Shri Manoj Hathibhai Gandhi, RAJKOT-GUJARAT V. The Income Tax Officer, Ward-1, Bhuj

ITA 202/RJT/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6638 (ITAT-RAJKOT)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 15-03-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 08-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C S ANJARIA
• Keywords: Unexplained investment; Valuation report

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT [ CONDUCTED THROUGH E-COURT AT AHMEDABAD ] BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO.202/RJT/2016 ( / ASSESSMENT YEAR : 2008-09) SHRI MANOJ HATHIBHAI GANDHI SAKHI ENTERPRISES TALAV STREET BHUJ - KUTCH / VS. THE ITO WARD-I BHUJ ./ ./ PAN/GIR NO. ACKPG 4918 K ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI VIMAL DESAI, AR ! / RESPONDENT BY : SHRI C.S. ANJARIA, CIT-DR ! & / DATE OF HEARING 12/03/2017 '( ! & / DATE OF PRONOUNCEMENT 24/ 03/2017 / O R D E R PER PRADIP KUMAR KEDIA, AM : THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-3, RAJKO T [CIT(A) IN SHORT] DATED 17/03/2016 FOR THE ASSESSMENT YEAR (AY) 2008-09. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER:- ITA NO. 202 /RJ T/2016 SHRI MANOJ HATHIBHAI GANDHI VS. ITO ASST.YEAR 2008-09 - 2 - 1. THE ASSESSMENT ORDER U/S.14393) IS BAD IN LAW. 2. THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON FACTS IN MAKING ADDITION OF RS.5,46,500/- ON ACCOUN T OF INCREASE IN CAPITAL. THE LEARNED CIT(A) HAS ERRED IN CONFIRMIN G THE SAME TO THE EXTENT OF RS.2,81,500/-. 3. BRIEFLY STATED, THE ASSESSEE IS AN INDIVIDUAL EN GAGED IN RETAIL TRADING OF KITCHEN WEAR ITEMS. THE ASSESSEE FILED THE RETURN OF INCOME FOR THE AY 2008-09 DECLARING TOTAL INCOME OF RS.1,8 7,430/-. IN THE SCRUTINY ASSESSMENT, THE ASSESSING OFFICER (AO) OBS ERVED THAT ASSESSEE HAS SHOWN INTRODUCTION OF CAPITAL OF RS.5,46,500/- ON 30/04/2007 ON ACCOUNT OF ENTRY HAWALO. THE SOURCE OF INTRODUCT ION OF THE AFORESAID CAPITAL ACCOUNT WAS FOUND UNEXPLAINED BY THE AO. HE ACCORDINGLY BROUGHT THE AFORESAID AMOUNT OF TAX BY INCLUDING TH E SAME IN THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A). 5. THE CIT(A) GRANTED RELIEF TO THE EXTENT OF RS.2, 65,000/- AND BALANCE ADDITION OF RS.2,81,500/- WAS CONFIRMED. T HE RELEVANT OPERATIVE PARA OF THE CIT(A)S ORDER READS AS UNDER:- 5.1. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT AND PERUSED FACTS OF THE CASE IN A.OS ORDER. ITA NO. 202 /RJ T/2016 SHRI MANOJ HATHIBHAI GANDHI VS. ITO ASST.YEAR 2008-09 - 3 - 5.2. THE UNDISPUTED FACT OF THE CASE IS THAT APPELL ANT HAS MADE A JOURNAL CREDIT ENTRY IN HIS CAPITAL A/C OF RS.54650 0/-. THIS ENTRY HAS BEEN CLAIMED OF THE NATURE OF RECTIFICATION BY WHICH THE OMISSION OF APPELLANTS OLD RESIDENTIAL HOUSE TO BE RETURNED IN THE ITR AFTER 2001-02 WAS SOUGHT TO BE CORRECTED. IT H AS BEEN CLAIMED THAT UPTO 2001-02 THIS HOUSE WAS SHOWN WITH VALUE O F RS.115000/-. THE OMISSION OCCURRED DUE TO ALMOST COMPLETE DAMAGE OF HOUSE IN EARTHQUAKE. THOUGH IT WAS RECONSTRUCTED WITH THE H ELP OF GOVERNMENT AID, BUT IT REMAINED TO BE REFLECTED IN THE INCOME TAX RETURN. THIS OMISSION WAS NOTICED BY APPELLANT DUR ING RELEVANT PREVIOUS YEAR AND TO CORRECT THE SAID OMISSION HE P ASSED JOURNAL ENTRY TAKING THE ESTIMATED COST OF THE HOUSE AS PER A CONTRACTOR. 5.3. IN HIS REMAND, THE ITO WAS SUPPLIED WITH THE A DDITIONAL EVIDENCES AND HIS REPORT AND REJOINDER OF APPELLANT HAS BEEN CONSIDERED BY ME. IT IS UNDISPUTED FACT THAT VALUE OF HOUSE TILL AY 2001-02 WAS RS.115000/-. FURTHER GOVERNMENT PROVID ED AID OF RS.150000/- FOR THE RECONSTRUCTION AND THE TOTAL AM OUNT INVESTED AS PER VERIFIABLE SOURCES REMAINS AT RS.281500/- IF APPELLANTS CLAIM THAT THE OLD HOUSE GOT RECONSTRUCTED IS ACCEP TED. THE AO, IN HIS REMAND REPORT, HAS COMMENTED THAT THE ORIGINAL HOUSE PROPERTY WAS RECONSTRUCTED WITH DIFFERENT NUMBER TO THE APPELLANT. THUS TO THIS EXTENT APPELLANTS CLAIM OF OLD HOUSE IS ACCEPTABLE BUT THERE IS NO EXPLANATION OF ENHANCEMENT TO THE VALUE FROM RS.281500/- TO RS.546500/-. IF THE VALUE DECLARED BY THE APPELLANT IN RETURN FOR THE YEAR 2008-09 HAS TO BE ACCEPTED T HEN IT IMPLIES THAT INVESTMENT IN HOUSE PROPERTY WAS OF RS.281500/ - WHICH WAS MADE IN THE RELEVANT PREVIOUS YEAR AND DUE TO LACK OF ANY EXPLANATION OF ITS SOURCE, IT HAS TO BE TREATED AS UNDISCLOSED INVESTMENT. THE PLEA THAT THIS VALUE IS BASED ON T HE ESTIMATES OF THE CONTRACTOR DOES NOT HELP THE APPELLANT BECAUSE THE CONTRACTORS ESTIMATE WILL ALSO BE BASED ON THE COST INCURRED FO R CONSTRUCTION OF THE HOUSE, MEANING THEREBY IT WILL NOT BE BASED ON MARKET VALUE BUT THE ESTIMATED COST OF CONSTRUCTION OF THE PROPE RTY. HENCE THIS ITA NO. 202 /RJ T/2016 SHRI MANOJ HATHIBHAI GANDHI VS. ITO ASST.YEAR 2008-09 - 4 - PLEA DOES NOT EXONERATE THE APPELLANT FROM RESPONSI BILITY OF PROVIDING THE SOURCES OF ADDITION OF RS.281500/-. THE LD.ARS ARGUMENT IS THAT EVEN IF THIS ADDITIONAL INVESTMENT IS THERE, IT PERTAINS TO YEAR PRIOR TO AY 2004-05 BASICALLY AND THEREFORE IT CANNOT BE SUBJECT MATTER OF YEAR UNDER APPEAL. THI S ARGUMENT WILL DEFINITELY SERVE THE PURPOSE OF APPELLANT BUT IT IS CONTRARY TO THE ACCOUNTING AS WELL AS LEGAL PROVISIONS. IF AN ENTR Y OF ASSET IS BEING MADE IN RELEVANT PREVIOUS YEAR FOR THE FIRST TIME T HEN OBVIOUSLY THE INVESTMENT IN THAT ASSET IS IN THAT YEAR ONLY UNLES S IT IS SHOWN WITH EVIDENCES THAT INVESTMENT OF THAT AMOUNT WAS MADE I N EARLIER YEAR. IN PRESENT CASE, THE INVESTMENT OF RS.265000/- OBVI OUSLY PERTAINED TO EARLIER YEAR AND HENCE THIS AMOUNT SHOULD NOT BE ADDED IN PRESENT YEAR. BUT NO EVIDENCES HAVE BEEN SUBMITTED BY APPELLANT TO SHOW THAT BALANCE AMOUNT OF RS.281500/- WAS ALSO INVESTED IN EARLIER YEAR. THUS THIS PART INVESTMENT OF RS.2815 00/- HAS FOUND ITS ENTRY IN THE BOOK OF THE APPELLANT FOR THE FIRS T TIME DURING THE RELEVANT PREVIOUS YEAR. APPELLANT HAS FAILED TO ES TABLISH THE SOURCE OF THE INVESTMENT AND THEREFORE THIS WILL BE TREATED AS UNEXPLAINED INVESTMENT OF THE PREVIOUS YEAR IN QUES TION. THE AO IS DIRECTED TO DELETE RS.265000/- AND THE BALANCE A DDITION OF RS.2815000/- IS CONFIRMED. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 7. THE LD.AR FOR THE ASSESSEE SUBMITTED AT THE OUTS ET THAT IT IS AN UNDISPUTED FACT THAT THE CAPITAL OF THE ASSESSEE WA S CREDITED FOR AMOUNT OF RS.5,46,500/- BY WAY OF MERE JOURNAL ENTRY. THIS ENTRY HAS BEEN CLAIMED OF THE NATURE OF THE RECTIFICATION BY WHICH THE PAS T OMISSION OF ITA NO. 202 /RJ T/2016 SHRI MANOJ HATHIBHAI GANDHI VS. ITO ASST.YEAR 2008-09 - 5 - CAPITALIZATION OF COST OF THE ASSESSEES OLD RESIDE NTIAL HOUSE WAS SOUGHT TO BE CORRECTED. IT WAS SUBMITTED THAT THE RETURN IN THE ITR AFTER 2001-02 WAS FILED SHOWING VALUE OF HOUSE AT RS.1,15,000/-. THE OMISSION REPRESENTS CAPITALIZATION COSTS OWING TO ALMOST COM PLETE DAMAGE OF HOUSE IN EARTHQUAKE. THOUGH, THE HOUSE WAS RE-CON STRUCTED WITH THE HELP OF GOVERNMENT AID, BUT IT REMAINED TO BE REFLE CTED IN THE INCOME-TAX RETURN. THIS OMISSION WAS NOTICED BY ASSESSEE DURI NG ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR IN QUESTION AND THE REFORE WITH A VIEW TO CORRECT SUCH OMISSION, THE ASSESSEE HAS PASSED JOUR NAL ENTRY TAKING THE ESTIMATED COST OF THE HOUSE AS PER A CONTRACTOR. THE LD.AR POINTED OUT IN ELABORATION THAT THE VALUE OF THE HOUSE TILL AY 200 1-02 WAS SHOWN AT RS.1,15,000/-. GOVERNMENT AID WERE PROVIDED OF RS. 1,50,000 FOR THE RECONSTRUCTION OF THE HOUSE DUE TO DAMAGE INCURRED OWING TO EARTHQUAKE. THE ENTIRE AMOUNT OF RS.5,46,500/- RELATES TO THE Y EAR OF THE EARTHQUAKE AND DOES NOT PERTAIN TO THE ASSESSMENT YEAR 2008-09 IN QUESTION. IT WAS THEREFORE SUBMITTED THAT ADDITION OF THE AFORESAID AMOUNT OF RS.2,81,500/- CANNOT BE SUSTAINED UNDER S.68 OF THE ACT MERELY ON THE BASIS OF JOURNAL ENTRY CONCERNING TO EARLIER ASSESS MENT YEAR. IT WAS CATEGORICALLY ASSERTED THAT NO NEW FUND HAVE BEEN A CTUALLY RECEIVED DURING THE YEAR BY THE ASSESSEE WHATSOEVER. 8. THE LD.AR RELIED UPON THE ORDER OF THE CIT(A). ITA NO. 202 /RJ T/2016 SHRI MANOJ HATHIBHAI GANDHI VS. ITO ASST.YEAR 2008-09 - 6 - 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. IN THE INSTANT CASE, THE REVENUE SEEKS TO MAKE ADDITION TOWARDS UN EXPLAINED INCREASE IN CAPITAL ACCOUNT OF THE ASSESSEE AND CORRESPONDIN G UNEXPLAINED INVESTMENT MADE IN THE HOUSE. IT IS THE CASE OF TH E ASSESSEE THAT DUE TO EARTHQUAKE, THE HOUSE OF THE ASSESSEE WAS DAMAGED A ND SOME COMPENSATION WAS RECEIVED FROM THE GOVERNMENT. THE RECONSTRUCTION COST WAS NOT RECOGNIZED DURING THE RELEVANT AY 2001 -02 OR ABOUT THAT TIME. THE RECONSTRUCTION COST AS PER THE VALUATION REPORT WAS EVENTUALLY RECOGNIZED IN THE AY 2008-09 AND THE INCREASED VALU E QUA THE COST RECOGNIZED EARLIER WAS ADDED TO THE CAPITAL ACCOUNT OF THE ASSESSEE BY WAY OF JOURNAL ENTRY. AT THIS JUNCTURE, IT IS ALSO PERTINENT TO NOTE THE FACTUAL ASSERTIONS MADE ON BEHALF OF THE ASSESSEE T HAT NO ACTUAL INFLOW FUND HAS HAPPENED DURING THE ASSESSMENT YEAR IN QUE STION. ON THESE FACTS, IT IS OBVIOUS THAT NO ADDITION CAN BE SUSTAI NED UNDER S.68 OF THE ACT IN SO FAR AS AY 2008-09 IS CONCERNED. THE ACTION T OWARDS UNEXPLAINED INCREASE IN CAPITAL, IF ANY, HAS TO BE TRACED BACK AND CAN BE FASTENED ONLY IN THE YEAR OF ACTUAL EVENT. THUS, ON THIS GROUND ALONE, THE ADDITION MADE REQUIRES TO BE QUASHED. IN THESE CIRCUMSTANCES, W E FIND MERIT IN THE PLEA OF THE ASSESSEE. ACCORDINGLY, THE ADDITIONS SUST AINED TOWARDS UNEXPLAINED CAPITAL AMOUNTING TO RS.2,81,500/- REQU IRES TO BE SET ASIDE. WE DO SO ACCORDINGLY. ITA NO. 202 /RJ T/2016 SHRI MANOJ HATHIBHAI GANDHI VS. ITO ASST.YEAR 2008-09 - 7 - 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE COURT ON 24/ 03/ 2017 AT AHMEDABAD. SD/- SD/- ( MAHAVIR PRASAD) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD ; DATED 24/03/2017 .., .,../ T.C. NAIR, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. - & .& / CONCERNED CIT 4. .& ( ) / THE CIT(A)-3, RAJKOT 5. 234 ,&, , , /DR,ITAT, RAJKOT 6. 4?@ A / GUARD FILE. / BY ORDER, 2& ,& //TRUE COPY// / ( DY./ASSTT.REGISTRAR) %&, / ITAT, RAJKOT 1. DATE OF DICTATION .. 20.3.17 (DICTATION-PAD 10- PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER .. 20.3.17 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 24.3.17 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 24.3.17 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER