ITO, Pondicherry V. Kishore C.Nanwani, Pondicherry

ITA 1956/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90294 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 03-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 15-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Keywords: Unexplained cash credit; Business income; Valuation report
• Section: 133A; 69

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI .. , ! ' , # $% BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ./ ITA NOS.1955 & 1956/MDS/2014 # & '& / ASSESSMENT YEARS : 2008-09 & 2009-10 THE INCOME TAX OFFICER, WARD I(1), D.P. THOTTAM, MUTHIALPET, PUDUCHERRY 605 003. V. SHRI KISHORE C. NANWANI, NO.44-46, J.N. STREET, PONDICHERRY 605 001. PAN : AEKPN 5787 R (')/ APPELLANT) (+,')/ RESPONDENT) ') - . / APPELLANT BY : SHRI A.V. SREEKANTH, JCIT +,') - . / RESPONDENT BY : NONE / - 0 / DATE OF HEARING : 03.02.2015 12' - 0 / DATE OF PRONOUNCEMENT : 17.04.2015 / O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE APPEALS HAVE BEEN FILED BY THE REVENUE FOR T HE ASSESSMENT YEARS 2008-09 AND 2009-10, ASSAILING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-VI, CHENNAI, D ATED 28.03.2014 COMMON FOR BOTH THE ASSESSMENT YEARS. 2. THE APPEALS WERE FILED WITH A DELAY OF 10 DAYS. AN AFFIDAVIT CITING REASONS FOR DELAY IN FILING OF THE APPEALS H AS BEEN FURNISHED. 2 I.T.A. NOS.1955 & 1956/MDS/14 AFTER PERUSAL OF THE SAME, WE ARE SATISFIED THAT TH E DELAY IN FILING OF THE APPEALS WAS NOT INTENTIONAL OR WILLFUL. ACCORD INGLY, THE DELAY OF 10 DAYS IN FILING OF THE APPEALS IS CONDONED. THE APPEALS ARE ADMITTED TO BE HEARD ON MERITS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN RETAIL TRADE OF GARMENTS UNDER THE NAME AND STYL E OF M/S NANWANIS. THE ASSESSEE FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 DECLARING INCOME OF ` 1,32,060/- AND FOR THE ASSESSMENT YEAR 2009-10, ADMITTING TAXABLE INCO ME OF ` 1,96,050/-. FOR BOTH THE ASSESSMENT YEARS, THE CAS E OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. A SURVEY UNDER SECTION 133A OF THE ACT WAS CONDUCTED AT THE PREMISES OF THE ASS ESSEE ON 13.12.2010. DURING THE COURSE OF SURVEY, IT TRANSP IRED THAT THE ASSESSEE HAD NOT MAINTAINED BOOKS OF ACCOUNT. THE ASSESSING OFFICER ESTIMATED INCOME OF THE ASSESSEE AT 5% OF THE TURNOVER UNDER SECTION 44AF OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). FOR THE ASSESSMENT YEAR 2008-09, THE ASSESSEE HAD D ECLARED TURNOVER OF ` 74,05,985/- AND FOR THE ASSESSMENT YEAR 2009-10, T HE ASSESSEE ADMITTED TURNOVER