Shri Late N.Krishnamurthy By L/H K.Sudakar, Ariyalur V. ITO, Trichy

ITA 342/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4812 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 16-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 22-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V D GOPAL SHRI SHAJI P JACOB
• Keywords: Rejection of books of accounts; Value adopted by valuation officer; Valuation report; Procedural lapse
• Section: 69; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AN D SHRI GEORGE MATHAN, JUDICIAL MEMBER .. I.T.A. NOS. 339 TO 341/MDS/2010 ASSESSMENT YEARS :2001-02, 2002-03 & 2003-04 LATE N. KRISHNAMURTHY, BY L/H SHRI K. SUTHAKAR, 19-A, M.P. KOIL STREET, ARIYALUR-621704 V. THE INCOME-TAX OFFICER, WARD IV(2), TIRUCHIRAPPALLI (PAN: AACPK 6693H ) A N D I.T.A, NO. 342/MDS/2010 ASSESSMENT YEAR : 2004-05 SHRI K. SUTHAKAR, THE INCOME-TAX OFFICER, 19-A, M.P.KOIL STREET, WARD-IV(2), ARIYALUR-621704. TIRUCHIRAPPALLI. (PAN : ABAPS3563K) (APPELLANTS) (RESPONDENT) APPELLANTS BY : SHRI V.D. GOPAL RESPONDENT BY : SHRI SHAJI P. JACOB O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER : THESE ARE FOUR APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED CI T(APPEALS), TIRUCHIRAPPALLI IN ITA NOS. 315 TO 318/08-09 DATED 18-01-2010 FOR THE ASSESSMENT YEARS 2001-02, I.T.A. NO.339-342/MDS/2010 2 2002-03, 2003-04 AND 2004-05.2. SHRI V. D. GOPAL, ADVOCATE REPRESENTED ON BEHALF OF THE ASSESSEE AND SHRI SHAJI P. JACOB, LEA RNED SR. DR REPRESENTED ON BEHALF OF THE REVENUE. 2. IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRE SENTATIVE THAT THE ASSESSEE IS AN INDIVIDUAL. THE ASSESSEE HAS BEEN TREATED AS THE LEGAL REPRESENTATIVE OF SHRI N. KRISHNAMURTHY FOR THE ASSESSMENT YEARS 2001-02 T O 2003-04 AND THE FOR ASSESSMENT YEAR 2004-05 THE ASSESSMENT IS IN THE HA NDS OF SHRI K. SUTHAKAR HIMSELF. IT WAS THE SUBMISSION THAT SHRI KRISHNAMU RTHY, THE FATHER OF THE ASSESSEE EXPIRED ON 18-12-2002. IT WAS THE SUBMISS ION THAT DURING HIS LIFE TIME, SHRI KRISHNAMURTHY CONSTRUCTED A BUILDING IN ARIYAL UR WHICH COMPRISED BOTH COMMERCIAL UNITS AND RESIDENTIAL UNITS. BETWEEN TH E ASSESSMENT YEARS 2001-02 AND 2003-04, SHRI KRISHNAMURTHY HAD INVESTED ABOUT ` 23,81,909/- IN THE CONSTRUCTION OF THE BUILDING AND THE ASSESSEE SHRI K. SUTHAKAR HAD INVESTED AN AMOUNT OF ` 1,60,000/- DURING THE ASSESSMENT YEAR 2004-05. IT WAS THE SUBMISSION THAT CUMULATIVELY THE INVESTMENT IN THE BUILDING WAS SHOWN IN THE BOOKS AT ` 25,41,909/-. THE RETURNS OF INCOME HAD BEEN FILED BY LATE SHRI KRISHNAMURTHY FOR THE ASSESSMENT YEARS 2001-02 TO 2 02-03 AND THEY WERE ALSO PROCESSED U/S 143(1) OF THE INCOME-TAX ACT, 1961. THE ASSESSING OFFICER HAD ON THE ASSUMPTION THAT THE PROPERTY HAD BEEN CONSTRUCT ED IN THE HANDS OF THE FIRM IN WHICH SHRI KRISHNAMURTHY WAS A PARTNER HAD REFERRED THE COST OF CONSTRUCTION OF THE SAID PROPERTY TO THE DEPARTMENTAL VALUATION OFF ICER (DVO FOR SHORT) AND THE I.T.A. NO.339-342/MDS/2010 3 DVO HAD VALUED THE COST OF CONSTRUCTION AT ` 48,90,600/- WHICH WAS OBJECTED TO BY THE FIRM AND AFTER CONSIDERING THE OBJECTIONS RA ISED BY THE FIRM, THE ASSESSING OFFICER HAD FIXED THE COST OF CONSTRUCTION AT ` 39,66.203/-. IT WAS THE SUBMISSION THAT THE DIFFERENCE IN THE COST OF CONSTRUCTION WAS WORKED OUT TO ` 14,24,294/- AND THE SAME WAS BROUGHT TO TAX FOR THE RELEVANT AS SESSMENT YEARS ON THE BASIS OF THE RATIO OF EXPENSES INCURRED IN THE CONSTRUCTI ON AS ADMITTED IN THE BOOKS OF ACCOUNTS. IT WAS THE SUBMISSION THAT SUBSEQUENTLY ON APPEAL BY THE FIRM BEFORE THE LEARNED CIT(A), THE LEARNED CIT(A) HAD VIDE HIS ORDER DATED 22.4.2008 HELD THAT THE PROPERTY DID NOT BELONG TO THE FIRM AND HE CONSEQUENTLY DELETED THE ADDITIONS. IT WAS THE FURTHER SUBMISSION THAT DURI NG THE PENDENCY OF THE APPEAL OF THE FIRM BEFORE THE LEARNED CIT(A) IN MARCH,2007 NOTICE U/S 148 HAD BEEN ISSUED ON THE ASSESSEE FOR THE ASSESSMENT YEARS 200 1-02 TO 2003-04. THE ASSESSEE HAD FILED HIS RETURN IN THE STATUS AS LEGA L HEIR FOR THE ASSESSMENT YEARS 2001-02 TO 2003-04 AND THE ADDITION REPRESENTING TH E DIFFERENCE IN THE COST OF CONSTRUCTION AS VALUED BY THE DVO AND AS DISCLOSED BY THE ASSESSEE IN HIS BOOKS OF ACCOUNTS HAD BEEN BROUGHT TO TAX FOR THE ASSESSM ENT YEARS 2001-02 TO 2004- 05. IT WAS THE SUBMISSION THAT FOR THE ASSESSMENT YEAR 2004-05 AS THE INVESTMENT HAD BEEN MADE BY SHRI K. SUTHAKAR, THE S AME WAS UNDER REGULAR ASSESSMENT. IT WAS THE SUBMISSION THAT ON APPEAL B EFORE THE LEARNED CIT(A), THE LEARNED CIT(A) HAD REDUCED THE COST OF CONSTRUCTION FIXED BY THE ASSESSING OFFICER BY STATING THAT PWD RATES SHOULD BE APPLIED AND CON SEQUENTLY GRANTED A FURTHER I.T.A. NO.339-342/MDS/2010 4 DEDUCTION OF 20%. THUS THE COST OF CONSTRUCTION WA S FIXED AT ` 31,81,011/- AND THE DIFFERENCE OF ` 6,39,102/- WAS ADDED PROPORTIONATELY FOR THE ASSES SMENT YEARS UNDER APPEAL IN LINE WITH THE RATIO OF EXPENSES INC URRED IN THE CONSTRUCTION AS ADMITTED IN THE BOOKS OF ACCOUNTS. IT WAS THE SUBM ISSION BY THE LEARNED AUTHORISED REPRESENTATIVE THAT, (I) THE RE-OPENING OF THE ASSESSMENT WAS DONE MU CH BEFORE THE ORDER OF THE LEARNED CIT(A) IN THE CASE OF THE FIRM, (II) THE VALUATION REPORT WAS TAKEN IN RESPECT OF THE PROCEEDINGS WHICH WERE OPEN IN THE HANDS OF THE FIRM AND WHEN THE DVO REPO RT WAS CALLED FOR, NO PROCEEDINGS WERE PENDING OR OPEN IN THE HANDS OF TH E ASSESSEE AND (III) THE BOOKS OF ACCOUNT WERE MAINTAINED AND TH E AS THE BOOKS OF ACCOUNT OF THE ASSESSEE HAS NOT BEEN REJECTED, THERE WAS NO ROOM FOR ESTIMATING THE COST OF CONSTRUCTION BY THE DVO. FOR THESE PROPOSITIONS HE PLACED RELIANCE UPON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. K. RAJAPANDIAN, REPORTED IN 311 ITR 477, THE DECISION OF THE HON'BLE SUPREME COURT IN T HE CASE OF ASSISTANT COMMISSIONER OF INCOME-TAX V. DHARIYA CONSTRUCTION CO., REPORTED IN 328 ITR 515 (S.C.) AND THE DECISION OF THE HON'BLE SUPREME COUR T IN THE CASE OF SARGAM CINEMA V. CIT, REPORTED IN 328 ITR 513 AS ALSO THE DECISION OF THE AHMEDABAD BENCH OF THIS TRIBUNAL IN THE CASE OF RAJHANS BUILD ERS V. DEPUTY COMMISSIONER OF INCOME-TAX, REPORTED IN (2010) 41 SOT 331 (AHD.). I.T.A. NO.339-342/MDS/2010 5 3. IN REPLY, THE LEARNED DR SUBMITTED THAT IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME-TAX V. RAJESH JHAVERI STOCK BROKERS P. LTD. REPORTED IN 291 ITR 5 00 AS THE RETURNS FILED WERE PROCESSED UNDER SECTION 143(1), THE RE-OPENING WAS FULLY PERMISSIBLE. IT WAS THE FURTHER SUBMISSION THAT THE DVOS VALUATION IS ONLY IN REGARD TO A BUILDING AND NOT IN REGARD TO A FIRM AND EVEN ASSUMING THAT THE DVO REPORT COULD NOT BE TAKEN, IT WAS ONLY A PROCEDURAL IRREGULARITY AND THE ISSUE MA Y BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR OBTAINING A FRESH DVO REPORT. 4. IN REGARD TO THE MAINTENANCE OF BOOKS OF ACCOUNT S IT WAS SUBMITTED BY THE LEARNED DR THAT IN THE RETURNS FILED THE ASSESSEE H IMSELF HAD DISCLOSED ADDITIONAL INCOME ON ACCOUNT OF THE COST OF CONSTRUCTION WHICH ITSELF SHOWED THAT THE BOOKS OF ACCOUNTS WERE NOT RELIABLE. IT WAS THE SUBMISSI ON THAT THE ORDER OF THE LEARNED CIT(A) WAS LIABLE TO BE SUSTAINED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. HERE IT IS NOTICED THAT THE RE- OPENING OF THE ASSESSMENTS HAS BEEN DONE AS THE RET URNS HAD BEEN PROCESSED UNDER SECTION 143(1). IN THE CIRCUMSTANCES, IN VIE W OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK B ROKERS P. LTD., REFERRED TO SUPRA, WE ARE OF THE VIEW THAT THE RE-OPENING IS VA LID. 6. A PERUSAL OF THE ASSESSMENT ORDER CLEARLY SHOWS THAT THE DIFFERENCE IN THE COST OF CONSTRUCTION HAS BEEN WORKED OUT AND THE SA ME HAS BEEN ADDED ON THE BASIS OF THE RATIO OF EXPENSES INCURRED IN THE CONS TRUCTION AS ADMITTED IN THE I.T.A. NO.339-342/MDS/2010 6 BOOKS OF ACCOUNTS. THUS IT BECOMES CLEAR THAT THE ASSESSEE HAS BEEN MAINTAINING BOOKS OF ACCOUNTS AND THIS HAS ALSO BEEN SEEN BY TH E ASSESSING OFFICER. HOWEVER THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACCOUNTS. ONCE THE BOOKS OF ACCOUNTS ARE NOT REJECTED, NO ADDITION CAN BE MADE ON ACCOUNT OF THE COST OF CONSTRUCTION. A PERUSAL OF THE PROVISIONS OF SECTI ON 142A WHICH PROVIDES FOR REFERENCE FOR VALUATION TO THE DVO SHOWS THAT IT WA S FOR THE PURPOSE OF MAKING AN ASSESSMENT OR RE-ASSESSMENT UNDER THE ACT AND WHERE AN ESTIMATE OF THE VALUE OF AN INVESTMENT REFERRED TO SECTION 69 OR 69B IS REQU IRED TO BE MADE, THE ASSESSING OFFICER MAY REQUIRE THE VALUATION OFFICER TO MAKE A N ESTIMATE OF SUCH VALUE AND REPORT TO HIM. SECTIONS 69 AND 69A ARE IN REGARD T O AN ASSESSEE WHO HAS MADE INVESTMENTS WHICH ARE NOT RECORDED IN THE BOOKS OF ACCOUNTS. HERE THE INVESTMENT HAS BEEN RECORDED IN THE BOOKS OF ACCOUN T AND WHAT HAS BEEN RECORDED IN THE BOOKS OF ACCOUNT HAS NOT BEEN QUEST IONED OR DISBELIEVED. THUS THE BOOKS OF ACCOUNTS OF THE ASSESSEE REMAIN INTACT AND UNDISTURBED. THE ISSUE RAISED BY THE LEARNED DR THAT THE ASSESSEE HAS OFFE RED ADDITIONAL INCOME IN REGARD TO THE COST OF CONSTRUCTION OF THE BUILDING IN FILING HIS RETURNS DOES NOT MAKE HIS BOOKS OF ACCOUNTS UNRELIABLE. THIS IS BEC AUSE THE COST OF CONSTRUCTION AS RECORDED IN THE BOOKS REMAINS INTACT AND THE SOURCE FOR INVESTMENT IN THE COST OF CONSTRUCTION WHICH THE ASSESSEE KNOWS HE HAS INVEST ED AND WHICH HE IS UNABLE TO SUBSTANTIATE THAT HE HIMSELF HAS OFFERED AS AN ADDI TIONAL INCOME TO HIS TOTAL INCOME. THUS, IN VIEW OF THE DECISION OF THE HON'B LE SUPREME COURT IN THE CASE OF I.T.A. NO.339-342/MDS/2010 7 SARGAM CINEMA, REFERRED TO SUPRA, AS THE BOOKS OF A CCOUNTS HAVE NOT BEEN REJECTED, WE ARE OF THE VIEW THAT THE ADDITION TO T HE COST OF CONSTRUCTION CANNOT BE MADE BY REFERENCE TO THE DVO REPORT. THE DECISI ON RELIED UPON BY THE LEARNED AUTHORISED REPRESENTATIVE IN THE CASE OF K. RAJAPAN DIAN, REFERRED TO SUPRA, WOULD NOT COME TO THE RESCUE OF THE ASSESSEE INSOFAR AS T HE REASSESSMENT IS NOT BASED ON THE REPORT OF THE DVO. SO ALSO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF DHARIA CONSTRUCTION CO., REFERRED TO SU PRA. 7. HERE, IN THE PASSING, WE MAY ALSO MENTION THAT T HE LEARNED CIT(A) IN PARA 3 OF HIS ORDER HAS RECOGNIZED THAT THE CPWD RATE CANN OT BE APPLIED FOR VALUING THE SAID PROPERTY. HE HAS ALSO RECOGNIZED THAT APPROPR IATE DEDUCTION FOR SELF SUPERVISION CHARGES IS LIABLE TO BE GIVEN TO THE AS SESSEE. HOWEVER, WHILE GRANTING RELIEF TO THE ASSESSEE THE LEARNED CIT(A) HAS ONLY REDUCED THE VALUE ADOPTED BY THE ASSESSING OFFICER WHICH IS AS PER THE CPWD RATE S BY GRANTING A DEDUCTION OF 20% FOR ARRIVING AT THE PWD RATES. NO DEDUCTION TO WARDS SELF SUPERVISION HAS BEEN GRANTED. HOW THE LEARNED CIT(A) HAD ADOPTED 2 0% AS A FAIR DEDUCTION FOR RECTIFYING THE VALUATION FROM CPWD RATES TO PWD RAT ES IS ALSO NOT CLEAR. IF PWD RATES ARE TO BE APPLIED, THEN THE VALUATION MUST BE DONE BY THE DVO BY APPLYING THE PWD RATES AS AN APPELLATE AUTHORITY IS NOT A PE RSON COMPETENT TO VALUE A PROPERTY. IT MAY ALSO BE WORTHWHILE TO MENTION HE RE THAT THE FINDING OF THE LEARNED CIT(A) THAT THE PWD RATES ARE TO BE APPLIED HAS NOT BEEN CHALLENGED BY THE REVENUE. WE ARE NOT RESTORING THIS ISSUE OF VA LUATION OF THE PROPERTY BY I.T.A. NO.339-342/MDS/2010 8 APPLYING THE PWD RATES TO THE ASSESSING OFFICER AS WE HAVE ALREADY HELD THAT THE ASSESSEE WAS MAINTAINING THE BOOKS OF ACCOUNTS AND HIS BOOKS OF ACCOUNTS HAVE NOT BEEN REJECTED BY FOLLOWING THE PRINCIPLES AS LA ID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF SARGAM CINEMA, REFERRED TO SUP RA. IN THE CIRCUMSTANCES, THE APPEALS OF THE ASSESSEE ARE ALLOWED. 8. THE ORDER WAS PRONOUNCED IN THE COURT ON 24/06/2 011. SD/- SD/- (ABRAHAM P. GEORGE) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 24 TH JUNE , 2011. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE