ITO, Ajmer V. SHRI CHANDMAL AGARWAL, Ajmer

ITA 7/JPR/2011

• Counselvise Citation: 723114 RSA 2011
• Duration Of Justice: 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 05-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROSHANTA MEENA
• Keywords: Unexplained investment; Question of law; Valuation report
• Section: 133A; 194C

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO. 7/ JP/2011 ASSESSMENT YEAR 2007-08 PAN: ADDPA 3980 D THE ITO VS. SHRI CHANDMAL AGARWAL WARD- 1(3) PROP. M/S. BALAJI HANDICRAFTS AJMER OPP. SRHIYA DHARAMSHALA CHHOTI BASTI, PUSHKAR, AJMER (APPELLANT ) (RESPONDENT) C.O. NO.9/JP/2011 (ARISING OUT OF ITA NO. 7/ JP/2011) ASSESSMENT YEAR 2007-08 PAN: ADDPA 3980 D SHRI CHANDMAL AGARWAL VS. THE ITO PROP. M/S. BALAJI HANDICRAFTS WARD- 1 (3) OPP. SRHIYA DHARAMSHALA AJMER CHHOTI BASTI, PUSHKAR, AJMER (APPELLANT ) (RESPONDENT) DEPARTMENT BY : MISS. ROSHANTA MEENA ASSESSEE BY: SHRI MANISH AGARWAL DATE OF HEARING: 27-09-2011 DATE OF PRONOUNCEMENT: 31-10-2011 ORDER PER N.L. KALRA, AM:- THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDE R OF THE LD. CIT(A), AJMER DATED 29-10-2010 FOR THE ASSESSMENT YEAR 2007-08. THE ASSESSEE HAS FILED THE CROSS OBJECTION. 2 2.1 THE FIRST GROUND OF APPEAL OF THE REVENUE IS T HAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 13,33,000/- M ADE BY THE AO ON ACCOUNT OF UNEXPLAINED INVESTMENT MADE IN HOUSE PROPERTY O N THE BASIS OF REPORT OF DVO WHICH IS BASED ON PLINTH AREA RATES WHICH HAS B EEN APPROVED BY CBDT. 2..2 THE ASSESSEE IS ENGAGED N THE BUSINESS OF EXPO RT AND LOCAL SALE OF CLOTHS. A SURVEY U/S 133A OF THE ACT WAS CONDUCTED ON 27-02-07. DURING THE COURSE OF SURVEY OPERATION, IT WAS NOTICED THAT THE ASSESSEE HAS CONSTRUCTED A HOUSE. IN THE RETURN OF INCOME, THE ASSESSEE HAS SHOWN THE COST OF CONSTRUCTION AFTER EXCLUDING THE COST OF LAND AT RS . 9.27 LACS. THE ASSESSEE WAS MAINTAINING THE COMPLETE DETAILS OF VOUCHERS AN D EXPENSES FOR THE PURPOSE OF INVESTMENT MADE IN THE CONSTRUCTION OF H OUSE.. DURING THE COURSE OF SURVEY, THE ASSESSEE HAS STATED THAT HE HAS NOT MADE ANY UNEXPLAINED INVESTMENT AND IN CASE THERE IS ANY DIFFERENCE IN T HE COST OF CONSTRUCTION DETERMINED BY THE DVO THE COST OF CONSTRUCTION SHOW N BY THE ASSESSEE THEN HE WILL BE READY TO GIVE THE TAX ON THIS DIFFERENCE AMOUNT. THE AO REFERRED THE ISSUE OF COST OF CONSTRUCTION IN HOUSE TO VALU ATION CELL AND THE DVO DETERMINED THE COST OF CONSTRUCTION AT RS. 22.60 LA CS. THE COPY OF THE VALUATION REPORT WAS GIVEN TO THE ASSESSEE AND THE ASSESSEE FILED THE OBJECTIONS WHICH WERE FORWARDED TO THE VALUATION OF FICER ON 17-10-08. THE VALUATION OFFICER GAVE HIS REPORT VIDE LETTER DATED 8 TH DEC. 08 AND STATED THAT 3 COST OF CONSTRUCTION MADE BY HIM IS CORRECT. THIS R EPORT WAS SENT TO THE ASSESSEE AND THE ASSESSEE AGAIN FILED THE OBJECTION S VIDE LETTER DATED 23-01- 09. THESE OBJECTIONS WERE ALSO SENT TO THE VALUATIO N OFFICER ON 9 TH NOV. 09. THE VALUATION OFFICER STICKED TO THE ORIGINAL VALUA TION. ACCORDINGLY, THE AO DETERMINED THE COST OF CONSTRUCTION OF HOUSE AT RS. 22.60 LACS AS AGAINST RS. 9.27 LACS SHOWN BY THE ASSESSEE. THUS T HE AO MADE AN ADDITION OF RS. 13.33 LACS. 2.3 BEFORE THE LD. CIT(A), THE ASSESSEE MADE THE SU BMISSIONS WHICH ARE SUMMARIZED AS UNDER:- (I) THE ASSESSEE GOT CONSTRUCTED A BUILDING BY EMPLOYING LOCAL LABOUR, MISTRY ETC. UNDER SELF SUPE RVISION. (II) THAT UPTO 31-03-2007, THE BUILDING WAS STILL N OT COMPLETE. (III) THE BUILDING IS COMPLETELY LOAD BEARING STRUC TURE. NO RCC FRAME STRUCTURE IS THERE AS STATED BY THE DV O (IV) THE REQUIRED STRUCTURE AND WORKING DRAWINGS ET C. WERE PROVIDED TO THE VALUATION OFFICER . (V) THE BUILDING HAS BEEN CONSTRUCTED IN PUSHKAR WHICH IS A RURAL AREA AND BAJRI IS AVAILABLE FROM L OCAL RIVER BED. BRICKS ARE SOLD BY VILLAGERS. THUS THE ASSESSEE HAS SAVED THE EXPENSES. (VI) THE APPROVED VALUER HAS VALUED THE BUILDING AT RS. 9.29 LACS AFTER CONSIDERING THE VALUATION REPOR T OF THE DVO. 4 2.4 THE LD. CIT(A) VIDE PARA 3.4 OF HIS ORDER HAS M ENTIONED THE COMMENTS OF THE DVO. THE DVO HAS MENTIONED THAT NO DETAILS OF MEASUREMENTS WERE GIVEN BY THE VALUER. THE ASSESSE E FURNISHED THE REPLY IN RESPONSE TO THE LETTER OF THE DVO. THE OBJECTIONS G IVEN IN THIS LETTER HAVE BEEN REPRODUCED BY THE LD. CIT(A) AT PAGE 7 OF HIS ORDER. 2.5 THE LD. CIT(A) HAS REPRODUCED THE OBSERVATION O F THE DVO IN PARA 3.6 OF HIS ORDER WHICH ARE AS UNDER:- 3.6 THESE OBJECTIONS OF APPELLANT WERE AGAIN REJ ECTED BY DVO VIDE HIS LETTER DATED 30-1-2009 BY MAKING TH E FOLLOWING OBSERVATIONS. IT IS NOT POSSIBLE TO CONSTRUCT A BASEMENT WITHOUT FRAME STRUCTURE. THE ASSESSEE DID NOT SUBMIT THE STRUCTURAL AND WORKING DRAWINGS ETC. AT THE TIME OF INSPECTION. AS SEEN AT SITE, THE BUILDI NG IS RCC FRAMED STRUCTURED ONLY. THERE ARE RCC COLUMNS, BEAM, PROJECTIONS, PROJECTED BALCONIES. RCC LOFT ETC ARE PROVIDED IN THE BUILDING. THE BUILDING IS DESIGNED AS PER RCC STRUCTURE ONLY. HENCE, THE RATES ADOPTED FOR RCC FRAMED STRUCTURE ONLY AND THE RATE ADOPTED BY THIS OFFICE IS APPROVED BY THE CBDT CIRCULAR. WHILE WORKING AT PLINTH AREA RATE EVERY ASPECT OF CONSTRUCTION HA S BEEN CONSIDERED. HENCE, THE RATE ADOPTED BY THIS OFFICE IS REASONABLE AND REQUIRED NO CHANGE. 5 THE DVO IN HIS CONCLUDING REMARKS MADE THE FOLLOWIN G OBSERVATIONS:- THE VALUATION REPORT PREPARED BY THIS OFFICE IS REASONABLE AND REQUIRED NO CHANGE AS EXPL AIN IN ABOVE PARAS. AS FAR AS ASSESSEE'S VALUATION REPORT DATED 22-01-2009 IS CONCERNED, PLEASE SEE PARAS NO 1 THAT THE VALUATION REPORT NOW SUBMITTED BY THE ASSESSEE IS N OT ACCEPTED AND HE HAS NOT SUBMITTED AN DOCUMENTING PR OOF IN SUPPORT OF HIS VALUATION REPORT AS DETAILED ABOV E. THE VALUATION REPORT PREPARED BY THE VALUER IS NOT REAL ISTIC AND IT IS ONLY HYPOTHETICAL WHICH DOES NOT REPRESEN T THE ACTUAL CONSTRUCTION AT SITE AND ACTUAL COST INVOLVE D IN CONSTRUCTION. THIS IS A MANIPULATED AND MALAFIDE RE PORT PREPARED BY THE ASSESSEE AFTER FINALIZATION OF VALU ATION REPORT BY THIS OFFICE. 2.6 THE LD. CIT(A) DELETED THE ADDITION AFTER OBSER VING AS UNDER:- 3.8 FROM THE PERUSAL OF RECORDS IT IS FOUND TH AT IN THIS CASE APPELLANT FURNISHED TWO SEPARATE VALUATION REPORTS OF REGISTERED VALUER SHRI DHARMENDRA JAIN, WHO ESTIMATED THE TOTA L COST OF CONSTRUCTION AT RS. 9,39,052/- AND RS. 9,29,660/- R ESPECTIVELY. DVO ON THE OTHER HAND ESTIMATED THE TOTAL COST OF C ONSTRUCTION AT RS. 22,60.000/-. APPELLANT RAISED VARIOUS OBJECT IONS TO THE VALUATION OF DVO AS FOLLOWS: (A) THE CONSTRUCTION OF HOUSE WAS INCOMPLETE AS ON DATE OF VALUATION. 6 (B) THE BUILDING IS COMPLETELY LOAD BEARING STRUC TURE. THERE IS NO RCC FRAME STRUCTURE AS HELD BY DVO. WHEN PLIN TH AREA RATES FOR DOUBLE STOREY BUILDING WITH LOAD BEARING STRUCTURE IS AVAILABLE, DVO SHOULD NOT HAVE MADE VALUATION AT AL MOST DOUBLE RATES ASSUMING RCC FRAME STRUCTURE. (C) THE VALUATION BASED ON THE ITEM WISE COST AS PER WORK CARRIED OUT BASED ON RAJASTHAN PWD BSR-2004 WITH APPROPRIATE COST INDEX IS MORE ACCURATE METHOD THAN CPWD PLINTH AREA RATES. (D) CPWD PLINTH AREA METHOD CANNOT BE USED IN TH E CASE OF APPELLANT BECAUSE THE BUILDING IS LOCATED AT PUSHKA R WHICH IS RURAL AREA. IN SUCH AREA, BAJRI IS AVAILABLE FROM L OCAL RIVER BED AND BRICKS ARE LOCALLY SOLD BY VILLAGERS, FOR WHICH BILLS ARE NOT ISSUED. (E) ACTUAL STRUCTURAL AND DRAWING WERE PROVIDED BY HIM TO THE DVO. ALL THESE OBJECTIONS WERE SUMMARILY REJECTED BY DVO . AT THE SAME TIME NO SPECIFIC DEFECT HAS BEEN POINTED OUT I N THE VALUATION OF SHRI DHARMENDRA JAIN. 3.9 IT HAS BEEN HELD BY HON'BLE IT AT, JAIPUR & JODHPUR BENCHES AND HON'BLE JURISDICTIONAL HIGH COURT IN VA RIOUS CASES THAT FOR ESTIMATING COST OF CONSTRUCTION, STATE PWD RATE SHALL BE APPLIED INSTEAD OF CPWD RATES. NORMALLY 20% DEDUCTI ON IS ALLOWED ON ACCOUNT OF DIFFERENCE BETWEEN CPWD AND P WD RATES. FURTHER DEDUCTION OF 10% TO 12% IS CONSIDERE D 7 REASONABLE ON ACCOUNT OF SELF SUPERVISION CHARGES. MOREOVER IN THIS CASE THE MAJOR DIFFERENCE IS ON ACCOUNT OF THE FACT THAT DVO HAS VALUED THE HOUSE AS RCC FRAMED STRUCTURE WH EREAS ACCORDING TO VALUER OF APPELLANT IT IS A COMPOSITE STRUCTURE WITH THE SUPPORT OF RCC COLUMNS AND STONE MASONRY. I THE REFORE HOLD THAT ADDITION OF RS.13,33,000/- IS NOT JUSTIFI ED IN THIS CASE, MERELY ON THE BASIS OF REP011 OF DVO. THE ADDITION IS DIRECTED TO BE DELETED. GROUND NO. 1 OF THE APPEAL IS THUS A LLOWED. 2.7 WE HAVE HEARD BOTH THE PARTIES. THE PAPER BOOK FILED BY THE LD. AR CONTAINS THE VALUATION REPORT MADE BY THE APPROVED VALUER. THE FIRST VALUATION REPORT IS BASED ON PLINTH AREA RATE AND THE SECOND VALUATION REPORT IS BASED ON DETAILED COST ANALYSIS. THE MAJOR DIFFE RENCE IS IN RESPECT OF COST OF CONSTRUCTION ADOPTED BY THE VALUATION OFFICER AN D THE REGISTERED VALUER. THE COMPARISON CAN BE NOTICED FROM PAGE 93 OF THE P APER BOOK. PERUSAL OF SUCH DETAILS SHOW THAT MAJOR VARIATIONS ARE AS UNDE R AND OTHER COMPARISONS GIVEN ON PAGE 93 OF THE PAPER BOOK ARE NOT REPRODUC ED. VALUATION DONE BY GOVT. VALUER REVISED VALUATION QTY. RATE UNIT AMOUNT QTY. RATE UNIT AMOUNT 1.GROUND FLOOR 135 7775.0 SQM 1049625 GROUND FLOOR 135 3455.0 SQM 466425.0 2.BASEMENT 127 7920.0 SQM 1005840 BASEMENT 127 1982.0 SQM 251714.0 718139.0 ADD FOR RCC COLUMN PROVIDED 8 INSTEAD OF BRICK MASONRY DEDUCT FOR LOCAL WOOD USE DEDUCT FOR CRACKED MARBLE 24 2721.0 6530.0 - 17157.0 - 7483.0 TOTAL RS.20,55,469 700849.0 2.8 THE REGISTERED VALUER AT PAGE 91 HAS PROVIDED T HE BASIS OF ADOPTING THE RATES. THESE ARE REPRODUCED AS UNDER:- NAME OF WORK VALUATION OF HOUSE BELONGS TO SHRI CHAND MAL PUSHKAR. UNIT PLINTH AREA RATE BASED ON RAJASTHAN PWD RATES AS ON 1-4-06 1 GROUND FLOOR OVER BASEMENT HT 11.6 (3,5M) UNIT RATE FOR 3.2 M 2850 ADD FOR ELECTRIC INSTALLATION W/O FANS 7% ADD FOR SANITARY AND WATER 10.0% ADD FOR EXTERNAL SERVICES 1.5% 582 3412 ADD EXTRA FOR EXTRA HT.1 ON RS. 2850/- @ 1.5% 43 3455 2 UNIT P.A. RATE FOR BASEMENT HT 13 (4.0M) RATE FOR 2.5 M HT 2450 ADD FOR ELECTRIC INSTALLATION W/O FANS 7%+7.5% EXTERNAL SERVICES 190 2640 ADD FOR EXTRA HEIGHT 1.5M ON RS. 2450/- @ 7.5% 184 2824 9 LESS FOR HALL TYPE CONST. @ 30% (-) 842 1982 2.9 THE REGISTERED VALUER HAS TAKEN THE FIXED PERCE NTAGE FOR ELECTRIC INSTALLATION AT 7% IN GROUND FLOOR AS WELL AS IN BA SEMENT. FOR EXTERNAL SERVICES, THE VALUER HAS ADDED 10% IN GROUND FLOOR BUT NOTHING HAS BEEN ADDED FOR THE BASEMENT. SIMILARLY FOR EXTERNAL SERV ICE, AN AMOUNT HAS BEEN ADDED AT 1.5% IN THE GROUND FLOOR WHILE HE HAS TAKE N ONLY 0.75% FOR THE BASEMENT. MOREOVER, FOR ADDITIONAL HEIGHT, THE VALU ER HAS TAKEN 1.5% FOR ONE FT HEIGHT. HEIGHT IS ACTUALLY 3.5 MTR IN RESPEC T OF GROUND FLOOR AND PLINTH AREA RATE HAS BEEN TAKEN AT RS. 3.2 MTR. THU S THE DIFFERENCE IN HEIGHT AND THE PLINTH AREA RATE ADOPTED FOR 0.3 MTR. THE V ALUER HAS NOT GIVEN THE BASIS AS TO HOW THESE DIFFERENCE HAVE BEEN DETERMIN ED. MOREOVER, THE APPROVED VALUER HAS ADOPTED FOR HALL TYPE CONSTRUCT ION. THIS 30% HAS BEEN TAKEN AFTER ADDING THE PERCENTAGE FOR ELECTRIC INST ALLATION AND SERVICES AND WITHOUT EXCLUDING THE AMOUNT ADDED FOR EXTRA HEIGHT . THUS THE VALUATION AT RS. 9.29LACS BY THE REGISTERED VALUER IS NOT ACCEPT ABLE AS REGISTERED VALUER HAS MADE CERTAIN DEDUCTIONS WITHOUT POINTING OUT AN Y RELEVANT TECHNICAL MATERIALS. THE VALUER HAS MADE DEDUCTION FOR LOCAL WOOD AND CRACKED MARBLE. NO EVIDENCE FOR SUCH DEDUCTION AND IT SHOWS THAT EXPENSES ARE ALSO NOT FULLY VERIFIABLE. 10 2.10 THE VALUATION REPORT MADE BY THE DVO IS NOT AC CEPTABLE BECAUSE THE VALUATION OFFICER HAS MADE THE VALUATIONS ON THE BA SIS OF CPWD RATES. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. DINESH TALWAR, 265 ITR 344 HAS REFUSED TO INTERFERE IN THE ORDER O F THE TRIBUNAL IN WHICH THE TRIBUNAL HELD THAT COST OF CONSTRUCTION SHOULD BE DETERMINED ON THE BASIS OF RAJASTHAN PWD RATES. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SMT. PREM KUMAR MUDRIA VS. ACIT, 303 ITR 128 HAS REFUSED TO INTERFERE IN THE FINDINGS OF THE TRIBUNAL IN WHICH THE TRIBUNAL GAVE A DEDUCTION OF 20% FROM THE VALUATIONS MADE BY THE CP WD. IT WILL BE USEFUL TO REPRODUCE THE HELD PORTION. HELD:- DISMISSING THE APPEAL, THAT THE COMMISSIONER (APPEALS) AS WELL AS THE TRIBUNAL HAD FOUND THAT THE VALUATION MADE BY DEDUCTING 20 PER CENT. FROM T HE VALUATION MADE BY THE DEPARTMENT VALUATION OFFICER WAS THE CORRECT VALUATION AND SUCH FINDINGS OF FACT COULD N OT BE DISTURBED IN APPEAL WHICH COULD BE ENTERTAINED ONLY ON A SUBSTANTIAL QUESTION OF LAW. 2.11 THE TRIBUNAL IN THE CASES OF ITO VS. SHRINGI ASSOCIATES (ITA NO.846 / JP/2009 DATED 30-04-2010) AND ITO VS. TA RA CHAND PATNI (ITA NO.1294/ JP/2010 DATED 11-02-2011) HAS UPHELD THE I SSUE OF ALLOWING REBATE OF 20% FROM THE COST OF CONSTRUCTION DETERMI NED BY THE DVO . WE 11 HAVE ALSO CONSIDERED THE OBJECTIONS GIVEN BY THE VA LUER AND THE COMMENTS OF THE DVO. THE DVO HAS TAKEN PLINTH AREA RATE ON THE BASIS OF RCC FRAME STRUCTURE. THE REGISTERED VALUER HAS NOT GIVEN THE EXPENDITURE AS TO WHETHER HE HAS CONSIDERED THE PLINTH AREA RATE BY TAKING I T A STRUCTURE WITHOUT RCC. IT IS NOTICED THAT REGISTERED VALUER HAS TAKEN AN A MOUNT ADDED FOR RCC COLUMN PROVIDED. FOR THIS PURPOSE, THE ONLY AMOUNT OF RS. 5,630/- HAS BEEN ADDED. AT PAGES 114 AND 116 AND THERE ARE DETAILS OF PROPOSED RCC STRUCTURAL FRAMING PLAN OF BASEMENT AND THE BEAM PL AN FOR GROUND FLOOR. THUS ONE WILL HAVE TO CONSIDER THE REBATE ON ACCOUN T OF THE BUILDING NOT BEING ENTIRELY BASED ON RCC STRUCTURE. WE THEREFORE , FEEL THAT IT WILL BE FAIR AND REASONABLE TO GIVE THE REBATE OF 35% FROM THE V ALUATION DONE BY THE DVO. THE DVO HAS ALSO NOT GIVEN THE REBATE FOR SELF SUPERVISION AND THE REBATE OF 10% IS GIVEN FOR SELF SUPERVISION. THUS T HE COST OF CONSTRUCTION WHICH IS TO BE WORKED OUT AS UNDER:- COST OF CONSTRUCTION DONE BY DVO RS. 22,60,000 (-) REBATE AS ADOPTED BY CPWD AND STRUCTURE IS NOT ENTIRELY ON RCC FRAME RS. 6,78, 000 RS.15,82,000 (-) REBATE FOR SELF SUPERVISION RS. 1,58,200 RS. 14,23,800 THIS IS AGAINST COST OF CONSTRUCTION SHOWN BY THE A SSESSEE AT RS. 9.27 LACS. THUS THE AMOUNT TO BE ADDED AS UNDISCLOSED INVESTME NT IN THE CONSTRUCTION OF THE HOUSE WILL BE TO THE EXTENT OF RS. 4,96,800 12 3.1 THE SECOND GROUND OF APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN ALLOWING TELESCOPIC BENEFIT OF RS. 5.00 LA CS WHICH WAS SURRENDERED BY THE ASSESSEE DURING THE COURSE OF SURVEY U/S 13 3A ON ACCOUNT OF EXCESS STOCK AGAINST ADDITION OF RS. 14,01,856/- U/S 40(A) (IA) CONFIRMED BY THE LD. CIT(A). 3.2 DURING THE COURSE OF HEARING, THE LD. AR OF THE ASSESSEE FAIRLY AGREED THAT TELESCOPING OF EXCESS STOCK CANNOT BE CONSIDER ED AGAINST THE ADDITION OF RS. 14,01,856/- CONFIRMED BY THE LD. CIT(A) U/S 40( A)(IA) OF THE ACT. HENCE, THIS GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE R EVENUE. 4.0 NOW WE TAKE UP THE CROSS OBJECTION OF THE ASSES SEE 4.1 THE FIRST GROUND OF C.O. OF THE ASSESSEE IS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS GROSSLY ERRED IN SUSTAINING THE ADDITION OF RS. 14,01,856/- U/S 40(A)(IA) ARBITRARILY WITHOUT CONSIDERING THE SUBMI SSIONS MADE AND NATURE OF PAYMENT MADE BY THE APPELLANT, THUS ADDITION SUS TAINED DESERVES TO BE DELETED. 1.1 THAT THE CIT(A) HAS FURTHER ERRED IN IGNOR ING THE SUBMISSION MADE MORE PARTICULARLY WHEN THE AMOUNT I N DISPUTE WAS NOT PAYABLE AT THE END OF THE PREVIOUS YEAR UNDER APPEA L, THEREFORE THE DISALLOWANCE OF RS. 14,01,856/- SO MADE DESERVES TO BE DELETED. 4.2 THE AO DURING THE COURSE OF ASSESSMENT PROCEEDI NGS NOTICED THAT THE ASSESSEE HAS PAID A SUM OF RS. 11,84,803/- UNDER TH E HEAD OF TAILORING EXPENSES TO FOUR PERSONS AND HAS PAID A SUM OF RS. 2,37,500/- UNDER CUTTING EXPENSES TO TWO PERSONS. THE QUANTUM OF PAYMENT MAD E TO EACH PERSON HAS 13 BEEN GIVEN AT PAGE 2 OF THE ASSESSMENT ORDER. AT PA GE 4 OF THE ASSESSMENT ORDER , THE AO HAS GIVEN BATCH NO. AND THE QUANTUM OF PAYMENT MADE IN RESPECT OF THAT PARTICULAR BATCH. THE ASSESSEE HAS NOT DEDUCTED THE TDS. ACCORDING TO THE AO, THERE MAY BE AN ORAL AGREEMEN T AND IT IS NOT NECESSARY THAT A CONTRACT SHOULD BE IN WRITING. THE AO AFTER CONSIDERING THE CONTENTION OF THE ASSESSEE HELD THAT A SUM OF RS. 1 4,01,856/- IS NOT ALLOWABLE IN VIEW OF SECTION 40(A)(IA) OF THE ACT A S THE ASSESSEE HAS FAILED TO DEDUCT THE TDS AFTER GOING THROUGH THE REPLY OF THE ASSESSEE AND FACTS OF THE CASE IT BECOMES CLEAR THE ASSESSEE HAD MADE PAYMENTS AGAINST THE JOB CHARGES WHICH IS CLEARLY IN NATURE OF CONTRACT. THOUGH IT MIGHT NOT HAVE BEEN REDUCED IN WRITING OR ANY DOCUMENTARY FORM. THE CONTRACT MAY BE MADE EVEN ORAL AS PER THE PROVISIONS OF CONTRACT ACT. THE ASSESSEE HAD MADE REGULAR PAYMENTS AGAINST THE JOB CHARGES BATCH WISE AS DETAILED IN T HE TAILORING & CUTTING EXPENSES REPRODUCED ABOVE ON REGULAR BASIS TO FEW LIMITED PERSONS WHICH CLEARLY GOES TO INDICATE AN IMPLIED ORAL CONTRACT. SECTION 194C PRESCRIBES FOR DEDUCTION OF TAX FOR CARRYING O UT ANY WORK IN PURSUANCE TO CONTRACT BETWEEN THE CONTRACTOR AND THE CONTRACTEE. AS STATED EARLIER AS PER CONTRACT ACT THERE IS NO COMPULSION FOR A CONTRACT TO 14 BE IN WRITING. THE BEHAVIOR OF THE ASSESSEE AS REFLECTED BY THE ACCOUNT SQUARELY COVERS THE TRANSACTION BETWEEN THE ASSESSEE AND THE PERSONS TO WHOM JOB CHARGES HAVE BEEN PAID AS PER VERBAL CONTRACT . EVEN IF THE CONTENTION OF THE ASSESSEE IS TAKEN FOR GRANTED FOR A WHILE THE NATURE OF PAYMENT WOULD HAVE BEEN IN THE NATURE OF SALARY OR WAGES. WHEREAS IN THE CASE UNDER CONSIDERATION THE PAYMENTS HAVE BEEN MADE BATCH WISE/LOT WISE WHICH CLEARLY INDICATES THAT THE GARMENTS WERE SUPPLIED T O THE PERSONS FOR THE CUTTING & STITCHING/ TAILORING GOT DONE OR THOSE PERSON SUPPLIED THE LABOUR FOR DOING THE TAILORING WORK. IT IS BEYOND ANY STRETCH OF IMAGINATION THAT ANY PERSON MIGHT HAVE DONE CUTTING & TAILORING WORK OF THE MAGNITUDE SHOWN BY WAY OF PAYMENTS. ABOVE PAYMENT TO LALITA DEVI SHOWS AN AVERAGE CUTTING & TAILORING WORK OF MORE THAN RS. 2200/ - PER DAY. WHICH IS ONLY POSSIBLE WHEN THE WORK IS GOT DONE BY EMPLOYING LABOURS IN A GOOD NUMBER. THIS CLEARLY DETERMINES THE NATURE OF PAYMENT OF JOB CHARGES CUTTING & TAILORING BE VERY WELL COVERED UNDER THE DEFINITION OF CONTRACT AND WITHIN AMBIT OF SECTION 194C OF 1.T. ACT, 1961. THEREFORE THE ASSESSEE WAS LIABLE TO MADE DEDUCTION OF TAX AT SOURCE U/S 194C WHICH ASSESSEE HAS NOT DONE. SECTION 40 (A)(IA) SPECIFICALLY PROVIDES FOR NON DEDUCTIBILITY ALLOWABILITY OF EXPENSES WHERE NO 15 DEDUCTION OF TAX IS MADE. IN VIEW OF THIS THE PAYMENTS MADE TO VARIOUS PERSONS AGAINST JOB CHARGES / CUTTING & TAILORING CHARGES IS LIABLE TO BE DISALLOWED 4.3 BEFORE THE LD. CIT(A), THE LD. AR DREW THE ATTE NTION TOWARDS THE AFFIDAVIT OF THE ASSESSEE FILED BEFORE THE AO. IN T HE AFFIDAVIT, IT HAS BEEN MENTIONED THAT TAILORING AND CUTTING CHARGES HAVE B EEN PAID TO THE PERSONS FOR DISTRIBUTING WAGES WHO ARE DOING TAILORING AND CUTTING THE CLOTHS AND IT WAS WRONGLY MENTIONED IN THE BOOKS AS JOB CHARGES . THE ASSESSEE HAS GIVEN CLOTHS FOR TAILORING AND THE MATERIALS HAS BEEN SUP PLIED BY HIM. THE LD. AR PLACED RELIANCE ON THE DECISION OF THE HON'BLE BOMB AY HIGH COURT IN THE CASE OF GLENMARK PHARMACEUTICALS LTD. THE LD. CIT(A ) AFTER CONSIDERING THE SUBMISSIONS CONFIRMED THE ADDITION AFTER OBSERVING AS UNDER:- 4.4 FACTS OF THE CASE AND ARGUMENTS OF THE APPELLANT HAVE BEEN CAREFULLY CONSIDERED. AS MENTIO NED BY AO IN THE ASSESSMENT ORDER, APPELLANT MADE PAYMENT TO 4 PERSONS AS MENTIONED ABOVE FOR CUTTING & TAILORING WORK. THESE PERSONS IN TURN GOT THE WORK COMPLETED BY EMPLOYING OTHER PERSONS. THEREFORE, AO IS JUSTIFIED IN CONCLUDING T HAT THE PAYMENT IS COVERED UNDER THE DEFINITION OF CONTRACT AND APPELLANT WAS REQUIRE TO MAKE TDS U/S 194C. RELIANC E PLACED BY APPELLANT ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GLENMARK PHARMACEUTICALS IS OF NO HELP, BECAUSE FACTS OF THAT CASE ARE DIFFERENT. IN THAT CASE APPE LLANT ENTERED 16 INTO AGREEMENT WITH THIRD PARTY FOR MANUFACTURE OF CERTAIN PHARMACEUTICALS PRODUCTS. THE RAW MATERIALS WERE PU RCHASED BY THE MANUFACTURER AND HE AFFIXED THE TRADE MARK O F APPELLANT ON THE ARTICLES PRODUCED BY HIM. IN SUCH A SITUATIO N IT WAS HELD THAT THE CONTRACT INVOLVED SALE AND NOT A CONTRACT FOR WORK AS SPECIFIED U/S 194C. IN THE CASE OF APPELLANT, BILLS FOR PURCHASE OF RAW MATERIAL ARE IN THE NAME OF APPELLANT ONLY. THEREFORE CLAIM OF APPELLANT THAT RAW MATERIAL WAS PURCHASED BY THE RESPECTIVE PARTIES, IS IN THE NATURE OF AN AFTER TH OUGHT AND NOT ACCEPTABLE. 4.5 I THEREFORE HOLD THAT DISALLOWANCE OF RS.14,01,856/- HAS BEEN RIGHTLY MADE U/S 40(A)(IA) AND THE SAME IS CONFIRMED 4.4 WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE HA S FILED THE PAPER BOOK CONTAINING 132 PAGES. IT IS MENTIONED THAT PAPERS A VAILABLE AT PAGES 118 TO 132 WERE SUBMITTED BEFORE THE LD. CIT(A). BEFORE TH E LD. CIT(A), THE ASSESSEE FILED THE MOU WITH SMT. NIRMALA VERMA, GHA NSHYAM TAILOR AND SMT. LALITA DEVI. THE MOU HAS BEEN STATED TO BE DAT ED 01-04-2006. HOWEVER, SUCH MOU WERE NOT PLACED BEFORE THE AO. IN THESE MOUS, IT HAS BEEN SUBMITTED THAT MATERIAL WHICH IS REQUIRED FOR TAILORING WILL BE PROCURED AND THE BILLS WILL BE OBTAINED IN THE NAME OF THE A SSESSEE. HOWEVER, IT IS NOT CLEAR AS TO WHETHER THE PAYMENTS MADE TO THESE PERS ONS INCLUDED THE PAYMENTS FOR RAW MATERIAL PURCHASE OR RAW MATERIAL WAS PURCHASED BY THE 17 ASSESSEE DIRECTLY FROM THE PARTIES. IT IS NOT A CAS E OF SALE FOR THE PERSON TO WHOM CLOTHS AND OTHER MATERIALS WERE GIVEN BY THE A SSESSEE. IF THE MATERIAL REQUIRED FOR TAILORING HAS BEEN PROCURED BY THE PER SONS AND THAT AMOUNT HAS BEEN REIMBURSED THEN NO TDS IS REQUIRED ON SUCH REI MBURSEMENT. MOREOVER, THE LD. CIT(A) HAD ADMITTED THE ADDITIONA L EVIDENCE BUT THE OPPORTUNITY HAS NOT BEEN GIVEN TO THE AO. THESE MOU S WERE NOT PRODUCED BEFORE THE AO. THE AO HAS ALSO NOT EXAMINED THE AS SESSEE WHOSE AFFIDAVITS HAVE BEEN FILED. THERE ARE CONTRADICTION IN THE FACTS GIVEN BY THE ASSESSEE IN THE AFFIDAVITS AND THE FACTS STATED IN MOUS. HENCE, THE ISSUE IS REQUIRED TO BE RECONSIDERED BY THE AO. SINCE WE AR E RESTORING THE ISSUE THEREFORE, WE ARE NOT DECIDING THE ISSUE THAT SECTI ON 40(A)(IA) IS NOT APPLICABLE WHEN THE AMOUNT IS NOT PAYABLE AT THE EN D OF THE PREVIOUS YEAR. THIS ISSUE HAS BEEN REFERRED BY THE PRESIDENT, ITAT , TO THE SPECIAL BENCH VISHAKHAPATNAM AND THE AO WILL CONSIDER THE DECISIO N OF THE SPECIAL BENCH, VISHAKHAPATNAM WHILE DECIDING THE ISSUE. HEN CE, THE ISSUE OF DISALLOWANCE U/S 40(A)(IA) OF RS. 14,01,856/- IS R ESTORED BACK ON THE FILE OF THE AO. 5.1 THE SECOND GROUND OF C.O. OF THE ASSESSEE IS T HAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 5.00 LACS O N ACCOUNT OF EXCESS STOCK DURING THE COURSE OF SURVEY. 18 5.2 DURING THE COURSE OF SURVEY, THE ASSESSEE VIDE ANSWER TO QUESTION NO. 20 SURRENDERED AN AMOUNT OF RS. 5.00 LACS AGAINST E XCESS STOCK ON ESTIMATED BASIS. THE ASSESSEE HAS SHOWN THE PROFIT TO THE EXT ENT OF RS. 5,24,093/- FOR THE ENTIRE YEAR WHICH MEANS THAT THE ASSESSEE HAS N OT INCLUDED THE SURRENDER OF RS. 5.00 LACS. THE AO NOTICED THAT QUANTITATIVE DETAILS OF STOCKS ARE NOT MAINTAINED BY THE ASSESSEE. THE FIGURE OF OPENING A ND CLOSING STOCK OF PRECEDING TWO YEARS SHOW THAT STOCK IS MAINTAINED A ROUND RS. 20.00 LACS. THIS YEAR THE OPENING STOCK WAS RS. 28.30 LACS AND CLOSING STOCK HAS BEEN REDUCED TO RS. 4.29 LACS. THE AO THEREFORE, FELT TH AT THE CLOSING STOCK HAS BEEN SHOWN UNDER-VALUED. THE ASSESSEE HAS MANIPULAT ED TRADING ACCOUNT IN ORDER TO AVOID PAYMENT OF TAX ON THE SURRENDERED IN COME OF RS. 5.00 LACS. 5.3 BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT A SUM OF RS. 5.00 LACS WAS INCLUDED IN THE STOCK. THE ASSESSEE HAS DECLARE D THE GROSS PROFIT RATE OF 12% AND THE GROSS PROFIT ON THE SURRENDERED STOCK OF RS. 5.00 LACS COMES TO RS. 60,000/-. THIS HAS BEEN INCLUDED IN THE NET PRO FIT OF RS. 5,24,093/-. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS HELD A S UNDER:- 5.3 ARGUMENT OF THE APPELLANT THAT ONLY PROFIT ON THE EXCESS STOCK OF RS.5,00,000/- SHALL BE TAXED IS NOT ACCEPT ABLE. DURING THE COURSE OF SURVEY, EXCESS STOCK WAS FOUND, AND THERE FORE INVESTMENT IN THIS STOCK AS WELL AS PROFIT ON THE SAME HAS TO BE INCLUDED IN TOTAL INCOME. THE AO IS THEREFORE JUSTIFIED IN MAKING ADD ITION OF RS.500,000/-. HOWEVER SEPARATE ADDITION OF RS.14,0 1,856/- HAS BEEN 19 MADE U/S 40(A)(IA) BY MAKING DISALLOWANCE OF ENTIRE EXPENSES CLAIMED ON ACCOUNT OF CUTTING & TAILORING. THE ADDITION HAS BEEN ALSO CONFIRMED BY THE UNDERSIGNED. THEREFORE, IT WI LL BE FAIR & REASONABLE TO PROVIDE TELESCOPIC BENEFIT OUT OF THE SAME TO THE APPELLANT. AO IS DIRECTED TO GIVE TELESCOPIC BENEFI T TO APPELLANT AND NOT MAKE SEPARATE ADDITION OF RS.5,00,000/-. GROUND NO.3 IS THUS PARTLY ALLOWED 5.4 WE HAVE HEARD BOTH THE PARTIES. DURING THE COUR SE OF SURVEY, THE STOCK TO THE EXTENT OF RS. 18,43,140 /- WAS FOUND. THE DETAILS ARE AVAILABLE AT PAGES 140 TO 146 OF THE PAPER BOOK. THE STATEMENT O F THE ASSESSEE WAS ALSO RECORDED AT THE TIME OF SURVEY. IN THE STATEMENT, T HE ASSESSEE IN ANSWER TO QUESTION NO. 8 STATED THAT THE STOCK OF AROUND OF R S. 14.00 LACS OF FABRICS AND THE STOCK OF READYMADE STOCKS OF AROUND RS. 4.00 LA CS IS AVAILABLE AT THE SHOP. THE ASSESSEE VIDE QUESTION NO. 14 WAS ASKED T O EXPLAIN AS TO HOW HE HAS GIVEN THE ESTIMATE OF RS. 14.00 LACS IN RESPECT OF THE STOCK. HE STATED THAT ESTIMATE IS ON THE BASIS OF PURCHASE AND SALE BILLS. THE ASSESSEE STATED THAT HE IS MAINTAINING THE BOOKS OF ACCOUNTS ON COM PUTER ON THE BASIS OF THE ENTRIES AS PER VOUCHERS. THE ASSESSEE WAS ASKED AS TO WHICH DATE THE VOUCHERS WERE SENT FOR ENTRY IN THE COMPUTER. THE A SSESSEE STATED THAT HE IS NOT AWARE OF THE DATE UPTO WHICH DATE THE VOUCHERS WERE ENTERED. HE WAS ASKED AS TO WHETHER HE CAN PRODUCE THE BOOKS OF ACC OUNTS MAINTAINED ON THE COMPUTER IN THE OFFICE OF THE AO THEN HE STATED THA T SUCH BOOKS OF ACCOUNTS 20 WILL BE PRODUCED ON 8-02-07. HOWEVER, DURING THE CO URSE OF SURVEY, NO BOOKS OF ACCOUNTS WERE PRODUCED. IN ANSWER TO Q. NO . 20, HE STATED THAT HE IS PREPARED TO DISCLOSE THE INCOME OF RS. 5.00 LACS AS INVESTED IN THE STOCK FOR AVOIDING ALL THE PROBLEMS AND ALSO AGREED TO PA Y THE ADVANCE TAX. THE AO HAS MADE THE ADDITION OF RS. 5.00 LACS WITHOUT A NY CORROBORATIVE EVIDENCE. THE STATEMENT RECORDED U/S 133A PROVIDES AN INFORMATION AND IT CANNOT BE MADE A CONCLUSIVE EVIDENCE FOR MAKING ADD ITION. THE ITAT JAIPUR BENCH IN THE CASE OF ITO VS. PRATIBHA GOYAL, 136 TTJ 597 HAS CONSIDERED THE POWER OF AUTHORITIES CONDUCTING SUR VEY AND HELD THAT AUTHORITIES CANNOT RECORD THE STATEMENT ON OATH. IT WILL BE USEFUL TO REPRODUCE THE HELD PORTION FROM THE DECISION OF JAI PUR BENCH. HELD: IT IS CLEAR FROM THE SALE DEED THAT THE PRO PERTY HAS BEEN PURCHASED BY TWO PERSONS AND BOTH OF THEM WERE HAVING EQUAL SHARE. IN CASE THE AMOUNT WAS PAID IN RESPECT OF PURCHASE OF PROPERTY THEN THE REVENUE SHOULD HAVE A DDED THE EQUIVALENT SHARE TO THE OTHER CO-OWNER. NO ADDITION HAS BEEN MADE IN THE CASE OF ANOTHER CO-OWNER. THE REVENUE I S TAKING THE CONSIDERATION OF RS. 1.00 CRORE THOUGH THE PROP ERTY WAS SHOWN TO HAVE BEEN PURCHASED FOR A SUM OF RS. 84.9 LACS AS PER SALE DEED. IT MEANS THAT THE REVENUE IS OF THE VIEW THAT ENTIRE ON-MONEY HAS BEEN PAID BY THE ASSESSEE. THE REVENUE IS REQUIRED TO TAKE THE CASES OF CO-OWNER ON SIMILAR G ROUND AND THE REVENUE COULD NOT HAVE ADDED ADDITION ONLY IN T HE HANDS OF THE ASSESSEE 21 5.5 WHILE DECIDING THE APPEAL IN THE CASE OF DCIT V S. M/S. SHREE JEWELLERY MART, IT WAS HELD BY THIS BENCH THAT REVE NUE CANNOT MAKE THE ADDITION SOLELY ON THE BASIS OF STATEMENT RECORDED DURING THE COURSE OF SURVEY. IT WILL BE USEFUL TO REPRODUCE PARA 2.19 FR OM THE ORDER OF THE TRIBUNAL IN THE CASE OF DCIT VS. M/S. SHREE JEWELLE RY MART (ITA NO.962/ JP/2009 DATED 25-02-2011. 2.19 SECTION 132(4) OF THE ACT AUTHORIZES AN OFFICE R TO RECORD THE STATEMENT ON OATH. WHILE SECTION 132(4A) MAKES A PRESUMPTION THAT THE BOOKS OF ACCOUNT AND THE DOCUM ENTS FOUND DURING THE COURSE OF SEARCH ARE TO BE CONSIDERED AS TRUE. SECTION 292C OF THE ACT WAS INSERTED BY THE FINANCE ACT, 20 07 W.R.E.F. 01- 10-1975 SO AS TO MAKE THE PRESUMPTION, OF THE BOOKS OF ACCOUNT FOUND DURING THE COURSE OF SEARCH AVAILABLE DURING ANY PROCEEDINGS UNDER THE I.T. ACT. SUCH PRESUMPTION H AS BEEN MADE APPLICABLE FOR THE SURVEY U/S 133A OF THE ACT W.E.F . 01-06-2002 AS PER FINANCE ACT, 2008. THOUGH THE PRESUMPTION IN RE SPECT OF BOOKS OF ACCOUNT AS FOUND IN SEARCH HAS BEEN MADE A PPLICABLE FOR THE SURVEY YET THERE IS NO CORRESPONDING PROVISION TO MAKE THE AUTHORIZED OFFICER TO RECORD THE STATEMENT ON OATH DURING THE COURSE OF SURVEY. HENCE, THE STATEMENT RECORDED DUR ING THE COURSE OF SURVEY IS NOT A CONCLUSIVE EVIDENCE THOUGH THE I NFORMATION CONTAINED IN SUCH STATEMENT CAN BE UTILIZED AND THE ASSESSEE, WHO HAS GIVEN THE STATEMENT WILL HAVE RIGHT TO SAY THAT THE CONTENTS IN THE STATEMENT ARE NOT CORRECT AND HENCE CANNOT BE R ELIED UPON. WE THEREFORE, HOLD THAT THE REVENUE CANNOT MAKE THE AD DITION SOLELY ON THE BASIS OF THE STATEMENTS RECORDED DURING THE COURSE OF SURVEY. 22 5.6 IT IS NOT THE CASE OF REVENUE THAT STOCK AS PER BOOKS OF ACCOUNTS PRODUCED BEFORE THE AO AS ON THE DATE OF SURVEY IS NOT COMPARABLE WITH THE STOCK FOUND AT THE TIME OF SURVEY. WHEN THE AO WAS OF THE VIEW THAT CLOSING STOCK SHOWN IS ABNORMAL THEN HE SHOULD HAVE MADE INVESTIGATION. THE ADDITION CANNOT BE MADE ON THE BASIS OF SUSPICI ON AND SURMISES. WE THEREFORE, HOLD THAT THE AO WAS NOT JUSTIFIED IN MA KING THE ADDITION OF RS. 5.00 LACS. 6. IN THE RESULT, THE APPEAL OF THE REVENUE AS WELL AS C.O. OF THE ASSESSEE ARE PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 31-10 -2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 31/10/2011 *MISHRA COPY FORWARDED TO :- 1. THE ITO , WARD- 1(3), AJMER 2. SHRI CHANDMAL AGARWAL PROP. M/S. BALAJI HANDICRAFTS , AJMER 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.7/JP /11) A.R, ITAT, JAIPUR 23