The ITO, Ward-2(2)(5), Ahmedabad V. M/s. Sheetal Associates, Ahmedabad

ITA 1740/AHD/2016

AI Insights

The case involves an appeal by the Income Tax Officer (ITO), Wd-2 (2)(5), Ahmedabad against M/s. Sheetal Associates concerning the assessment year 2011-12. The dispute arose from the rejection of the books of account by the AO and the subsequent assessment of total income at Rs. 8,37,92,903. The CIT(Appeals) reversed the AO's decision, leading to the Department's appeal to the Tribunal. The Tribunal's decision focused on the procedural and substantive correctness of the AO's actions in rejecting the books of account and assessing income based on expenses claimed in previous years.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131561 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 26-04-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 28-06-2016
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Valuation report
• Section: 143(3); 250; 13

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Th e ITO, Wd -2 (2 )(5), Ah medabad (Appellant) Vs M/s. Sh eetal As sociates, 1 03, Baleshwar Ap partment, T-23, Shantinag ar Society, Usmanpu ra, Ah med abad-3800 13 PAN: AB AFS8123 L (Resp ondent) Asses see b y : Shri S. N. Div atia, A. R. Revenue by : Shri Vijay Kumar J aisw al, CIT-D. R. Date of hearing : 27-04 -2 023 Date of pronouncement : 08-05 -2 023 आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- This is an appeal filed by the Revenue against the order of the ld. CIT(A)-10, Ahmedabad, in proceeding u/s. 250 vide order dated 29-04-2016 passed for the assessment year 2011-12. 2. The Department has taken the following grounds of appeal:- ITA No. 1740/Ahd/2016 Assessment Year 2011-12 I.T.A No. 1740/Ahd/2016 A.Y. 2011-12 Page No. ITO vs. M/s. Sheetal Associates 2 “1. The Ld.CIT(A) has erred in law and on facts in dismissing AO's action of rejecting books of account and assessing total income at Rs. 8,37,92,903/- without appreciating the contention of assessing officer, 2. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 3. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored to the above extent. 4. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.” 3. The brief facts of the case are that the assessee is a partnership firm and engaged in the business of construction as well as developer in real estate business. The assessee filed its return of income for assessment year 2011-12 declaring total income of 10,10,640/-. The assessee was engaged in construction of commercial complex i.e. Shital Varsha-III. The assessee was granted BU permission on 27-10-2008 and the entire scheme was sold out during financial year 2010-11 to Payne Realtors Private Limited for 31.75 crores. During the course of assessment proceedings, the AO noticed that the appellant had claimed in its opening stock of WIP for financial year 2010-11, expenses towards purchase of 6.38 crores and other the expenses of 90.39 lakhs, apart from brought forward WIP of earlier years of 2.41 crores. The AO asked the assessee to furnish details regarding the aforesaid expenses, but on perusal of the reply of the assessee, the AO was of the view that the expenses were not genuine. Ultimately, the AO concluded that: firstly the closing stock as on 31-03-2009 comprised of items which were never purchased or claimed as expenses, secondly, the purchase of 6.38 crores was not proved by the assessee by producing the parties and other relevant details, thirdly, no income from construction work was shown I.T.A No. 1740/Ahd/2016 A.Y. 2011-12 Page No. ITO vs. M/s. Sheetal Associates 3 whereas only interest income was declared by the assessee. Accordingly, the AO rejected the books of accounts of the assessee and the AO computed the total income from construction activities by adopting the method of total income received from Payne Realtors Private Limited as reduced by the amount paid to the unit holders and part of opening stock and part of current year expenses. 4. The assessee filed appeal before Ld. CIT(Appeals) who deleted the additions made by the AO with the following observations: “The AO in the assessment order has observed that during the financial year 2009-10 that is A.Y.2010-11, in order to minimize the profit/ income the assessee claimed to have incurred big expenses in the name of purchase/ labour and administrative expenses despite the fact that the scheme was constructed completely and granted BU permission earlier. During the year under consideration the assessee has shown opening WIP of Rs.94408703/- as on 01/04/2010 and opening WIP as on 01/04/2009 was at Rs.24186592/-. The AO has further observed that during the assessment year 2010-11 the assessee has incurred purchase expenses of Rs.63871140/- and other expenses of Rs.9039872/- and thereafter the AO went on to examine these expenses in detail. Thereafter, the AO has discussed various discrepancies found in the books of accounts of the appellant which have been discussed from page no 25 of the assessment order till page no. 27 and accordingly rejected the books of accounts of the appellant. However, it is noticed that all these findings of the AO are with reference to the expenses incurred by the appellant during the financial year 2009-10 relevant to assessment year 2010-11. All these findings of the AO are relating to the expense which forms part of the closing WIP for assessment year 2010-11. None of the findings of the AO relates to the current assessment year that is the assessment year in question which is being scrutinized by the AO. If the findings of the AO are relating to A.Y.2010-11 the AO cannot make additions in the retuned income of the assessee in the subsequent year until and unless it is a consequential effect of that income. The AO has accepted the opening WIP as on 01/04/2009which is found by him as genuine and has also allowed current year expenses as per the computation of income. Since the findings of the AO are in reference to A.Y. 2010-11, the AO cannot made additions in the A.Y. 2011-12 on that account. Therefore, the findings of the AO on this account are not factually and legally correct. Since all these observations and findings are relating to A.Y. 2010-11, if any action is required to be taken, the same has to be in the A.Y. 2010-11 and the I.T.A No. 1740/Ahd/2016 A.Y. 2011-12 Page No. ITO vs. M/s. Sheetal Associates 4 AO's action of making addition on that account and rejecting books of account of subsequent year without finding a single fault/defect in the current year's transaction is not tenable in law and therefore, the action of the AO cannot be sustained. The argument of the AO that the assessee has not shown any income on account of construction of the building is also not factually correct. The assessee has shown sales of Rs.3.59 crores in assessment year 2008-09, and sale of Rs.8.13 crores in the A.Y.2009-10 and sales of Rs.9.93 crores in A.Y.2011 -12. The assessee has also shown profit of 38.94 lacs in A.Y.2008-09, 4.46 lacs in A.Y.2009-10, and Rs.47.79 lacs in A.Y.2011-12 (before remuneration and interest to the partners). Therefore, the argument of the AO that the appellant has not shown any income on account of construction of the building other than interest income if factually incorrect. On a perusal of a records, it is also seen that the appellant's returns of income has been scrutinized u/s. 143(3) by the AO for the A.Y.2008-09 and 2009- 10 as well and the book result of the appellant has been accepted by the AO. The appellant had offered 5.10% Net profit in the A.Y.2009-10 which was scrutinized by the department u/s. 143(3) and accepted by the AO. In fact in the A.Y.2009-10 the AO referred the project to DVO for valuation of the cost of construction of this project. The reference was made by the Additional CIT Range - 9, Ahmadabad on 24/11/2011 u/s.142A of the Act. The DVO after making site visits of the project on 13/02/2011 submitted the report to the department on 07/02/2012. The relevant portion of the DVO's valuation report is reproduced as under: Financial Year Cost of investment (Rs.) (Land i/c old structure) Declared by assessee Estimated by this office 2005-2006 30949200 30949200 2006-2007 1550800 1550800 Total 32500000 32500000 Financial Year Cost of investment (Rs.) (Building) I Declared by assessee Estimated by this office 2005-06 1043097.50 1338453.02 I.T.A No. 1740/Ahd/2016 A.Y. 2011-12 Page No. ITO vs. M/s. Sheetal Associates 5 2006-07 24030299.00 28037599.28 2007-08 11166080.50 11838525.88 2008-09 11145049.00 11486470.99 2009-10 60571478.00 57604361.17 2010-11 25655.00 20596.66 Total 107,981,659 110,326,007 On a perusal of the above, it is seen that the cost of investment in land has been shown by the assessee at 3.25 crores and the same has been valued by the DVO also at 3.25 crores. In case of cost of investment in building, the same is declared by the assessee for the complete building at 10.79 crores whereas the estimation of the same by the DVO is 11.03 crores. Although there are some minor descripention if one compares assessment year wise, however, overall the cost shown by the assessee is lessor than the valuation done by the DVO. It is to be noted that the DVO inspected the premise on 13/12/2011 and on 10/02/2012 which is relevant to A.Y.2012-13 that is much after the end of the current financial year. Therefore this valuation takes into account the additions made by the assessee for A.Y.2010-11 as well as 2011-12. It is also to be noted that the project of the appellant was completed in this assessment year and all the revenue and expenses have been shown in the books of accounts and claimed. Therefore, no further addition in the cost of construction has been made by the appellant in the subsequent years. Since the DVO has been appointed by the income-tax department and it's considered as an expert for valuation of property therefore the valuation report of the DVO cannot be brushed aside until and unless the defects are pointed out. As per this report, the valuation of the property is more by Rs.23,44,348/-. In any case, the cost of the construction arrived at by the DVO for the whole project is almost the same as has been disclosed by the appellant. Even on this basis, the addition made by the AO is not sustainable.” 5. The Department is in appeal before us case against the aforesaid additions made by the Ld. CIT(Appeals). The DR primarily relied upon the observations made by the AO in the assessment order. Further, the DR pointed out that Ld. CIT(Appeals) erred in holding that the AO could not verify the expenses claimed by the assessee during the year under I.T.A No. 1740/Ahd/2016 A.Y. 2011-12 Page No. ITO vs. M/s. Sheetal Associates 6 consideration. The argument put forth by the DR was that since the assessee has claimed expenses during the year under consideration, the AO is empowered to verify the same even though the expenses have been incurred in the prior years. In response, the counsel for the assessee submitted that the Ld. CIT(Appeals) has correctly observed that the AO referred the project to DVO for valuation of cost of construction of the project. As per the project report submitted by the DVO appointed by the Department, the cost of investment in land has been shown by the assessee at 3.25 crores and the same has been valued by the DVO at 3.25 crores as well. In case of cost of investment in building, the cost incurred by the assessee for completion of the project has been declared by the assessee at 10.79 crores whereas, the estimation of the DVO is 11.03 crores. Therefore, since the cost estimated with regard to the reports submitted by the DVO appointed by the Department, both with respect to cost of investment in land as well as the construction cost incurred by the assessee in completing the project, is slightly more than the details/estimate of investment submitted by the assessee, Ld. CIT(Appeals) has correctly deleted the additions made by the AO. 6. We have heard the rival contentions and perused the material on record. We are of the considered view that Ld. CIT(Appeals) has not erred in facts and in law in deleting the additions made by the AO in the instant set of facts. However, we are in agreement with the arguments put forward by the DR to the effect that even if the expenses have been incurred by the assessee in earlier assessment years, since those expenses have been claimed by the assessee in the instant assessment year, the AO is empowered to I.T.A No. 1740/Ahd/2016 A.Y. 2011-12 Page No. ITO vs. M/s. Sheetal Associates 7 examine the same in detail and assessee cannot take the plea that those expenses have been incurred by the assessee in earlier assessment years. Therefore, since the assessee has claimed those expenses in the impugned assessment year, the AO is within its rights to examine the same in detail, even though the expenses have been incurred by the assessee in earlier assessment years. However, we are also in agreement with the argument forth by the counsel for the assessee to the effect that since the Departmental Valuation Officer appointed by the Department to value the cost of investment in the aforesaid land and also the cost of construction incurred by the assessee for completion of project, has estimated the combined value of the cost of land and cost of construction at a value which is higher than that value submitted by the assessee, albeit marginally than the cost estimate given by the assessee, then no addition is called for in the instant set of facts. We observe that that Ld. CIT(Appeals) has noted that the cost of investment in land has been shown by the assessee at 3.25 crores and same has been valued by the DVO also at 3.25 crores. In case of cost of investment in building, the cost of construction has been declared by the assessee at 10.79 crores, whereas the Departmental Valuation Officer has estimated the same at 11.03 crores. Therefore, on comparison of the two, the overall cost shown/claimed by the assessee is lesser than the valuation done by the DVO appointed by the Department. Therefore, we are of the considered view that Ld. CIT(Appeals) has correctly held that since as per the report prepared by the Department Valuation Officer, the value of cost property is more by 23,44,348/ - as compared to the cost estimate given by the assessee, the addition made by the AO is not sustainable. I.T.A No. 1740/Ahd/2016 A.Y. 2011-12 Page No. ITO vs. M/s. Sheetal Associates 8 7. In the result, the appeal of the Department is dismissed. Order pronounced in the open court on 08-05-2023 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 08/05/2023 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद