M/S. Sahara City Homes, Aligarh V. Income Tax Officer - 3(4), Range- 3, Lucknow

ITA 32/LKW/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 9382 (ITAT-LUCKNOW)
• Duration Of Justice: 3 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 27-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Valuation report
• Section: 69C; 142(2A)

Judgement Text

ITA No.24 to 39/LKW/2019 Page 4 of 46 ITA No.37/LKW/2019 Assessment Year: 2012-13 M/s Sahara City Homes – Jamnagar 2, Sahara India Centre Kapoorthala Complex Aliganj, Lucknow v. ITO-3(4) Lucknow TAN/PAN:ABZFS2489M (Appellant) (Respondent) ITA No.38/LKW/2019 Assessment Year: 2012-13 M/s Sahara City Homes – Rajkot 2, Sahara India Centre Kapoorthala Complex Aliganj, Lucknow v. ITO-3(4) Lucknow TAN/PAN:ABZFS4659K (Appellant) (Respondent) ITA No.39/LKW/2019 Assessment Year: 2012-13 M/s Sahara City Homes – Anand 2, Sahara India Centre Kapoorthala Complex Aliganj, Lucknow v. ITO-3(4) Lucknow TAN/PAN:ABZFS2473D (Appellant) (Respondent) Appellant by: Shri Vijay Mehta, C.A. Respondent by: Shri Sushil Madhuk, CIT (DR) (on 4.2.2020 and 5.2.2020) & Smt. Sheela Chopra, CIT (DR)(on 2.11.2021) Date of hearing: As above Date of pronouncement: 31 01 2022 O R D E R PER BENCH: These are Sixteen appeals filed by different assessees against the respective orders of the ld. CIT(A), Varanasi, for ITA No.24 to 39/LKW/2019 Page 19 of 46 that the ld. CIT(A) was well justified in proceeding on the basis of the second Remand Report, in view of the fact that the first Remand Report of the Assessing Officer stood prepared on the sole basis of the audited Balance Sheet and the Profit and Loss Account, rather than on the basis of on-site physical examination of the work done, which, indubitably, is the only rational basis on which any work-in-progress can be examined; that despite the Assessing Officer having asked the assessee to submit the valuation report, the assessee refused to /did not do so; that the assessee never assisted the DVO in getting the valuation of the property done; that it was solely due to the utter non-cooperative attitude of the assessee in assisting the DVO, that the valuation of the property could not be done; that the value of the work-in- progress, as projected by the assessee, was never substantiated by any hard documentary evidence; and that neither any detail of the customers’ advances, nor that of additions to fixed assets, was filed by the assessee, either before the Assessing Officer, or before the ld. CIT(A). 25. The DR has averred that in this manner, the assessee had neither been able to prove the liabilities which it had acquired from SICCL, nor the work-in-progress, thereby rendering the additions as made by the Assessing Officer and confirmed by the ld. CIT(A), to be entirely correct, not calling for any interference/deletion. It has been contended that in this view of the matter, the ld. CIT(A) cannot be faulted for upholding the additions correctly made by the Assessing Officer. It has been submitted that this being so, the Grounds raised by the assessee against the additions, are required to be rejected outright. 26. The ld. D.R. has contended that without prejudice and in the alternative, since the role of the DVO is crucial in this ITA No.24 to 39/LKW/2019 Page 23 of 46 the consideration has been fixed at Rs.46,84,19,482/-. The second asset which is agreed to be transferred, is related land and the development rights, which were to be acquired by the transferor. The said rights were to be transferred within a period of one year and the price thereof was to be determined mutually. Further, the valuation of the WIP is to be at the instance of the second party, who has been given the right to do so, if required. The valuation is not mandatory and, hence, the conclusion of the CIT(A) is not only irrelevant, but also incorrect. It is interesting to note that the ld. CIT(A) has raised his objection of valuation of WIP as per the agreement between the assessee and SICCL. This agreement, however, is applicable to acquisition of WIP, amounting to Rs.46,84,19,482/- only. However, in the process, the ld. CIT(A) has confirmed the addition in respect of WIP acquired from SPCL as well as expenditure incurred during the year and debited to the WIP. 35. In any case, it is beyond comprehension as to how, if the party to the agreement does not exercise the right of carrying out valuation, it becomes a case of addition under section 69C of the Act, and that too, in a year other than the year of the transaction. 36. The ld. CIT(A) has further observed that the WIP was entered in the books of the assessee without any supporting evidence. 