The ACIT, Circle-1, V. M/s Tirupati Housing Construction P. Ltd.,

ITA 818/RJT/2005

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56708 (ITAT-RAJKOT)
• Duration Of Justice: 6 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 16-08-2011
• Assessment Year: 2000-2001
• Appeal Filed On: 10-06-2005
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Keywords: Unexplained investment; Value adopted by valuation officer; Unexplained expenditure; Bonafide belief; Valuation report; Retraction
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT. BEFORE SHRI A. L. GEHLOT (AM )AND SHRI N.R.S. GANE SAN(JM) ITA NO.818/RJT/2005. (ASSESSMENT YEAR 2000-01.) THE A.C.I.T., VS M/S. TIRUPATI HOUSING PVT. LTD., CIRCLE-1, RAJKOT. SAKAR, 3 RD FLOOR, DR.RADHAKRISHNA RD., NR. KATHIYAWAD GYMKHANA, RAJKOT. (APPELLANT) (RESPONDENT) C.O. NO.700/RJT/2005. (ASSESSMENT YEAR 2000-01) M/S. TIRUPATI HOUSING P.LTD., VS. THE A. C.I.T., SAKAR, 3 RD FLOOR, CIRCLE-1, RAJKOT DR.RADHAKRISHNA RD., NR. KATHIYAWAD GYMKHANA, RAJKOT. (APPELLANT) (RESPONDENT ) REVENUE BY :SHRI AVINASHKUMAR, D.R. ASSESSEE BY : SHRI SANJAY KUMAR, C.A. DATE OF HEARING : 16-08-2011. DATE OF PRONOUNCEMENT: 30 -09-2011. O R D E R. PER A.L.GEHLOT (A.M.): THIS APPEAL BY REVENUE AND CROSS- OBJECTION BY ASSESSEE FILED AGAINST THE ORDER OF CO MMISSIONER OF INCOME-TAX (APPEALS), RAJKOT DATED 29-03-2005 FOR A SSESSMENT YEAR 2000-01. ITA NO.818/RJT/2005 BY REVENUE:- ITA 818-05 & CO 700-05. A.Y. 2000-01. 2 2. THE EFFECTIVE GROUND RAISED BY REVENUE IN ITS AP PEAL IS REPRODUCED BELOW:- (1) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION TO THE EXTENT OF RS.38,15,021/- OUT OF TOTAL ADDITION OF RS.40,00,000/- MADE ON ACCOUNT OF UNEXPLAINED INVESTMENT IN THE PROJECT VENKETESH PLA ZA AS PER STATEMENT RECORDED ON OATH DURING THE COURSE OF SURVEY ACTION U/S.133A OF THE INCOME TAX ACT ON 16- 03- 2000. C.O.NO.700/RJT/2005 BY ASSESSEE:- 3. GROUND RAISED IN C.O. READS AS UNDER:- (1) ON FACTS OF THE CASE, THE LEARNED CIT(A) OUGHT TO HAVE DELETED THE ENTIRE ADDITION OF RS.40,00,000/-. (2) THE LEARNED CIT(A) ERRED IN LAW AS WELL AS ON F ACTS IN CONFIRMING ADDITION OF RS.1,84,979/- OUT OF TOTAL A DDITION OF RS.40,00,000/-. (3) THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT NO PROOFS HAVE BEEN PRODUCED IN RESPECT OF BILLS RECEIVED BUT NOT ACCOUNTED (AS THEY WERE UNPAID) AMOUNTING TO RS.1,20,612/- AND MATERIAL RECEIVED THROUGH DELIVER Y CHALLANS BUT FOR WHICH BILLS WERE NOT RECEIVED ON T HE DATE OF SURVEY AMOUNTING TO RS.64,307/- THOUGH BILLS AND CHALLANS WERE PART OF IMPOUNDED DOCUMENTS AT THE TI ME OF SURVEY AND FULL DETAILS WERE FILED IN PAPER BOOK AT PAGE 16 TO 18. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E-COMPANY IS ENGAGED IN THE CONSTRUCTION ACTIVITY. A SURVEY ACT ION U/S. 133A WAS CARRIED ON 16-03-2000. THE STATEMENT OF SHRI MADHU BHAI M. TOLIA WAS RECORDED AT THE TIME OF SURVEY DATED 16-03-2000 . HE DECLARED UNDISCLOSED INCOME OF RS.40,00,000/- AS UNACCOUNTED EXPENDITURE/INVESTMENT IN VENKATESH PLAZA. THE ASS ESSEE-COMPANY ITA 818-05 & CO 700-05. A.Y. 2000-01. 