TaxTMI 
TaxTMI 
2019 (9) TMI 628
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.... as per the amended rules. 3. A search u/s 132 was conducted on 21.12.2015 in the group cases of Sri Alla Siva Reddy, Guntur. During the course of search, certain incriminating material was available in the premises of the searched person, therefore, the Assessing Officer (AO) has issued the notice u/s 153C of the Act and completed the assessment u/s143(3) r.w.s. 153C vide order dated 27.09.2018. 4. For the A.Y. 2015-16, the revenue has filed as many as five grounds of appeal. We extract the grounds raised by the department for the sake of clarity and convenience as under : 1. The order of the Ld.CIT(A) is erroneous both on the facts and in law. 2a. The Ld.CIT(A) ought not have concluded that allotment of shares by way of conversion cannot be treated as unexplained cash credit u/s 68. 2b. The Ld.CIT(A) is not correct in deleting the addition made since as per the amended provisions of sec8 of the Act through Finance Act, 2012, (proviso to sec. 68 of I.T.Act) the nature and source of any sum credited as share capital in the books of account of a closely held company shall be treated as explained only if the sources of funds are also explained by the ....
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....nd considered by the AO in the assessment order. The finding of the CIT(A) that the valuation report is non-est and the action of the AO thereon cannot be upheld is contrary to the law. 3d. The Ld.CIT(A) ought not to have allowed further allowance of 7.5% self-supervision since the DVO has already allowed 7.5% on account of self-supervision. 3e. The Ld.CIT(A) ought not to have allowed further deduction of 15% on account of rate difference between CPWD and State PWD as the DVO has already taken into consideration the rates prevailing in the Guntur market during the period of construction on the basis of bills submitted by the assessee-company to the Departmental Valuation Officer. 4. The Ld.CIT (A) held in his Para No.5.2.1 that the report submitted by the DVO is non-est due to non submission of report by the DVO within due date prescribed in the I.T.Act, 1961. Further, in his Para No.5.2.2, the Ld.CIT(A) directed the AO to give further allowance of 7.5% on account of self-supervision and further deduction of 15% on account of rate difference between CPWD and State PWD. Hence, the Ld.CIT(A)'s decision in Para No.5.2.1 and 5.2.2 of his order are self co....
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....Sakala Sujatha 2257700 1126678 1586386 0 4970764 9. S.Venkateswara Rao 2445825 1220546 1718584 599943 5984898 10. T.V.S.Ramesh Babu 2257700 1126678 395622 0 3780000 11. Tiruveedula Dileep 2257700 1126678 1608872 198317 5191567 12. Tiruveedula Pradeep 2445825 1220546 1700000 0 5366371 13. Y.Srinivasa Rao 940825 469626 660364 0 2070815 14. Y.Subrahmanyam 940825 469626 660364 0 2070815 15. YV Subba Rao 940825 469626 660364 370416 2441231 Total 37628030 18777493 21833889 5180256 83419668 Sl.No. Name of the person F.Y.2013-14 (in Rs.) F.Y.2014-15 (in Rs.) Total (in Rs.) 1. Alla Rajya Lakshmi 0 5,00,000 5,00,000 2. Alla Siddhartha 0 5,00,000 5,00,000 3. Alla Siva Reddy 14,87,500 5,00,000 19,87,500 4. Alla Nagarjuna Reddy 14,87,500 5,00,000 19,87,500 5. M/s Siva Constructions 0 24,00,000 24,00,000 6. Total 23,75,000 44,00,000 73,75,000 6.1 The co-owners along with family members o....
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....r Rs. 37,88,000/-, the AO treated the investment as unexplained and made the addition u/s 68 of the Act. The AO has issued letter to the assessee company requesting to produce 11 Directors including Chadella Manideep and TVS Ramesh Babu to examine the identity and genuineness of the transactions. Out of the 11 directors requested to be produced, the assessee failed to produce Sri P.Venkateswarlu, Smt.Sakala Sujatha, Sri Dileep Tiriveehula and Sri Subrahmanyam Yakkala for examination. Therefore, the AO made investment of following investors aggregating to Rs. 2,38,17,377/- as unexplained investment u/s 68 of the Act as per the details given below : Sl. Name Investment (Rs.) i. Sri P.Venkateswarlu 31,50,000 ii. Smt.Sakala Sujatha 49,70,764 iii. Sri Dileep Tiriveehula 51,91,567 iv. Sri Subrahmanyam Yakkala 20,70,815 v. Sri Venkata Subba Rao Yakkala 24,41,231 vi. Sri Chedella Manideep 22,05,000 vii. Sri T.V.S.Ramesh Babu 37,88,000 7. Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) deleted the addition made by the AO observing that the co-owners have made the inve....
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....a Siva Reddy 14,87,500 5,00,000 19,87,500 4. Alla Nagarjuna Reddy 14,87,500 5,00,000 19,87,500 5. M/s Siva Constructions 0 24,00,000 24,00,000 6. Total 23,75,000 44,00,000 73,75,000 7.1. The details of repayment made by the company and the allotment of shares in lieu of the transfer of land and building was also furnished in page No.5 of the order of the Ld.CIT(A) as under : Sl.No. Name of the Director Total Investment Re-payment of Investment Shares 1. Alla Rajya Lakshmi 10574304 (-)26,99,304 78,75,000 2. Alla Siddhartha 7875000 0 78,75,000 3. Alla Siva Reddy 14845053 (-)69,70,053 78,75,000 4. Alla Nagarjuna 11003850 (-)31,28,850 78,75,000 5. Chadella Manideep 2205000 0 22,05,000 6. K.Kiran Kumar 1890000 0 18,90,000 7. Potti Venkateswarlu 3150000 0 31,50,000 8. Sakala Sujatha 4970764 0 37,80,000 9. S.Venkateswara Rao 5984898 (-)30,80,662 40,95,000 10. T.V.S.Ramesh Babu 3780000 0 37,80,000 11. Tiruveedula Dileep 5191567 0 37,80,000 12. Tiruvee....
