Geeta Prem Tilwant, Pune V. Addl CIT Rg 9 Pune, Pune

ITA 691/PUN/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1158 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-08-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 04-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DHEERAJ KUMAR JAIN
• Assessee Lawyers: DINESH R GUL A BANI
• Keywords: Corroborative evidences; Onus to prove
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , . . , BEFORE MS. SUSHMA CHOWLA , JM AND SHRI R.K. PANDA , AM ITA NO. 691 /PN/201 2 ASSESSMENT YEAR : 2006 - 07 GEETA PREM TILWANI, C/O DINESH GULABANI, GUL A BANI & COMPANY, P.W.D.5/2, ASHOK CINEMA ROAD, P I MPRI, PUNE 411 017. PAN : AARPT6007H . APPELLANT VS. THE ADDL. COMMISSIONER OF INCOME TAX, RANGE - 9, PUNE. . RESPONDENT / APPELLANT BY : SHRI DINESH R. GUL A BANI / RESPONDENT BY : SHRI DHEERAJ KUMAR JAIN / DATE OF HEARING : 10 .0 8 .2015 / DATE OF PRONOUNCEMENT: 31 . 0 8 .2015 / ORDER PER SUSHM A CHOWLA, JM : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) - V , PUNE , DATED 02 . 02 .201 2 RELATING TO ASSESSMENT YEAR 200 6 - 07 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) . 2. THE ASSESSEE HA D INITIALLY RAISED DESCRIPTIVE AND HIGHLY ARGUMENTATIVE GROUNDS ALONG WITH APPEAL MEMO WHICH WERE SUBSEQUENTLY REVISED IN CONFORMITY 2 ITA NO. 691 /PN/201 2 WITH RULE 8 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963 . THE REVISED GROUNDS OF APPEAL READ AS UNDER : - 1) ON THE FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW, LEARNED ASSESSING OFFICER ERRED IN LAW BY MAKING AN ADDITION AMOUNTING TO RS. 30,16,550 / - IN 5 ITEMS OUT OF TOTAL 21 ITEMS OF CLOSING STOCK / WLP ON ACCOUNT OF UNDER VALUATION WOR KED OUT IN THE BOOKS OF ACCOUNTS BY THE APPELLANT WITHOUT REJECTING ANY MATERIAL ON RECORDS CONTAINED IN AUDITED BOOKS OF ACCOUNTS WHILE THE ADDITIONS MADE BY LEARNED ASSESSING OFFICER HAS BEEN DEALT WITH SURMISES & GUESS WORK ARBITRARILY & RANDOM WITHO UT ANY SUPPORTING EVIDENCE IN THIS RESPECT. 2) ON THE FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW, FURTHER THE CIT(A) HAVE GRANTED PART RELIEF AMOUNTING TO RS. 11,61,311/ - IN 2 ITEMS OF CLOSING STOCK OUT OF TOTAL 5 ITEMS OF CLOSING STOCK / WIP IN DISPUTE BY THE LEARNED ASSESSING OFFICER WHICH IS NOT JUSTIFIED AS PER PROVISIONS OF LAW AND SHOULD HAVE GIVEN FULL RELIEF AMOUNTING TO RS. 30,16,550 / - AS STATED IN GROUND NO.1 IN THE ABOVE MATTER. THE APPELLANT PRAYS FOR FURTHER R ELIEF AMOUNTING TO RS. 18,55,239/ - IN THE MATTER IN APPEAL BEFORE TRIBUNAL. 3) THE APPELLANT PRAYS TO BE ALLOWED, AMEND, DELETE, MODIFY & RECTIFY ANY GROUNDS OF APPEAL AT THE TIME OF HEARING. 3 . THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST TH E ADDITION MADE ON ACCOUNT OF ALLEGED UNDERVALUATION OF CLOSING STOCK. 4 . THE RELEVANT FACTS CONCERNING THE ISSUE ARE AS FOLLOWS. THE ASSESSEE IS ENGAGED IN THE BUSINESS AS BUILDER AND DEVELOPER UNDER TWO PROPRIETORY CONCERN S, NAMELY, M/S POOJA ENTERPRIS ES AND M/S GEETA BUILDERS. DURING THE ASSESSMENT YEAR 2006 - 07, THE ASSESSEE WHILE DRAWING THE FINANCIAL ACCOUNT S AS ON 31.03.2006 VALUED THE CLOSING STOCK OF RESIDENTIAL AND COMMERCIAL PROPERTIES AND ALSO UNDER - CONSTRUCTION PROPERTIES I.E . W ORK - IN - P ROGRES S (WIP) HELD AS STOCK BY REVERSE WORKING I.E. THE COST OF THE UNITS WAS ESTIMATED BY REDUCING CERTAIN ESTIMATED PERCENTAGE TO THE ESTIMATED SELLING PRICE. IN OTHER WORDS, THE SELLING PRICE/REALIZABLE PRICE WAS TAKEN AS THE BASE PRICE FOR ARRIVING AT THE COST OF STOCK HELD BY REDUCING ESTIMATED PROFITS THEREFROM. THE ASSESSING OFFICER DISPUTED THE 3 ITA NO. 691 /PN/201 2 METHOD OF VALUATION ADOPTED BY THE ASSESSEE. THE ASSESSING O FFICER OPINED THAT THE ESTIMATED GROSS PROFIT MARGINS ADOPTED BY THE A SSESSEE FOR MAKING ADJUSTM ENT TO THE ESTIMATED REALIZABLE VALUE OF CLOSING STOCK TO WORK OUT COST OF STOCK IS EXCESSIVE AND INCORRECT . FOR INSTANCE, THE G ROSS PROFIT MARGINS FOR SHOPS WER E TAKEN AT VARIOUS RATES AND IT VARIED FROM 40% TO 60%. THE ASSESSING OFFICER WAS OF THE VIEW THAT G ROSS P ROFIT M ARGIN (GPM) OF 40% ITSELF IS ON HIGHER SIDE AND REDUCTION OF 60% FROM THE REALIZABLE VALUE TO ARRIVE AT COST OF THE SHOPS HELD IS HIGHLY EXCESSIVE AND STAGGERING. THEREFORE , HE VENTURED INTO ADJUSTMENT OF GPM RATE FROM 60% TO 40% AND A CCORDINGLY, THE VALUE OF CLOSING STOCK WAS INCREASED TO THIS EXTENT. LIKEWISE, THE ASSESSING OFFICER ALSO ENHANCED PER SQ. FT. CONSTRUCTION COST IN SOME CASES AND CLOSING STOCK VALUE WAS THUS ENHANCED. 5 . THE ISSUE BEING FACTUAL, IT WILL BE PERTINENT TO REPRODUCE THE RELEVANT PORTION OF THE ASSESSMENT ORDER SHOWING PARTICULARS OF ADJUSTMENTS MADE IN THE CLOSING STOCK AS UNDER : - THE ITEM WISE REVALUATION WHICH WILL BE OCCURRING IN VIEW OF THE ABOVE DISCUSSION IS GIVEN BELOW: A. GEETA BUILDERS AT MASU LKAR SITE I . D BLDG. OFFICES A. AS PER RETURN = 23710 X 450 X60% = 71,13,000 (VALUED @ 60% SINCE CONSTRUCTION IS COMPLETED TO THE EXTENT OF 60% ONLY) B. REWORKING = 23710 X 600 X 60% = 85,35,600 (CONSTRUCTION COST TAKEN @ RS.600 PER SQ.FT. INSTEAD OF RS.450 PER SQ.FT. AS DISCUSSED) C. ENHANCEMENT IN THE VALUE OF WIP = 14,22,600. II. D BLD G . 6 SHOPS VACANT A. AS PER RETURN = 2814050 @ 40% = 11,25,620 B. REWORKING = 2814050 @ 60% = 16,88,430 (THE GP MARGIN TAKEN @ 40% INSTEAD OF 60%) C . ENHANCEMENT IN THE VALUE OF WIP = 5,62,810 4 ITA NO. 691 /PN/201 2 III. 2 BANKING HALL VACANT A. AS PER RETURN = 9000 @ 300 = 27,00,000 B. REWORKING = 9000 @ 400 = 36,00,000 (THE COST OF CONSTRUCTION TAKEN @ 400 PER SQ.FT. INSTEAD OF RS.300 PER SQ.FT.) C. ENHANCEM ENT IN THE VALUE OF WIP = 9,00,000 B. POOJA ENTERPRISES AT CHINCHWAD SITE IV. B BUILDING SHOPS A) AS PER RETURN = 585480 @ 50% = 2,92,740 257544 @ 50% = 1,28,772 B) REWORKING = 585480 @ 60% = 3,51,288 257544 @ 60% = 1,54,526 (GP RATIO TAKEN @ 40% INSTEAD OF 50%) C) ENHANCEMENT IN THE VALUE OF WIP = 58,548 + 25,754 = 84,302 V. C BLDG. SHOPS A. AS PER RETURN = 468384 @ 50% = 2,34,192 B. REWORKING = 468384 @ 60% = 2,81,030 B. REWORKING = 468384 @ 60% = 2,81,030 THUS THE TOTAL ENHANCEMENT OF THE WIP IN BOTH THE CONCERNS IS WORKED OUT AS FOLLOWS : GEETA BUILDERS POOJA ENTERPR I SES 14,22,600 5,62,810 84,302 9,00,000 46,838 28,85,410 1,31,140 THUS, THE CLOSING STOCKS OF GEETA BUILDERS & POOJA ENTERPRISES WOULD GET INCREA SED BY RS.28,85,410/ - AND RS.1,31,140/ - RESPECTIVELY. AS A RESULT OF THIS, THE INCOME OF THESE CONCERNS WOULD ALSO GET INCREASED RESPECTIVELY. THUS, THE TOTAL INCOME OF THE ASSESSEE WOULD GET INCREASED BY AN AGGREGATE AMOUNT OF RS.30,16,550/ - (RS.28,85,4 10/ - + RS.1,31,140/ - ). 6 . ACCORDINGLY, THE ASSESSING OFFICER ADDED A SUM OF RS.30,16,550/ - TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF UNDERVALUATION OF IMPUGNED CLOSING STOCK. 5 ITA NO. 691 /PN/201 2 7. THE CIT(A) ANALYZE D THE FACTS OF THE CASE IN PARA 5 OF ITS ORDER AND OBSERVED THAT WHILE THE ASSESSEE HA D NOT SUPPORTED THE METHOD OF VALUATION BY COGENT EVIDENCE, THE ASSESSING OFFICER HA D ALSO NOT BROUGHT ANY CONTRARY MATERIAL ON RECORD TO SUBSTANTIATE ITS WORKING EITHER. HE FURTHER OBSERVED THAT THE COST OF MATERIAL LIKE, CEMENT, STEEL PRICES AS WELL AS LABOUR COSTS HAVE GONE UP CONSIDERABLY VIS - - VIS EARLIER YEARS. THE CIT(A) THEREFORE, RESORTED TO SORT OF CONCILIATORY APPROACH AND GRANTED PARTIAL RELIEF OF RS.11,61,311/ - IN AGGREGATE ON ACCOUNT OF CERTAIN ITEMS OF CLOSING STOCK TO MEET THE ENDS OF JUSTICE. FOR DOING SO, HE READJUSTED THE GPM ADOPTED BY THE ASSESSING OFFICER IN RESPECT OF SOME ITEMS OF CLOSING STOCK RESULTING IN PARTIAL RELIEFS IN THOSE ITEMS. FOR CERTAIN OTHER ITEMS OF THE CLOSING STOCK, HE DECLI NED ANY RELIEF. 8 . AGGRIEVED BY THE ORDER OF THE AUTHORITIES BELOW, THE ASSESSEE IS IN APPEAL BEFORE US. 9 . BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE VEHEMENTLY SUBMITTED THAT THE ASSESSEE HA D FOLLOWED THE METHOD OF VALUATION I.E. R EALIZABLE VALUE LESS ESTIMATED GROSS PROFIT MARGINS METHOD TO COMPUTE THE COST OF THE ITEMS OF CLOSING STOCK CONSISTENTLY YEAR AFTER YEAR , WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT. THE ASSESSING OFFICER HAS ESTIMATED THE GROSS PROFIT MARGINS FOR VARIOUS F LATS/SHOPS AT A REDUCE D PERCENTAGE ARBITRARILY WITHOUT ANY BASIS. THE CIT(A) HAS GIVEN PARTIAL RELIEF TO THE AD HOC AND ESTIMATED ADDITION S ARBITRARILY WITHOUT ANY COGENT BASIS DE HORS THE METHOD OF VALUATION CONSISTENTLY FOLLOWED BY THE ASSESSEE YEAR AFT ER YEAR. THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE HA VE NOT BEEN QUESTIONED NOR REJECTED . HE SUBMITTED THAT DURING THE RELEVANT ASSESSMENT YEAR 2006 - 07, THE VALUATION OF CLOSING STOCK/WIP INCLUDED AROUND 2 1 ITEMS OUT OF WHICH VALUATION OF 5 ITEMS O F CLOSING STOCKS WAS ENHANCED , 3 OF THESE 6 ITA NO. 691 /PN/201 2 ITEMS WERE UNDER THE STAGE OF CONSTRUCTION (WIP) NOT READY FOR OCCUPATION AND REST 2 ITEMS WERE FINISHED AND READY FOR OCCUPATION AND POSSESSION. THE VALUATION OF COMMERCIAL PROPERTIES HA D ONLY BEEN MODIFIED AND E NHANCED AND THE VALUATION OF ALL THE RESIDENTIAL PROJECTS HAVE BEEN ACCEPTED BY THE ASSESSING OFFICER. HE CONTENDED THAT THE RATES ADOPTED FOR THE PURPOSE OF VALUATION WERE AKIN TO THE EARLIER YEARS . A LSO, THE VALUE OF CLOSING STOCK FORMS PART OF ACCOUNT S OF SUBSEQUENT ASSESSMENT YEAR AS OPENING STOCK. TH EREFORE, WITHOUT PREJUDICE, ANY POSSIBLE SHORTAGE IN THE VALUATION AUTOMATICALLY GETS FACTORED IN THE PROFITABILITY OF THE CONCERN IN THE NEXT YEAR AND THEREFORE, THERE IS NO ESCAPEMENT OF TAX PER SE . T HE ENTIRE EXERCISE UNDERTAKEN BY THE REVENUE IS EFFECTIVELY TAX NEUTRAL. THEREFORE, LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE VEHEMENTLY PLEADED THAT THE REVENUE OUGHT NOT TO HAVE DISTURBED THE VALUATION OF CLOSING STOCK AS ON 31.03.2006 MADE BY THE ASSESSEE. 1 0 . THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE, ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND POINTED OUT THAT THE ONUS TO PROVE THE CORRECTNESS OF THE VALUATION WA S ON THE ASSESSEE, WHICH HAS NOT BEEN DISCHARG ED . 1 1 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE BEFORE US IS ON ACCOUNT OF VALUATION OF WORK IN PROGRESS HELD AS CLOSING STOCK. THE ASSESSEE IS ENGAGED AS BUILDER AND AT THE CLOSE OF THE YEAR HAD DECLARED UNDER - PROGRESS U NITS IN BOTH RESIDENTIAL AND COMMERCIAL BUILDINGS BEING CONSTRUCTED BY IT. THE ASSESSEE WAS FOLLOWING PARTICULAR METHOD OF ACCOUNTING TO VALUE ITS CLOSING STOCK I.E. WORK IN PROGRESS WHICH HAD BEEN ACCEPTED BY THE DEPARTMENT. THE VALUATION OF WORK IN PRO GRESS OF RESIDENTIAL BUILDINGS HAS BEEN ACCEPTED BY THE ASSESSING OFFICER, BUT THE VALUATION OF WORK IN PROGRESS OF COMMERCIAL UNITS HAS BEEN RE - WORKED. IT IS THE CASE OF THE ASSESSEE THAT CERTAIN DEDUCTIONS TOWARDS 7 ITA NO. 691 /PN/201 2 APPROXIMATE GROSS PROFIT MARGINS HAVE B EEN MADE TO THE REALIZABLE VALUE AND FURTHER ADJUSTMENTS HAVE BEEN MADE ON ACCOUNT OF DIFFERENT STAGES OF COMPLETION OF THE UNDER - CONSTRUCTION PROPERTIES. THE REVENUE HAS NOT QUESTIONED THE PERCENTAGE STAGE OF COMPLETION ASSIGNED TO VARIOUS PROPERTIES. N OTABLY, THE SIZE OF THE UNIT, MEASUREMENT AND QUANTITY OF THE CLOSING STOCK/WIP HAS ALSO BEEN ACCEPTED WITHOUT ANY DISPUTE. THE ONLY DISPUTE REVOLVES ON THE ELEMENT OF PROBABLE PROFITS IN THE FORM OF GROSS PROFIT MARGINS EMBEDDED IN THE REALIZABLE VALUE T O ESTIMATE THE COST OF CONSTRUCTION. THE ASSESSING OFFICER HA D ONLY QUESTIONED THE PERCENTAGE OF GROSS PROFIT MARGINS ADOPTED , WHICH HAS BEEN RE - ADJUSTED AND REDUCED BY HIM TO ENHANCE THE VALUE OF CLOSING STOCK . FOR INSTANCE, AS PER THE ASSESSING OFFICE R, THE GROSS PROFIT MARGINS FOR SHOPS WERE TAKEN AT A VARYING RATE S FROM 40% TO 6 0%. THE CIT(A) GAVE PARTIAL RELIEF ON THE GROUND THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL TO SUBSTANTIATE HIS WORKING. HOWEVER, IN VIEW OF THE CIT(A), COST O F MATERIAL LIKE, CEMENT, STEEL PRICE AS WELL AS THE LABOUR COST HAS GONE UP COMPARATIVELY QUA THE EARLIER YEARS AND THEREFORE ONLY PART RELIEF WA S HAS GONE UP COMPARATIVELY QUA THE EARLIER YEARS AND THEREFORE ONLY PART RELIEF WA S JUSTIFIABLE. 1 2 . WE ARE NOT IMPRESSED BY THE REASONING S GIVEN BY THE AUTHORITIES BELOW . THE ENTIRE ADDITIO N IS BASED ON THE ESTIMATION OF GROSS PROFIT MARGIN WITHOUT ANY COGENT EVIDENCE OR MATERIAL. THE CIT(A) ALSO WHILE GIVING PARTIAL RELIEF HAS RE - ESTIMATED THE GROSS PROFIT MARGINS . THE ASSESSEE, ON THE OTHER HAND, HAS ADOPTED THE METHOD OF VALUATION CONSI STENT WITH EARLIER YEARS. THIS APART, IF ANY ADJUSTMENT IN THE VALUE OF THE CLOSING STOCK IS CARRIED OUT, THIS WILL A FFECT THE PROFITABILITY OF THE SUBSEQUENT YEARS AND THEREFORE PROFITS OF THE SUBSEQUENT YEARS W OULD BE CORRESPONDINGLY ALTERED. IN THE TO TALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WHERE THE ASSESSEE IS FOLLOWING CONSISTENT METHOD OF VALUING ITS CLOSING STOCK AND IN THE ABSENCE OF ANYTHING ADVERSE FOUND / BROUGHT ON RECORD, WE FIND NO MERIT IN THE RE - WORKING OF VALUATION OF WORK IN PR OGRESS ON ADHOC BASIS. WE DIRECT THE 8 ITA NO. 691 /PN/201 2 ASSESSING OFFICER TO ADOPT THE VALUATION OF WORK IN PROGRESS DECLARED BY THE ASSESSEE AND DELETE THE ADDITION OF RS. 18,55,239/ - . THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. 1 3 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 31 ST DAY OF AUGUST , 2015. SD/ - SD/ - ( R.K. PANDA ) ( SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER PUNE ; DATED : 31 ST AUGUST , 2015. / GCVSR / COPY OF THE O RDER IS FORWARDED TO : 1 ) THE ASSESSEE; 2 ) THE DEPARTMENT; 2 ) THE DEPARTMENT; 3 ) THE CIT(A) - V, PUNE; 4 ) THE CIT - V, PUNE; 5 ) THE DR A BENCH, I.T.A.T., PUNE; 6 ) GUARD FILE. / BY ORDER , //TRUE COPY// / SR. PRIVATE SECRETARY , / ITAT, PUNE