Ecstasy Buildcon Pvt. Ltd. Vs DCIT (ITAT Delhi)
ITAT Delhi held that addition based on DVO report regarding construction of cost of property unsustainable as DVO applied CPWD rates, however, it is settled law that State PWD rate is better guiding factor for arriving at cost of construction of the property.
Facts-
AO made addition on account of addition of Rs.65,83,992/- u/s 69B of the Act being unexplained investment in construction of property at Noida(UP), u/s 68 of the Act being Rs.1,50,00,000/- on account of share application money / share capital received from Inspire 2 Aspire Business Solutions Pvt. Ltd., addition of Rs. 1,50,00,000/- on account of the investment made by Incredible India IT Solutions Pvt. Ltd. in the assessee company; and Rs.3,00,000/- on account of addition u/s 69C of the Act, being the disallowance of commission on the share capital of Rs.3,00,00,000/- which was added as income.
Aggrieved by the additions made by AO, the assessee carried the matter before CIT(A) who dismissed the appeal of the assessee. Aggrieved against the order of CIT(A), assessee is now in appeal before this Tribunal.
Conclusion-
It is not in dispute that the impugned addition has been made on the basis report by DVO regarding construction cost of the property in question.
The assessee pointed to two serious lacuna in the report; (i) the DVO applied CPWD rates for estimating the cost of construction and; (ii) the DVO had taken value of fully constructed property but in fact the construction of property was yet to be completed. We find merit into the contentions of the Learned Counsel for the assessee as it is well settled that State PWD rate is better guiding factor for arriving at cost of construction of the property. Moreover, the Revenue has not rebutted the claim of the assessee that the property in question was yet to be completed and the DVO took the value of completed property coupled with fact that no evidence is brought on record by the AO suggesting that any expenditure more than what was booked by the assessee in its books of accounts has been incurred. In the absence of such evidence, the cost adopted by the AO is merely an estimation and pure guess work.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeals are filed by the above captioned assesses and the Revenue, feeling aggrieved by the orders passed by the Commissioner of Income Tax Appeals [CIT(A)] for various assessment years mentioned hereinabove.
2. Since the issues raised by the parties in all these appeals are common, therefore all the appeals were taken up together for the hearing and being disposed of by way of a consolidated order for the sake of brevity and convenience.
3. At the outset, both the Learned Representative of the Parties have stated that the ITA No.1127/Del/2021 in the case of Ecstasy Buildcon Pvt. Ltd. may be taken as a lead case for factual matrix as majority of the issues involved in this appeal would be common to other appeals also.
We therefore take up ITA No.1127/Del/2021 (arising out of the order of Ld.CIT(A) Kanpur-4 dated 12.08.2021) for A.Y.2016-17 in the case of Ecstasy Buildcon Pvt. Ltd. as a lead case.
4. The facts in brief as culled out from the material on records are that the Assessee is a company which is incorporated with the object of doing the business in construction of building as well as sale and purchase of land. A search and seizure operation u/s 132 of the Act, 1961 (in short “The Act”) was conducted on 10.11.2017 at the premises of the Shri Rajeshwar Singh Yadav and other group of cases. It is recorded by the Assessing Officer (AO) that during the course of search operation, certain incriminating documents/material belonging to the assessee company were found and seized. Consequently, a notice u/s 153C of the Act was issued on 26.09.2019 and the assessee was asked to file the return of income as mandated under law. In response thereto, the assessee electronically filed the return of income on 12.10.2019 declaring income at Nil. Thereafter, the case was taken up for scrutiny assessment and consequently, assessment was framed u/s 143(3) r.w.s 153C of the Act vide order dated 22.12.2019 wherein the total income of the assessee was determined at Rs.3,68,83,990/-. While arriving at the aforesaid income, the AO made addition inter alia on account of addition of Rs.65,83,992/- u/s 69B of the Act being unexplained investment in construction of property at Noida(UP), u/s 68 of the Act being Rs.1,50,00,000/- on account of share application money / share capital received from Inspire 2 Aspire Business Solutions Pvt. Ltd., addition of Rs. 1,50,00,000/- on account of the investment made by Incredible India IT Solutions Pvt. Ltd. in the assessee company; and Rs.3,00,000/- on account of addition u/s 69C of the Act, being the disallowance of commission on the share capital of Rs.3,00,00,000/- which was added as income.
5. Aggrieved by the aforesaid additions made by AO, the assessee carried the matter before CIT(A) who vide order dated 12.08.2021 in Appeal No.CIT(A)-IV/KNP/11537/2019-20 dismissed the appeal of the assessee. Aggrieved against the order of CIT(A), assessee is now in appeal before this Tribunal and has raised the following grounds:
1. “That the CIT(A) erred on facts and in law in not quashing the assessment order dated 22.12.2019 passed by the AO under section 153C of the Income Tax Act, 1961 (‘the Act’) on the ground of being beyond jurisdiction, bad in law and void ab initio.
1.1. That the CIT(A) erred on facts and in law in not appreciating that the impugned proceedings initiated by the AO under section 153C were beyond jurisdiction and bad in law, in the absence of satisfaction note being recorded by the AO in possession of the seized documents gathered during to search under section 132 conducted in the case of another person, viz., Shri Rajeshwar Singh Yadav on 10.11.2017.
1.2 That the CIT(A) erred on facts and in law in not appreciating that the impugned proceedings initiated by the AO under section 153C were beyond jurisdiction and bad in law, since no incriminating material/evidence/assets belonging to/relating to the appellant suggesting undisclosed income/investment were found in the course of search under section 132 at the premises of Shri Rajeshwar Singh Yadav, leave alone such material not being handed over to the AO of the appellant and consequently illegal satisfaction note was recorded by the AO of the appellant.
1.3 That the CIT(A) erred on facts and in law in observing that (i) the invoices for purchase of construction material incurred by the appellant towards construction of property at Noida, which was duly recorded and disclosed in the books of account, and (ii) detail of share capital received from M/s. Inspire 2 Aspire Business Solutions Pvt. Limited, constituted incriminating material within the meaning of section 153C of the Act, merely because the value of such construction expenses was determined by the DVO, on a subsequent reference made by DDIT(Inv.), at a higher value and share capital was deemed as unexplained cash credit, for which no adverse material was available, both at the time of search as also post search investigation, as well as assessment proceedings.
2. That the CIT(A) erred on facts and in law in not quashing the impugned order passed under section 153A, since the same was passed pursuant to a mechanical approval dated 17.12.2019 granted by the Addl. CIT under section 153D, lacking complete application of mind and thus rendering the assessment order to be beyond jurisdiction.
Without Prejudice
3. That the CIT(A) erred on facts and in law in sustaining the addition of Rs.65,83,992/- made by the AO under section 69B of the Act alleging unexplained investment in property on the basis of higher fair market value thereof determined by the DVO.
4. That the CIT(A) erred on facts and in law in not deleting the aforesaid addition of alleged unexplained investment on the ground of being beyond jurisdiction and scope of assessment under section 153C, since the same was not based on any incriminating material found during the course of search.
5. That the CIT(A) erred on facts and in law in not deleting the aforesaid addition made under section 69B on the basis of valuation report furnished by the DVO, pursuant to reference made by the DDIT(Inv.), on the ground that the AO was not empowered to refer the aforesaid report, without an independent reference to DVO under section 142A of the Act.
5.1 That the CIT(A) erred on facts and in law in observing that the AO was competent to refer the report of DVO submitted pursuant to reference made by DDlT(Inv.) under section 132(9D) of the Act since the same DVO – (i) was competent to issue valuation report under section 142A, (ii) as also issue report using the same method of valuation.
6. That the CIT(A) erred on facts and in law in not deleting the entire addition made by the AO under section 69B on the basis of valuation report of DVO, since the addition was not based on any evidence of unexplained investment made by the appellant and was merely made by estimating the fair market value of the property which was outside the scope of provisions of section 69B r. w.s. 142A of the Act.
7. Further without prejudice, that the CIT(A) erred on facts and in law in not rejecting the report of DVO which suffered from several inaccuracies qua the method of valuation followed, like adoption of CPWD rates instead of PWD rates/not allowing discounting of 20% on account of personal supervision, etc.
7.1 That the CIT(A) erred on facts and in law in observing that the DVO had adopted the appropriate method to determine the fair market value of the property and adopting CPWD rates for property situated in Noida, which was near to Delhi whereas PWD rates was not appropriate which was meant for entire state of UP.
8. That the CIT(A) erred on facts and in law in sustaining the addition of Rs.3,00,00,000/- made by the AO with respect to Rs. 1,50,00,000 crores each received from the share applicants, viz., Inspire 2 Aspire Business Solutions Pvt. Limited and M/s. Incredible India Pvt. Limited and deemed as unexplained cash credit under section 68, merely on the basis of the statement by the Director of the aforesaid companies, without any further enquiries or providing the applicant with an opportunity to cross-examine the said Director.
8.1 That the CIT(A) erred on facts and in law in not deleting the aforesaid addition on the ground of being beyond the scope of section 153C in the absence of any incriminating material there against found in the course of search conducted under section 132 at the premises of Shri Rajeshwar Singh Yadav.
9. That the CIT(A) erred on facts and in law in holding the addition of Rs.3,00,000/- made by the AO under section 69C alleging unexplained expenditure on account of commission towards aforesaid alleged accommodation entries of Rs.3,00,00,000/- received on account of share capital from two companies.
9.1 That the CIT(A) erred on facts and in law in not deleting the aforesaid addition on the ground of being beyond the scope of section 153C in the absence of any incriminating material their against found in the course of search conducted under section 132 at the premises of Shri Rajeshwar Singh Prasad.
Each of the above ground is independent and without prejudice to one another. The appellant craves leave to add, alter, amend or withdraw any ground or grounds of appeal at any time before or during the course of hearing of the appeal.”
6. The assessee vide Ground Nos.1 to 1.3 has assailed the assessment framed u/s 153C being unjustified, beyond jurisdiction and bad in law.
7. Before us, at the outset Ld. AR for the Assessee Company submitted that similar grounds have been raised by the assessee in other cases of the group and the submissions made herein by him while arguing the matter may be treated to have been adopted for similar grounds in other cases also. Ld. DR fairly agreed to this and submitted that he would also adopt the same arguments for other matters as are being addressed in this appeal.
8. Before us, Learned AR drew our attention to the copy of the satisfaction note recorded by the AO (copy of which is attached at pages 5 & 6 of the paper book). From the aforesaid satisfaction note, first of all he submitted that the satisfaction note is an undated satisfaction note. He thereafter, pointed that AO has noted that loose paper containing various invoices issued in the name of the assessee were found and on the perusal of which he noted that assessee had purchased construction material /design for a total consideration of Rs.4,96,71,274/- during the Financial Years 2015-16, 2016-17 & 2017-18. He also pointed to the satisfaction note wherein it has been noted that Balance Sheet of M/s. Inspire 2 Aspire Business Solutions Pvt. Ltd. and the ledger account of the assessee in the books of Inspire 2 Aspire Business Solutions Pvt. Ltd. was found which demonstrated that assessee had received share capital amounting to Rs.1,50,00,000/- during the Financial Year 2015-16. Learned AR submitted that aforesaid material was not incriminating in nature which resulted in the detection of any undisclosed assets and income of the assessee. He thereafter submitted that the condition precedent for invocation of proceedings u/s 153C of the Act are that the assets/documents belonging to/pertaining to/relating to an assessee found during search u/s 132 of the Act at the premises and in possession of third party must be incriminating in nature, leading to detection of undisclosed income of such assessee. He submitted that Hon’ble Apex Court in the case of Singhad Technical Society reported in 397 ITR 344 has held that as per provisions of Section 153C of the Act, incriminating material which is found in a search is to be pertained to the Assessment Year in respect of which an addition is being made and this being a jurisdictional fact, it should exist before making any impugned addition u/s 153C of the Act. He thereafter, placed reliance on various case laws and submitted that the Hon’ble Delhi High Court in the case of CIT vs. RRJ Securities Ltd. reported in 380 ITR 612 after following the decision of Hon’ble Delhi High Court in the case of CIT vs. Kabul Chawla [2015] 61 taxmann.com 412 (Delhi) has held that when the documents that were seized had no relevance or bearing on the income of the assessee for the relevant assessment years and could not possibly reflect any undisclosed income, the provision of Section 153C of the Act would not be applicable. He also placed reliance on the various other decisions cited in his synopsis. Learned Counsel of the assessee thereafter submitted that judgment of the Hon’ble Allahabad High Court in the case of CIT vs. Shri Raj Kumar Arora reported in 367 ITR 517 is not applicable on the facts of the present case and moreover the said decision has been distinguished by the Co-ordinate Bench of Lucknow Tribunal in the case of ACIT vs. Shri Arun Agarwal [IT(SS)A No.253 & 254/luck/2020]. He therefore, vehemently argued that in the light of the judgment of the Hon’ble Delhi High Court and the decision of the Co-ordinate Bench of Lucknow Tribunal, the impugned order passed by the AO is bad in law and it needs to be quashed.
9. Per contra, Learned CIT-DR, opposed the submissions made by Ld AR and supported the order of the lower authorities. Learned CIT-DR submitted that the law on the issue is clear as there is no ambiguity under it. He submitted that certain evidences were found during the course of search which are incriminating in nature and more particularly under the identical facts, the Hon’ble Allahabad High Court, being the jurisdictional High Court, in the case of Raj Kumar Arora (supra) has categorically held that the AO has power to reassess the returns of assessee not only for the undisclosed income which was found during the search operation but also with regard to the material that was available at the time of the original assessment proceedings. He further submitted that the decision of Hon’ble Apex Court in the case of Singhad Technical Society (supra) is not applicable to the facts of the present case because the AO in the satisfaction note in this case has clearly recorded the fact that the invoices (LP 4, LP 5, LP 10) with regard to the purchase of construction material were found for three financial years whereas in the case of Singhad Technical Society (supra), no such invoices or any other incriminating material for the year in which the search took place was found. He further stated that the bills that were found during the course of search would have clear bearing on the income of the assessee. Therefore he submitted that it cannot be construed that the bills/invoices found are not incriminating in nature.
10. We have heard the rival submissions and perused the material available on records. The assessee vide the aforesaid grounds is challenging the assumption of jurisdiction by the AO in framing the assessment u/s 153C of the Act.
11. For the sake of clarity and effective adjudication of the dispute at hand, Section 153C of the Act is reproduced as under:
“(1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the AO is satisfied that,—
(a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or
(b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to,
a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the AO having jurisdiction over such other person and that AO shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that AO is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A:
Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to subsection (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the AO having jurisdiction over such other person:
Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the AO shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years as referred to in sub-section (1) of section 153A except in cases where any assessment or reassessment has abated.
(2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the AO having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year—
(a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or
(b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or
(c) assessment or reassessment, if any, has been made,
before the date of receiving the books of account or documents or assets seized or requisitioned by the AO having jurisdiction over such other person, such AO shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A.”
12. From a bare reading of the aforesaid section it is evident that the requirement of law for exercising jurisdiction u/s 153C of the Act are that in the event of a search any money, bullion, jewellery or any other valuable article or thing seized or requisitioned belongs to the persons other than the searched person is found, then the AO of searched person, after recording his satisfaction, would transmit such material to the AO of the person other than the searched person. Thereafter, the AO of such other person would proceed against that person for framing the assessment as per the procedure prescribed under the Act i.e. as per the provision of Section 153A of the Act.
13. Undisputedly, in the case in hand, the AO has categorically stated that certain bills and vouchers were found and seized during the course of search. It was further recorded that certain evidences relating to investments was also found, hence it is not a case where there was no material with the AO for proceeding against the assessee u/s 153C of the Act. The question that whether such material would culminate into addition cannot be the subject matter for testing the validity of invocation of provisions of section 153C of the Act. By a plain reading of Section 153C of the Act, it is clear that law does not mandate such requirement that proceedings u/s 153C of the Act can be initiated only in the cases where the incriminating material would culminate into an addition. However, the contention of the assessee throughout has been that the proceedings initiated u/s 153C of the Act is contrary to the law as there was no incriminating material found during the course of search which could have conferred the jurisdiction upon the AO. Further in the absence of any incriminating material, the AO could not have proceeded u/s 153C of the Act in view of the judgments of the Hon’ble Delhi High Court in the case of CIT vs. RRJ Securities Ltd. (supra) and CIT vs. Kabul Chawla [2015] 61 taxmann.com 412 (Delhi).
14. We do not see any merit in these contentions of the Learned Counsel for assessee for the reason that the Hon’ble Jurisdictional Allahabad High Court in the case the CIT vs. Raj Kumar Arora (supra) has unequivocally decided this issue in favour of the Revenue by holding that the AO would be empowered to assess and reassess the returns of assessee not only for the undisclosed income which was found during the search operation but also with regard to the material that was available at the time of the original assessment proceedings. A similar view has been expressed by the Tribunal (Third Member) in the case of Sunshine Infra State Pvt. Ltd. (103/Ald/2017 order dated 12th April 2022). In the present case, the assessee being under the jurisdiction of Hon’ble Allahabad High Court, the ratio of the decision in the case of Raj Kumar Arora (supra) holds the field as it is binding on all the authorities under the jurisdiction of Hon’ble Allahabad High Court. We therefore respectfully following the judgement of the jurisdictional High Court rendered in the case of Rajkumar Arora (supra) hereby dismiss the grounds of the assessee. Thus Ground Nos.1 to 1.3 are dismissed.
15. Vide Ground No.2 it is the contention of the assessee that the approval granted by the Additional Commissioner of Income Tax (Addl.CIT) u/s 153D of the Act was a mechanical approval without application of mind and therefore assessment order was bad in law and contrary to the settled position of law.
16. Before us, Learned AR submitted that in the present case the approval u/s 153D was granted by Addl. CIT vide approval dated 17.12.2019 (as noted by the AO in last para of the assessment order). He submitted that assessee had obtained copy of the relevant correspondence between the AO and Addl. CIT seeking the aforesaid approval. He submitted that on perusing the aforesaid correspondence, it was found that the AO from its office situated at Ghaziabad had sent letter seeking approval u/s 153D of the Act to the office of Addl. CIT at Meerut and on the very next day the approval u/s 153D of the Act was granted by Addl. CIT. He pointed to the copy of the approval letter placed at page 37 of the paper book. He submitted that the perusal of the letter of the AO would reveal that AO had sent a combined letter of 42 draft assessment orders and the approval of the Addl. CIT was also given in a combined manner for all the five orders including that of the assessee. He submitted that it is a settled law that whenever the law requires a superior authority to accord approval to the action of the lower authorities, it should not be merely an empty formality or ritual but an important condition precedent which ought to be satisfied after due application of mind on the material placed before such authority. He submitted that various Courts have held that if such duty imposed on a superior authority is discharged mechanically, without application of mind, then such approval cannot be considered to be a valid approval. For the aforesaid proposition, he placed reliance on the decisions rendered in the case of CIT vs. Goyanka Lime & Chemical Ltd. reported in 64 taxmann.com 313 (SC), PCIT vs. N. C. Cables Ltd. in ITA No. 335/2015 (Del.)(HC). He therefore submitted that the approval given by Addl.CIT was not in accordance with the requirements of Section 153D of the Act and hence the assessment order is void ab initio, hence same is nullity in the eyes of law.
17. Per contra, Learned CIT DR opposed the submissions of the Ld. AR and submitted that the prescribed procedure was adopted by the authorities below and it was not a case of merely according the requisite approval mechanically. He further submitted that in the present case, the entire material was placed before the competent authority and after due consideration and application of mind, the requisite approval was granted by the competent authority. He further stated that the objections of the Ld. AR are purely guesswork and is not supported by any credible evidence.
18. We have considered the rival contentions and perused the material on record. From the records, it is evident that the entire case file was placed before the competent authority who after perusing the same and due application of mind had accorded the requisite approval and therefore in our view, the contentions of the assessee is merely based upon suspicion without being backed by any material evidence and hence we do not see any merit in the contention of the Ld AR. Thus this Ground No.2 raised by the assessee is dismissed.
19. In Ground Nos.3 to 7.1 the assessee has challenged the valuation adopted by the AO at Rs.1,58,86,369/- in respect of the construction of a property at Noida UP.
20. During the course of assessment proceedings, AO noted that assessee had claimed that a sum of Rs.93,02,377/- was incurred for the construction of the property at Noida. However, the fair market value estimated by the District Valuation Officer (DVO) of the property in question was stated to be at Rs.1,58,86,369/-. Assessee was therefore, asked to explain the difference between the value declared by it and the fair market value assessed by the DVO. The assessee offered its explanation regarding expenditure incurred by the Assessee on construction of the property in question stating that no expenditure out of books was incurred by the assessee however the same was not accepted by AO. He thereafter, on the basis of the DVO report made addition of the differential sum amounting to Rs.65,83,992/- as unexplained investments u/s 69B of the Act. When the matter was carried before CIT(A), he upheld the order of AO. Aggrieved by the order of CIT(A), Assessee is now before us.
21. Apropos to these grounds, Learned AR for the assessee reiterated the submissions made before the lower authorities and relied on the written submissions. The relevant contents of the written submissions are reproduced as under:
“58. In the present case, at the outset, it is respectfully submitted that the provisions of section 69B are per se not applicable, since the provisions of aforesaid section are applicable only where an investment exceeds the amount recorded in the books of account maintained by the assessee. In the present case, the investments were made out of valid and accounted sources of income, which have even been accepted by the assessing officer. The issue raised is only whether the amount of declared investment matches the valuation. In other words, it is not a case of undisclosed investment exceeding the amount recorded in books of accounts, which is only sought to be covered by the provisions of section 69B of the Act and not otherwise. Section 69B is a deeming provisions and there cannot be deeming fiction between deeming provision as valuation report is an opinion and not the conclusive proof of investments made by Assessee. The provisions of said section are applicable when the assessing officer at the first place comes to a finding that assessee has made some excess investment outside the books of account. Since the aforesaid section creates a legal fiction, burden is on the Revenue to arrive at a finding, which needs to be supported by evidence or material, which leads to conclusion that real investment/expenditure exceeds the investment shown in the books of account. Once the assessing officer reaches such a finding, only then a reference can be made to the valuation officer to estimate the actual amount of investment in view of powers vested vide section 142A(1) of the Act. Provisions of sub-section (1) of Section 142A is only a machinery provision and do not override provisions of section 69B of the Act. The provisions of section 142A, on the other hand, in our respectful submission, get triggered only once it is found that provisions of section 69B are applicable and in that situation, power of reference to valuation officer has been given to only estimate the actual investment.
59. In the present assessment, it would be appreciated that no such finding was reached by the assessing officer or even Investigation Wing before making a reference to the valuation officer. There was no material nor any evidence, nor the same has been brought on record, which led to the inference at the first place, that excess investment than the amount recorded in book of account has been made by the appellant in the subject property. The reference was made to the valuation officer in the routine manner, without any material/evidence in the possession of the Deputy Director of Income Tax (Inv.) leading to the inference that amount invested in construction was more than that recorded in the books of account without having any incriminating document/ material suggesting the actual investment is more than as shown by the Assessee. The sole basis of making the addition under section 69B in the assessment order is the report of the valuation officer, which, too, it is respectfully submitted, is only an estimate/opinion of the Valuation Officer and do not lead to the conclusion that actual investment is more than the amount recorded in the books of account. Under such circumstances, no addition could have been made under section 69B of the Act.”
22. Learned AR thereafter, submitted that the AO has grossly erred in adopting the valuation of property as per DVO report who in utter disregard to the judgment of the Hon’ble Allahabad High Court and the various Benches of the Income Tax Appellate Tribunal had adopted the CPWD rates instead of state PWD rates and did not grant any credit for the supervision charges which he should have granted keeping in view the fact that one of the Directors who was looking after the construction of building himself was a qualified civil engineer from IIT. He stated that had the AO adopted the state PWD rate and granted credit for supervision charges at 15%, which are reasonable, in that event no addition could have been made. In support of these contentions, Learned AR placed reliance on the judgment of Hon’ble Allahabad High Court rendered in the case of the CIT vs. Rajkumar reported in 182 ITR 436. Learned Counsel for the assessee further relied on the judgment of Hon’ble High Court of Punjab and Haryana in the case of CIT vs. Rajesh Mahajan [2014] 50 taxmann.com 206 (Punjab and Haryana) and submitted that the AO and the DVO ought to have allowed at least 10% of rebate for self supervisions charges.
23. Learned DR on the other hand opposed the submissions of Learned AR. He strongly supported the order of lower authorities and submitted that the AO is not a technical person and had arrived at fair market value of the property by taking help of DVO being expert person which is permissible under the law. He stated that the AO is empowered to take help of the expert to arrive at a fair market value and the action of the AO was as per the procedure prescribed under the Act. He further stated that merely because the AO did not bring any material suggesting that there was investment beyond the bills and vouchers as produced by the assessee do not mean that there was no investment beyond those recorded in the books of accounts. He stated that the estimate made by the expert in respect of the investment made in the property in question override the requirement of any evidence related to investment in the property. He further stated that when the fair market value is estimated by an expert at a higher fair market value then it would suggest that there was undisclosed and unexplained investment made by the Assessee. He thus supported the order of lower authorities.
24. We have heard the rival submissions and perused the material available on record. The factum of construction of the building and the incurrence of expenses thereof is not in dispute. The only dispute is regarding the quantum of expenses hence in the instant ground the issue revolves around the estimation of fair market value by the DVO adopting the CPWD rates for the valuation of FMV of the property. The AO undisputedly adopted the CPWD rate as recommended by the DVO for estimating fair market value of the property constructed by assessee. So far as the application of the rate for the purpose of arriving at the fair market value of the property is concerned, this issue is no more res integra. It has been decided in the catena of judgments that state PWD rates would be an appropriate guiding factor considering the local conditions for computing quantum of expenses incurred on construction of property in question. Learned CIT(DR) has not brought to our notice any binding precedent in support of his contentions that the fair market value estimated by the DVO override the requirement of any evidence proving the correct investment into the property. On the contrary, we find that under the similar circumstances, the Ld. Co-ordinate Bench of this Tribunal in the case of ITO vs. Dr. R. Anburajan (ITA No.2014 to 2017/Mds/2011) had held that the reference to the DVO by the AO was not justified and also adoption of CPWD rates for valuation of building. We also find that the issue is squarely covered by the decisions of Hon’ble Madras High Court in the case of C.I.T. vs. Smt. V. Gajalakshmi [2011] 331 ITR 216 and decision of the Tribunal in the case of M. Selvaraj vs. ITO (2002) 258 ITR (AT) page 82 (Chennai). Further, the Hon’ble Rajasthan High Court in the case of CIT vs. Dinesh Talwar reported in [2004] 265 ITR 344 (Raj) has also approved the adoption of the PWD rates for determining the fair market value. Moreover, it is a settled law that the evidence showing or suggesting the incurring of actual expenditure ordinarily should be preferred over estimation of expenditure incurred unless the former suffers from patent defects of falsehood or incorrectness. It is all the more desirable that the direct evidence on ‘cost of construction’ should be preferred unless found unreliable or unacceptable to the indirect evidence on the point coming through the road of estimated valuation. The Revenue has not brought any material on record suggesting that the assessee had in fact incurred any other expenditure more than what has been recorded in the books of accounts or the entries made in the accounts are false.
25. It is well settled now that even if the AO proceeds for estimation of fair market value of the property, he is duty bound to apply state PWD rate in view of the binding precedents. Therefore, we are unable to sustain the impugned addition firstly for the reason that the AO ought to have brought direct evidences of incurrence of expenditure towards construction of property to demonstrate that the assessee had in fact incurred expenditure more than what is recorded in its books of accounts and secondly that the Hon’ble High jurisdictional High Court and the Coordinate Benches of this Tribunal have unequivocally ruled that the state PWD rates should be adopted for computing the fair market value of the property situated in different states. Therefore, respectfully following binding precedents, we hereby direct AO to adopt PWD rates as prevalent at that point in time for ascertaining the correct and true figure of investment made by the assessee. In case, if the AO finds that upon applying prevailing PWD rates, fair market value of the property is lesser than the investment disclosed by the assessee, he shall delete the addition.
26. As far as the granting of rebate on account of self supervision charges is concerned, such rebate has been allowed by the Co-ordinate Bench and High Courts of different judicature. Even the Learned CIT(A) has given the rebate to the extent of 5% only meaning thereby that Revenue is not disputing the eligibility for such self supervision charges. Therefore, considering the experience, qualification and the expertise of the Director of the assessee company who is stated to have looked after the affairs of the construction of the building, the contribution made by such person in the saving of the expenses on construction cannot be overlooked in the absence of any contrary material on record. Under the facts of present case and looking to the totality of facts it would sub serve the interest of justice that if a rebate of self supervision @10% is granted to the assessee. Our view of granting self supervision rebate is also supported by the decision of co-ordinate Bench of this Tribunal rendered in the case of Smt. Saroj Gupta vs. ITO (2007) 106 TTJ Delhi 1073 wherein the Tribunal has allowed the self supervision rebate at the rate of 10%. We accordingly direct the AO to grant the rebate on account of self supervision charges as observed hereinabove at the rate of 10%. Thus this ground of assessee’s appeal is partly allowed in the terms indicated hereinabove for statistical purpose only.
27. Ground Nos. 8 & 9 (including sub grounds) are with respect to addition made u/s 68 and 69C of the Act qua the share application money and payment of commission.
28. During the year under consideration, AO noticed that assessee had received share application money from two companies, namely Inspire 2 Aspire Business Solutions Pvt. Ltd. and Incredible India IT Solutions Pvt. Ltd. of Rs.1.50 crore respectively. The AO for the reasons noted in the order, doubted about the credit worthiness of those companies and consequently the AO treated the receipt of money on account of share application money to be an accommodation entry and thereby he made addition of an aggregate amount of Rs.3 crore as unexplained credit u/s 68 of the Act. AO further made addition of 1%, being commission for getting such accommodation entries, and made addition of Rs. 3 lakh u/s 69C of the Act. He thus made total addition of Rs. 3 crore + Rs 3 lakh on this account. Aggrieved by the order of AO, the Assessee carried the matter in appeal before the Ld. CIT(A), who upheld the order of AO. Aggrieved by the order of CIT(A), assessee is now before us.
29. Before us, Learned AR reiterated the submissions as made before the lower authorities and further submitted that money received from M/s. Inspire 2 Aspire Business Solutions Pvt. Ltd., was through banking channels and was duly confirmed by the share applicants and in support of which he drew our attention to the copy of the confirmation which shows the receipt of money through banking channels. He also pointed to the Income Tax Return of the share applicant, the Balance Sheet of share Applicant Company, the company Master Data as downloaded from website of Ministry of Corporate Affairs to establish the identity of the share applicant.
30. With respect to the share application money received from Incredible India IT Solutions Pvt. Ltd., he placed on record the copy of its PAN Card to demonstrate the identity of the investor. He also placed on record its bank statement showing the payment received from the account of the investor company to assessee-company, copy of its Balance Sheet showing the investment made by it in the assessee company.
31. He further submitted that during the course of assessment proceedings, AO had issued notice u/s 133(6) of the Act to both the aforesaid companies wherein those companies had duly confirmed about the investments made by them and had also filed supporting documents. He further pointed out that no adverse inference with regard to the transactions between the assessee and M/s. Inspire 2 Aspire Business Solutions Pvt. Ltd. was made by the AO of the share applicant in the assessment proceedings of the share applicant i.e. Inspire 2 Aspire Business Solutions Pvt. Ltd. He thereafter submitted that the subsequent confirmation received u/s 133(6) establishes the fact that M/s. Inspire 2 Aspire Business Solutions Pvt. Ltd. was an existing entity duly assessed to tax and hence the identity was established.
32. As far as the addition with respect to the amount received from Incredible India IT Solutions Pvt. Ltd. is concerned, he submitted that there was no adverse material qua that company before the AO. He therefore submitted that assessee had duly discharged the onus to establish the identity, creditworthiness and genuineness of the transactions and investors as per the requirement of the Income Tax Law and therefore the amount received by the assessee as share application money cannot be added u/s 68 of the Act. In support of his contentions, he also placed reliance on the decisions rendered in the cases of CIT vs. Dwarkadhish Investment Private Ltd. (2010) 5 com 60 (Delhi), CIT vs. Oasis Hospitalities Pvt. Ltd. 2011-TIOL-69-HC-DEL-IT and other decisions.
33. As far as the observation of the AO of having low returned income and therefore not having the capacity to make investment is concerned, he submitted that low return of income of lenders cannot be considered to be a guiding factor regarding the creditworthiness of such lender and in support of this contention, he placed reliance on the decisions of Tribunal in the case of Supreme Build – Cap Pvt. Ltd. vs. ACIT, Central Circle – 05, (ITA No.8476/Del/2019), Hindon Forge (P.) Ltd. vs. DCIT, Circle -1 (ITA No. 3800/Del/2017) and M/s. Carissa Investment (P.) Ltd. Vs. ACIT (ITA No.6448/Del/2016). He thereafter submitted that creditworthiness would means “capacity to pay” and income cannot be considered to be a criterion for advancing money and that the money could be advanced even out of the proceeds of the loan obtained by the lenders. He therefore submitted that in the present case the identity, creditworthiness and genuineness of the share applicants have been established and therefore, no adverse inference was warranted.
34. As far as the reliance placed by the AO on the statement of Shri Ghanshyam Gupta, the director of M/s. Inspire 2 Aspire Business Solutions Pvt. Ltd. is concerned, he submitted that the copy of the statement of Shri Ghanshyam Gupta was not made available to the assessee, nor any opportunity to cross examine him was provided to the assessee. He submitted that it is a settled law that any statement of third person recorded or any evidence collected behind the back of the assessee cannot be used against him without confronting it to the assessee and giving a fair chance of cross examination. He further submitted that Courts have held that it was obligatory on the part of the AO to collect sufficient evidences against the assessee to disprove the documentary evidences filed by the assessee and the failure to do so would make the addition unsustainable in the eyes of law. In support of his aforesaid contention, he placed reliance on the decision of Hon’ble Supreme Court in the case of Andaman Timber Industries vs. CCE 62 Taxmann.com 3 (2015). He also placed reliance on the decision of CIT vs. Sunita Dhadda [2018] 100 taxmann.com 526 (SC) and other decisions. He therefore submitted that since the Assessee has given requisite information regarding genuineness of the transaction, identity of the applicant and creditworthiness of the creditors, the addition of Rs.3 crore being the share application money and the addition of Rs.3 lakh u/s 69C of the Act being alleged unexplained commission expenditure deserves to be deleted.
35. Ld DR strongly opposed these submissions and supported the orders of lower authorities and further contended that looking to the nature of the transactions it can be easily inferred that the transaction was a colorable device to avoid tax liability. He further contended that creditworthiness of the share applicant has not been proved by the assessee by furnishing sufficient evidences as envisaged under the Act.
36. In the rejoinder, learned AR of the assessee submitted that the assessee had given requisite information proving the genuineness of the transaction, identity of the share applicants and their creditworthiness which was also confirmed by the share applicants and that the Revenue has not made any addition in the case of share applicants which goes to prove the genuineness of the transaction and credit worthiness of the share applicants. He further stated that the AO has not proved out about the non availability of the funds with the share applicants nor has he established that the funds belonging to the assessee company were routed through the share applicants by using a dubious method. He therefore reiterated that the addition made by AO and upheld by CIT(A) are unjustified and therefore needs to be deleted. He also placed reliance on various judicial pronouncements to buttress his contentions, that there is no material available on records to prove that the transaction was not genuine. To buttress the contentions Ld. AR relied upon following judicial pronouncements:
