ACIT, Trichur V. Sri.Inis Varghese Maliyekkal, Trichur

ITA 497/COCH/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69115 (ITAT-COCHIN)
• Duration Of Justice: 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2013
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 03-12-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 31-07-2013
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Assessee Lawyers: C B M WARRIER
• Keywords: Additional evidence; Valuation report
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 497/COCH/2013 ASSESSMENT YEAR : 2007-08 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-2(1), RANGE- 2, TRICHUR. VS. SHRI INIS VARGHESE MALIAKKAL, IRENE JEWELLERS, BHIMA BLDG., SOUTH BAZAR, THRISSUR-1 [PAN: ADUPM 4695E] (REVENUE -APPELLANT) (ASSESSEE-RESPONDEN T) REVENUE BY SMT. LATHA V. KUMAR, JR. DR ASSESSEE BY SHRI C.B.M. WARRIER, CA DATE OF HEARING 03/12/2013 DATE OF PRONOUNCEMENT 20/12/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 28- 05-2013 PASSED BY LD CIT(A)-V, KOCHI, AND IT RELATE S TO THE ASSESSMENT YEAR 2007-08. 2. THE REVENUE IS AGGRIEVED BY THE ORDER OF THE LD. CIT(A) IN GRANTING RELIEF IN RESPECT OF THE FOLLOWING TWO ADDITIONS: (A) DISALLOWANCE MADE U/S. 40A(IA) OF THE ACT. (B) ADDITION OF DIFFERENCE IN THE COST OF CONSTRUC TION. 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND TRADING IN GOLD ORNAMENTS. HE FILED HIS I.T.A. NO. 497/COCH/2013 2 RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION D ECLARING TOTAL INCOME OF RS.3,23,624/-. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS, IT APPEARS THAT THE ASSESSEE DID NOT CO-OPERATE WITH THE ASSESSING OFFI CER AND ALSO DID NOT FURNISH PROPER DETAILS AS CALLED FOR BY THE ASSESSING OFFIC ER. HENCE, THE ASSESSING OFFICER PROCEEDED TO FINALISE THE ASSESSMENT ON THE BASIS O F AVAILABLE INFORMATION. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLA IMED A SUM OF RS. 2,80,590/- UNDER THE HEAD ADVERTISEMENT. THE ASSESSING OFFICE R NOTICED THAT THE ASSESSEES BOOKS OF ACCOUNT SHOWED AN OPENING BALANCE OF RS.2, 54,872/- AND DURING THE YEAR UNDER CONSIDERATION, A FURTHER SUM OF RS. 25,7 18/- WAS SEEN DEBITED ON 22-04-2006 THUS TOTALING TO RS. 2,89,590/-. SINCE THE BOOKS THE ASSESSEE DID NOT SHOW ANY DETAILS WHATSOEVER, AND FURTHER, SINCE THE DETAILS OF TAX DEDUCTION AT SOURCE ON THE ABOVE SAID PAYMENTS WERE NOT AVAILABL E, THE ASSESSING OFFICER DISALLOWED THE ABOVE SAID AMOUNT OF RS. 2,80,590/- BY INVOKING THE PROVISIONS OF SEC. 40A(IA) AND ALSO SEC. 40A(3) OF THE ACT. 4. THE ASSESSING OFFICER FURTHER NOTICED THAT THE A SSESSEE HAS CONSTRUCTED A RESIDENTIAL BUILDING. THE AREA OF THE BUILDING AS PER THE DETAILS FURNISHED BY THE ASSESSEE WAS FOUND TO BE 285.50 SQ. M.(3072 SQ. FT. ) AND THE ASSESSEE HAD DECLARED A SUM OF RS.19,61,812/- IN THE BOOKS OF AC COUNTS, WHICH WORKED OUT TO AN AVERAGE COST OF RS.639 PER SQ. FT. THE ASSESSI NG OFFICER TOOK THE VIEW THAT THE COST OF CONSTRUCTION OF ONE SQ. FT. WOULD WORK OUT TO RS. 1250/- AS PER THE PREVAILING MARKET CONDITIONS DURING THAT PERIOD. A CCORDINGLY, THE ASSESSING OFFICER DETERMINED THE COST OF CONSTRUCTION AT RS.3 8,40,000/- AND ADDED THE DIFFERENCE OF RS.18,78,188/- TO THE INCOME RETURNED BY THE ASSESSEE. 