9911796707
TMI Blog2016 (9) TMI 759X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 questionnaires etc. to which the assessee responded and filed various submissions on different dates. From the various details furnished by the assessee the AO noted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 2007-08 6,43,49,709 1,70,66,533 4,72,83,176 2008-09 ,45,91,834 38,73,523 1,07,18,311 2009-10 1,92,19,267 50,96,500 1,41,22,767 Total 12,06,79,000 3,20,08,627 9,31,86,279 9. The assessee in response to the above submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 the valuation. He accordingly rejected various objections raised by the assessee in his letter. 11. The AO further noted that a magnificent bungalow has been constructed by the assessee which was valued by valuer Shri Ravindra Bapat, an approved valuer, according to which the value of the Bungalow was Rs. 24,82,49,207/-. The AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or rejected. 14. The assessee submitted that the AO had referred the matter to the DVO on 25-04-2012 without intimation to the assessee. Further, many items which have been considered by the DVO in his report were fixed/constructed/developed subsequent to 31-03-2010, i.e. date upto which the DVO has estimated value of construction of the bungalow. The assessee filed various details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 considering the various details submitted by the assessee he directed the AO to allow deduction to the extent of 5% of the estimated value worked out by the DVO on account of expenditure incurred after 31-03-2010. Thus, he allowed relief of Rs. 60,33,950/- on this count. He also directed the AO to grant set off of additional income disclosed in the return filed in response to notice u/s.153A a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 addition of Rs. 1,30,30,201/- for the A.Y. 2006- 07. He submitted that the additional income declared for A.Y.2006-07 is sufficient enough to meet the construction of the approach road to reach the hill top and the levelling work etc. which has been carried out towards the fag end of F.Y.2005-06 relevant to A.Y. 2006-07. Therefore, no addition is called for during A.Y.2006-07. 22. So far as the addition sustained by the Ld.CIT(A) on the basis of valuation report given by the DVO is concerned, he submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 relied on the following decisions : 1. Sargam Cinema Vs. CIT reported in 328 ITR 513 (SC) 2. CIT Vs. Lucknow Public Educational Society reported in 339 ITR 588 (All) 3. Smt. Tarawati Debi Agarwal Vs. ITO reported in 162 ITR 606 (Cal) 4. CIT Vs. Smt. Suraj Devi reported in 328 ITR 604 (Del) 5. K.P. Varghese Vs. ITO & Another reported in 131 ITR 597 6. Shanti Complex Vs. ITO reported in 63 ITD 181 (Pat) 7. Dr. G. Premalatha Vs. DCIT - ITA No.200/Hyd/2014 8. Smt. Seema Gupta Vs. DCIT - ITA No.1619/De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Particulars As per DVO Actual Area Net Effect Water tank capacity (Litres) 17,000 17,000 -- Rate 10 10 -- Value 1,700.00 170,000 1,530,000 Add for contingencies etc. @7.5% (item No.75) 127,500 12,750 114,750 Total Valuation 1,827,500 182,750 1,644,750 Net difference in valuation (total of difference in above items : 1,30,01,048.81 28. He submitted that the assessee himself is a Builder/Contractor. He knows where the quality materials are available at cheap rate. Since he is an expert in this line of business, he is expected to know how to construct his own farm house/bungalow at cheap rate. He submitted that the DVO had granted only 3% self supervisions charges which was accepted by the AO. The Ld.CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 including the cost of land at Rs. 45,15,912/-, the AO made addition of Rs. 9,31,86,279/- being the difference between the valuation determined by the DVO and the investment declared by the assessee from A.Y. 2006-07 to 2010-11, the details of which are already given at Para 8 of this order. 32. We find before CIT(A) the assessee raised the objection regarding consideration of expenditure incurred after the date of search and before the date of inspection by the DVO for which the Ld.CIT(A) allowed only 5% of the cost of property on estimate as expenditure incurred after the date of search. So far as the objection of the assessee regarding granting of self supervision charges at 3% is concerned, the Ld.CIT(A) allowed the same at 6 %. As regards the objection of the assessee for non granting of set off of the additional income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Haveli, Dist. Pune from Mr.Ashokkumar V. Surtwala in the on 03rd August 2000 the said land was 'Ramoshi Vatan' agricultural land. The said land was been released on 15/05/2006 by Haveli Tahasildar's office after charging fees of Rs. 21,62,556/- (challan dated 09/03/2006) as per Revenue laws applicable in Maharashtra. Enclosed letter of Tahasildar dated 15/05/2006 and copy of Index II dated 04/08/2000. The said land has around 6 acre road level and around 4.5 acre elevated location and the balance land is unusable. In this manner the appellant incurred a total cost of Rs. 41,46,556/- (Rs. 19,84,000/- + Rs. 21,62,556/-) on the land. 2. The appellant has started developing the hilly portion of the land by way of constructing approachable road to reach the top of the hill and leveling the top of the said hill in the financial year 2005-06. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibility 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 the said report was prepared with one visit to site and same was submitted within 5 days from the date of visit. The said report of Mr. Bapat has been used by the search team to obtain and pressurize the appellant to record the statement on 14/10/2010 this fact has been noted by Learned AO page 5 under Para 4.1 of assessment orders for period AY 2006-07 to AY 2010-11 which reads as follows. "- the issue of valuation done by the approved valuer Shri Bapat was raised at the time of search In view of this the assessee, in his statement recorded on 14/10/2010 disclosed additional income of Rs. 9 crore on account of undisclosed investment in the bungalow.-" This proves that the appellant was orally pressurized on the basis of Mr. Bapat's report which was exorbitantly highly valued to record additional disclosure of Rs. 9 crore from the appellant. Otherwise has the IT Dept. accepted the said r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 procedure adopted by the Registered Valuer is proper and reasonable to arrive at appropriate estimate cost of construction of bungalow. Further learned AO at feast should have carried out comparisons between two valuation report as regards to method adopted by Registered Valuer M/s S.R. Nimbal & Associates and learned DVO to appreciate which method provides appropriate calculation of cost of construction. Learned AO being quasi judicial authority, it is imperative upon him to follow rules of natural justice hence, he should have been adopted comparisons of two reports before taxing that amount which is escape from taxation and determine more appropriate estimate of cost of construction of the farm house/bungalow rather than notional amount worked out on the basis of market value of the construction as estimated by learned DVO. 12. The learned AO referred the matter to DVO without intimation to appellant. This reference was made on 25/04/2012 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 DVO. 14. The appellant respectfully bring to your honor's kind attention that many items which are considered by DVO in his report were fixed or constructed developed subsequent to 31/03/2010 the day for which DVO has alleged estimate value of construction of the bungalow. The list of the items is annexed herewith which has been carried out subsequent to 31/03/2010. 15. The DVO has used CPWD indices of 1992 instead of CPWD available indices of 2007. The learned DVO after estimating the cost of construction on the basis of CPWD indices of 1992 mathematically worked out/calculated/estimated on the basis of weighted average cost indexed value of construction at Rs. 12,06,79,000/- under the assumption that the work started from 1/00/2005 and was completed on 31/3/2010. This fact of starting commencement of work is not correct since actual construction work was started in the middle of 2007. As stated here above on the date of visit to the site by DVO the finishing work of bungalow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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 calculated cost of construction on the basis of availability of many other factors to the appellant and the valuation report is not correct to the extent it is back dated calculation as on 31/03/2010 after the approx. 3 years gap. This fact has been recorded by learned DVO in his report that the calculations need to be adjusted for the cost of construction worked out by him; since the same was calculated upto the date of report, i.e. Feb 2013. 20. The learned AO has mechanically accepted DVO's report without judiciously scrutinizing whether report reflects correct approximate estimate of actual cost to the appellant. Further the learned AO has intentionally avoided to communicate the appellant before the reference to DVO u/s.142A and this way purposefully he did not give opportunity to the appellant to argue why reference should not be made to the DVO. Further the learned AO has not given chance or not commented on why valuation report submitted by appellant should be considered for the working of cost of construction. The learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... released by the Haveli Tahsildar office. Since the land has been released on 15-05-2006 and the first architectural plan was prepared on 17-06-2006 we find force in the submission of the Ld. counsel for the assessee that construction activity has not started during F.Y. 2005-06 relevant to A.Y.2006-07. Whatever activity has been done is construction of approach road to reach to the top of the hill and levelling the top of the said hill. This in our opinion can be met out of the additional income disclosed in the return of income filed in response to notice u/s.153A for A.Y.2005-06 and 2006-07. Therefore, we are of the considered opinion that Rs. 1,30,30,201/- towards construction of the bungalow which the Ld.CIT(A) sustained out of the addition of Rs. 1,70,26,504/- made by the AO is uncalled for. We accordingly direct the AO to delete the addition of Rs. 1,30,30,201/- from A.Y. 2006-07. 37. Now coming to the argument of the Ld. Counsel for the assessee that the DVO has considered the entire expenditure incurred up to his date of visit on 23-01-2013 as expenditure incurred during the F.Y. 2006-07 to 2009-10 is concerned, we find some force in the same. Admittedly, the search took ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial amount on account of material and labour cost as compared to an ordinary person. The various Benches of the Tribunal are granting self supervision charges varying from 10% to 15%. Considering the fact that the assessee himself is a Buildercum- Promoter, therefore, he is supposed to have substantial savings on this account. In view of the above, we are of the considered opinion that the relief granted by the CIT(A) on account of self supervision charges at 6% as against 3% allowed by the AO appears to be on the lower side. We are of the considered opinion that self supervision charges at 12.5% of the value of the property determined by the DVO in the instant case will meet the ends of justice. We accordingly direct the AO to allow self supervision charges of Rs. 1,50,84,875/- being 12.5% of the estimated value of the property by the DVO at Rs. 12,06,79,000/-. Thus the assessee gets relief of Rs. 1,14,64,505/- being the difference between the self supervision charges given as per this order and the self supervisions charges granted by the DVO. 41. Further, we find the assessee in his return in response to notice u/s.153A has declared additional income for different assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... force in the submission of the Ld. Counsel for the assessee that instead of adopting 1992 rates and multiplying the same by cost inflation index the DVO could have adopted the current schedule of rates prescribed by CPWD and brought it down or made suitable adjustments. Since the assessee during the course of search in his statement recorded u/s.132(4) has also made a statement that the investment in the bungalow is about Rs. 12 crores, therefore, the valuation report filed by him from a registered valuer under the facts and circumstances of the case cannot be accepted. In view of the various lacunae pointed out by the Ld. Counsel for the assessee due to non adoption of the current schedule of rate and due to some calculation error the report filed by the DVO also cannot be accepted. In our opinion the investment in the property should be computed by reducing the various arithmetical inaccuracies in the report of the DVO and further adjusting the same to the 2007 indices or 2009 schedule of rates as against the 1992 rate adopted by the DVO. The obvious arithmetical errors as pointed by the Ld. Counsel for the assessee, the details of which are already reproduced at Para 27 comes t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He shall restrict the addition as directed. The ground raised by the assessee for A.Y. 2006- 07 is thus allowed and for other years partly allowed as per the table above. 47. The next issue raised by the assessee in the grounds of appeal for A.Yrs. 2006-07, 2008-09 and 2010-11 relate to the order of the CIT(A) in confirming the addition made by the AO u/s.40A(3). 48. Facts of the case, in brief, are that the AO during the course of assessment proceedings noted that the assessee has incurred certain expenses in cash for which a set off has been given while computing assessee's undisclosed investment/cash/income. For A.Y. 2006-07, Rs. 5,55,000/- is the amount of such cash expenditure which has been allowed while computing his unaccounted income as shown in the chart of year-wise break up of disclosure. For A.Y. 2008-09, Rs. 4 lakhs is the amount of such cash expenditure and for A.Y.2010-11 the amount is Rs. 7,40,483/-. The AO invoking the provisions of section 40A(3) of the I.T. Act disallowed 20% of such expenditure being Rs. 1,11,000/- for A.Y. 2006-07, Rs. 4 lakhs for A.Y. 2008-09 and Rs. 7,40,483/- for A.Y. 2010-11. The AO further noted that on 19-03- 2013 the assessee has fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 40A(3) are not applicable. Referring to the decision of Hon'ble Madhya Pradesh High Court in the case of CIT Vs. Purshottamlal Tamrakar reported in 270 ITR 314 he submitted that provisions of section 40A(3) cannot be applied where the AO applies net profit rate in computing the income of the assessee. 53. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). 54. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee before completion of the assessment on 28-03-2013 vide his letter dated 18-03-2013 had submitted before the AO that undisclosed income disclosed by him for the A.Yrs. 2005-06 to 2009-10 amounting to Rs. 2,06,99,420/- has been invested by him in the Khanapur bungalow. According to the AO, since the stand has been taken by the assessee for the first time at the fag end of the assessment proceedings and since no credible evidence in support of this claim has been given, he rejected the claim of the assessee that no disallowance u/s.40A(3) ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat although the assessee has disclosed an additional income of Rs. 67 lakhs during the current year on account of jewellery but still some part of the jewellery stands unexplained. The AO further noted that the fact that cannot be denied is that there may be some excess disclosure during the year on account of bungalow at Kahanpur as major part of the investment has been taxed during the earlier years on account of DVO's report. Keeping in view this fact the AO had not made any separate addition on this head. 58. Before the CIT(A) the assessee submitted that the AO has not appreciated the basic presumption as regards the streedhan of each married female in the family that 500 gms gold ornaments should be allowed as investment not belonging to the assessee. It was submitted that in the assessee's case there are two married ladies, namely wife and daughter in law of the assessee. This way around 1000 gms gold ornaments and jewellery should be treated as received during the marriage time as per the guidelines issued by CBDT. Similarly, 100 gms of gold jewellery per member of the family should be treated as having been received during the time of marriage and cannot be labeled as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... struction should be given to the appellant. 53.4 In the present case, however, the claim put forward by the appellant is inadmissible on facts. It is noteworthy that in the present case no addition as such has been made by the AO on account of excess jewellery. What the appellant is seeking to claim is relief out of the income he himself had declared in his return of income as "Disclosure in Excess Gold". In this regard, it is noteworthy that the search action in this case took place on 12/10/2010, the return of income was filed on 30/09/2011, i.e. nearly a year later making the said 'excess disclosure" of jewellery and the same was sought to be withdrawn to the extent of Rs. 37,24,917/- vide letter dated 15/03/2013, nearly one and half years after filing the return and about 2 weeks before the end of the limitation period. Under the circumstances, on the very face of facts, I am of the view that the appellant is not entitled to any relied on this ground. Besides, the decision of the Hon. Supreme Court in Goetze India Ltd. Vs. CIT (2006) 284 ITR 323 (SC) is also against him. As such, this ground of appeal is hereby dismissed." 60. Aggrieved with such order of the CIT(A) the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was filed on 30-09-2011 by making excess disclosure of jewellery. Now the assessee vide letter dated 15-03-2013 cannot make a request for such relief. Relying on the decision of Hon'ble Supreme Court in the case of Goetz India Ltd. reported in 284 ITR 323 he rejected the claim of the assessee. It is the submission of the Ld. Counsel for the assessee that a clear glance at the Panchanama shows that jewellery valued at approximately Rs. 19,50,000/- have been shown in the name of his daughter Sweta V. Bire. Further, some relief should have been granted to the different family members in the light of the CBDT Instruction No.1916 dated 11- 05-1994. 64. We find some force in the above arguments of the Ld. Counsel for the assessee. A perusal of the Panchanama, copy of which is placed at page 759 of the paper book, shows that the list/inventory of jewellery shows jewellery/gold ornaments valued at Rs. 19,50,000/- in the name of Sweta V. Bire, daughter of the assessee. Further in our opinion some relief should have been granted to the assessee on account of jewellery belonging to different family members in the light of the CBDT Instruction No.1916 dated 11-05-1994. Merely because the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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