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TMI Blog2016 (3) TMI 1221X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/- on account of unexplained cost of construction of resort. Similarly in assessment year 2006-07, assessee in the remaining grounds of appeal challenged the addition of Rs. 25,57,130/- on account of unexplained cost of construction of resort. In assessment year 2007-08, assessee challenged the addition of Rs. 15,33,972/- out of total addition of Rs. 46,12,065/- on account of unexplained cost of construction of resort on ground No. 2, 3 and 4. 5. Brief facts of the issue are that survey under section 133A was conducted in the case of assessee firm on 09.03.2007. During the course of survey, it was found that assessee had constructed M/s Lamba Celebration Resort, the cost of construction of which was approximately to the tune of Rs. 1.20 Cr. Shri D.S.Lamba, partner of the assessee firm admitted having made the said investment and offered an additional income of Rs. 40 lacs in the hands of the assessee firm and in the hands of his other business concern namely M/s Modern Tent House. But subsequently, vide his letter dated 31.03.2007, the said offer was retracted stating that he was forced to make the said offer of additional income during the course of survey. It was also stated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tacted on the basis of phone number appearing in document A-3. This person has done initial work of digging and filling of the foundation and he has stated that work was done in the beginning of the year 2005 and charged Rs. 1,75,000/-. 6(i) Apart from above, local enquiries were conducted from Missarwala, Paonta Sahib that S/Shri Mehandi and Yakoob gave services for construction of the building of M/s Lamba Celebration Resort. They have provided material in April, May and June, 2005 for total payment of Rs. 8420/- and Rs. 4233/-. The Assessing Officer did not accept contention of the assessee that no reasonable time was granted to explain this issue. The Assessing Officer also did not accept contention of the assessee regarding valuation of the building. The assessee had objected to the valuation of resort by District Valuation Officer, Chandigarh. Report of DVO estimating the cost of construction as per direction of the Assessing Officer was also supplied to the assessee. The Assessing Officer did not accept contention of the assessee objecting to the report of DVO. The Assessing Officer also noted in the assessment order that he has also not accepted the valuation report of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at appellate stage. The ld. CIT(Appeals) found that the impounded document A-3 contained the record of day-today expenses of construction. Even assessee admitted that construction started at the fag end of financial year 2004-05 and Assessing Officer gathered evidence by making local enquiries therefore, addition was confirmed by holding that report of the DVO is not binding on the Assessing Officer. 9. In assessment year 2006-07, the Assessing Officer recorded the same facts as were recorded by assessment year 2005-06. As per impounded document A-3, it was found that a sum of Rs. 34,90,785/- was incurred on construction during assessment year 2006-07 in addition to some other expenditure. In response to the show cause notice of the Assessing Officer regarding the same, it was submitted that direct payments made by Punjab National Bank, Paonta Sahib to the suppliers for construction of the resort were also included in the total expenditure incurred by the assessee. To be fair with the assessee, Assessing Officer accepted its claim and reduced those payments recorded in document A-3 which also appeared in the confirmatory letter of the bank to the Assessing Officer and those direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure in respect of the same as follows : 1. 15% for sanitary and electrical expenses Rs.12,47,876/- 2. 10% for wooden work and POP Rs. 8,31,917/- 3. 12% for gate, grill, earth-filling and painting etc. Rs. 9,98,300/- 4. 6 Colour TVs Rs. 60,000/- 5. 6 Air Conditioners Rs. 90,000/- 6. Double bed and furniture Rs.1,50,000/- 10(i) Thus, Assessing Officer concluded that total payments as recorded in A-3 were to the tune of Rs. 64,21,044/-. Payments directly made by the Punjab National Bank, Paonta Sahib to the suppliers were to the tune of Rs. 29,85,617/-. Out of the said payments appearing in document A-3, Assessing Officer reduced an amount of Rs. 10,87,490/- directly paid by the bank and concluded total cost of construction at Rs. 1,16,97,264/- including the cost of items not found accounted for in the documents maintained by the assessee as mentioned above. Cost of construction arrived at by the Assessing Officer approximated to amount of Rs. 1.20 Cr admitted by Shri D.S. Lamba, partner of the assessee firm which was retracted later on. After taking into consideration the amount of investment of Rs. 4,15,951/- already accounted for in asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer, in this case, despite recovery of seized document A-3 made a reference to the DVO under section 142A of the Income Tax Act for the purpose of verifying and estimating cost of construction in the resort based on the seized papers. The report of the DVO dated 23.12.2008 is filed in the Paper Book in which the Distt.Valuation Officer in the covering letter has specifically mentioned that "On scrutinizing the enclosed papers, it is found that most of the papers are dumb documents and no reliance can be placed on these papers. The DVO alongwith his team had physically verified each and every item of work of Lamba Resort and on that basis he had prepared the detailed valuation report, which is in order and thus should be treated as correct". The report of the DVO shows that reference was made to him under section 142A of the Income Tax Act. It is also mentioned in the said report that assessee submitted details of vouchers/bills of materials purchased. The Distt. Valuation Officer assessed the cost of valuation at Rs. 65,37,000/- and the same was assessed year-wise as under : S.No. F.Y. A.Y. Assessed Value 1. 2005-06 2006-07 Rs. 29,55,372/- 2. 2006-07 2007-08 Rs. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The DVO, however, found that most of the papers are dumb documents and no reliance could be placed on the same. Due to this reason, even during the course of arguments, ld. DR sought time to discuss the seized papers with the Assessing Officer to point out the basis of the additions made in all the assessment years. But nothing specific have been explained as to how Assessing Officer made the above additions against the assessee. The Assessing Officer, without any justification or cause, did not place reliance upon the report of the DVO which is binding on the Assessing Officer. Since reference is made by the Assessing Officer to the DVO, therefore, Assessing Officer was bound to adopt valuation disclosed by the DVO in his report. However, the Assessing Officer merely placed reliance upon seized document which did not disclose specifically the quantum of cost of construction invested by the assessee in the resort. Therefore, the finding of the DVO in the valuation report that most of the papers are dumb documents, is relevant and admissible. The report of the DVO clearly shows that no investments in construction have been made in assessment year 2005 06. The ld. CIT(Appeals), howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 7,70,755/- being the payments made directly by the bank and Rs. 2,50,000/- contributed by the partners and gave benefit to the assessee for a sum of Rs. 10,20,755/-. The assessee has submitted a bank certificate to show that bank has certified that loan of Rs. 35 lacs was granted in favour of M/s Lamba Celebration Resort. The ld. counsel for the assessee explained that as per assessee the total value was Rs. 26,90,702/- out of which bank loan was of Rs. 24,40,435/- and if the same is reduced, same would left to Rs. 2,50,267/- which is contributed by the partner in a sum of Rs. 2,50,000/-. The ld. counsel for the assessee also explained that in assessment year 2007 08, total value was Rs. 31,17,441/-. If the bank loan of Punjab National Bank in a sum of Rs. 10,86,991/- and State Bank of India of Rs. 2,01,044/- are reduced to balance would be Rs. 18,29,406/- which is sufficient as against partner's capital of Rs. 18,72,731/-. The Assessing Officer has also given benefit of bank loan to the assessee, therefore, the explanation of the assessee is acceptable that since valuation of cost of construction have been shown in a sum of Rs. 63,06,564/- upto assessment year 2007-08 in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities below in assessment year 2006-07 and 2007-08 as well and delete the addition of Rs. 25,57,130/- and Rs. 15,33,972/-. 17. In the result, issue No. 1 is decided in favour of the assessee in all the assessment years. Issue No. 2 18. On ground No. 5 and 6 in assessment year 2007 08, the assessee challenged the addition of Rs. 9,52,731/- on account of accretion in capital account of partner Shri Devinder Singh Lamba and addition of Rs. 5,80,464/- on account of accretion in capital account of the partner Smt. Manmohan Kaur Lamba. It was noticed by the Assessing Officer that there was an addition of Rs. 11,92,731/- in the account of Shri D.S.Lamba and of Rs. 6,80,000/- in the account of Smt. Manmohan Kaur Lamba, two partners of the assessee firm when confronted, it was submitted that addition in the capital account of Shri D.S. Lamba was on account of drawings from his capital account with M/s Modern Tent House, M/s Glass Palace and from current account of M/s Modern Tent House. On cross verification from balance sheet/capital account of the said business concern, it was discovered by the Assessing Officer that Shri D.S.Lamba had duly withdrawn Rs. 60,000/- and Rs. 1,80,000/- re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t said to have been received by him is rejected." 19(i) The ld. counsel for the assessee also relied upon decision of the Hon'ble Punjab & Haryana High Court in the case of CIT Vs Rameshwar Dass Suresh Pal Cheeka 208 CTR 459 in which it was held as under : "Once a partner of the firm has accepted having advanced amount to the firm, no addition could be made in the hands of firm under s. 68". 20. Since in this case the partners of the assessee firm have admitted their capital contribution in their accounts, therefore, no addition could be made in the hands of the assessee firm. The above decisions of the Hon'ble Punjab & Haryana High Court squarely apply in favour of the assessee. Further, Hon'ble Madhya Pradesh High Court in the case of Metachem Industries 245 ITR 160 similarly held that, "On account of capital contribution, no addition could be made in the hands of the assessee firm". We, accordingly, set aside the orders of authorities below and delete both the additions. However, the Assessing Officer is at liberty to take up this issue in the individual cases of both the partners in accordance with law. 20(i) In view of the above, both the additions are delet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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