TaxTMI 
TaxTMI 
2016 (9) TMI 759
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....truction. He had filed his return of income for different assessment years, the details of which are as under : Asst. Year Date of filing of return Income declared Agricultural income 2006-07 31-10-2006 1,35,78,686/- 79,020/- 2007-08 31-10-2007 78,37,860/- 2008-09 29-09-2008 46,84,427/- 2009-10 28-09-2009 51,57,660/- 2010-11 06-10-2010 1,22,67,446/- 2011-12 30-09-2011 8,68,48,281/- 4. A search u/s.132 of the Act was conducted in the case of the assessee on 12-10-2010. In response to the notice u/s.153A of the Act the assessee filed the return of income for different assessment years disclosing total income as under: Asst. Year Date of filing of return Income declared Agricultural income 2006-07 30-09-2011 1,57,90,687/- 79,020/- 2007-08 30-09-2011 97,18,671/- 59,700/- 2008-09 30-09-2011 1,43,21,943/- 2009-10 30-09-2011 1,27,98,327/- 29,482/- 2010-11 30-09-2011 2,52,20,651/- 29,482/- 5. The AO issued notice u/s.143(2) and notice u/s.142(1) along with questionnaire....
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....pment works including the retaining walls, guard walls, WBM road, Gate, lawn, water tank, septic tank, mandir, swimming pool, porch, fountains, fixed wardrobes, false ceiling works, internal finishing works, lift, chandelier, generator set etc. & Extra item/Substitute items for richer specifications than normal as covered in the CBDT approved rates etc and plants and equipments as declared/provided details of which are as given in the Annexure." 8. In view of the above report, the AO asked the assessee to explain as to why the difference between the year-wise cost of construction as per the DVOs report and the investment/expenditure shown by the assessee should not be brought to tax as undisclosed income of the assessee. The year-wise difference as noted by the AO is as under : F.Y. Year-wise Estimated cost of construction as per DVO's Valuation Report Investment/Expenditure shown in the accounts by the assessee Difference (being excess unaccounted investment made by the assessee) 2005-06 1,70,26,504 Nil (Since the assessee has shown only the cost of land, at Rs. 45,15,912/- in the balance sheet) 1,70,26,604 2006-07 54,91,686 14,56,159 40,35,527 ....
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....tion by the DVO and he has not raised any such issue before the DVO. As regards the objection of the assessee to the value of RCC compound wall structure as per the report of the valuation made by Government Registered valuer Shri S.R. Nimbal is concerned, the AO noted that the basis of the valuation made by Shri S.R. Nimbal is not provided by them. He observed that the assessee has failed to show how the valuation done by DVO is wrong in his objection also. Therefore, there is no merit in his objection. As regards the objection of the assessee regarding the valuation of the specialized items, swimming tank and lawn work valuation is concerned he observed that the objections are very vague, unspecific and general in nature. Further, same are not supported by any documentary evidence. The AO also noted that the assessee has not given any justification with them to prove in respect of the demand that allowance should be given at the rate of 15% to 20% for self supervision work. No scientific and or technical basis for this payment made by them was provided. The assessee has also not specified as to what are the additions made after the date of search which need to be excluded from th....
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....y corroborative evidence. It was submitted that the AO and the DVO totally ignored the report of M/s. S.R. Nimbal and Associates, Registered Valuer and not even a single word has been mentioned about this report in the assessment orders. As per the report of the said registered valuer which was obtained by the assessee, the value of the bungalow including land was Rs. 7.10 crores. It was submitted that it is clear from the report of the DVO itself that the AO did not even forward the said report to the DVO. It was submitted that such rejection of the report of M/s. S.R. Nimbal and Associates was grossly unjustified and this was done because the said report was not satisfying the condition of the I.T. Department as regards to disclosure to be obtained on account of bungalow at Khanapur, i.e. Rs. 9 crores. It was submitted that the AO being a quasi-judicial authority should have followed the principles of natural justice and should have atleast carried out a comparison between the 2 valuation reports when 2 contradicting reports were to be made. It was also brought to the notice of the CIT(A) that no information was provided as to whether the report of M/s. S.R. Nimbal was accepted o....
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....vestments in the impugned property to the extent estimated by the DVO. It was argued that the AO has not rejected the assessee's books of account which is a pre-requisite condition of making a reference to the DVO u/s.142A. This shows that he has partly accepted and relied upon the closing balances of work in progress on which basis he has allocated the cost of construction works made out by the DVO and made additions to income for the various assessment years which is not justified. It was submitted that reference to the DVO could not be made without rejecting the books of account. For the above proposition he relied on the decision of Hon'ble Supreme Court in the case of Sargam Cinema Vs. CIT reported in 328 ITR 513 and CIT Vs. Lucknow Public Educational Society reported in 339 ITR 588. Various other decisions were also cited by the assessee before the CIT(A). 17. However, the CIT(A) was not fully satisfied with the arguments advanced by the assessee. After considering the submissions made by the assessee he noted that the DVO has included all costs as per plinth area rates upto the time of valuation, i.e. early 2013 and spread the same over F.Y. 2005-06 to 2009-10. After cons....
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....2006, ie. during the F.Y. 2006-07. The plan of building as per the architect was received by the assessee on 7-04-2006. Without the said plan construction activity of the farmhouse/bungalow was not possible. Although the said plans were submitted to the DVO, however he has not considered the same. 21. Referring to Para 12.12 of the order of the CIT(A), the Ld. Counsel for the assessee drew the attention of the Bench to the submission made before the CIT(A) wherein the above facts were narrated. However, he has not considered the same. He submitted that the assessee has started only developing the hilly portion of the land by way of constructing approachable road to reach the top of the hill and levelling the top of the said hill during F.Y.2005-06. However, there was no development work like construction of retaining walls, water coolers, gutters along side of road and other work of levelling of land which started and got finished only in the middle of the year 2007. Referring to Para 12.3 of the said letter he submitted that although all the details were given before the CIT(A), however, he has not considered the same and went by the report of the DVO and thereby sustained the ....
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....o 2010-11. He submitted that although the assessee has declared additional income of Rs. 3,43,23,198/- for different assessment years the Ld.CIT(A) has given relief of only Rs. 1,81,20,667/- as set off for income disclosed in 153A return. He submitted that the assessee has disclosed an amount of Rs. 3,43,23,198/- as additional income during the period from 2006-07 to 2010-11 whereas the Ld.CIT(A) has granted set off the amount of Rs. 1,81,20,667/- only. Thus, the amount of Rs. 1,62,03,531/- remained to be given set off which the Ld.CIT(A) has failed to do. He accordingly submitted that the additional income declared in the return filed in response to notice u/s. 153A should be made available to the assessee to meet the construction of the farm house/bungalow 25. The Ld. Counsel for the assessee submitted that the assessee has maintained proper books of account and has disclosed the investment towards the construction of the farmhouse/bungalow and year-wise investment was shown in the balance sheet. The books of account of the assessee were not rejected. Therefore, the AO could not have made a reference to the DVO without rejecting the book results. For the above proposition, he ....
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....8 1,007,658.04 Sr.No. Particulars Observations Paper book page reference 2 Services extra Development works including filter water supply, hot water sewer, levelling, storm water. The area is taken as 22500 sqmt whereas the DVO observes in summary on page 200 is 1690.10 sqm. To this may be added Mandir 52.58 sqm & gate 49.82 sqm totalling to 1792.0 sqm. At the rate adopted by DVO of Rs. 141.65 the excessive valuation is as under : (further deduction of indexation +5% for interior location) 213 & 200 Particulars As per DVO Revised Value Net Effect Basic Rate Adopted 141.65 141.65 -- Area 22,500.00 1,792.00 20,708.00 Value 3,187,125.00 253,836.80 2,933,288.20 Add for indexation @(336/100) 10,708,740.00 852,891.65 9,855,848.35 Add for interior location @5% 535,437.00 42,644.58 492,792.42 Total Valuation 11,244,177.00 895,536.23 10,348,640.77 Sr.No. Particulars Observations Paper book page reference 3 Item No.54 RCC Water Tank with capacity of 17,000 litres @ Rs. 10 per lt. 223 ....
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.... u/s.132 of the I.T Act was conducted in his case on 12-10-2010. During the course of search, it was noticed that the assessee has made substantial investment in farm house/bungalow at Manewadi, Khanapur, Sinhagad Panshet Road, Taluka Haveli, District Pune. At the time of search, the Department hired the services of an approved valuer who valued the bungalow at Rs. 24,82,49,207/- which included the cost of plot at Rs. 9,52,87,500/- and cost of construction at Rs. 15,29,61,707/-. Since the assessee in his balance sheet as on 31-03-2010 has recorded the investment at Rs. 3,20,08,627/- the assessee was confronted. The assessee in his statement recorded u/s.132(4) on 14-10-2010 had disclosed additional income of Rs. 9 crores on account of undisclosed investment in the bungalow. Subsequently, since the assessee did not honour the disclosure in the returns filed for the A.Y. 2006-07 to 2010-11 the AO made a reference to the DVO for obtaining the valuation report of the farmhouse/bungalow. The DVO gave his report determining the investment by the assessee in the farm house at Rs. 12,06,79,000/- from F.Y. 2005-06 to 2009-10. Since the assessee had shown investment of Rs. 3,20,08,627 includ....
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....nd not applicable to the facts of the present case. Therefore, the plea of the assessee that the AO could not have referred the matter to the DVO is misplaced under the facts and circumstances of the case. 35. However, we find some force in the argument of the Ld. Counsel for the assessee regarding the manner and method of valuation and the mistakes committed by the DVO and the Ld.CIT(A). There is no dispute to the fact that the assessee in its balance sheet as on 31-03- 2006, a copy of which is placed at paper book page 8 read with page 12, has shown the cost of land at Khanapur at Rs. 45,15,912/- and no investment on account of construction of the same has been disclosed. We find before the Ld.CIT(A) the assessee has made the following submission which has been reproduced by the Ld.CIT(A) at para 12.12 of the order: "2.12 During appellate proceedings, the appellant, vide detailed written submissions dated 31/12/2013 (filed on 23/1/2014) contended as below- 'A. Addition on account of Valuation of Bungalow at Khanapur 1. The appellant and his wife Mrs. Samina Nandu Rajput has purchased 4 hectar 96.1 R (12.25 acre) land at S.No.302B/1 Khanapur Manerwadi Tal. ....
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....d the site along with search tea of the Income tax Dept. on 13/10/2010. Subsequently Mr. Ravindra Bapat submitted valuation report certifying the cost of the plot and construction of the farm house / bungalow at Rs,24,82,49,000/- Which was on the basis of many assumptions, limitations etc. The cost was worked out taking into account on the basis of recent transactions for broadly comparable properties in the vicinity and he submitted his report on 18/10/2010 with following note. "--- The cost incurred is made at the request of the Income Tax Department. Pune and is prepared solely for use of Income Tax Department. We understand that the report will not be copied or released for external circulation without permission of the author. This report has been prepared as per information provided by the department. We have not verified the same with the original documents. No responsibility will be accepted to any third party, who may acquire and choose to make use of or rely on, the whole or any part of the report contents." It seems that Mr. Bapat himself did not want to be used his report to be used by any external person/authority other than Income Tax Department and ....
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....ome. Hence, he decided to obtain true picture of the cost of the bungalow and he appointed M/s. S.R. Nimbal & Associates Registered Valuer to carry out the valuation of the said bungalow. 10. M/s. S.R. Nimbal & Associates prepared the report on item to item cost basis and by measuring work by usage of counts, measuring tapes weights etc. His report has provided detailed calculations of cement bags, area measurements for painting etc. and also adding 7% contingencies and worked out 7.10 crore as the cost of the bungalow including land. The said report was submitted to learned AO but learned AO and DVO did not accept the same. Further, the learned AO has totally ignored the Registered Valuer report and not even single word was mentioned about this report in the assessment orders. 11. An arbitrary rejection of Register Valuer M/s S. R. Nimbal & Associates report by the learned AO is because of the fact it was not satisfying the objective of the IT Dept. as regards to disclosure to be obtain on account of bungalow at Khanapur i.e Rs. 9 crore The appellant respectfully draws your honor's attention to the fact that the learned AO has not even checked whether procedu....
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....this office....." This indicates that learned AO desperately and with malafide intention suppressed Registered Valuer M/s. S.R. Nimbal & Associates valuation report. It is clear that the learned AO was polluting the mind of DVO's to get valuation report not to the true fact by providing exorbitantly valued valuation report of Mr. Bapat which report he himself is not believing to be correct because of the methodology adopted by Mr. Bapat and report usage condition stated in the valuation report. As stated herein above and with the cost of repetition the appellate states that Mr. Ravindra Bapat prepared the report in hurry still the learned AO was forwarding the same report and not other report submitted by the appellant. 13. The learned DVO had started work of valuation by visiting the site on 23/01/2013 and submitted report on 28/02/2013. In between he had called the appellant to produce details about title documents of the land, any valuation report and bills of expenditure all of which was submitted by the appellant on 14/01/2013 and 23/01/2013. The appellant draws your kind attention that the appellant only submitted the report of M/s. S.R. Nimbal's report to D....
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....which is always required to be calculated with relation to the cash flow of the person as well as available bills and surrounding area market rates of the construction materials. Further the appellant respectfully states that the appellant being a builder, Developers and contractor and having done construction work on large scale in the surrounding area he has taken the advantages of bulk purchase of construction materials and low cost of labour. Therefore the bungalow cost is much lesser to the appellant than had this bungalow been constructed by any other person than the appellant. 18. Further learned DVO has inappropriately used closing balance of construction work in the books of appellant as base for actual work in progress. In fact when learned AO has rejected books of accounts if at all than such type of usage cant be take and it cannot be considered actual work in progress to spread the cost of construction among the various financial years. 19. The appellant respectfully state that the DVOs report does not show correct and true cost of construction and same was not discussed with the appellant before submitting to learned AO. Learned DVO has not calculate....
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....VOs valuation report as a base for addition to the returned income of the appellant he should have been found out approximate cash inflow to cross check investments calculated by the DVO and then and then only addition should have been effected. The appellant bring to the your Honors kind notice that all the sources of the income have been surfaced through search by the search team u/s.132. In such circumstance there cannot be presumed that additional sources are left out from the search. Hence, it is necessary to work out cash flow statement on the basis of search data to find out available money to invest in a construction of the bungalow." 36. However, we find despite the above submission before the Ld.CIT(A) he has not deliberated upon on this issue and has gone by the report of the DVO which has been accepted by the AO. Since the submission of the assessee has not been rebutted at any place, therefore, we find merit in the submission of the Ld. Counsel for the assessee that construction activity cannot start until and unless the land is released by the Haveli Tahsildar office. Since the land has been released on 15-05-2006 and the first architectural plan was prepared on 17....
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....t an amount of Rs. 1.89 crores was incurred on the farm house/bungalow. 39. As mentioned earlier, from the details furnished by the assessee in the balance sheet, the assessee has made investment of Rs. 3,90,59,712/- between 01-04-2010 to 31-03-2011 as per the balance sheet filed. However, the same cannot be fully allowed under the facts and circumstances of the case. Considering the totality of the facts of the case, benefit of Rs. 2,00,00,000/- on estimate on account of expenditure after 31-03-2010 as against Rs. 60,33,950/- allowed by the CIT(A) in our opinion will meet the ends of justice. We hold and direct accordingly. 40. Now coming to the amount of self supervision charges, we find the DVO has granted only 3% of the value of the property as self supervision charges which has been enhanced to 6% by the CIT(A). The assessee in the instant case is admittedly engaged in the business of Promoters, Builders and Developers. He is aware of the places where material and labour is available at cheap rate. Therefore, he is most likely to save substantial amount on account of material and labour cost as compared to an ordinary person. The various Benches of the Tribunal are grant....
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...., therefore, direct the AO to give set off of Rs. 3,43,24,198/- as against Rs. 1,81,21,667/- allowed by the Ld.CIT(A). 43. So far as the contention of the assessee that the DVO has considered the 1992 rates as against 2007 and 2009 rates which were available in public domain is concerned, we also find some force in the above. Admittedly, the construction of the building has started during the period from 2006-07 which continued till 2010-11 and thereafter. Therefore, adoption of 1992 schedule of rates and multiplying the same by cost inflation index as against the available rate of 2007 or 2009 will give a distorted figure. The Ld. Counsel for the assessee filed a chart showing that because of these faulty method adopted by the DVO, the difference comes to Rs. 1,82,41,436/-. However, since the assessee has not maintained any books of account on day-to-day basis towards the investment in the bungalow, therefore, the property has to be valued by following the method of valuation/guidelines issued by various agencies. It is also a fact that the CPWD rates are higher than the local PWD rates. Further, we find some force in the submission of the Ld. Counsel for the assessee that inst....
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.... cost of land 2,74,92,715 9,31,86,285 Less: set off of additional income as per para 42 of this order 3,43,24,198 5,88,62,087 Relief on account of expenditure after 31-03-2010 as per para 39 2,00,00,000 3,88,62,087 Less : Relief on account of self supervision charges as per Para 40 1,14,64,505 2,73,97,582 Less: Mistakes/Calculation errors as per Para 43 of this order 2,41,35,800 Undisclosed investment to be added for different years 32,61,782 45. The above amount of undisclosed investment in our opinion has to be apportioned to different assessment years between A.Y. 2007-08 to 2010-11 in the ratio of investment shown by the assessee which is as under : A.Y. Amt. declared by assessee Unexplained investment to be sustained finally 2007-08 14,56,159/- 5.30% 1,72,875/- 2008-09 1,70,66,533/- 62.08% 20,24,914/- 2009-10 38,73,523/- 14.08% 4,59,259/- 2010-11 50,96,500/- 18.54% 6,04,734/- 2,74,92,715/- 100 32,61,782/- 46. The AO shall verify the above computation and make suitable adjustment if a....
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....me and payment in respect of the same has been made otherwise than by account payee cheque or Demand Draft in excess of Rs. 20,000/- at one time. 50. However, the CIT(A) was also not convinced with the arguments advanced by the assessee and upheld the disallowance made by the AO. According to him, the proposition that section 40A(3) will have no application where the cash payments were related to unaccounted transactions is no longer acceptable in view of the decision of Hon'ble Gujarat High Court in the case of CIT Vs. Hynoup Food and Oil Industries Ltd. reported in 290 ITR 702, the decision in the case of Hon'ble A.P. High Court in the case of S. Venkata Subba Rao Vs. CIT reported in 173 ITR 340, the decision of Hon'ble Punjab and Haryana Court in the case of CIT Vs. Sai Metal Works reported in 241 CTR 377 and the decision of the Mumbai Bench of the Tribunal in the case of ITO Vs. D.D.Hazare reported in 48 ITD 595 (Bom.) etc. 51. Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 52. The Ld. Counsel for the assessee strongly challenged the order of the CIT(A). Relying on various decisions he submitted that nature of expenditure incurred is capit....
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....se, in brief, are that during the course of search and seizure in the case of the assessee jewellery valued at Rs. 1,65,60,991/- was found out of which jewellery valued at Rs. 1,36,61,002/- was seized. The assessee in the return filed for A.Y. 2011-12 has offered an amount of Rs. 67 lakhs for taxation on account of disclosure in excess gold ornaments found. Vide letter dated 15-03- 2013 it was submitted that there is excess declaration by approximately Rs. 37,24,917/-. According to the AO the said claim was not supported by any documentary evidence and is also very vague and confusing. Further, the same was made at a very later stage of the assessment proceedings for which the AO held that the same cannot be accepted. The AO further noted that at the time of release of jewellery the assessee was asked to reconcile the seized jewellery itemwise. It was submitted by the assessee that item-wise reconciliation is not possible due to departmental valuer not doing item-wise valuation. However, item-wise valuation was done just before the release of jewellery against bank guarantee. With this valuation report the assessee could have done item-wise reconciliation with the purchase bills. H....
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.... accordingly argued that such gold amount belonging to 2 married daughters cannot be included in his account. 59. However, the CIT(A) was not satisfied with the arguments advanced by the assessee and dismissed the ground raised before him on this issue by observing as under : "53.3 I have given careful consideration to the above contention of the appellant. CBDT Instruction No.1916 dated 11-5-1994 states that in the case of a person not assessed to wealth-tax gold jewellery and ornaments to the extent of 500 gm. per married lady, 250 gm per unmarried lady and 100 gm per male member of the family need not be seized. The relevant of this instruction while completing assessments in search cases has been a matter of dispute. In Nem Chand Daga v. ACIT [2005] 1 SOT 515 (Delhi), ITAT Delhi pointed out that the instruction nowhere states that such jewellery found should be treated as explained and no addition towards the same should be same. The instruction only speaks that ornaments to the extent of 250 gm. In the hands of an unmarried lady and 100 gm. in the case of male person should not be seized. However, in certain other cases including the decision of the Hon. Gujarat Hi....
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....t case jewellery valued at Rs. 1,65,60,991/- was found at the time of search out of which jewellery valued at Rs. 1,36,61,002/- was seized. The assessee in the return filed for the A.Y. 2011-12 has offered an amount of Rs. 67 lakhs for taxation on account of disclosure in excess gold ornaments. However, during the course of assessment proceedings, the assessee vide letter dated 15-03-2013 submitted that there is excess declaration of approximately Rs. 37,24,917/-. We find the AO rejected the same on the ground that the same was not supported by any documentary evidences and is also very vague and confusing. Further, he held that the letter was filed towards fag end of the completion of assessment proceedings and the assessee has not reconciled the seized jewellery item wise. We find before CIT(A) the assessee requested to allow appropriate relief on account of jewellery belonging to different family members as per CBDT Instruction. However, the CIT(A) rejected the claim of the assessee on the ground that CBDT Instruction No.1916 dated 11-05-1994 only states for non seizure of jewellery and instruction does not say that such jewellery found should be treated as explained and no addi....