3 FILED THE RETURN OF INCOME SHOWING LOSS OF RS.4,220 /- DURING THE ASSESSMENT PROCEEDINGS, ON EXAMINATION, THE AO NOTI CED THAT THE ASSESSEE-COMPANY DID NOT DISCLOSE THE DECLARED AMOU NT OF RS.40,00,000/- IN THE RETURN OF INCOME. THE ASSESS EE-COMPANY FURNISHED A RECONCILIATION STATEMENT ATTACHED TO TH E RETURN OF INCOME SHOWING THAT THE COST OF CONSTRUCTION AS PER BOOKS OF ACCOUNTS ON THE DATE OF SURVEY WAS AROUND RS.1 CRORE. THE COST OF CONSTRUCTION OF RS.56,00,000/- WORKED OUT DURING THE COURSE OF SURV EY DID NOT INCLUDE CERTAIN AMOUNTS. THE RECONCILIATION STATEMENT FILE D BY THE ASSESSEE- COMPANY REPRODUCED BY AO AT PAGE-3 OF HIS ORDER. 5. BEFORE THE AO, IT WAS SUBMITTED BY THE ASSESSEE- COMPANY THAT THE EXPENSES CALCULATED AT THE TIME OF SURVEY WAS A ROUND RS.1 CRORE AND SAME AMOUNT IS AS PER BOOKS OF ACCOUNTS. THERE FORE, DISCLOSURE WAS BASED ON INCORRECT FIGURE OF COST INCURRED TILL THAT DATE. IT HAS ALSO BEEN SUBMITTED THAT THE ASSESSEE-COMPANY DID N OT INCUR ANY EXPENDITURE OUTSIDE THE BOOKS OF ACCOUNT AS AT THE TIME OF SURVEY, NO EVIDENCE WAS FOUND TO SUGGEST ANY EXPENDITURE HAVIN G BEING INCURRED OUTSIDE THE BOOKS OF ACCOUNT. THE AO DID NOT ACCEPT THE ASSESSEES CONTENTION ON THE GROUND THAT DURING THE COURSE OF SURVEY, A VOLUNTARY DISCLOSURE WAS MADE FOR RS.40,00,000/- UNACCOUNTED INVESTMENT IN PROJECT VENKATESH PLAZA. THE ASSESSE E-COMPANY NOT EVEN MADE DISCLOSURE OF RS.40,00,000/- BUT IN ORDE R TO FINALISE THE COMMITMENT, THE DIRECTOR OF THE ASSESSEE-COMPANY PA ID THE TAX THEREON OF RS.15,40,000/- BY CHEQUE DATED 28-03-200 0. THE AO FURTHER NOTED THAT EVEN AFTER 12 DAYS OF SURVEY I.E . ON 28-03-2000, SHRI TOLIA, THE DIRECTOR OF THE ASSESSEE-COMPANY, W AS HAVING A BONAFIDE BELIEF THAT THE UNACCOUNTED INVESTMENT WO RKED OUT DURING ITA 818-05 & CO 700-05. A.Y. 2000-01. 4 THE COURSE OF SURVEY OF RS.40,00,000/- WAS PROPER A ND ACCORDINGLY, TAX OF RS. 15,40,000/- WAS PAID. THE AO OBSERVED T HAT THE RETRACTION OF DISCLOSURE MADE WAS UNDULY LATE AND MOSTLY AN AF TER-THOUGHT TO AVOID PAYING TAXES. THE ASSESSEE-COMPANY FILED RET URN OF INCOME ON 28-03-2001. THE RETRACTION WAS ALMOST AFTER ONE YE AR FROM THE DATE OF DISCLOSURE MADE BY THE ASSESSEE-COMPANY. THE AO FURTHER NOTED THAT THE DISCLOSURE WAS MADE IN THE PRESENCE OF ASS ESSEES COUNSEL SHRI M.P. SARDA. THE AO REFERRING HIS PREDECESSOR S NOTING ON THE FILE AND HELD THAT AT THE TIME OF SURVEY, IN PRESEN CE OF ENGINEER, COST OF CONSTRUCTION WAS ESTIMATED MORE THAN RS.1 CRORE WHEREAS AS PER BOOKS OF ACCOUNT, IT WAS ONLY RS.55,60,617/-. AT T HE TIME OF SURVEY, THE ASSESSEE-COMPANY WAS IN RECEIPT OF BOTH TECHNIC AL AND LEGAL ADVISE. THEREFORE, THE AO WAS OF THE VIEW THAT THE DIRECTOR OF THE ASSESSEE-COMPANY WAS KNOWING FULLY WELL AS TO WHAT INVESTMENT HE MADE WITH RESPECT TO THE PROJECT VENKATESH PLAZA AN D AS TO WHAT INVESTMENT WAS SHOWN IN BOOKS OF ACCOUNTS. AFTER C ONSIDERING ALL THESE FACTS, THE DISCLOSURE OF RS.40,00,000/- WAS M ADE. THEREFORE, SUBSEQUENT BLAND DENIAL OF DISCLOSURE ALMOST AFTER ONE YEAR OF THE SURVEY IS CLEARLY NOT ACCEPTABLE, THE AO WAS OF THE VIEW. THE AO WHILE DEALING ITEM OF THE RECONCILIATION, FIRST ONE IS RS.20.09 LACS ADVANCES GIVEN TO VARIOUS PARTIES. THE AO DID NOT A CCEPT THIS AMOUNT OF RECONCILIATION ON THE GROUND THAT SUCH EXPLANATI ON WAS NOT OFFERED AT THE TIME OF SURVEY. APART FROM THIS, THE AO WAS OF THE VIEW THAT SUCH ADVANCES WOULD BE TOWARDS FUTURE EXPENSES OR P URCHASES. THEREFORE, THE SAME CANNOT BE CONSIDERED AS PART OF COST OF CONSTRUCTION. AS REGARDS THE AMOUNT OF INTEREST IN RECONCILIATION STATEMENT, THE AO DID NOT ACCEPT THE ASSESSEES CON TENTION THAT INTEREST WAS NOT A COMPONENT OF THE PROJECT COST VA LUATION AS ON THE ITA 818-05 & CO 700-05. A.Y. 2000-01. 