Sri Balaji Constructions , Secunderabad V. THE ACIT, Rajahmundry

ITA 387/VIZ/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8809 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-09-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 09-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEBAKUMAR SONOWAL
• Keywords: Rejection of books of accounts; Search and seizure; Documents seized
• Section: 143(3); 131

Judgement Text

ITA NO.387/VIZAG/2014 M/S. SRI BALAJI CONSTRUCTIONS, KAKINADA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . ' , % BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./I.T.A.NO.387/VIZAG/2014 ( / ASSESSMENT YEAR: 2008-09) M/S. SRI BALAJI CONSTRUCTIONS KAKINADA ACIT, CENTRAL CIRCLE RAJAHMUNDRY [PAN NO. ABKFS3444D ] ( ' / APPELLANT) ( ()' / RESPONDENT) / APPELLANT BY : SHRI G.V.N. HARI, AR / RESPONDENT BY : SHRI DEBAKUMAR SONOWAL, DR / DATE OF HEARING : 03.01.2018 / DATE OF PRONOUNCEMENT : 10.01.2018 / O R D E R PER BENCH: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) {CIT(A)}, GUNT UR VIDE ITA NO.447/CIT(A)/GNT/10-11 DATED 24.2.2014 FOR THE ASS ESSMENT YEAR 2008-09. ITA NO.387/VIZAG/2014 M/S. SRI BALAJI CONSTRUCTIONS, KAKINADA 2 2. THE ASSESSEE FILED RETURN OF INCOME DECLARING IN COME OF ` 63,920/- ON 29.7.2008. A SEARCH AND SEIZURE OPERATION WAS C ONDUCTED IN THE GROUP CASES OF THE ASSESSEE ON 3.2.2009. SUBSEQUEN TLY, THE A.O. HAS ISSUED A NOTICE U/S 153C OF THE INCOME TAX ACT, 196 1 (HEREINAFTER CALLED AS 'THE ACT') ON 3.3.2010 CALLING FOR THE RETURN OF INCOME AND THE ASSESSEE HAS FILED THE RETURN OF INCOME ON 23.4.201 0 ADMITTING TOTAL INCOME OF ` 63,920/-. THEREAFTER, THE A.O. CONDUCTED THE ENQU IRIES AND COMPLETED THE ASSESSMENT U/S 143(3) R.W.S. 153C OF THE ACT ON TOTAL INCOME OF ` 11,69,338/-. DURING THE ASSESSMENT PROCEEDINGS, T HE A.O. MADE ADDITION OF ` 11,05,418/- ON ESTIMATION BASIS. DURING THE SEARC H PROCEEDINGS, THE ASSESSEE HAS ADMITTED ADDITIONAL I NCOME OF ` 20 LAKHS FOR THE ASSESSMENT YEAR 2009-10 AND ACCORDINGLY, FI LED THE RETURN OF INCOME. THE ASSESSING OFFICER HAS RECORDED A STATE MENT U/S 131 OF THE ACT ON 2.3.2009 FROM SHRI KOTTA SRINIVAS, WHEREIN, THE FLAT BUYER ADMITTED THAT HE HAD AGREED TO PAY ` 11,75,000/- AND PAID ` 11 LAKHS FOR PURCHASE OF FLAT NO.S-5 (1075 SFT) AS PER WHICH THE SALE PRICE WORKED OUT TO RS.1,093/- PER SFT. THE A.O. COLLECTED THE INFORMATION FROM THE FLAT BUYERS AND ALSO MARKET INFORMATION REGARDING T HE COST OF CONSTRUCTION AND THE SALE PRICE OF THE FLATS AND AL SO RECORDED THE STATEMENTS FROM THE LAND OWNERS AND DETERMINED THE SALE PRICE AT AN AVERAGE RATE OF ` 989/- AND THE COST OF CONSTRUCTION AT ` 650/- AND ITA NO.387/VIZAG/2014 M/S. SRI BALAJI CONSTRUCTIONS, KAKINADA 3 ACCORDINGLY ESTIMATED THE UNDISCLOSED INCOME AT ` 11,05,500/- AND BROUGHT TO TAX. 3. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) ALLOWED THE AS SESSEES APPEAL PARTLY. AGAINST THE ORDER OF THE CIT(A), THE ASSES SEE IS IN APPEAL BEFORE THIS TRIBUNAL. 4. DURING THE APPEAL HEARING, THE LD. A.R. OF THE A SSESSEE HAS ARGUED THAT FOR THE ASSESSMENT YEAR 2008-09, THERE WAS NO INCRIMINATING MATERIAL AVAILABLE WITH THE A.O. TO I NVOKE THE PROVISIONS U/S 153C OF THE ACT. THE ENTIRE ASSESSMENT WAS MAD E ON MARKET INFORMATION COLLECTED BY THE A.O. WITHOUT ANY BASIS OF INCRIMINATING MATERIAL. THEREFORE, THE LD. A.R. ARGUED THAT THE NOTICE ISSUED U/S 153C OF THE ACT IS BAD IN LAW AND CONSEQUENT ASSESSMENT MADE BY THE A.O. REQUIRED TO BE QUASHED. 5. ON THE OTHER HAND, THE LD. D.R. SUPPORTED THE OR DER OF THE LOWER AUTHORITIES AND ARGUED THAT THE DDIT HAS RECORDED T HE STATEMENT U/S 132(4) OF THE ACT WHEREIN THE ASSESSEE HAS ADMITTED THE ADDITIONAL INCOME OF RS.20 LAKHS U/S 132(4) OF THE ACT AND HEN CE THE ASSESSING OFFICER HAS RIGHTLY ISSUED THE NOTICE U/S 153C OF T HE ACT FOR THE ASSESSMENT YEAR 2008-09 IT REQUIRE TO BE UPHELD. ITA NO.387/VIZAG/2014 M/S. SRI BALAJI CONSTRUCTIONS, KAKINADA 4 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. A SEARCH AND SEIZURE OPERATION WAS CONDUCTED IN THE G ROUP CASES OF THE ASSESSEE ON 3.2.2009 AND DURING THE COURSE OF SEARC H, THE ASSESSEE HAS ADMITTED ADDITIONAL INCOME OF RS.20 LAKHS FOR THE A SSESSMENT YEAR 2009-10. THERE WAS NO SEARCH CARRIED OUT BY INCOME TAX DEPARTMENT IN THE CASE OF THE ASSESSEE AND THERE WAS NO MATERI AL FOUND IN THE PREMISES OF THE SEARCHED PERSON RELATING TO THE ASS ESSEE EVIDENCING THE UNDISCLOSED INCOME FOR THE ASSESSMENT YEAR 2008-09. AS PER THE PROVISIONS OF SECTION 153C OF THE ACT, THE A.O. IS PERMITTED TO INVOKE THE PROVISIONS OF SECTION 153C OF THE ACT BY ISSUING NO TICE U/S 153C OF THE ACT, WHEN THERE IS AN INCRIMINATING MATERIAL AVAILA BLE WITH THE SEARCHED PERSON AND THE SATISFACTION NOT RECORDED BY THE A.O . IN THE ASSESSEES CASE AS PER THE ASSESSMENT ORDER, THE ENTIRE ASSESS MENT ORDER MADE ON ESTIMATION BASIS BUT NOT ON THE BASIS OF ANY INCRIM INATING MATERIAL. THE A.O. HAS INVOKED THE PROVISIONS OF SECTION 153C OF THE ACT SINCE THE BOOKS OF ACCOUNTS WERE NOT PRODUCED BY HIM DURING T HE SEARCH PROCEEDINGS AND HELD THAT THE ASSESSEE HAS NOT MAIN TAINED THE BOOKS OF ACCOUNTS. HOWEVER, ON VERIFICATION OF PAPER BOOK F ILED BY THE ASSESSEE IT IS OBSERVED THAT THE ASSESSEE IS MAINTAINING THE BOOKS OF ACCOUNTS, COMPILED PROFIT AND LOSS ACCOUNT AND BALANCE SHEET AS PER THE BOOKS OF ITA NO.387/VIZAG/2014 M/S. SRI BALAJI CONSTRUCTIONS, KAKINADA 5 ACCOUNTS AND FILED THE RETURN OF INCOME ON 29.7.200 8. THE ASSESSEES CASE IS ALSO COVERED BY SECTION 44AB OF THE ACT FOR TAX AUDIT. THEREFORE, MERELY BECAUSE THE BOOKS OF ACCOUNTS COULD NOT BE P RODUCED ON THE DATE OF SEARCH OR COULD NOT BE TRACED IT CANNOT BE PRESUMED THAT THE ASSESSEE HAS NOT MAINTAINED THE BOOKS OF ACCOUNTS. FURTHER, THE SEARCH WAS CONDUCTED IN THE RESIDENCE OF SRI SUBBA RAO BUT NOT IN THE BUSINESS PREMISES. THE LD. CIT(A) HAS ACCEPTED IN THE ORDER THAT THE ASSESSEE HAD MAINTAINED THE BOOKS OF ACCOUNTS IN PARAGRAPH N O.4.3.7 WHICH IS EXTRACTED AS UNDER: 4.3.7 IN THE APPELLANTS CASE, THE A.O. HAS RECORDE D THAT BOOKS OF ACCOUNTS WERE NOT AVAILABLE AT THE TIME OF SEARCH. ON THE OTHER HAND, THE APPELLANT HIMSELF HAS STATED THAT THE BOOKS OF ACCO UNTS WERE PRESENTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. WHAT IS RELEVANT HOWEVER IS THAT THE APPELLANT PREPARED HIS BOOKS OF ACCOUNT S ON PERCENTAGE COMPLETION METHOD AND HAD THEM AUDITED ON 25.9.2008 . THE PROFIT AND LOSS ACCOUNT HAS BEEN PREPARED ON THE BASIS OF THE SAME PERCENTAGE COMPLETION METHOD. THIS METHOD IS REGULARLY EMPLOY ED BY REAL ESTATE DEVELOPERS AND IS IN FACT THE PREFERRED METHOD OF A CCOUNTING AS OPPOSED TO OTHER METHODS, SUCH AS PROJECT COMPLETION METHOD . THE ADVANTAGE OF THE PERCENTAGE COMPLETION METHOD EMPLOYED BY THE AP PELLANT FIRM IS THAT REVENUE CANNOT BE POSTPONED AND IT IS RECOGNISED TH E MOMENT IT IS RECEIVED. THE ASSESSING OFFICER HAS GIVEN NO FINDI NG AS TO WHY HE HAS REJECTED THE METHOD OF ACCOUNTING FOLLOWED BY THE A PPELLANT EXCEPT TO SAY THAT BOOKS OF ACCOUNTS WERE NOT AVAILABLE AT THE TI ME OF SEARCH. THE ASSESSING OFFICER WAS BOUND TO EXPLAIN WHY THE METH OD OF ACCOUNTING FOLLOWED BY THE APPELLANT IN PREPARING ITS FINAL AC COUNTS SUBMITTED ALONG WITH THE RETURN OF INCOME DID NOT, IN HIS OPINION, REVEAL THE TRUE AND CORRECT INCOME OF THE APPELLANT FIRM. HAVING FAILE D TO DO SO, I FIND NO BASIS IN THE ASSESSING OFFICERS REJECTION OF THE M ETHOD OF ACCOUNTING FOLLOWED BY THE APPELLANT FIRM. 4.3.8 SECONDLY, AS DISCUSSED ABOVE, BOOKS OF ACCOUN TS CAN BE REJECTED EVEN WHERE THE METHOD OF ACCOUNTING IS ACCEPTABLE B UT THE BOOKS ARE FOUND TO BE FALSE OR FABRICATED. THE ASSESSING OFF ICER HAS REFERRED TO STATEMENTS OF CERTAIN FLAT OWNERS, WHERE THE AMOUNT CLAIMED TO HAVE BEEN PAID BY THEM HAS BEEN FOUND TO BE IN EXCESS OF WHAT IS RECORDED IN ITA NO.387/VIZAG/2014 M/S. SRI BALAJI CONSTRUCTIONS, KAKINADA 6 THE BOOKS OF ACCOUNTS. FURTHER, THE ASSESSING OFFI CER HAS MENTIONED THAT THE APPELLANT FIRM COULD NOT SUBMIT SUPPORTING BILL S AND VOUCHERS FOR VARIOUS EXPENSES CLAIMED. THESE ARE VALID GROUNDS FOR REJECTION OF BOOKS OF ACCOUNTS. THUS, REGARDING GROUNDS OF APPEAL NO. 1 & 2 THE ASSESSING OFFICERS ACTION IN REJECTING THE METHOD OF ACCOUNT ING IS HELD AS INCORRECT WHILE HIS REJECTION OF BOOKS OF ACCOUNTS BASED ON I NCORRECT ENTRIES RECORDED THEREIN IS UPHELD. 7. FROM THE ORDER OF THE LD. CIT(A), IT IS EVIDENT THAT THE ASSESSEE HAS MAINTAINED THE BOOKS OF ACCOUNTS AND FOLLOWED T HE CONSISTENT METHOD OF PROJECT COMPLETION METHOD. THE CIT(A) AL SO FOUND THAT THERE IS NO BASIS FOR REJECTION OF THE METHOD OF ACCOUNT FOLLOWED BY THE ASSESSEE. THERE IS NO INCRIMINATING MATERIAL AVAIL ABLE TO THE REVENUE IN THE PREMISES OF THE SEARCHED PERSON RELATING TO THE ASSESSEE. THE STATEMENT RECORDED U/S 132(4) OF THE ACT RELATED TO THE A.Y. 2009-10 BUT NOT RELATED TO THE ASSESSMENT YEAR 2008-09. DU RING THE APPEAL HEARING, THE LD. D.R. DID NOT PLACE ANY EVIDENCE WI TH REGARD TO THE INCRIMINATING MATERIAL FOUND IN THE PREMISES OF THE SEARCHED PERSON RELATING TO THE ASSESSEE. NOW IT IS SETTLED ISSUE THAT FOR INITIATING THE PROCEEDINGS U/S 153C OF THE ACT, IT IS INCUMBENT UP ON THE A.O. TO HAVE THE INCRIMINATING MATERIAL EVIDENCING THE UNDISCLOS ED INCOME. IN THE ASSESSEES CASE NO SUCH EVIDENCE WAS FOUND DURING T HE COURSE OF SEARCH IN THE GROUP CASES. AS PER THE PROVISIONS OF SECTI ON 153C OF THE ACT, IT IS MANDATORY TO HAVE THE SATISFACTION OF THE A.O. THAT MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING OR ANY BOOKS OF ACCOUNTS, DOCUMENTS SEIZED OR REQUISITIONED PERTAINS TO OR RE LATES TO THE ASSESSEE, ITA NO.387/VIZAG/2014 M/S. SRI BALAJI CONSTRUCTIONS, KAKINADA 7 WHICH MEANS THAT UNLESS THERE IS AN INCRIMINATING M ATERIAL BELONGING TO THE ASSESSEE IS FOUND, THE ACTION U/S 153C OF THE A CT IS NOT PERMISSIBLE. IN THE ASSESSEES CASE THERE WAS NO INCRIMINATING M ATERIAL FOUND AND SEIZED FROM THE PREMISES OF THE GROUP CASES. THERE FORE, WE HOLD THAT THE NOTICE ISSUED U/S 153C OF THE ACT IS NOT SUSTAI NABLE AND ACCORDINGLY QUASHED. THIS VIEW IS UPHELD BY THE HONBLE SUPREM E COURT IN THE CASE OF CIT VS. SINHAGAD TECHNICAL EDUCATION SOCIETY (20 17) 84 TAXMANN.COM 290 (SC). RESPECTFULLY FOLLOWING THE J UDGEMENT OF THE HONBLE SUPREME COURT, WE HOLD THAT THE NOTICE ISSU ED U/S 153C OF THE ACT IS UNSUSTAINABLE AND ACCORDINGLY QUASHED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 10 TH JAN18. SD/- SD/- ( . ) ( . . ' ) (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 10.01.2018 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT M/S. SRI BALAJI CONSTRUCTIONS, C /O M. ANANDAM & CO., CHARTERED ACCOUNTANTS, 7A, SURYA TOWERS, S.P. ROAD, SECUNDERABAD 2. / THE RESPONDENT THE ACIT, CENTRAL CIRCLE, RAJAH MUNDRY 3. + / THE CIT, GUNTUR 4. + ( ) / THE CIT (A), GUNTUR ITA NO.387/VIZAG/2014 M/S. SRI BALAJI CONSTRUCTIONS, KAKINADA 8 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM