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2015 (9) TMI 1431 - ITAT KOLKATA

2015 (9) TMI 1431 - ITAT KOLKATA - TMI - Addition towards difference in cost of construction based on Department Valuer’s Report - Held that:- In the instant case, the Obiter of Karnataka High Court would not become a binding precedent for Kolkata Tribunal. Hence we are not inclined to accede to the view of the Learned AR that the difference in cost of construction is only less than 15% and hence no addition needs to be made. If this proposition of the Learned AR is to be accepted, then the prov .....

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AR for resorting to estimate the net profit of assessee for determining business income. The Hon’ble Apex Court in the case of Sargam Cinema vs CIT reported in (2009 (10) TMI 569 - Supreme Court of India ) had held that reference to DVO could be made only after rejection of the books of accounts by the Learned AO. We are not inclined to interfere with the decision of the Learned CITA on this ground except directing the Learned AO to adopt the state PWD rates for the purpose of valuing the facto .....

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487/- ; interest subsidy of ₹ 3,53,707/- ; PF deducted of ₹ 11,094/- as they are part and parcel of business receipts. We hold that once the business income is determined on estimated basis, any further addition towards business income would only get telescoped with the net profit already determined on estimated basis.The assessment of income under presumptive basis u/s 44AD is similar to the income determined on an estimated basis by the AO after rejecting the books of account of th .....

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from other sources. Reliance in this regard is placed on the decision of the Hon’ble Apex Court in the case of Liberty India vs CIT reported in (2009 (8) TMI 63 - SUPREME COURT )

Addition towards cash credits - Held that:- If the Learned AO wants to reject the books of accounts , he should do it in toto and not reject the entire books of accounts except the cash book filed by the assessee. In view of the aforesaid facts we hold that the Learned AO is not right in making an addition t .....

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of the order of the Learned Assessing officer framed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. The first issue to be decided in this appeal is as to whether the Learned CITA is justified in confirming the addition made in the sum of ₹ 2,06,249/- towards difference in cost of construction based on Department Valuer s Report. 2.1. The brief facts of this issue is that the assessee filed his return of income together with the tax au .....

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AO found that during the assessment year under appeal, the assessee had invested a sum of ₹ 19,45,680/- in his existing factory shed and reference was made to Department Valuation Officer (DVO) in terms of section 142A of the Act to determine the correct cost of construction of factory shed. The DVO determined the cost of construction at ₹ 21,51,929/- and the Learned AO proceeded to bring the difference in cost of construction amounting to ₹ 2,06,249 ( 2151929- 1945680) to tax .....

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of the assessee and Shri.S.S.Alam, JCIT, the Learned DR argued on behalf of the revenue. 2.3. The Learned AR argued that the books of accounts were rejected by the Learned AO u/s 145(3) of the Act since the notices sent to certain parties from whom assessee had made purchases from farmers could not be served with statutory notices u/s 133(6) of the Act. He argued that admittedly the assessee had purchased paddy / gunny bags from farmers whose names and addresses are written by them in .....

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decision of Karnataka High Court in the case of CIT vs Vasudev Construction reported in 363 ITR 247 (kar) in support of this contention. In response to this, the Learned DR vehemently supported the orders of the lower authorities. 2.4. We have heard the rival submissions and perused the materials available on record. We find that though the Learned AR stated the reasons before us for rejection of books of accounts by the Learned AO, he did not specifically object to the fact of reject .....

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the Learned AR having lot of force as this contention has been well accepted in favour of the assessee in the following decisions:- CIT vs Hotel Joshi reported in (2000) 242 ITR 478 (Raj) - Held, that in a case where the value of the asset was claimed by the assessee on the basis of regular books of account maintained for the purpose of construction of the asset and not on the basis of the valuation of the registered valuer, it was not open to the Assessing officer to make .....

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n of material before him. The cost of construction arrived at by the Tribunal was wholly based on relevant considerations and hence no referable question of law arose. CIT vs K.Jayakumar reported in (2013) 35 taxmann.com 179 (Madras HC) - Section 69 of the Income-tax Act, 1961 - Unexplained investments [Immovable properties] - Assessment year 1998-99 - Assessee constructed a shopping cum residential complex - Assessing Officer on basis of valuation done by DVO, adopted CP .....

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ates, matter was to be remitted back to Assessing Officer for working out cost of construction by taking State PWD rates - Held, yes [Para 4] [Matter remanded] K Damodarswamy Naidu vs ACIT (1997) 59 ITD 510 (Mad) - Under section 16A when a reference is made to the Valuation Officer, the Valuation Officer values the property after giving notice to the assessee and giving opportunity to file any objection on behalf of the assessee. Nowhere in the Act or in the Rules it has been prescrib .....

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d rate by the State Government, for the purpose of valuing the property, it cannot be said to be erroneous. In the instant case, since both the assessee as well as the revenue submitted two different rates claiming to be State PWD rates, matter was to be remitted back to Commissioner (Appeals) to revalue the property after ascertaining and following the State PWD rates. Regarding concession on account of joint ownership of the premises by the assessees. Following .....

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l amount for a period of 25 years, which was subject to further extension of lease. Hence, whether the assessee was the owner of the property or not was not directly relevant in considering the question of unexplained investment. As regards the legality of making an addition on the basis of the report of the DVO, the return filed by the assessee for the year in question was processed under section 143(1)(a) on 7-2-1992 which was reopened by issuing notice under section 143(2) and conv .....

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cost of construction shown by the assessee. A careful reading of the order of the Commissioner (Appeals) as well as the order of the Assessing officer would made the matter explicitly clear that the Assessing officer had not called for the vouchers and did not point out any defects in the books maintained by the assessee wherein the cost of construction was recorded. In fact, at the time of making the reference to the Valuation Officer under section 131(1) (a), the Assessing Officer did not seem .....

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n cell, the Assessing Offi8cer should first point out the defects in the books maintained by the assessee. It is settled that when the assessee maintains accounts regularly, addition cannot be made on the basis of the report of the DVO without pointing out any defects in the books. From various judgments the proposition would emerge that (a) for the purpose of making an addition towards unexplained investment, the Assessing Officer was under legal obligation to verify the books and vo .....

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as not the case of the department that proper cost of construction could not be ascertained by adopting the P/.W.D. rate schedule, though a case was made out by the revenue that the basis adopted by CPWD rate was superior to that of the method followed by the registered valuer. From the order-sheet of the Assessing Officer as well as the assessment order, it could be seen that the reference to the Valuation Officer was made without pointing out any defects in the books of accounts maintained by .....

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asked for any details or pointed out any defects, could not be brushed aside, on a perusal of the order-sheet entries. Therefore, the Assessing Officer was not justified in making an addition merely on the basis of the valuation report of D.V.O. DCIT vs Smt.C.K.Sumathy reported in (2011) 44 SOT 65 (Chennai) - Section 69 of the Income-tax Act, 1961 - Unexplained investments - Assessment year 2006-07 - Assessee, a civil contractor, had constructed a kalyanamandapam and shopping complex - Cost of .....

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e was more appropriate than CPWD rates for valuation - He, thus, directed Assessing Officer to provide deduction of 15 per cent on net value arrived, i.e., 15 per cent of ₹ 1,02,77,894 - Whether since PWD rates were applicable in case of valuation of property situated in a mofussil area, 15 per cent deduction apart from deduction towards self-supervision was rightly given for matching cost of construction estimated on basis of CPWD rates with PWD rates - Held, yes 2.5. We find .....

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Karnataka High Court in this regard so as to become a binding precedent. Moreover, this observation was also made by the Hon ble Karnataka High Court in the context of block assessment proceedings u/s 158BD of the Act , more specifically to the fact as to whether the DVO report could be considered as a search material for making an addition to undisclosed income under Chapter XIVB of the Act. At the best, it could only be considered as an Obiter dicta and not ratio decidendi. It is well settled .....

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he Learned AR is to be accepted, then the provisions of section 142A of the Act would become redundant. Under the provisions of section 142A(2) of the Act, the Learned AO is empowered to make a reference to DVO whether or not he is satisfied about the correctness or completeness of the accounts of the assessee. In the instant case, we have already held hereinabove that the action of the Learned AO in rejecting the books of accounts is upheld as the same is done with cogent reasons by .....

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placed on the decision of Hon ble Gujarat High Court in the case of Fakir Mohammed Haji Hassan vs CIT reported in 247 ITR 290. 7. It is, therefore, clear that, when the investment in or acquisition of gold, which was recovered from the assessee was not recorded in the books of accounts and the assessee offered no explanation about the nature and source of such investment or acquisition and the value of such gold was not recorded in the books of accounts, nor the nature and source of .....