5 DATE OF SURVEY. THEREFORE, RECONCILIATION SUBMITTE D BY THE ASSESSEE- COMPANY SUFFERS FROM THE LACUNA THAT IT FORMS A PAR T OF THE VALUATION OF THE PROJECT AS ARRIVED BY THE SURVEY PARTY IN TH E PRESENCE OF THE ENGINEER OF THE ASSESSEE. THE AO ALSO NOTED THAT EV EN FOR THE SAKE OF ARGUMENT, IF THE ASSESSEES CONTENTION IS ACCEPT ED THEN THE INTEREST WOULD HAVE TO BE INCLUDED IN BOTH THE VALU ATIONS I.E. VALUATION DONE DURING THE COURSE OF SURVEY AND THE RECONCILIA TION STATEMENT GIVEN BY THE ASSESSEE. THE NET EFFECT WOULD BE NIL . THE AO NOTED THAT THE VALUATION OF THE PROJECT COST AS ON DATE O F SURVEY RS.1 CRORE DID NOT INCLUDE THE ELEMENT OF INTEREST. THE AO RE FERRED THE MATERIAL TO THE DVO, AHMEDABAD FOR ASCERTAINING TOTAL COST O F THE PROJECT. THE COST SHOWN IN DVO REPORT WAS RS.1,52,95,882/- AGAINST THE COST OF CONSTRUCTION SHOWN BY THE ASSESSEE RS.1,24,87,12 0/-. THERE WAS A DIFFERENCE OF AROUND RS.28,00,000/- IN THE COST O F CONSTRUCTION SHOWN BY THE ASSESSEE AND COST OF CONSTRUCTION AS P ER DVO REPORT. THE AO NOTED THAT THE VALUATION OF CONSTRUCTION DON E BY DVO DOES NOT INCLUDE THE COST OF LAND, ADDITION/ALTERATION, EXPENSES OF RS.22,97,231/- ON ACCOUNT OF INTEREST, RS,1,40,020/ - ON ACCOUNT OF INSTALLATION OF SOLAR WATER HEATER, EXPENSES ON INS TALLATION OF DISH ANTENNA AND EXPENSES DONE AFTER THE DATE OF INSPECT ION I.E. 10-08- 2001 AND OTHER ITEMS MENTIONED IN PARA-7.3 OF THE V ALUATION REPORT. IT HAS ALSO BEEN NOTED BY THE AO THAT THE ASSESSEE HAS ALSO FILED VALUATION REPORT OF THE REGISTERED VALUER SHOWING C ONSTRUCTION COST AT RS.1,16,00,000/- WHICH HAS BEEN REJECTED BY THE DVO POINTING OUT CERTAIN DEFECTS IN THE REPORT OF REGISTERED VALUER. THE AO AFTER CONSIDERING ALL THESE FACTS, ADDED RS.40,00,000/- O BSERVING AS UNDER:- ITA 818-05 & CO 700-05. A.Y. 2000-01. 6 AS DISCUSSED EARLIER THE ASSESSEE HAS ALSO STATED THAT INTEREST EXPENSES OF RS.22.97 LACS HAS NOT BEEN INCLUDED IN THE VALUATION. THEREFORE, THE VALUATION DIFFERENCE OF RS.28 LACS AS PER THE ASSESSMENT OF THE DVO AND AS PER THE EXPENS ES SHOWN BY THE ASSESSEE ALSO CORROBORATES THE FACT TH AT THE COST OF CONSTRUCTION SHOWN IN THE BOOKS BY THE ASSESSEE HAS BEEN SUPPRESSED. THEREFORE, IF THE FIGURE OF EXPENSES A ND INTEREST ETC. NOT COVERED BY THE DVO IS TAKEN INTO CONSIDERA TION AND ADDED TO THE DIFFERENCE OF RS.28 LACS THEN, THE DIF FERENCE BECOMES MUCH HIGHER. AS DISCUSSED EARLIER THE ASSE SSEE DURING THE COURSE OF SURVEY HAD DECLARED UNACCOUNTE D INVESTMENT OF RS.40 LACS IN THE PROJECT VENKATESH P LAZA. FOR THE REASONS DISCUSSED ABOVE IN DETAIL THE RETRACTIO N OF THE ASSESSEE IS NOT ACCEPTED AND HIS STATEMENT ON OATH RECORDED DURING THE COURSE OF SURVEY IS TREATED TO BE FAIR, REASONABLE AND GIVEN AFTER PROPER APPRECIATION OF FACTS AND PROPER TECHNICAL AND LEGAL ADVISE RECEIVED. ACCORDINGLY, THE SAID D ISCLOSURE MADE BY THE ASSESSEE IS TREATED AS UNEXPLAINED INVE STMENT IN THE PROJECT ADDED TO THE TOTAL INCOME OF THE ASSESS EE. 6. THE CIT(A RESTRICTED THE ADDITION TO THE EXTENT OF RS.1,84,979/- AND DELETED ADDITION OF RS. 38,15,021/- OBSERVING T HAT AT THE TIME OF SURVEY, THE BUILDING WAS UNDER CONSTRUCTION. THERE WAS NO SCIENTIFIC ESTIMATION MADE FOR ASCERTAINING THE COST OF CONSTR UCTION TILL THAT DATE. THE ESTIMATE OF THE COST AT RS.1 CRORE TILL THAT DA TE WAS A GENERAL ESTIMATE. THE CIT(A) NOTED THAT THE TRIAL BALANCE SHOWS VARIOUS ADVANCE PAYMENTS AGGREGATING TO RS.20,09,887/- WHIC H WAS NOT CONSIDERED IN WORKING OUT THE BOOK COST OF CONSTRUC TION. THE ASSESSEE HAS FURNISHED THE PARTICULARS OF THESE PAY MENTS TO SHOW THAT ADVANCE PAYMENTS MADE WERE NOT FOR ANY FUTURE LABOUR WORK BUT WERE MAINLY ON ACCOUNT OF THE PAYMENTS MADE FOR CIV IL, PLUMBING AND ELECTRICAL WORK TO CONTRACTS. IN RESPECT OF THE IN TEREST COST, THE CIT(A) NOTED THAT THE ASSESSEE HAS SHOWN THAT BORROWINGS W ERE SPECIFICALLY FOR THE PROJECT AND HENCE, THE INTEREST PAID IS VER Y MUCH A PART OF COST ITA 818-05 & CO 700-05. A.Y. 2000-01. 7 OF CONSTRUCTION. THIS IS THE SYSTEM IN THE LINE AN D THE ASSESSEE HAS FOLLOWED THE SAME SYSTEM CONSISTENTLY. THE CIT(A) HELD THAT THE DIFFERENCE IN THE COST OF CONSTRUCTION WORKED OUT A T THE TIME OF SURVEY HAS NO SANCTITY AND CANNOT B MADE THE BASIS OF THE ADDITION. EVEN IN THE STATEMENT RECORDED AT THE TIME OF SURVEY, THE D IRECTOR DID NOT MENTION THAT PROPER BOOKS OF ACCOUNT HAVE BEEN MAIN TAINED. IN RESPECT OF DVO REPORT, THE CIT(A) OBSERVED THAT THE ASSESSEE HAS MAINTAINED PROPER BOOKS OF ACCOUNT SUPPORTED BY BIL LS AND VOUCHERS AND THE AO DID NOT POINT OUT ANY DEFECT IN THE BOOK S OF ACCOUNT. IT IS WELL SETTLED THAT IN THE ABSENCE OF ANY DEFECTS IN THE BOOKS OF ACCOUNT, ADDITION OF INVESTMENT IN COST OF CONSTRUC TION CANNOT BE MADE. THE DVO HAS ALSO DID NOT POINT OUT WHY THE C OST OF CONSTRUCTION REFLECTED IN THE BOOKS OF ACCOUNT CANN OT BE ACCEPTED. THE PLINTH AREA RATE METHOD FOLLOWED BY THE DVO IS AN INFERIOR METHOD OF ASCERTAINING THE COST. THE RELEVANT OBSE RVATION OF THE CIT(A) IS AS UNDER:- FURTHER, THE DIFFERENCE IN THE COST OF CONSTRUCTIO N AS PER THE BOOKS OF ACCOUNT AND AS PER THE ESTIMATE OF THE DVO IS ALSO MUCH LESS THAN RS.40 LAKHS ESTIMATED AT THE TI ME OF THE SURVEY. THE YEAR UNDER ASSESSMENT IS A.Y. 2000-01. THE DVO HAS IN HIS REPORT (AT PAGE 24 OF THE FIRST PAPE R BOOK) STATED THAT FOR THE FINANCIAL YEAR 1999-00, THE COST OF CO NSTRUCTION AS PER THE BOOKS OF ACCOUNT IS RS.30,55,215 AND THE CO ST OF CONSTRUCTION IS RS.38,00,234. THE A.O. IS THEREFOR E NOT JUSTIFIED IN MAKING THE ADDITION OF RS.40 LAKHS. (C) HOWEVER, IT IS SEEN THAT DURING THE COURSE OF S URVEY ALL THE MATERIAL FACTS WERE BEFORE THE AUTHORIZED OFFICER W HO SHOULD HAVE BEEN CONSIDERED BASED ON THE PRINCIPLES OF ACC OUNTANCY LIKE ADVANCES TO SUPPLIERS, MATERIAL RECEIVED BUT BILLS NOT RECEIVED, BILLS RECEIVED BUT NOT ACCOUNTED, INTER EST UP TO31/3/99 AND INTEREST FOR F.Y.99-2000. THOUGH THE APPELLANT HAS MADE THE DECLARATION DURING THE COURSE OF SURVE Y WITHOUT ITA 818-05 & CO 700-05. A.Y. 2000-01. 8 HAVING REGARD TO CERTAIN FACTS AS PER THE PRINCIPLE S OF ACCOUNTANCY WERE NOT IN HIS KNOWLEDGE AND TO BY MEN TAL PEACE, HE HAS MADE THE DECLARATION. HE HAS TAKEN T IME TO RECONCILE THOSE ASPECTS AND WHILE FILING THE RETURN AS PER THE PRINCIPLES OF ACCOUNTANCY AND AS PER THE MATERIALS FOUND DURING THE COURSE OF SURVEY, HE HAS FILED THE RETURN RETRA CTING THE DECLARATION. THE STAND OF THE ASSESSEE IS CLEAR AS PER HIS ANSWER TO QUESTION NO.22 IN THE STATEMENT RECORDED ON16/3/2000 OF SHRI MADHUBHAI TOLIA AND HE HAS ALSO SHOWN HIS COMMITMENT BY PAYING THE TAX ALSO. THEREAFTER, AFTER ASSESSING THE POSITION AS PER THE RECONCILIATION ST ATEMENT WHERE COST OF CONSTRUCTION WORKED OUT AROUND RS.1 C RORE, HE HAS FILED THE RETURN. THE BOOKS OF ACCOUNTS WERE A UDITED AS ON 31/3/2000 BY THE AUDITOR. THERE ALSO THE A.O. HAS NOT POINTED OUT ANY DEFECTS AS PER THE ACCOUNTING STANDARD, BUT HE HAS BEEN EXPLAINING THAT DURING THE COURSE OF SURVEY, T HE APPELLANT HAS MADE A DECLARATION, NOW HE AGAIN RETRACTS THE S AME. THE CASE LAW RELIED UPON BY THE APPELLANT, I.E. NAGINDA S D. PATEL V/S. ACIT, 104 TAXMAN 80 (AHMEDABAD) EXPLAINS THAT THE ASSESSEE IS ENTITLED TO PROVE THAT THE ADMISSION MA DE BY HIM IN FACT IS NOT TRUE AND CORRECT, LATER ON AFTER ASSESS ING THE POSITION. THE INCOME SURRENDERED CANNOT BE SUSTAINED IF PROVE D AS INCORRECT ON THE TRUE AND CORRECT FACTS WHICH WERE AVAILABLE BEFORE THE SURVEY PARTY RELYING ON THE VARIOUS CASE LAWS REFERRED IN THE ABOVE PARAS LIKE SUPREME COURTS DE CISION IN THE CASE OF NAGUBHAI AMMAL V/S. SHARMA RAO, AVADH KISH OR DAS V/S. RAM GOPAL. THEREFORE, I DO NOT FIND THAT THER E IS A DISCREPANCY IN THE WORKING OF THE COST AS PER THE R ECONCILIATION STATEMENT OF THE APPELLANT FILED BEFORE THE A.O. WH ICH WORKS OUT AROUND RS.1 CRORE BASED ON THE PRINCIPLES OF ACCOUN TANCY. HOWEVER, IT IS SEEN THAT THE A.R. HAS NOT FILED THE PROOFS OF BILLS RECEIVED BUT NOT ACCOUNTED OF RRS.1,20,612/- AND MA TERIAL RECEIVED THROUGH DELIVERY CHALLANS BUT BILLS WERE N OT RECEIVED OF RS.64,307/- TOTALING OF RS:1,84,919/-. THEREFORE, FOR THE SAME AMOUNT ADDITION IS RETAINED. THEREFORE, THERE IS A RELIEF OF RS.38,15,021/- (RS.4000000 RS.184979/-). THE A.O . IS DIRECTED TO DELETE THE ADDITION TO THE EXTENT OF RS .38,15,021/-. 7. THE LD. D.R. RELIED UPON THE ORDER OF AO AND SUB MITTED THAT AT THE TIME OF SURVEY, THE ASSESSEE ACCEPTED THE DIFFE RENCE IN ITA 818-05 & CO 700-05. A.Y. 2000-01. 9 CONSTRUCTION COST AS PER BOOKS OF ACCOUNT AND CONST RUCTION COST CALCULATED BY THE SURVEY PARTY. THE ASSESSEE DID N OT DECLARE RS.40,00,000/- AT THE TIME OF SURVEY IN THE RETURN OF INCOME. THE LD. D.R. SUBMITTED THAT NOT ONLY THIS THAT THE ASSESSEE HAS ACCEPTED THE DIFFERENCE IN CONSTRUCTION COST CALCULATED BY THE S URVEY PARTY AND BOOKS OF ACCOUNT, BUT THE ASSESSEE HAS PAID THE TAX OF RS.15,40,000/- ON 28-03-2000. THE LD. D.R. SUBMITT ED THAT THE DECLARATION WAS MADE IN FRONT OF THE COUNSEL SHRI M . P. SARDA AND COST OF CONSTRUCTION CALCULATED AT THE TIME OF SURV EY IN THE PRESENCE OF TECHNICAL AND LEGAL KNOWLEDGEABLE PERSON. THE L D. D.R. SUBMITTED THAT ONCE IT IS FOUND THAT THE ASSESSEES BOOKS OF ACCOUNT RELATING TO THE COST OF CONSTRUCTION OF BUILDING WERE NOT PROPE RLY MAINTAINED AND WERE REJECTED, THE COST OF CONSTRUCTION ESTIMATED B Y THE DEPARTMENTAL VALUER CAN BE ACCEPTED. THE LD. D.R. IN SUPPORT OF HIS CONTENTION RELIEF UPON A JUDGE OF KERALA HIGH COURT IN THE CAS E OF CAPRICON SHOPPING CENTRE VS. CIT 260 ITR 647(KERALA). THE L D. D.R. SUBMITTED THAT THE CIT(A) WITHOUT APPRECIATING THE FACT AND WITHOUT VERIFYING THE RELEVANT FACTS REDUCED THE ADDITION. 