37. The assessee had filed before the Assessing Officer as well as the ld. CIT(A), its Balance Sheet (APB:46) for the year ended 31.3.2011. In Schedule 5 thereto, the amount due (Rs.47,26,37,956/-) stands shown under “Current Liabilities and Provisions.” ITA No.24 to 39/LKW/2019 Page 27 of 46 of audited statements and Ledger Accounts of SICCL and SPCL, for assessment year 2010 – 11, were also perused [para (i)]. 47. It is only after having recorded the fact of examination/perusal of the above documentary evidences filed by the assessee (some of them on the requisition of the AO himself), that the AO notes in the Remand Report, that the cumulative WIP amounting to Rs.50,91,92,350/- appears in Schedule 3 forming part of the inventory, totaling to Rs.62,23,15,822/- appearing in the Balance Sheets of Sahara City Homes, Bareilly, for the year ended 31.3.2011 and not being routed through the related Profit and Loss Account as closing stock, since the firm was in operation for only three days during Financial Year 2010 – 11 pursuant to execution of the Partnership Deed on 28.3.11, and that subsequently, the WIP of Rs.50,91,92,350/- appears as part of opening inventories totalling to Rs.62,23,15,822/- in the Profit and Loss Account for the year ending 31.3.2012 [Para (i)]. 48. And the Remand Report does not conclude the issue at that! It goes on to state that further, by way of a specific Query Letter dated 17.4.2017 [a copy whereof was also enclosed with the Remand Report and submitted to the ld. CIT (A)], the assessee firm was directed to furnish the details of any construction/development activities resulting in the WIP in question, the real estate projects carried on by it, and the relevant approvals and permits regarding change of land-use, and environmental clearances, etc., relating thereto. The Report states that in its Reply (a copy of which was enclosed with the Remand Report dated 24.4.17), the assessee firm had said that it had carried out activities relating to site clearing, levelling, landfilling, removal of boulders, excavation and watering, etc., to consolidate the land holdings contributed by the transferors, etc. ITA No.24 to 39/LKW/2019 Page 28 of 46 The Report states that the relevant approvals and permits, etc., from the concerned authorities, in respect of the projects under consideration, which are relevant approvals and permits, etc., and which were being enclosed with the Remand Report, for the perusal of the ld. CIT(A), had also been furnished by the assessee. The Report states that in the same reply, the assessee had informed that the transfer of WIP by SICCL to the assessee firm during Financial Year 2010 – 11 had been accepted during scrutiny assessment proceedings by SICCL’s AO, viz., the DCIT, Circle 1, New Delhi, and that he had added notional profit on the said transfer, vide his order dated 20.11.14, passed under sections 143(3)/142(2A) of the Act, subsequent to special audit of the accounts of SICCL, under section 142(2A) of the Act. The Report states that likewise, as per the same Reply, the assessee had informed that no adverse finding, as regards the WIP transferred by SPCL to the assessee firm, had been given in its assessment order dated 27.3.14, for Assessment Year 2011 –12, passed by the DCIT, Central Circle – 6, New Delhi. The Report states that copies of the said assessment order had been enclosed by the assessee with its Reply dated 24.4.17. 49. Thus, the Remand Report dated 08.05.2017 has certainly and evidently not been prepared merely on the basis of the audited Balance Sheet and the Profit and Loss Account. Conversely, it has been prepared after taking into consideration, the following documentary evidences, as furnished by the assessee, some (as indicated) on the asking of the AO himself: (a) The Audited Financial Statements of SICCL, for assessment year 2011-12. (b) The Audited Financial Statements of SICCL, for assessment year 2012-13. (c) The Audited Financial Statements of SPCL, for assessment year 2011-12. ITA No.24 to 39/LKW/2019 Page 31 of 46 Account as closing stock, since the assessee firm had remained in operation for only three days during the Financial Year 2010- 11, pursuant to execution of the partnership deed on 28.3.11. The WIP of Rs.50,91,92,350/- was found to subsequently appear in the Profit and Loss Account for the year ending 31.3.2012, as part of the opening inventories totalling Rs.62,23,15,822/-. No fault was found therein, and it cannot be gainsaid that rightly so, in the presence of all the aforesaid voluminous documents of clinching unshaken evidentiary value. Therefore, in the absence of anything opposed to this evidence coupled with the undisputed fact that the assessee had not added anything further to the works-in-progress acquired by it, in its short existence of just three days during the relevant year, and despite the fact that in the next year also, the assessee had carried out only activities of site cleaning, levelling, landfilling, removal of boulders, excavation and watering, etc., so as to consolidate the land holdings contributed by its transferors, which also remained unchallenged in view of the evidences produced in the shape of the relevant approvals and permits, etc., no physical examination of the work done was called for. Rather, it would have been an exercise in futility. Only the expenditures incurred had been, the project being in its initial stage, and so, no addition having made to the physical assets, debited to the WIP Account. When the WIP thus, in fact, comprises only of expenditure like that incurred on levelling of the land, survey, fees of the municipality, salary of the staff and security charges, etc., indubitably, getting the valuation of such WIP from the DVO is infeasible. It is well settled that nomenclature is not decisive of nature. Just because expenditure was debited to the WIP Account, it could not have been concluded that the WIP Account pertained to buildings under construction, or any other asset. It is not the Revenue’s case that ITA No.24 to 39/LKW/2019 Page 32 of 46 such debiting of expenditure to the WIP Account is not permissible. Moreover, the transfers of the works-in-progress stand accepted in the respective assessments framed in the cases of SICCL and SPCL, which fact, again, stands proved on record and remains unquestioned. As such, neither would physical examination of the work done help in adjudicating the issues, nor could the DVO carry out the valuation of the expenditure incurred on WIP. This also supports our rejection of the Department’s request to remand the issue to the file of the Assessing Officer for valuation at the hands of the DVO. 52. Then, otherwise also, the requirements for making additions under sections 69C and 68 of the Act are specific and entirely peculiar thereto. They have no interplay with valuation of the works-in-progress. They operate separately in their respective distinct areas. That being so, valuation of the works-in-progress could not have any bearing whatsoever, on the additions made. 53. Therefore, even this observation of the ld. CIT(A) cannot be sustained. 54. The ld. CIT(A) further observed that when the Assessing Officer required the assessee to submit the valuation report and/or to assist the DVO in getting the valuation of the property done to ascertain the exact WIP, the assessee, for reasons best known to it, did not give any detail/assistance to the DVO, and the valuation could not be done, and that it is thus clear that the rationale of the value of the WIP has not been substantiated by the assessee. 55. It is seen, as above, that in the remand proceedings, the assessee provided full cooperation to the Assessing Officer. This fact stands acknowledged by the Assessing Officer in his Remand Report dated 08.05.2017. The assessee placed before the ITA No.24 to 39/LKW/2019 Page 33 of 46 Assessing Officer, all material facts and details along with the relevant documentary evidences, which were duly examined by the Assessing Officer. All these voluminous documentary evidences were also filed before the ld. CIT(A). 56. To elaborate, as stated above, the assessee had filed before the Assessing Officer as well as the ld. CIT(A), its Balance Sheet (APB:46) for the year ended 31.3.2011, Ledger Account (APB:43) of WIP as on 31.3.2011, the details of the WIP along with the evidences supporting the same (APB:178-256), etc. The Assessing Officer, in the first remand proceedings, examined the audited financial statements of SICCL, SPCL and the assessee, for Assessment Years 2011-12 and 2012-13, the related Ledger Accounts in the books of all these three parties, the respective confirmatory statements of these parties, and the audited statements and Ledger Accounts of these parties, the audited statements and Ledger Accounts of SICCL and SPCL, for Assessment Year 2010-11. The Assessing Officer found the WIPs to have been duly accounted for in the aforesaid voluminous documentary evidences, preceding the transfer of these WIPs to the assessee. The ld. CIT(A) has not made any adverse remark with regard to the said evidences. 57. The Assessing Officer also examined, and did not find any discrepancy, in the relevant approvals and permits, etc., from the concerned authorities, regarding the assessee’s activities relating to site clearing, levelling, land filling, removal of boulders, excavation, etc. These evidences were also furnished before the ld. CIT(A), who too did not find any fault therein. 58. The assessee also furnished before the authorities below, assessment orders in the cases of SPCL and SICCL, for