M/s Jai Ganesh Buildes & Developers., Belgaum V. Income Tax Officer, Ward-1 (1), Belgaum., Belgaum

ITA 274/PAN/2014

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9478 (ITAT-PANAJI)
• Duration Of Justice: 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 23-03-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 12-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL DESH
• Assessee Lawyers: SRINIVAS NAYAK
• Keywords: Unexplained investment; Unexplained expenditure; Business income; Business expenditure; Fair market value
• Section: 44AD; 69C; 143(3); 133A; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P.K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NOS. 265 TO 267/PNJ/2014 : (A.YS: 2004 - 05 TO 2006 - 07) M/S. PANCHAMUKHI CONSTRUCTION 299/6, VIMAL, GOODSHED ROAD, BELGAUM ( APPLICANT ) PAN : AA JFP3248E VS. INCOME TAX OFFICER, WARD - 1(1) , BELGAUM (RESPONDENT) ITA NOS. 268 & 269/PNJ/2014 : (A.YS: 2006 - 07 & 2007 - 08) M/S. PANCHAMUKHI BUILDERS 299/6, VIMAL, GOODSHED ROAD, BELGAUM ( APPLICANT ) PAN : AA JFP2967L VS. INCOME TAX OFFICER, WARD - 1(1) , BELGAUM (RESPONDENT) ITA NOS. 270 TO 272/PNJ/2014 : (A.YS: 2005 - 06 TO 2007 - 08) KIRAN M. JADHAV PROP. : VIMAL BUILDERS 299/6, VIMAL, GOODSHED ROAD, BELGAUM ( APPLICANT ) PAN : ACTPJ5991L VS. INCOME TAX OFFICER, WARD - 1(1) , BELGAUM (RESPONDENT) ITA NOS. 273 TO 275/PNJ/2014 : (A.YS: 2005 - 06 TO 2007 - 08) M/S. JAI GANESH BUILDERS AND DEVELOPERS, 299/6, VIMAL, GOODSHED ROAD, BELGAUM ( APPLICANT ) PAN : AAFFJ7739L VS. INCOME TAX OFFICER, WARD - 1(1) , BELGAUM (RESPONDENT) ITA NOS. 276 TO 278/PNJ/2014 : (A.YS: 2002 - 03 TO 2004 - 05) M/S. VIMAL BUILDERS AND DEVELOPERS, PROP. VIMAL BUILDERS, 299/6, VIMAL, GOODSHED ROAD, BELGAUM ( APPLICANT ) PAN : AAGFV2109P VS. INCOME TAX OFFICER, WARD - 1(1) , BELGAUM (RESPONDENT) 2 ITA NOS. 265 TO 267/PNJ/2014 (A.Y : 2004 - 05 2006 - 07) ITA NOS. 26 8 & 26 9 /PNJ/2014 (A.Y : 200 6 - 0 7 & 200 7 - 0 8 ) ITA NOS. 2 70 TO 27 2 /PNJ/2014 (A.Y : 200 5 - 0 6 200 7 - 0 8 ) ITA NOS. 2 73 TO 27 5 /PNJ/2014 (A.Y : 200 5 - 0 6 200 7 - 0 8 ) ITA NOS. 2 76 TO 27 8 /PNJ/2014 (A.Y : 200 2 - 0 3 200 4 - 0 5 ) ITA NOS. 2 79 TO 2 81 /PNJ/2014 (A.Y : 200 1 - 0 2 200 3 - 0 4 ) ITA NOS. 279 TO 281/PNJ/2014 : (A.YS: 2001 - 02 TO 2003 - 04) M/S. VIMAL CONSTRUCTIONS C/O. SRI PRABHAKAR CHUDAPPA, HALAGEKAR, NEW GOODSHED ROAD, BELGAUM ( APPLICANT ) PAN : AAGFV2110E VS. INCOME TAX OFFICER, WARD - 1(1) , BELGAUM (RESPONDENT) ASSESSEES BY : SRINIVAS NAYAK, C.A RESPONDENT BY : SUNIL DESHPANDE, DR DATE OF HEARING : 12/03/2015 DATE OF PRONOUNCEMENT : 1 2 /03/2015 O R D E R PER P.K. BANSAL : 1. ALL THE ABOVE APPEALS SINCE INVOLVED COMMON ISSUES ALTHOUGH RELATING TO DIFFERENT PROJECTS OF DIFFERENT ASSESSEES, THEREFORE, ALL THESE APPEALS ARE DISPOSED OFF AS AGREED BY BOTH THE PARTIES ON THE BASIS OF THE FACTS IN THE CASE OF M/S. PANCHMUKHI CONSTRU CTIONS FOR A.Y 2004 - 05. THE COMMON GROUNDS TAKEN BY THE RESPECTIVE ASSESSEES IN ALL THE ASSESSMENT YEARS, EXCEPT FOR CHANGE IN THE FIGURES, READS AS UNDER : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (A) ERRED IN CONFIRMIN G THE ACTION OF A.O. MAKING A REFERENCE U/S 142A OF I.T.ACT 1961 IN RESPECT OF BUSINESS EXPENDITURE INCURRED BY THE ASSESSEE. 2. THE LEARNED CIT (A) ERRED IN NOT APPRECIATING THAT POWERS UNDER SECTION 142A COVER SECTIONS 69, 69A & 69B AND DO NOT EXTEND T O ESTIMATING AMOUNT OF EXPENDITURE REFERRED TO IN SECTION 69C. 3. THE LEARNED AUTHORITIES ERRED IN NOT APPRECIATING THE CLAIM OF THE ASSESSEE THAT IN THE ABSENCE OF BOOKS OF ACCOUNT TO TAX INCOME @8% U/S 44AD OF I.T.ACT 1961. 3 ITA NOS. 265 TO 267/PNJ/2014 (A.Y : 2004 - 05 2006 - 07) ITA NOS. 26 8 & 26 9 /PNJ/2014 (A.Y : 200 6 - 0 7 & 200 7 - 0 8 ) ITA NOS. 2 70 TO 27 2 /PNJ/2014 (A.Y : 200 5 - 0 6 200 7 - 0 8 ) ITA NOS. 2 73 TO 27 5 /PNJ/2014 (A.Y : 200 5 - 0 6 200 7 - 0 8 ) ITA NOS. 2 76 TO 27 8 /PNJ/2014 (A.Y : 200 2 - 0 3 200 4 - 0 5 ) ITA NOS. 2 79 TO 2 81 /PNJ/2014 (A.Y : 200 1 - 0 2 200 3 - 0 4 ) 4. THE LEARNED AUTHORITIES FURTHER ERRED IN NOT APPRECIATING ALTERNATE CONTENTION OF THE ASSESSEE TO TAX INCOME @12% OF VALUE BASED ON GOVT VALUATION. 5. THE LEARNED CIT (A) ERRED IN ENHANCING THE ASSESSMENT MADE BY A.O BY ADOPTING ENTIRE VALUE BASED ON DVO' S REPORT AS UNEXPLAINED INVESTMENT AS AGAINST DIRECTION U/S 144A TO TAKE 15% VALUE OF % COMPLETION METHOD @15% PROFIT. 6. THE LEARNED CIT (A) ERRED IN ENHANCING ADDITION BY RS.9,06,962/ - AS UNACCOUNTED INVESTMENT IN BUILDING IN ORDER PASSE D U/S 143(3) R.W .S. 147 & 144A OF I.T. ACT, 1961. 7. THE LEARNED CIT(A) ERRED IN ENHANCING ADDITION BY RS.9,75,200/ - AS UNACCOUN TED INVESTMENT IN LAND IN ORDER PASSED U/S 143(3) R.W.S. 147 & 144A OF I.T. ACT 1961. 8. THE LEARNED CIT(A) ERRED IN DETERMINING PROFIT @ RS.3,97,725/ - ON SALE OF UNITS CONSTRUCTED AS PER REMAND REPORT DATED 07.04.2014 OF THE A.O, WITHOUT GIVING CREDIT TO UNSOLD STOCK. 9. THE LEARNED CIT (A) FAILED TO APPRECIATE THAT I) THE ACTUAL COST OF CONSTRUCTION WAS MUCH LOWER AS COMPARED TO VALUATION BY DVO. II) VALUATION BY DVO WAS ALSO MUCH HIGHER THAN COMPARABLE SALE INSTANCES. 10. REASONS ASSIGNED FOR MAKING THE ADDITION ARE WRONG, INSUFFICIENT AND CONTRARY TO LAW AND FACTS OF THE CASE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF ACTING AS BUILDERS AND DEVELOPERS. SURVEY U/S 133A WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE FIRM AND THEREAFTER NOTICE U/S 147 WAS ISSUED ASKING THE ASSESSEE FIRM TO FURNISH THE INCOME TAX RETURN. IN RESPONSE T O THE NOTICE, INCOME WAS DECLARED IN EACH OF THE A.YS AS UNDER : A.Y 2004 - 05 - NIL A.Y 2005 - 06 - RS.5,85,720/ - A.Y 2006 - 07 - RS.3,52,200/ - DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE AO MADE A REFERENCE TO THE VALUATION OFFICER U / S 1 4 2 A FOR DETERMINING T HE FAIR MARKET VALUE OF THE 4 ITA NOS. 265 TO 267/PNJ/2014 (A.Y : 2004 - 05 2006 - 07) ITA NOS. 26 8 & 26 9 /PNJ/2014 (A.Y : 200 6 - 0 7 & 200 7 - 0 8 ) ITA NOS. 2 70 TO 27 2 /PNJ/2014 (A.Y : 200 5 - 0 6 200 7 - 0 8 ) ITA NOS. 2 73 TO 27 5 /PNJ/2014 (A.Y : 200 5 - 0 6 200 7 - 0 8 ) ITA NOS. 2 76 TO 27 8 /PNJ/2014 (A.Y : 200 2 - 0 3 200 4 - 0 5 ) ITA NOS. 2 79 TO 2 81 /PNJ/2014 (A.Y : 200 1 - 0 2 200 3 - 0 4 ) BUILDING CONSTRUCTED BY THE ASSESSEE FIRM. ON A SHOW CAUSE NOTICE OF THE AO THAT THE ENTIRE COST OF CONSTRUCTION WOULD BE ADDED AS UNEXPLAINED INVESTMENT U/S 69, THE ASSESSEE GOT DIRECTIONS FOR COMPLYING WITH THE PROVISIONS OF SEC. 144A FROM THE ADDL. COMMISSIONER WHO DIRECTED THE AO TO ADD 15% OF THE FAIR MARKET VALUE AS WORKED OUT BY THE VALUATION OFFICER AS UNEXPLAINED INVESTMENT AND ACCORDINGLY FOLLOWING ADDITIONS WERE MADE IN EACH OF THE ASSESSMENT YEARS: A.Y 2004 - 05 UNEXPLAINED INVESTMENT U/S 69 - RS. 1,36,044 NET PROFIT ESTIMATED - RS. 20,406 TOTAL INCOME RS. 1,56,450 A.Y 2005 - 06 UNEXPLAINED INVESTMENT U/S 69 - RS. 5,44,177 NET PROFIT ESTIMATED - RS. 81,626 TOTAL INCOME RS. 6,25,803 A.Y 2006 - 07 UNEXPLAINED INVESTMENT U/S 69 - RS. 4,08,133 NET PROFIT ESTIMATED - RS. 61,219 TOTAL INCOME RS. 4,69,352 THE ASSESSEE WENT IN APPEAL IN EACH OF THE ASSESSMENT YEARS BEFORE THE CIT(A). CIT(A) ENHANCED THE ADDITION AND DIRECTED THE AO TO MAK E THE ADDITIONS IN RESPECT OF UNEXPLAINED EXPENDITURE FOR WHOLE OF THE EXPENDITURE INCURRED FOR THE CONSTRUCTION OF THE BUILDING AS UNDER : FINANCIAL YEAR ASST. YEAR PERCENTAGE OF EXPENDITURE INCURRED QUANTUM OF EXPENDITURE WORKS OUT TO (RS.) 2003 - 04 2004 - 05 12.50% 9,06,962 2004 - 05 2005 - 06 50% 36,27,850 2005 - 06 2006 - 07 37.50% 27,20,888 100% 72,55,700 5 ITA NOS. 265 TO 267/PNJ/2014 (A.Y : 2004 - 05 2006 - 07) ITA NOS. 26 8 & 26 9 /PNJ/2014 (A.Y : 200 6 - 0 7 & 200 7 - 0 8 ) ITA NOS. 2 70 TO 27 2 /PNJ/2014 (A.Y : 200 5 - 0 6 200 7 - 0 8 ) ITA NOS. 2 73 TO 27 5 /PNJ/2014 (A.Y : 200 5 - 0 6 200 7 - 0 8 ) ITA NOS. 2 76 TO 27 8 /PNJ/2014 (A.Y : 200 2 - 0 3 200 4 - 0 5 ) ITA NOS. 2 79 TO 2 81 /PNJ/2014 (A.Y : 200 1 - 0 2 200 3 - 0 4 ) CIT(A) ALSO DIRECTED THE AO TO ESTIMATE THE INCOME @ 15% OF THE TOTAL SALE CONSIDERATION AS UNDER : A YR TOTAL SALE CONSIDERATION (RS.) ESTIMATED INCOME @ 15% (RS.) 2005 - 06 42,06,000 6,30,900 2006 - 07 34,95,000 5,24,250 2007 - 08 5,70,000 85,500 2008 - 09 7,00,000 1,05,000 2011 - 12 11,25,000 1,68,750 3. WE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME ALONGWITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE NOTED THAT IN THIS CASE THE ADDITION HAS BEEN MADE AS UNEXPLAINED INVESTMENT BY CIT(A) ON THE BASIS OF THE FAIR MARKET VALUE DETERMINED BY THE VALUATION OFFICER. THE AO HAS MADE REFERENCE TO THE VALUATION OFFIC ER INVOKING THE PROVISIONS OF SEC. 142A. REFERENCE U/S 142A CAN BE INVOKED ONLY FOR ESTIMATING THE VALUE OF AN INVESTMENT REFERRED TO U/S 69 OR 69B OR VALUE OF BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE REFERRED TO IN SEC. 69A. THE ASSESSEE FIRM IS ENG AGED IN BUSINESS OF BUILDER AND DEVELOPER. IN THE CASE OF THE ASSESSEE, WHATEVER EXPENSES ARE INCURRED FOR THE CONSTRUCTION OF THE BUILDING IS AN EXPENDITURE TO BE CLAIMED BY THE ASSESSEE AGAINST THE SALES MADE TO THE VARIOUS FLAT OWNERS. THERE IS A DIFF ERENCE IN THE COST OF CONSTRUCTION AS WELL AS THE FAIR MARKET VALUE. IN CASE OF THE ASSESSEE, IF ANY ADDITION CAN BE MADE, THAT CAN BE MADE ONLY U/S 69C; THAT ALSO WHEN THE REVENUE PROVES THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE AND HAS OFFERED NO E XPLANATION ABOUT THE SOURCE OF SUCH EXPENDITURE OR PART THEREOF OR THE EXPLANATION, IF ANY, OFFERED BY THE ASSESSEE IS, IN THE OPINION OF THE AO, NOT SATISFACTORY. SEC. 142A DOES NOT EMPOWER THE AO 6 ITA NOS. 265 TO 267/PNJ/2014 (A.Y : 2004 - 05 2006 - 07) ITA NOS. 26 8 & 26 9 /PNJ/2014 (A.Y : 200 6 - 0 7 & 200 7 - 0 8 ) ITA NOS. 2 70 TO 27 2 /PNJ/2014 (A.Y : 200 5 - 0 6 200 7 - 0 8 ) ITA NOS. 2 73 TO 27 5 /PNJ/2014 (A.Y : 200 5 - 0 6 200 7 - 0 8 ) ITA NOS. 2 76 TO 27 8 /PNJ/2014 (A.Y : 200 2 - 0 3 200 4 - 0 5 ) ITA NOS. 2 79 TO 2 81 /PNJ/2014 (A.Y : 200 1 - 0 2 200 3 - 0 4 ) TO MAKE ANY REFERENCE TO THE VALUATION OFFICER U/S 142A. THE POWER EXERCISED BY THE AO U/S 142A IN THE CASE OF THE ASSESSEE IS APPARENTLY IS ILLEGAL AND VOID. EVEN OTHERWISE ALSO, IF WE TAKE THIS VALUATION TO BE AN INDEPENDENT EVIDENCE, IT DETERMINES THE FAIR MARKET VALUE AND NOT THE EXPENDITURE INCURRED BY TH E ASSESSEE. ADDITION U/S 69C CAN BE MADE ONLY IN RESPECT OF UNEXPLAINED EXPENDITURE. NEITHER THE AO NOR THE CIT(A) HAS APPRECIATED THAT THE POWER U/S 142A HAS BEEN EXERCISED ILLEGALLY. 4. THE OTHER ISSUE , WE NOTED, IN THIS CASE IS THAT THE ASSESSEE ALTHOUGH THE ACTUAL SALES HAS TAKEN PLACE IN THE SUBSEQUENT YEARS BUT THE ASSESSEE HAS RECEIVED ADVANCE FROM THE PERSONS WHO HAVE BOOKED THE FLATS FROM A.Y 2004 - 05. TO THE EXTENT THE ASSESSEE HAS RECEIVED THE ADVANCE AND INCURRED EXPENSES OUT OF S UCH ADVANCE, THE EXPENDITURE INCURRED CANNOT BE REGARDED TO BE UNEXPLAINED EXPENDITURE. THIS FACT IS APPARENT FROM THE BANK STATEMENT OF THE ASSESSEE WHICH IS NOT APPRECIATED BY THE AUTHORITIES BELOW. WE ALSO NOTED THAT THE ASSESSEE HAS NOT FILED VARIOUS DETAILS AS DESIRED BY THE AO TO ASCERTAIN THE CORRECT INCOME OF THE ASSESSEE. WE, THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY TO BOTH THE PARTIES, SET ASIDE THE ORDER OF CIT(A) AND RESTORE BOTH THE ISSUES RELATING TO UNEXPLAINED EXPENDITURE INCUR RED BY THE ASSESSEE AS WELL AS ESTIMATION OF INCOME BY THE CIT(A) ON ESTIMATED TOTAL SALES CONSIDERATION TO THE FILE OF THE AO TO RE - DECIDE THE ISSUES IN ACCORDANCE WITH THE LAW. WE MAY CLARIFY THAT THE CASE OF THE ASSESSEE DOES NOT FALL U/S 69 BUT IF ANY ADDITION CAN BE MADE, THAT CAN BE MADE ONLY U/S 69C. WHILE ESTIMATING THE PROFIT WE DIRECT THE AO TO LOOK INTO THE PROVISIONS OF SEC. 44AD WHICH PROVIDES STATUTORY GUIDELINES FOR ESTIMATING THE PROFIT WHERE THE ASSESSEE DOES NOT MAINTAIN THE BOOKS OF ACC OUNTS. 7 ITA NOS. 265 TO 267/PNJ/2014 (A.Y : 2004 - 05 2006 - 07) ITA NOS. 26 8 & 26 9 /PNJ/2014 (A.Y : 200 6 - 0 7 & 200 7 - 0 8 ) ITA NOS. 2 70 TO 27 2 /PNJ/2014 (A.Y : 200 5 - 0 6 200 7 - 0 8 ) ITA NOS. 2 73 TO 27 5 /PNJ/2014 (A.Y : 200 5 - 0 6 200 7 - 0 8 ) ITA NOS. 2 76 TO 27 8 /PNJ/2014 (A.Y : 200 2 - 0 3 200 4 - 0 5 ) ITA NOS. 2 79 TO 2 81 /PNJ/2014 (A.Y : 200 1 - 0 2 200 3 - 0 4 ) 5. IN THE RESULT, ALL THE APPEALS ARE STATISTICALLY ALLOWED. 6. ORDER PRONOUNCED IN THE OPEN COURT ON 1 2 /03/2015. S D / - (D.T.GARASIA) JUDICIAL MEMBER S D / - (P.K. BANSAL) ACCOUNTANT MEMB ER PLACE : PANAJI / GOA DATED : 1 2 /03/ 201 5 *SSL* COPY TO : (1) APPELLANT - (I) M/S. PANCHAMUKHI CONSTRUCTION, (II) M/S. PANCHAMUKHI BUILDERS, (III) KIRAN M. JADHAV, (IV) M/S. JAI GANESH BUILDERS AND DEVELOPERS, (V) M/S. VIMAL BUILDERS AND DEVELOPERS AND (VI) M/S. VIMAL CONSTRUCTIONS (2) RESPONDENT (3) CIT(A) CONCERNED (4) CIT CONCERNED (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER ,