B.P. ERGO LTD, MUMBAI V. DCIT 6(1), MUMBAI

ITA 6488/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8522 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 22-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMARDR
• Keywords: Fair market value; Valuation report
• Section: 69C; 69

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -BBENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A./6488/MUM/2014, / ASSESSMENT YEAR: 2010-11 B.P. ERGO LIMITED 406, WINDFALL, C-WING , SAHAR PLAZA ANDHERI-KURLA ROAD, J.B. NAGAR,ANDHERI (E), MUMBAI-400 059. PAN:AABCB 5128 Q VS. DCIT-6(1) AAYAKAR BHAVAN, M.K. ROAD CHURCHGATE, MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT) / REVENUE BY: SHRI SUMAN KUMAR-DR /ASSESSEE BY: SHRI MADHUR AGARWAL / DATE OF HEARING: 15/12/2016 / DATE OF PRONOUNCEMENT: 01/02/2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA A.M. - CHALLENGING THE ORDER,DATED 20/06/2014,OF CIT(A)-14 ,MUMBAI,THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY, ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF VARIOUS KIND OF FURNITURES,FILED ITS RETURN OF INCOME ON 14/10/2 010, DECLARING INCOME OF RS.1.17 CRORES.THE ASSESSING OFFICER (AO) COMPLETED THE ASSESSMENT U/S .143(3)OF THE ACT,ON 19/03/2013, DETERMIN- ING ITS INCOME AT RS.10,37,42,230/-. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT ADDITION OF RS. 28.65 LAKHS MADE U/S. 69C OF THE ACT. DURING THE COURSE OF HEARING,THE AO DIRECTED THE AS SESSEE TO FURNISH VARIOUS DETAILS IN RESPECT OF ADDITION TO ITS FIXED ASSETS. IN ITS RESPONSE, THE ASSESSEE SUBMITTED FACTORY-PLAN,ERECTION CERTIFICATES, CERTIFICATES OF THE ARCHITECT AND BIL LS RELATING TO ARCHITECT FEE FOR PLANT ETC. FROM TH E PERUSAL OF CERTIFICATE OF THE ARCHITECT, THE AO OBS ERVED THAT THE ARCHITECT ESTIMATED HIS FEES BASED ON THE PROJECT COST OF RS.8 CRORES, THAT THE ASSESS EE HAD SHOWN A TOTAL PROJECT COST AT AROUND RS. 5 CRORES.HE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY T HE PROJECT COST SHOULD NOT BE TAKEN AT RS. 8 CRORES.THE AO OBSERVED THAT IT WAS VERY DIFFICULT T O ACCEPT THAT ARCHITECT,WHO WAS AUTHORITY IN THE CONSTRUCTION DESIGN AND EVALUATION OF THE STRUC TURE WOULD QUOTE FROM FIGURE THAT TOO FILE CALCULATING HIS FEES.AFTER CONSIDERING THE EXPLANAT ION OF THE ASSESSEE IN THAT REGARD THE AO HELD THAT THE ASSESSEE HAD CONCEALED THE EXPENSES TO THE TUNE OF RS.3 CRORES IN THE PROJECT. INVOKING 6488/M/14- BP ERGO LTD. 2 THE PROVISIONS OF SECTION 69 C OF THE ACT,HE ADDED THE SAID AMOUNT TO THE TOTAL INCOME OF THE ASSESSEE. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA). BEFORE HIM, THE ASSESSEE ARGUED THA T DURING THE YEAR UNDER CONSIDERATION IT HAD MADE ADDITION TO BUILDING AMOUNTING TO RS.6.64 CROR ES, THAT IT HAD FURNISHED ALL THE NECESSARY DETAILS,INCLUDING THE ARCHITECTURAL CONSULTANCY AGR EEMENT(ACA)DURING THE ASSESSMENT PROCEED -INGS, THAT THE AGREEMENT WAS ENTERED INTO WITH MUN ISH & ASSOCIATES(M&A)ON 27/07/2009, THAT FEES TO BE PAID TO THE CONSULTANT WAS FIXED AT 1.25 % OF THE COST OF THE PROJECT ESTIMATED TO BE AT RS.5 CRORES AS PER THE AGREEMENT,THAT THE AO BASED ON ONLY ONE OF THE INVOICES CAME TO THE CONCLUSION THAT COST OF THE PROJECT WAS RS.8 CRORE, THAT REFERRING TO THAT INVOICE HE MADE AN ADDITION OF RS.3 CRORES, THAT THE PART B OF ACA DEA LT WITH CONSULTANCY FEES TO BE PAID, THAT PART C OF THE AGREEMENT ESTIMATED THE VALUE OF WORK FOR WH ICH AGREEMENT WAS ENTERED INTO, THAT BASED ON THE AGREEMENT THE CONSULTANT HEAD RAISED ITS BIL L FOR VARIOUS SERVICES RENDERED AS PER THE AGREEMENT, THAT IN THE BILL RAISED ON 11/03/2010 TH E ESTIMATED COST OF PROJECT WAS ERRONEOUSLY MENTIONED AT RS.8 CRORES, THAT THE ASSESSEE NOTED T HAT THE BILL OF THE CONSULTANT WAS NOT AS PER AGREEMENT, THAT THE FACTS WERE BROUGHT TO THE NOTIC E OF THE CONSULTANT, THAT CORRECTIONS WERE MADE IN THE BILLS, THAT THE CONSULTANT HAD NEVER ISSUED ANY CERTIFICATE STATING THAT THE COST OF THE PROJEC T WAS RS.8 CRORES, THAT THERE WAS AN INADVERTENT MIST AKE ON PART OF THE CONSULTANT, THAT THE ERRORS WAS RECTIFIED IN THE BILL AND PAYMENTS WERE MADE AC CORDINGLY, THAT THE ASSESSEE HAD OBTAINED WRITTEN CLARIFICATION FROM THE CONSULTANT WITH RESP ECT TO CLERICAL ERROR IN ONE OF THE BILLS, THAT IN THE SUBSEQUENT FINANCIAL YEAR IT HAD CONSTRUCTED TH E ADDITIONAL FOR, ON THE SAID BUILDING AND THE TOTAL COST OF CONSTRUCTION OF THE BUILDING IS RS.9. 06 CRORES, THAT THE COST OF BUILDING INCURRED BY THE ASSESSEE AND CAPITALISE IN ITS BOOKS OF ACCOUNT AS ON 31/03/2010 WAS RS.6.64 CRORES INCLUSIVE OF ALLOCATION OF PREOPERATIVE EXPENSES CAPITALISED ALONG WITH THE COST OF BUILDING, THAT THE CONSULTANT HAD CERTIFIED THAT BUILDING WAS COMPLETE D IN MARCH, 2010, THAT REMAINING PART OF THE BUILDING WAS COMPLETED IN SUBSEQUENT YEARS, THAT IT HAD INCURRED FURTHER COST OF CONSTRUCTION OF BUILDING IN THE AY.2011-12, AMOUNTING RS.2.40 CRORE S,THAT THE TOTAL COST OF BUILDING AS ON 31/03/2011 WAS RS. 9.05 CRORES, THAT IT HAD CAPITAL ISED ADDITIONAL COST OF CONSTRUCTION OF BUILDING TO THE TUNE OF RS.2.41 CRORES IN THE SUBSEQUENT FIN ANCIAL YEARS, THAT THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITION BASED ON ESTIMATED VALUE OF COS T OF PROJECT,THAT THE ASSESSEE HAD CAPITALISED 6488/M/14- BP ERGO LTD. 3 BUILDING COST OF RS.6.64 CRORES AND NOT RS.5CRORES AS ASSUMED BY THE AO, THAT HE HAD NOT BROUGHT OUT ANY FINDING ON RECORD THAT THE ASSESSEE HAD INC URRED COST MORE THAN WHAT HAD BEEN CAPITALISED IN THE BOOKS OF ACCOUNTS. 3.1. AFTER CONSIDERING THE ASSESSMENT ORDER AND THE SUBM ISSIONS OF THE ASSESSEE, HE HELD THAT THE AO HAD REFERRED THE MATTER TO THE DVO FOR DETERMINI NG THE COST OF THE PROJECT, THAT VIDE HIS REPORT DATED 27/08/2013 THE DVO HAD ESTIMATED THE C OST OF INVESTMENT AT RS.9.55 CRORES, THAT THE DVO HAD CONSIDERED THE COST OF INVESTMENT SHOWN BY THE ASSESSEE AT RS.6.37 CRORES FOR THE YEAR UNDER CONSIDERATION. HE DIRECTED THE AO TO CONSIDER THE ESTIMATED COST OF INVESTMENT FOR THE YEAR UNDER CONSIDERATION AS PER VALUATION REPORT GIVEN B Y THE DVO AND THE DIFFERENTIAL ONLY BE CONSIDERED FOR ADDITION IN THE COMPUTATION OF TOTAL INCOME INSTEAD OF RS.3 CRORES. 4. BEFORE US,THE AUTHORISED REPRESENTATIVE(AR) CONTEND ED THAT NO MISTAKE WAS FOUND IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, THAT ADDITION U/ S.69C WAS MADE ON ESTIMATE BASIS, A REFERENCE CAN BE MADE,FOR DETERMINING THE FAIR MARKET VALUE A ND NOT FOR DETERMINING THE COST OF THE OF CONSTRUCTION,THAT THE ISSUE IN THE CASE UNDER CONSI DERATION WAS TO DETERMINE THE COST OF CONSTRUCTION. HE REFERRED TO PAGE FIVE OF THE PAPER BOOK AND ARGUED THAT THERE WAS A MISTAKE IN THE ONE OF THE BILLS RAISED BY THE CONSULTANT.THE D EPARTMENTAL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF THE FAA AND ARGUED THAT THE ARCHITECT HAD IN ITS BILL CLEARLY MENTIONED THE COST OF THE PROJECT AT RS.8 CRORES. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT ASSESSEE HAD CARRIED OUT CONSTRUCTION DURING THE YEAR UNDER CONSIDERATION, THAT IT HAD ENTERED INTO AN ACA WITH M &A,THAT IT HAD TO PAY COMMISSION AT THE RATE OF 1.25% TO THE CONSULTANT,THAT THE CONSULTANT RAISED THREE BILLS FOR THE SERVICES REND ERED BY IT TO THE ASSESSEE, THAT IN ONE OF THE BILL S THE RATE AS WELL AS THE TOTAL PROJECT COST WAS NOT AS PER THE ACA, THAT IN THE BILL THE PROJECT COST WAS MENTIONED AT RS.8 CRORES, THAT THE AO MADE A RE FERENCE TO THE DVO, THAT HE ESTIMATED THE COST OF CONSTRUCTION OF THE PLANT, FOR THE YEAR UND ER CONSIDERATION,AT RS.6.37 CRORES, THAT THE FAA DIRECTED THE AO TO RESTRICT THE ADDITION MADE U/S.6 9C OF THE ACT. WE FIND THAT THE ENTIRE DISPUTE HAS ARISEN BECAUSE OF ONE OF THE BILLS, OUT OF THE THREE BILLS, ISSUED BY THE ARCHITECT, THAT VIDE ITS LETTER DT.13.6.13 THE ARCHITECT HAS CLEARLY MENTIONED THAT THERE WERE ERRORS IN THE BILLS RAISED IN MARCH 2010.THE FAA HA S IGNORED THE CLARIFICATORY LETTER ISSUED BY THE 6488/M/14- BP ERGO LTD. 4 CONTRACTOR. THE AO HAD NOT REJECTED THE BOOKS OF AC COUNT OF THE ASSESSEE AND NO DEFECT HAS BEEN POINTED OUT AS TO HOW THE AMOUNT CAPITALISED UNDER BUILDING ACCOUNT TOTALING TO RS.9.06 CRORES AS ON 31.3.12 WAS NOT RELIABLE.PARA-C OF PAGE 8 OF PB TALKS OF VALUE OF THE WORK FOR WHICH CONSULTANCY WAS TO BE PAID AND THE ESTIMATED COST I S MENTIONED AT RS.5 CRORES.PAGE10 AND11 OF THE PB ARE BILLS OF THE ARCHITECT. IN BOTH THE BILL S THE AMOUNT MENTIONED IS RS.5 CRORES.PG-17 AND 18 IS THE LETTER OF THE ARCHITECT DT.13.6.13 WHEREI N IT HAD CLARIFIED THE POSITION ABOUT THE VALUE OF PROPERTY.IT HAS BEEN SPECIFICALLY MENTIONED IN THAT LETTER THAT TOTAL COST OF BUILDING UPTO 31.3.10 WAS RE.3.67CRORES.BESIDES,THE ASSESSEE HAD GIVEN YE AR-WISE BREAK UP OF EXPENDITURE MADE FOR CONSTRUCTION OF BUILDING AND HAD CAPITALISED THE SA ME.THE ACCOUNTS OF THE ASSESSEE WERE AUDITED. IN OUR OPINION,THERE WAS NO JUSTIFICATION AFTER LET TER OF CONSULTANT TO TAKE THE VALUE OF THE BUILDING AT RS.8 CRORES.THE ASSESSEE HAD OBTAINED A VALUATIO N REPORT FROM A CHARTERED ENGINEER WHO IS ALSO A REGISTERED VALUER AND SAME WAS SUBMITTED TO THE F AA.AS PER THE REPORT OF THE REGISTERED VALUER THE ESTIMATED TOTAL COST OF INVESTMENT IS RS.8.79,3 6,912/-.THUS THERE IS A MINOR DIFFERENCE OF RS.36,106/- IN THE COST OF INVESTMENT SHOWN BY THE ASSESSEE AND COST ESTIMATED BY THE REGISTERED VALUER.IN THESE CIRCUMSTANCES,RESTRICTING THE ADDIT ION TO THE FIGURE MENTIONED IN THE REPORT OF THE DVO,CANNOT BE HELD BE JUSTIFIABLE.CONSIDERING THE P ECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, WE HOLD THAT ORDER OF THE FAA CANNOT BE ENDORSED.EF FECTIVE GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWE D. . ORDER PRONOUNCED IN THE OPEN COURT ON 01 ST FEBRUARY, 2017. 01 , 2017 /- SD/- SD/- ( /AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 01.02.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 6488/M/14- BP ERGO LTD. 5 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR B BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.