Shri K.Venkata Reddy, Visakhapatnam V. The I.T.O, Visakhapatnam

ITA 309/VIZ/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6392 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 07-08-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S R NARAYAN
• Keywords: Unexplained investment; Revenue expenditure
• Section: 44AD; 69C; 143(3); 147; 69; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM SMC BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER ITA NO S . 308 & 309 / VIZ /201 5 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) SRI K. VENKATA REDDY, D.NO. 49 - 48 - 24/4, SHANTIPURAM, VISAKHAPATNAM. V S. IT O , WARD - 4(1), VISAKHAPATNAM. PAN NO. AJTPK 8169 L (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI C. SUBRAHMANYAM FC A. DEPARTMENT BY : SHRI S.R. NARAYAN SR. DR DATE OF HEARING : 13 / 0 2 /201 7 . DATE OF PRONOUNCEMENT : 27 / 0 3 /201 7 . O R D E R THE S E ARE THE APPEAL S FILED BY THE ASSESSEE AGAINST THE SEPARATE ORDER S OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 2 , VISAKHAPATNAM , EACH DATED 22 /0 5 /201 5 FOR THE ASSESSMENT YEARS 2007 - 08 & 2008 - 09 . 2. THE ASSESSEE HAS RAISED AS MANY AS GROUNDS , HOWEVER, THE ONLY COMMON GROUND SURVIVED IN BOTH THE APPEALS READS AS UNDER: - THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT NOT TO HAVE APPROVED THE ACTION OF THE ASSESSING OFFICER IN REFERRING THE VALUATION OF BUSINESS ASSET TO DEPARTMENTAL VALUATION OFFICER, THIS IS BECAUSE SECTION 142A OF THE I.T. ACT CONTEMPLATES U/S. 69 OR U/S. 69B OF THE I.T.ACT. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2007 - 08 , THE ASSESSEE AFTER PURCHASING SITE AT SANTHIPURAM ON 20/06/2006 , STARTED CONSTRUCTION OF GROUP 2 ITA NOS. 308 & 309/VIZ/2015 (K. VENKATA REDDY) HOUSING COMPLEX CONSISTING OF SIX FLATS . AS PER THE ASSESSEE, THE CONSTRUCTION TOOK PLACE DURING AUGUST 2006 AND SEPTEMBER 2007. OUT OF SIX FLATS, ASSESSEE SOLD TWO FLATS IN FINANCIAL YEAR 2006 - 07, ONE FLAT IN FINANCIAL YEAR 2008 - 09 AND THE REMAINING THREE FLATS WERE KEPT AS STOCK - IN - TRADE . THE ASSESSING OFFICER IN THE ASSESSMENT ORDER OBSERVED THAT THE ASSESSEE HAD NOT DISCLOSED THE TRANSACTIONS RELATING TO CONSTRU C TION OR SALE OF FLAT IN THE RETURN OF INCOME ( T HIS FINDING OF THE ASSESSING OFFICER IS DISPUTED BY THE ASSESSEE) . WHEN THE ASSESSING OFFICER ASKED THE ASSESSEE IN RESPECT OF COST OF CONSTRUCTION, ASSESSEE SUBMITTED THAT THE ENTIRE COST OF CONSTRUCTION INCURRED BY HIM FROM HIS SB ACCOUNT NO. 30055434849 MAINTAINED WITH STATE BANK OF INDIA, SEETHAMMADHARA BRANCH AT 32 LAKH . HE FILED A RETURN OF INCOME AND ACCORDING TO SECTION 44AD, ASSESSEE WAS OFFERED 8% OF THE GROSS RECEIPTS AS HIS INCOME. HOWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND DOUBTED ABOUT COST OF CONSTRUCTION FOR THE REASON THAT THE ASSESSEE HA D NOT MAINTAINED ANY BOOKS OF ACCOUNT AND NOT PRESERVED ANY BILLS AND VOUCHERS. ACCORDINGLY , HE REF E R RED THE MATTER TO THE DEPARTMENTAL VALUATION OFFICER (DVO) FOR VALUATION, WHO ESTIMATED THE COST OF CONSTR UCTION WAS AT 66,06, 596/ - . THE ASSESSING OFFICER AFTER CONSIDERING THE DVOS REPORT AND AFTER GIVING CERTAIN DEDUCTIONS, FINALLY CAME TO THE CONCLUSION THAT THE COST OF CONSTRUCTION WAS AT 33,47,848/ - AS AGAINST THE COST OF CONSTRUCTION SHOWN BY THE ASSESSEE 3 ITA NOS. 308 & 309/VIZ/2015 (K. VENKATA REDDY) WAS AT 32 LAC. BEFORE THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED THAT ONCE INCOME IS OFFERED UNDER SECTION 44AD OF THE ACT , NO REFERENCE CAN BE MADE TO THE DVO TO ASCERTAIN COST OF CONSTRUCTI ON. HE ALSO RELIED UPON THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V . AAR PEE APARTMENTS (P.) LTD. (319 ITR 276) . 4 . THE ASSESSING OFFICER AFTER CONSIDERING THE OBJECTIONS RAISED BY THE ASSESSEE, OBSERVED THAT THE JUDGMENT RELIED ON BY THE ASSESSEE HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE FOR THE REASON THAT CASE IN HAD IS NOT A BUILDER, HE HAS NOT ADMITTED ANY INCOME FROM CONSTRUCTION ACTIVITY AND ALSO NOT MAINTAINED BOOKS OF ACCOUNT. FURTHER, THE ASSESSEE NOT ONLY FAILED TO MAINTA I N CONSTRUCTION ACCOUNT BUT ALSO DISCLOSE D IN PROFIT & SALE OF UNDIVIDED SHARE OF LAND WITH CONSTRUCTED AREA IN RESPECT OF TWO FLATS IN THE RETURN OF INCOME. HE ALSO OBSERVED THAT THE PROFIT OR LOSS ON SALE OF THREE APARTMENTS WOULD BE CONSIDERED UNDER THE HEAD CAPITAL GAINS . IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT SINCE COST OF CONSTRUCTION WAS SPREAD OVER FOR TWO ASSESSMENT YEARS , A S PER THE DVOS REPORT, AFTER DEDUCTIONS, THE COST OF CONSTRUCTION OF 6 3,47,088/ - WAS DISTRIBUTED EQUALLY FOR THE ASSESSMENT YEARS 2007 - 08 & 2008 - 09 ( 50% I.E. 31,73,544/ - EACH ) AND HELD THAT ULTIMATELY THE ASSESSING OFFICER HAS CONCLUDED THAT FOR THE ASSESSMENT YEAR 2007 - 08 , THE AMOUNT OF 30,41,953/ - TREATED AS UNACCOUNTED INVESTMENT AND ACCORDINGLY ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES . 4 ITA NOS. 308 & 309/VIZ/2015 (K. VENKATA REDDY) 5 . ON APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) , THE ASSESSEE HAS RAISED A STRONG OBJECTION THAT ONCE INCOME DECLARED UNDER SECT ION 44AD, THE ASSESSING OFFICER OUGHT NOT TO HAVE REFERRED THE MATTER TO THE DVO UNDER SECTION 142A OF THE ACT. HE SUBMITTED BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) THAT ONLY REFERENCE CAN BE MADE UNDER SECTION 69A & 69B AND NOT UNDER SECTION 69C . IT WAS ALSO SUBMITTED BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) THAT THE INCOME EARNED BY THE ASSESSEE IN CONSTRUCTION OF FLATS WAS TREATED BY THE ASSESSING OFFICER AS CAPITAL GAIN, IS NOT CORRECT, IT HAS TO BE TREATED AS INCOME FROM BUSINESS. B EFORE THE COMMISSIONER OF INCOME TAX (APPEALS) , HE RELIED ON THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN T HE CASE OF AAR PEE APARTMENTS (P.) LTD.(SUPRA) . THE COMMISSIONER OF INCOME TAX (APPEALS) HAS CONSIDERED THE JUDGMENT OF HON'BLE DELHI HIGH COURT AND OBSERVED THAT THE HON'BLE DELHI HIGH COURT HAS NOT LAID DOWN ANY PROPOSITION OF LAW WITH REFERENCE TO VALUATION CANNOT BE MADE IN REGARD TO A TRADING ASSET. 6 . INSOFAR AS THE CONSTRUCTION OF FLATS IS CONCERNED, COMMISSIONER OF INCOME TAX (APPEALS) HA S OBSERVED TH A T THE ASSESSEE FAILED TO PRODUCE ANY BILLS OR VOUCHERS, THEREFORE, ASCERTAINED THE VALUATION OF SUCH INVESTMENT, IT BECAME INCUMBENT ON THE ASSESSING OFFICER TO REFER THE MATTER TO THE DVO. THUS, WHAT HAS BEEN SOUGHT TO BE ASCERTAINED WAS THE VALUE OF INVEST M E N T AND NO T QUANTUM OF REVENUE EXPENDITURE IN THE CONSTRUCTION OF THE FLATS. HE ALSO OBSERVED THAT THE ASSESSING OFFICER 5 ITA NOS. 308 & 309/VIZ/2015 (K. VENKATA REDDY) NOT MADE AN Y ADDITION UNDER SECTION 6 9 TOWARDS UNEXPLAINED INVESTMENT. WITH THE ABOVE OBSE RVATIONS, THE COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE REFERENCE MADE BY THE ASSESSING OFFICER UNDER SECTION 142A OF THE ACT. INSOFAR AS THE ACTIVITIES CARRIED OUT BY THE ASSESSEE , THE ASSESSING OFFICER TREATED AS CAPITAL GAIN, THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE ASSESSEE IS IN THE CONSTRUCTION ACTIVITY ON SITE PURCHASED BY HIM AND THE SAID SALE OF CONSTRUCTION OF FLATS AS CONSIDERED AS A BUSINESS VENTURE UNDERTAKEN BY THE ASSESSEE AND DIRECTED THE ASSESSING OFFICER TO DELETE THE LOSS DETERMINED UNDER THE HEAD CAPITAL GAINS INCURRED TO THESE TRANSACTIONS. 7 . ON BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TR IBUNAL . 8 . LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS IN THE BUSINESS OF CONS T RUCTION AND OFFERED INCOME UNDER SECTION 44AD OF THE ACT. ONCE THE ASSESSEE OFFERED INCOME AS PER S E CTION 44AD , THE ASSESSING OFFICER HAS NO POWER TO REFER THE MATTER TO THE DVO FOR COST OF CONSTRUCTION OF THE FLATS UNDER SECTION 142A OF THE ACT. HE RELIED ON THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF AAR PEE APARTMENTS (P.) LTD. (SUPRA) . 9 . ON THE OTHER HAND, DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER AND RELIED ON THE 6 ITA NOS. 308 & 309/VIZ/2015 (K. VENKATA REDDY) JUDGMENT OF ITAT DELHI BENCHES IN THE CASE OF SHAGUN BUILDWELL LTD. VS. DCIT [( 2011 ) 11 ITR (T) 273 (DELHI)] . 10 . I HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW . 1 1 . THE ASSESSEE IS AN INDIVIDUAL CARRYING ON THE BUSINESS OF WORKS CONTRACT AND FINANCE BUSINESS , FILED HIS RETURN OF INCOME DECLARING TOTAL INCOME OF 5,70,070/ - . THE RETURN OF INCOME WAS PROCESSED INITIALLY UNDER SECTION 143(1) , THEREAFTER A NOTICE UNDER SECTION 148 WAS ISSUED AND RE - ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) READ WITH SEC. 147 OF THE ACT. THE ONLY ISSUE FOR CONSIDERATION BEFORE ME IS THAT ONCE THE ASSESSEE OFFERED HIS INCOME UNDER SECTION 44AD, WHETHER IT IS OPEN TO THE ASSESSING OFFICER TO REFER THE MATTER TO THE DVO FOR CONSTRUCTION COST INCURRED BY THE ASSESSEE UNDER SECTION 142A OF THE ACT? THE ASSESSEE HAS ACQUIRED A LAND TO THE EXTENT OF 250 SQ.YDS AT SHANTIPURAM ON 20/06/2006. SUBSEQUENTLY, THE ASSESSEE HAS CONSTRUCTED SIX FLATS THEREON AND THE PERIOD OF CONSTRUCTION WAS SAID TO BE DURING AUGUST 2006 AND SEPTEMBER 2007 . IN THE ASSESSMENT ORDER , THE ASSESSING OFFICER HAS NOTED THAT EITHER CONSTRUCTION OR SALE OF FLATS HAS NOT BEEN DISCLOSED IN THE RETURN OF INCOME. I N RESPECT OF EXPENDITURE INCURRED REGARDING CONS T RUCTION OF FLATS , T HE ENTIRE EXPENDITURE WAS INCURRED FROM HIS SB A/C NO. 30055434849 MAINTAINED WITH STATE BANK OF INDIA, SEETHAMMADHARA BRANCH AND HAD SPENT AN AMOUNT OF 36 LAKH S FOR CONSTRUCTION. THE ASSESSEE FURTHER SUBMITTED 7 ITA NOS. 308 & 309/VIZ/2015 (K. VENKATA REDDY) T H A T HE HAD NOT MAINTAINED ANY BOOKS OF ACCOUNT , BILLS OR VOUCHERS . THE ASSESSING OFFICER AFTER CONSIDERING THE EXPLANATION GIVEN BY THE ASSESSEE, REFERRED THE MATTER TO THE DVO FOR ASCERTAINING COST OF CONSTRUCTION AND ACCORDINGLY DVO HAS ESTI M ATED THE COST OF CONSTRUCTION AT 66,06,596/ - ON APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) , THE ASSESSEE HAS CHALLENGED THAT ONCE THE ASSESSEE HAS OFFERED INCOME UNDER SECTION 44AD, NO REFERENCE CAN BE MADE UNDER SECTION 142A OF THE ACT AND SUBMITTED THAT THE ASSESSING OFFICER HAS REFERRED THE MATTER FOR ASCERTAINING THE VALUATION, WHICH IS NOT CORRECT ACCORDING TO LAW . TH E COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE HELD TH A T THE ACTIVITY CARRIED OUT BY THE ASSESSEE IS A BUSINESS ACTIVITY AND FURTHER HELD TH A T REFERENCE MADE BY THE ASSESSING OFFICER FOR ASCERTAINING VALUATION IS CORRECT FOR THE REASON THAT THE VALUE ADOPTED BY THE ASSESSEE IS VERY LESS AND THE ASSESSEE HAD NOT MAINTAINED ANY BOOKS OF ACCOUNT, BILLS AND VOUCHERS . I FIND THAT THE ASSESSING OFFICER HAS REFERRED THE MATTER TO THE DVO FOR ASCERTAINING THE COST OF C ONSTRUCTION , O NCE THE ASSESSEE OFFERED INCOME UNDER SECTION 44AD , NEED NOT TO MAINT AIN BOOKS OF ACCOUNT, BILLS AND VOUCHERS . ONCE INCOME IS OFFERED UNDER SECTION 44AD OF THE ACT, IT IS PRESUMED THAT THE NET PROFIT IS DETERMINED AFTER CONSIDERING ALL EXPENSES . SECTION 44AD SPECIFICALLY PROVID ES FOR ESTIMATION OF INCOME IN THE ABSENCE OF BOOKS OF ACCOUNT, BILLS AND VOUCHERS. WHEN ASSESSEE NOT REQUIRED TO MAINTAIN BOOKS OF 8 ITA NOS. 308 & 309/VIZ/2015 (K. VENKATA REDDY) ACCOUNT, BILLS AND VOUCHERS AND SECTION PROVIDES DEEMED DEDUCTION TOWARDS EX PEND ITURE REFERRED UNDER SECTION 32 TO 38 , IT IS IN CONNECT TO REFER THE MATTER TO THE DVO UNDER SECTION 142A TO ASCERTAIN COST OF CONSTRUCTION OF FLATS. SINCE , ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION OF FLATS AND FOLLOWED SECTION 44AD OF THE ACT AND OFFE RED INCOME AT 8% , THE ASSESSING OFFICER COULD NOT REFER THE MATTER TO THE DVO UNDER SECTION 142A OF THE ACT. THEREFORE, I AM OF THE CONSIDERED VIEW, THE ASSESSING OFFICER IS NOT CORRECT IN MAKING THE ADDITION , BASED ON THE DVO S REPORT AND THE COMMISSIONER OF INCOME TAX (APPEALS) IS ALSO NOT CORRECT IN CONFIRMING THE SAME. SO FAR AS CASE - LAWS , RELIED ON BY BOTH THE PARTIES, HAVE NO RELEVANCY TO THE FACTS OF THE PRESENT CASE. 12. IN VIEW OF THE ABOVE, BY CONSIDERING THE ENTIRE FA CTS AND CIRCUMSTANCES OF THE CASE , I HOLD THAT REFERENCE MADE BY THE ASSESSING OFFICER UNDER SECTION 142A IS INVALID. THUS, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 13. IN THE RESULT, APPEAL S FILED BY THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 2 7 T H DAY OF MARCH , 201 7 . S D / - ( V. DURGA RAO ) JUDICIAL MEMBER DATED : 2 7 T H MARCH , 201 7 . VR/ - 9 ITA NOS. 308 & 309/VIZ/2015 (K. VENKATA REDDY) COPY TO: 1 . THE ASSESSEE - SRI K. VENKATA REDDY, D.NO. 49 - 48 - 24/4, SHANTIPURAM, VISAKHAPATNAM. 2 . THE REVENUE - ITO, WARD - 4(1), VISAKHAPATNAM. 3 . THE CIT - 2, VISAKHAPATNAM. 4 . THE CIT(A) - 2, VISAKHAPATNAM. 5 . THE D.R . 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR , I.T.A.T., VISAKHAPATNAM