8. THE LD. A.R. ON THE OTHER HAND, SUBMITTED THAT T HE ASSESSEE FILED A NOTE ALONG WITH RETURN OF INCOME STATING TH AT AT THE TIME OF SURVEY, COST OF CONSTRUCTION OF VENKATESH PLAZA WAS CALCULATED RS.1 CRORE WHICH WAS BROAD ESTIMATE NOT BASED ON ANY TEC HNICAL DATE OR ANY OTHER RECORD. THE LD. A.R. SUBMITTED THAT IN T HE STATEMENT RECORDED AT THE TIME OF SURVEY, IT WAS CLEARLY STAT ED THAT ALL PROJECT EXPENSES ARE SUPPORTED BY BILLS AND VOUCHERS AND NO UNRECORDED EXPENDITURE WAS INCURRED. THE LD. A.R. SUBMITTED T HAT THE ACTUAL EXPENDITURE INCURRED TILL THE DATE OF SURVEY AS PER BOOKS OF ACCOUNT ITA 818-05 & CO 700-05. A.Y. 2000-01. 10 ITSELF WAS MUCH MORE AS CAN BE SEEN FROM THE COMPUT ER PRINT OUT OF THE TRIAL BALANCE AS ON 29-02-2000. THE LD. A.R. S UBMITTED THAT THE FIGURES ABOUT RS.56,00,000/- WORKED OUT BY THE SURV EY PARTY DID NOT INCLUDE THE CERTAIN ITEMS OF THE EXPENDITURE OF WHI CH DETAIL HAS BEEN FURNISHED TO THE REVENUE AUTHORITIES. THE DISCLOSU RE WAS BASED ON INCORRECT FIGURE OF COST INCURRED UNTIL THAT DATE. IN FACT, THE ASSESSEE DID NOT INCUR ANY EXPENDITURE OUT OF THE BOOKS OF A CCOUNT. THE ASSESSEE HAS FURNISHED COMPLETE DETAILS IN A STATEM ENT FORM SHOWING THE NAME OF PARTY, GOODS PURCHASED AND THE AMOUNT I NCURRED FOR EXPENSES, STATING THE BILL NUMBERS AND DATE OF ORDE R, CHALLAN NUMBERS, DATE OF PAYMENTS ETC. THE LD. A.R. SUBMIT TED THAT THE ASSESSEE HAS EXPLAINED WITH EACH AND EVERY ITEM OF PURCHASES FOR WHICH BILLS HAVE NOT BEEN RECEIVED BUT MATERIALS HA VE BEEN RECEIVED AND PAYMENTS WERE YET TO BE ENTERED INTO THE LEDGER . THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAS RECONCILED THE COST DETERMINED AT THE TIME OF SURVEY AND AS PER BOOKS OF ACCOUNT AND THERE WAS NO DIFFERENCE. THE LD. A.R. SUBMITTED THAT THE INTERE ST COST INCURRED UP TO 31-03-1999 AND FOR FINANCIAL YEAR 1999-2000 ALSO FO RMS THE PART OF COST OF CONSTRUCTION. THE BORROWINGS WERE MADE FOR THE CONSTRUCTION OF PROJECT VENKATESH PALAZA. THEREFORE, THE INTERE ST PAID ON THESE BORROWINGS IS A PART OF COST OF PROJECT. THE LD. A .R. REFERRED ACCOUNTING STANDARDS 16 AND 7 ISSUED BY THE INSTI TUTE OF CHARTERED ACCOUNTANTS OF INDIA, WHEREIN IT IS SUGGESTED THAT THE INTEREST AND OTHER COSTS INCURRED IN CONNECTION WITH THE BORROWI NGS OF FUNDS THAT ARE DIRECTLY ATTRIBUTABLE TO THE ACQUISITION, CONST RUCTION OR PRODUCTION OF A QUALIFYING ASSET. THE LD. A.R. SUBMITTED THAT DURING THE COURSE OF SURVEY, THE SURVEY PARTY COULD NOT FIND A SINGLE PI ECE OF PAPER OR ANY OTHER INCRIMINATING DOCUMENTS, WHICH EVEN REMOTELY SUGGESTS THAT ITA 818-05 & CO 700-05. A.Y. 2000-01. 11 THE ASSESSEE INCURRED UNACCOUNTED EXPENDITURE OF EV EN A SINGLE RUPEE. THEREFORE, ADDITION OF RS.40,00,000/- MADE IN THE HANDS OF THE ASSESSEE IS TOTALLY UNWARRANTED AND UNJUSTIFIED . THE LD. A.R. SUBMITTED THAT INSPITE OF RESERVATIONS OF THE ASSES SEE ON VALUATION REPORT SUBMITTED BY THE DVO VIDE REPORT DATED 02-11 -2001 THE DVO HAS ESTIMATED THE COST OF CONSTRUCTION OF RS.1,52,9 5,882/- AGAINST DECLARED COST OF CONSTRUCTION OF RS.1,24,87,120/- S HOWN BY THE ASSESSEE. THEREFORE, THERE IS A DIFFERENT OF ONLY TWO ESTIMATIONS OF RS.28,00,000/- AND NOT RS.40,00,000/- AS ADDITION M ADE BY AO. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE ESTABLISHED BEFORE THE AO THAT THE ESTIMATED COST O F CONSTRUCTION WAS RS.1,16,00,000/- APPROXIMATELY. THAT ITSELF PROVES THAT THE ASSESSMENT MADE BY MAKING ADDITION OF RS.40,00,000/ - IS ERRONEOUS. THE LD. A.R. POINTED OUT VARIOUS PAGES OF THE PAPER BOOK INCLUDING PAGES 26 AND 30 WHERE THE STATEMENT OF UNPAID BILLS REFERRED TO IN THE STATEMENT AT THE TIME OF SURVEY AND DETAILS OF SUPP LIES RECEIVED UP TO 16-03-2000 FOR WHICH BILLS WERE UNDER PROCESS FOR C HECKING HAVE BEEN PLACED. THE LD. A.R. SUBMITTED THAT THE CIT(A ) HAS WRONGLY SUSTAINED ADDITION OF RS.1,84,979/-. THE LD. A.R. SUBMITTED THAT THE AO HAS MADE ADDITION SIMPLY ON THE BASIS OF DECLARA TION MADE BY THE ASSESSEE ON THE BASIS OF INCORRECT FACTS. SUCH ADD ITION IS NOT SUSTAINABLE. THE LD. A.R. IN SUPPORT OF HIS CONTEN TION RELIED UPON AN ORDER OF THE ITAT, AHMEDABAD BENCH, ITA NOS.32 & 33 /AHM./2004 ORDER DATED 16-07-2010. THE LD. A.R. SUBMITTED THA T THE AO CANNOT REFER THE MATER TO THE DVO WITHOUT REJECTING THE BO OKS OF ACCOUNT. THE LD. A.R. IN SUPPORT OF HIS CONTENTION RELIED UP ON A JUDGMENT OF APEX COURT IN CASE OF SARGAM CINEMA VS. CIT 328 ITR 513. THE LD. A.R. ALSO RELIED UPON A JUDGMENT OF APEX COURT IN T HE CASE OF K. P. ITA 818-05 & CO 700-05. A.Y. 2000-01. 12 VARGHESE VS. CIT 131 ITR 597 (SC) AND ORDER OF ITAT PUNE BENCH REPORTED IN THE CASE OF AJIT CHINTAMAN KARVE VS. I TO. 311 ITR 66. 9. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES, RECORD PERUSED. THE ADMITTED FACTS OF THE CASE ARE THAT AT THE TIME OF SURVEY, THE COST OF CONSTRUCTION WAS CALCULATED IN THE PRESENCE OF THE ASSESSEE FOR RS.1 CRORE. A DECLARATION OF RS.40,00 ,000/- WAS MADE ON ACCOUNT OF DIFFERENCE IN COST OF CONSTRUCTION CA LCULATED AT THE TIME OF SURVEY RS.1 CRORE AND COST OF CONSTRUCTION SHOWN IN THE BOOKS OF ACCOUNTS. WHILE FILING THE RETURN OF INCOME, THE A SSESSEE POINTED OUT THAT AT THE TIME OF SURVEY, WHILE CALCULATING COST OF CONSTRUCTION CERTAIN ITEMS WERE NOT CONSIDERED. IF THESE ITEMS ARE CONSIDERED THEN WHATEVER THE COST OF CONSTRUCTION CALCULATED AT THE TIME OF SURVEY TALLIES WITH THE BOOKS OF ACCOUNTS. THE ASSESSEE F ILED A RECONCILIATION STATEMENT IN THIS REGARD. THE SAME IS REPRODUCED A S BELOW:- THE RECONCILIATION STATEMENT GIVEN IS AS FOLLOWS:- THE COST OF CONSTRUCTION OF RS.56 LACS WORKED OUT DURING THE COURSE OF SURVEY DID NOT INCLUDE THE FOLLOWING: (A) ADVANCES GIVEN TO VARIOUS PARTIES FOR CONSTRUCTION AS APPEARING IN THE TRIAL BALANCE AS ON 29.02.00. RS. 2009887 (B) EXPENDITURE INCURRED FOR WHICH THE BILLS WERE RECEIVED BUT NOT YET ACCOUNTED IN THE LEDGE(BILLS WERE FILED IN A FILE WHICH WAS FOUND & INVENTORISED AT THE TIME OF SURVEY) RS. 120612 (C) BILLS IN RESPECT OF WHICH MATERIAL WAS RECEIVED WITH DELIVERY CHALLANS BUT THE BILLS WERE RECEIVED LATER RS. 643 07 (D) INTEREST TILL 31.3.99 FORMING PART OF OPENING WIP RS. 1126979 (E) INTEREST TO BE PROVIDED FOR F.Y.99-2000 RS. 1157390 ITA 818-05 & CO 700-05. A.Y. 2000-01. 13 RS.4479175 ADD: COST WORKED OUT BY THE SURVEY PARTY RS. 5560621 AS STATED ABOVE.. TOTAL COST OF CONSTRUCTION. RS.10039796 10. THE COST OF CONSTRUCTION ESTIMATED BY DVO AND R EGISTERED VALUER ARE NOT RELEVANT FOR DECIDING THIS CASE AS T HE ISSUE IS LIMITED IN THE SENSE THAT THE ASSESSEE HAS FURNISHED THE COST OF CONSTRUCTION WORKED OUT AT THE TIME OF SURVEY AND THE BOOKS OF A CCOUNTS, WHETHER THE ASSESSEE HAS ACCOUNTED FOR CORRECT COST OF CONS TRUCTION IN THE BOOKS OF ACCOUNT. THE CONTENTION OF REVENUE THAT S INCE THE ASSESSEE HAS DEPOSITED ADVANCE TAX ON THE BASIS OF DECLARATI ON IN THE PRESENCE OF A.R., THEREFORE, ADDITION IS TO SUSTAIN IS NOT ACCEPTABLE. IN THE CASE UNDER CONSIDERATION, ONLY THE ISSUE IS THAT CERTAIN ITEMS WHICH WERE REPRODUCED ABOVE WERE NOT CONSIDERED WHI LE WORKING OUT THE COST OF CONSTRUCTION OF RS.1 CRORE AT THE TIME OF SURVEY. THUS, CERTAIN OBSERVATIONS MADE BY THE CIT(A) IN THIS REG ARD FOR WHICH WE ARE NOT AGREE WITH THE CIT(A). WE ARE ALSO NOT AGR EE WITH THE VIEW OF THE CIT(A) THAT THE DVO HAS NOT POINTED OUT WHY THE CONSTRUCTION OF COST REFLECTED IN THE BOOKS OF ACCOUNT WAS NOT ACCE PTED. WE ARE ALSO NOT AGREE WITH THE VIEW OF THE CIT(A) THAT THE AO D ID NOT POINT OUT ANY DEFECT IN THE BOOKS OF ACCOUNTS. THOUGH, WE ARE NOT GOING TO DECIDE THE ISSUE UNDER CONSIDERATION ONLY ON THE BASIS OF ABOVE OBSERVATIONS BECAUSE THE ABOVE RECONCILIATION ITSEL F SHOWS THAT THE ASSESSEE DID NOT MAINTAIN THE PROPER BOOKS OF ACCOU NT. WHILE SUSTAINING ADDITION OF RS.1,84,979/-, THE CIT(A) HE LD THAT THE ASSESSEE DID NOT FILE PROOF OF BILLS AND RELEVANT C HALLANS ETC. FOR VERIFICATION. AFTER CONSIDERING THE TOTALITY OF TH E FACTS OF THE CASE, WE ITA 818-05 & CO 700-05. A.Y. 2000-01. 14 FIND THAT THE ISSUE IS LIMITED AS STATED ABOVE THAT THE ASSESSEE HAS RECONCILED THE COST OF CONSTRUCTION WORKED OUT AT THE TIME OF SURV EY AND AS PER BOOKS OF ACCOUNT, AS DETAILS GIVEN AND SAME IS REPRODUCED AB OVE. WE FIND THE ISSUE UNDER CONSIDERATION IS ONLY THE VERIFICATION OF THE RECONCILIATION FILED BY THE ASSESSEE. IF THE SAID RECONCILIATION IS FOUND IN O RDER, WE ARE OF THE CONSIDERED VIEW THAT NO ADDITION IS WARRANTED AS THE ASSESSEE HAS RECONCILED THE COST OF CONSTRUCTION WORKED OUT AT THE TIME OF SURVEY AND B OOKS OF ACCOUNT AND THERE ARE NO DIFFERENCES. WE NOTICED THAT THE ASSESSEE HAS C LAIMED CERTAIN ADVANCES TOWARDS THE CONSTRUCTION COST AND CERTAIN EXPENDITU RE WHICH WERE INCURRED BUT NOT ACCOUNTED FOR LIKEWISE THE INTEREST PART. AFTE R PASSING OF THE TIME, THE CORRECT EFFECT OF THIS ITEM MUST HAVE BEEN GIVEN BY THE ASS ESSEE IN THE BOOKS OF ACCOUNTS. THEREFORE, WE SEND THIS MATTER BACK TO T HE FILE OF AO TO VERIFY THE EACH AND EVERY ITEMS OF ABOVE RECONCILIATION AND IF THE SAME ARE FOUND RECORDED IN THE BOOKS OF ACCOUNT AND COST OF CONSTRUCTION SHOWN BY THE ASSESSEE IN BOOKS OF ACCOUNT COMES TO ABOUT RS.1 CRORE FOR THE YEAR UNDE R CONSIDERATION, NO ADDITION IS WARRANTED. IN CASE ANY DISCREPANCIES ARE FOUND, THE ADDITION IS WARRANTED ACCORDINGLY. IN THE LIGHT OF ABOVE DISCUSSION, THE MATTER IS SENDING BACK TO THE FILE OF THE AO TO VERIFY THE ITEMS OF RECONCILIATIO N FILED BY THE ASSESSEE AND DECIDE THE ISSUE IN ACCORDANCE WITH ABOVE DISCUSSION AND I N ACCORDANCE WITH LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 11. IN THE RESULT, APPEAL BY REVENUE AND C.O. BY AS SESSEE BOTH ARE ALLOWED FOR STATISTICAL PURPOSES. SD/- SD/- ( N.R.S.GANESAN ) (A. L. GEHLOT) JUDICIAL MEMBER. ACCOUNTANT M EMBER. RAJKOT, DATED: 30-09-2011. NVA/ ORDER PRONOUNCED IN THE OPEN COURT ON 30-09-2011. SD/- SD/- J. M. A.M. ITA 818-05 & CO 700-05. A.Y. 2000-01. 15 COPY TO: 1.THE A.C.I.T., CIRCLE-1, RAJKOT. 2. M/S.TIRUPATI HOUSING PVT. LTD., RAJKOT. 3.THE C.I.T.(A)-II, RAJKOT. 4.THE C.I.T.-, RAJKOT. 5.THE D.R.,I.T.A.T, RAJKOT. TRUE COPY. BY ORDER ASSTT.REGISTRAR. ITAT, RAJKOT.