ACIT, Trivandrum V. V.Sivarajendran, Trivandrum

ITA 608/COCH/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69066 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2013
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 02-09-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 12-12-2011
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: K M V PANDALAI
• Keywords: Unexplained investment; Value adopted by valuation officer; Opportunity of being heard; Valuation report
• Section: 133A; 14A

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. NOS. 579 & 580 /COCH/2011 ASSESSMENT YEARS : 2007-08 & 2009-10 SHRI V. SIVARAJENDRAN ARUN GARDENS, VRA-P-22, PRAVACHAMBALAM, NEMOM P.O, TRIVANDRUM-695 020. [PAN:AELPP 7993Q] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1, TRIVANDRUM. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) I.T.A. NO. 608 /COCH/2011 ASSESSMENT YEAR : 2007-08 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1, TRIVANDRUM. VS. SHRI V. SIVARAJENDRAN ARUN GARDENS, VRA-P-22, PRAVACHAMBALAM, NEMOM P.O, TRIVANDRUM-695 020. [PAN:AELPP 7993Q] (REVENUE-APPELLANT) (ASSESSEE-R ESPONDENT) C.O. NO. 02/COCH/2012 (ARSG. OUT OF I.T.A. NO. 608 /COCH/2011) ASSESSMENT YEAR : 2007-08 SHRI V. SIVARAJENDRAN ARUN GARDENS, VRA-P-22, PRAVACHAMBALAM, NEMOM P.O, TRIVANDRUM-695 020. [PAN:AELPP 7993Q] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1, TRIVANDRUM. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) ASSESSEE BY SHRI K.M.V. PANDALAI, ADV. REVENUE BY SMT. S. VIJAYAPRABHA, JR. DR DATE OF HEARING 02/09/2013 DATE OF PRONOUNCEMENT 13/11/2013 I.T.A. NOS. 579, 580 & 608/COCH/2011 & C.O. NO.2/COCH/2012 2 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE CROSS APPEALS FILED FOR THE ASSESSMENT YEAR 2 007-08, THE CROSS OBJECTION FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2007-08 A ND THE APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2009-10 ARE DIRECTED AGAINST TH E ORDERS PASSED BY LD CIT(A)-III, KOCHI. ALL THESE APPEALS WERE HEARD TOGETHER AND H ENCE THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. IN THE APPEALS FILED BY THE ASSESSEE FOR THE ASS ESSMENT YEARS 2007-08 AND 2009- 10, IDENTICAL ISSUE IS BEING URGED. THE SAID ISSUE RELATES TO THE DISALLOWANCE OF PART OF INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE BY INV OKING THE PROVISIONS OF SEC. 14A OF THE ACT. THE AO DISALLOWED A SUM OF RS.5,20,791 IN ASSESSMENT YEAR 2007-08 AND RS.3,43,385/- OUT OF INTEREST EXPENDITURE CLAIMED I N THE RESPECTIVE YEARS ON THE REASONING THAT THE ASSESSEE HAS DIVERTED INTEREST B EARING FUNDS FOR NON-BUSINESS PURPOSES. THE LD CIT(A) ALSO CONFIRMED THE ABOVE S AID ADDITION MADE IN BOTH THE YEARS. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPE AL BEFORE US. 3. ACCORDING TO LD A.R, THE ASSESSEE HAS CARRIED OU T RENOVATION WORK IN HIS PROPRIETARY CONCERN NAMED NANDAVANAM TOURIST HOME BY AVAILING LOAN FROM BANKS. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS CAPITALI SED THE INTEREST EXPENDITURE RELATING TO THE SAID LOAN IN COST OF RENOVATION A/C. HE F URTHER SUBMITTED THAT THE INTEREST CLAIMED BY THE ASSESSEE IN HIS PROFIT AND LOSS ACCO UNT RELATE TO THE RETAIL TRADE LOANS, CASH CREDIT LOANS, TERM LOANS FOR ANOTHER PROPRIETA RY CONCERN NAMED AMALA BAR. HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER, WITHO UT APPRECIATING THIS FACT, HAS MADE THE IMPUGNED ADDITION. HE FURTHER SUBMITTED THAT T HE ASSESSEE DID NOT WITHDRAW THE SUM OF RS.50.00 LAKHS FROM THESE ACCOUNTS, AS OBSER VED BY THE ASSESSING OFFICER. HE FURTHER SUBMITTED THAT THE LD CIT(A) HAS ALSO CONFI RMED THESE ADDITIONS WITHOUT APPRECIATING THE SUBMISSIONS MADE IN THIS REGARD. HOWEVER, THE LD D.R STRONGLY SUPPORTED THE ORDERS PASSED BY THE TAX AUTHORITIES. I.T.A. NOS. 579, 580 & 608/COCH/2011 & C.O. NO.2/COCH/2012 3 3.1 WE HAVE HEARD THE PARTIES ON THIS ISSUE. W E NOTICE THAT THE ASSESSEE WAS RUNNING A CONCERN NAMED HOTEL AMALA BAR AND HAS A CQUIRED ANOTHER CONCERN NAMED NANDAVANAM TOURIST HOME. ACCORDING TO LD A.R, TH E ASSESSEE HAD OBTAINED LOANS FOR EACH OF THE ABOVE SAID TWO CONCERNS SEPARATELY AND THERE WAS NO DIVERSION OF FUNDS FROM THE BOOKS OF HOTEL AMALA BAR TO NANDAVANAM TOURIST HOME. THE LD A.R FURTHER SUBMITTED THAT THE ASSESSEE HAS ALREADY CAP ITALISED THE INTEREST EXPENDITURE RELATING TO NANDAVANAM TOURIST HOME. 3.2 WE NOTICE THAT THE SUBMISSIONS MADE BY THE ASSESSEE DO NOT FIND PLACE IN THE ASSESSMENT ORDER. IT APPEARS THAT ASSESSING OFFICE R DID NOT CONSIDER THE ABOVE SAID SUBMISSIONS AND RATHER, ASSUMED THAT THE INTEREST E XPENDITURE CLAIMED BY THE ASSESSEE INCLUDES THE INTEREST RELATING TO NANDAVANAM TOURIS T HOME. FURTHER THE AO HAS ALSO OBSERVED THAT THE ASSESSEE HAS DIVERTED A SUM OF RS .50.00 LAKHS TO NANDVANAM TOURIST HOME OUT OF INTEREST BEARING FUNDS, WHICH IS BEING DISPUTED BY THE ASSESSEE. WE FURTHER NOTICE THAT THE LD CIT(A) HAS ALSO CONFIRME D THE DECISION OF THE AO BY REJECTING THE FACTUAL SUBMISSIONS MADE BY THE ASSESSEE. WE A RE UNABLE TO UNDERSTAND AS TO HOW THE TAX AUTHORITIES CAN REJECT THE FACTUAL SUBMISSI ONS MADE BY THE ASSESSEE WITHOUT DULY ADDRESSING THEM, PARTICULARLY WHEN THE ASSESSE E IS DISPUTING THE OBSERVATIONS MADE BY THE AO. THERE SHOULD NOT BE ANY DISPUTE TH AT THE IMPUGNED DISALLOWANCE IS NOT CALLED FOR, IF THE ASSESSEE HAS NOT DIVERTED TH E INTEREST BEARING FUNDS AS OBSERVED BY THE AO. SINCE THE TAX AUTHORITIES HAVE NOT ADDRE SSED THE SUBMISSIONS MADE BY THE ASSESSEE ON THE FACTUAL ASPECTS, IN OUR VIEW, THESE SUBMISSIONS ARE REQUIRED TO BE EXAMINED BY THE ASSESSING OFFICER WITH REFERENCE TO THE BOOKS OF ACCOUNT OF THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDER OF L D CIT(A) ON THIS ISSUE IN BOTH THE YEARS AND RESTORE THEM TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH BY DULY CONSIDERING THE INFORMATI ON/EXPLANATIONS THAT MAY BE FURNISHED BEFORE HIM BY THE ASSESSEE AND TAKE APPRO PRIATE DECISION IN ACCORDANCE WITH THE LAW. I.T.A. NOS. 579, 580 & 608/COCH/2011 & C.O. NO.2/COCH/2012 4 4. THE REVENUE HAS FILED APPEAL FOR THE ASSESSM ENT YEAR 2007-08 CHALLENGING THE DECISION OF LD CIT(A) IN DELETING THE ADDITION OF R S.11,82,000/- RELATING TO THE ADDITIONAL CONSTRUCTION EXPENSES INCURRED IN RENOVATION OF NAN DAVANAM TOURIST HOME. THE ASSESSEE HAS FILED CROSS OBJECTION SUPPORTING THE O RDER OF LD CIT(A) ON THIS ISSUE. THE FACTS RELATING TO THE SAME, AS CULLED FROM THE ASSE SSMENT ORDER, ARE STATED IN BRIEF. THE DEPARTMENT CARRIED OUT A SEARCH OPERATION IN THE HA NDS OF THE ASSESSEE ON 6.8.2008. A SURVEY OPERATION WAS CARRIED OUT IN THE BUSINESS PR EMISES OF THE ASSESSEE NAMED HOTEL AMALA BAR U/S 133A OF THE ACT. DURING THE COURSE OF SURVEY OPERATION, CERTAIN MATERIALS WERE FOUND (AB 472) AND ALSO THEY WERE IM POUNDED. THESE MATERIALS DISCLOSED ABOUT THE CONSTRUCTION EXPENSES INCURRED BY THE ASSESSEE, MAINLY ON CEMENT PURCHASE, STEEL PURCHASE AND LABOUR CHARGES, AS UND ER:- AUGUST 2006 5,87,290 SEPTEMBER 2006 4,49,423 OCTOBER 2006 3,99,945 NOVEMBER 2006 32,247 DECEMBER 2006 5,94,824 JANUARY 2007 5,52,872 FEBRUARY 2007 6,48,983 MARCH 2007 5,32,238 -------------- 37,97,822 ======== IN THE BOOKS OF ACCOUNT, THE ASSESSEE HAD SHOWN A S UM OF RS.21.40 LAKHS ONLY AS CONSTRUCTION/RENOVATION EXPENSES BY THE END OF MARC H, 2007. ACCORDINGLY, IT WAS PROPOSED BY THE AO TO ASSESS THE DIFFERENCE AMOUNT OF RS.16,57,638/- AS THE INCOME OF THE ASSESSEE. 4.1 THE ASSESSEE SUBMITTED THAT HE HAS ACCOUNTE D FOR ACTUAL PAYMENTS MADE BY HIM ONLY, IN HIS BOOKS OF ACCOUNT AND THE SAME WORKED O UT TO RS.21.40 LAKHS. HE SUBMITTED THAT HE HAD RECEIVED MATERIALS PENDING APPROVAL B ASIS AND ACCOUNTED FOR THE SAME ONLY AFTER MAKING PAYMENT IN RESPECT OF MATERIALS U SED BY HIM. HE FURTHER SUBMITTED THAT HE HAS CARRIED OUT RENOVATION/CONSTRUCTION WOR KS IN THE SUBSEQUENT YEARS ALSO AND THE AGGREGATE AMOUNT SPENT ON CONSTRUCTION/RENOVATI ON WAS RS.37.08 LAKHS. IT APPEARS THAT THE ASSESSING OFFICER HAD REFERRED THE MATTER OF VALUATION TO THE DEPARTMENTAL I.T.A. NOS. 579, 580 & 608/COCH/2011 & C.O. NO.2/COCH/2012 5 VALUATION OFFICER (DVO), WHO HAD ESTIMATED THE EXPE NSES AT RS.40.72 LAKHS. ACCORDINGLY, THE ASSESSEE SUBMITTED BEFORE THE AO T HAT THE COST OF EXPENSES DECLARED BY HIM WAS VERY MUCH REASONABLE VIS-A-VIS THE VALUA TION REPORT OF DVO. HOWEVER, THE AO REJECTED THE CLAIM OF THE ASSESSEE WITH THE OBSE RVATION THAT THE VALUATION REPORT GIVEN BY DVO WAS RELATED TO AMALA BAR, WHERE AS T HE IMPOUNDED MATERIALS RELATE TO NANDVANAM TOURIST HOME. FURTHER THE AO NOTICED F ROM TAX AUDIT REPORT THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING AND HENCE THE CLAIM OF ACCOUNTING THE EXPENSES ON CASH BASIS WAS ALSO NOT FOUND TO BE CORRECT. HOWEVER, THE ASSESSING OFFICER ACCEPTED THE CLAIM OF THE ASSESSE E THAT THERE IS A TOTALLING MISTAKE OF RS.4,75,158/- IN THE MONTH OF JANUARY, 2007. ACCOR DINGLY, HE GAVE SET OFF OF THE ABOVE SAID AMOUNT AGAINST THE DIFFERENCE OF RS.16,57,638/ - AND ASSESSED THE BALANCE AMOUNT OF RS.11,82,000/- AS UNEXPLAINED INVESTMENT IN THE HANDS OF THE ASSESSEE. 4.2 BEFORE LD CIT(A), THE ASSESSEE SUBMITTED TH AT THE ASSESSEE HAS MAINTAINED REGULAR BOOKS OF ACCOUNT AND THE AO WAS NOT RIGHT I N MAKING THIS ADDITION WITHOUT REJECTING THE BOOKS OF ACCOUNT. IN THIS REGARD, TH E ASSESSEE PLACED RELIANCE ON THE FOLLOWING CASE LAW:- (A) SHEIKHAR CHAND JAIN & SONS VS. IAC (1988)(32 T TJ (DEL) 570) (B) CIT VS. PRATHAP SINGH AMROSINGH RAJENDRA SINGH DEEPAK KUMAR (1993)(200 ITR 788)(RAJ). THE ASSESSEE FURTHER CONTENDED THAT HE HAS CARRIED OUT RENOVATION WORKS IN THE SUBSEQUENT YEARS ALSO AND THE AGGREGATE AMOUNT OF E XPENSES (EXCLUDING INTEREST EXPENDITURE CAPITALISED BY HIM) WORKS OUT TO RS.39. 77 LAKHS. HE FURTHER SUBMITTED THAT, IF THE ADDITION MADE BY THE ASSESSING OFFICER IS AD DED TO THE AMOUNT DECLARED BY THE ASSESSEE, THE TOTAL EXPENDITURE WILL WORK OUT TO RS .51.59 LAKHS, WHEREAS THE DVO HAS DETERMINED THE VALUE AT RS.44.52 LAKHS ONLY. ACCOR DINGLY, IT WAS CONTENDED THAT THE ASSESSEE COULD NOT HAVE USED THE MATERIALS SHOWN IN THE BILLS THAT WERE IMPOUNDED. IT WAS FURTHER SUBMITTED THAT THE DIFFERENCE BETWEEN T HE DVO VALUE AND THE COST REPORTED BY THE ASSESSEE WORKS OUT LESS THAN 15% AND HENCE N O ADDITION IS WARRANTED. THE LD I.T.A. NOS. 579, 580 & 608/COCH/2011 & C.O. NO.2/COCH/2012 6 CIT(A) WAS CONVINCED WITH THE CONTENTIONS URGED BEF ORE HIM. THE LD CIT(A) FURTHER HELD THAT THE DEPARTMENTS VALUER REPORT IS BINDING ON THE AO. ACCORDINGLY HE DIRECTED THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITI ON OF RS.11,82,000/-. 4.3 BEFORE US, THE LD D.R SUBMITTED THAT THE LD CIT(A) WAS NOT RIGHT IN LAW IN HOLDING THAT THE REPORT GIVEN BY DVO IS BINDING ON THE ASS ESSING OFFICER. IN THIS REGARD, THE LD D.R RELIED UPON FOLLOWING CASE LAW:- SMT. AMALA DAS VS. CIT (1983)(146 ITR 216)(P & H) CAPRICON SHOPPING COMPLEX VS. CIT (2003)(260 ITR 6 47)(KER) CIT VS. OLI MOHAMMED (2008)(296 ITR 570)(MAD) THE LD D.R SUBMITTED THAT THE HONBLE PUNJAB & HARY ANA HIGH COURT IN THE CASE OF SMT. AMALA DAS (SUPRA) HAS HELD THAT THE VALUATION REPOR T IS NO MORE THAN MERE OPINION. IN OTHER TWO CASES, THE APPELLATE AUTHORITIES HAD MODI FIED THE COST DETERMINED BY THE DVO AND THE SAME HAS BEEN UPHELD BY THE HONBLE HIGH CO URTS. THE LD D.R FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS MADE THE I MPUGNED ADDITION ON THE BASIS OF MATERIALS FOUND DURING THE COURSE OF SEARCH/SURVEY OPERATIONS AND HENCE THE SAME NEEDS TO BE SUSTAINED. ON THE CONTRARY, THE LD A.R REITERATED THE CONTENTIONS URGED BEFORE THE LD CIT(A). 4.4 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE THE VALUATION OFFICER IS A TECHNICAL EXPERT AND HENCE, IN OUR VIEW, THE VALUAT ION REPORT FURNISHED BY HIM CAN ONLY BE A TECHNICAL OPINION, WHICH CAN BE TAKEN AS GUIDA NCE ONLY BY THE ASSESSING OFFICER. THE INCOME TAX ACT NOWHERE STATES THAT THE REPORT O F DVO IS BINDING ON THE ASSESSING OFFICER, AS OPINED BY LD CIT(A). IN FACT, SECTION 142A OF THE ACT PROVIDES FOR MAKING A REFERENCE TO THE VALUATION OFFICER AND SUBSECTION ( 3) OF THAT SECTION READS AS UNDER:- (3) ON RECEIPT OF THE REPORT FROM THE VALUATION O FFICER, THE ASSESSING OFFICER MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BE ING HEARD, TAKE INTO ACCOUNT SUCH REPORT IN MAKING SUCH ASSESSMENT OR REASSESSME NT. THUS, IT CAN BE SEEN THAT THE STATUTE REQUIRES THE ASSESSING OFFICER ONLY TO TAKE INTO CONSIDERATION THE VALUATION REPORT, AFTER GIVING TH E ASSESSEE AN OPPORTUNITY OF BEING HEARD. FURTHER THE HONBLE PUNJB & HARYANA HIGH CO URT IN THE CASE OF SMT. AMALA DAS I.T.A. NOS. 579, 580 & 608/COCH/2011 & C.O. NO.2/COCH/2012 7 (SUPRA) HAS HELD IN CLEAR TERMS THAT THE VALUATION REPORT IS NO MORE THAN MERE OPINION. HENCE, WE ARE UNABLE TO AGREE WITH THE VIEW EXPRESS ED BY THE LD CIT(A) WITH REGARD TO THE BINDING EFFECT OF DVO AND ACCORDINGLY, WE SET A SIDE HIS OBSERVATION MADE ON THIS POINT. 4.5 THOUGH THE AO HAS OBSERVED THAT THE DVO REP ORT RELATED TO HOTEL AMALA BAR, YET WE NOTICE FROM THE VALUATION REPORT DATED 27.12.201 0, WHICH IS FILED BY THE ASSESSEE IN HIS PAPER BOOK, THAT THE DVO HAS GIVEN REPORT ONLY ON NANDAVANAM TOURIST HOME. THIS FACT WAS NOT CONTROVERTED BY THE LD D.R DURING THE COURSE OF HEARING. HENCE, IN OUR VIEW, THE AO WAS NOT RIGHT IN OBSERVING THAT TH E DVO REPORT RELATES TO HOTEL AMALA BAR. 4.6 WE NOTICE THAT THE ASSESSEE HAS CONTESTED T HE IMPUGNED ADDITION OF RS.11.82 LAKHS, BY MAKING REFERENCE TO THE AGGREGATE AMOUNT SPENT BY HIM ON RENOVATION OF NANDAVANAM TOURIST HOME DURING THE YEAR UNDER CON SIDERATION AND ALSO IN SUBSEQUENT YEARS. HOWEVER, WE NOTICE THAT THE ADDI TION WAS MADE BY THE ASSESSING OFFICER ON THE BASIS OF MATERIALS FOUND DURING THE COURSE OF SEARCH/SURVEY AND THOSE MATERIALS RELATED TO THE YEAR RELEVANT TO THE ASSES SMENT YEAR 2007-08. THUS, WE NOTICE THAT THE CASE OF THE ASSESSING OFFICER WAS THAT, WH ILE THE MATERIALS FOUND DURING THE COURSE OF SEARCH REVEAL AN INVESTMENT OF RS.33,22,6 64/- (RS.37,97,822 LESS RS.4,75,158/-), MADE IN YEAR RELEVANT TO THE ASSESS MENT YEAR 2007-08, THE ASSESSEE HAS DECLARED A SUM OF RS.21.40 LAKHS ONLY DURING TH AT YEAR IN HIS BOOKS OF ACCOUNT. HENCE, THE ASSESSING OFFICER HAS ADDED THE SAID DIF FERENCE OF RS.11,82,000/-, SINCE ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HA S SPENT A SUM OF RS.33,22,664/- DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR. H ENCE, IN OUR VIEW, THE ISSUE UNDER CONSIDERATION RELATES TO AMOUNT SPENT BY THE ASSESS EE DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08 AND NOT THE AGGREGATE AMOUN T SPENT ON CONSTRUCTION/RENOVATION OF NANDANAM TOURIST HOME. HENCE, IN OUR VIEW, THE ASSESSEE AS WELL AS LD CIT(A) WAS NOT CORRECT IN PRESUMING T HAT THE IMPUGNED ISSUE RELATED TO THE AGGREGATE AMOUNT SPENT ON RENOVATION/CONSTRUCTI ON. HENCE, IN OUR VIEW, THE LEGAL I.T.A. NOS. 579, 580 & 608/COCH/2011 & C.O. NO.2/COCH/2012 8 ISSUE URGED BY THE ASSESSEE WITH REGARD TO REJECTIO N OF BOOKS OF ACCOUNT ETC. IS NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. 4.7 HENCE, IN OUR VIEW, THE ASSESSEE IS REQUIRE D TO EXPLAIN THE DIFFERENCE BETWEEN THE EVIDENCES FOUND DURING THE COURSE OF SEARCH/SUR VEY AND THE AMOUNT ACCOUNTED FOR IN THE BOOKS OF ACCOUNT. IN OUR VIEW, THE ASSESSEE IS NOT CORRECT IN PRESSING FOR CONSIDERATION OF THE AGGREGATE AMOUNT SPENT, AS IT MAY SOMETIMES GIVE MISLEADING PICTURE. THIS POINT CAN BE EXPLAINED WITH THE FOLLO WING EXAMPLE. LET US ASSUME, THE ASSESSEE X HAS SPENT A SUM OF RS.40.00 LAKHS ON C ONSTRUCTION OF A BUILDING OVER A PERIOD OF THREE YEARS. LET US ASSUME THAT HE HAS A CTUALLY SPENT 50% IN I YEAR, 30% IN THE II YEAR AND 20% IN THE THIRD YEAR. LET US FURT HER ASSUME THAT MR. X, HAS HOWEVER ACCOUNTED FOR THE COST OF CONSTRUCTION IN HIS BOOKS OF ACCOUNT ACCORDING TO THE AVAILABILITY OF CASH BALANCE. WE SHALL TABULATE TH ESE SITUATIONS AS UNDER:- YEAR AMOUNT ACTUALLY SPENT AMOUNT ACCOUNTED IN BOOKS DIFFERENCE I YEAR 20,00,000 10,00,000 10,00,000 II YEAR 12,00,000 12,00,000 ---- III YEAR 8,00,000 18,00,000 (10,00,000) A PLAIN READING OF THE ABOVE SAID TABLE SHOWS THAT THERE WAS UNEXPLAINED INVESTMENT OF RS.10.00 LAKHS IN THE IST YEAR, WHICH WAS MADE GOOD IN THE THIRD YEAR. 4.8 IN THE INSTANT CASE ALSO, THE CASE OF THE A SSESSING OFFICER IS THAT THE ASSESSEE HAS ACTUALLY SPENT MORE THAN WHAT WAS DECLARED IN THE B OOKS OF ACCOUNT DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08. THE VIEW OF THE ASSESSING OFFICER IS SUPPORTED BY THE DOCUMENTS FOUND DURING THE COURSE OF SEARCH. HOWEVER, THE CONTENTION OF THE ASSESSEE IS THAT HE HAS RECEIVED THE MATERIALS ALONG WITH BILLS ON APPROVAL BASIS AND HAS ACCORDINGLY ACCOUNTED FOR T HE CONSTRUCTION/RENOVATION EXPENSES ONLY AFTER MAKING PAYMENT FOR THE MATERIAL S USED BY HIM. WE NOTICE THAT THE I.T.A. NOS. 579, 580 & 608/COCH/2011 & C.O. NO.2/COCH/2012 9 ASSESSEE HAS NOT CARRIED OUT ANY MASSIVE CONSTRUCTI ON ACTIVITY. ACCORDING TO THE ASSESSEE, HE HAS CARRIED OUT THE RENOVATION/CONSTRU CTION WORKS WORTH ABOUT RS.40.00 LAKHS OVER A PERIOD OF THREE YEARS. HENCE, THE CLA IM OF THE ASSESSEE THAT HE HAD RECEIVED THE MATERIALS ON APPROVAL BASIS IS BEYON D THE COMPREHENSION OF HUMAN PROBABILITIES. FURTHER THE ASSESSING OFFICER HAS P OINTED OUT THAT THE IMPOUNDED DOCUMENTS RELATE TO THE CEMENT PURCHASE, STEEL PURC HASE AND LABOUR CHARGES. IN RESPECT OF LABOUR CHARGES, THE QUESTION OF ON APPR OVAL DOES NOT ARISE. SINCE THE CEMENT BAGS ARE REQUIRED TO BE PRESERVED CAREFULLY, NORMALLY NOBODY PURCHASES MORE THAN THE REQUIRED QUANTITY. STEEL ITEMS ARE ALSO P URCHASED ACCORDING TO THE REQUIREMENT ONLY. SINCE THE BILLS IMPOUNDED DURING THE COURSE OF SURVEY OPERATION RELATE TO THE FIRST YEAR OF RENOVATION/CONSTRUCTION , THE POSSIBILITY OF RETURNING THOSE MATERIALS ALSO APPEARS TO BE REMOTE. FURTHER WE NO TICE THAT THE ASSESSEE HAS NOT SUBSTANTIATED HIS CLAIM WITH THE CONFIRMATION LETTE RS, ACCOUNT COPIES ETC., OBTAINED FROM THE SUPPLIERS OF THESE MATERIALS. HENCE, THE CLAIM OF THE ASSESSEE THAT HE RECEIVED MATERIALS ON APPROVAL BASIS IS NOT ACCEPTABLE AND HENCE THE SAID CLAIM IS LIABLE TO BE REJECTED. 4.9 HOWEVER, IN OUR VIEW, THE POSSIBILITY OF GE TTING MATERIALS ON CREDIT CANNOT BE ALTOGETHER RULED OUT. EQUALLY, THE POSSIBILITY OF R ETURNING UNSUITABLE ITEMS CANNOT ALSO BE RULED OUT. WE NOTICE THAT THE ASSESSING OFFICER HAS ALSO NOT MADE ENQUIRIES WITH THE SUPPLIERS OF MATERIALS TO FIND OUT WHETHER THEY WER E PURCHASED ON CASH OR CREDIT TERMS. HENCE, IN THE ABSENCE OF MATERIALS TO SHOW THAT THE ASSESSEE HAS ACTUALLY PURCHASED ON CASH TERMS, IN OUR VIEW, IT CANNOT BE SAID THAT THE ASSESSEE HAS ACTUALLY PAID THE DIFFERENCE AMOUNT OF RS.11.82 LAKHS BY WAY OF CASH DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08. AS STATED EARLIER, THE AS SESSEE HAS ALSO FAILED TO SUBSTANTIATE HIS CLAIM WITH EVIDENCES. WE HAVE ALR EADY EXPRESSED THE VIEW THAT THE APPROACH OF THE ASSESSEE AND LD CIT(A) IN CONSIDERI NG THE AGGREGATE AMOUNT SPENT OVER A PERIOD OF THREE YEARS IS NOT CORRECT. UNDER THESE CIRCUMSTANCES, IN OUR VIEW, THE IMPUGNED ISSUE IS REQUIRED TO BE DECIDED VIA MEDIA, SO THAT IT WOULD MEET THE ENDS OF JUSTICE. FROM THE VALUATION REPORT FILED BY THE AS SESSEE, WE NOTICE THAT THE DVO HAS ESTIMATED THE COST AT RS.44.52 LAKHS. ACCORDING TO THE ASSESSEE, HE HAS ACCOUNTED FOR I.T.A. NOS. 579, 580 & 608/COCH/2011 & C.O. NO.2/COCH/2012 10 A SUM OF RS.39.77 LAKHS (EXCLUDING INTEREST PORTION CAPITALISED BY HIM). THUS THERE IS A DIFFERENCE OF ABOUT RS.5.00 LAKHS BETWEEN THE TWO A MOUNTS STATED ABOVE. HENCE, BY FURTHER FACTORING IN POSSIBLE OMISSIONS IN ACCOUNTI NG FOR CORRECT EXPENSES, IN OUR VIEW, THE DIFFERENCE IN THE COST OF RENOVATION/CONSTRUCTI ON INCURRED IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08 MAY BE FIXED AT RS.7.00 LAK HS AND IN OUR VIEW, IT WOULD MEET THE ENDS OF JUSTICE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO RESTRICT THE ADDITI ON IN RESPECT OF THIS ITEM TO RS.6.00 LAKHS. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENU E FOR ASSESSMENT YEAR 2007-08 IS PARTLY ALLOWED AND THE CROSS OBJECTION FILED BY THE ASSESS EE IS DISMISSED. THE OTHER TWO APPEALS FILED BY THE ASSESSEE ARE TREATED AS ALLOWE D FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 13-11 -2013. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 13TH NOVEMBER, 2013 GJ COPY TO: 1. SHRI V. SIVARAJENDRAN, ARUN GARDENS, VRA-P-22, P RAVACHAMBALAM, NEMOM P.O, TRIVANDRUM-695 020. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRA L CIRCLE-1, TRIVANDRUM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-III, KOC HI. 4.THE COMMISSIONER OF INCOME-TAX, CENTRAL, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN I.T.A. NOS. 579, 580 & 608/COCH/2011 & C.O. NO.2/COCH/2012 11