OF ` 62,69,856/-. THE ASSESSEE HAD ALLEGEDLY TAKEN A LOAN OF ` 34.11 LAKHS, THE DETAILS OF WHICH WERE NOT FURNISHED BY THE ASSESSEE BEFORE THE ASSESSING OFFI CER. ACCORDINGLY, THE ASSESSING OFFICER MADE ADDITION OF THE AFORESAID 3 I.T.A. NOS.1955 & 1956/MDS/14 AMOUNT AS UNEXPLAINED CREDITS. FOR THE ASSESSMENT YEAR 2009-10, THE ASSESSING OFFICER MADE AN ADDITION OF ` 40,23,333/- UNDER SECTION 69 OF THE ACT, AFTER VALUATION OF THE PROPE RTY CONSTRUCTED BY THE ASSESSEE. THE A.O. HELD THAT THE ASSESSEE HAS NOT ADMITTED THE COST OF CONSTRUCTION IN HIS RETURN OF INCOME. AGGRIEVED BY THE ASSESSMENT ORDERS, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(APPEALS) FOR THE RESPECTIVE A SSESSMENT YEARS. BEFORE THE CIT(APPEALS), THE ASSESSEE FILED A DET AILED WRITTEN STATEMENT AND FURNISHED THE DETAILS OF CRED ITORS AND SOURCE OF INVESTMENT IN THE PROPERTY. REMAND REPORT WAS S OUGHT BY THE CIT(APPEALS) ON THE DETAILS FURNISHED. AFTER EXAMI NING THE DETAILS FURNISHED BY THE ASSESSEE AND THE COMMENTS OF THE A SSESSING OFFICER ON THE SAME, THE CIT(APPEALS) PARTLY ALLOWE D THE APPEAL OF THE ASSESSEE. 4. AGAINST THE FINDINGS OF THE CIT(APPEALS) IN REST RICTING THE ADDITION MADE BY THE ASSESSING OFFICER, THE REVENUE HAS COME IN APPEAL BEFORE THE TRIBUNAL. 5. SHRI A.V. SREEKANTH, JCIT, REPRESENTING THE DEPA RTMENT, SUBMITTED THAT THE CIT(APPEALS) HAS FAILED TO TAKE NOTE OF THE FACT 4 I.T.A. NOS.1955 & 1956/MDS/14 THAT THE ASSESSEE HAD ADMITTED GROSS PROFIT ADDITIO N @ 14.31% ON THE DISCLOSED SALES IN THE AUDIT REPORT. THE LD. D .R. CONTENDED THAT THE ASSESSEE FAILED TO PROVE THE IDENTITY, GEN UINENESS AND CREDITWORTHINESS OF THE CREDITORS DURING THE COURSE OF SCRUTINY ASSESSMENTS. WITH RESPECT TO THE ADDITION MADE ON VALUATION OF THE PROPERTY, THE LD. D.R. SUBMITTED THAT STATE PWD RAT ES WERE NOT ADOPTED AS THE METHOD OF CALCULATION UNDER CPWD RAT ES IS MORE COMPREHENSIVE. THE LD. D.R. VEHEMENTLY DEFENDED TH E ASSESSMENT ORDERS AND PRAYED FOR SETTING ASIDE THE FINDINGS OF THE FIRST APPELLATE AUTHORITY FOR BOTH THE ASSESSMENT Y EARS. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE LD. D. R. AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. NONE WAS PRESENT ON BEHALF OF ASSESSEE DESPITE SERVICE OF NO TICE. THE REVENUE HAS ASSAILED THE FINDINGS OF THE CIT(APPEA LS) FOR BOTH THE ASSESSMENT YEARS ON FOLLOWING GROUNDS:- (1) RESTRICTING THE GROSS PROFIT ADDITION; (2) ADOPTING STATE PWD RATES FOR VALUATION OF PROPE RTY; (3) DELETING THE ADDITION OF ` 34.11 LAKHS DESPITE THE FACT THAT THE ASSESSEE WAS NOT ABLE TO PROVE THE IDENTI TY, GENUINENESS AND CREDITWORTHINESS OF THE CREDITORS. 7. THE CIT(APPEALS) IN HIS ORDER HAS EXTENSIVELY RE PRODUCED THE SUBMISSIONS OF THE ASSESSEE AS WELL AS DOCUMENT S PRODUCED BY THE ASSESSEE IN RESPECT OF HIS CONTENTION. THE COM MENTS OF THE 5 I.T.A. NOS.1955 & 1956/MDS/14 ASSESSING OFFICER ON THE DOCUMENTS PRODUCED BY THE ASSESSEE BEFORE THE CIT(APPEALS) ARE ALSO REPRODUCED IN THE IMPUGNED ORDER. THE FIRST APPELLATE AUTHORITY IN THE ABSENCE OF THE BOOKS OF ACCOUNT, VOUCHER, ETC. HAS ESTIMATED THE BUSINESS I NCOME OF THE ASSESSEE AT 8% OF THE GROSS RECEIPTS (EXCLUDING TR ANSFERS) IN THE BANK ACCOUNT. THE ASSESSING OFFICER HAD ESTIMATED BUSINESS INCOME OF THE ASSESSEE @ 5% OF GROSS RECEIPTS UNDER SECTION 44AF OF THE ACT. 8. THE OTHER ISSUES IN APPEAL ARE WITH REGARD TO VA LUATION OF PROPERTY BY APPLYING STATE PWD RATES AND UNEXPLAINE D CREDITS. THE CIT(APPEALS) HAS SOUGHT REMAND REPORT ON THE DETAIL S FURNISHED BY THE ASSESSEE. THE FINDINGS OF THE FIRST APPELLATE AUTHORITY ON THE ISSUES RAISED IN THE APPEAL ARE AS UNDER:- 6.1. THE SECOND PLEA OF THE APPELLANT WAS THAT THE INCOME EARNED FROM THE BUSINESS FOR A.YS. 2008-09 AND 2009 -10 SHOULD BE GIVEN AN OFFSET AGAINST THE INVESTMENT MA DE IN THE CONSTRUCTION OF THE PROPERTY. THE AR OF THE APPELL ANT STATED THAT THE APPELLANT SOLD TWO PROPERTIES FOR A CONSID ERATION OF ` 18,00,000 EACH ON 29.12.2006 VIDE SALE DEED NO.31/2 007 AND 26.12.2006 VIDE SALE DEED NO.74/2007. THE TOTAL CO NSIDERATION RECEIVED ON SALE OF PROPERTIES WAS ` 36,00,000/- AND SAME WAS ALSO INVESTED IN THE CONSTRUCTION OF THE HOUSE AT P ONDICHERRY. THE APPELLANT ALSO AVAILED JEWEL LOAN OF ` 9,69,000/- FROM PRIVATE PAWN BROKER C. VIMALADEVI JAIN IN THE MONTH OF DECEMBER 2006. THE PURPOSE OF THE LOAN WAS STATED TO BE FOR CONSTRUCTION OF THE PROPERTY. THE AR OF THE APPELL ANT ALSO 6 I.T.A. NOS.1955 & 1956/MDS/14 COMPUTED THE SURPLUS FROM THE PREVIOUS YEARS AT ` 4,31,000/- AND INCOME AT 8% FOR THE F.Y. 2006-07 RELEVANT TO T HE A.Y. 2007-08. THE ENTIRE INCOME GENERATED FROM THE GARM ET BUSINESS DURING A.Y. 2007-08 AND BORROWALS MADE FRO M C. VIMALA DEVI IN THE A.YS. 2007-08, THE SALE PROCEEDS RECEIVED FROM SALE OF PROPERTY DURING THE F.Y. 2006-07 RELEV ANT TO THE A.Y. 2007-08 WAS STATED TO BE APPLIED FOR CONSTRUCT ION OF THE PROPERTY. IT WAS STATED BY THE AR OF THE APPELLANT THAT THE CONSTRUCTION OF THE PROPERTY WAS COMMENCED IN JANUA RY 2007 AND WAS COMPLETED BY FEB. 2008. IT WAS FURTHER STA TED BY THE AR OF THE APPELLANT THE DEPARTMENTAL VALUATION OFFI CER HAS TAKEN THE PERIOD OF CONSTRUCTION AS RANGING FROM JUNE 200 7 TO JUNE 2010 (PARA 1.6D OF THE VALUATION REPORT). THE PROP ERTY WAS INSPECTED BY THE VALUATION OFFICER ON 23.11.2011. IN SUPPORT OF THE CLAIM FOR COMPLETION OF THE CONSTRUCTION, THE A R OF THE APPELLANT FURNISHED THE COPY OF THE EB CARD WHEREIN THE PERMANENT EB CONNECTION TAKEN ON 20.2.2008. IT WAS FURTHER STATED BY THE AR OF THE APPELLANT THAT THE CONSTRUC TION OF THE PROPERTY WAS COMMENCED IN DEC. 2006 AND WAS COMPLET ED IN SEP. 2008 (HOUSE OCCUPIED IN FEB. 2008) AND THE EXT RA EB CONNECTION TAKEN IN 2009 WAS SURRENDERED SUBSEQUENT LY. THE ABOVE CLAIM OF THE AR OF THE APPELLANT WAS CONSIDER ED CAREFULLY AND THE SAME IS FOUND TO BE ACCEPTABLE TO DETERMINE THE APPROXIMATE DATE OF COMPLETION OF CONSTRUCTION OF T HE PROPERTY. LOOKING TO THE EVIDENCES AVAILABLE ON THE RECORD, T HE PERIOD OF THE CONSTRUCTION OF THE PROPERTY CAN BE TREATED SPR EAD OVER FOR THREE F.YS. RELEVANT TO THE THREE A.YS. I.E. A.Y. 2 007-08, A.Y. 2008-09 AND A.Y. 2009-10. THEREFORE I ACCEPT THE P LEA OF THE APPELLANT THAT THE SOURCE OF THE INVESTMENT MADE IN THE CONSTRUCTION OF THE PROPERTY WAS PARTLY MET OUT OF THE INCOME FROM THE UNACCOUNTED BUSINESS INCOME FOR A.Y. 2007- 08 TO A.Y. 2009-10, OUT OF THE BORROWINGS MADE FROM C. VIMALA DEVI AND OUT OF THE SALE PROCEEDS OF THE TWO PROPERTIES DURI NG THE F.Y. 2006-07 RELEVANT TO THE A.Y. 2007-08. 7 I.T.A. NOS.1955 & 1956/MDS/14 6.2. AS DISCUSSED EARLIER, THE AR OF THE APPELLANT CHALLENGED THE COMPUTATION OF COST OF CONSTRUCTION ESTIMATED B Y THE VALUATION OFFICER, IN HIS VALUATION REPORT. THE AR OF THE APPELLANT STATED VIDE LETTER DATED 24.3.2014 THAT T HE VALUATION RATE ADOPTED BY THE VO WAS EXCESSIVE AS THE PROPERT Y WAS SITUATED IN MOFUSSIL AREA. IT WAS FURTHER STATED B Y THE AR OF THE APPELLANT THAT THE PROPERTY SHOULD HAVE BEEN VALUED AT STATE PWD RATES. IT WAS STATED BY THE AR OF THE APPELLAN T THAT THE PROPERTY WAS CONSTRUCTED BY THE APPELLANT ONLY I.E. ON SELF SUPERVISION AND THE APPELLANT HAS SAVED SOME MONEY ON ACCOUNT OF SELF-SUPERVISION AND APPROPRIATE DISCOUN T SHOULD BE GIVEN FOR SELF SUPERVISION. THE AR OF THE APPELLAN T FURTHER STATED THAT THE VALUATION OFFICER HAS TAKEN THE PER IOD OF CONSTRUCTION FROM JUNE 2007 TO JUNE 2010, WHEREAS T HE CONSTRUCTION WAS STATED IN DEC. 2006 AND APPROVAL W AS OBTAINED IN MARCH 2007 AND SAME WAS COMPLETED IN SE P. 2008. IT IS PLEADED BY THE AR OF THE APPELLANT THAT APPEL LANT IS ENTITLED TO A DISCOUNT OF 15% ON ACCOUNT OF VARIATION BETWEE N CPWD RATES AND STATE PWD RATES, A FURTHER DISCOUNT OF 10 % ON ACCOUNT OF SELF SUPERVISION AND DISCOUNT OF 5% ON A CCOUNT OF INFLATION IN VALUE OF MATERIALS DUE TO THE WRONG DA TE APPLIED FOR COMMENCEMENT OF CONSTRUCTION BY DVO. THE AR OF THE APPELLANT HAS RELIED ON THE RATIO OF THE DECISION O F THE HON'BLE ITAT, B BENCH, CHENNAI IN THE CASE OF C.K. SUMATH Y, REPORTED IN [2011] 44 SOT 65 WHEREIN, 15% DISCOUNT WAS ALLOW ED ON ACCOUNT OF VARIATION OF CPWD RATES AND STATE PWD RA TES AND 10% ON ACCOUNT OF SELF SUPERVISION. I HAVE CONSIDE RED THE FACTS OF THE CASE CAREFULLY AND ALSO THE RATIO OF THE DEC ISION QUOTED BY THE AR OF THE APPELLANT. IN VIEW OF THE EVIDENCE A VAILABLE ON THE RECORD LIKE THE MOFUSSIL AREA IN WHICH THE PROP ERTY WAS CONSTRUCTED, SELF SUPERVISION OF THE APPELLANT, ON ACCOUNT OF THE WRONG ADOPTION OF THE DATE FOR COMMENCEMENT OF CONS TRUCTION OF THE PROPERTY BY DVO AND ALSO RESPECTFULLY FOLLOW ING THE RATIO OF THE DECISION OF THE ITAT, B BENCH IN THE CASE OF C.K. SUMATHY CITED (SUPRA), I ALLOW DISCOUNT OF 30% (15% +10%+5%) 8 I.T.A. NOS.1955 & 1956/MDS/14 ON THE VALUATION ADOPTED BY THE DVO. THE VALUE ADO PTED BY THE DVO FOR THE COST OF CONSTRUCTION OF THE PROPERT Y WAS ` 1,20,70,000/-. AS DISCUSSED ABOVE, THE DISCOUNT OF 30% ON THE VALUATION ADOPTED BY THE DVO COMES TO ` 36,21,000/-. THEREFORE THE INVESTMENT MADE BY THE APPELLANT IN T HE CONSTRUCTION OF THE PROPERTY COMES TO ` 84,49,000/-. AS THE PERIOD OF CONSTRUCTION WAS SPREAD OVER FOR 3 YEARS, THE INVESTMENT FOR EACH OF THE A.YS COMES TO ` 28,16,333/-. IN THE CASH FLOW STATEMENT FURNISHED BY THE AR OF THE APPE LLANT AS DISCUSSED ABOVE, THE INVESTMENT IN THE CONSTRUCTION OF THE PROPERTY FOR EACH OF THE A.YS WAS TAKEN AT ` 28,00,000/- AND THE APPELLANT HAS SURPLUS OF ` 3,91,617/- FOR THE F.Y. 2008-09. THE DIFFERENCE OF ` 49,000 I.E. ( ` 84,49,000 AND ` 84,00,000) CAN BE TREATED AS EXPLAINED OUT OF THE SURPLUS ARRI VED AT ` 3,91,617/- FOR F.Y.2008-09 RELEVANT TO A.Y.2009-10. THE FINDINGS OF THE CIT(APPEALS) ON THE ISSUE ARE WELL REASONED. WE CONCUR WITH THE SAME. 9. THE IMPUGNED ORDER IS UPHELD AND THE APPEALS OF THE REVENUE ARE DISMISSED DEVOID OF MERITS. ORDER PRONOUNCED ON 17 TH OF MARCH, 2015 AT CHENNAI. SD/- SD/- ( .. ) ( ! ' ) (B.R. BASKARAN) (VIKAS AWASTHY) / ACCOUNTANT MEMBER # /JUDICIAL MEMBER /CHENNAI, B /DATED, THE 17 TH APRIL, 2015. KRI. 9 I.T.A. NOS.1955 & 1956/MDS/14 C - +#0D! E!'0 /COPY TO: 1. ') /APPELLANT 2. +,') /RESPONDENT 3. / F0 /CIT, PONDICHERRY 4. / F0 () /CIT(A)-VI, CHENNAI-34 5. !GH +#0# /DR 6. HI& J /GF.