The ITO, Ward-1(2), RAJKOT-GUJARAT V. M/s Saroj Ceramic Inds., Wankaner

ITA 648/RJT/2010

• Counselvise Citation: 64824914 RSA 2010
• Duration Of Justice: 2 year(s) 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 26-03-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 28-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: SAMIR BHUPTANI
• Keywords: Unexplained investment; Valuation report

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT . .. . . . . . , , , , . .. . . . . . , , , , $ $ $ $ BEFORE SHRI T. K. SHARMA, JM AND SHRI D. K . SRIVASTAVA, AM ITA NO. 648/RJT/2010 / ASSESSMENT YEAR 2006-07 I.T. O. WARD-1 (2), RAJKOT. ( )/ APPELLANT) M/S .SAROJ CERAMIC INDUSTRIES, PANCHASAR WANKANER. PAN: AALFM8488P. *+)/ RESPONDENT ITA NO. 675/RJT/2010. / ASSESSMENT YEAR 2006-07. M/S .SAROJ CERAMIC INDUSTRIES, PANCHASAR WANKANER. PAN: AALFM8488P. ( )/ APPELLANT) I.T. O. WARD-1 (2), RAJKOT. *+)/ RESPONDENT , / REVENUE BY SHRI M. K. SINGH, D.R. ., / ASSESSEE BY SHRI SAMIR BHUPTANI, C.A. , / DATE OF HEARING 26-03-2012. , / DATE OF PRONOUNCEMENT 27 -04-2012. / / / / ORDER . .. . . . . . / D. K. SRIVASTAVA: THE APPEALS FILED BY THE DEPARTMENT AND THE ASSESSEE ARE DIRECTED AGAINST THE ORDER PASSED BY THE C.I.T.(A) ON 3.11.2009. BEING CROSS-APPEALS, THEY ARE BEING DISPOSED OFF BY A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. IN ITA NO. 648/RJT/2010, THE DEPARTMENT HAS TAKE N THE FOLLOWING GROUNDS: 1 THE LD. C.I.T.(A) HAS ERRED IN LAW AND ON FACT O F THE CASE IN DELETING THE ADDITION MADE BY THE A.O. ON ACCOUNT OF EXAMINE D INVESTMENT IN BUILDING ADDITION OF RS.1,76,180/- AND ON ACCOUNT OF UNEXPLAINED INVESTMENT IN LAND OF RS.8,64,485/-. 2. ON THE FACTS OF THE CASE, LD. C.I.T.(A)-I, RAJKO T OUGHT TO HAVE UPHELD THE ORDER OF THE A.O. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF LD. C .I.T.(A)-I, RAJKOT MAY BE SET-ASIDE AND THAT OF THE ASSESSING OFFICER RE REST ORED. 3. IN ITA NO.675/RJT/2010, THE ASSESSEE HAS TAKEN T HE FOLLOWING GROUNDS:- ITA 648 & 675 /RJT/201 0. 2 THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, RAJKOT ERRED IN LAW AS WELL AS ON FACTS IN - (A) CONFIRMING ADDITIONS OF RS.22,70,370/- ON ACCOU NT OF DIFFERENCE IN THE VALUE OF COST OF CONSTRUCTION OF FACTORY BUI LDING BETWEEN VALUATION REPORT AND BOOKS OF ACCOUNT. (B) CONFIRMING ADDITION OF RS.22,70,370/- ONLY ON T HE BASIS OF VALUATION REPORT AND PARTICULARLY WHEN BOOKS OF ACC OUNT WERE NOT REJECTED. 4. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TH E BUSINESS OF MANUFACTURING AND TRADING OF FIRE BRICKS. THE ASSESSEE COMMENCED ITS BUSINESS IN THE YEAR UNDER APPEAL AND THEREFORE IT IS THE FIRST YEAR OF ITS BU SINESS. RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 11-09-2006 DECLARING TOTAL LOSS OF RS.1980/-. ASSESSMENT U/S.143(3) WAS COMPLETED ON 17-12-2008 ASSESSING TH E TOTAL INCOME AT RS.33,09,060/-. PERUSAL OF THE ASSESSMENT ORDER SH OWS THAT THE ASSESSING OFFICER HAS ADDED A SUM OF RS.24,46,550/- ON ACCOUNT OF UNE XPLAINED INVESTMENT IN THE CONSTRUCTION OF A BUILDING AND FURTHER SUM OF RS.8, 64,485/- ON ACCOUNT OF UNEXPLAINED INVESTMENT IN LAND FOR THE DETAILED REA SONS GIVEN IN THE ASSESSMENT ORDER. ON APPEAL, THE LD. CIT(A) HAS DELETED THE AD DITION MADE BY THE AO ON ACCOUNT OF UNEXPLAINED INVESTMENT IN LAND. HE HAS H OWEVER CONFIRMED THE ADDITION TO THE EXTENT OF RS.22,70,370/- ON ACCOUNT OF INVES TMENT IN CONSTRUCTION. THAT IS HOW BOTH THE PARTIES ARE IN APPEAL BEFORE THIS TRIB UNAL. 5. APROPOS OF THE APPEAL FILED BY THE DEPARTMENT, T HE LD. CIT(A) HAS DELETED THE ADDITION MADE BY THE AO ON ACCOUNT OF UNEXPLAINED I NVESTMENT IN LAND WITH THE FOLLOWING OBSERVATIONS:- 9. I HAVE CAREFULLY CONSIDERED THE ISSUE. I FIND THAT THIS ADDITION IS BASED ONLY ON THE VALUE DETERMINED BY THE SUB-REGISTRAR F OR THE PURPOSE OF STAMP DUTY. THERE IS NO OTHER ENQUIRY TO SHOW THAT THERE WAS ANY UNEXPLAINED INVESTMENT IN LAND, AS THE AO HAS NOT MADE ANY ENQU IRY FROM THE SELLER AND THERE IS NOTHING TO SHOW THAT ANYTHING MORE THAT WH AT WAS STATED IN THE SALE DEED HAS BEEN PAID BY THE APPELLANT. VALUE OF LAND AS PER THE STAMP VALUATION AUTHORITY WILL BE RELEVANT FOR WORKING OU T THE VALUE AS PER SEC.50 OF THE ACT, SO FAR AS SELLER IS CONCERNED. HOWEVER, SO FAR AS PURCHASER IS CONCERNED, NO ADDITION CAN BE MADE UNLESS THERE IS SOME ENQUIRY TO SHOW THAT ANY EXTRA AMOUNT WAS ACTUALLY PAID BY THE PURC HASER OR THERE WAS ANY UNDERHAND DEALING. THIS HAS BEEN HELD IN SEVERAL D ECISIONS RELIED UPON BY THE APPELLANT AND AS QUOTED BY IT. VERY RECENTLY, THE HONBLE RAJASTHAN HIGH COURT HAS ALSO HELD IN THE CASE OF KISHAN KUMAR REP ORTED IN 215 CTR PAGE 181 THAT SUCH VALUATION CANNOT BE ADOPTED IN THE HA NDS OF PURCHASER FOR WORKING OUT UNEXPLAINED INVESTMENT IN LAND, WITHOUT ANY OTHER EVIDENCES TO ITA 648 & 675 /RJT/201 0. 3 SHOW THAT ANY EXTRA AMOUNT WAS PAID BY THE PURCHASE R. IN VIEW OF THIS, THIS ADDITION IS NOT JUSTIFIED AND IS DELETED. 6. AT THE TIME OF HEARING, THE LD. DEPARTMENTAL REP RESENTATIVE COULD NOT REBUT THE FACTS AS WELL AS THE CONCLUSIONS DRAWN BY THE L D. C.I.T.(A) IN THE AFORESAID ORDER. HE, IN FACT, CONCEDED THAT THE ORDER PASSED BY THE C.I.T.(A) IN THIS BEHALF WAS CORRECT ON FACTS AND IN LAW. IN THIS VIEW OF THE MA TTER, THE ORDER PASSED BY THE CIT(A) DELETING THE ADDITION ON ACCOUNT OF UNEXPLAI NED INVESTMENT IN LAND IS CONFIRMED. APPEAL FILED BY THE DEPARTMENT IS DISMI SSED. 7. APROPOS OF THE APPEAL FILED BY THE ASSESSEE, THE LD. CIT(A) HAS CONFIRMED THE ADDITION WITH THE FOLLOWING OBSERVATIONS:- 5. I HAVE CAREFULLY CONSIDERED THE ISSUE. SO FAR AS THE CLAIM THAT WITHOUT POINTING OUT ANY DEFECTS IN BOOKS OF ACCOUNTS NO SU CH ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT AN BE MADE, IS CONCERNED, I DO NOT AGREE WITH THE LD. AR THAT FIRST BOOKS OF ACCOUNTS HAVE TO BE REJE CTED BEFORE MAKING ANY ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT BECAU SE ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT IS MADE WHEN CORRECT EXPE NDITURE IS NOT RECORDED IN BOOKS OF ACCOUNTS. WHEN THE EXPENDITURE IS NOT F ULLY RECORDED IN BOOKS OF ACCOUNTS THEN ADDITION CAN BE STRAIGHT AWAY MADE AS UNEXPLAINED INVESTMENT BECAUSE THERE IS NO QUESTION OF REJECTIN G OR ACCEPTING BOOKS OF ACCOUNTS IN SUCH A CASE. SINCE THIS ADDITION IS NOT BASED ON ACCEPTANCE OR NON-ACCEPTANCE OF TRADING RESULTS, IN MY OPINION MA INTENANCE OF BOOKS OF ACCOUNTS IS NOT MATERIAL WHEN THERE ARE GLARING MIS TAKES IN THE TYPE OF CONSTRUCTION SHOWN BY THE APPELLANT AND AS MENTIONE D BY THE VALUER. IT IS TO BE POINTED OUT THAT THE VALUATION REPORT RELIED UPO N BY THE AO IS NOT OF A DEPARTMENTAL VALUER, BUT VALUER HAPPENS TO BE OF TH E BANK WHICH PROVIDED FINANCE TO THE APPELLANT AND IS AN INDEPENDENT PERS ON. THIS VALUATION REPORT HAS BEEN FILED BY THE APPELLANT AND IT HAS NOT BEEN OBTAINED BY THE DEPARTMENT. THE LD. AR ATTEMPTED TO SHOW THAT IN TH E BOOKS OF ACCOUNTS VALUE OF COST OF BUILDING AND KILN WAS SHOWN AT A H IGHER FIGURE IS ALSO NOT MATERIAL BECAUSE WHAT IS BEING REFERRED TO HERE IS THE COST OF CONSTRUCTION OF THE BUILDING AND NOT OF THE KILN BECAUSE IN KILN VA RIOUS MOTORS, PUSHERS AND FLOW PIPE ETC. ARE ALSO ADDED, WHICH ARE BASICALLY PART OF MACHINERY AND AS SUCH THE COST OF CONSTRUCTION OF THE BUILDING HAS T O BE VIEWED SEPARATELY. AS PER THE BOOKS OF ACCOUNTS VALUE OF THE BUILDING HAS BEEN SHOWN AT RS.31,52,350 AS AGAINST WHICH THE COST OF BUILDING DETERMINED BY THE BANKS VALUER IS RS.54,22,900 AND THUS THERE IS DIFFERENCE OF ONLY RS.22,70,370. THE ADDITIONAL DIFFERENCE ADDED BY THE AO IS PATENTLY I NCORRECT BECAUSE HE HAS CONSIDERED THE VALUE OF COST OF KILN ALSO WHILE WOR KING OUT THE DIFFERENCE. THEREFORE, ADDITION TO BE MADE SHOULD HAVE BEEN ONL Y RS.22,70,370. ITA 648 & 675 /RJT/201 0. 4 6. NOW COMING TO THE DETAILS REGARDING CONSTRUCTION , IT IS NOTICED FROM THE BILLS SUBMITTED THAT OUT OF TOTAL COST OF CONSTRUCT ION OF WELL OVER RS.32 LAKHS SHOWN IN THE BOOKS OF ACCOUNT, COST OF KAPACHI (GRI DS) HAPPENS TO BE RS.2,58,500 (VIDE BILLS SUBMITTED ON PAGE 55 AND 67 OF THE PAPER BOOK) AND THAT OF SAND IS OF RS.75,000 ONLY [BILLS SUBMITTED ON PAGE 55 (PART) AND 56 OF THE PAPER BOOK]. WHEN COST OF CONSTRUCTION OF BUIL DING IS WELL OVER RS.32 LAKHS, EVEN AS PER BOOKS OF ACCOUNT, THIS ITSELF SH OW THAT COST OF CONSTRUCTION SHOWN IN THE BOOKS IS VERY LOW. SIMILARLY, COST OF KAPACHI USED IS ALSO ON THE LOWER SIDE. THERE IS A CERTAIN PROPORTION OF SAND W HICH IS REQUIRED FOR CONSTRUCTION OF SUCH A BIG BUILDING AND SUCH INADEQ UATE PURCHASE OF SAND SHOWS THAT THERE IS CLEAR-CUT SUPPRESSION OF COST S HOWN IN THE BOOKS SO FAR AS CONST OF CONSTRUCTION IS CONCERNED. APART FROM T HAT, THE AO HAS ALSO POINTED OUT TO CERTAIN OTHER FACTS REGARDING DIFFER ENCE IN ACTUAL CONSTRUCTION AS PER THE VALUATION REPORT AND AS PER THE APPELLAN T. WHEREAS THE APPELLANT HAS CLAIMED THAT 8 ENTRY-DOORS AND ATLEAST 50 WINDO W SPACES ARE DOOR-LESS AND WINDOW-LESS, BUT THE VALUER HAS POINTED OUT THA T WIDOWS WERE MADE OF STEEL AND DOORS WERE MADE OF STEEL ROLLING SHUTTERS . THERE IS ALSO DIFFERENCE IN TYPES OF BRICKS USED. IT IS ALSO TO BE NOTED TH AT EVEN A CONTRACTOR, SHIVAM CONSTRUCTION WAS APPOINTED FOR SOME WORK AND THERE IS ALSO BILL FOR PAYMENT TO CONSULTANT. THESE ALL GOES TO SHOW THAT COST OF CONSTRUCTION RECORDED IN BOOKS OF ACCOUNTS IS NOT CORRECT BECAUSE EXPENDITUR E ON VARIOUS ITEMS IS ON A VERY VERY LOW SIDE. IT IS ALSO SEEN THAT BUSINES S HAS STARTED THIS YEAR AND AS SUCH, ADDITION CAN BE MADE IN THE HANDS OF THE F IRM. IN VIEW OF THIS, ADDITION IS REQUIRED TO BE MADE. HOWEVER, CONSIDER ING THE FACT THAT ACTUAL DIFFERENCE WORKS OUT TO ONLY RS.22,70,370 ON ACCOUN T OF DIFFERENCE IN COST OF CONSTRUCTION OF BUILDING, ADDITION OF RS.22,70,370 IS CONFIRMED AND THE BALANCE IS DELETED. 8. IN SUPPORT OF APPEAL, THE LD. AUTHORIZED REPRESE NTATIVE FOR THE ASSESSEE HAS FILED WRITTEN SUBMISSIONS. ACCORDING TO HIM, NEITHE R THE A.O. NOR THE CIT(A) HAS REJECTED THE BOOKS OF ACCOUNT AND THEREFORE THE IMP UGNED ADDITION WAS LIABLE TO BE DELETED. HIS SECOND SUBMISSION WAS THAT THIS WAS TH E FIRST YEAR OF BUSINESS OF THE ASSESSEE AND THEREFORE THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE IMPUGNED ADDITION IN THE HANDS OF THE ASSESSEE. IN SUPPORT O F HIS SUBMISSIONS, HE RELIED UPON THE DECISIONS IN PRATAPSINGH, 200 ITR 788 (RAJ.); R UBY BUILDERS, 63 TTJ 202 AHD.); CHOHAN RESORTS, 58 DTR 361 (ASR.); AND HAVELLS (P) LTD., 165 TAXMAN 510 (DEL.) 9. IN REPLY, THE LD. DEPARTMENTAL REPRESENTATIVE SU PPORTED THE ORDER PASSED BY THE CIT(A) IN THIS BEHALF. 10. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CO NSIDERED THEIR SUBMISSIONS INCLUDING THE AUTHORITIES REFERRED TO BY THEM. PERU SAL OF THE MATERIALS AVAILABLE ON RECORD SHOWS THAT THE ASSESSEE HAD SUBMITTED VALUAT ION REPORT TO THE BANK FOR TAKING LOAN. THE A.O. OBTAINED A COPY OF THE SAID R EPORT FROM THE BANK AND ITA 648 & 675 /RJT/201 0. 5 COMPARED THE VALUE OF THE BUILDING SHOWN BY THE ASS ESSEE ITSELF IN THE SAID REPORT WITH THE INVESTMENTS IN CONSTRUCTION OF BUILDING AS RECORDED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT AND NOTICED THAT THE ASSESSEE HAD UNDER-STATED OR UNDER- RECORDED THE COST OF CONSTRUCTION IN ITS BOOKS OF A CCOUNT. IT IS THIS UNDERSTATEMENT IN THE COST OF CONSTRUCTION TO THE EXTENT OF RS.22,70, 370/- AS QUANTIFIED BY THE C.I.T.(A), WHICH IS THE SUBJECT MATTER OF DISPUTE. THE EVIDENCE WHICH IS THE BASIS FOR MAKING THE IMPUGNED ADDITION IS THE VALUATION REPOR T FURNISHED BY THE ASSESSEE ITSELF AND THEREFORE THE ASSESSEE CANNOT BE PERMITT ED TO TURN AROUND AND PLEAD OTHERWISE. BESIDES, THE ASSESSEE HAS PLACED NO EVID ENCE ON RECORD TO ESTABLISH THAT ITS OWN VALUATION AS GIVEN TO THE BANK ON THE BASIS OF WHICH UNEXPLAINED INVESTMENT HAS BEEN WORKED OUT, WAS INCORRECT. IN T HIS VIEW OF THE MATTER, THE ORDER OF THE C.I.T.(A) IN QUANTIFYING UNDER-STATEMENT IN THE COST OF CONSTRUCTION AT RS.22,70,370/- IS CONFIRMED. THE ASSESSEE HAS GIVEN NO EXPLANATION TO EXPLAIN THE NATURE AND SOURCE OF INVESTMENT AS SHOWN BY IT IN I TS OWN VALUATION REPORT SUBMITTED TO THE BANK AND THEREFORE THE ORDER OF THE C.I.T.(A ) IN CONFIRMING THE IMPUGNED ADDITION CANNOT BE HELD TO BE IRRATIONAL OR UNREASO NABLE ON THE FACTS OF THE CASE. HE HAS GIVEN COGENT REASONS FOR CONFIRMING THE IMPUGNE D ADDITION IN HIS APPELLATE ORDER. WE ARE IN AGREEMENT WITH THEM. 11. AS REGARDS THE SUBMISSION OF THE ASSESSEE THAT THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE IMPUGNED ADDITION AS THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE NOT REJECTED BY THE AO, WE FIND THAT THE CIT(A) HAS GIVEN COGENT REASONS IN HIS APPELLATE ORDER FOR REJECTING THE AF ORESAID SUBMISSION. WE ARE IN AGREEMENT WITH THEM AND THEREFORE ENDORSE THEM. THE ASSESSEE ITSELF HAD SUBMITTED THE VALUATION REPORT TO THE BANK FROM WHI CH IT TRANSPIRED THAT THE ASSESSEE HAD UNDER-STATED THE INVESTMENT TO THE EXTENT OF RS .22,70,370/- IN ITS BOOKS OF ACCOUNT. THIS FACT ITSELF MAKES THE BOOKS OF ACCOUN T UNRELIABLE, INCOMPLETE AND INCORRECT. PROVISIONS OF SECTION 69/69B OF THE INCO ME-TAX ACT ARE SQUARELY APPLICABLE TO SUCH CASES. THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) IS IN CONFORMITY WITH THE P ROVISIONS OF SECS.69/69B OF INCOME-TAX ACT. IN THIS VIEW OF THE MATTER, THE OR DER OF CIT(A) IN THIS BEHALF IS CONFIRMED. APPEAL FILED BY THE ASSESSEE IS DISMISS ED. 12. IN VIEW OF THE FOREGOING, BOTH THE APPEALS STAN D DISMISSED. , 3 27/04/2012 5 , THIS ORDER IS PRONOUNCED IN OPEN COURT ON 27-04-2012. SD/- SD/- ( .. / T. K. SHARMA) ( .. / D. K. SRIVASTAVA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER 3/ DATE 27/04/2012 /RAJKOT ITA 648 & 675 /RJT/201 0. 6 , ,, , *8 *8 *8 *8 98 98 98 98 / COPY OF ORDER FORWARDED TO:- 1. ) / APPELLANT 2. *+) / RESPONDENT 3. > / CONCERNED CIT 4. >- / CIT (A) 5. 8 *, , / DR, ITAT, RAJKOT 6. / GUARD FILE. / BY ORDER , ASTT. REGISTRAR , INCOME TAX APPELLATE TRIBUNAL, RAJKOT.