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of investment in the gold or of its acquisition was not explained and that the assessee was not entitled to claim that the value of the gold should be allowed as a deduction from his income. 2.7. In view of the aforesaid facts and circumstances, provisions of the Act and judicial precedents relied upon, we are not inclined to interfere with the decision of the Learned CITA on this ground except directing the Learned AO to adopt the state PWD rates for the purpose of valuing the fact .....

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AO in the facts and circumstances of the case . 3.1. The brief facts of this issue is that the assessee was in receipt of insurance claim to the tune of ₹ 51,487/- ; Interest subsidy of ₹ 3,53,707/- ; PF deducted of ₹ 11,094/- and interest on FD of ₹ 72,355/- and the same were duly offered to tax by the assesssee in the return of income based on the entries in the books of accounts. The Learned rejected the books of accounts and proceeded to determin .....

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rance claim received subsidy PF deducted and interest on FD without appreciating that these are all business income which is already deemed to have been included within the ambit of estimated net profit. 3.2. The Learned AR argued that since the business income has been computed on an estimated basis @ 2% of turnover in terms of section 145(3) of the Act by rejecting the books of accounts, no separate addition need to be made for the aforesaid four items as they are part and parcel o .....

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of ₹ 11,094/- as they are part and parcel of business receipts. We hold that once the business income is determined on estimated basis, any further addition towards business income would only get telescoped with the net profit already determined on estimated basis. The assessment of income under presumptive basis u/s 44AD is similar to the income determined on an estimated basis by the AO after rejecting the books of account of the assessee. Once the books are rejected the doors .....

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dships had held as under :- The pattern of assessment under the Income-tax Act, 1961, is given by section 29 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in sections 30 to 43D of the Act. Section 40provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under section 29 is to bemade under section 145 on the basis of .....

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is also taken into account. As far as the interest on FD of ₹ 72,355/- is concerned, we hold that the same is to be assessed as income from other sources. Reliance in this regard is placed on the decision of the Hon ble Apex Court in the case of Liberty India vs CIT reported in (2009) 317 ITR 218 (SC) and also Pandian Chemicals case reported in 262 ITR 278 (SC). Accordingly, the ground no.2 raised by the assessee is partly allowed. 4. The last issue to be .....

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the Learned AO produced a list of 453 persons from whom the amount was received. The Learned AO proceeded to make an addition u/s 68 of the Act to the tune of ₹ 80,40,000/- disbelieving the explanation of the assessee which was upheld by the Learned CITA after giving partial relief to the assessee. Aggrieved, the assessee is in appeal before us on the following grounds:- 3. That the addition towards cash credit is arbitrary in view of the fact that the appellant is not maintaini .....

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be made by the Learned AO. He further argued that the assessee was in receipt of funds from 453 persons to the tune of ₹ 80,40,000/- and the same were also repaid by the assessee during the assessment year under appeal. He further argued that the monies were only received only in the nature of trade advances and are shown as sundry parties in the books. Accordingly he pleaded for deletion of this disallowance. In response to this, the Learned DR stated that the subject mentioned receipts a .....

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o:p> 4.3. We have heard the rival submissions. We find that the assessee during the first appellate proceedings had accepted for the addition of ₹ 7,49,000/- out of ₹ 80,40,000/-. We also find that certain reliefs have been already granted by the Learned CITA in respect of some parties from whom monies have been received by the assessee. But the crucial point to be adjudicated herein is whether the Learned AO having rejected the books of accounts and proceeding to determine the .....

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appeal) in the balance sheet filed by the assessee. We hold that once the books of accounts are rejected by the Learned AO, his hands are completely tied and he cannot get into the same books of accounts (in the instant case cash book ) for making a separate addition. We are not extending a proposition here that once the business income is estimated after rejection of books of accounts, no addition could be separately made u/s 68 of the Act. We are of the opinion that the said additi .....

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ase of Chander Mohan Mehta vs ACIT reported in (1999) 71 ITD 245 (Pune) which in turn relied on the decision of apex court, wherein it was held that :- Firstly, it was contended by the AO that statement of the assessee recorded u/s 131 should be either accepted or rejected in toto unless there is material on the record to prove the contrary. According to him, if the statement of the assessee to the effect that he was carrying on money lending business and certain amounts were advanced .....

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