Deputy Commissioner of Income Tax, Thrissur V. Shri. K.S. Sudheer, Palakkad

ITA 76/COCH/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64822 (ITAT-COCHIN)
• Duration Of Justice: 3 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 25-07-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 12-02-2009
• Court: TRIBUNAL
• Department Lawyers: A S BINDHU
• Assessee Lawyers: HARISH C R
• Keywords: Unexplained investment
• Section: 44AD; 153A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 76, 77 & 78/COCH/2009 ASSESSMENT YEARS: 2004-05, 2005-06 & 20 06-07 THE DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, THRISSUR VS. SHRI K.S. SUDHEER, M/S. LAND LINKS, WEST FORT ROAD, PALAKKAD. [PAN:AWQPS 8688C] (REVENUE-APPELLANT) (ASSESSEE-R ESPONDENT) I.T.A. NOS. 87, 88 & 89/COCH/2009 ASSESSMENT YEARS: 2004-05, 2005-06 & 2006-07 SHRI K.S. SUDHEER, M/S. LAND LINKS, WEST FORT ROAD, PALAKKAD. VS. THE DY. COMMISSIONER OF INCOME- TAX, CENTRAL CIRCLE, THRISSUR (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) REVENUE BY SMT. A.S. BINDHU, SR. DR ASSESSEE BY SHRI HARISH C.R., CA DATE OF HEARING 25 /07/2012 DATE OF PRONOUNCEMENT 07/09/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE C OMMON ORDER DATED 18-11-2008 PASSED BY THE LD. CIT(A)-I, KOCHI AND THEY RELATE T O THE ASSESSMENT YEARS 2004-2005, 2005-06 AND 2006-07. SINCE IDENTICAL ISSUES WERE U RGED IN THESE APPEALS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO MMON ORDER FOR THE SAKE OF CONVENIENCE. I.T.A. NOS. 76,77,78, 87, 88 & 89/COCH/2009 2 2. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE ALONG WITH HIS BROTHER NAMED SHRI K.S. SETHUMADHAVAN, IS ENGAGED I N THE BUSINESS OF DEVELOPMENT AND SALE OF HOUSING PLOTS AND THEY ARE ALSO ENGAGED IN THE BUSINESS OF UNDERTAKING CIVIL CONSTRUCTION ACTIVITIES. THE DEPARTMENT CARRIED SE ARCH AND SEIZURE OPERATION U/S. 132 OF THE ACT ON 22-12-2005 IN THE HANDS OF THE ASSESS EE. CONSEQUENTLY, THE ASSESSEE FILED RETURN OF INCOME IN RESPONSE TO THE NOTICES I SSUED U/S. 153A OF THE ACT. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY MAKIN G VARIOUS ADDITIONS. IN THE APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE GOT PARTIAL REL IEF. HENCE, BOTH THE PARTIES ARE IN APPEAL BEFORE US ON THE POINTS DECIDED AGAINST EACH OF THEM. 3. THE ASSESSEE IS IN APPEAL IN RESPECT OF THE FOLLOWING ISSUES:- (A) ESTIMATION OF INCOME FROM CIVIL CONSTRUCTION AC TIVITIES (IN ALL YEARS). (B) ADDITION RELATING TO THE OPENING CASH BALANCE AS ON 1.4.2003 (IN ASST. YEAR 2004-05). 4. THE FIRST ISSUE IN THE APPEAL OF THE ASSESSEE RELATES TO THE ESTIMATION OF INCOME FROM CIVIL CONSTRUCTION WORKS. THE AO ESTIMATED TH E INCOME AT 8% OF THE GROSS CONTRACT RECEIPTS AND THE SAME WAS CONFIRMED BY LD CIT(A). THE ASSESSEE IS ASSAILING THE SAID DECISION OF THE LD. CIT(A). 5. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSU E. WE NOTICE THAT THE LD. CIT(A) HAS BROUGHT OUT THE FACTS RELATING TO THIS ISSUE IN A LUCID MANNER WHICH WE EXTRACT BELOW FOR THE SAKE OF CONVENIENCE. A. CIVIL CONTRACT WORK 1. THE APPELLANT AND HIS BROTHER ENGAGES THEMSELV ES IN THE CONSTRUCTION WORK OF HOUSES THAT WERE BUILT ON THE PLOTS OF LAND SOL D BY THEM, WHERE THE PARTY PURCHASED THE LAND AND WANTS THEM TO BUILD THE HOU SE. THE DETAILS RELATING TO THIS ACTIVITY WERE AVAILABLE IN THE SEIZED MATERIA L. THE APPELLANT HIMSELF HAS FURNISHED THE DETAILS OF THE GROSS RECEIPTS RECEIV ED FROM CONSTRUCTION ACTIVITIES I.T.A. NOS. 76,77,78, 87, 88 & 89/COCH/2009 3 FOR THE VARIOUS YEARS UNDER CONSIDERATION BY COMPI LING THE DATA FROM VARIOUS SEIZED RECORDS AND IT IS HIS CONTENTION THAT HE WA S IN RECEIPT OF ONLY 5% OF THE TOTAL GROSS RECEIPTS AS PROFIT FROM CONSTRUCTION A CTIVITIES. THE REASON STATED BY THE APPELLANT FOR SUCH A LOW PROFIT IS THAT SINCE THEY WERE TOTALLY NEW TO THE BUSINESS OF CONSTRUCTION IN THAT PERIOD THEY HAD T O COMPROMISE ON THE PROFIT PERCENTAGE TO ESTABLISH THEMSELVES IN THIS FIELD A ND HENCE THEY WERE CHARGING ONLY 5% AS THEIR PROFITS. 2. THE ASSESSING AUTHORITY ON THE OTHER HAND, CONT ENDS THAT THE INCOME OFFERED BY THE APPELLANT AT 5% OF THE GROSS RECEIPTS IS ON THE LOWER SIDE AND FOR THE REASONS ELABORATELY DISCUSSED IN THE ORDER HAS EST IMATED THE INCOME AT 8% OF THE GROSS RECEIPTS. BEFORE ME ALSO THE APPELLANT REITERATES THE VERY SAME EXPLANATIONS OFFERED BEFORE THE ASSESSING AUTHORIT Y WHICH HAVE BEEN EXAMINED BY ME IN DETAIL. THE RECORDS RELATING TO CONSTRUCT ION ACTIVITIES ALSO WERE VERIFIED FROM THE DETAILS PRODUCED BY THE APPELLANT. 3. AFTER CONSIDERATION OF THE ENTIRE FACTS AND CIR CUMSTANCES OF THE CASE AND THE EVIDENCE AVAILABLE ON RECORD I AM OF THE CONSIDERE D OPINION THAT SINCE THE ASSESSEE HAS ENGAGED IN THE BUSINESS OF CONSTRUCT ION OF HOUSES AND THE NUMBER OF HOUSES CONSTRUCTED BY HIM ARE ALSO LARGE IN NUM BER, WHICH IS FURTHER STRENGTHENED BY THE FACT THAT THE GROSS RECEIPTS R ANGED TO RS. 4.93 CORES FOR A PERIOD OF 4 YEARS THE APPELLANTS ARGUMENT THAT TH EY ARE NEW TO THE BUSINESS AND THEY ARE UNDERTAKING SMALL CONSTRUCTION ACTIVI TIES ONLY COULD NOT BE ACCEPTED. 4. IT IS A FACT THAT THE PROFIT IN THE SIMILAR TYP ES OF BUSINESS WILL GENERALLY BE AROUND 8% TO 10%. 5. IT IS BASED ON SUCH FACTORS THAT THE ASSE SSING OFFICER HAS ESTIMATED THE INCOME FROM CONSTRUCTION ACTIVITIES AT 8% OF THE G ROSS RECEIPTS WHICH IS ALSO A NORMALLY ACCEPTED RATE THAT IS PRESCRIBED U/S. 44A D FOR CIVIL CONSTRUCTION ACTIVITIES. SINCE THE ACTION OF THE ASSESSING AUTH ORITY IS FOUND TO BE MADE AFTER PROPER REASONING, I HEREBY CONFIRM THE ESTIMATION OF INCOME ON ACCOUNT OF CONSTRUCTION ACTIVITIES FOR ALL THE THREE YEARS. THE SAME IS DECIDED AGAINST THE APPELLANT.. 6. THE POINTS WHICH ARE PERTINENT ON THIS ISSUE ARE THAT THE ASSESSEE DID NOT MAINTAIN THE REGULAR BOOKS OF ACCOUNTS IN RESPECT O F ITS ACTIVITIES THOUGH THE ASSESSEE HAS CLAIMED RECEIPT OF ONLY SUPERVISION CHARGES ON CONSTRUCTION ACTIVITIES. THE TAX AUTHORITIES HAVE OBSERVED THAT THE SEIZED MATERIALS CONTAIN EVIDENCES TO SHOW THAT THE ASSESSEE HAS UNDERTAKEN CONTRACT WORKS. THE ASSESS ING OFFICER HAS FURTHER OBSERVED THAT THE ASSESSEE HAS ENTERED INTO AGREEMENTS WITH THE PROSPECTIVE HOUSE OWNERS, WHICH CLEARLY SHOW THAT THE ASSESSEE WAS UNDERTAKIN G WORKS UNDER CONTRACT BASIS. THE I.T.A. NOS. 76,77,78, 87, 88 & 89/COCH/2009 4 ASSESSEE HAS NOT PRODUCED ANY EVIDENCE TO CONTRADIC T THE FINDINGS GIVEN BY THE TAX AUTHORITIES. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE TAX AUTHORITIES ARE REASONABLE IN COMING TO THE CONCLUSION THAT THE ASS ESSEE HAS UNDERTAKEN THE CONSTRUCTION ACTIVITIES UNDER CONTRACT BASIS. SINC E THE ASSESSEE DID NOT MAINTAIN REGULAR BOOKS OF ACCOUNTS, THE ASSESSING OFFICER DID NOT HA VE ANY OTHER OPTION, BUT TO ESTIMATE THE INCOME FROM CONSTRUCTION ACTIVITIES. BY TAKING CUE FROM THE PROVISIONS OF SEC. 44AD AND OTHER FACTORS, THE AO HAS ESTIMATED THE INCOME AT THE RATE OF 8% OF THE GROSS RECEIPTS. BEFORE US ALSO, NO MATERIAL WAS PLACED T O CONTRADICT THE FINDINGS OF THE ASSESSING OFFICER. UNDER THE CIRCUMSTANCES, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ESTIMATION OF 8% MADE BY THE TAX AUTHORITIES. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE FOR ALL THE THREE YEARS ON THIS ISSUE ARE DISMISSED. 7. IN THE ASSESSMENT YEAR 2004-05, THE ASSESSEE HAS RAISED A GROUND RELATING TO THE PARTIAL CONFIRMATION OF ADDITION RELATING TO TH E OPENING CASH BALANCE CLAIMED BY THE ASSESSEE. THE ASSESSEE HAS PREPARED CASH FLOW STAT EMENTS FOR VARIOUS YEARS IN ORDER TO EXPLAIN HIS INVESTMENTS. IN THE CASH FLOW STATE MENT, THE ASSESSEE HAD CLAIMED A OPENING CASH BALANCE OF RS.1.00 LAKH AS ON 01-04-20 03. HOWEVER, THE ASSESSING OFFICER TOOK THE OPENING CASH BALANCE AS NIL AND AC CORDINGLY, ADDED THE SUM OF RS.1.00 LAKH AS INCOME FOR THE ASSESSMENT YEAR 2004 -05. IN THE APPEAL FILED BY THE ASSESSEE, THE LD. CIT(A) ESTIMATED THE CASH BALANCE AVAILABLE WITH THE ASSESSEE AT RS.50,000/- ON THE GROUND THAT THE ASSESSEE, WHO WA S NRI FOR LAST SEVEN YEARS WOULD HAVE REASONABLE ACCUMULATION OF SAVINGS WITH HIM. ACCORDINGLY, THE LD CIT(A) RESTRICTED THE ADDITION TO RS.50,000/-. BOTH THE P ARTIES ARE IN APPEAL ON THIS ISSUE. 8. THE ASSESSEES MAIN CONTENTION IN SUPPORT OF THE OPENING CASH BALANCE WAS THAT HE WAS A NRI PRIOR TO 1.4.2003. HOWEVER, BEFORE US , THE ASSESSEE DID NOT FURNISH ANY MATERIAL TO SUBSTANTIATE THIS CLAIM OF AVAILABILITY OF SAVINGS OF RS. 1.00 LAKH WITH HIM AS ON 01-04-2003. AT THE SAME TIME, IN OUR VIEW, IT W OULD NOT ALSO BE CORRECT TO PRESUME THAT THE ASSESSEE DID NOT HAVE ANY CASH BALANCE AS ON 1.4.2003, SINCE THE FACT OF HIS EMPLOYMENT ABROAD HAS NOT BEEN DISPROVED. UNDER TH ESE CIRCUMSTANCES, WE ARE OF THE I.T.A. NOS. 76,77,78, 87, 88 & 89/COCH/2009 5 VIEW THAT THE LD. CIT(A) WAS REASONABLE IN ESTIMATI NG THE OPENING CASH BALANCE AT RS. 50,000/-. ACCORDINGLY, WE UPHOLD HIS ORDER ON THIS ISSUE. 9. IN THE APPEALS FILED BY THE REVENUE, FOLLOWI NG ISSUES ARE AGITATED. (A) ESTIMATION OF INCOME FROM CHANDRANAGAR HOUSING PLOT PROJECT IN ASSESSMENT YEAR 2006-07. (B) ESTIMATION OF INCOME FROM PRIVUSALA HOUSING PLO T PROJECT IN ASSESSMENT YEARS 2004-05 TO 2006-07. (C) DISALLOWANCE OF PART OF DEVELOPMENT EXPENSES I N PRIVUSALA HOUSING PLOT PROJECT IN ASSESSMENT YEARS 2004-05 TO 2006-07. (D) DISALLOWANCE OF PART OF SELLING AND ADMINISTRA TION EXPENSES IN ASSESSMENT YEARS 2004-05 TO 2006-07. (E) PARTIAL DELETION OF ADDITION RELATING TO THE OPENING CASH BALANCE AS ON 1.4.2003. 10. THE ISSUE RELATING TO THE ADDITION OF OPENI NG CASH BALANCE AS ON 1.4.2003 CLAIMED BY THE ASSESSEE IN HIS CASH FLOW STATEMENT HAS BEEN DEALT BY US IN PARAGRAPHS 7 & 8 SUPRA, WHEREIN WE HAVE UPHELD THE DECISION OF LD CIT(A). ACCORDINGLY, THIS GROUND RAISED BY THE REVENUE IS DISMISSED. 11. THE FIRST ISSUE IN THE APPEAL OF THE REVENUE RE LATES TO THE ADDITION MADE IN RESPECT OF CHANDRA NAGAR HOUSING PLOT PROJECT. AS STATED EARLIER, THE ASSESSEE DEVELOPED HOUSING PLOTS UNDER THE NAME CHANDRA NAGA R. THE MODUS OPERANDI ADOPTED BY THE ASSESSEE, ACCORDING TO THE ASSESSING OFFICER , WAS THAT THE ASSESSEE WOULD ENTER INTO AN AGREEMENT WITH THE LAND OWNERS FOR PURCHASI NG THE SAME. THEREAFTER, THE SAID LAND WOULD BE DIVIDED INTO HOUSING PLOTS AFTER CARR YING OUT NECESSARY DEVELOPMENT. THEREAFTER THE DEMARCATED HOUSING PLOTS WOULD BE SO LD TO VARIOUS PROSPECTIVE BUYERS. HOWEVER, THE CONVEYANCE DEED WOULD BE EXECUTED BY T HE CONCERNED LAND OWNERS. ACCORDING TO THE ASSESSING OFFICER, THE CONVEYANCE DEED DID NOT SHOW THE CORRECT SALE CONSIDERATION. I.T.A. NOS. 76,77,78, 87, 88 & 89/COCH/2009 6 12. BEFORE THE ADIT (INV.), PALAKKAD, THE ASSES SEE FURNISHED A STATEMENT SHOWING ACTUAL SALES VALUE, ACCORDING TO WHICH THE AVERAGE SALES RATE WORKED OUT TO RS.29,480/- PER CENT. HOWEVER, THE ASSESSEE HAS SHOWN THE AVER AGE SALES RATE AT RS. 28,740/- PER CENT IN THE PROFIT AND LOSS ACCOUNT. THUS, THERE W AS A DIFFERENCE OF RS.1010/- PER CENT OF PLOT BETWEEN THE TWO STATEMENTS, WHICH WAS CONSI DERED AS SUPPRESSION OF SALES VALUE BY THE AO. THE ASSESSEE HAD SOLD 285 CENTS O F LAND IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2006-07. ACCORDINGLY, THE ASSESSIN G OFFICER WORKED OUT THE SUPPRESSION OF SALES AT RS. 2,87,850/- (285X1010) A ND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE IN THE ASSESSMENT YEAR 2006 -07. 13. THE LD. CIT(A), HOWEVER, DELETED THE ABOVE SAID ADDITION BY HOLDING THAT THE ASSESSING OFFICER HAS FAILED TO BRING ON RECORD ANY EVIDENCE TO ESTABLISH THAT THERE WAS SUPPRESSION OF SALES AMOUNT. THE LD. CIT(A) ALSO A CCEPTED THE CONTENTION OF THE ASSESSEE THAT THE INVESTMENTS MADE BY THE ASSESSEE STAND EXPLAINED THROUGH VARIOUS SOURCES AND FURTHER THE SEARCH OFFICIALS DID NOT UN EARTH ANY UNEXPLAINED INVESTMENT. 14. HOWEVER, IN OUR VIEW, THERE IS FUNDAMENTAL FLAW IN THE APPROACH OF BOTH THE ASSESSING OFFICER AS WELL AS THE LD. CIT(A). THE DETAILS OF ACTUAL SALES WERE FURNISHED BY THE ASSESSEE BEFORE THE ADIT (INV.). THE DETAIL S OF SALES FOUND IN THE P&L ACCOUNT IS ALSO REPORTED BY THE ASSESSEE. THUS, BOTH THE S TATEMENTS HAVE BEEN FURNISHED BY THE ASSESSEE HIMSELF, WHEREIN TWO DIFFERENT AGGREGA TE SALES VALUES HAVE BEEN SHOWN. UNDER THE CIRCUMSTANCES, IT IS THE RESPONSIBILITY O F THE ASSESSEE TO RECONCILE BOTH THE STATEMENTS. ACCORDINGLY, IN OUR VIEW, THE AO SHOUL D HAVE ASKED THE ASSESSEE TO RECONCILE BOTH THE FIGURES AND THEREAFTER, THE AO S HOULD HAVE TAKEN APPROPRIATE DECISION ON THE BASIS OF THE RECONCILIATION STATEME NT. HOWEVER, WE NOTICE THAT THE ASSESSING OFFICER WAS INFLUENCED BY THE DIFFERENCE BETWEEN THE AVERAGE SALE RATE PER CENT OF LAND REPORTED IN THE TWO TYPES OF STATEMENT S FURNISHED BY THE ASSESSEE. ACCORDINGLY, THE AO PROCEEDED TO MAKE THE ADDITION WITHOUT ANALYSING THE REASONS FOR THE SAID DIFFERENCE. THE LD. CIT(A) WAS PERSUADED BY THE CONTENTION OF THE ASSESSEE THAT THERE IS NO CORRESPONDING UNEXPLAINED INVESTME NT. THUS, BOTH THE TAX AUTHORITIES HAVE FAILED TO IDENTIFY THE REASON FOR THE DIFFEREN CE BETWEEN THE TWO SALES STATEMENTS I.T.A. NOS. 76,77,78, 87, 88 & 89/COCH/2009 7 FURNISHED BY THE ASSESSEE. ACCORDINGLY, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE ASSESSING OFFIC ER. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE I T TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THE ISSUE AFRESH BY C ONSIDERING THE RECONCILIATION STATEMENT DISCUSSED ABOVE AND TAKE APPROPRIATE DECI SION IN ACCORDANCE WITH LAW. THE ASSESSEE IS ALSO DIRECTED TO FURNISH RECONCILIATION STATEMENT RECONCILING THE AGGREGATE SALES VALUES REPORTED IN THE TWO STATEMENTS REFERRE D SUPRA AND EXTEND FULL COOPERATION TO THE ASSESSING OFFICER. 15. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE RELATES TO THE ADDITION OF SALES SUPPRESSION ON PRIVUSALA HOUSING PLOT PROJECT. IN THIS CASE ALSO, THE AVERAGE SALES RATE AS PER RETURN OF INCOME WORKED OUT TO RS.37,357/- A ND THE AVERAGE RATE AS PER THE DETAILS FURNISHED BEFORE ADI WORKED OUT TO RS.39,02 2/-. THE AO TREATED THE DIFFERENCE BETWEEN THE TWO FIGURES REFERRED ABOVE AS THE SUPPR ESSION AND MADE THE ADDITION IN THE THREE YEARS UNDER CONSIDERATION ON THE BASIS OF AREA OF PLOT SOLD IN EACH OF THE YEARS. THE DISCUSSIONS MADE BY US IN PARAGRAPH 14 SUPRA EQUALLY APPLY TO THIS ADDITION ALSO. FOR THE REASONS STATED IN PARAGRAPH 14, WE S ET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH SIMILAR DIRECTIONS. THE ASSESSEE IS ALSO DIRECTED TO FURNISH THE RECONCILIA TION STATEMENT AS STATED IN PARAGRAPH 14 SUPRA. 16. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE RELATES TO THE ADDITION PERTAINING TO THE DEVELOPMENT EXPENSES IN THE PIRIVUSALA HOUSING PLOT PROJECT. THE DEVELOPMENT EXPENSES, I.E. EXPENSES INCURRED IN CONVERSION OF L AND INTO HOUSING PLOTS, INCURRED BY THE ASSESSEE IN VARIOUS PROJECTS ARE STATED AS UNDE R IN THE ASSESSMENT ORDER:- PROJECT NAME DEV. EXPENSES AVERAGE RATE PRIVUSALA 1,42,25,000 5,743 CHANDRA NAGAR 10,00,000 1,870 PUDUSSERY 4,00,000 2,000 KANJIKODE 6,00,000 2,000 OTHERS 75,000 568 I.T.A. NOS. 76,77,78, 87, 88 & 89/COCH/2009 8 THE AO NOTICED THAT THE AVERAGE OF DEVELOPMENT EXPE NSES CLAIMED IN PRIVUSALA PROJECT WAS HIGHER THAN THE AVERAGE RATE SHOWN IN RESPECT O F OTHER PROJECTS. IN THE SEIZED RECORD, I.E. IN A DIARY MARKED AS PLA(1), THE ASSES SEE HAS WORKED OUT PROFIT FROM SALE OF 1115 CENTS AT RS.66,65,000/-. HOWEVER IN THE RE TURN OF INCOME, THE ASSESSEE HAD SHOWN A PROFIT OF RS.43,69,000/- FROM THE ENTIRE PR OJECT BEFORE SETTING OF SELLING AND ADMINISTRATION EXPENSES. ACCORDING TO THE AO, THE ENTIRE PROJECT CONSISTED OF 2477 CENTS (WORKED OUT FROM THE DETAILS OF DISALLOWANCE) . ACCORDING TO THE AO, THE ASSESSEE HAS FAILED TO FURNISH PUCCA DETAILS OF DEVELOPMEN T EXPENSES. ACCORDINGLY, THE AO ESTIMATED THE DEVELOPMENT EXPENSES FOR PRIVUSALA PR OJECT AT RS.4,000/- PER CENT AND CONSIDERED THE DIFFERENCE OF RS.1,743/- (RS.5743/- (-) RS.4000) AS EXCESSIVE/INFLATION. ACCORDINGLY, HE WORKED OUT THE EXCESS/INFLATION AT RS.43,17,411/- AND DISTRIBUTED THE SAME IN THE THREE YEARS UNDER CONSIDERATION AS DET AILED BELOW:- ASSESSMENT YEAR 2004-05 - RS. 69,160/- 2005-06 - RS.30,35,086/- 2006-07 - RS.12,13,165/- 17. THE LD CIT(A) TOOK THE VIEW THAT THE ASSESSEE HAS FURNISHED FULL DETAILS AND THERE WAS NO CONCRETE MATERIAL AVAILABLE WITH THE AO TO R ESTRICT THE EXPENDITURE. HE HAS FURTHER OBSERVED THAT THE PRIVUSALA PROJECT WAS A W ET LAND AND HUGE EXPENSES WERE INCURRED IN ELEVATING THE LAND TO THE ROAD LEVEL, S INCE THE LAND WAS ABOUT 4 TO 6 FEET BELOW THE ROAD LEVEL. ACCORDINGLY THE LD CIT(A) DE LETED THE DISALLOWANCE MADE IN ALL THE THREE YEARS. 18. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE AVERAGE AMOUNT OF DEVEL OPMENT EXPENSES WAS AROUND RS.2,000/- PER CENT IN OTHER PROJECTS. THE AO HAS OBSERVED THAT THE AVERAGE RATE OF DEVELOPMENT EXPENSES WOULD BE AROUND RS.2000/- FOR DRY LANDS AND RS.2,800/- FOR PARTIALLY DRY AND WET LANDS. ACCORDINGLY HE HAS ES TIMATED THE AVERAGE EXPENSES AT RS.4,000/- PER CENT FOR FULLY WET LANDS. FOR MAKIN G THIS ESTIMATE AND CONSEQUENTIAL DISALLOWANCE, THE AO HAS DRAWN SUPPORT FROM THE SEI ZED MATERIAL, I.E., A DIARY MARKED AS PLA(1), WHEREIN THE ASSESSEE HAD WORKED OUT PROF IT FROM THE PROJECT AT A MIDDLE POINT. THE AO HAS ALSO NOTICED THAT THE PROFIT DEC LARED BY THE ASSESSEE FROM THE I.T.A. NOS. 76,77,78, 87, 88 & 89/COCH/2009 9 INSTANT PROJECT WAS NOT COMMENSURATE WITH THE PROFI T WORKED OUT IN THE SEIZED RECORD. THE DETAILS FURNISHED BY THE ASSESSEE WAS ALSO FOUN D TO BE PUCCA BY THE AO. HENCE, ON A CONSPECTUS OF THE MATTER, THE AO WAS FOUND IT TO BE REASONABLE TO ESTIMATE THE DEVELOPMENT EXPENSES FOR THIS PROJECT AT RS.4,000/- PER CENT. THE LD CIT(A), ON THE OTHER HAND, HAS PLACED FULL RELIANCE ON THE CONTENT IONS OF THE ASSESSEE. HE HAS OBSERVED THAT THE ASSESSEE HAD INCURRED HUGE EXPENS ES ON THE ELEVATION OF THE LAND TO ROAD LEVEL. THERE IS NO DISPUTE THAT THE ASSESSEE MIGHT HAVE BEEN COMPELLED TO SPEND ON ELEVATING THE LAND TO ROAD LEVEL. THE QUESTION HERE IS ABOUT THE REASONABLENESS OF THE CLAIM MADE BY THE ASSESSEE. THE AO HAS PLACED RELIANCE ON THE SEIZED RECORD FOR FORMING OPINION THAT THERE WAS INFLATION OF DEVELOP MENT EXPENSES. HE HAS ALSO OBSERVED THAT THE ASSESSEE DID NOT FURNISH FULL DET AILS IN SUPPORT OF THE CLAIM. HENCE, THE AO HAS ESTIMATED THE DEVELOPMENT EXPENSES FOR T HIS PROJECT AT RS.4,000/- PER CENT. HOWEVER, IT IS TO BE NOTED THAT THE AO DID NOT BRIN G ON RECORD ANY BASIS FOR MAKING SUCH AN ESTIMATE. HENCE, THERE IS SOME DEFICIENCY IN THE ESTIMATE MADE BY THE AO ALSO. UNDER THESE CIRCUMSTANCES, IN ORDER TO RESOL VE THIS ISSUE, THE TRIBUNAL IS ALSO CONSTRAINED TO MAKE AN ESTIMATE IN ORDER TO MEET TH E ENDS OF JUSTICE. ACCORDINGLY, WE ESTIMATE THE DEVELOPMENT EXPENSES FOR THIS PROJECT AT RS.4,800/- PER CENT OF LAND AND WE DIRECT THE AO TO WORK OUT THE DISALLOWANCES ACCO RDINGLY. THE SAID ESTIMATE, IN OUR VIEW, WOULD MEET THE ENDS OF JUSTICE. THE ORDER OF LD CIT(A) ON THIS ISSUE STANDS MODIFIED ACCORDINGLY. 19. THE LAST ISSUE RELATES TO THE DISALLOWANCE OF SELLING AND ADMINISTRATION EXPENSES. THE DETAILS RELATING TO THE SAME ARE TABULATED BELO W:- AY SALES AMOUNT SELLING & DISALLOWED CONFIRMED ADMN. EXP. BY AO BY CIT( A) 2004-05 41,48,500 1,20,000 37,030 25,000 2005-06 5,86,32,000 12,00, 000 27,360 25,000 2006-07 2,60,12,500 12,00, 000 6,79,750 1,00,000 THE AO HAS WORKED OUT THE DISALLOWANCE BY TAKING TH E AMOUNT OF SELLING AND ADMINISTRATION EXPENSES AT 2% OF THE SALES VALUE. THERE CANNOT BE ANY DISPUTE THAT THE SELLING COMMISSION IS DIRECTLY PROPORTIONAL TO THE SALES AMOUNT AND THE I.T.A. NOS. 76,77,78, 87, 88 & 89/COCH/2009 10 ADMINISTRATION EXPENSES ARE SEMI-VARIABLE. THE AS SESSEE HAS SHOWN THE EXPENSES AT RS.12.00 LAKHS EACH IN THE ASSESSMENT YEARS 2005-06 AND 2006-07 AGAINST THE SALES AMOUNT OF RS.586.32 LAKHS AND RS.260.12 LAKHS RESPE CTIVELY. THE SALES AMOUNT IN THE ASSESSMENT YEAR 2006-07 GOT REDUCED BY MORE THAN 50 % WHEN COMPARED WITH THE SALES AMOUNT RELATING TO THE ASSESSMENT YEAR 2005-0 6. HOWEVER, THE ASSESSEE HAS CLAIMED THE SAME AMOUNT OF RS.12.00 LAKHS IN BOTH T HE YEARS. HENCE, IN OUR VIEW, THE SELLING AND ADMINISTRATION EXPENSES CLAIMED IN THE ASSESSMENT YEAR 2006-07 IS ON THE HIGHER SIDE. AT THE SAME TIME, THERE IS MERIT IN T HE CONTENTION OF THE ASSESSEE THAT CERTAIN ADMINISTRATION EXPENSES HAVE TO BE NECESSAR ILY INCURRED EVEN IF THERE ARE NO SALES. ACCORDINGLY, IN OUR VIEW, THE DISALLOWANCE O F RS.6,79,750/- MADE FOR THE ASSESSMENT YEAR 2006-07 IS ON THE HIGHER SIDE AND T HE AMOUNT OF RS.1.00 LAKH CONFIRMED BY LD CIT(A) IS ON THE LOWER SIDE. HENCE , ON A CONSPECTUS OF THE MATTER, WE DETERMINE THE AMOUNT OF DISALLOWANCE AT RS.4.00 LAK HS, WHICH IN OUR VIEW, WOULD MEET THE ENDS OF JUSTICE. WE ORDER ACCORDINGLY. THE DI SALLOWANCES CONFIRMED BY LD CIT(A) FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06 APPEAR TO BE REASONABLE. ACCORDINGLY, WE CONFIRM THE ORDER OF LD CIT(A) ON THIS ISSUE FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06 AND MODIFY THE SAME AS STATED ABOVE FOR THE ASSESSMENT YEAR 2006-07. 20. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE DISMISSED AND THE APPEALS OF THE REVENUE ARE TREATED AS PARTLY ALLOWED FOR STATISTIC AL PURPOSES. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 7TH SEPTEMBER, 2012 GJ I.T.A. NOS. 76,77,78, 87, 88 & 89/COCH/2009 11 COPY TO: 1. SHRI K.S. SUDHEER, M/S. LAND LINKS, WEST FORT RO AD, PALAKKAD. 2.THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CI RCLE-1,TRICHUR. 3.THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, KOCHI. 4.THE COMMISSIONER OF INCOME-TAX CENTRAL, KOCHI 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN