ITO, Ward - 5(2), Kolkata, Kolkata V. M/s. Sahul India Limited, Kolkata

ITA 768/KOL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54466 (ITAT-KOLKATA)
• Duration Of Justice: 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2011
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2002-2003
• Appeal Filed On: 19-05-2011
• Court: TRIBUNAL
• Department Lawyers: A K PRAMANICK
• Assessee Lawyers: R K GOEL; S N ROY
• Keywords: Valuation report
• Section: 143(3); 143(1); 144

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA () BEFORE . . , !' # # # # /AND $# , !' ) [BEFORE HONBLE SHRI S. V. MEHROTRA, AM & HONBLE S RI MAHAVIR SINGH, JM] #% #% #% #% / I.T.A NOS. 768&769/KOL/2011 $&' () $&' () $&' () $&' ()/ // / ASSESSMENT YEARS: 2002-03 & 2003-04 & #% #% #% #% / I.T.A NO. 770/KOL/2011 $&' () $&' () $&' () $&' ()/ // / ASSESSMENT YEAR: 2005-06 INCOME-TAX OFFICER, WD-5(2), KOLKATA VS. M/S. SAHU L INDIA LIMITED (PAN-AADCS 7349 J) (+, /APPELLANT ) (-.+,/ RESPONDENT ) & C.O. NOS.41&42/KOL/2011 IN #% #% #% #% / I.T.A NOS. 768&769/KOL/2011 $&' () $&' () $&' () $&' ()/ // / ASSESSMENT YEARS: 2002-03 & 2003-04 & C.O. NO.43/KOL/2011 #% #% #% #% / I.T.A NO. 770/KOL/2011 $&' () $&' () $&' () $&' ()/ // / ASSESSMENT YEAR: 2005-06 M/S. SAHUL INDIA LIMITED VS. INCOME-TAX OFFICER , WD-5(2), KOLKATA (CROSS OBJECTOR) (RESPONDENT) FOR THE REVENUE: SHRI A. K. PRAMANICK FOR THE ASSESSEE: S/SHRI R. K. GOEL & S. N. ROY !/ / ORDER PER BENCH : APPEALS BY REVENUE AND CROSS OBJECTIONS BY ASSESSEE ARE ARISING OUT OF COMMON ORDER OF CIT(A)-VI, KOLKATA IN APPEAL NO. 1074,1075 & 107 6/CIT(A)-VI/ 09-10/WARD-5(2) VIDE DATED 21.02.2011. ASSESSMENTS WERE FRAMED BY INCOME -TAX OFFICER, WD-5(2), KOLKATA FOR ASSESSMENT YEARS 2002-03, 2003-04 AND 2005-06 U/S. 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961(HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS SEPARATE ORDERS DATED 22.12.2008. FOR THE SAKE OF BREVITY AND CLARITY, WE DISPOSE OF BOTH THE SE APPEALS AND CROSS OBJECTIONS BY THIS CONSOLIDATED ORDER. 2 ITA 768-770/K/2011 & CO 41-43/K/2011 SAHUL INDIA LTD.. A.Y.02-03, 03-04 &05-06 2. FIRST, WE WILL TAKE UP CROSS OBJECTIONS OF ASSES SEE. IN ALL THESE CROSS OBJECTIONS WHEREBY ASSESSEE RAISED ONLY COMMON LEGAL ISSUE THA T WITHOUT REJECTION OF BOOKS OF ACCOUNT, REFERENCE MADE BY ASSESSING OFFICER TO DVO FOR ESTI MATING COST OF CONSTRUCTION IS VITIATED BY LAW. FOR THIS, THE ASSESSEE HAS RAISED EXACTLY IDE NTICALLY WORDED AND COMMON GROUND, WHICH IS AS UNDER: THAT WITHOUT REJECTION OF THE BOOKS OF ACCOUNTS BY THE LD. A.O. REFERENCE TO THE DVO IS NOT VALID. 3. BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT ASSESSEE FILED ITS RETURNS OF INCOME FOR RELEVANT ASSESSMENT YEARS ON DUE DATES. FOR ASSESS MENT YEAR 2002-03 ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT AND FOR OTHER TWO ASSESSMENT YEARS I.E. ASSESSMENT YEAR 2003-04 AND 2005-06, ASSESSMENT WAS NOT FRAMED AND RETURNS WERE PROCESSED U/S. 143(1) OF THE ACT. DURING THE COURSE OF ORIGINAL ASSESSMENT PROC EEDINGS FOR ASSESSMENT YEAR 2002-03, ASSESSEE PRODUCED COMPLETE AUDITED BOOKS OF ACCOUNT ALONG WITH BILLS AND VOUCHERS RELATING TO COST OF CONSTRUCTION OF FACTORY PREMISES. ASSESSEE PRODUCED COMPLETE BOOKS OF ACCOUNT AND NO DEFECTS WHATSOEVER WAS POINTED OUT BY ASSESSING OFF ICER BUT FOUND SOME DISCREPANCIES IN DETAILS FURNISHED BY ASSESSEE AND REPLIES GIVEN BY OUTSIDE PARTIES. ASSESSING OFFICER REQUIRED THE ASSESSEE TO CLARIFY THESE DISCREPANCIES AND IN TURN ASSESSING OFFICER WAS SATISFIED WITH THE EXPLANATION OF THE ASSESSEE EXCEPT TWO SMALL AMOUNT OF RS.284/- AND RS.2880/-. THE ASSESSING OFFICER HAS NOT INVOKED PROVISION OF SECTION 145(3) OF THE ACT AND FRAMED ASSESSMENT U/S. 143(3) OF THE ACT ON THE BASIS OF BOOK RESULTS. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSING OFFICER REFERRED COST OF CONSTRUCTION OF FACTORY BUILDING TO DVO VIDE LETTER DATED 17.2.2005 BUT REPORT OF DVO COULD NOT REACH BEFORE COMPLETION OF ASSESSMENT FOR ASSESSMENT YEAR 2002-03, WHICH WAS COMPLETED VIDE ORDER DATED 31.3.2005. IN HIS COMPLETED ASSESSMENT, THE ASSESSING OFFICER DISALLOWED A SUM OF RS. 1 LAC FOR PRELIMINARY EXPENSES BEING CAPITAL IN NATURE AND FURTHER MADE ADDITION OF SMALL DISCREPAN CIES OF RS.284/- AND RS.2880/- AS FOUND IN DETAILS OF COST OF CONSTRUCTION OF FACTORY BUILDING . SUBSEQUENT TO COMPLETION OF ASSESSMENT, ASSESSING OFFICER RECEIVED DVOS REPORT ON 28.7.200 5 AND ON THE BASIS OF SAME, ASSESSING OFFICER REOPENED ASSESSMENTS FOR ASSESSMENT YEAR 20 02-03, 2003-04 AND 2005-06 IN VIEW OF DIFFERENCE IN INVESTMENT DECLARED BY ASSESSEE IN RE TURNS OF INCOME AND COST OF CONSTRUCTION AS ESTIMATED BY DVO AS UNDER: PERIOD INVESTMENT DECLARED BY THE ASSESSEE ESTIMATED COST OF CONSTRUCTION 2000-01 2001-02 2002-03 RS.37,000.00 RS.63,27,923.00 RS.66,11,126.00 RS.53,734.00 RS.91,89,786.00 RS.96,73,684.00 3 ITA 768-770/K/2011 & CO 41-43/K/2011 SAHUL INDIA LTD.. A.Y.02-03, 03-04 &05-06 2003-04 2004-05 RS.20,078.00 RS.40,90,273.00 RS.1,71,36,400.00 RS.29,258.00 RS.59,40,138.00 RS.2,48,86,500.00 4. THE ONLY QUESTION BEFORE US IS WHETHER REFERENCE CAN BE MADE WITHOUT REJECTING BOOK RESULTS OR NOT, TO DVO FOR ESTIMATING COST OF CONST RUCTION, PARTICULARLY WHEN NO DEFECTS WERE FOUND IN BOOKS OF ACCOUNT EXCEPT DISALLOWANCE OF SM ALL DISCREPANCIES AND OTHER PRELIMINARY EXPENSES BEING CAPITAL IN NATURE, WHICH WERE ADDED, WHILE COMPLETING ASSESSMENT U/S. 143(3) OF THE ACT. WE HAVE GONE THROUGH THE REASSESSMENT ORD ERS AND ASSESSMENT ORDER FRAMED U/S. 143(3) OF THE ACT FOR ASSESSMENT YEAR 2002-03, THER E IS NO WHISPER ABOUT ANY DISCREPANCY IN BOOKS OF ACCOUNT AND THERE IS NO REJECTION OF BOOKS OF ACCOUNT BY ASSESSING OFFICER. ONCE THIS IS THE POSITION, WHAT THE ASSESSING OFFICER SHOULD HAVE DONE. THE ASSESSING OFFICER SHOULD NOT HAVE REFERRED THE MATTER TO THE DVO FOR ESTIMATING COST OF CONSTRUCTION PARTICULARLY WHEN THE COST OF CONSTRUCTION IS FULLY DESCRIBED IN THE BOOK S OF ACCOUNT. THE BASIC PRINCIPLE IS THE SAME IN LAW RELATING TO INCOME-TAX AS WELL AS IN CIVIL L AW, NAMELY, IF THERE IS NO CHALLENGE TO THE TRANSACTION REPRESENTED BY THE ENTRIES OR TO THE GE NUINENESS OF THE ENTRIES, THEN IT IS NOT OPEN TO THE REVENUE OR OTHER SIDE TO CONTEND THAT WHAT IS S HOWN BY THE ENTRIES IS NOT THE REAL STATE OF AFFAIRS. WHEN A RETURN IS FURNISHED AND ACCOUNTS AR E PUT IN, IN SUPPORT OF THAT RETURN, THE ACCOUNTS SHOULD BE TAKEN AS THE BASIS FOR ASSESSMEN T. THEY SHOULD NOT BE REJECTED BECAUSE THEY ARE COMPLICATED. THE PROCEDURE OF THE ASSESSING OFF ICER IS OF A JUDICIAL NATURE AND IN MAKING ASSESSMENT HE SHOULD PROCEED ON JUDICIAL PRINCIPLES . IF EVIDENCE IS PRODUCED BY THE ASSESSEE IN SUPPORT OF HIS RETURN IT SHOULD BE ACCEPTED UNLESS IT IS REBUTTED BY OTHER ADMISSIBLE EVIDENCE AND NOT BY MERE HEARSAY. AS THE ASSESSING OFFICER EXAMI NES THE ACCOUNTS OF AN ASSESSEE, HE HAS TO CONSIDER THE FOLLOWING QUESTIONS: (1) WHETHER THE ASSESSEE HAS REGULARLY EMPLOYED A M ETHOD OF ACCOUNTING? (2) EVEN IF REGULAR ADOPTION OF A METHOD OF ACCOUNT ING IS THERE, WHETHER THE ANNUAL PROFITS CAN PROPERLY BE DEDUCED FROM THE METHOD EMP LOYED? (3) WHETHER THE ACCOUNTS ARE CORRECTLY MAINTAINED? (4) WHETHER THE ACCOUNTS MAINTAINED ARE COMPLETE IN THE SENSE THAT THERE IS NO SIGNIFICANT OMISSION THEREIN? IF THE ASSESSING OFFICERS FINDING ON ALL THE FOUR QUESTIONS IS IN THE AFFIRMATIVE (YES), ASSESSEES PROFITS ARE TO BE COMPUTED ON THE BASIS OF HIS ACCO UNTS. IN SUCH A CASE, NEITHER FIRST PROVISO TO SECTION 145(1) OF THE ACT NOR SECTION 145(2) OF THE ACT CAN BE INVOKED. IF, HOWEVER, THE FINDING ON QUESTIONS NO (1), (3) AND (4) IS IN THE AFFIRMAT IVE (YES), BUT THE FINDING ON QUESTION NO. 2 IS IN THE NEGATIVE (NO), THE FIRST PROVISO TO SECTION 145(1) OF THE ACT COMES IN AND THE COMPUTATION 4 ITA 768-770/K/2011 & CO 41-43/K/2011 SAHUL INDIA LTD.. A.Y.02-03, 03-04 &05-06 OF INCOME HAS TO BE MADE ON SUCH BASIS AND IN SUCH MANNER AS THE ASSESSING OFFICER MAY DETERMINE. ON THE OTHER HAND, IF THE FINDING ON ANY OF THE QUESTIONS NO. (1), (3) OR (4) IS IN THE NEGATIVE (NO), SECTION 145(2) OF THE ACT APPLIES AN D THE ASSESSING OFFICER MAY MAKE A BEST JUDGMENT ASSESSMENT IN THE MANNER PROVIDED IN SECTI ON 144 OF THE ACT. FIRST PROVISO TO SECTION 145(1) OF THE ACT, OR SECTION 145(2) OF THE ACT, CA N BE INVOKED ONLY IF AND WHERE ELEMENTS ATTRACTING EITHER OF THOSE PROVISIONS ARE FOUND TO EXIST. A CLEAR FINDING TO THAT EFFECT, ALONG WITH MATERIALS ON WHICH SUCH FINDING IS BASED, HAS TO BE MADE OUT AND GIVEN BY ASSESSING OFFICER. NO ASSESSMENT UNDER THE FIRST PROVISO TO SECTION 14 5(1) OF THE ACT OR UNDER SECTION 145(2) OF THE ACT CAN BE SUSTAINED IF THE ASSESSING OFFICER ( OR THE APPELLATE AUTHORITY, IN CASES OF APPEAL) HAS NOT CONSIDERED AND RECORDED A FINDING AGAINST T HE ASSESSEE AS TO WHETHER HE HAS BEEN REGULARLY EMPLOYING A METHOD OF ACCOUNTING OR WHETH ER HIS INCOME, PROFITS OR GAINS CAN PROPERLY BE DEDUCED FROM HIS METHOD OF ACCOUNTING I F HE HAS BEEN REGULARLY EMPLOYING A METHOD OF ACCOUNTING OR WHETHER THE ACCOUNTS ARE CO RRECT AND COMPLETE, AND THE ASSESSING OFFICERS DECISION ON THESE MATTERS IS NOT TO BE A SUBJECTIVE OR ARBITRARY DECISION BUT A JUDICIAL DECISION AND CANNOT BE ACCEPTED IF THERE IS NO MATE RIAL TO SUPPORT HIS FINDINGS. AS IN PRESENT CASE, THE AO REFERRED COST OF CONSTRUCTION TO DVO W ITHOUT REJECTION OF BOOKS OF ACCOUNT, WHICH IS NOT AS PER ESTABLISHED LEGAL PROPOSITIONS. HONB LE APEX COURT IN THE CASE OF SARGAM CINEMA VS. CIT (2010) 328 ITR 513(SC) HELD AS UNDER:- IN THE PRESENT CASE, WE FIND THAT THE TRIBUNAL DEC IDED THE MATTER RIGHTLY IN FAVOUR OF THE ASSESSEE INASMUCH AS THE TRIBUNAL CAME TO THE CONCL USION THAT THE ASSESSING AUTHORITY COULD NOT HAVE REFERRED THE MATTER TO THE DEPARTMEN T VALUATION OFFICER (DV)) WITHOUT THE BOOKS OF ACCOUNT BEING REJECTED. IN THE PRESEN T CASE, A CATEGORICAL FINDING IS RECORDED BY THE TRIBUNAL THAT THE BOOKS WERE NEVER REJECTED. THIS ASPECT HAS NOT BEEN CONSIDERED BY THE HIGH COURT. IN THE CIRCUMSTANCES , RELIANCE PLACED ON THE REPORT OF THE DVO WAS MISCONCEIVED. FURTHER HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V PRATAP SINGH AMRO SINGH RAJENDRA SINGH (1993) 200 ITR 788 (RAJ) HELD AS UNDER:- WE HAVE CONSIDERED THE MATTER. IN RESPECT OF THE I NVESTMENT WHICH IS MADE IN THE PROPERTY, THERE CAN BE ONLY TWO METHODS TO FIND OUT THE CORRECT POSITION (I) WHEN PROPER BOOKS OF ACCOUNT ARE MAINTAINED, AND (II) VALUATION REPORT. IF THE ASSESSEE HAS MAINTAINED PROPER BOOKS OF ACCOUNT AND ALL DETAILS ARE MENTIONED IN SUCH BOOKS OF ACCOUNT, WHICH ARE DULY SUPPORTED BY VOUCHERS AND N O DEFECTS ARE POINTED OUT AND THE BOOKS ARE NOT REJECTED, THE FIGURES SHOWN THEREIN H AVE TO BE FOLLOWED. THE VALUATION REPORT CAN BE TAKEN INTO CONSIDERATION ONLY WHEN TH E BOOKS OF ACCOUNT ARE NOT RELIABLE OR ARE NOT SUPPORTED BY PROPER VOUCHERS OR THE INCO ME-TAX OFFICER IS OF THE OPINION THAT NO RELIANCE CAN BE PLACED ON SUCH BOOKS OF ACCOUNT. IT IS TRUE THAT THE INCOME-TAX OFFICER HAS NO OPTION BUT TO RELY ON THE VALUATION REPORT, WHICH IS A DOCUMENT PREPARED BY AN EXPERT AND IS ADMISSIBLE, BUT THERE MUST BE A FINDING BY THE INCOME-TAX OFFICER THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSE E ARE DEFECTIVE OR ARE NOT RELIABLE. THERE MAY BE A MARGINAL DIFFERENCE IN THE ACTUAL I NVESTMENT AND THE REPORT OF THE 5 ITA 768-770/K/2011 & CO 41-43/K/2011 SAHUL INDIA LTD.. A.Y.02-03, 03-04 &05-06 VALUATION OFFICER FOR A NUMBER OF REASONS AS THE V ALUATION REPORT IS PREPARED ON THE BASIS OF NORMS PRESCRIBED BY THE C. P. W. D. FOR T HE CONSTRUCTION OF BUILDINGS AND THE DIFFERENCE MAY BE WITH REGARD TO QUALITY OF THE MA TERIALS, ETC. THE INCOME-TAX OFFICER COULD HAVE EXAMINED THE MATTER IN DETAIL WITH REGAR D TO THE BOOKS OF ACCOUNT IN ORDER TO SAY THAT THE BOOKS ARE NOT RELIABLE. SIMPLY BECAUSE THE VALUATION REPORT IS OF A HIGHER AMOUNT, THE BOOKS CANNOT BE SAID TO BE UNRELIABLE U NLESS, BY A DEEPER PROBE, ANY DEFECT IS FOUND IN THE MAINTENANCE OF THE BOOKS OF ACCOUNT . THE TRIBUNAL WAS, THEREFORE, JUSTIFIED IN DELETING THE ADDITION OF RS. 55,780. CONSEQUENTLY, THE REFERENCE IS ANSWERED IN FAV OUR OF THE ASSESSEE AND AGAINST THE REVENUE AND IT IS HELD THAT IN THE ABSENCE OF ANY F INDING BY THE INCOME-TAX OFFICER THAT THE BOOKS OF ACCOUNT ARE NOT PROPERLY MAINTAINED AN D THAT THE EXPENDITURE IS NOT FULLY RECORDED OR IS NOT SUPPORTED BY VOUCHERS OR THE BOO KS OF ACCOUNT ARE DEFECTIVE, THE INCOME TAX APPELLATE TRIBUNAL WAS JUSTIFIED IN DELE TING THE ADDITION OF RS. 55,780. IN VIEW OF THE ABOVE LEGAL POSITION AND RESPECTFULL Y FOLLOWING THE DECISION OF HONBLE APEX COURT AND HONBLE RAJASTHAN HIGH COURT, WE DELETE T HE ADDITION BASED ON DVOS REPORT ESTIMATING COST OF CONSTRUCTION WITHOUT REJECTION O F BOOKS OF ACCOUNT, AS THE BOOKS OF ACCOUNT WERE MAINTAINED PROPERLY BY ASSESSEE RECORDING THE COST OF CONSTRUCTION. HENCE, CROSS OBJECTIONS OF ASSESSEE ARE ALLOWED. 6. COMING TO REVENUES APPEALS, SINCE WE HAVE ALREA DY ALLOWED CROSS OBJECTIONS OF THE ASSESSEE ON LEGAL ISSUE THAT DVOS REPORT ESTIMATIN G COST OF CONSTRUCTION WITHOUT REJECTION OF BOOKS OF ACCOUNT CANNOT BE ACCEPTED AND ONCE THERE CANNOT BE ANY REFERENCE TO DVO WITHOUT REJECTION OF BOOKS OF ACCOUNT, REVENUES CONTENTION S ON MERIT CANNOT BE ACCEPTED. APPEALS OF REVENUE ARE DISMISSED. 7. IN THE RESULT, CROSS OBJECTIONS OF THE ASSESSEE ARE ALLOWED AND APPEALS OF REVENUE ARE DISMISSED. 8. ORDER PRONOUNCED IN OPEN COURT ON 10.8.11. SD/- SD/- . . , !' $# $# $# $# , !' (S. V. MEHROTRA) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( 0 0 0 0 ) )) ) DATED 10TH AUGUST, 2011 12 $&34 $5 JD.(SR.P.S.) 6 ITA 768-770/K/2011 & CO 41-43/K/2011 SAHUL INDIA LTD.. A.Y.02-03, 03-04 &05-06 !/ 6 -$$ 7(8- COPY OF THE ORDER FORWARDED TO: 1 . +, / APPELLANT ITO, WARD-5(2), KOLKATA. 2 -.+, / RESPONDENT, M/S. SAHUL INDIA LIMITED, 26B, HEMANT A BOSE SARANI, (2 ND FLOOR), KOLKATA-1.. 3 . $/& ( )/ THE CIT(A), KOLKATA 4. $/& / CIT, KOLKATA 5 . $> -$& / DR, KOLKATA BENCHES, KOLKATA . -$/ TRUE COPY, !/&?/ BY ORDER, #4 /ASSTT. REGISTRAR .