5. IN THE APPELLATE PROCEEDINGS, THE ASSESSEE FURNI SHED THE DETAILS OF THE PAYMENTS MADE UNDER THE HEAD ADVERTISEMENT EXPENDIT URE WRITTEN OFF AND CONTENDED THAT THERE WAS NO REQUIREMENT TO MAKE DIS ALLOWANCE U/S. 40A(IA) OR SEC. 40A(3) OF THE ACT. THE ASSESSEE ALSO SUBMITTE D THAT THE ADVERTISEMENT EXPENDITURE INCURRED IN THE PRECEDING ASSESSMENT YE AR WAS NOT WRITTEN OFF FULLY I.T.A. NO. 497/COCH/2013 3 IN THAT YEAR AND A PORTION OF THE SAME WAS CARRIED FORWARD DURING THE YEAR UNDER CONSIDERATION, SINCE THE BENEFIT OF ADVERTISEMENT N ORMALLY EXTENDS FOR MORE THAN ONE YEAR. THE LD. CIT(A) FOUND MERIT IN THE CONTENT IONS OF THE ASSESSEE AND ACCORDINGLY HELD THAT THE OPENING BALANCE OF RS.2,5 4,872/- CLAIMED BY THE ASSESSEE WAS IN ORDER. HOWEVER, HE DIRECTED THE AS SESSING OFFICER TO VERIFY THE DISALLOWANCE OF RS.25,718/- AS TO WHETHER THE PROVI SIONS OF SECTION 40A(3) IS APPLICABLE OR NOT. WITH REGARD TO THE ADDITION REL ATING TO THE DIFFERENCE IN THE COST OF CONSTRUCTION, THE ASSESSEE FURNISHED A COPY OF VALUATION REPORT OBTAINED FROM A CHARTERED ENGINEER WHO HAD DETERMINED THE COS T OF CONSTRUCTION AT RS.23,00,000/- BY ADOPTING THE STATE PWD RATES FOR THE PURPOSE OF VALUATION. TAKING NOTE OF THE DECISION RENDERED BY THE HONBLE JURISDICTIONAL KERALA HIGH COURT IN THE CASE OF CIT VS. MN SAIDALAVI IN I.T.A. NO. 37 OF 2011 DATED 17-01- 2012 AND ALSO THE DECISION OF ITAT COCHIN BENCH IN THE CASE OF DCIT VS. P.P. VARGHESE IN I.T.A. NOS. 492 & 493/COCH/2011 DATED 1 7-02-2012, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO ACCEPT THE VALUE DETERMINED BY THE CHARTERED ENGINEER AND ALSO DIRECTED THE AO TO DELETE THE DISA LLOWANCE TO THE TUNE OF RS.15.40 LAKHS (RS.38.40 LAKHS (-) RS.23.00 LAKHS). AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. THE FIRST ISSUE RELATES TO THE DISALLOWANCE OF ADVERTIS EMENT EXPENSES. ADMITTEDLY, THE ASSESSEE HAD INCURRED THE EXPENSES IN THE IMMED IATELY PRECEDING YEAR AND BROUGHT FORWARD A PORTION OF THE SAME TO THE TUNE O F RS.2,54,871/- DURING THE YEAR UNDER CONSIDERATION. DURING THE YEAR UNDER CO NSIDERATION A FURTHER SUM OF RS.25,718/- WAS INCURRED. WE NOTICE THAT THE AO HA S ACCEPTED THE GENUINENESS OF THE SAID CLAIM, SINCE HE HAS DISALLOWED THE SAME BY INVOKING TECHNICAL PROVISIONS, VIZ., THE PROVISIONS OF SEC. 40(A)(IA) AND SEC. 40A(3) OF THE ACT. ACCORDING TO LD A.R, EACH OF THE EXPENSE BOOKED UND ER THE HEAD ADVERTISEMENT WAS BELOW RS.20,000/- AND THE PAYME NTS WERE MADE TO DIFFERENT PERSONS AND ACCORDINGLY HE SUBMITTED THAT BOTH THE PROVISIONS VIZ., SEC. I.T.A. NO. 497/COCH/2013 4 40(A)(IA) AND SEC. 40A(3) DO NOT APPLY TO THE ABOVE SAID PAYMENTS. HOWEVER, AS CONTENDED BY LD D.R, WE NOTICE THAT THE LD CIT(A) H AS GRANTED RELIEF WITHOUT CAUSING ANY VERIFICATION OF THE CLAIM SO MADE BY TH E ASSESSEE. THERE MAY BE TRUTH IN THE SUBMISSIONS MADE BY THE ASSESSEE, BUT THE SAME REQUIRES PROPER VERIFICATION BEFORE ACCEPTING THE SAME. IN THE INS TANT CASE, ADMITTEDLY THE ABOVE SAID EXPLANATIONS WERE GIVEN TO THE LD CIT(A) FOR T HE FIRST TIME AND FURTHER, NO AUTHORITY HAS VERIFIED THE SAID CLAIM PUT FORTH BY THE ASSESSEE. ACCORDINGLY, IN OUR VIEW, THE SUBMISSIONS MADE BY THE ASSESSEE NEED S TO BE VERIFIED AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASID E THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSES SING OFFICER WITH THE DIRECTION TO EXAMINE THE ISSUE AFRESH BY DULY CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO ANY OTHER INFORMATION AND EXPLANATIONS THA T MAY BE GIVEN BEFORE HIM AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH TH E LAW. 7. THE NEXT ISSUE RELATES TO THE DELETION OF TH E DIFFERENCE IN COST OF CONSTRUCTION. THE MAIN CONTENTION OF THE DEPARTMEN T IS THAT THE LD CIT(A) HAS ADMITTED ADDITIONAL EVIDENCE IN THE FORM OF A VALUA TION REPORT OBTAINED FROM A CHARTERED ENGINEER AND BY CONSIDERING THE SAME, HE H AS GRANTED RELIEF TO THE ASSESSEE. ACCORDING TO THE REVENUE, THE SAID ACTIO N OF LD CIT(A) IS IN CLEAR VIOLATION OF RULE 46A OF THE INCOME TAX RULES. WE FIND FORCE IN THE SAID CONTENTIONS. ADMITTEDLY, THE ASSESSEE FURNISHED CO PY OF VALUATION REPORT OBTAINED FROM A CHARTERED ENGINEER FOR THE FIRST TIM E BEFORE LD CIT(A) AND THE FIRST APPELLATE AUTHORITY DID NOT CONFRONT THE SAME TO THE AO. FURTHER WE NOTICE THAT THE LD CIT(A) HAS DIRECTED THE AO TO ACCEPT TH E COST ESTIMATED BY THE CHARTERED ENGINEER, I.E., RS.23.00 LAKHS AND ACCORDI NGLY DIRECTED THE AO TO DELETE THE ADDITION TO THE TUNE OF RS.15.40 LAKHS. IN OUR VIEW, IT MAY NOT BE PROPER ON THE PART OF THE LD CIT(A) TO DIRECT THE A O TO ACCEPT THE COST OF CONSTRUCTION ESTIMATED BY THE CHARTERED ENGINEER WIT HOUT ALLOWING THE AO TO EXAMINE THE REPORT BY THE CHARTERED ENGINEER. ACCOR DINGLY, IN OUR VIEW, THIS ISSUE ALSO REQUIRES FRESH EXAMINATION AT THE END OF THE AO. ACCORDINGLY, WE SET I.T.A. NO. 497/COCH/2013 5 ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND REST ORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THE SAME AFRESH BY DULY CONSIDERING THE VALUATION REPORT SUBMITTED BY THE A SSESSEE AND ALSO ANY OTHER INFORMATION AND EXPLANATIONS THAT MAY BE GIVEN BEFO RE HIM AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. 8. IN THE RESULT, THE APPEAL FILED BY THE REVEN UE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 20TH DECEMBER, 2013 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 20TH DECEMBER, 2013 GJ COPY TO: 1. SHRI INIS VARGHESE MALIAKKAL, IRENE JEWELLERS, B HIMA BLDG., SOUTH BAZAR, THRISSUR-1 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -2(1), RANGE-2, TRICHUR. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-V, KOCHI , THRISSUR. 4. THE COMMISSIONER OF INCOME-TAX, TRICHUR. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN