K.Mangalam, Mayiladuthurai V. ITO, Kumbakonam

ITA 238/CHNY/2017

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7344 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 27-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Valuation report

Judgement Text

, .. , IN THE INCOME TAX APPELLATE TRIBUNAL , SMC D BENCH, CHENNAI . , ! BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NOS.235 & 236/MDS/2017 ( / ASSESSMENT YEARS: 2005-06 & 2006-07) SHRI M.K. KRITHIVASAN, 59, PATTAMANGALA STREET, MAYILADUTHURAI 609001. VS THE INCOME TAX OFFICER (OSD), CIRCLE 1(1), KUMBAKONAM PAN: AALPK6187H ( / APPELLANT) ( / RESPONDENT) & ./ I.T.A.NOS.237 & 238/MDS/2017 ( / ASSESSMENT YEARS: 2005-06 & 2006-07) K. MANGALAM BY L/H M.K. KRITHIVASAN, 59, PATTAMANGALA STREET, MAYILADUTHURAI 609001. VS THE INCOME TAX OFFICER, WARD 1(2) KUMBAKONAM PAN: AALPK6186G ( / APPELLANT) ( / RESPONDENT) & ./ I.T.A.NO.239 /MDS/2017 ( / ASSESSMENT YEAR: 2005-06) ESTATE OF M.R. KANNAPPAN BY L/H M.K. KRITHIVASAN, 59, PATTAMANGALA STREET, MAYILADUTHURAI 609001. VS THE INCOME TAX OFFICER, WARD 1(2) KUMBAKONAM PAN: AAAPE0143Q ( / APPELLANT) ( / RESPONDENT) & 2 I.T.A. NOS.235 TO 243/MDS/2017 ./ I.T.A.NO.240/MDS/2017 ( / ASSESSMENT YEAR: 2005-06) ESTATE OF M.K. RAVIKUMAR BY L/H M.K.R. GEETHA, 59, PATTAMANGALA STREET, MAYILADUTHURAI 609001. VS THE INCOME TAX OFFICER, WARD 1(2) KUMBAKONAM PAN: AAABE0136F ( / APPELLANT) ( / RESPONDENT) & ./ I.T.A.NO.241/MDS/2017 ( / ASSESSMENT YEAR: 2006-07) M.K.R. BHAVANI, 59, PATTAMANGALA STREET, MAYILADUTHURAI 609001. VS THE INCOME TAX OFFICER, WARD 1(2) KUMBAKONAM PAN: AAHPB2004L ( / APPELLANT) ( / RESPONDENT) & ./ I.T.A.NO.242/MDS/2017 ( / ASSESSMENT YEAR: 2006-07) M.K.R. KRISHNAKUMAR, 59, PATTAMANGALA STREET, MAYILADUTHURAI 609001. VS THE INCOME TAX OFFICER, WARD 1(2) KUMBAKONAM PAN: AAKPK8850A ( / APPELLANT) ( / RESPONDENT) & ./ I.T.A.NO.243/MDS/2017 ( / ASSESSMENT YEAR: 2006-07) M.K.R. GEETHA, 59, PATTAMANGALA STREET, MAYILADUTHURAI 609001. VS THE INCOME TAX OFFICER, WARD 1(2) KUMBAKONAM PAN: AAFPR7962M ( / APPELLANT) ( / RESPONDENT) / APPELLANTS BY : SHRI N. QUADIR HOSEYN, ADVOCATE /RESPONDENT BY : SHRI SUPRIYO PAL, JCIT 3 I.T.A. NOS.235 TO 243/MDS/2017 !' /DATE OF HEARING : 20.03.2017 #$ !' /DATE OF PRONOUNCEMENT : 21.03.2017 / O R D E R THESE APPEALS FILED BY THE ASSESSEES ARE DIRECTED A GAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, THIRUCHIRAPPALLI DATED 15.11.2016 IN I TA NOS.354/355/356/357/358/359/360/411 & 412/2010-11/C IT(A-2)/ TRY PASSED U/S. 250(6) R.W.S.143(3) OF THE ACT FOR THE ASSESSMENT YEARS 2005-06 & 2006-07. SINCE THE ISSUE WITH RES PECT TO RELATED PARTIES IS IDENTICAL IN ALL THE APPEALS, THEY ARE H EARD TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF C ONVENIENCE. 2. THE ASSESSEES HAVE RAISED SEVERAL GROUNDS IN THE IR RESPECTIVE APPEALS WITH RESPECT TO A COMMON ISSUE, HOWEVER THE CONCISE COMMON GROUND IN ALL THOSE APPEALS IS STATE D HEREIN BELOW FOR ADJUDICATION:- THE LD. CIT(A) HAS ERRED IN CONFIRMING THE PROPOR TIONAL ADDITION IN THE CASE OF ALL THE ASSESSEES WITH RESP ECT TO THE CONSTRUCTION COST OF BUILDING JOINTLY OWNED BY ALL THE ASSESSEES BY RELYING ON THE DVOS REPORT. 4 I.T.A. NOS.235 TO 243/MDS/2017 3. THE BRIEF FACTS OF THE CASE ARE THAT ALL THE ASS ESSEES ARE JOINT OWNERS OF THE PROPERTY SITUATED AT PATULLOS ROAD, C HENNAI. DURING THE ASSESSMENT YEARS 2005-06 & 2006-07, ALL THE ASSESSEES JOINTLY CONSTRUCTED A BUILDING NAMED M.R. K. TOWERS. DURING THE COURSE OF SCRUTINY ASSESSMENT IN THE CAS E OF ALL THE ASSESSEES, IT WAS OBSERVED THAT THE ASSESSEES HAD U NDERSTATED THE COST OF CONSTRUCTION OF THE BUILDING AS IT WAS REVEALED FROM THE DVOS REPORT WHICH WAS BASED ON CPWD RATES. THEREA FTER THE LD. AO ESTIMATED THE AMOUNT OF RS.10,32,808/- AS TH E UNDISCLOSED INVESTMENT FOR CONSTRUCTING THE BUILDIN G BASED ON THE DVOS REPORT AFTER GIVING ALLOWANCE TO CERTAIN ADJU STMENTS POINTED OUT BY THE ASSESSEES WHICH IS REPRODUCED HE REIN BELOW FOR REFERENCE:- ACCORDINGLY, THE COST OF CONSTRUCTION OF THE BUILD ING HAS BEEN FAIRLY ESTIMATED AT RS.3,56,92,000/-. THE VALUE DOE S NOT INCLUDE, THE COST OF LAND, FURNITURE, GENERATOR, TRANSFORMER , AIR- CONDITIONERS, LIFT AND INTERIOR WORKS. THE RELEVANT DETAILS ARE ALSO AVAILABLE IN THE COPY OF VALUATION REPORT OF THE OV O ALREADY SUPPLIED TO THE ASSESSEE. AS THE TENANT VIDE THEIR LETTER DATED 30-11-2010, H AVE OWNED UP THE WORKS EXECUTED BY THEM, IT HAS TO BE DEDUCTED F ROM THE COST ESTIMATED BY THE DVO, AS UNDER: 5 I.T.A. NOS.235 TO 243/MDS/2017 COST ESTIMATED BY THE DVO RS .3,56,92,000 LESS: 1. TERRACE FLOOR 8,28,960 2. VITRIFIED TILES WITH DARK SHADE PIGMENTS 39,56,1 19 3. LANDSCAPING WITH KOREAN GRASS . 1,16, 690 _________ RS. 49,01,769 ____________ RS.3,07,90,231 LESS: THE ASSESSEE HAS REQUESTED FOR GRANT OF 10% OF THE COST OF WORK EXECUTED BY HIM AS SELF-SUPERVISION REBATE AS HE IS ENGAGED IN THE SAME TRADE FOR THE PAST SEVERAL YEARS CITING THAT HE WILL BE ABLE TO GET THE MATERIALS AT CHEAPER RATES AND WITH ALL DISCOUNTS ETC. CONSIDERING THE PLEA, IT IS ALLOWED @ 7.5%. IT WORKS OUT TO RS. 23,09,267 _____________ RS.2,84,80,964 THE ASSESSEE HAS REPORTED THE TOTAL COST OF CONSTRU CTION AT RS.3,12,96,386 IN THE BALANCE SHEET FOR A.Y.2006-07 . OUT OF THE SAME, THE ASSESSEE HAS INCURRED THE FOLLOWING EXPEN DITURES WHICH IS NOT FORMING PART OF THE DVO'S REPORT. RS.3,12,96,386 1. FIRE FIGHTING EQUIPMENTS RS. 1,70,000 2. GENERATOR RS.25,20,000 3. LIFT PURCHASED RS. 4,00,000 4. LIFT ERECTION RS. 6,78,230 5. LIFT EXPENSES RS. 80,000 ________ RS. 38,48,230 ___________ NET COST OF CONSTRUCTION RS.2,74,48,156 6 I.T.A. NOS.235 TO 243/MDS/2017 THE DIFFERENCE BETWEEN THE COST ESTIMATED BY THE DV O AND ADMITTED BY THE ASSESSEE AS ABOVE IS (2,84,80,964 - 2,74,48,156 ) = RS.10,32,808/-. THIS DIFFERENCE IS TO BE ALLOCATE D BETWEEN A.Y.2005-06 & 2006-07 IN THE RATIO OF EXPENDITURES REPORTED BY THE ASSESSEE. 4. THIS AMOUNT OF RS.10,32,808/- WAS APPORTIONED BE TWEEN ALL THE ASSESSEES ACCORDING TO THEIR RESPECTIVE SHARE I N THE PROPERTY AND THE SAME WAS ADDED IN THEIR RESPECTIVE HANDS AS THE UNDISCLOSED INVESTMENT IN THE PROPERTY AS DETAILED HEREIN BELOW:- ASSESSEE ASSESSMENT YEAR UNEXPLAINED INVESTMENT (RS.) M.K. KIRTHIVASAN 2005-06 1,63,700 M.K. KIRTHIVASAN 2006-07 94,502 M.K. KIRTHIVASAN L/H OF MANGALAM K 2005-06 1,63,700 M.K. KIRTHIVASAN L/H OF MANGALAM K 2006-07 1,18,125 ESTATE OF M.R. KANNAPPAN BY L/H M.K. SRINIVASAN 2005-06 1,63,700 ESTATE OF M.K. RAVIKUMAR BY L/H M.KR. GEETHA 2005-06 1,63,700 M.K.R. BHAVANI 2006-07 23,625 M.K.R. KRISHNAKUMAR 2006-07 23,625 M.K.R. GEETHA 2006-07 1,18,125 TOTAL:- --------------- 10,32,802 ========== 7 I.T.A. NOS.235 TO 243/MDS/2017 5. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ORDER OF THE LD. AO BY AGREEING WITH HIS VIEW BY STATING THAT:- I. THE LD. AO HAD RIGHTLY REJECTED THE BOOKS OF ACC OUNTS WITH RESPECT TO THE COST OF CONSTRUCTION OF THE BUILDING BECAUSE MANY OF THE VOUCHERS WERE SELF-MADE. II. THE LD. AO HAD RIGHTLY REJECTED THE CLAIM OF 10 % DEDUCTION ON ACCOUNT OF SELF SUPERVISION BECAUSE THE ASSESSEE IS NOT IN THE BUSINESS OF BUILDING CONSTRUCTION BUT THEY A RE TRADERS IN HARDWARES AND OTHER BUILDING MATERIALS. III. THERE IS SCOPE FOR THE ASSESSEES TO ACCUMULATE UNACCOUNTED CONSTRUCTION MATERIALS WHICH MIGHT HAVE BEEN UTILIZED FOR THE CONSTRUCTION OF THE BUILDING. IV. CPWD RATE ADOPTED BY THE DVO IS THE MOST APPROP RIATE METHOD IN THE CASE OF THE ASSESSEE FOR ESTIMATING T HE COST OF CONSTRUCTION OF THE BUILDING. V. THE FEE FOR PREPARATION OF DRAWINGS, APPROVALS, ETC., AT 2% OF THE PROJECT COST IS APPROPRIATE IN THE CASE OF T HE ASSESSEES PROJECT. 6. AT THE OUTSET, THE LD. AR SUBMITTED BEFORE ME TH AT THE DIFFERENCE BETWEEN THE COST OF CONSTRUCTION WORKED OUT BY THE LD. AO AND THAT IS REPORTED BY THE ASSESSEE IS ONLY RS. 10,32,808/- 8 I.T.A. NOS.235 TO 243/MDS/2017 WHICH IS VERY NOMINAL CONSIDERING THE TOTAL COST OF THE PROJECT ESTIMATED BY THE DVO AT RS.3,56,92,000/-. THE LD. A R FURTHER ARGUED STATED THAT THE LD. DVO HAD ESTIMATED THE CO ST OF CONSTRUCTION BY APPLYING THE CPWD RATES WHICH IS VE RY MUCH HIGHER THAN THE RATE ADOPTED BY THE PWD. SINCE THE PWD RATES IS THE MOST RELIABLE METHOD FOR ESTIMATING THE COST OF CONSTRUCTION OF THE BUILDING BECAUSE IT TAKE INTO CONSIDERATION OF THE LOCAL MARKET RATES OF THE RAW MATERIALS COST REQUIRED FOR CONSTRUCTION OF THE BUILDING, THE SAME SHOULD HAVE BEEN ADOPTED. A ND IF SUCH RATE IS ADOPTED THE ESTIMATED COST OF RS.3,56,92,00 0/- WOULD SUBSTANTIALLY COME DOWN AND THE COST OF CONSTRUCTIO N DISCLOSED BY THE ASSESSEES WOULD BE HIGHER THAN SUCH ESTIMATE. I T WAS THEREFORE PLEADED THAT THE ADDITION MADE BY THE LD. AO WHICH IS SUSTAINED BY THE LD. CIT(A) MAY BE DELETED IN THE C ASE OF THE ASSESSEES. 7. THE LD. DR ON THE OTHER HAND VEHEMENTLY ARGUED I N SUPPORT OF THE ORDERS OF THE LD.AO AND LD. CIT(A) A ND PLEADED THAT THE SAME MAY BE SUSTAINED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS ON RECORD. IT IS APPARENT FR OM THE FACTS OF 9 I.T.A. NOS.235 TO 243/MDS/2017 THE CASE THAT THE DIFFERENCE BETWEEN THE ESTIMATED COST OF CONSTRUCTION BY THE REVENUE AND THE CONSTRUCTION CO ST DECLARED BY THE ASSESSEE IS ONLY RS.10,32,808/- WHICH WORKS OUT TO 3% APPROXIMATELY ON THE TOTAL ESTIMATED COST OF CONSTR UCTION BY THE REVENUE. FURTHER IT IS ALSO REVEALED THAT THE ESTI MATED COST WORKED OUT BY THE LD. DVO IS BASED ON THE CPWD RATE WHICH IS HIGHER THAN THE PWD RATES. MOREOVER FROM THE ORDE R OF THE LD. AO AND THE LD. CIT(A), IT IS EVIDENT THAT THE REVEN UE HAS NOT CATEGORICALLY MADE ANY FINDING FOR REJECTING THE BO OKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE WITH RESPECT TO THE COST OF CONSTRUCTION OF THE BUILDING. IN CONSTRUCTION ACTI VITIES, THERE WILL BE CERTAIN SELF-MADE VOUCHERS DUE TO PAYMENTS MADE TOWARDS LABOURERS ETC.. THEREFORE THE BOOKS/VOUCHERS MAINTA INED BY THE ASSESSEES CANNOT BE SIMPLY REJECTED IF PROPER VALID SIGNATURES ARE OBTAINED FROM THE RECIPIENTS. THE FAMILY BUSINE SS OF THE ASSESSEES IS TRADING IN CEMENT, PAINTS, STEELS, HAR DWARES, BUILDING MATERIALS ETC., FOR MORE THAN HALF CENTURY AND THEREFORE THEY ARE IN A POSITION TO OBTAIN THE RAW MATERIALS AT THE MOST OPTIMAL COST. THESE FACTS WILL REDUCE THE COST OF THE CONSTRUCTION OF THE BUILDING WHICH HAS BEEN NOT TAKEN NOTE OF BY THE REVENUE. MOREOVER THE ENTIRE ESTIMATE OF THE BUILDING COST B Y THE LD. DVO IS BASED ON THE VALUATION MADE ON THE BASIS OF CPWD RATES 10 I.T.A. NOS.235 TO 243/MDS/2017 WHICH IS HIGHER THAN THE PWD RATES. IN THIS SITUAT ION, I AM OF THE CONSIDERED VIEW THAT THE ASSESSEE WOULD HAVE BEEN I N A REASONABLY ADVANTAGEOUS POSITION TO BRING DOWN THE COST OF THE CONSTRUCTION OF THE BUILDING THAN WHAT IS ESTIMATED BY THE LD. DVO. IN THE CASE OF THE ASSESSEE THE VARIANCE IS O NLY 3% WHICH IS VERY MEAGER. THEREFORE CONSIDERING THE FACTS AND CIRCUMSTANCE OF THE CASE, I HEREBY DIRECT THE LD. AO TO DELETE T HE ADDITION MADE ON ACCOUNT OF UNEXPLAINED INVESTMENT WITH RESPECT T O CONSTRUCTION OF THE BUILDING IN ALL THE ABOVE MENTIONED ASSESSEE S CASE SINCE THESE ADDITIONS ARE NOT WARRANTED. 9. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEES AR E ALLOWED IN THEIR FAVOUR. ORDER PRONOUNCED ON 21 ST MARCH, 2017 AT CHENNAI. SD/- ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER %& /CHENNAI, '( /DATED 21 ST MARCH, 2017 JR. ( *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - ( ) /CIT(A) 4. - /CIT 5. +./ 0 /DR 6. /1 /GF.