ACIT, Bangalore V. M/s Concorde Shelters Pvt. Ltd., Bangalore

ITA 855/BANG/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8593 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-01-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 21-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SWATHI S PATIL
• Keywords: Search and seizure; Valuation report
• Section: 13

Judgement Text

ITA.855/BANG/2009 PAGE - 1 IN THE INCOME-TAX APPELLATE TRIBUNAL BANGALORE BENCH 'B' BEFORE SHRI. K. P. T. THANGAL, VICE PRESIDENT AND SHRI. A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER I.T.A.NO.855/BANG/2009 (ASSESSMENT YEAR : 2005-06 ) ASST.COMMISSIONER OF INCOME TAX, CIRCLE -2(3), BANGALORE .. APPELLANT V. M/S. CONCORDE SHELTERS PVT. LTD., NO.42, RAJINI TOWERS, 27TH CROSS, 7TH B MAIN, IV BLOCK, JAYANAGAR, BANGALORE .. RESPONDENT APPELLANT BY : SMT. SWATHI S. PATIL RESPONDENT BY : SHRI. SACHIN KUMAR O R D E R PER K. P. T. THANGAL, VICE PRESIDENT : THIS IS AN APPEAL BY THE REVENUE FOR THE ASSESSMEN T YEAR 2005- 06. 2. GROUND NO.1 IS GENERAL IN NATURE AND DOES NOT CA LL FOR ANY DISCUSSION AS SUCH. COMING TO GROUND NO.2 IS AGAIN ST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(A) IN DELETING ADDITION MADE ON ACCOUNT OF CASH PAYMENT OF RS.80 LAKHS. ACCORDING TO THE REVENUE, ITA.855/BANG/2009 PAGE - 2 THE COMMISSIONER OF INCOME-TAX(A) FAILED TO APPRECI ATE THAT THE ADDITION WAS MADE BY THE ASSESSING OFFICER ON THE B ASIS OF MATERIALS SEIZED DURING THE COURSE OF SEARCH AND SEIZURE ACTI ON AND THAT THE TRANSACTIONS WERE NOT REFLECTED IN THE BOOKS OF ACC OUNT. 3. BRIEFLY THE FACTS LEADING TO THE DISPUTE ARE AS FOLLOWS. THERE WAS A SEARCH AND SEIZURE ACTION IN THE CASE OF THE ASSESSEE ON 13.4.2005. CONSEQUENT TO THE SEARCH NOTICE U/S.153 A WAS ISSUED ON 13.1.2006. IN RESPONSE TO THE NOTICE ASSESSEE FILE D A LETTER DT.7.5.2006 STATING THAT THE RETURN OF INCOME FILED ORIGINALLY ON 31.10.2005 MAY BE TREATED AS RETURN FILED IN RESPONSE TO NOTICE U/ S.153A. THE ASSESSEE RETURNED THE INCOME AT RS.1,55,18,733/-. THE FACTS AS NARRATED BY THE COMMISSIONER OF INCOME-TAX(A) IN HIS ORDER BRIEFLY IS AS UNDER. DURING THE COURSE OF SEARCH AND SEIZURE ACTION IT W AS FOUND THAT THERE WAS A DIFFERENCE OF CASH BALANCE AS PER THE BOOKS O F ACCOUNT AND PHYSICAL CASH. AS PER THE BOOKS OF ACCOUNT THE CAS H BALANCE WAS RS.3,62,03,164/- WHEREAS ACTUAL CASH FOUND WAS RS. 32,125/-. THE ASSESSEE WAS ASKED TO EXPLAIN THE DIFFERENCE. ONE OF THE DIRECTORS OF THE COMPANY, SHRI. B. S. SHIVARAM DEPOSED THAT THE PAYMENTS WERE MADE TO VARIOUS PARTIES IN INDIVIDUAL CAPACITY AS A DVANCE TOWARDS PURCHASE OF HOUSE CONSTRUCTION, MATERIAL ADVANCE, L AND LEVELING ETC., AMOUNTING TO RS.2,41,00,000/-. FURTHER A SUM OF RS ,25,00,000/- WAS ITA.855/BANG/2009 PAGE - 3 WITHDRAWN BY SHRI. GOPAL REDDY, ANOTHER PARTNER OF THE GROUP. DURING THE COURSE OF SEARCH AND SEIZURE ACTION, LOO SE SHEETS WERE FOUND IN THE PREMISES OF THE ASSESSEE. THE FUND-FL OW AS PER THE SEIZED DOCUMENT NO.A/CD-4/4 WAS RS.5,32,24,400/-, THE PAPERS SEIZED WERE LINKED WITH SHRI. SHIVALINGAIAH, SHRI. KHAN AND SHRI. REDDY, WHOSE STATEMENTS WERE RECORDED. WHEN ASKED TO EXPLAIN THE TRANSACTIONS AND THE SOURCE OF PAYMENT, ASSESSEE VI DE LETTER DT.4.7.2005 EXPLAINED THAT THE AMOUNT ABOVE MENTION ED WAS PAID TOWARDS ACQUIRING LAND FROM M/S. PREFAB INDUSTRIAL FACILITIES P. LTD., AND TO SHRI. KHAN AND SHRI. REDDY WHO WERE THE AGRE EMENT HOLDERS. SOURCE WAS ALSO EXPLAINED. ASSESSEE MENTIONED THAT THE CASH DEFICIT EXPLAINED AT THE TIME OF SEARCH BY SHRI. B. S. SHIV ARAM IS OUT OF VAGUE MEMORY, UNDER STRESS AND CONFUSION AND HAD FU RNISHED STATEMENT OF AFFAIRS FURNISHING THE ASSETS AND SOUR CES THEREOF. WHEN ASKED WHETHER THE PAYMENTS WERE RECORDED IN THE BOO KS OF ACCOUNT, THE ASSESSEE STATED THE REGULAR STAFF HAD LEFT THE ORGANIZATION AND THE NEWLY RECRUITED STAFF TOOK TIME TO UNDERSTAND THE A CCOUNTS AND AS SUCH INTER UNIT ACCOUNTS WERE NOT RECONCILED. BANK RECO NCILIATION WAS NOT MADE AND PARTNERS' DRAWINGS WERE ALSO NOT ACCOUNTED . IT WAS DUE TO THIS THERE WAS A HUGE DIFFERENCE BETWEEN THE CASH A CCOUNTED, WHICH DID NOT TALLY WITH THE CASH PHYSICALLY FOUND. IT W AS FURTHER EXPLAINED THAT THE PRACTICE OF THE ASSESSEE GROUP WAS TO DRAW AD-HOC AMOUNT OUT ITA.855/BANG/2009 PAGE - 4 OF CENTRALIZED CASH AND ACCOUNT THE EXPENSES IN PAR TICULAR CONCERN AFTER THE RECEIPT OF BILL/VOUCHERS. THE ASSESSEE G ROUP SUBMITTED DETAILS OF INVESTMENT MADE TO M/S. PREFAB INDUSTRIA L FACILITIES P. LTD., AT RS.5,32,24,400/- FOR PURCHASE OF 5 ACRES AND 5 G UNTAS OF LAND IN BEGUR HOBLI, BANGALORE SOUTH TALUK. 4. IN THE WRITTEN SUBMISSION, THE ASSESSEE STATED T HAT THE EXPLANATION GIVEN EARLIER WERE OUT OF VAGUE MEMORY AND CONFUSION. AFTERWARDS THE SEARCHED BOOKS OF ACCOUNT WERE UP DA TED AND THE ASSESSEE WAS ABLE TO ARRIVE AT THE EXACT POSITION O F CASH BALANCE WHICH WAS FILED ALONG WITH THE RETURN FOR THE YEAR UNDER CONSIDERATION. 5. COMING TO THE RETRACTING OF THE STATEMENT RECORD ED U/S.132(4) OF THE MANAGING DIRECTOR, THE ASSESSEE STATED THE E NTIRE STATEMENT WAS NOT GIVEN A TOTAL GOBY. CERTAIN FACTS WHICH WERE N OT IN MEMORY WERE BROUGHT IN. THE ASSESSEE FAILED TO EXPLAIN BY FACT S AND FIGURES ONLY BECAUSE OF THE FAILURE TO UP DATE THE BOOKS OF ACCO UNT AS MENTIONED, DUE TO THE NON-AVAILABILITY OF REGULAR CHARTERED AC COUNTANT AT THAT TIME. THE CLAIM OF THE ASSESSEE WAS ALLOWED BY THE COMMISSIONER OF INCOME-TAX(A) VIDE PARA 17(A), 17(B) AND 17(C) OBS ERVING AS UNDER : ITA.855/BANG/2009 PAGE - 5 '17(A) I HAD OCCASION TO DEAL WITH THE APPEALS FILE D BY MR. SHIVARAMA AND MR. GOPAL REDDY FOR THIS YEAR IN THEI R INDIVIDUAL CAPACITY. IN THE INDIVIDUAL RETURN FILE D BY MR. B. S. SHIVARAMA AND MR. GOPAL REDDY THE SOURCES FOR TH ESE INVESTMENTS HAD BEEN EXPLAINED AS OUT OF THEIR UNDI SCLOSED INCOME. ON THAT SCORE MR. GOPAL REDDY HAD OFFERED A