE PROVISIONS OF SEC. 69 CAN B E APPLIED OR NOT. THE CONTENTION OF THE ASSESSEE THAT THE AMOUNT WAS WITHDRAWN FROM SRI SAI MAC SOCIETY AND THAT THE SAID AMOUNT WAS SP ENT WITHOUT RECORDING IN THE CASH BOOK IS NOT CONTRADICTED BY T HE ASSESSING OFFICER IN THE REMAND REPORT. THEREFORE, IT IS TO B E HELD THAT THE ASSESSEE HAD SUFFICIENT FUNDS FOR INCURRING THE SAI D EXPENDITURE. THEREFORE, HE OBJECTED THAT NO ADDITION CAN BE MADE BY APPLYING THE PROVISIONS OF SEC. 69 OF THE ACT. ACCORDINGLY, THE C IT(A) DELETED BOTH THE ADDITIONS MADE BY THE AO. AGAINST THIS, THE REVE NUE IS IN APPEAL BEFORE US. ITA NO. 1681/HYD/2010 & ANR. M/S. VVR HOUSING PVT. LTD. ======================== 10 24. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE CONTENTION OF THE AR IS THAT THE ASSESS EE HAS NOT CLAIMED ANY EXPENDITURE AT RS. 16.5 LAKHS AND IT CA NNOT BE CONSIDERED FOR ADDITION. REGARDING RS. 53.8 LAKHS, HE SUBMITTED THAT IT WAS RECEIVED FROM SRI SAI MAC SOCIETY AND M ADE THE PAYMENT. HOWEVER, BEFORE THE AO THE ASSESSEE HAS NO T FURNISHED ANY INFORMATION, WHATSOEVER, REGARDING THESE TWO PA YMENTS. IN OUR OPINION, IT IS APPROPRIATE TO REMIT THE ISSUE TO TH E FILE OF THE AO FOR FRESH CONSIDERATION AND ONLY THE PAYMENTS WHICH ARE UNACCOUNTED RELATING TO THE ASSESSMENT YEAR UNDER CONSIDERATION ARE TO BE ADDED. THIS GROUND IS PARTLY ALLOWED FOR STATISTICAL PURPO SES. 25. THE NEXT GROUND IN REVENUE'S APPEAL IS WITH REGARD TO DELETION OF ADDITION MADE TOWARDS VALUATION OF CLOS ING STOCK AT RS. 3,04,52,451. 26. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSING OFFI CER VALUED THE CLOSING STOCK OF THE LAND VENTURE-WISE. WITH RE GARD TO SAM I.E. THE PROPERTY PURCHASED FROM CSK REALTORS, THE AO IS OF THE VIEW THAT THE LAND OF AC. 9.08 GUNTAS HAS TO BE VALUED AT RS. 3,08,72,000 AS AGAINST THE ACTUAL DEBIT TO THE PROFIT AND LOSS ACCOUNT OF RS. 1,56,40,000. THE ASSESSEE SUBMITTED THAT THE AMOUNT ACTUALLY DEBITED TO THE PROFIT AND LOSS ACCOUNT IS ONLY RS. 1,56,40,000 AND NO SALES HAVE BEEN EFFECTED. THEREFORE, THE CLOSING ST OCK VALUED CANNOT BE MORE THAN WHAT WAS DEBITED TO THE PROFIT AND LOS S ACCOUNT. IT IS FURTHER SUBMITTED BY THE ASSESSEE THAT THE AO ESTIMA TED THE COST OF AC. 9.8 GUNTAS OF LAND AT RS. 34 LAKHS PER ACRE BASE D ON THE STATEMENT OF SMT. P. UMA DEVI. WHILE DISCUSSING THE ADDITION U/S 40A(3) OF THE ACT, THE ASSESSEE SUBMITTED AS TO WHY THE SAID RS. 34 LAKHS PER ACRE SHOULD NOT BE CONSIDERED. IT IS SUBM ITTED THAT THE AMOUNT OF RS. 34 LAKHS IS THE PURCHASE PRICE DURING THE PREVIOUS YEAR 2007-08 RELEVANT FOR THE A.Y. 2008-09 AND IT DO ES NOT RELATE TO THE FINANCIAL YEAR 2005-06. THEREFORE, THE ASSESSEE 'S SUBMISSION IS ITA NO. 1681/HYD/2010 & ANR. M/S. VVR HOUSING PVT. LTD. ======================== 11 THAT IN SO FAR AS SAM PROJECT IS CONCERNED, THE CLOS ING STOCK VALUE OF AC. 9.8 GUNTAS IS NOT MORE THAN RS. 1,56.40,000 WHIC H IS DEBITED TO THE PROFIT AND LOSS ACCOUNT. IT IS ALSO SUBMITTED T HAT THE VALUE HE CONSIDERED BASED ON EITHER THE COST OF MARKET VALUE WHICHEVER IS LESS. IT IS SUBMITTED THAT THE COST PRICE IS RS. 1, 56,40,000 AND, THEREFORE, THE SAME SHOULD BE ADOPTED FOR THE PURPO SE OF DETERMINING THE CLOSING STOCK. 27. WITH REGARD TO JUKALA LAND, THERE IS NO DIFFERENCE BETWEEN ITS VALUE ADOPTED BY THE AO AND THE VALUE ADOPTED BY THE ASSESSEE EXCEPT TO AN EXTENT OF RS. 16,580. THIS HAS RESULTE D BECAUSE THE AO DID NOT CONSIDER REGISTRATION CHARGES. THEREFORE, T HE AO ADOPTED LESSER AMOUNT. 28. WITH REGARD TO SAR AND SAR I AND SAR II, THE AO ARRIVED AT THE CLOSING STOCK BY TAKING INTO ACCOUNT THE SALE P RICE AND REDUCING THERE FROM THE NET PROFIT ADMITTED AT 8%. THE ASSES SEE CONTENDED THAT THE METHOD ADOPTED BY THE AO IS NOT CORRECT. TH E ASSESSEE ALSO SUBMITTED THAT THE NET PROFIT OF 8% IS AFTER CONSID ERING THE COST OF LAND, THE DEVELOPMENT CHARGES, OFFICE ON COST AND O THER EXPENSES. IT IS SUBMITTED THAT THE SALE COMMISSION, ADMINISTRATI VE COST, THE PROFIT RATE, THE ADVERTISEMENT CHARGES AND OTHER EXPENDITU RE HAS TO BE EXCLUDED FOR THE PURPOSE. SUCH EXPENDITURE IS TO BE REDUCED WHILE ARRIVING AT THE CLOSING STOCK. THE ASSESSEE SUBMITT ED THAT THE AO DID NOT CONSIDER THE SAID EXPENDITURE. IT IS ALSO EXPLA INED BEFORE THE AO THAT ITS BUSINESS IS TO PURCHASE THE LAND AND DEVEL OPING THE LAND INTO PLOTS. THE PLOTS ARE SOLD BEFORE THE ENTIRE LAND IS DEVELOPED. THERE WOULD BE SOME EXPENDITURE WHICH WAS INCURRED FOR DE VELOPMENT AND SOME EXPENDITURE WHICH HAS TO BE INCURRED. SUCH AMO UNT OF EXPENDITURE WHICH IS TO BE INCURRED IS NOT EVALUATE D BY THE ASSESSEE AND DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE EXP ENDITURE OF SALES COMMISSION IS RS. 175 PER SQ. YD., AND THE ADMINIST RATIVE COST IS ABOUT RS. 94 PER SQ. YD. IF ALL THE FACTORS ARE TAK EN INTO ITA NO. 1681/HYD/2010 & ANR. M/S. VVR HOUSING PVT. LTD. ======================== 12 CONSIDERATION, THE ASSESSEE SUBMITTED THAT THERE WO ULD BE NO DIFFERENCE IN THE COST PRICE. FURTHER, THE ASSESSE E ADMITTED 8% OF THE PROFIT. THE AO ALSO ACCEPTED THAT THE PROPORTION ATE RATE IS 8%. IN THE CIRCUMSTANCES, THE ASSESSEE SUBMITS THAT: (A) THE METHOD ADOPTED BY THE ASSESSING OFFICER IS NOT CORRECT; (B) THE ASSESSEE ADOPTED THE METHOD OF ARRIVING AT THE CLOSING STOCK BY TAKING INTO ACCOUNT THE ACTUAL COS T OF THE LAND AND, THEREFORE, DEVELOPMENT EXPENSES RELATABLE TO THE SAID LAND IN STOCK. IT IS THE CORR ECT METHOD AND, THEREFORE, THE ASSESSEE SUBMITTED THAT THE ADDITION IS NOT JUSTIFIABLE. 29. ON APPEAL, THE CIT(A) OBSERVED, WITH REGARD TO THE CLOSING STOCK OF LAND OF SAM VENTURE IS CONCERNED, THAT THE AO ESTIMATED THE COST OF THE LAND AT RS. 34 LAKHS PER ACRE IS WI THOUT CONSIDERING THE ACTUAL COST INCURRED BY THE ASSESSEE OF RS. 1,5 6,40,000 FOR THE ENTIRE 9 ACRES 8 GUNTAS OF LAND. THIS ISSUE IS ALRE ADY DECIDED BY HIM WHILE CONSIDERING ADDITION UNDER SEC. 40A(3) OF THE ACT. HE HAS CLEARLY HELD THAT THE ACTUAL COST OF 9 ACRES 8 GUNT AS WAS ONLY RS, 1,56,40,000 AND NOT RS, 3.08 CRORES AS DETERMINED B Y THE AO. THEREFORE, HE DIRECTED THE AO TO ACCEPT THE CLOSING STOCK AT RS. 1,56,40,000 WITH REFERENCE TO THE SAM VENTURE. 30. WITH REGARD TO THE OTHER VENTURES, THE ASSESSING OFF ICER ADOPTED THE VALUE OF CLOSING STOCK BY TAKING INTO A CCOUNT THE PROBABLE SALE PRICE OF THE LAND AND REDUCING THERE FROM 8% OF THE NET PROFIT OFFERED BY THE ASSESSEE. THE CIT(A) AGREE D WITH THE ASSESSEE THAT THIS METHOD OF ARRIVING AT THE CLOSIN G STOCK VALUE IS NOT CORRECT. AS SUBMITTED BY THE ASSESSEE THE ASSESSEE H AD TO INCUR VARIOUS ITEMS OF EXPENDITURE OTHER THAN THE COST OF LAND. THE ASSESSEE HAD TO INCUR EXPENDITURE ON OFFICE, ON SAL ES LIKE COMMISSION AND VARIOUS OTHER ITEMS OF EXPENDITURE W HICH DO NOT INCREASE THE VALUE OF CLOSING STOCK. THEREFORE, THE METHOD ADOPTED BY THE AO IS NOT CORRECT. AS STATED BY THE ASSESSEE, THE ASSESSEE ITA NO. 1681/HYD/2010 & ANR. M/S. VVR HOUSING PVT. LTD. ======================== 13 CLAIMED VARIOUS ITEMS LIKE COMMISSION; SALARIES AND OTHER EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT. A STATEM ENT SHOWING THE COST WORKING WITHOUT CONSIDERING THE ITEMS TO BE DE BITED TO THE PROFIT AND LOSS ACCOUNT IS ALSO PERUSED BY THE CIT( A). THEREFORE, HE WAS OF THE VIEW THAT THE ASSESSING OFFICER IS NOT CO RRECT IN WORKING OUT THE VALUE OF THE STOCK BY ADOPTING SUCH A METHO D. 31. THE NEXT QUESTION TO BE CONSIDERED BY THE CIT(A) WAS WHETHER THE METHOD ADOPTED BY THE ASSESSEE WAS CORRECT OR N OT. ACCORDING TO THE ASSESSEE HE WORKED OUT THE COST OF LAND AND ADDED THE LAND DEVELOPMENT EXPENDITURE INCURRED. THERE FROM THE LA ND DEVELOPMENT EXPENDITURE TO BE INCURRED IS REDUCED. FROM THE AGGREGATE OF SUCH EXPENDITURE, THE ASSESSEE WORKED OUT THE COST OF EACH SQ. YD AVAILABLE FOR SALE. SUCH AMOUNT IS ADOP TED AS CLOSING STOCK IN RESPECT OF THE OTHER VENTURES WHERE SOME P ART OF THE LAND WAS SOLD. HE OBSERVED THAT THE AO DID NOT FIND FAULT WITH THE METHOD ADOPTED BY THE ASSESSEE IN ARRIVING AT THE VALUE OF THE CLOSING STOCK. FOR THE IMMEDIATELY SUCCEEDING YEAR, THE AO ACCEPTED THE VALUE OF OPENING STOCK ADMITTED BASED ON THE SAID METHOD. IN VIEW OF THE ABOVE, HE HELD THAT THE METHOD ADOPTED BY THE ASSES SEE IS CORRECT AND THE METHOD ADOPTED BY THE AO IS NOT CORRECT. THE REFORE, THE CIT(A) DELETED THE ADDITION SO MADE. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 32. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN THIS CASE, THE AO CONSIDERED THE SALES V ALUE 8% PROFIT SO AS TO DETERMINE THE CLOSING STOCK FIGURE. AS THE ASSESSEE DID NOT FURNISH THE DETAILS IN SUPPORT OF THE CLAIM OF THE CLOSING STOCK, IN OUR OPINION, THE CLOSING STOCK IS TO BE VALUED AT COST OR MARKET PRICE, WHICHEVER IS LOWER, AND THE METHOD IS TO BE FOLLOWE D CONSISTENTLY FROM YEAR TO YEAR. ACCORDINGLY, WE REMIT THE ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION TO THE ASSESSEE TO FURNISH F ULL DETAILS OF THE METHOD OF VALUATION OF THE CLOSING STOCK. THEREAFT ER, THE AO SHALL ITA NO. 1681/HYD/2010 & ANR. M/S. VVR HOUSING PVT. LTD. ======================== 14 DETERMINE THE VALUE OF CLOSING STOCK, IF NECESSARY, HE MAY MAKE NECESSARY ADDITION ON THIS COUNT. 33. IN THE RESULT, THE ASSESSEE'S APPEAL IN ITA NO. 1681 /HYD/2010 IS DISMISSED AND THE REVENUE APPEAL IN ITA NO. 222/H YD/2011 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH NOVEMBER, 2013 SD/ - (SAKTIJIT DEY) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 8 TH NOVEMBER, 2013 TPRAO COPY FORWARDED TO: 1. M/S. VVR HOUSING PVT. LTD., C/O. SRI S. RAMA RAO, AD VOCATE, FLAT NO. 102, SHRIYA'S ELEGANCE, 3-6-643, ST. NO. 9 , HIMAYATHNAGAR, HYDERABAD-29. 2. THE DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE - 3(3), HYDERABAD. 3. THE CIT(A), GUNTUR . 4. THE CIT - II I, HYDERABAD. 5. THE DR ' A ' BENCH, ITAT, HYDERABAD