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....and explained the sources for acquiring the land and construction of the building in their individual returns. The said land and building was constructed in the earlier years and transferred to the assessee company. In lieu of the transfer of land and building, the assessee company has settled the consideration partly in the form of cash and partly in the form of kind i.e. by transfer of shares. Therefore, there is no infusion of cash in the company for which the source required to be explained. The land and building was received from the promoters of the company and settled the dues payable to the directors in the form of cash and allotment of shares. The source for the investment in land and construction of the building was explained in the individual hands of the directors which was assessed to tax in their individual hands. Therefore, there is no case for explanation of the source again in the hands of the company. The company has not made allotment of shares from the unexplained sources. There was no credit in the company which remained unexplained. The issue regarding the settlement of pre existing liability was considered by Hon'ble Madras High Court in the case of V.R.Gl....
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....xplained the sources for investment in land and building in their hands, there is no case for making addition u/s 68 of the Act in the hands of the company and if at all any unexplained investment remained, the same required to be examined in the hands of individual share holders / co-owners in the respective assessment years of investment. Thus the case law relied upon by the Ld.CIT(A) is squarely applicable in this case. Hence, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue on this ground. 11. The next issue in this appeal in ground No.3a to 3c is related to the validity of valuation report and the assessment made by the AO on the basis of the report of Departmental Valuation Officer (DVO). During the assessment proceedings, it is observed that the AO referred the cost of construction of the building to the DVO on 12.09.2017 and the DVO has submitted the report on 30.05.2018 determining the cost of construction at Rs. 19,84,03,000/-. Copy of the valuation report was furnished to the assessee and the assessee was asked to explain why the difference amount in the cost of construction should not be brought to tax u/s 69 of the Act as unexplained invest....
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....ent year. 12.2. This issue of unexplained investment in cost of construction is involved for the A.Y. 2015-16 and 2016-17. The AO made the addition of Rs. 1,33,23,708/- for the A.Y.2016-17. 12. Against the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) deleted the addition made by the AO holding that the AO is not permitted to make the addition on the basis of valuation report which barred by limitation. On merits, the Ld.CIT(A) directed the AO to allow the rate difference of 15% of CPWD rates, local rates and also directed the AO to allow 15% reduction on account of self supervision instead of 7.5% allowed by the DVO. 13. Against the order of the Ld.CIT(A), the revenue filed appeal and the assessee filed cross objection supporting the order of the Ld.CIT(A). The Ld.DR relied on the orders of the AO and the Ld.AR relied on the orders of the Ld.CIT(A). 14. We have heard both the parties and perused the material placed on record. In the instant case, the AO referred the cost of construction to DVO on 12.09.2017 and the DVO has submitted the report on 14.06.2018. The time limit available for the DVO to submit the report is six months from ....
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....he above report is deleted. The Grounds raised at 9 to 11 are treated as allowed." 14.1. There is no dispute that the report was submitted belatedly by the DVO. As per section 142A, the DVO required to submit the report within a period of six months. Even if the assessee is not cooperative, the DVO is permitted to make the best judgment estimation and submit the report as per the provisions of the act. The Act has considered the eventuality of non cooperation of the assessee and given powers to the DVO to submit the report on best judgement. Hence the DVO is not permitted to take shelter under non cooperation and to submit the report belatedly. The Act did not give any extension of time limit for submission of the report beyond the time limit allowed in the Act. Therefore, it is obligatory on the part of the DVO to submit the report within time permissible in the Act. If the DVO does not submit the report within the time limit permissible in the Act, the AO is also permitted to make best judgement assessment u/s 144 of the Act. Though the assessee raised objection before the AO, the AO ignored the objection raised by the assessee and discussed the issue of time limit available f....
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....ld that the valuation report is non-est, there is no reason for giving further deductions on the estimation of valuation made by the DVO. During the appeal hearing, the Ld.DR argued that once the Ld.CIT(A) treats the report as non-est, there is no reason for allowing deductions of the rate difference and the self supervision and the action of the Ld.CIT(A) is contrary. 16. On the other hand, the Ld.AR argued that the Ld.CIT(A) has decided the issue both on technical grounds as well as on merits, hence, there is no reason to interfere with the order of the Ld.CIT(A). 17. We have heard both the parties and perused the material placed on record. Before the Ld.CIT(A), the assessee has challenged the order of the AO on validity of the DVO's report as well as requested for deductions with regard to CPWD rates for self supervision and also reduction on bank loans as alternate grounds without conceding the validity of the assessment. The Ld.CIT(A) is bound to dispose off all the grounds raised by the assessee. Thus, the Ld.CIT(A) rightly adjudicated the grounds raised by the assessee both on validity of assessment made on invalid valuation report and also on rebates requested by t....