SUM OF RS.72,96,396/- AND MR. B. S. SHIVARAMA HAD OFFER ED A SUM OF RS.64,22,849/-. I FOUND THAT THE ADDITIONAL INCOME OFFERED BY THEM HAD BEEN ACCEPTED BY THE ASSESSING OFFICER, AND MADE FURTHER ADDITIONS. IT FOLLOWS THAT NEITHE R MR. B. S. SHIVARAMA NOR MR. GOPAL REDDY HAVE TAKEN CREDIT FOR THE CASH AVAILABLE IN THE COMMON OF RS.3,61,71,038/-. THE ONLY ISSUE RAISED BY THE ASSESSING OFFICER IN THE SAID A SSESSMENT ORDERS WAS CASH INVESTMENT MADE BY BOTH OF THEM IN LAND BELONGING TO PREFAB INDUSTRIAL FACILITIES P. LTD., IN OTHER WORDS NO PERSONAL INVESTMENTS HAD BEEN MADE OUT OF THE COMMON CASH OF THE BUSINESS CONCERNS. THIS BEING T HE FACTUAL POSITION THE OBSERVATION NOW MADE BY THE AS SESSING OFFICER IS CLEARLY CONTRARY TO FACTS. I DO NOT SEE ANY JUSTIFICATION OF THE ASSESSING OFFICER'S OBSERVATIO N THAT THE FUND FLOW STATEMENT HAD BEEN TAILOR MADE TO ADJUST THE SHORTAGE OF CASH TO THE ASSESSEE FIRM. THUS IT IS CRYSTAL CLEAR THAT THE COMMON FUNDS AVAILABLE WITH THIS GRO UP CONCERN WAS UTILIZED ONLY BY THE ASSESSEE COMPANY. ON THE ONE HAND ACCEPTING THE ADDITIONAL INCOME OFFERED BY THE INDIVIDUALS ON THE GROUND OF SHORTAGE OF SOURCE AND MAKING AN ADDITION IN THE PRESENT CASE IS CLEARLY BLOWING HOT AND COLD AND INCONSISTENT. ITA.855/BANG/2009 PAGE - 6 17(B) THE ASSESSING OFFICER DOES NOT DISPUTE THE FA CT THAT THE BOOKS OF ACCOUNTS HAD NOT BEEN UPDATED AS ON TH E DATE OF SEARCH. IT IS ALSO NOT THE CASE OF THE ASSESSIN G OFFICER THAT THE COMMON FUND HAD BEEN UTILIZED FOR ANY OTHE R PURPOSE, OTHER THAN WHAT WAS EXPLAINED BY THE ASSES SEE. MERELY BECAUSE THE BOOKS OF ACCOUNTS ARE NOT UPDATE D BY CREDITING THE PAYMENT NOR DEBITING THE CASH BOOK CA N'T BE THE GROUND FOR REJECTION OF THE BOOKS. 17(C) FURTHER AS RIGHTLY CONTENDED BY THE ASSESSEE, EVEN AFTER TAKING INTO ACCOUNT THE PERSONAL INVESTMENT O F THE PARTNER/DIRECTOR OF THE GROUP CONCERNS THERE IS A S URPLUS OF RS.96 LAKHS STILL AVAILABLE AS PER THE DEPOSITION O F MR. B. S. SHIVARAM ON THE DAY OF SEARCH. CASH TO EXTENT OF RS.2,66,00,000/- HAD BEEN USED THUS LEAVING A BALAN CE OF RS.96 LAKHS. THE CASH PAID BY ASSESSEE TO ACQUIRE THE FREE LAND IS ONLY RS.80 LAKHS. THUS WHICHEVER WAY LOOKE D AT, THE ADDITION IS UNJUSTIFIED AND IS HEREBY DELETED. GRO UND OF APPEAL IS ALLOWED.' 6. AT THE TIME OF HEARING, THE LEARNED REPRESENTATI VE FOR THE ASSESSEE PRODUCED AN ORDER OF THE TRIBUNAL IN THE C ASE OF ACIT V. R. GOPAL REDDY WHEREIN THE TRIBUNAL ACCEPTED THE CONTE NTION OF THE ASSESSEE VIDE PARA 7.3 OF ITS ORDER WHICH READS AS UNDER : '7.3. AS RIGHTLY POINTED OUT BY THE LD. COMMISSIONE R OF INCOME-TAX(A), THE REVENUE HAD NOT REFUTED WITH ANY CREDIBLE EVIDENCE THE CLAIM OF THE ASSESSEE THAT TH E BOOKS OF ACCOUNT WERE NOT UP-DATED WHICH HAD RESULTED IN A ITA.855/BANG/2009 PAGE - 7 HYPOTHETICAL SITUATION OF A HUGE DIFFERENCE IN CASH BALANCE BETWEEN THE BOOKS OF ACCOUNT AND PHYSICAL CASH BALA NCE ON HAND ON THE DATE OF SEARCH. WE HAD A GLANCE OF THE STATEMENT OF TOTAL INCOME WHICH ACCOMPANIED THE ROI FURNISHED FOR THE ASSESSMENT YEAR UNDER DISPUTE, (O N PAGES 22-23 OF PB -AR) UNDER THE CAPTION '4.2. EXCESS OF ASSETS OVER LIABILITIES RS.7296396', WHICH CLEARLY EXPLAIN ED THE CASH PAYMENT OF RS.1.09 CRORES. AS COULD BE SEEN F ROM THE BALANCE SHEET OF THE ASSESSEE (ON PAGE 26 OF THE PB - AR), THE ASSESSEE HAD EARNED A PROFIT OF RS.16467620/- A ND THE INVESTMENT OF RS.1.09 CRORES [CONCORDE HITECH CITY PVT. LTD., - LAND PAYMENT] ON THE ASSETS SIDE. SINCE TH ESE PAYMENTS WERE MADE FROM THE KNOWN INCOME OF THE ASSESSEE AND ALSO THE ASSESSEE WAS IN POSSESSION OF CASH ON THE DATES OF SUCH PAYMENTS AGGREGATING TO RS.1,09,00,000/-, IT CANNOT BE ATTRIBUTED THAT THES E AMOUNTS HAD ORIGINATED FROM THE UNEXPLAINED SOURCE/INCOME O F THE ASSESSEE AS MADE OUT BY THE REVENUE. IN ESSENCE, W HEN THE SURVEY HAD TAKEN PLACE, THE ASSESSEE WAS PLACED IN A PRECARIOUS SITUATION AS THE BOOKS OF ACCOUNT WERE N OT UP- DATED DUE TO THE FACT THAT ACCOUNTING STAFFS HAVE L EFT HIS ORGANIZATION ABRUPTLY. THIS CLAIM OF THE ASSESSEE HAS NOT BEEN CONTRADICTED BY THE REVENUE WITH ANY DOCUMENTA RY EVIDENCE. IN AN OVERALL CONSIDERATION OF THE FACTS AND CIRCUM STANCES OF THE ISSUE, WE ARE OF THE UNANIMOUS VIEW THAT THE LD. COMMISSIONER OF INCOME-TAX(A) WAS JUSTIFIED IN HIS FINDING WHICH REQUIRES NO INTERFERENCE AT THIS STAGE. IT I S ORDERED ACCORDINGLY.' ITA.855/BANG/2009 PAGE - 8 7. THEREFORE, WE HAVE TO HOLD THAT THE ISSUE IS SQU ARELY COVERED AND THE ORDER OF THE COMMISSIONER OF INCOME-TAX(A) IS TO BE UPHELD. APPEAL BY THE REVENUE ON THIS GROUND, HENCE FAILS A ND IT IS DISMISSED. 8. COMING TO THE THIRD GROUND - EFFECTIVE GROUND NO .2, IT IS AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(A) IN D ELETING THE ADDITION MADE ON ACCOUNT OF UNDER STATEMENT OF WORK -IN-PROGRESS OF RS.6 CRORES WHICH WAS ON THE BASIS OF SPECIFIC SEI ZED DOCUMENTS. DURING THE COURSE OF SEARCH AND SEIZURE ACTION CERT AIN DOCUMENTS/LOOSE SHEETS WERE CONNECTED WITH THE WORK -IN-PROGRESS AND ALSO CERTIFICATE NAMED 'WORK-IN PROGRESS', DT.2 8.2.2005. CERTIFICATE WAS ISSUED BY ONE SESHAGIRI RAO, ARCHIT ECT AND STRUCTURAL ENGINEER IN WHICH HE CERTIFIED THE VALUE OF THE COM PLETED CIVIL WORK AT RS.21,56,68,040/- WHEREAS THE ASSESSEE, THE ASSE SSING OFFICER NOTICED, SHOWS THE WORK IN PROGRESS AS ON 31.3.2005 AT RS.14,64,97,693/- REFLECTING A DIFFERENCE OF RS.6,8 1,60,347/- BETWEEN WORK-IN-PROGRESS DISCLOSED BY THE ASSESSEE AND WORK -IN-PROGRESS CERTIFIED BY THE ENGINEER. THE ASSESSEE WAS ASKED TO EXPLAIN. IN THE REPLY DT.20.12.07, ASSESSEE STATED THAT THIS WAS PR EPARED BY THE ENGINEER SO AS TO FACILITATE THE BANK LOAN. THE AS SESSEE STATED THE ASSESSEE WAS TO OBTAIN A TERM LOAN OF RS.1.5 CRORES FOR CONSTRUCTIOION ITA.855/BANG/2009 PAGE - 9 ACTIVITIES FROM SBI. THERE WAS PAUCITY OF FUNDS, H ENCE THE CHARTERED ENGINEER CERTIFIED THE WORK-IN-PROGRESS AT RS.21.56 CRORES WHICH IS ACTUALLY NOT TRUE. THE ASSESSEE MAINTAINED REGULAR BOOKS OF ACCOUNT AND THE EXPENDITURE INCURRED WAS ONLY RS.10.94 CROR ES. SINCE THE CLIENT'S ARCHITECT HAS TO JUSTIFY A HIGHER VALUE, A HIGHER PERCENTAGE OF COMPLETION WAS SHOWN. REGARDING THE OBSERVATION OF THE ASSESSING OFFICER AT PAGE 15 OF THE DOCUMENT NO.A/CD-4/12 IT WAS STATED THAT SINCE THE ASSESSEE WAS NOT AWARE WHEN THIS WAS PREP ARED AND FOR WHAT PURPOSE, IT MAY BE AN ESTIMATION BY ONE OF ASSESSEE 'S CLIENT'S REPRESENTATIVE WHO WOULD HAVE PREPARED AND PRESENTE D THE STATEMENT WHILE ATTENDING A MEETING HELD AT THE BEGINNING STA GE. WHAT THE ASSESSEE HAS ESTIMATED ORIGINALLY HAS INCREASED SUB STANTIALLY BY 40- 50% DUE TO INCREASE IN COST OF CEMENT, STEEL AND SA ND, CONSTRUCTION OF THE VILLA AT 800 SQ.FT IS IMPOSSIBLE. IT WAS POINT ED OUT TO THE ASSESSEE IN THE LETTER DT.20.12.07 THAT THE COMMISSIONER OF INCOME-TAX(A) FOUND THAT THERE WERE SOME OTHER SHEETS ALSO AVAILA BLE AT PAGE 31 TO 35 OF THE DOCUMENT NO.A/CD-1/22 IN A TABULATED FORM WHEREIN PERCENTAGE OF COMPLETION OF VILLAS IN THE PROJECT W AS MUCH HIGHER AND IF THAT PERCENTAGE IS TAKEN AS TOTAL ESTIMATED COST OF THE VILLA, COST INCURRED BY THE ASSESSEE WOULD COME TO RS.22.42 CRO RES. THIS COST IS MUCH NEARER TO THE COST ESTIMATED BY THE ENGINEER I T WAS STATED. IN ASSESSEE'S REPLY IT WAS STATED THE ASSESSEE DOES NO T KNOW FOR WHAT ITA.855/BANG/2009 PAGE - 10 PURPOSE THE DOCUMENT NUMBERED A/CD-4/12 WAS PREPARE D. IT MAY BE AN ESTIMATE BY ONE OF ITS CLIENT'S REPRESENTATIVE W HO HAS PREPARED THE STATEMENT WHILE ATTENDING THE MEETING HELD AT THE I NCEPTION STAGE. IF ASSESSING OFFICER'S VALUE IS ACCEPTED THEN THERE IS AN INCREASE IN THE COST OF THE CONSTRUCTION AT RS.800 PER SQ.FT WHICH IS IMPOSSIBLE. THE ASSESSING OFFICER, HOWEVER, HELD THE ASSESSEE HAD N OT GIVEN ANY TRUE EXPLANATION WITH REGARD TO THE DOCUMENT NO.A/CD-1/2 2. HE HELD THIS WAS OBVIOUSLY PREPARED FOR THE PURPOSE OF RECEIVIN G THE BALANCE AMOUNT FROM EACH CUSTOMER DEPENDING ON THE STAGE OF COMPLETION OF THE VILLAS. THIS DOCUMENT CONTAINS THE ENTIRE INFO RMATION ABOUT THE VILLAS, WHEN IT WAS REGISTERED, THE LAND COST, PERC ENTAGE OF COMPLETION, THE TOTAL AMOUNT PAID AND SUCH FURTHER DETAILS. TH IS WAS A DOCUMENT FOUND IN THE PREMISES OF THE ASSESSEE AND THE CONTE NTS ARE TO BE RELIED UPON UNLESS IT IS PROVED TO THE CONTRARY. THE DIFF ERENCE BETWEEN THE WORK IN PROGRESS DECLARED BY THE ASSESSEE O THE BAN K AND THE ACTUAL WORK-IN-PROGRESS REFLECTED IN THE BOOKS OF ACCOUNT WERE TREATED AS ASSESSEE'S INVESTMENT UNDISCLOSED, AMOUNTING TO RS. 6,91,60,347/- WHICH WAS CHALLENGED BEFORE THE COMMISSIONER OF INC OME-TAX(A). 9. IT WAS STATED THAT THE WORK-IN-PROGRESS SHOWN IN THE FINANCIAL STATEMENT WAS RELEVANT TO THE ASSESSMENT YEAR 2005- 06 WHICH WAS ALSO ENCLOSED IN THE PAPER BOOK. THE ASSESSING OFF ICER FAILED TO ITA.855/BANG/2009 PAGE - 11 APPRECIATE THAT DURING THE COURSE OF HEARING THE CE RTIFICATE OBTAINED FROM THE ENGINEER WAS STATED FOR THE PURPOSE OF BAN K LOAN. THE BANK SANCTIONED A LOAN OF RS.20 CRORES BUT THE ASSESSEE AVAILED RS.5 CRORES ONLY. THE ASSESSEE STATED BEFORE THE ASSESSING OFF ICER THAT THE TOTAL AMOUNT SPENT FOR CONSTRUCTION AS ON 31.3.2005 WAS R S.14,60,49,856/- AS RECORDED IN THE FINANCIAL STATEMENT. IN JULY, 2 005, THE WORK-IN- PROGRESS WAS RS.5,13,58,310/- WAS SPENT FOR THE PER IOD 1.4.2005 TO 31.7.2005. THE MATTER WAS REFERRED TO DVO TO EXAMI NE THE COST OF CONSTRUCTION. THE ASSESSEE FILED ALL THE DETAILS B EFORE THE DVO. THE COST OF CONSTRUCTION WAS ESTIMATED BY THE DVO WHO I NSPECTED THE BOOKS OF ACCOUNT PREPARED BY THE ASSESSEE, BUT THE ASSESSEE WAS NOT GIVEN THE COPY OF THE REPORT BY THE DVO. THE ASSES SING OFFICER WITHOUT CONSIDERING THE VALUATION OF THE DVO MADE T HE ADDITION ON THE BASIS OF THE SEIZED MATERIALS/ASSUMPTIONS. HUG E ADDITION OF RS.6.91 CRORES IS WITHOUT ANY REASON. NORMALLY, AS SOON AS 90% OF THE WORK IS COMPLETED THE KEYS ARE HANDED OVER TO T HE CUSTOMERS WHEREAS IN THIS CASE AS ON 28.2.2005 AS ENVISAGED B Y THE ASSESSING OFFICER IT WOULD NOT HAVE TAKEN MORE THAN ONE YEAR TO HAND OVER THE KEYS TO THE CUSTOMERS. THE TOTAL COST OF CONSTRUCT ION INCURRED AS ON 31.3.2005 WAS RS.12,32,15,069/- FOR 18 VILLAS. WIT HOUT PREJUDICE TO THE ABOVE, IT WAS FURTHER SUBMITTED IF THE WORK-IN- PROGRESS IS HELD AS RS.21.56 CRORES INSTEAD OF RS.14.56 CRORES FOR ASSE SSMENT YEAR 2005- ITA.855/BANG/2009 PAGE - 12 06, THE OPENING WORK-IN-PROGRESS FOR THE PREVIOUS Y EAR RELEVANT TO ASSESSMENT YEAR 2006-07 WOULD BE ENHANCED FROM RS.1 4.56 CRORES TO RS.21.56 CRORES. THIS WOULD RESULT IN THE INCRE ASE IN EXPENDITURE OF RS.6.91 CRORES WHICH WOULD MEAN A NET LOSS FOR T HAT ASSESSMENT YEAR, THAT IS THE YEAR IN WHICH THE PROJECT WAS ALM OST COMPLETE. HENCE, IT WAS SUBMITTED THAT ADDITIONS MADE BY THE ASSESSING OFFICER WAS WITHOUT ANY JUSTIFICATION. 10. A REMAND REPORT WAS CALLED FOR IN WHICH IT WAS STATED THAT NO OTHER MATERIALS WAS SUBMITTED BEFORE THE ASSESSING OFFICER BY THE ASSESSEE. HE HELD THAT IT CANNOT BE CONCLUDED THAT CONSTRUCTION WAS NOT COMPLETED UP TO 90% UP TO 28.2.2005. FURTHER, EVEN IF THE VALUATION WAS DONE BY THE CHARTERED ENGINEER FOR TH E PURPOSE OF BANK LOAN THIS CANNOT BE TAKEN COGNIZANCE OF BY THE DEPA RTMENT UNLESS IT IS PROVED OTHERWISE. THE SUBMISSIONS WERE REITERATED AGAIN BY THE ASSESSEE IN THE REJOINDER. THE ADDITION MADE BY TH E ASSESSING OFFICER WAS DELETED BY THE COMMISSIONER OF INCOME-TAX(A) VI DE PARA 18(D), (E) AND (F) OF HIS ORDER OBSERVING AS UNDER : '18(D) I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS ON EITHER SIDE. THE VIEW OF THE ASSESSING OFFICER IS THAT TH E DEPARTMENT IS NOT BOUND TO LOOK INTO ANY OTHER MATERIAL BEYOND TH E CERTIFICATE OF THE CHARTERED ENGINEER. THE ASSESSING OFFICER HAS ALSO STATED THAT THE ASSESSEE HAS NOT LET IN ANY EVIDENCE TO CO NTRADICT THE ITA.855/BANG/2009 PAGE - 13 CERTIFICATE OF THE CHARTERED ENGINEER. IN MY VIEW THE APPROACH OF THE ASSESSING OFFICER IS NOT CORRECT. THE FACT THA T THE ASSESSEE HAD APPROACHED THE BANK FOR FINANCIAL ASSISTANCE IS NOT DISPUTED. THE FACT THAT THE ASSESSEE HAD ACTUALLY OBTAINED TH E LOAN FROM THE SAID BANK IS A MATTER OF RECORD. I FIND THAT ONE O F THE CONDITIONS FOR DISBURSEMENT OF THE LOAN IS THAT ONLY ON COMPLE TION OF AT LEAST 50% OF THE WORK THE BANK COULD FUND THE PROJECT. T HE AMOUNT TO BE RELEASED BY THE BANK IS EQUIVALENT TO THE EXPEND ITURE INCURRED BY THE ASSESSEE. IT IS FOR THIS REASON THAT THE AS SESSEE HAD ENHANCED THE WORK IN PROGRESS. IN THE REGARD THE A SSESSEE HAD SUBMITTED CERTIFICATES OF A PROJECT MANAGER TO PROV E THAT THE PROJECT IS NOT 90% COMPLETE. THE ASSESSING OFFICER HAS REJECTED THIS CERTIFICATE AS INTERNAL AND MADE TO SUIT THE N EED. HOWEVER, IT IS NOT THE ONLY EVIDENCE LET IN BY THE ASSESSEE TO DISPROVE THE CHARTERED ENGINEER'S CERTIFICATE. IT HAD SUBMITTED THE LETTERS FROM VARIOUS ALLOTTEES TO PROVE THAT THE PROJECT WAS NOT IN AN ADVANCED STAGE AS ASSUMED BY THE ASSESSING OFFICER. THERE I S SUFFICIENT FORCE IN THE SUBMISSION OF ASSESSEE THAT NO BUSINES S MAN WILL WAIT FOR MORE THAN A YEAR TO COMPLETE BALANCE 10% W ORK THAT TOO WHEN HE IS OPERATING ON BORROWED FUNDS. 18(E) THE ASSESSEE HAD SOUGHT TO RELY ON THE VALUAT ION REPORT THAT WOULD HAVE BEEN SUBMITTED BY THE DEPARTMENTAL VALUATION WHO HAD DONE THE VALUATION DURING JUNE 2005 WITHIN 4 MONTHS OF THE CHARTERED ENGINEER'S CERTIFICATE. HE BEING A TECHNICAL PERSON AND HAVING MADE ON THE SPOT IMPARTIAL ENQUIR Y HE IS EXPECTED TO HAVE REPORTED THE ACTUAL COST THAT WOUL D HAVE BEEN INCURRED BY THE ASSESSEE. THE ASSESSING OFFICER HA S REJECTED THE REQUEST OF THE ASSESSEE TO SUPPLY THE VALUATION REPORT. THE ASSESSING OFFICER HAS OBJECTED TO THIS REQUEST SAYI NG THAT THE ITA.855/BANG/2009 PAGE - 14 REPORT IS NOT BINDING ON HIM. THE QUESTION IS NOT WHETHER THE VALUATION REPORT IS BINDING OR NOT BUT IT IS A CONT EMPORANEOUS EVIDENCE OF A TECHNICAL EXPERT WHICH WOULD THROW LI GHT ON THE ACTUAL STATE OF AFFAIRS. THE ASSESSING OFFICER ST ATES THAT THE ASSESSEE WOULD HAVE RAISED DEMAND ON THE ALLOTTEE B ASED ON THE STAGE OF CONSTRUCTION. IN OTHER WORDS, THE ASSESSE E WOULD BE EAGER TO RAISE THE BILL ON THE ALLOTTEE BASED ON TH E STAGE OF CONSTRUCTION. HOWEVER THE ASSESSING OFFICER HAS NO T BROUGHT IN ANY MATERIAL TO SHOW THAT THE ASSESSEE DID IN FACT RAISED ANY SUCH DEMAND ON ANY OF THE ALLOTTEES. IF THE ASSESS EE HAD BEEN EAGER TO RAISE A BILL WHEN 90% OF THE CONSTRUCTION IS COMPLETED SUCH A BUILDER WOULD HAVE BEEN EAGER TO COMPLETE TH E BALANCE OF 10% OF WORK ALSO AND HAND IT OVER TO THE ALLOTTE ES. I DON'T FIND ANY JUSTIFICATION IN THE STAND OF THE ASSESSIN G OFFICER. THE SEARCH HAS ALSO NOT UNEARTHER ANYTHING TO SHOW THAT EXPENDITURE TO THE TUNE OF RS.21,56,58,040/- HAD AC TUALLY BEEN INCURRED BY ASSESSEE DURING THIS YEAR. FURTHER AS SUBMITTED BY THE ASSESSEE SUCH AN ADDITION WOULD LEAD AN ANOMALO US SITUATION IT WOULD RESULT IN A LOSS NEXT YEAR. 18(F) THEREFORE, I CONCLUDE THE ADDITION MADE BY TH E ASSESSING OFFICER TO THE CLOSING STOCK IS WITHOUT ANY FIRM BA SIS AND I DELETE THE ADDITION OF RS.6,91,60,347/-. GROUND O F APPEAL IS ALLOWED.' THE REVENUE IS IN APPEAL. 11. CONTENDING PARTIES REITERATED THE RESPECTIVE SU BMISSIONS. ITA.855/BANG/2009 PAGE - 15 12. CONSIDERING THE RIVAL SUBMISSIONS, WE FIND FORC E IN THE FINDING OF THE COMMISSIONER OF INCOME-TAX(A). WHILE ALLOWI NG THE ASSESSEE'S APPEAL THE COMMISSIONER OF INCOME-TAX(A) NOTED ONE OF THE CONDITIONS FOR DISBURSEMENT OF LOAN BY THE BANK IS THAT AT LEAST 50% OF THE WORK IS COMPLETED. THE AMOUNT TO BE REL EASED BY THE BANK IS EQUAL TO THE EXPENDITURE INCURRED BY THE AS SESSEE. FOR THIS REASON IF THE ASSESSEE HAD SHOWN THE ENHANCED WORK- IN-PROGRESS. IN THIS REGARD IT SUBMITTED A CERTIFICATE OF A PROJECT ENGINEER TO PROVE THAT THE PROJECT WAS COMPLETED AT 90%. THIS CERTIFICATE WAS REJECTED BY THE ASSESSING OFFICER HOLDING IT AS AN INTERNAL CER TIFICATE. THE ASSESSEE ALSO PRODUCED LETTERS FROM ALLOTTEES TO PR OVE THAT THE PROJECT WAS NOT IN ADVANCED STAGE. HE HELD THAT THERE IS S UFFICIENT FORCE IN SUBMISSION OF THE ASSESSEE THAT NO BUSINESSMAN WOUL D WAIT FOR MORE THAN A YEAR TO COMPLETE BALANCE 10% WORK THAT TOO W HEN HE IS OPERATING ON BORROWED FUNDS. WE FIND CONSIDERABLE FORCE IN THIS REASONING OF THE FIRST APPELLATE AUTHORITY. THE CO MMISSIONER OF INCOME-TAX(A) FURTHER FOUND OBJECTION IN THE REASON ING OF THE ASSESSING OFFICER THAT THE VALUATION REPORT OF THE DVO IS NOT BINDING ON HIM. TRUE THAT IT IS NOT BINDING BUT IT IS DEFI NITELY A CONTEMPORANEOUS EVIDENCE OF A TECHNICAL EXPERT WHIC H WOULD THROW AMPLE LIGHT ON THE ACTUAL STATE OF AFFAIRS. EVEN A CCORDING TO THE ASSESSING OFFICER THE ASSESSEE WOULD BE EAGER TO RA ISE THE BILL ON THE ITA.855/BANG/2009 PAGE - 16 ALLOTTEES BASED ON THE STAGE OF CONSTRUCTION. HE F OUND THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL TO SHOW THAT T HE ASSESSEE DID IN FACT RAISE ANY SUCH DEMAND ON ANY OF THE ALLOTTEES. IF THE ASSESSEE HAD BEEN EAGER TO RAISE A BILL WHEN 90% OF THE WORK IS COMPLETED, SUCH A BUILDER WOULD HAVE BEEN EAGER TO COMPLETE THE BALAN CE 10% OF THE WORK AND TO HAND OVER IT TO THE ALLOTTEES. THERE I S NO SUCH EVIDENCE. FOR THE ABOVE REASONS, WE ARE OF THE VIEW THAT THE COMMISSIONER OF INCOME-TAX(A) RIGHTLY REJECTED THE REVENUE'S STAND AND WE CONFIRM THE ORDER OF THE COMMISSIONER OF INCOME-TAX(A). 13. IN THE RESULT, APPEAL BY THE REVENUE FAILS AND IT IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 10TH DAY OF FEBRU ARY, 2010. SD/- SD/- (A. MOHAN ALANKAMONY) (K. P. T. THANGAL) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE DATED : 10TH FEBRUARY, 2009 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, NEW DELHI 7. GF, ITAT, BANGALORE