S.R. DEVELOPERS, MUMBAI V. ACIT 15(2), MUMBAI

ITA 3119/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3793 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 28-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAKESH RANJANDR
• Assessee Lawyers: VIRAG SHAH
• Keywords: Unexplained expenditure; Income from undisclosed sources; Loose papers; Source of fund; Competent authority
• Section: 69C; 143(3); 133A; 131; 12

Judgement Text

E BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 3119 /MUM/2012 ( / ASSESSMENT YEAR : 2008-09) M/S S.R. DEVELOPERS, A-3, ANJUMAN NURAL TRUST, MOHILI VILLAGE, SAKI NAKA, ANDHERI, MUMBAI 400 072. / V. ASST. COMMISSIONER OF INCOME TAX- CIRCLE 15(2), ROOM NO. 113, MATRU MANDIR INCOME TAX OFFICE, TARDEO ROAD, GRANT ROAD (W), MUMBAI- 400 007. ./ PAN : ABBFS0073R ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI VIRAG SHAH REVENUE BY : SHRI RAKESH RANJAN,DR / DATE OF HEARING : 09-12-2015 / DATE OF PRONOUNCEMENT : 24-02-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE FIRM, BEING ITA NO. 3119/MUM/2012, IS DIRECTED AGAINST THE ORDER DATED 23-02-2012 PASS ED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 26, MUMBAI (H EREINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2008-09. 2. THE GROUND RAISED BY THE ASSESSEE FIRM IN THE ME MO OF APPEAL FILED WITH THE TRIBUNAL READS AS UNDER:- 1. THE HON'BLE COMMISSIONER OF INCOME TAX (APPEAL) - 26, MUMBAI [CIT (A)] HAS ERRED IN LAW AND IN FACTS BY CONFIRMIN G THE ADDITION RS.1,75,00,372/ - AS UNEXPLAINED EXPENDITURE UNDER SECTION 69C, AND HOLDING THAT THAT - ITA 3119/MUM/2012 2 (I.) THE BOOKS OF ACCOUNT OF THE APPELLANT WERE NOT RE LIABLE BECAUSE THE EXPENDITURE AND WIP OF THE PROJECT WAS NOT DISCLOSED FULLY AND TRULY; AND (II.) THE APPELLANT HAS INCURRED EXTRA EXPENSES OF RS. 1,75,00,372/ - FROM UNDISCLOSED SOURCES. 2) THE CIT (A) HAS COMPLETELY DISREGARDED THE FACT T HAT THE APPELLANT HAS DECLARED THE UNDISCLOSED INCOME OF RS. 1,75,00,3 72/- DURING THE COURSE OF SURVEY U/ S. 133A BY CREDITING THE PROFIT & LOSS A/ C. FOR THE IMPUGNED A.Y. 2008-09 AND THEREFORE THE FURTHER ADD ITIONS MADE BY THE AO RESULTS IN DOUBLE TAXATION OF THE SAME INCOME. 3) THE CIT (A) HAS FURTHER ERRED BY DIRECTING THE AO TO RE-WORK OUT THE DIFFERENCE IN STOCK FLATS BY TAKING THEIR VALUE AT C OST AS AGAINST THE VALUE DISCLOSED BY THE APPELLANT ON NET REALIZABLE RAT E AND HOLDING THAT WHEN OPENING STOCK WAS VALUED AT COST BY THE APPELLANT, THE CLOSING STOCK SHOULD ALSO HAVE BEEN VALUED AT COST ONLY. CONSE QUENTLY, THE HON'BLE CIT (A) HAS COMPLETELY DISREGARDED THE PRIN CIPLES OF ACCOUNTING AS PRONOUNCED BY THE INSTITUTE OF CHARTERED ACCOUNTAN TS OF INDIA (ICAI), VIDE 'AS - 2 VALUATION OF INVENTORIES'. 4) THE CIT (A) HAS NOT TAKEN COGNIZANCE OF THE ARITHM ETICAL ERRORS IN THE IMPUGNED ASSESSMENT ORDER U/ S. 143(3), INSPI TE OF DRAWING HIS ATTENTION TOWARDS THE SAME VIDE APPELLANT'S WRITTEN SU BMISSION DATED 20.02.2012. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FIRM IS ENGAGED IN THE BUSINESS OF BUILDING CONSTRUCTION ACTIVITIES. THE A SSESSEE IS SPECIFIED FIRM WHICH CAME INTO EXISTENCE IN TERMS OF A JOINT VENTU RE AGREEMENT DATED 31-05- 2005. THE ASSESSEE FIRM HAD UNDERTAKEN CONSTRUCTION OF BUILDING PROJECTS CONSISTING OF FIVE BUILDINGS NAMELY; BUILDINGS A, B , C, D AND NAMELY WINGS A TO K AT SURVEY NO. 139/141/143 AT OLD CTS NO. 463, 465 AND 468 AT VILLAGE NAVGHAR, BHAYANDAR (E), MUMBAI AS PER THE COMMENCEM ENT CERTIFICATE ISSUED BY MIRA BHAYANDER MAHANAGAR PALIKA DATED 6-12-2004. AS PER THIS CERTIFICATE, APPROVAL WAS GRANTED FOR COMMENCEMENT OF THE CONSTRUCTION OF FIVE BUILDINGS A, B, C, D & E AS ONE PROJECT. THERE WAS A SURVEY ACTION CARRIED OUT BY REVENUE U/S 133A OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) IN THE BUSINESS PREMISES OF THE ASSESSEE FIRM ON 06-09-2007. DURING THE ITA 3119/MUM/2012 3 COURSE OF SURVEY ACTION ON 06-09-2007 U/S 133A OF T HE ACT, THE STATEMENT WAS RECORDED ON OATH OF MR. RAJARAM N. BHATI, THE PARTNER OF THE FIRM WHEREBY HE WAS CONFRONTED WITH THE LOOSE PAPERS FO UND AT THE DRAWER OF THE ACCOUNTANT WHICH SHOWED THAT THE COST OF THE PROJEC T II WING (G.H.F.) AT RS. 8,05,13,500/-. ANOTHER STATEMENT ON OATH WAS RECOR DED ON 11-09-2007 OF MR RAJARAM N BHATI. THE RELEVANT PORTION OF THE STATEM ENT WHICH WAS RECORDED ON 11 TH SEPTEMBER, 2007 IS EXTRACTED BELOW:- 0.2. IN YOUR STATEMENT ON OATH DATED 06.09.2007 AT YOUR OFFICE PREMISES AT SHOP NO: 23 / 24, PUSHPA NIKETAN, BHYAN DER (WEST), DURING THE COURSE OF SURVEY U/S. 133A OF THE INCOME TAX ACT. 1961, YOU HAVE OFFERED ADDITIONAL INCOME OF RS. 1.7 5 CRORES IN THE CASE OF M/S. S.R. DEVELOPERS, FOR THE A.Y. 2008-09 AND HAS UNDERTAKEN TO PAY THE TAXES DUE IN THREE INSTALLMEN TS. PLEASE CONFIRM? A.2. YES. I CONFIRM THAT I HAVE OFFERED ADDITIONAL INCOME OF RS. 1.75 CR. AS STATED ABOVE. THIS OFFER IS BASED ON TH E DIFFERENTIAL COST OF PROJECT-IL COMPRISING OF THREE WINGS (FGH) OF M/S. S.R. DEVELOPERS. I AM GIVING CHEQUE NO: 043017 DATED 15. 09.2007 FOR RS. 20 LACS BEING THE LST INSTALMENTS PAYABLE ON 15 .09.2007. THE CHEQUE FOR OTHER TWO INSTALMENTS WILL BE GIVEN TO Y OU WITHIN A WEEKS TIME. I SHALL PAY THE INSTALLMENT DUE MYSELF AND PRODUCE THE CHALLAN BEFORE YOU AND TAKE BACK THE CHEQUES. Q.3. I AM SHOWING YOU THE SHEET OF PAPER FOUND AT T HE DRAWER OF YOUR ACCOUNTANT DURING THE COURSE OF SURVEY ON 06.0 9.2007 WHICH SHOW THAT THE COST OF PROJECT TO WING FGH AT RS. AT RS. 8,05,13,500/- PLEASE EXPLAIN WHETHER THIS IS PREPAR ED IN YOUR OWN HANDWRITING AND COST SHOWN FINAL AND APPROXIMAT E COST. A.3. I WISH TO STATE THAT THE COST STATEMENT FOUND FROM THE DRAWER OF THE ACCOUNTANT REPRESENT THE EXACT COST O F THE CONSTRUCTION DETERMINED FOR OUR OWN PURPOSE. SINCE, BOTH THE BUILDINGS. I.E. G AND H ARE FULLY COMPLETED, EXACT COSTING WAS DETERMINED FOR OUR OWN INTERNAL REFERENCE. THEREFOR E, THE COST MENTIONED IN TILE SHEET PAPER IS THE EXACT COST AND NOT THE APPROXIMATE COST ONE. ITA 3119/MUM/2012 4 Q.4 AS PER THE COMPUTER PRINT OUT THE WORK IN PROGR ESS AS ON 06.09.2007, IN RESPECT OF PROJECT II, THE CLOSING W IP HAS BEEN TAKEN AT RS.6,30,13,128/- WHEREAS AS PER THE LOOSE PAPERS WERE FOUND AT THE DRAWER OF YOUR ACCOUNTANT, THE TOTAL C OST HAS BEEN SHOWN AT RS. 8,05,13,500/-. PLEASE EXPLAIN THE DISC REPANCY. A.4 I WISH TO STATE THAT THE TOTAL COST OF THE PROJ ECT II WAS DETERMINED AT RS. 8,30,13,128/- AS PER THE LOOSE PA PER FOUND IN THE DRAWER OF THE ACCOUNTANT. HOWEVER, IN THE BOOK S OF ACCOUNTS OF FIRM IT SEEMS THAT THE QUESTION OF THE SAID COST I.E. 1,7500,372/- HAS REMAINED TO BE ENTERED FOR THE REA SONS NOT KNOWN TO ME. SINCE I AM NOT IN A POSITION TO EXPLAI N THE EXACT DISCREPANCY ON ACCOUNT OF THIS DIFFERENCE, I HAVE A LREADY OFFERED A SUM OF RS. 1,75,00,372/- AS AN ADDITIONAL INCOME FO R THE CURRENT YEAR TO MAKE GOOD THE DIFFERENCE BETWEEN ACTUAL COS T OF THE PROJECT AND ONE APPEARING IN MY BOOKS OF ACCOUNT. THIS IS IN ADDITION TO THE NORMAL INCOME IN RESPECT OF THE PRO JECT II OF M/S S.R. DEVELOPERS. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS CAR RIED ON BY THE REVENUE U/S 143(3) READ WITH SECTION 143(2) OF THE ACT, THE ASSESSEE FIRM WAS ASKED AS TO WHY SHOULD NOT IT BE TAXED ON THE INCOME DISCLO SED UNDER SURVEY ACTION AMOUNTING TO RS. 1.75 CRORES AND THE SAME SHOULD N OT BE TREATED AS INCOME OVER AND ABOVE THE NORMAL INCOME. IN REPLY, THE AS SESSEE FIRM SUBMITTED A DETAIL WORKING INDICATING THAT THE ADDITIONAL INCOM E OF RS. 1.75 CRORES IS OVER AND ABOVE ITS NORMAL INCOME WHICH ASSESSEE FIRM WO ULD HAVE EARNED AND DISCLOSED BY WAY OF A WORKING CHART AND IN THE SAID DECLARATION THE ASSESSEE FIRM SUBMITTED DISCREPANCY IN THE VALUE OF WIP WHIC H WAS UNDER STATED IN THE BOOKS OF ACCOUNT BY RS. 1.75 CRORES. IN ORDER TO M AKE GOOD SUCH DISCREPANCY OF RS. 1.75 CRORES , IT WAS SUBMITTED THAT THE MATC HING INCOME OF THE LIKE AMOUNT HAS BEEN CREDITED TO TRADING ACCOUNT OF THE AOP AND THEREAFTER THE ACTUAL SALES WHICH HAS TAKEN PLACE DURING THE YEAR HAS BEEN MATCHED WITH THE PROPORTIONATE COST OF THE SAME AND THE RESULTAN T PROFIT ALSO IS BEING CONSIDERED WHILE OFFERING INCOME FOR TAXATION IN TH E RETURN OF INCOME FILED BEFORE THE REVENUE . THUS, BY VIRTUE OF SUCH DECLA RATION, THE VALUE OF WIP WOULD ENHANCED. HENCE, THE PASSING OF ENTRIES IN T HE BOOKS OF ACCOUNT ITA 3119/MUM/2012 5 TOGETHER WITH DECLARATION OF SUCH ADDITIONAL INCOME IS COMMENSURATE WITH THE DECLARATION MADE U/S 131 OF THE ACT. THE ASSESSEE FIRM SUBMITTED THAT SINCE THE INCOME DECLARED BY THE ASSESSEE FIRM IS OVER AN D ABOVE THE REGULAR INCOME, NO ADVERSE VIEW MAY BE TAKEN AND THEE ASSES SMENT MAY BE COMPLETED BY ACCEPTING THE DISCLOSURE MADE BY THE A SSESSEE FIRM IN THE RETURN OF INCOME FILED WITH THE REVENUEE. THE A.O. REJECTED THE CONTENTION OF THE ASSESSEE FIRM AND HELD THAT THE PARTNER OF THE FIRM MR. RAJARAM N. BHATI HAD STATED ON OATH TWICE I.E. ON 06-09-2007 AND AGA IN ON 11-09-2007 THAT HE WOULD PAY THE TAX LIABILITY FOR THIS UNDISCLOSED EX PENDITURE COVERED U/S 69C OF THE ACT AND THE SURVEY REPORT REINFORCES THAT TH E UNACCOUNTED SALES PROCEEDS WERE INVESTED IN WIP OF THE PROJECT. THE P ARTNER OF THE FIRM WHILE RECORDING STATEMENT ON OATH HAS STATED THAT THE COS T OF RS. 1.75 CRORES HAS REMAINED TO BE ENTERED INTO BOOKS OF ACCOUNTS AND HE IS NOT A POSITION TO EXPLAIN THE DISCREPANCY ON ACCOUNT OF THE DIFFERENC E. THUS THE ADDITION OF RS. 1,75,00,372/- WAS MADE BY THE A.O U/S 69C OF THE A CT BEING UNEXPLAINED EXPENDITURE VIDE ASSESSMENT ORDERS DATED 30-12-2010 PASSED U/S. 143(3) OF THE ACT. 4.AGGRIEVED BY THE ORDERS DATED 30-12-2010 PASSED BY THE AO U/S 143(3) OF THE ACT , THE ASSESSEE FIRM PREFERRED AN APPEAL BEF ORE THE CIT(A). 5. BEFORE THE CIT(A), THE ASSESSEE FIRM SUBMITTED T HAT THE SUM OF RS. 1,75,00,372/- HAS BEEN DECLARED TO COVER THE DISCRE PANCIES OBSERVED DURING THE COURSE OF SURVEY U/S 133A OF THE ACT AND DURING THE COURSE ASSESSMENT PROCEEDINGS U/S 143(3) READ WITH SECTION 143(2) OF THE ACT, THE BASIS OF SUCH DECLARATION AND TREATMENT OF THE SAME IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE FIRM HAS BEEN FULLY EXPLAINED. THE DECLARA TION OF SUCH INCOME HAS BEEN APPLIED TO COVER UP THE DISCREPANCIES IN THE W ORK-IN-PROGRESS NOTICED DURING THE COURSE OF SURVEY PROCEEDINGS U/S 133A OF THE ACT. THEREAFTER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143 (3) READ WITH SECTION ITA 3119/MUM/2012 6 143(2) OF THE ACT, THE ASSESSEE FIRM HAS FULLY EXPL AINED THE DECLARATION OF SUCH AMOUNT AND ITS APPLICATION. ACCORDINGLY, THE PROFIT & LOSS A/C OF THE APPELLANT AOP HAS BEEN CREDITED BY RS. 1,75,00,372/ - AND CORRESPONDING DEBIT HAS BEEN GIVEN TO WORK-IN-PROGRESS A/C. THUS, IN THE RETURN OF INCOME FILED BY THE ASSESSEE FIRM WITH THE REVENUE SUCH DI SCLOSURE OF INCOME HAS ALREADY BEEN MADE. HOWEVER, DISREGARDING SUCH DISCL OSURE THE A.O. HAS ONCE AGAIN ADDED THE SAME AMOUNT WITHOUT ASSIGNING ANY R EASON AND WITHOUT APPLICATION OF MIND WHICH SHOULD BE QUASHED. THE CIT(A) AFTER CONSIDERING THE FINDINGS OF THE A .O. AS WELL AS THE SUBMISSION OF THE ASSESSEE FIRM REJECTED THE CLAIM OF THE ASSESSEE FIRM BY OBSERVING THAT DURING THE COURSE OF SURVEY U/S. 133 A OF THE ACT AT THE BUSINESS PREMISES OF THE ASSESSEE FIRM , SERIOUS DI SCREPANCIES WERE OBSERVED AND IT WAS FOUND THAT THE TOTAL COST OF WORK-IN-PRO GRESS AS APPEARING IN THE BOOKS OF ACCOUNT WAS SUPPRESSED BY AN AMOUNT OF RS. 1,75,00,372/- AND IN THE STATEMENT RECORDED ON OATH, IT WAS ADMITTED ON BEHALF OF THE ASSESSEE FIRM BY THE PARTNER SHRI RAJA RAM N. BHATI THAT THE RE IS AN ADMITTED SUPPRESSION OF WORK-IN-PROGRESS, WHICH WAS OFFERED AS ADDITIONAL INCOME AT THE TIME OF SURVEY WHICH WAS BASED ON LOOSE PAPERS FOUND AT THE PREMISES OF THE ASSESSEE FIRM AND THIS DECLARATION OF ADDITIONA L INCOME OF RS. 1,75,00,372/- WAS NOT RETRACTED BY THE ASSESSEE FIR M AND HENCE, THE BOOKS OF ACCOUNT OF THE ASSESSEE FIRM WERE NOT RELIABLE BECA USE THE EXPENDITURE AS WELL AS INVESTMENT IN WIP/COST OF THE PROJECT WAS NOT DI SCLOSED FULLY AND TRULY. THUS THE CIT(A) HELD THAT THE ASSESSEE FIRM HAS INC URRED EXTRA EXPENSES OF RS. 1,75,00,372/- FROM UNDISCLOSED SOURCES WHICH IS TAXABLE U/S 69C OF THE ACT AS UNEXPLAINED EXPENDITURE VIDE ORDERS DATED 23 -02-2012. 6. AGGRIEVED BY THE ORDERS DATED 23-02-2012 PASSED BY THE CIT(A), THE ASSESSEE FIRM IS IN APPEAL BEFORE THE TRIBUNAL. ITA 3119/MUM/2012 7 7. THE LD. COUNSEL FOR THE ASSESSEE FIRM SUBMITTED THAT THERE WAS A SURVEY ACTION U/S 133A OF THE ACT WHICH WAS CONDUCTED BY T HE REVENUE AT THE BUSINESS PREMISES OF THE ASSESSEE FIRM ON 06-09-200 7. DURING THE COURSE OF SURVEY PROCEEDINGS U/S 133A CONDUCTED BY THE REVENU E, LOOSE PAPERS WERE FOUND FROM THE ACCOUNTANT OF THE ASSESSEE FIRM WHER EBY WIP WAS STATED TO BE SHOWN AT RS. 8,05,13,500/- TOWARDS THE COST OF PROJ ECT II WING (G.H.F.) AS AGAINST RS. 6,30,13,128/- DISCLOSED IN THE BOOKS OF ACCOUNT AND HENCE THERE WAS A DISCREPANCY OF RS. 1,75,00,372/- BETWEEN THE LOOSE SHEET FOUND DURING THE COURSE OF SURVEY AND BOOKS OF ACCOUNTS MAINTAIN ED BY THE ASSESSEE FIRM. EXPLANATION WAS SOUGHT BY THE REVENUE AND THE PARTN ER OF THE ASSESSEE FIRM MR. RAJA RAM N. BHATI IN THE STATEMENT RECORDED ON OATH HAS OFFERED AN AMOUNT OF RS. 1,75,00,372/- AS ADDITIONAL INCOME FO R THE CURRENT YEAR FOR TAXATION ON ACCOUNT OF DIFFERENCE IN THE WIP. THE STATEMENT OF SHRI RAJARAM N. BHATI IS PLACED ON RECORD VIDE PAPER BOOK PAGE N O. 41 TO 57. THE LD. COUNSEL FOR THE ASSESSEE FIRM HAS DRAWN OUR ATTENTI ON TO THE STATEMENT OF SHRI RAJARAM N. BHATI WHEREBY HE OFFERED THE SAID A MOUNT FOR TAXATION. OUR ATTENTION WAS ALSO DRAWN TO PAGE 5 OF THE PAPER BOO K WHEREBY THE ASSESSEE FIRM SHOWED THE INCOME SO DISCLOSED U/S 133A OF THE ACT AMOUNTING TO RS. 1,75,00,372/- CREDITED TO THE P&L ACCOUNT AND ACCOR DINGLY THE P&L ACCOUNT WAS PREPARED. OUR ATTENTION WAS ALSO INVITED TO TH E CORRESPONDING ENTRY OF RS. 1,75,00,372/- WHICH WAS SIMULTANEOUSLY DEBITED IN THE SAME PROFIT AND LOSS ACCOUNT AT PAGE 5 OF PAPER BOOK TO THE EXPENDI TURE ACCOUNT AS EXPENSES DISCLOSED U/S 133A RS.1,75,00,372/-, HE NCE, THERE WAS A NEUTRALIZING IMPACT OF THE INCOME OF RS.1,75,00,372 /- CREDITED TO PROFIT AND LOSS ACCOUNT BECAUSE THE EXPENSES OF RS. 1,75,00,37 2/- WAS CORRESPONDINGLY CLAIMED AGAINST THE INCOME SO DECLARED TOWARDS THE COST INCURRED TOWARDS WIP. OUR ATTENTION WAS ALSO DRAWN TO THE SUBMISSION MADE BY THE ASSESSEE FIRM BEFORE THE A.O. WHEREBY ALL DETAILS RELATING T O THE PROJECTS WAS SUBMITTED BEFORE THE AO SUCH AS COMMENCEMENT CERTIFICATE, BMC APPROVED LAYOUT PLAN , SITE PLAN , BROCHURE OF THE PROJECT, LAND AGREEMEN T AND COPY OF TDR PURCHASE ITA 3119/MUM/2012 8 AGREEMENTS ETC. WHICH ARE PLACED VIDE PAPER BOOK PA GE 13 AND WERE SUBMITTED DURING THE ASSESSMENT PROCEEDINGS U/S 143 (3) READ WITH SECTION 143(2) OF THE ACT BEFORE THE AO. IT WAS ALSO SUBMIT TED THAT THE AMOUNT OF RS. 1,75,00,372/- WHICH WAS DISCLOSED U/S 133A OF THE A CT DURING THE COURSE OF SURVEY VIDE STATEMENT RECORDED U/S 131 OF THE ACT W AS OFFERED FOR TAXATION VIDE CREDIT IN PROFIT AND LOSS ACCOUNT WHILE EXPEND ITURE WAS INCURRED FOR THE ONGOING PROJECT II WORK I.E. WIP BEING APPLICATION OF SUCH INCOME OF RS.1,75,00,372/- SO DISCLOSED. THE LD. COUNSEL FOR THE ASSESSEE FIRM SUBMITTED THAT THE ADDITIONS HAVE BEEN MADE U/S 69C OF THE ACT OF RS. 1,75,00,372/- ON ACCOUNT OF DISCREPANCY IN THE WIP WHICH IS NOT WARRANTED. IT WAS ALSO SUBMITTED THAT THE CIT(A) HAS UPHELD TH E ADDITION SO MADE BY RECORDING HIS FINDINGS IN THE CIT(A) ORDERS DATED 2 3-02-2012 . IT WAS ALSO SUBMITTED THAT THE STATEMENT WAS NOT RETRACTED BY T HE ASSESSEE FIRM BUT IT WAS PROPERLY DEALT IN WITH THE BOOKS OF ACCOUNT AND THE INCOME WAS OFFERED FOR TAXATION. IT WAS SUBMITTED THAT THERE IS LOSS IN THE PROJECT WHICH IS GETTING SET OFF AGAINST THE PROFIT IN THE PROJECT. THE ASSE SSEE FIRM RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T V. S.KHADER KHAN SON (2012) 25 TAXMANN.COM 413(SC) TO CONTEND THAT NO AD DITIONS CAN BE MADE BY THE REVENUE BASED ON THE STATEMENT RECORDED DURING THE COURSE OF SURVEY PROCEEDINGS U/S 133A OF THE ACT AS SECTION 133A OF THE ACT DOES NOT EMPOWER REVENUE TO EXAMINE ANY PERSON ON OATH; SO STATEMENT RECORDED U/S 133A OF THE ACT HAS NO EVIDENTIARY VALUE AND ANY ADMISSION MADE DURING SUCH STATEMENT CANNOT BE MADE BASIS OF ADDITION. THE ASS ESEE FIRM ALSO RELIED UPON DECISION OF HONBLE DELHI HIGH COURT IN THE CA SE OF CIT V. DHINGRA METAL WORKS IN (2011) 196 TAXMAN 488(DELHI)/ 328 ITR 384 AND ALSO IN THE DECISION OF MUMBAI-TRIBUNAL IN THE CASE OF CANNON I NDUSTRIES PRIVATE LIMITED V. DCIT (2015) 59 TAXMANN.COM 65(MUM-TRIB.) 8. THE LD. D.R., ON THE OTHER HAND, SUBMITTED THAT THERE IS A STATEMENT OF THE PARTNER OF THE ASSESSEE FIRM WHICH WAS RECORDED ON 6 TH SEPTEMBER, 2007 ITA 3119/MUM/2012 9 AND ALSO ON 11 TH SEPTEMBER, 2007 AND THE ASSESSEE FIRM VIDE STATEME NT ON OATH HAS OFFERED THE INCOME FOR TAXATION AMOUNTING TO RS. 1,75,00,372/- OVER AND ABOVE THE NORMAL INCOME ON ACCOUNT OF DISCREPAN CY IN THE WIP. THE LD. D.R. RELIED ON THE DECISION OF HONBLE ALLAHABAD HI GH COURT IN THE CASE OF DR. S C GUPTA V. CIT (2001) 248 ITR 782(ALL. HC) AND HONBLE SUPREME COURT IN THE CASE OF PULLANGODE RUBBER PRODUCE CO. LTD . V. STATE OF KERALA (1973) 91 ITR 18(SC). 9. IN THE REJOINDER, THE LD. COUNSEL FOR THE ASSESS EE FIRM SUBMITTED THAT THE ASSESSEE FIRM HAS RETURNED INCOME OF RS. 1.47 C RORES AND THE DISCREPANCY IN THE WIP TOWARDS EXPENDITURE INCURRED RS. 1,75,00 ,372/- HAS BEEN OFFERED FOR TAXATION. 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE CASE LAWS CITED B Y BOTH THE SIDES. WE HAVE OBSERVED THAT THE ASSESSEE FIRM IS IN THE BUSINESS OF UNDERTAKING CONSTRUCTION OF BUILDINGS. THERE WAS A SURVEY OPER ATION CARRIED OUT BY THE REVENUE IN THE BUSINESS PREMISES OF THE ASSESSEE FI RM U/S 133A OF THE ACT ON 06-09-2007. DURING THE COURSE OF SURVEY OPERATIONS ON 06-09-2007, LOOSE DOCUMENTS WERE FOUND FROM THE ACCOUNTANT OF THE ASS ESSEE FIRM WHICH REFLECTED WIP OF RS.8,05,13,500/- AS ON 06-09-2007 , WHILE THE WIP AS PER BOOKS OF THE ACCOUNTS AS ON THE DATE OF SURVEY U/S 133A OF THE ACT ON 06-09- 2007 WAS RS.6,30,13,128/- , THUS THERE WAS DISCREPA NCY OF RS.1,75,00,372/- AS ON 06-09-2007 BETWEEN THE LOOSE DOCUMENTS FOUND DURING THE COURSE OF SURVEY OPERATIONS AND BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE FIRM, WHEREBY STATEMENT OF THE PARTNER OF THE ASSESSEE FI RM ON OATH WAS RECORDED AND ACCORDINGLY ASSESSEE FIRM OFFERED ADDITIONAL IN COME OF RS. 1,75,00,372/- FOR THE DIFFERENCE APPEARING IN THE CLOSING WIP WHI CH WAS DISCLOSED IN THE BOOKS OF ACCOUNT AT RS. 6,30,13,128/- AS ON DATE OF SURVEY ON 06-09-2007AS AGAINST THE WIP SHOWN IN THE LOOSE PAPERS AT RS. 8, 05,13,500/- AS ON DATE OF ITA 3119/MUM/2012 10 SURVEY ON 06-09-2007. THIS DIFFERANTIAL AMOUNT WAS SURRENDERED BY THE PARTNER OF THE ASSESSEE FIRM SHRI RAJARAM N. BHATI AS INCOME OF THE ASSESSEE FIRM VIDE STATEMENT RECORDED ON OATH DURING THE COU RSE OF SURVEY OPERATIONS U/S 133A OF THE ACT ON 6 TH SEPTEMBER, 2007 AND ALSO VIDE STATEMENT RECORDED ON 11-09-2007 , WHEREBY HE OFFERED FOR TAXATION THE SAME AS ADDITIONAL INCOME OF THE ASSESSEE FIRM NOT DISCLOSED IN THE BO OKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE FIRM. THIS STATEMENT WAS NOT RETRACTED BY THE ASSESSEE FIRM RATHER THE STATEMENT OF PARTNER OF TH E ASSESSEE FIRM IS CORROBORATED AND SUPPORTED BY THE LOOSE DOCUMENTS F OUND DURING THE COURSE OF SURVEY OPERATIONS . THIS IS PERTINENT TO NOTE TH AT THE ASSESSEE FIRM HAS NOT DISPUTED THE CONTENTS OF THE AFORE-STATED LOOSE DOC UMENTS FOUND DURING THE COURSE OF SURVEY OPERATIONS RATHER THE CONTENTS OF THE SAID LOOSE DOCUMENTS FOUND DURING THE COURSE OF SURVEY PROCEEDINGS IS AC CEPTED BY THE ASSESSEE FIRM TO BE TRUE AND CORRECT. THE CONTENTION OF THE ASSESSEE FIRM WAS THAT ALTHOUGH THE STATEMENT HAS NOT BEEN RETRACTED BUT T HE ASSESSEE FIRM HAS OFFERED THE SAME FOR TAXATION IN THE RETURNED INCOM E FILED WITH THE REVENUE BY MAKING PROPER ENTRIES IN THE BOOKS OF ACCOUNT AND H ENCE THE AUTHORITIES BELOW ARE NOT CORRECT IN MAKING THE ADDITION, WHICH IS A DOUBLE ADDITION WHICH IS NOT PERMISSIBLE UNDER THE ACT. OUR ATTENTI ON WAS DRAWN TO THE P&L ACCOUNT, BALANCE SHEET OF THE ASSESSEE FIRM AND A P ERUSAL OF THE SAME REVEALED THAT THE ASSESSEE FIRM HAS CREDITED THE AM OUNT OF RS. 1,75,00,372/- BEING INCOME DISCLOSED U/S 133A OF THE ACT IN THE C REDIT SIDE OF THE PROFIT AND LOSS ACCOUNT UNDER NOMENCLATURE BY INCOME DISCLOSE D U/S 133A- RS.1,75,00,372/- BUT AT THE SAME TIME THE ASSESSE E FIRM HAS PASSED A CORRESPONDING DEBIT ENTRY TO THE P&L ACCOUNT UNDER THE HEAD EXPENDITURE UNDER A NOMENCLATURE TO EXPENSES DISCLOSED U/S 133 A RS.1,75,00,372/- TO NEUTRALISE THE EFFECT OF EQUIVALENT INCOME WHICH WA S CREDITED TO PROFIT AND LOSS ACCOUNT WITH THE EQUIVALENT AMOUNT OF EXPENDIT URE DEBITED TO PROFIT AND LOSS ACCOUNT BY CONTENDING THAT THESE ARE THE COST WHICH ARE INCURRED BY THE ASSESSEE FIRM AND HENCE INCOME GOT OFFERED FOR TAX ATION WHEN THE SAME IS ITA 3119/MUM/2012 11 CREDITED TO THE CREDIT SIDE OF THE PROFIT AND LOSS ACCOUNT. THE CONTENTION OF THE ASSESSEE FIRM IS FALLACIOUS. REFERENCE IS DRAWN TO SECTION 69C OF THE INCOME TAX ACT, 1961 WHICH IS REPRODUCED BELOW:- UNEXPLAINED EXPENDITURE, ETC. 69C. WHERE IN ANY FINANCIAL YEAR AN ASSESSEE HAS INCURR ED ANY EXPENDITURE AND HE OFFERS NO EXPLANATION ABOUT THE SOURCE OF SUCH EXPE NDITURE OR PART THEREOF, OR THE EXPLANATION, IF ANY, OFFERED BY HIM IS NOT, IN THE OPINION OF THE [ASSESSING] OFFICER, SATISFACTORY, THE AMOUNT COVERED BY SUCH EXPENDITUR E OR PART THEREOF, AS THE CASE MAY BE, MAY BE DEEMED TO BE THE INCOME OF THE ASSES SEE FOR SUCH FINANCIAL YEAR :] [ PROVIDED THAT, NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTH ER PROVISION OF THIS ACT, SUCH UNEXPLAINED EXPENDITURE WHICH IS DEEMED T O BE THE INCOME OF THE ASSESSEE SHALL NOT BE ALLOWED AS A DEDUCTION UNDER ANY HEAD OF INCOME.] A PERUSAL OF THE SECTION 69C OF THE ACT REVEALS THA T IN ANY FINANCIAL YEAR IF THE TAXPAYER HAS INCURRED ANY EXPENDITURE AND HE OFFERS NO EXPLANATION ABOUT THE SOURCE OF SUCH EXPENDITURE OR PART THEREOF, OR THE EXPLANATION, IF ANY, OFFERED BY HIM IS NOT IN THE OPINION OF THE AO SATI SFACTORY THE AMOUNT OF SUCH EXPENDITURE MAY BE DEEMED TO BE THE INCOME OF THE T AXPAYER FOR SUCH FINANCIAL YEAR. ALSO THERE IS A PROVISO TO THE SEC TION 69C OF THE ACT WHICH CLEARLY STIPULATES THAT NOTWITHSTANDING ANYTHING CO NTAINED IN ANY OTHER PROVISION OF THE ACT, SUCH UNEXPLAINED EXPENDITURE WHICH IS DEEMED TO BE THE INCOME OF THE TAXPAYER SHALL NOT BE ALLOWED AS A DE DUCTION UNDER ANY HEAD OF INCOME. THUS, NO DEDUCTION SHALL BE ALLOWED TO THE ASSESSEE FIRM UNDER ANY HEAD OF INCOME WITH RESPECT TO THE UNEXPLAINED EXPE NDITURE U/S 69C OF THE ACT AND HENCE, IN OUR CONSIDERED VIEW, THE AO HAS C ORRECTLY MADE THE ADDITION WHICH WAS RIGHTLY BEEN SUSTAINED BY THE CI T(A). IN FACT THERE HAS BEEN UNEXPLAINED EXPENDITURE OF RS. 1,75,00,372/- I NCURRED BY THE ASSESSEE FIRM IN THE WIP WHEREBY THE SOURCES OF THE INCURRIN G OF THE SAID EXPENDITURE WAS NOT SATISFACTORILY EXPLAINED BY THE ASSESSEE F IRM AND WHICH IS DEEMED TO ITA 3119/MUM/2012 12 BE INCOME U/S 69C OF THE ACT AND IN-FACT THE SAME W AS OFFERED FOR TAXATION AS INCOME BY THE PARTNER OF THE ASSESSEE FIRM VIDE STA TEMENT RECORDED ON OATH ON THE DATE OF SURVEY ON 06-09-2007 AND ALSO AGAIN VIDE STATEMENT RECORDED ON 11-09-2007 AND BOTH THE STATEMENTS ARE NOT RET RACTED BY THE ASSESSEE FIRM. IN-FACT ON THE OTHER HAND BASED ON THE STATEM ENT RECORDED ON OATH DURING SURVEY PROCEEDINGS ON 06-09-2007 AND ALSO ST ATEMENT RECORDED ON 11- 09-2007, THE ASSESSEE FIRM HAS IN-FACT ACCEPTED THA T CORRECT WIP AS ON THE DATE OF SURVEY IS RS.8,05,13,500/- WHICH IS BASED O N THE LOOSE SHEETS FOUND DURING THE COURSE OF SURVEY OPERATIONS U/S 133A OF THE ACT AND THE AMOUNT REFLECTED AS WIP ON THE BOOKS OF ACCOUNTS ON THE DA TE OF SURVEY I.E. ON 06-09- 2007 OF RS. 6,30,13,128/- IS NOT A CORRECT AMOUNT A ND THERE IS UNDER- STATEMENT OF WIP AS PER BOOKS OF ACCOUNTS OF RS 1,7 5,00,372/- WHICH IS AN UN-EXPLAINED EXPENDITURE SPENT OUT OF UNDISCLOSED S OURCES INCOME WHICH WAS SURRENDERED AND OFFERED FOR TAXATION BY THE ASSESSE E FIRM VIDE STATEMENTS RECORDED OF THE PARTNER OF THE ASSESSEE FIRM ON 06- 09-2007 AND 11-09-2007 AND THE SAME WAS DULY FURTHER ADMITTED BY MAKING NE CESSARIES ENTRIES IN THE BOOKS OF ACCOUNTS TO REFLECT THE CORRECT WIP OF RS. 8,05,13,500/- AND HENCE THE ADMISSION MADE IN THE UN-RETRACTED STATEMENT ON OATH RECODED DURING THE COURSE OF SURVEY ON 06-09-2007 AND ALSO VIDE STATEM ENT RECORDED ON 11-09- 2007 BACKED WITH UN-REBUTTED LOOSE PAPERS FOUND DUR ING THE COURSE OF SURVEY PROCEEDINGS U/S 133A OF THE ACT BEING LOOSE SHEET R EFLECTING WIP OF RS.8,05,13,500/- ON THE DATE OF SURVEY , THE CONTEN TS OF THE SAID LOOSE DOCUMENT FOUND DURING THE COURSE OF THE SURVEY HAS BEEN ACCEPTED AS TRUE AND CORRECT BY THE ASSESSEE FIRM, AS AGAINST BOOK S OF ACCOUNT FIGURE OF WIP BEING RS. 6,30,13,128/- ON THE DATE OF SURVEY , RE FLECTING DIFFERENCE OF RS 1,75,00,372/- ON THE DATE OF SURVEY BEING UN-EXPLAI NED EXPENDITURE OUT OF UNDISCLOSED SOURCES OF INCOME AND THE BOOK ENTRIES MADE BY THE ASSESSEE FIRM WITH RESPECT TO THE AFORE-STATED UN-EXPLAINED EXPENDITURE OF RS.1,75,00,372/- BEING INCURRED ON WIP OUT OF UNDIS CLOSED SOURCES OF INCOME IS SUFFICIENT ENOUGH TO FASTEN THE LIABILITY ON THE ASSESSEE FIRM TO PAY TAXES ON ITA 3119/MUM/2012 13 THE UNDISCLOSED EXPENDITURE OF RS.1,75,00,372/- WIT HIN THE MANDATE OF SECTION 69C OF THE ACT . THE SUBMISSION OF THE ASSE SSEE FIRM THAT THE STATEMENT RECORDED DURING THE COURSE OF SURVEY U/S 133A OF THE ACT DOES NOT HAVE EVIDENTIARY VALUE AND NO ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE FIRM BASED ON STATEMENT RECORDED DURING TH E COURSE OF SURVEY U/S 133A OF THE ACT AND RELIANCE ON THE CASE LAWS BY TH E ASSESSEE FIRM AS DETAILED IN PRECEDING PARAS IS MISCONCEIVED AND LACKS MERIT S ON THE BASIS OF FACTS AND CIRCUMSTANCES OF THE CASE AS IN THE INSTANT CASE TH E REVENUE IS NOT MAKING ADDITIONS MERELY ON THE BASIS OF STATEMENT RECORDED DURING THE COURSE OF SURVEY U/S 133A OF THE ACT BUT THERE IS A DISCOVERY OF LOOSE PAPERS FOUND DURING THE COURSE OF SURVEY OPERATIONS U/S 133A OF THE ACT AND THE SAID LOOSE DOCUMENTS RECORDED WIP OF RS 8,05,13,500/- AS ON TH E DATE OF SURVEY WHILE BOOKS OF ACCOUNTS REVEALED WIP OF RS. 6,30,13,128/- AS ON THE DATE OF SURVEY, WHICH DIFFERENCE ON THE TWO SETS OF DOCUMENTS IS NO T DENIED BY THE ASSESSEE FIRM RATHER THERE IS ADMISSION BY THE ASSESSEE FIRM VIDE UN-RETRACTED STATEMENT RECORDED ON 06-09-2007 AND 11-09-2007 OF THE PARTNER OF THE ASSESSEE FIRM AND WHICH IS FURTHER ADMITTED BY THE ASSESSEE FIRM BY MAKING ENTRIES IN THE BOOKS OF ACCOUNTS TO BRING WIP TO RS .8,05,13,500/- IN CONSONANCE WITH THE LOOSE PAPER FOUND DURING THE CO URSE OF SURVEY, THE CONTENTS OF SAID LOOSE DOCUMENTS BEING ACCEPTED TO BE TRUE AND CORRECT BY THE ASSESSEE FIRM AND THE SOURCE OF UN-EXPLAINED EXPEND ITURE OF RS.1,75,00,372/- IS NOT SATISFACTORILY EXPLAINED BY THE ASSESSEE FIR M WHICH IS NOW BINDING ON THE ASSESSE FIRM BY WAY OF AFORE-STATED CLINCHING A ND UN-CONTROVERTED EVIDENCES BEING LOOSE DOCUMENT FOUND DURING THE COU RSE OF SURVEY , THE CONTENTS OF THE SAID LOOSE DOCUMENT FOUND DURING TH E COURSE OF SURVEY IS ACCEPTED AS TRUE AND CORRECT BY THE ASSESSEE FIRM W HICH IS FURTHER CORROBORATED BY THE UN-RETRACTED STATEMENT RECORDED DURING SURVEY PROCEEDINGS U/S 133A OF THE ACT AND FURTHER POSITIV E ACT OF THE ASSESSEE FIRM IN MAKING ENTRIES IN BOOKS OF ACCOUNTS TO BRING WIP IN CONSONANCE WITH THE CONTENTS OF LOOSE DOCUMENTS FOUND DURING THE COURSE OF SURVEY WHICH ITA 3119/MUM/2012 14 REFLECTED WIP TO BE RS.8,05,13,500/- ON THE DATE OF SURVEY AS AGAINST WIP AS PER BOOKS OF ACCOUNTS OF RS.6,30,13,128/ ON THE DAT E OF SURVEY, WHICH, IN OUR CONSIDERED VIEW, IS SUFFICIENT TO FASTEN THE LIABIL ITY TO TAX ON THE ASSESSEE FIRM WITH IN THE MANDATE OF SECTION 69C OF THE ACT . WE FIND NO INFIRMITY IN THE WELL REASONED ORDER OF THE CIT(A) SUSTAINING THE AD DITION OF RS.1,75,00,372/- BEING UNEXPLAINED EXPENDITURE U/S 69C OF THE ACT WH ICH WE UPHOLD AND DECLINE TO INTERFERE AND DISMISS THE CONTENTIONS OF THE ASSESSEE FIRM.WE ORDER ACCORDINGLY 11. THE NEXT ISSUE RAISED BY THE ASSESSEE FIRM RELA TES TO THE DIFFERENCE IN STOCK OF FLATS BY TAKING THEIR VALUE AT COST BY THE AO AS AGAINST THE VALUE DISCLOSED BY THE ASSESSEE FIRM BASED ON COST OR NET REALISABLE VALUE WHICH EVER IS LOWER . FROM THE PERUSAL OF THE P&L ACCOUN T OF THE ASSESSEE FIRM, IT WAS FOUND BY THE A.O. THAT ASSESSEE FIRM HAS TAKEN THE VALUE OF RS. 23,18,008/- AS A OPENING STOCK(SEVEN FLATS). THE STATUS AS AT THE END OF YEAR OF THESE FLATS IS AS UNDER:- SOLD FLATS FLAT NO. SOLD C-401 1,44,584 C-402 1,44,243 C-404 1,43,902 D-402 1,44,243 TOTAL 5,76,972 UNSOLD FLATS- THE UNSOLD FLATS HAVE BEEN TAKEN AT T HE VALUE OF RS.4,32,480/- AS CLOSING STOCK(THREE FLATS). ITA 3119/MUM/2012 15 THE ASSESSEE FIRM WAS ASKED TO EXPLAIN THE VARIATIO N IN THE VALUATION OF INVENTORIES OF THE FLATS. THE ASSESSEE FIRM SUBMIT TED THAT AS PER THE CONDITION OF THE APPROVAL OF THE PROJECT, THE ASSESSEE FIRM I S REQUIRED TO ALLOT CERTAIN FLATS AS PER THE DIRECTIONS OF THE GOVERNMENT AUTHO RITIES AND SUCH CONCESSIONAL RATE IS ALSO DETERMINED BY THE GOVERNM ENT AUTHORITIES AND THE ASSESSEE FIRM DOES NOT HAVE ANY CONTROL OVER THE SA ME. AS PER ACCOUNTING STANDARD (AS) -2 PRESCRIBED BY THE INSTITUTE OF CHA RTERED ACCOUNTANTS OF INDIA (ICAI), THE STOCK IS REQUIRED TO BE VALUED E ITHER AT COST OR NET REALISTIC VALUE WHICH EVER IS LOWER. THE A.O. REJECTED THE C ONTENTIONS OF THE ASSESSEE FIRM ON THE GROUND THAT THE NET REALIZABLE VALUE TA KEN BY THE ASSESSEE FIRM IN THE FORM OF FOUR SOLD FLATS AND THREE UNSOLD FLATS IS TO BE TAKEN AS THE VALUE OF THE OPENING STOCK OF THE FLATS AND THERE IS VARIATI ON IN THE OPENING STOCK TO THE TUNE OF RS. 13,08,556/- (RS. 2318008/- (-) RS. 1009452/-(=)13,08,556/-), THE A.O. ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE FIRM VIDE ASSESSMENT ORDER DATED 30-12-2010 PASSED U/S 143(3) OF THE ACT. 12.AGGRIEVED BY THE ORDER DATED 30-12-2010 PASSED BY THE A.O. U/S 143(3) OF THE ACT, THE ASSESSEE FIRM PREFERRED AN APPEAL BEFO RE THE CIT(A). 