Shri P.Selvam, Trichy V. ITO, Trichy

ITA 2209/CHNY/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5005 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 26-05-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 26-09-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SRINIVAS
• Assessee Lawyers: R VENKATESH
• Keywords: Unexplained investment; Valuation report; Set aside
• Section: 143(3); 143(1); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C CHENNAI (BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER) .. I.T.A. NO. 2209/MDS/2007 ASSESSMENT YEAR : 2002-03 SHRI P. SELVAM, NO.39, RAMAYA ILLAM, KAVERY NAGAR, WEST CHINTAMANI, TRICHY 1. PAN : ALAPS4521S (APPELLANT) V. THE INCOME TAX OFFICER, WARD I(2), TRICHY. (RESPONDENT) APPELLANT BY : SHRI R. VENKATESH RESPONDENT BY : SHRI B. SR INIVAS O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THIS IS A MATTER REMITTED TO THIS TRIBUNAL BY THE HON'BLE JURISDICTIONAL HIGH COURT ON AN APPEAL FILED BY THE ASSESSEE, AGAINST THIS TRIBUNAL ORDER DATED 27.3.2009. 2. SHORT FACTS APROPOS ARE THAT ASSESSEE, AN AGRICU LTURIST, ALSO DOING MONEY LENDING BUSINESS, HAD FILED RETURN FOR THE IMPUGNED ASSESSMENT YEAR ADMITTING INCOME OF ` 1,03,850/-. THERE WAS A CLAIM OF AGRICULTURE INCOME OF ` 45,000/- ALSO, FROM A LAND HOLDING OF I.T.A. NO. 2209/MDS/07 2 ABOUT 7.50 ACRES SITUATED AT THETTUPATTI VILLAGE, A RAVAKURICHI TALUK, KARUR DISTRICT. THE RETURN WAS PROCESSED UNDER SEC TION 143(1) OF INCOME-TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) INITIALLY AND THEREAFTER SCRUTINY ASSESSMENT WAS COMPLETED ON 31. 3.2005 WHERE CERTAIN ADDITIONS WERE MADE BY THE ASSESSING OFFICE R. NEVERTHELESS, WHEN THE SCRUTINY ASSESSMENT WAS DONE A.O. WAS NOT HAVING THE BENEFIT OF A VALUATION REPORT DATED 31.8.2005 IN RE SPECT OF A CONSTRUCTION DONE BY THE ASSESSEE. THE SAID VALUAT ION REPORT SHOWED THAT THERE WAS LARGE VARIATION IN THE COST O F CONSTRUCTION DECLARED BY THE ASSESSEE VIS--VIS THE VALUE DETERM INED BY THE DEPARTMENTAL VALUATION OFFICER. CIT UNDER SECTION 263 OF THE ACT, THEREFORE, SET ASIDE THE ASSESSMENT WITH A DIRECTIO N TO A.O. TO ASSESS THE DIFFERENCE IN COST OF CONSTRUCTION. PURSUANT T O THIS, A FRESH ASSESSMENT WAS DONE UNDER SECTION 143(3) READ WITH SECTION 263 OF THE ACT. WHILE COMPLETING THE ASSESSMENT DONE PURS UANT TO SECTION 263 PROCEEDINGS, ASSESSING OFFICER MADE AN ADDITION OF ` 12,28,000/- AS UNEXPLAINED INVESTMENT, IN THE BUILD ING. LD. CIT(APPEALS) ON ASSESSEES APPEAL SCALED DOWN THE A DDITION FOR UNEXPLAINED INVESTMENT TO ` 5,68,000/-. IN FURTHER APPEAL FILED BY THE ASSESSEE, THIS TRIBUNAL REDUCED THE ADDITION TO ` 4,00,000/-. ASSESSEE, THEREAFTER MOVED THE HON'BLE JURISDICTION AL HIGH COURT AND I.T.A. NO. 2209/MDS/07 3 HON'BLE JURISDICTIONAL HIGH COURT IN ITS JUDGEMENT DATED 8.2.2010 IN T.C.(A) NO.1216 OF 2009 HELD AS UNDER AT PARAS 6 AN D 7:- 6. WE HAVE HEARD THE LEARNED COUNSEL APPEARING ON EITHER SIDE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ASSESSEE HAS ALSO FILED GROUNDS OF APPEAL BEFORE TH E APPELLATE TRIBUNAL IN WHICH HE HAS TAKEN A GROUND THAT THE CI T(APPEALS) HAS ERRED IN NOT CONSIDERING THE CONSTRUCTION AGREEMENT MADE BY THE ASSESSEE WITH THE CONTRACTOR FOR OUT RATE CONTRACT AMOUNT. THE DIFFERENCE IN COST OF CONSTRUCTION IS MADE ONLY AT T HE ESTIMATE BASIS. FURTHER IT IS STATED IN THE GROUNDS THAT TH E LOWER AUTHORITY FAILED TO NOTE THE REGISTERED VALUERS REPORT FILED BY THE ASSESSEE AND ALSO OTHER DOCUMENTS FILED TO SUPPORT THE CASE. THE ONLY REASON GIVEN BY THE TRIBUNAL IN PARAGRAPH 8 READS AS FOLLOWS:- FURTHER THE CIT(A) NOTED THAT THE STATE PWD RATES INCLUDE 10% OF CHARGES ON ACCOUNT OF ELECTRIC AL INSTALLATION, 7.5% OF THE CHARGES FOR SANITATION AN D 7.5% OF THE CHARGES FOR INTERNAL WATER SUPPLY BUT THE CPW D RATES DO NOT INCLUDE THESE CHARGES. HE ALSO NOTED THAT THE DVO HAD NOT GIVEN ANY DEDUCTION IN THE ESTIMATI ON OF COST FOR SELF-SUPERVISION. IN OUR OPINION THE CIT( A) HAS GENERALLY PROCEEDED ON THE RIGHT LINES. HE, ALLOWED A RELIEF OF ` 4,00,000. HOWEVER, CONSIDERING THAT THE ADDITION IS BASED ON ESTIMATION, THE RELIEF ALLOWED BY THE CIT(A) COULD BE INCREASED TO ` 5,68,000 WHICH WILL MEET THE ENDS OF JUSTICE. IN OTHER WORDS THE ADDITION SUSTAINED BY THE CIT(A) IS REDUCED TO ` 4,00,000. FROM A READING OF THE ABOVE, THE TRIBUNAL SIMPLY RE DUCED THE UNEXPLAINED INVESTMENT TO ` 4,00,000/-. IT HAS NOT CONSIDERED THE MATTER INDEPENDENTLY. THE TRIBUNAL IS THE HIGHE ST FACT FINDING AUTHORITY. IT OUGHT TO HAVE CONSIDERED ALL THE GROU NDS OF APPEAL FILED BEFORE IT. WHILE CONSIDERING THE APPEAL, IT SHOULD GIVE REASONS. UNDER THESE CIRCUMSTANCES AND IN THE INTE REST OF JUSTICE, WE SET ASIDE THE ORDER OF THE TRIBUNAL AND REMIT TH E MATTER TO THE TRIBUNAL WITH A DIRECTION TO CONSIDER AFRESH AND DI SPOSE OF THE I.T.A. NO. 2209/MDS/07 4 SAME IN ACCORDANCE WITH LAW AS EXPEDITIOUSLY AS POSS IBLE AFTER GIVING OPPORTUNITY TO BOTH PARTIES. 3. BEFORE US, LEARNED A.R., STRONGLY ASSAILING THE ORDERS OF THE A.O. AS WELL AS CIT(APPEALS), SUBMITTED THAT ASSESS EE HAD ENTRUSTED THE CONSTRUCTION OF RESIDENTIAL BUILDING AT VACANT SITE MEASURING 1200 SQ. FT. SITUATED AT TS NO.6, DOOR NO.39/33 OF CAUVE RY NAGAR, TIRUCHY TOWN, TO SHRI V. RAJASEKARAN, RESIDING AT NO.10, FI RST CROSS STREET, KAVERI NAGAR, MELACHINTAMANI, TIRUCHY TOWN. ACCORD ING TO HIM, THERE WAS AN AGREEMENT FOR OUTRIGHT CONSTRUCTION FO R A TOTAL CONSIDERATION OF ` 22 LAKHS. AS PER LEARNED A.R., THE SAID AGREEMENT WAS PLACED BEFORE THE A.O. LEARNED A.R. RELYING ON COPY OF THIS AGREEMENT PLACED AT PAGES 7 AND 8 OF PAPER-BOOK, SU BMITTED THAT IT WAS NOT A PIECEMEAL CONSTRUCTION BUT A CONSTRUCTION ENTRUSTED TO A CONTRACTOR FOR DOING THE WORK ON TURNKEY BASIS. AG AIN, RELYING ON PAGES 4 AND 5 OF PAPER-BOOK, LEARNED A.R. SUBMITTED THAT WORK SPECIFICATION IN RESPECT OF CONSTRUCTION WAS ALSO C LEARLY SPECIFIED AND FLOORWISE COST OF CONSTRUCTION WAS ALSO ESTIMATED. LEARNED A.R. ALSO BROUGHT TO OUR ATTENTION A VALUATION REPORT DATED 1 5.3.2007 OF SHRI P. RANGASWAMI, B.E., WHEREIN HE HAD MADE VALUATION OF THE SUBJECT BUILDING BASED ON DIFFERENT METHODS. ACCORDING TO LEARNED A.R., PAGES 11 TO 14 OF PAPER-BOOK WHICH WAS A COPY OF TH IS VALUATION I.T.A. NO. 2209/MDS/07 5 REPORT, AT PAGE 14, GAVE THE WORK-OUT BASED ON STAT E PWD RATES ALSO. LEARNED A.R. ALSO MENTIONED THAT EVEN AS PER THE PWD RATES, THE COST WOULD HAVE COME TO ` 24.95 LAKHS ONLY. ACCORDING TO LEARNED A.R., SINCE ASSESSEE HAD ENTRUSTED WORK ON TURNKEY BASIS, THERE WAS NO QUESTION OF COMPARISON WITH ANY SPECIF IED RATES, WHEN NEITHER THE A.O. NOR THE CIT(APPEALS) HAD FOUND THA T THE AGREEMENT WAS UNBELIEVABLE OR FABRICATED. HENCE, ACCORDING T O HIM, SUBSTITUTING THE AGREED AMOUNT WITH ANY OTHER AMOUNT, WHETHER BA SED ON VALUATION FIXED BY THE DVO OR OTHERWISE, WOULD NOT BE APPROPRIATE. 4. PER CONTRA, LEARNED D.R. SUBMITTED THAT THE ASSE SSEE NEVER QUESTIONED THE ORDER OF THE CIT UNDER SECTION 263 O F THE ACT SETTING ASIDE THE EARLIER ASSESSMENT AND DIRECTING THE A.O. TO CONSIDER THE DIFFERENCE IN COST OF CONSTRUCTION. HENCE, ACCORDI NG TO HIM, THE ASSESSEE COULD NOT NOW RAISE ANY OBJECTION ON THE A SSESSMENT DONE PURSUANT TO SUCH DIRECTIONS OF THE CIT. IN ANY CAS E, AS PER THE LEARNED D.R., ASSESSING OFFICER HAD FIXED THE VALUA TION AS PER THE RATES DETERMINED BY THE DVO AND SUCH VALUATION HAD TAKEN INTO CONSIDERATION, RULING RATES AND GEOGRAPHICAL LOCATI ON OF THE PROPERTY. AS PER THE LEARNED D.R., CIT(APPEALS) HAD CONSIDERE D THE APPEAL OF THE ASSESSEE AND GIVEN A CONSIDERABLE RELIEF. I.T.A. NO. 2209/MDS/07 6 5. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. THE A.O. HAD REJECTED THE ASSERTIONS OF THE ASSESSE E WITH THE FOLLOWING REASONING:- THE ASSESSEES OBJECTIONS ARE CONSIDERED AND THEY AR E NOT ACCEPTED FOR THE REASONS STATED BELOW: 1. THE OUTRIGHT CONTRACT AGREEMENT DOES NOT HAVE DETAILED SPECIFICATION AND FOR THIS REASON, THE VALUATION OFFICER HAS REJECTED THE SAME. 2. AS CONSTRUCTION WAS DONE ON AN OUT RATE BASIS, NO ALLOWANCE FOR SELF SUPERVISION CAN BE CONSIDERED. THE ASSESSEES PLEA THAT PART AMOUNT WAS PAID BY KIN D, I.E. BY MEANS OF BUILDING MATERIALS, SAND FERRIED IN HIS OWN CART, AND ETC. DO NOT COME TO THE RESCUE OF THE ASSESSEE. TH E CONSTRUCTION RATE ADOPTED IN THE AGREEMENT IS VERY LOW CONSIDERIN G THE SPECIFICATIONS RECORDED IN THE VALUATION REPORT. I N THE PROFORMA REPORT FILED ON 16/12/2002 (COPY OF THE SAME WAS FIL ED BEFORE THE VALUATION OFFICER). THE ASSESSEE HAS DECLARED THE COST OF CONSTRUCTION AS ` 18,83,000/- AND CONSTRUCTION NOT COMPLETED. IN THE INCOME TAX RETURN FILED ON 24/04/2003 FOR ASSES SMENT YEAR 2003-04, THE ASSESSEE HAS FURTHER DECLARED AN ADDIT IONAL SUM OF ` 3,20,000/- TOWARDS CONSTRUCTION, I.E. MUCH EARLIER TO THE INSPECTION OF THE VALUATION OFFICER ON 27/07/2005. THEREFORE WHILE ARRIVING AT THE COST AS ON 31/03/2002, THE SU MS SPENT LATER, IS DEDUCTED AND THE VALUE IS FIXED AT ` 29,21,000 AS AT 31/03/2002. THE ASSESSEE HAS ADMITTED ONLY ` 16,93,000/- TOWARDS COST OF CONSTRUCTION, EXCLUDING THE COST OF LAND. THEREFORE, I HOLD THAT THE DIFFERENCE OF ` 12,28,000/- REPRESENTS UNEXPLAINED INVESTMENT OF THE ASSESSEE. THE SAME IS ASSESSED AS INCOME OF THE ASSESSEE UNDER OTHER SOUR CES. AS PER THE A.O., THE OUTRIGHT CONTRACT DID NOT HAVE DETAILS OF SPECIFICATION OF THE WORK AND THE CONSTRUCTION RATE S OFFERED WERE VERY I.T.A. NO. 2209/MDS/07 7 LOW. IT IS ALSO MENTIONED BY THE A.O. THAT THE ASS ESSEE HAD DECLARED COST OF CONSTRUCTION AS ` 18,83,000/- FOR THE IMPUGNED ASSESSMENT YEAR AND A FURTHER AMOUNT OF ` 3,20,000/- FOR ASSESSMENT YEAR 2003- 04. THIS WAS ALSO CONFIRMED BY THE CIT(APPEALS) AT PAGE 4 OF HIS ORDER. BALANCE SHEET OF THE ASSESSEE PLACED AT PAG E 9 OF PAPER- BOOK CLEARLY SHOWS THAT A SUM OF ` 18,83,000/- WAS SPENT BY HIM UPTO 31.3.2002 FOR THE CONSTRUCTION AND FURTHER EXPENSES OF ` 3,20,000/- WAS ALSO FOUND IN HIS CASH FLOW STATEMENT FOR PREVI OUS YEAR ENDED 31.3.2003 PLACED AT PAGE 10 OF PAPER-BOOK. THUS, T HERE IS NO DISPUTE THAT THE ASSESSEE HAD ACCOUNTED TOWARDS COS T OF CONSTRUCTION ` 22 LAKHS AT LEAST. ASSESSING OFFICER HAD REJECTED THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND THE CONTRACTO R SHRI V. RAJASEKARAN FOR A REASON THAT IT WAS NOT HAVING DET AILED SPECIFICATIONS. NEVERTHELESS, WE FIND THIS TO BE I NCORRECT. PAGES 4 AND 5 THE PAPER-BOOK CLEARLY SHOW THAT THERE WERE D ETAILED SPECIFICATIONS IN RESPECT OF THE BUILDING. IN FACT , THE ASSESSING OFFICER HAD HIMSELF STATED THAT THE RATE OF CONSTRUCTION AS ADOPTED IN THE AGREEMENT WAS VERY LOW. UNLESS THERE WAS DETAILED RATES MENTIONED, THE ASSESSING OFFICER COULD NOT HAVE COME TO SUCH A CONCLUSION. NO REASON HAS BEEN SPECIFIED BY THE A.O. AS TO WHY THE AGREEMENT WAS REJECTED. ALSO, THE A.O. DID NOT CONDUCT ANY EXAMI NATION OF THE I.T.A. NO. 2209/MDS/07 8 CONTRACTOR SHRI V. RAJASEKARAN IN THIS REGARD. THE A.O. SIMPLY WENT BY THE DVOS REPORT AND SUBSTITUTED THE VALUE AS PE R THE DVO AND REJECTED THE CONSTRUCTION COST CLAIMED BY THE ASSES SEE. THE DVO HAS SPECIFIED IN PARA 5.1 OF HIS REPORT DATED NIL T HAT HE HAD ADOPTED GOVERNMENT OF INDIA RATES AND NOT THE PLINTH AREA R ATES PREPARED BY TAMIL NADU STATE PWD. AGAINST THIS, ASSESSEES VAL UER HAS EARLIER IN HIS REPORT MENTIONED THE VALUATION AT ` 24,94,718/- AS PER STATE PWD RATES. BUT, NEVERTHELESS, AS POINTED OUT BY US, TH IS WAS A CONSTRUCTION DONE ON TURNKEY BASIS BASED ON AGREEME NT WHEREBY A SUM AGREED WAS ` 22 LAKHS. THERE IS NOTHING ON RECORD TO SHOW THAT THE ASSESSEE HAD MADE ANY MORE PAYMENTS OTHER THAN THE ONE MENTIONED IN THE CONTRACT. HENCE, WE ARE OF THE OP INION THAT THE AMOUNT MENTIONED IN THE AGREEMENT COULD NOT HAVE BE EN SUBSTITUTED BY A VALUATION REPORT WITHOUT CORROBORATIVE EVIDENC E. EVEN OTHERWISE, THE DIFFERENCE BETWEEN THE AMOUNT DECLARED BY THE A SSESSEE FOR CONSTRUCTION AND THE VALUATION AS PER STATE PWD RAT ES CAME TO ONLY ` 13.39% AND CONSIDERING THE WORK WAS DONE ON TURNKEY BASIS, THIS COULD NOT BE CONSIDERED AS SIGNIFICANT ENOUGH TO DI SLODGE THE AGREEMENT ITSELF. WE ARE, THEREFORE, OF THE OPINIO N THAT THERE WAS NO REASON TO MAKE AN ADDITION IN THIS REGARD. THE ADD ITION MADE BY THE A.O. IS DELETED IN FULL. I.T.A. NO. 2209/MDS/07 9 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 31 ST MAY, 2011. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 31 ST MAY, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A), TIRUCHIRAPALLI (4) CIT-I, TIRUCHIRAPALLI (5) D.R. (6) GUARD FILE