. ACIT, Hisar V. M/s. Prakash Industries Ltd., Hisar

ITA 6230/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6974 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 26-11-2015
• Assessment Year: 1996-1997
• Appeal Filed On: 22-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Depreciation; Income from undisclosed sources; Valuation report
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESI DENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL ME MBER ITA NO. 6230/DEL/2013 AY: 19 96-97 ACIT, VS PRAKASH INDUSTRIES LTD., CIRCLE HISAR, DELHI ROAD, HISAR. HISAR. (PAN: AABCP6765H) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ATIQ AHMAD, SR. DR RESPONDENT BY : SHRI AJAY WADHWA, ADV. ORDER PER SUDHANSHU SRIVASTAVA, JM THIS DEPARTMENTS APPEAL HAS BEEN FILED AGAINST TH E ORDER DATED 23.9.2013 PASSED BY THE LD. CIT (A), ROHTAK, DELETING THE PENALTY IMPOSED U/S 271(1)(C) OF THE INCOME TAX ACT , 1961 (HEREINAFTER CALLED THE ACT). 2. BRIEF FACTS ARE THAT ASSESSMENT IN THIS CASE WAS COMPLETED U/S 143(3) OF THE ACT DETERMINING THE TOTAL INCOME AT RS. 18,59,45,860/- AFTER MAKING VARIOUS ADDITIONS OF RS .68,73,054/- AND RS.1,09,25,288/- ON ACCOUNT OF INCOME FROM UNDI SCLOSED SOURCES. THE CASE OF THE ASSESSEE COMPANY FOR VALU ATION OF FACTORY BUILDING IN RESPECT OF (I) SPONGE IRON DIVI SION, CHAMPA, (II) INDUCTION FURNACE DIVISION, CHAMPA, (III) ROLL ING MILL DIVISION WAS REFERRED TO THE DISTRICT VALUATION OFFICER (DVO ), INCOME TAX I.T.A. NO. 6230/DEL/2013 ASSESSMENT YEAR 1996-97 2 DEPARTMENT, BHOPAL, (LAND & BUILDING). DURING THE YEAR THE ASSESSEE COMPANY HAD SHOWN THE AMOUNTS OF ADDITIONS AS UNDER:- I) SPONGE IRON DIVISION, CHAMPA RS. 12,95,399/- II) INDUCTION FURNACE DIVISION, CHAMPA RS. 48,78,246/- III) ROLLING MILL DIVISION RS. 74,34,201 /- TOTAL RS. 1,36,07,846/- 3. THE DVO HAD DETERMINED THE COST OF CONSTRUCTION AND WORKED OUT THE DIFFERENCE AS PER DETAILS GIVEN BELO W:- SL. NO. NAME OF DIVISION AT CHAMPA COST OF CONSTRUCTION SHOWN (RS) COST OF CONSTRUCTION AS PER DVO (RS) DIFFERENCE BETWEEN COST SHOWN & COST ASSESSED I) SPONGE IRON DIVISON, CHAMPA 12,95,399/ - 31,60,000/ - 18,64,601/ - II) INDUCTION FURNACE DIVISION, CHAMPA 48,78,246/ - 59,95,100/ - 11,16,854/ - III) ROLLING MILL DIVISION 74,34,201/ - 1,13,25,800/ - 38,91,599/ - 1,36,07,846/ - 2,04,80,900/ - 68,73,054/ - TOTAL DIFFERENCE BETWEEN COST OF CONSTRUCTION AS SH OWN BY THE ASSESSEE AND AS ASSESSED BY THE DVO, WAS WORKED OUT AT RS. 68,73,0543/-. THE ASSESSING OFFICER WAS OF THE OPI NION THAT THE ASSESSEE COMPANY HAD UNDERSTATED ITS COST OF CONSTR UCTION OF SI I.T.A. NO. 6230/DEL/2013 ASSESSMENT YEAR 1996-97 3 DIVISION, IF DIVISION AND RM DIVISION TO THE EXTENT OF RS.68,73,054/-. THE ASSESSING OFFICER MADE THE ADD ITION OF RS. 68,73,054/- ON ACCOUNT OF INCOME FROM UNDISCLOSED SOURCES. FURTHER, THE ASSESSEE COMPANY HAD SHOWN THE ADDITIO NS TO BUILDING AT PICTURE TUBE PLANT AT PITHAMPUR AT RS.1 ,40,40,463/-. THE DVO ESTIMATED THE COST AT RS.2,49,65,351/-. IN THIS REPORT, THE DVO ALSO HELD THAT THE ACCOUNTS OF THE ASSESSEE WERE NOT RELIABLE. THE ASSESSING OFFICER MADE A FURTHER ADDI TION OF RS.1,09,25,288/- ON ACCOUNT OF INCOME FROM UNDISCLO SED SOURCES. 4. THE APPEAL AGAINST THE QUANTUM WAS CONFIRMED BY THE LD. CIT (A) WITH THE FOLLOWING OBSERVATIONS:- THE ISSUE INVOLVED AND THE SUBMISSIONS MADE BY THE APPELLANT HAVE BEEN CONSIDERED. THE ASSESSING OFFI CER HAS REFERRED THE OBJECTIONS RAISED BY THE APPELLANT ON THE VALUATION REPORT, TO THE VALUATION OFFICER WHO HAS CONSIDERED THE SAME AND HAS NOT FOUND THE SAME AS ACCEPTABLE. THE AFORESAID FACTS HAVE BEEN NOTED BY THE ASSESSING OFFICER IN PARA 16B OF THE ASSESSMENT ORD ER. HOWEVER, THE APPELLANT HAS RAISED AN ALTERNATIVE PL EA ALSO BEFORE THE UNDERSIGNED THAT IT BE ALLOWED DEPRECIATION ON THE ADDITION MADE BY THE ASSESSING OFFICER IN ITS ASSETS I.E. FACTORY BUILDING. THE A LTERNATIVE PLEA IS ACCEPTED AND THE ASSESSING OFFICER IS DIREC TED TO ALLOW DEPRECIATION ON THE AMOUNTS ADDED ON ACCOUNT OF UNEXPLAINED INVESTMENT ON THE ASSETS AND THE WDV THUS ARRIVED AT IS TO BE TAKEN INTO ACCOUNT IN THE SUCCEEDING ASSESSMENT YEARS ALSO. THE GROUND OF APPEAL IS ALLOWED ON THE AFORESAID LINES I.E. ADDIT IONS IN I.T.A. NO. 6230/DEL/2013 ASSESSMENT YEAR 1996-97 4 ASSETS/FACTORY BUILDING IS CONFIRMED BUT THE DEPRECIATION IS DIRECTED TO BE ALLOWED ON THE SAME. THE ASSESSING OFFICER HAS ALLOWED DEPRECIATION IN THE ASSESSMENT YEAR UNDER CONSIDERATION, HE IS DIRECTED TO ALLOW DEPRECIATION IN THE SUCCEEDING ASSESSMENT YEA R ALSO. 5. IN THE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT, THE ASSESSEE RAISED SIMILAR OBJECTIONS ABOUT THE VALIDI TY OF THE DVOS REPORT AS IN THE QUANTUM PROCEEDINGS. HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THAT ALL THE OBJECTIONS RAI SED BY THE ASSESSEE WERE AN AFTERTHOUGHT AND THAT THE ACCOUNTS OF THE ASSESSEE WERE NOT RELIABLE AND THE DVO HAD DONE THE VALUATION IN ACCORDANCE WITH THE BOARDS INSTRUCTION NO. 1671 AN D THE RATES AS CONTAINED IN THE CBDTS INSTRUCTIONS WERE APPLIE D. THEREAFTER, HE PROCEEDED TO POINT OUT SOME MORE DEF ECTS IN THE STAND OF THE ASSESSEE AND IMPOSED A PENALTY OF RS.8 1,87,238/- U/S 271(1)(C) OF THE ACT. 6. IN THE FIRST APPELLATE PROCEEDINGS, THE ASSESSE E CONTESTED THE IMPOSITION OF PENALTY FROM THE LEGAL ANGLE AND RELIED ON A PLETHORA OF CASE LAWS FOR THE PROPOSITIONS THAT IN ABSENCE OF OTHER INDEPENDENT/CORROBORATIVE EVIDENCE, ADDITION ON ACC OUNT OF UNEXPLAINED INVESTMENT IN COST OF CONSTRUCTION CANN OT BE MADE ON THE BASIS OF DVOS REPORT AND THAT THE ADDITION TO THE INCOME OF THE ASSESSEE BASED ON THE REPORT OF THE VALUER W AS INSUFFICIENT I.T.A. NO. 6230/DEL/2013 ASSESSMENT YEAR 1996-97 5 FOR RECORDING A FINDING OF CONCEALMENT OF INCOME/FU RNISHING INACCURATE PARTICULARS OF INCOME. THE LD. CIT (A) D ELETED THE ENTIRE PENALTY AND NOW THE DEPARTMENT IS IN APPEAL BEFORE US. 7. THE LD. DR RELIED ON THE ORDER OF THE AO AND SUB MITTED THAT ON THE FACTS OF THE CASE AS WELL AS THE LEGAL POSIT ION, THE PENALTY WAS RIGHTLY IMPOSED AND AS SUCH, THE ORDER OF THE L D. CIT (A) SHOULD BE REVERSED. 8. THE LD. AR SUBMITTED THAT THERE WAS NO MATERIAL WITH THE ASSESSING OFFICER TO CONCLUDE THAT COST OF CONSTRUC TION SHOWN BY THE ASSESSEE WAS NOT CORRECT. HE SUBMITTED THAT OTH ER THAN THE DVOS REPORT, THERE WAS NOTHING ON RECORD TO HOLD T HAT ANY UNDISCLOSED INVESTMENT WAS MADE IN COST OF CONSTRUC TION AT CHAMPA AND PICTURE TUBE PLANT, PITHAMPUR. HE SUBMIT TED THAT MERE FACT THAT THE ADDITION WAS SUSTAINED IN APPEAL WAS NOT SUFFICIENT TO DRAW ADVERSE INFERENCE AGAINST THE AS SESSEE IN THE PENALTY PROCEEDINGS. HE FURTHER SUBMITTED THAT I T WAS THE PRIMARY DUTY OF THE THEN ASSESSING OFFICER TO PROVE , PRIOR TO REFERRING TO THE DVO THAT THERE WAS UNDER- STATEMENT/CONCEALMENT OF INCOME AND ONLY AFTER THIS BURDEN WAS DISCHARGED, ADDITION COULD HAVE BEEN MADE ON THE BA SIS OF DVOS REPORT. IN THE PRESENT CASE, THE BURDEN WAS NOT DIS CHARGED BEFORE I.T.A. NO. 6230/DEL/2013 ASSESSMENT YEAR 1996-97 6 THE REFERENCE WAS MADE TO DVO. HE ALSO SUBMITTED TH AT EXCEPT FOR THE REPORT OF DVO ESTIMATING THE COST OF CONSTR UCTION, THERE WAS NO MATERIAL BEFORE THE ASSESSING OFFICER TO COME TO THE CONCLUSION THAT THE ASSESSEE HAD CONCEALED AND/OR F URNISHED INACCURATE PARTICULARS OF INCOME. HE RELIED ON THE FOLLOWING JUDGMENTS IN SUPPORT OF HIS CASE - ACIT V. DHARIYA CONSTRUCTION CO. 197 TAXMAN 202 (SC ) PR. CIT V. J. UPENDRA CONSTRUCTION (P.) LTD. 59 TAX MANN.COM 144 (GUJARAT) CIT V. BAJRANG LAI BANSAL 355 ITR 572 (DELHI) CIT V. LAHSA CONSTRUCTION (P.) LTD 357 ITR 671 (DE LHI) CIT V. PUNEET SABHARWAL 338 ITR 485 (DELHI) CIT VS. SMT SURAJ DEVI 328 ITR 604 (DEL) CIT VS. NAVEEN GERA 328 ITR 516 (DEL) K.P. VARGHESE V. ITO (1981) 7 TAXMAN 13 (SC) 9. THE LD. AR FURTHER SUBMITTED THAT THERE WERE BON A FIDE REASONS REGARDING WHY THE ESTIMATE MADE BY DVO SHOU LD NOT HAVE BEEN ADOPTED. HE SUBMITTED THAT THE DVO APPLIE D THE CPWD RATES, WHICH WERE ON THE HIGHER SIDE AND WERE GENERALLY APPLIED TO CONSTRUCTION OF GOVERNMENT OF INDIA AND OTHER PUBLIC I.T.A. NO. 6230/DEL/2013 ASSESSMENT YEAR 1996-97 7 SECTOR ORGANIZATIONS. FURTHER, THE CPWD RATES WERE APPLIED IN RESPECT OF PURCHASE OF BUILDING MATERIAL SUCH AS, S TEEL, CEMENT, BRICKS, SAND CONCRETE ETC. WHEREAS, THE ASSESSEE HA D PURCHASED THE BUILDING MATERIAL AT HIGHLY COMPETITIVE RATES. FURTHER, THE ASSESSEE HAD PURCHASED CEMENT AND STEEL IN BULK DIR ECTLY FROM THE MANUFACTURING AGAINST ST FORMS, WHICH IN FACT W AS COMPLETELY OVERLOOKED BY THE DVO. AS THE RAIPUR ARE A OF CHHATTISGARH IS THE HUB OF STEEL AND CEMENT INDUSTR IES AND THE ASSESSEE HAS PURCHASED THE CEMENT AND STEEL DIRECTL Y FROM THE MANUFACTURERS IN BULK QUANTITIES AT VERY COMPETITIV E RATES. FURTHER, THE ASSESSEE HAVING PURCHASED THE MATERIAL DIRECTLY FROM THE MANUFACTURER CARRIED OUT NUMBER OF JOBS ON LABOUR RATE UNDER THE DIRECT SUPERVISION OF ITS CIVIL ENGINEERS AND THEREBY, SAVED CONTRACTORS MARGIN. FURTHER, FOR CERTAIN ITEM S SUCH AS CAR SHED, SECOND QUALITY PIPE AND STEEL OF LOWER VALUE WERE USED WHEREAS, THE DVO HAD APPLIED THE RATE OF HEAVY STRU CTURAL MATERIAL. FURTHER, MATERIAL HAVING LIFE OF 30 YEARS WERE USED BY THE ASSESSEE, HOWEVER, DVO TAKING THE LIFE OF THE B UILDING AT 60 YEARS, APPLIED HIGHER RATES. FURTHER, DRAINS, CULVE RTS, ROADS HAVE BEEN EVALUATED ON LIFE EXPECTANCY OF 25 YEARS, WHER EAS, DRAINS, CULVERTS HAVING BEEN CONSTRUCTED BY STONE MASONRY A ND ROADS ON I.T.A. NO. 6230/DEL/2013 ASSESSMENT YEAR 1996-97 8 WBM QUALITY, THEREBY LIFE EXPECTANCY SHOULD NOT BE MORE THAN 10 YEARS. 10. THE LD. AR ALSO ARGUED THAT THE DVOS REPORT IS MERELY AN OPINION AND HENCE NO PENALTY WAS IMPOSABLE ON THE D IFFERENCE IN VALUES. HE SUBMITTED THAT WHERE THE ADDITION IS MAD E ONLY ON THE BASIS OF SUCH REPORT WITH NO OTHER MATERIAL ON RECO RD, NO ADDITION AND PENALTY THEREON U/S 271(1)(C) OF THE A CT IS WARRANTED. HE PLACED RELIANCE ON THE FOLLOWING JUDG MENTS: (A) DCIT V. JMD ADVISORS (P.) LTD. [2010] 124 ITD 223 (DELHI TRIB.) (B) T.P.K. RAMALINGAM V. CIT [1995] 211 ITR 520 (MAD.) THE LD. AR SUBMITTED THAT ON THE FACTS AND CIRCUMST ANCES OF THE CASE AND IN LIGHT OF THE VARIOUS JUDICIAL PRONO UNCEMENTS, THE LD. CIT (A) HAD RIGHTLY DELETED THE PENALTY. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS UNDISPUTED FACT THAT THE PENALTY HAS BEEN IMPOSED ENTIRELY ON THE BASIS OF DIFFERENCE IN VALUE OF THE FIXED ASSETS AS PER THE BOOKS OF ACCOUNT OF THE ASS ESSEE AND THE VALUATION ARRIVED AT BY THE DVO. IT IS ALSO AN UNDI SPUTED FACT THAT APART FROM THE DVOS REPORT, THE AO HAD NO OTH ER INDEPENDENT EVIDENCE TO COUNTER THE FIGURES FROM TH E ASSESSEES BOOKS OF ACCOUNT. IT IS ALSO SEEN THAT WHILE DEALIN G WITH THE ASSESSEES OBJECTIONS ON THE DVOS REPORT, THE AO H AS RELIED ONLY I.T.A. NO. 6230/DEL/2013 ASSESSMENT YEAR 1996-97 9 ON THE COMMENTS OF THE DVO IN RESPONSE TO THE ASSES SEES OBJECTIONS BUT HAS FAILED TO GIVE A FINAL FINDING O N THE ISSUE. THUS HE HAS NOT DEALT WITH THE ASSESSEES OBJECTIONS PRO PERLY. THIS MIGHT HAVE SERVED THE REVENUES PURPOSE IN THE QUAN TUM PROCEEDINGS BUT WHEN IT COMES TO IMPOSITION OF PENA LTY FOR FURNISHING OF INACCURATE PARTICULARS AND/OR CONCEAL MENT, UTMOST CAUTION HAS TO BE EXERCISED. THE DEPARTMENT HAS NOT BEEN ABLE TO SUBSTANTIATE AS TO HOW THERE HAS BEEN FURNISHING OF INACCURATE PARTICULARS OF INCOME AND/OR CONCEALMENT BY THE ASS ESSEE WHEN THE AO HAS HIMSELF NOT BROUGHT ANY COGENT MATERIAL ON RECORD, APART FROM THE DVOS REPORT, TO JUSTIFY THE IMPOSIT ION OF PENALTY. THE HONBLE HIGH COURT OF MADRAS IN CIT VS APSARA T ALKIES 15 TAXMAN 384 (MAD) HAS HELD THAT, PENALTY CANNOT BE LEVIED ON THE BASIS, MERELY OF AN ESTIMATE OF COST OF CONSTRUCTIO N OF A BUILDING BUILT BY AN ASSESSEE WITH HIS FUNDS. IN THE CASE BE FORE THAT HIGH COURT, AN ADDITION WAS MADE TO THE INCOME RETURNED ON THE SCORE THAT THE COST OF CONSTRUCTION AS DISCLOSED IN THE A SSESSEE'S BOOK WAS LOWER THAN THE ESTIMATED COST OF THE BUILDING A S RENDERED BY A VALUER . THE LEARNED JUDGES HELD THAT A MERE ESTIMATE OF COS T CANNOT CONSTITUTE MATERIAL ON WHICH A FINDING OF CO NCEALMENT CAN BE RENDERED. IN THAT CASE, SOME EXPLANATION HAD BEE N OFFERED BY THE ASSESSEE AS TO WHY THE CONSTRUCTION WAS AT AN E CONOMICAL COST. THIS EXPLANATION WAS NOT ACCEPTED BY THE ITO. THE LEARNED JUDGES HELD THAT EVEN IF THE ASSESSEE'S EXPLANATION WERE NOT ACCEPTABLE, IT WOULD STILL REQUIRE SOME FURTHER MAT ERIAL TO SUPPORT THE FINDING THAT THE ASSESSEE HAD CONCEALED ITS TAX ABLE INCOME. WE RESPECTFULLY AGREE WITH THIS VIEW. SIMILARLY, A CO-ORDINATE BENCH OF DELHI TRIBUNAL HAS HLED IN DCIT VS. JMD ADVISORS (P) LTD. 124 I.T.A. NO. 6230/DEL/2013 ASSESSMENT YEAR 1996-97 10 ITD 223 (DELHI TRIB.), THE VALUATION MADE BY THE DVO IS AN ESTIMATE WHICH CAN BE A BASIS FOR MAKING ADDITION T O THE INCOME OF THE ASSESSEE FOR THE PURPOSE OF ASSESSMENT, BUT THE SAME ALONE CANNOT BE THE BASIS TO CONSTRUE CONCEALMENT FOR THE PURPOSE OF IMPOSING PENALTY UNDER SECTION 271(1)(C). 12. AS SUCH, HAVING REGARD TO ALL THE FACTS OF THE CASE AS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT CONSIDERED FROM ANY ANGLE, THE PENALTY IMPOSED BY THE ASSESSING OFFICER UNDER SECTION 271(1)(C) WAS NOT SUSTAINABLE AND THE LEARNED CIT(A ) WAS FULLY JUSTIFIED IN CANCELLING THE SAME. THE IMPUGNED ORDE R OF THE LEARNED CIT (A) IS, THEREFORE, UPHELD DISMISSING TH IS APPEAL FILED BY THE REVENUE. 13. IN THE RESULT THE APPEAL OF THE DEPARTMENT IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19TH FEBRUARY , 2016. SD/- SD/- ( G.D. AGRAWAL) (SUDHANSHU SRIVASTAVA) VICE PRESIDENT JUDICIAL MEMBER DT. 19TH FEBRUARY, 2016 GS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4.CIT(A) 5. DR BY ORDER ASSTT. REGISTRAR