13. BEFORE THE CIT(A) THE ASSESSEE FIRM SUBMITTED T HAT THE ADDITION OF RS. 13,08,556/- WAS MADE BY THE A.O. AS VARIATION OF OP ENING STOCK OF ULC FLATS. THE ASSESSEE FIRM SUBMITTED THAT AS PER THE CONDITI ON OF THE APPROVAL OF THE PROJECT, THE ASSESSEE FIRM IS REQUIRED TO ALLOT CER TAIN FLATS AT CONCESSIONAL RATE AS PER THE DIRECTION OF THE GOVERNMENT AUTHORITIES TO THE WEAKER SECTIONS FOR THEIR UPLIFTMENT . THIS IS MANDATORILY REQUIRED TO BE ALLOTTED TO ELIGIBLE ALLOTTEES AS PER THE CONCESSIONAL RATE PRESCRIBED BY THE GOVERNMENT AUTHORITY AND THE ASSESSEE FIRM DOES NOT HAVE ANY CONTROL OVE R THE SAME. DURING THE YEAR ENDING 31.03.2007, RELEVANT TO THE ASSESSMENT YEAR 2007-08, THE VALUE OF THE STOCK WAS TAKEN AT COST WHILE DURING THE YE AR UNDER APPEAL I.E. ASSESSMENT YEAR 2008-09 WHEN THE SALE OF THESE ULC FLATS WAS ACTUALLY ITA 3119/MUM/2012 16 UNDERTAKEN, THE REALIZABLE VALUE AS PER PRESCRIBED RATES WAS RECEIVED IN RESPECT OF FOUR FLATS SOLD BY THE ASSESSEE FIRM AND THE BALANCE THREE FLATS WERE LYING AS STOCK. THE ASSESSEE FIRM APPLIED AS- 2 - VALUATION OF INVENTORIES, AS PRESCRIBED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA(ICAI), THE STOCK IS REQUIRED TO BE VALUED EITHER AT COST OR AT NET REAL IZABLE VALUE WHICHEVER IS LESS. SINCE SUCH REALIZABLE VALUE BEING LESSER THAN THE COST, IT IS TAKEN AT NET REALIZABLE VALUE OF RS. 4,32,480/- FOR THE REMAININ G THREE FLATS. THE ASSESSEE FIRM SUBMITTED THAT FOR THE YEAR UNDER CONSIDERATIO N RELEVANT TO THE ASSESSMENT YEAR 2008-09, THE ASSESSEE FIRM HAS SHO WN 7 ULC FLATS AT THE VALUE OF RS. 23,18,008/- AS OPENING STOCK AND AT TH E END OF THE YEAR, VALUE FOR THE UNSOLD 3 ULC FLATS IS SHOWN AT RS. 4,32,480 /- AS CLOSING STOCK. DURING THE YEAR, 4 FLATS HAVE BEEN SOLD AT THE VALU E OF RS. 5,76,972/-. THE ASSESSEE FIRM SUBMITTED THAT THE BUILDER AND DEVELO PER OF THE PROJECT PROVIDES AN UNDERTAKING TO THE ADDITIONAL COLLECTOR & COMPET ENT URBAN AGGLOMERATION FOR HANDING OVER AND MAINTAINING TENEMENTS EQUIVALE NT TO 5% OF THE TOTAL AREA OF THE HOUSING SCHEME, TO BE ALLOTTED TO THE G OVERNMENT NOMINEES BEING WEAKER SECTIONS OF THE SOCIETY FOR THEIR UPLIFTMENT . THE ASSESSEE FIRM SUBMITTED THAT FROM THE COPY OF UNDERTAKING DATED 1 5.12.2005, CLEARLY EARMARKING THE NUMBER OF FLATS (BEING 7) AND THEIR LOCATION IN THE PROJECT, ALONG WITH REQUISITE ADDITIONAL CONDITIONS PERTAINI NG TO AMENITY CHARGES AND REQUESTING THE CONCERNED AUTHORITIES TO ALLOT THE F LATS AT THEIR DISCRETION TO THE SELECTED GOVERNMENT NOMINEES. IN THIS AGREEMENT THE RE IS NO MENTION OF THE RATE AT WHICH THE SAID FLATS ARE TO BE ALLOTTED TO THE APPOINTED GOVERNMENT NOMINEES. THE ASSESSEE FIRM SUBMITTED THAT UNTIL T HE COMPLETION OF THE PROJECT AND HANDING OVER THE SAID 7 ULC FLATS, THE ASSESSEE FIRM DOES NOT HAVE ANY IDEA AS TO WHAT VALUES WILL THESE FLATS FE TCH, THEREBY IT HAS NO OPTION BUT TO VALUE THEM AS STOCK-IN-TRADE, AS PER THE COS T OF CONSTRUCTION INCURRED FOR THE ENTIRE PROJECT COMPRISING OF BOTH ULC AND N ON-ULC FLATS. THEREAFTER, THE COMPETENT AUTHORITY, THANE FOR URBAN LAND REGUL ATION ACT, 1976, APPORTIONED THE SELECTED FLATS VIDE SEPARATE ALLOCA TION LETTERS ADDRESSED TO ITA 3119/MUM/2012 17 THE INDIVIDUAL GOVERNMENT NOMINEES, SPECIFYING THE EXACT COST TO BE PAID BY THE SAID NOMINEES TO THE CONCERNED BUILDERS. AT THI S JUNCTURE, THAT THE ASSESSEE FIRM IS MADE AWARE OF THE ACTUAL VALUE TO BE EXPECTED OF THESE ULC FLATS. THE CIT(A) AFTER CONSIDERING THE FINDINGS OF THE AO AS WELL AS THE SUBMISSIONS OF THE ASSESSEE FIRM HELD THAT THE AO T RIED TO CHANGE THE VALUE OF OPENING STOCK WITHOUT ANY ADJUSTMENT IN THE EARLIER YEAR. THE CIT(A) HELD THAT IT IS A SETTLED PRINCIPLE OF LAW THAT THE VALUE OF CLOSING STOCK OF LAST YEAR WILL BE THE OPENING STOCK OF SUBSEQUENT YEAR AND MOREOVER T HE ASSESSEE FIRM CANNOT BE ALLOWED TO CHANGE THE METHOD OF ACCOUNTING OF ST OCK IN DIFFERENT YEARS. WHEN OPENING STOCK WAS VALUED AT COST BY THE ASSESS EE FIRM, CLOSING STOCK SHOULD ALSO HAVE BEEN VALUED AT COST ONLY. HENCE, T HE CIT(A) DIRECTED THE A.O. TO RE-WORK THE DIFFERENCE IN STOCK OF THE UNSOLD FL ATS BY TAKING THEIR VALUE AT COST AS AGAINST THE VALUE DISCLOSED BY THE ASSESSEE FIRM ON NET REALISABLE VALUE AND ACCORDINGLY THE CIT(A) PARTLY ALLOWED THE GROUND VIDE ORDERS DATED 23-02-2012 . 14. AGGRIEVED BY THE ORDER OF THE CIT(A) DATED 23- 02-2012, THE ASSESSEE FIRM IS IN APPEAL BEFORE THE TRIBUNAL. 15. THE LD. COUNSEL FOR THE ASSESSEE FIRM SUBMITTED THAT THE DISPUTE HERE IS WITH REGARD TO THE CLOSING STOCK OF THE THREE FLATS , WHICH ARE UNSOLD FLATS. THE LD. COUNSEL SUBMITTED THAT FOUR FLATS WERE SOLD TO THE WEAKER SECTIONS FOR THEIR UPLIFTMENT AT A PRICE FIXED BY THE GOVERNMENT AUTHO RITIES ON WHICH THE ASSESSEE FIRM HAS NO CONTROL IN FIXING THE SAID PRI CE. OUT OF SEVEN FLATS, THE REMAINING THREE UNSOLD FLATS WERE VALUED AT THE COS T OR NET REALISABLE VALUE WHICH EVER WAS LOWER BUT THE A.O. HAS VALUED THE SA ME AT COST. THE LD. COUNSEL SUBMITTED THAT AS PER AS-2 ISSUED BY THE IC AI, IT IS MANDATORY THAT STOCK IS REQUIRED TO BE VALUED EITHER AT COST OR AT NET REALISABLE VALUE WHICHEVER IS LOWER. THE ASSESSEE FIRM, BEING BUILD ER AND DEVELOPER OF THE PROJECT, PROVIDES AN AGREEMENT TO THE ADDITIONAL CO LLECTOR & COMPETENT ITA 3119/MUM/2012 18 AUTHORITY, URBAN AGGLOMERATION FOR HANDING AND MAIN TAINING, WHEREBY THE ASSESSEE IS COMPELLED TO OFFER 5% OF THE TOTAL AREA OF THE HOUSING SCHEME TO BE ALLOTTED TO THE GOVERNMENT NOMINEES WHICH ARE WEAKE R SECTION OF THE SOCIETY AT GOVERNMENT DETERMINED RATE AND THE ASSESSEE HAS NO CONTROL OVER THE SAME IN FIXING THE PRICE.THE ASSESSEE FIRM REITERATED IT S SUBMISSIONS AS MADE BEFORE THE AUTHORITIES BELOW WHICH IS NOT REPEATED FOR THE SAKE OF BREVITY. 16. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PE RUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASS ESSEE FIRM HAS CONSTRUCTED BUILDINGS AND AS PER THE MANDATORY REQUIREMENT, THE ASSESSEE FIRM IS REQUIRED TO ALLOT TO ELIGIBLE ALLOTTEES AS PER THE CONCESSIONAL RATE PRESCRIBED BY THE GOVERNMENT AUTHORITY EQUIVALENT TO 5% OF THE TO TAL AREA OF THE HOUSING SCHEME TO THE WEAKER SECTIONS OF THE SOCIETY. THE ASSESSEE FIRM HAS NO CONTROL OVER THE PRICE AND THE SAME WILL BE DETERMI NED BY THE GOVERNMENT AUTHORITY. THE ASSESSEE FIRM HAS SEVEN FLATS AND O UT OF WHICH FOUR FLATS WERE SOLD AT FIXED PRICE AND THREE FLATS WERE UNSOLD AS AT THE END OF THE FINANCIAL YEAR. HENCE , THE ASSESSEE FIRM HAS COMPUTED THE VA LUATION OF THESE THREE UN- SOLD FLATS AT THE PRICE FIXED BY THE GOVERNMENT AUT HORITIES WHICH WAS FAR LOWER THAN THE ACTUAL COST. IN OUR CONSIDERED VIEW, THE A SSESSEE FIRM HAS VALUED THE STOCK AT COST OR NET REALISABLE VALUE WHICHEVER IS LOWER AS PER AS -2 PRESCRIBED BY ICAI WHICH IS AN ACCEPTED METHOD OF V ALUATION OF INVENTORIES AS PRESCRIBED BY THE ICAI AND REQUIRED TO BE MANDATORI LY FOLLOWED BY THE ENTERPRISES AND THE CHANGE IN THE METHOD OF VALUATI ON OF THE STOCK BY THE ASSESSEE FIRM FROM COST METHOD TO COST OR NET RE ALISABLE VALUE METHOD WHICHEVER IS LOWER IS BONAFIDE AND THE ASSESSEE FIR M HAS RIGHTLY CHANGED THE METHOD OF VALUATION OF INVENTORIES FROM COST TO COST OR NET REALISABLE VALUE WHICHEVER IS LOWER METHOD OF VALUATION OF INVENTORI ES , WHICH IS A RECOGNISED ITA 3119/MUM/2012 19 METHOD OF VALUATION OF INVENTORIES. THE ASSESSEE FI RM HAS NO CONTROL OVER THE FIXING OF PRICE ON THESE THREE UN-SOLD FLATS AS PER CONDITIONS IMPOSED BY GOVERNMENT AUTHORITIES WHILE APPROVING THE PROJECT AND AS PER UNDERTAKING GIVEN BY THE ASSESSEE FIRM TO THE GOVERNMENT AUTHOR ITIES RATHER THE PRICES OF THESE FLATS TO BE OFFERED AND SOLD TO WEAKER SECTIO NS OF THE SOCIETY ARE DETERMINED AND FIXED BY THE GOVERNMENT AUTHORITIES OF WHICH THE ASSESSEE FIRM HAS NO CONTROL IN THE FIXATION OF PRICE WHICH IS FIXED BY GOVERNMENT AUTHORITIES WHICH IS BINDING ON THE ASSESSEE FIRM. AS-2 STIPULATES THAT THE STOCK IS REQUIRED TO BE VALUED EITHER AT COST OR AT NET REALISABLE VALUE WHICHEVER IS LESS. THE ASSESSEE FIRM , IN OUR CONS IDERED VIEW , HAS RIGHTLY ADOPTED THE METHOD OF VALUATION OF CLOSING STOCK OF INVENTORIES AT COST OR NET REALISABLE VALUE WHICHEVER IS LOWER WHICH IS SUPPOR TED BY AS-2 ISSUED BY THE ICAI AND CHANGE IN THE METHOD OF VALUATION OF INVEN TORY IS BONA-FIDE AND HENCE WE DO NOT FIND ANY ERROR IN THE CHANGE OF MET HOD OF VALUATION OF STOCK ADOPTED BY THE ASSESSEE FIRM AS DETAILED ABOVE, HEN CE, THE ADDITION MADE BY THE A.O. AND AS CONFIRMED BY THE CIT(A) IS DELETED AND THE VALUATION OF THE CLOSING STOCK OF THREE UNSOLD FLAT AS ADOPTED BY TH E ASSESSEE FIRM BASED ON GOVERNMENT AUTHORITIES NOTIFIED RATES FOR OFFERING THESE THREE FLATS TO WEAKER SECTIONS OF THE SOCIETY IN TERMS OF THE CONDITIONS OF APPROVAL OF THE PROJECT IS ACCEPTED AS THE ASSESSEE FIRM HAS TO COMPULSORILY S ELL THESE THREE FLATS AT A PRICE FIXED BY GOVERNMENT AUTHORITIES AND THE ASSES SEE FIRM IS BOUND BY THE PRICE FIXED BY THE GOVERNMENT AUTHORITIES AS THE SA ME WAS PART OF THE CONDITION IMPOSED BY THE GOVERNMENT WHILE APPROVING THE PROJECT AND UNDERTAKING GIVEN BY THE ASSESSEE FIRM TO THE GOVER NMENT AUTHORITIES. WE ORDER ACCORDINGLY. 18. THE LAST ISSUE IS REGARDING ARITHMETICAL ERROR WHICH HAVE CREPT IN THE ASSESSMENT ORDER DATED 30-12-2010 PASSED BY THE A.O U/S 143(3) OF THE ACT. IN THIS REGARD IT WAS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE FIRM THAT THE CIT(A) HAS NOT ADJUDICATED THE ISSUE PERTAINING TO ARITHMETICAL MISTAKE ITA 3119/MUM/2012 20 COMMITTED BY THE A.O. IN HIS ASSESSMENT ORDER DATED 30-12-2010 PASSED U/S 143(3) OF THE ACT DESPITE THE GROUND OF APPEAL RAIS ED BY THE ASSESSEE FIRM IN THE FIRST APPEAL FILED BEFORE THE CIT(A). IT WAS S UBMITTED THAT THERE ARE ARITHMETICAL ERRORS IN THE ASSESSMENT ORDER DATED 3 0-12-2010 PASSED BY THE AO U/S 143(3) OF THE ACT WHICH HAS NOT BEEN RECTIFI ED BY THE CIT(A) VIDE ORDERS DATED 23-02-2012 DESPITE THE GROUND OF APPEA L TAKEN BY THE ASSESSEE FIRM BEFORE THE CIT(A). THE LD. COUNSEL ACCORDINGL Y SUBMITTED THAT DIRECTIONS MAY BE GIVEN TO THE A.O. TO CORRECT THE ARITHMETICA L ERROR ON MERITS. THE LD. D.R. SUBMITTED THAT HE HAS NO OBJECTION IF THE MATT ER IS SENT BACK TO THE A.O. FOR CORRECTION OF ARITHMETICAL ERRORS WHICH HAVE CR EPT IN THE AFORE-STATED ASSESSMENT ORDER DATED 30-12-2010 PASSED U/S. 143(3 ) OF THE ACT ON MERITS. IN THE INTEREST OF JUSTICE, WE DIRECT THE A.O. TO C ONSIDER THE GRIEVANCE OF THE ASSESSEE FIRM ON MERITS WITH RESPECT TO THE CORRECT ION OF THE ARITHMETICAL ERROR WHICH HAVE CREPT IN THE ASSESSMENT ORDER DATED 30-1 2-2010 PASSED U/S 143(3) OF THE ACT. WE ORDER ACCORDINGLY. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE FIRM IN ITA N0. 3119/MUM/2012 FOR THE ASSESSMENT YEAR 2008-09 IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH FEB, 2016. # $% &' 24-02-2016 ( ) SD/- SD/- - (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 24-02-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI ITA 3119/MUM/2012 21 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI H BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI