Sri Sai Constructions, Hyderabad V. Income-Tax Officer, Suryapet

ITA 1798/HYD/2013

• Counselvise Citation: 179822514 RSA 2013
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 24-12-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KIRAN KATTA
• Assessee Lawyers: S RAMA RAO
• Keywords: Unexplained investment; Valuation report
• Section: 68; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.1696 & 1753 /HYD/2013 ASSESSMENT YEAR 2009-10, 2010-11 INCOME TAX OFFICER SURYAPET 508 213. VS. M/S. SRI SAI CONSTRUCTIONS, SURYAPET 508 213 PAN-ABRFS-8362-H (APPELLANT) (RESPONDENT) ITA.NO.1798/HYD/2013 ASSESSMENT YEAR 2010-2011 M/S. SRI SAI CONSTRUCTIONS, SURYAPET 508 213 PAN-ABRFS-8362-H VS. INCOME TAX OFFICER SURYAPET 508 213. FOR REVENUE : MR. KIRAN KATTA FOR ASSESSEE : MR. S. RAMA RAO DATE OF HEARING : 24.07.2014 DATE OF PRONOUNCEMENT : 05.09.2014 ORDER PER B. RAMAKOTAIAH, A.M. THESE THREE APPEALS ARE FOR A.YS. 2009-2010 AND 2010-11 BY ASSESSEE AS WELL AS REVENUE AGAINST THE ORDERS OF LD. CIT(A). FOR A.Y. 2009-2010 APPEAL ORDER WAS PASSED BY LD. CIT(A)-V, HYDERABAD 30.08.2013. FOR A.Y. 2010-11, O RDER WAS PASSED BY CIT(A)-VI, HYDERABAD DATED 09.09.2013. E VEN THOUGH THE APPEAL IN A.Y. 2010-2011 WAS DECIDED LATER, THE ORDER FOR A.Y. 2 ITA.NO.1696 & 1753/HYD/2013 & ITA.NO.1798/HYD/2013 SRI SAI CONSTRUCTIONS, HYDERABAD. 2009-2010 WAS NOT BEFORE THE LD. CIT(A)-VI. THEREFO RE, SEPARATE ORDERS WERE PASSED, EVEN THOUGH CONCLUSIONS ARE MOR E OR LESS SIMILAR. ASSESSEE IS AGGRIEVED IN A.Y. 2010-2011 FO R DISALLOWING THE INTEREST AND ESTIMATION OF INCOME WHEREAS, REVE NUE IS AGGRIEVED ON DELETION OF ADDITION MADE BY THE A.O. TOWARDS COST OF CONSTRUCTION. 2. BRIEFLY STATED, ASSESSEE HEREIN IS A PARTNERSHI P FIRM CARRYING ON BUSINESS AS A BUILDER AT SURYAPET AND H AD ENTERED INTO A DEVELOPMENT AGREEMENT CUM- GPA ON 31.07.200 8 FOR CONSTRUCTION OF APARTMENT COMPLEX ON A LAND ADMEASU RING 664 SQ. YARDS AT SURYAPET. AS PER THAT ASSESSEE IS ENTITLED FOR 70% OF THE CONSTRUCTED AREA AND 30% RELATE TO THE OWNERS. ASSE SSEE CONSTRUCTED 20 FLATS IN ALL AND WAS IN RECEIPT OF 1 5 FLATS TOWARDS ITS SHARE. 14 FLATS WERE REGISTERED OUT OF 15 FLATS SOL D AND REALIZED SALE CONSIDERATION OF RS.1,34,22,000. THERE WERE SURVEY OPERATIONS ON THE ASSESSEES PREMISES ON 08.03.2010. ASSESSEE HAS NOT COMPLETED THE PROJECT BY THAT TIME, THEREFORE, ASSE SSEE DID NOT FILE RETURNS FOR A.Y. 2009-2010. A.O. HOWEVER, ISSUED NO TICE UNDER SECTION 148 CALLING FOR RETURN FOR A.Y. 2009-2010. IN RESPONSE, ASSESSEE ESTIMATED INCOME AT 8% ON THE ADVANCES OF RS.33,90,000 RECEIVED DURING THE YEAR AND ARRIVED AT GROSS INCOM E OF RS.2,71,200. IT CLAIMED SALARY OF RS.1,20,000 UNDER SECTION 40(B) AND OFFERED NET INCOME OF RS.1,51,200. FOR A.Y. 201 0-2011 ASSESSEE RECEIVED ADVANCES OF RS. 48,45,000 ON WHIC H ALSO ASSESSEE ESTIMATED INCOME OF RS.3,87,600 AFTER CLAI MING DEDUCTION OF RS.2,65,160 UNDER SECTION 40(B) OFFERED NET INCO ME OF RS1,22,440. A.Y. 2011-2012, WHEN THE PROJECT WAS C OMPLETE IS NOT BEFORE US. 3 ITA.NO.1696 & 1753/HYD/2013 & ITA.NO.1798/HYD/2013 SRI SAI CONSTRUCTIONS, HYDERABAD. 3. A.O. NOTICING THAT ASSESSEE HAS NOT MAINTAINED ANY BOOKS OF ACCOUNTS, REFERRED THE COST OF CONSTRUCTIO N OF THE APARTMENT CONSTRUCTED TO VALUATION CELL WHO ARRIVED AT THE VALUATION AT RS.1,90,30,736. SINCE THE CONSTRUCTION TOOK PLACE IN A PERIOD OF 3 YEARS, A.O. TOOK THE COST OF CONSTRUCTI ON EQUALLY AT 1/3 RD AND HELD THAT THE ENTIRE AMOUNT OF RS.63,43,667 IN EACH YEAR WAS UNACCOUNTED INVESTMENT IN THE CONSTRUCTION OF APARTMENTS AND BROUGHT TO TAX IN IMPUGNED ASSESSMEN T YEARS. WHILE ACCEPTING THE ESTIMATION OF INCOME OF ADVANCE S AND ALLOWING THE SALARY AS DEDUCTION IN A.Y. 2009-2010, A.O. HOW EVER, DIFFERED IN A.Y. 2010-2011 AND ESTIMATED INCOME AT 20% ON TH E ADVANCE RECEIVED AND ALSO FURTHER MAKING THE ADDITION OF SA LARY AND INTEREST THEREBY, RAISING THE DEMANDS. 4. ASSESSEE CONTESTED BEFORE THE LD. CIT(A) IN A.Y . 2009- 2010 THAT REFERENCE TO VALUATION CELL IS NOT ACCORD ING TO LAW AS THE PROPERTY IS STOCK-IN-TRADE AND FURTHER A.O. WAS NOT CORRECT IN ACCEPTING THE REPORT OF VALUATION CELL WHO VALUED T HE PROPERTY AT A MUCH LATER POINT OF TIME WHEN ALL THE FLATS WERE SO LD. APART FROM THAT ASSESSEE ALSO CONTENDED THAT VALUATION OFFICER S REPORT CONTAIN ERRORS SUCH AS RATE OF CONSTRUCTION AND ADD ITIONAL AREA IN THE CASE OF STILT PARKING ETC., APART FROM VARIATIO NS IN THE AREAS TAKEN. ASSESSEE ALSO CONTENDED THE RATES ADOPTED AN D NON- ADMISSION OF PERSONAL SUPERVISION CHARGES WHICH ARE BEING ALLOWED IN THE CASES OF VALUATION BY THE VALUATION CELL. IT ALSO CONTENDED THAT A.O. ACCEPTED THE ESTIMATION OF INCOME ON THE ADVANCES EVEN THOUGH PROJECT WAS NOT COMPLETED BUT DID NOT GIVE A NY CREDIT FOR THE ADVANCES RECEIVED IN THE SO-CALLED UNEXPLAINED INVESTMENT MADE IN THE BUILDING, BROUGHT TO TAX. SIMILAR CONTE NTIONS WERE ALSO MADE FOR A.Y. 2010-2011 BEFORE LD. CIT(A) VI, HYDERABAD. LD. CIT(A)-V IN A.Y. 2009-2010 WHILE APPROVING THE REFERENCE TO 4 ITA.NO.1696 & 1753/HYD/2013 & ITA.NO.1798/HYD/2013 SRI SAI CONSTRUCTIONS, HYDERABAD. VALUATION CELL HOWEVER RE-DETERMINED THE VALUATION ON THE BASIS OF THE MISTAKES POINTED OUT AND ARRIVED AT THE COST OF CONSTRUCTION AT RS.1,30,11,080 AND CAME TO CONCLUSION THAT THERE IS NO NEED TO MAKE ANY ADDITION, AS THE VALUATION SO ARRIVED WAS EQUIVALENT TO THE AGGREGATE AMOUNT ADMITTED OVER A PERIOD OF THRE E YEARS ON THE SALE OF APARTMENTS. HIS ORDER FOR A.Y. 2009-2010 IS AS UNDER : 7.1 I FIND THAT THERE IS DIFFERENCE BETWEEN THE CONSTRUCT ED AREA AS PER THE VALUATION CELL AND THE ACTUAL AREA. THE APPELLANT FILED A LETTER ON 20-12-2011 BEFORE THE A SSESSING OFFICER CLEARING MENTIONING THAT THERE WAS DIFFEREN CE IN THE VALUATION REPORT. THE VARIATIONS IN THE MEASUREMENT S AS MENTIONED IN THE LETTER ARE EXTRACTED BELOW: 'VARIATIONS IN THE MEASUREMENTS: THE FOLLOWING VARIATIONS ARE FOUND IN THE VALUATION REPORT. SL.NO. DESCRIPTION AREA IN SFT. AS PER VALUATION CELL. ACTUAL AREA IN SFT. 1. STILT PARKING 3756.63 3193.48 2. RESIDENTIAL FLATS. 17103.0 15084.0 3. PENTHOUSE 275.77 274.37 4. SERVANT ROOM AND LIFT MACHINE ROOM 269.1 208 5. BALCONIES 1119.456 2473.36 THE DIFFERENCE ALSO CAN BE ASCERTAINED FROM THE REG ISTERED VALUER'S REPORT WHO MENTIONED THE TOTAL AREA TO BE 1769 SQ. MTRS. OR 19047 SFT. INCLUDING THE STILT OF 3193 SFT WHEREAS THE VALUATION CELL ADOPTED THE AREA AT 2092.62 SQ.MTRS, WHICH IS EQUIVALENT TO 22525 SFT. THEREFORE, THE CORRECT ARE A WAS NOT ADOPTED BY THE VALUATION CELL AS ALLEGED BY THE APP ELLANT. THE DIFFERENCE IN THE AREA IS 324 SQ.MTRS. 7.2 THE HON'BLE IT A T CONSISTENTLY HOLDING THAT A RATE OF 15% TOWARDS RATE DIFFERENCE AS THE CPWD ADOPTED THE BASIC DELHI RATE FOR THE CONSTRUCTION OF THE BUILDING AND 10% TOWARDS SELF SUPERVISION IS BEING ALLOWED. I FIND THAT THE VALUATION CELL ALLOWED ONLY 7.5%. CONSIDERING THE FACT THAT THE AP PELLANT IS A BUILDER WHO DERIVED INCOME ON SALE OF FLATS AND CON SIDERING THE 5 ITA.NO.1696 & 1753/HYD/2013 & ITA.NO.1798/HYD/2013 SRI SAI CONSTRUCTIONS, HYDERABAD. FACT THAT MOST OF THE FLATS HAVE BEEN SOLD BY THE A PPELLANT AND EVEN IN VIEW OF THE DISCREPANCIES IN THE REPORT OF THE VALUATION CELL, I FIND THAT THE COST OF CONSTRUCTION SHOULD H AVE BEEN ARRIVED AT AS UNDER : TOTAL COST RS.1,90,30,736 14,93,867 RS.2,05,24,603 AREA EXCESS ADOPTED 324 SQ. MTRS. 31,76,496 RS.1,73,48,107 LESS: COST OF CONSTRUCTION RS. 43,37,027 RS.1,30,11,080 AS THE AGGREGATE AMOUNT ADMITTED IN THE RETURNS OF INCOME DURING THE PERIODS ~009-1 0, 2010-11 AND 201 1-12 WAS RS.134.22 LAKHS, NO ADDITION IS REQUIRED TO BE MADE . THEREFORE, I DIRECT THE A.O. TO DELETE THE ADDITION OF RS.63,43, 667 MADE TOWARDS UNEXPLAINED INVESTMENT U/S. 68 OF THE I.T. ACT, BEING THE DIFFERENCE IN THE COST OF CONSTRUCTION OF THE B UILDING. 9. IN THE RESULT, THE APPEAL IS ALLOWED. 5. THE REVENUE IS AGGRIEVED IN A.Y. 2009-2010 OF DELETION OF UNEXPLAINED INVESTMENT AND RAISED GROUN DS 1 TO 9 WHICH ARE MORE OR LESS SUBMISSIONS ON THE ABOVE ISS UE. 6. FOR THE A.Y. 2010-2011, HOWEVER, THE LD. CIT(A) -VI, HYDERABAD, INDEPENDENTLY CAME TO SIMILAR CONCLUSION AND DIRECTED THE A.O. TO ADOPT STATE PWD RATES INSTEAD OF NEW DE LHI CPWD RATES, THE ISSUE WHICH, IN FACT, GOT CONCLUDED BY T HE ORDER OF THE LD. CIT(A) IN EARLIER YEAR. IN ADDITION, HE ALSO RE JECTED THE ESTIMATION OF INCOME AT 20% ON THE ADVANCES RECEIVE D DURING THE YEAR AS WAS DONE BY THE A.O. BUT DIRECTED THE A.O. TO ADOPT 8% ON THE ADVANCES AS PER THE COMPUTATION FILED BY THE AS SESSEE. WITH REFERENCE TO THE DISALLOWANCE OF INTEREST AND SALAR Y PAID TO PARTNERS, HE DIRECTED THE A.O. TO ALLOW THE SALARY AS CLAIMED WHEREAS, INTEREST ON PARTNERS CAPITAL OF RS.25,160 WAS NOT ALLOWED ON THE REASON THAT ASSESSEE FAILED TO EXPLAIN THE C APITAL BROUGHT IN BY THE PARTNERS. IN THIS YEAR, REVENUE IS AGGRIEVED ON THE DELETION 6 ITA.NO.1696 & 1753/HYD/2013 & ITA.NO.1798/HYD/2013 SRI SAI CONSTRUCTIONS, HYDERABAD. OF ADDITION MADE AS UNEXPLAINED INVESTMENT AND ALLO WANCE OF SALARY WHEREAS THE ASSESSEE IS AGGRIEVED ON THE NON -ALLOWANCE OF INTEREST. EVEN THOUGH ESTIMATION OF INCOME AT 8% WA S CONTESTED IN ITS GROUNDS THE SAME WAS NOT PRESSED BY ASSESSEE. 7. AFTER CONSIDERING THE RIVAL CONTENTIONS AND PER USING THE PAPER BOOK PLACED ON RECORD, WE ARE OF THE OPIN ION THAT THERE IS NO NEED TO DIFFER FROM THE FINDINGS OF THE LD. C IT(A). AS FAR AS REVENUE APPEALS ARE CONCERNED, WITH REFERENCE TO DE LETION OF ADDITIONS MADE BY THE A.O. ON THE SO-CALLED UNEXPLA INED INVESTMENT, WE ARE UNABLE TO UNDERSTAND HOW THE BUI LDING CONSTRUCTED AS A PART OF DEVELOPMENT CUM GPA AGREEM ENT BECOME UNEXPLAINED INVESTMENT, JUST BECAUSE ASSESSEE HAS N OT MAINTAINED BOOKS OF ACCOUNTS. A.O. IS VERY WELL AWA RE THAT ASSESSEE HAS RECEIVED ADVANCES AND IN FACT HE HAS A CCEPTED THE ESTIMATION OF 8% INCOME ON THE ADVANCES RECEIVED. H AVING ACCEPTED THAT ASSESSEE HAS RECEIVED ADVANCE TOWARDS APARTMENTS, APARTFROM PARTNERS CAPITAL, THE AMOUNTS RECEIVED T OWARDS THAT SHOULD HAVE BEEN GIVEN CREDIT. EVEN THOUGH REFEREN CE TO VALUATION WAS MADE, AS POINTED OUT BY THE LD. CIT(A), THE VAL UATION REPORT ITSELF HAS CERTAIN BASIC ERRORS IN TAKING THE AREAS AND THE VALUATION ADOPTED IS ALSO ON HIGHER SIDE. CONSIDERING THE DET AILED ORDER OF THE LD. CIT(A) WHICH, IN TURN, WAS GIVEN FOLLOWING THE COORDINATE BENCH ORDERS IN THIS ISSUE OF ALLOWING CERTAIN DEDU CTIONS IN VALUATION, WE ARE OF THE OPINION THAT LD. CIT(A) HA S CORRECTLY ARRIVED AT THE VALUATION OF THE BUILDING MORE OR LE SS TO THE EXTENT OF VALUATION AS DECLARED BY THE ASSESSEE OVER A PER IOD OF THREE YEARS. THEREFORE, THE ADDITION MADE BY THE A.O. AS UNEXPLAINED INVESTMENT CANNOT BE SUSTAINED. TO THAT EXTENT, THE ORDERS OF LD. CIT(A) IN A.Y. 2009-2010 AND 2010-2011 ARE TO BE SU STAINED. ACCORDINGLY, THE ORDERS OF CIT(A) IN BOTH THE YEARS ARE UPHELD AND 7 ITA.NO.1696 & 1753/HYD/2013 & ITA.NO.1798/HYD/2013 SRI SAI CONSTRUCTIONS, HYDERABAD. REVENUE CONTENTIONS ON ADDITION OF UNEXPLAINED INVE STMENT ARE REJECTED. 8. COMING TO THE OTHER ISSUE OF ALLOWING SALARY ON THE ESTIMATED INCOME, THIS IS AS PER THE PROVISIONS OF PARTNERSHIP DEED PROVISIONS UNDER SECTION 40(B) ARE CORRECTLY INVOKE D AND ACCEPTED BY THE LD. CIT(A). IN FACT, A.O. HIMSELF WAS ACCEPT ED DEDUCTION OF SALARY IN A.Y. 2009-2010 AND THAT THERE IS NO ISSUE IN THAT YEAR, BUT WHY HE DID NOT ALLOW THE SAME IN A.Y. 2010-2011 IS NOT UNDERSTANDABLE. ASSESSEE HAS CLAIMED ONE SALARY IN A.Y. 2009- 2010 FOR ONE PARTNER. WHEREAS, BY VIRTUE OF THE REV ISED AGREEMENT, IT CLAIMED SALARIES FOR TWO PERSONS IN THE LATER Y EAR. SINCE THE PARTNERSHIP DEED PERMITS THE REMUNERATION TO THE PA RTNERS, THIS HAS TO BE ALLOWED AS PER THE PROVISIONS OF THE ACT. THEREFORE, REVENUE CONTENTION ON THIS ISSUE CANNOT BE ACCEPTED . IN VIEW OF THIS, GROUNDS RAISED BY THE REVENUE IN A.Y. 2009-20 10 AND 2010- 2011 ARE REJECTED. 9. COMING TO THE ASSESSEES CONTENTION THAT INTERE ST WAS NOT ALLOWED IN A.Y. 2010-2011, WE AGREE WITH THE FI NDINGS OF THE LD. CIT(A) THAT ASSESSEE HAS NOT FURNISHED ANY EVID ENCE WITH REFERENCE TO ADVANCEMENT OF CAPITAL. EVEN THOUGH TH E STATEMENTS ENCLOSED TO THE COMPUTATION OF INCOME DO INDICATE C APITAL OF VARIOUS PARTNERS, ON SIMILAR CAPITAL IN A.Y. 2009-2 010 THERE WAS NO CLAIM OF INTEREST. AS SEEN FROM THE COMPUTATION IN A.Y. 2009- 2010 ASSESSEE HAS ONLY CLAIMED REMUNERATION AND INT EREST WAS NOT CLAIMED. THEREFORE, ON WHAT BASIS THE INTEREST WAS CLAIMED IN LATER YEAR AND HOW THE INTEREST WAS CALCULATED WAS ALSO NOT FORTHCOMING FROM THE RECORD. IN VIEW OF THIS, WE AG REE WITH THE FINDINGS OF THE LD. CIT(A) THAT INTEREST CANNOT BE ALLOWED ON THE 8 ITA.NO.1696 & 1753/HYD/2013 & ITA.NO.1798/HYD/2013 SRI SAI CONSTRUCTIONS, HYDERABAD. FACTS OF THE CASE. TO THAT EXTENT, ASSESSEES GROUN DS ARE REJECTED AND ORDER OF CIT(A)-VI, HYDERABAD IN A.Y. 2010-2011 IS CONFIRMED. 10. IN THE RESULT, BOTH REVENUE APPEALS AND ASSESS EE APPEAL FOR A.Y. 2010-2011 (ITA.NO.1798/HYD/2013) AR E DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05.09.2014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 05 TH SEPTEMBER, 2014 VBP/- COPY TO 1 THE INCOME TAX OFFICER, KRISHNANAGAR COLONY, OP P. HI TECH BUS STAND, SURYAPET 508 213. 2. M/S. SRI SAI CONSTRUCTIONS, D.NO.1-1-388/1, AV ENCLAVE, BEHIND WATER TANK, NIRMALA HOSPITAL ROAD, SURYAPET 508 213. 3 & 4. CIT(A)-V & CIT(A)-VI, HYDERABAD + 2 COPIES 5. CIT-VI, HYDERABAD + 2 COPIES 6. D.R. A BENCH, ITAT, HYDERABAD.