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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the order of the ld CIT(A), Ghaziabad dated 20.02.2011 for the Assessment Year 2005-06. 2. The assessee has raised the following grounds of appeal:- “1. Because, the order of learned lower authority is bad in law and against the facts and circumstances of the case which is unsustainable.
2. Because, the learned Commissioner of Income Tax (Appeals) erred in holding that adequate opportunity was provided by A.O. by ignoring the fact that assessee appeared 19 times and filed 78 replies but still AO refused to allow time on the last date of bearing on 18.12.2007 due to illness of Karta, to file important evidences specifically asked and huge additions were made even without any show cause notice on the proposed additions.
3. Because, the learned Commissioner of Income Tax (Appeals) is wrong in holding the important evidences/affidavit filed before him under rule 46A , as afterthought/fabricated and further erred in holding that no reason is given for filing additional evidences, without e\en examining such evidences/ finding any defect/anomaly in the same and in total disregard of the fact Page 2 of 31 that reason is to file additional evidences is duly given while such evidences was necessary for the proper disposal of appeal, which is not only against the provisions of law but also against the provisions of natural justice.
4. Because, the learned Commissioner of Income Tax (Appeals) erred in upholding rejection of book results u/s 145(3) in the absence any defect in the accounts, in total disregard of material available by taking recourse of some behind the back inquiries and without any show cause notice/opportunity on the on the issue.
5. Because, the learned Commissioner of Income Tax (Appeals) erred in sustaining the addition of Rs.76,28,000/- made considering the bifurcation/ values supplied by Pick-Up of land, build, etc long alter the sale as sacrosanct in total disregard of the fact that a lump-sum bid was made based on the Mkt. Value of assets and accepted so by Pick-Up at the time of acceptance/sale ,which is also supported with valuation at the relevant time etc. as is also accepted by A. O himself in para 5.
6. Because, the learned Commissioner of Income Tax (Appeals) also erred in holding that building was not dismantled against the material on the record, circumstances of the case, beside other evidences like sales tax order, sale of only land in subsequent year etc and as such finding is arbitrary based on mere presumptions.
7. Because, the learned Commissioner of Income Tax (Appeals) also erred in neither considering nor recording any finding about the plea of assessee that building was not capitalized and wrongly considered so by AO against the material on the record.
8. Because, the learned Commissioner of Income Tax (Appeals) also erred in sustaining the lump-sum addition of Rs 40,000/- out of total exp. while the same was without any basis/material against the assessee.
9. Because, the learned Commissioner of Income Tax (Appeals) also erred in sustaining the lump-sum addition of Rs 25,000/- u/s 69C, being rent might have paid is without any basis/material against the assessee, hence are arbitrary.
10. Because, the learned Commissioner of Income Tax (Appeals) also erred in the addition of Rs 2,00,000/- u/s 69, being part of an entry of Rs. 5,0,.000/- made towards to Pick Up 8 is made without appreciating facts & circumstances on the record . hence is arbitrary.
Because, the learned A.O. has wrongly added Rs. 19,310/- as the same is already included in Rs. 2,51,496/- hence the same is considered twice as such the same is mistakenly added doubly.”
Page 3 of 31 3. The assessee is an HUF carrying on business as proprietor of M/s. SR Industries, filed its return of income on 24.10.2005 for Rs. 251496/-. The assessment u/s 143(3) of the Act was passed on 19.12.2007 making four additions of Rs. 8164496/- and thereby computing the total income at Rs. 8183810/-. The assessee preferred appeal before the ld CIT (A) who vide order dated 10.02.2011 confirmed some of those disallowances. The brief history of such disallowances dealt with by lower authorities are as under:-
Sl. Nature Amount Confirmed No. disallowed by ld by ld Assessing C IT(A) Officer Extra profit after allowing 7628000 7628000 1. capitalization of correct value of land and building Unverifiable expenses 50000/- 40,000/- 2. debited in profit and loss account Unexplained expenses u/s 35,000/- 25,000/- 3. 69C for payment of rent of Delhi office Unexplained investment 2,00,000/- 2,00,000/- 4. u/s 69 made in purchases
4. The assessee has challenged before us the order of the ld CIT (A) confirming the above disallowances.
5. Meanwhile, for this year in this appeal ground Nos. 2 and 3 were challenged before the ITAT in which the coordinate bench passed an interim order on 03.08.2012. In those grounds assessee challenged non affording of proper opportunity to file important evidence and rejection of request of the assessee for admission of additional evidence under Rule 46A of the Act. At that particular time before the coordinate bench assessee preferred to argue ground No. 2 and 3 only. The coordinate bench in its order rejected the ground No. 2 and 3 of the appeal as under:- “3. The Ld. AR however has addressed his arguments only on ground nos. 2 & 3 wherein First Appellate order has been questioned on the basis that (i) Ld. CIT(A) has erred in holding that adequate
Page 4 of 31 opportunity was provided by the AO and (ii) in holding that important evidences/ affidavit filed before him under Rule 46A is after thought / fabricated. Ld. AR submitted that the AO refused to allow time on the last date of hearing on 18.12.2007 due to illness of the Karta Shri Rajesh Aggarwal (HUF) to file important evidences. He submitted that the AO has made huge additions even without any show cause notice on the proposed additions. He reiterated the submissions made in this regard before the authorities below and referred the contents of page Nos. 9 to 11 of the assessment order and contents of page nos. 44 and 35 of the first appellate order. The Ld. AR submitted that it is a clear case of violation of the principles of natural justice to the assessee and the additions in question may be deleted. He placed reliance on the following decisions :- i. Tin Box Co. Vs. CIT (2001) 249 ITR 216 (SC) ii. J.T. (India) Exports and others v. Union of India [2003] 262 ITR 269 (Del) (FB) iii. Maruti Suzuki India Ltd. Vs. ACIT 328 ITR 210 (Delhi)
4. The Ld. DR on the other hand opposed the contention of the Ld. AR that there is violation of principles of natural justice to the assessee by the authorities below. He placed reliance in this regard on the orders of authorities below.
Considering the above submissions in view of the orders of authorities below, we find that the AO has given sufficient opportunity to the asesessee to present its case during the assessment proceedings as it is evident from the table at page No. 9 & 10 of the assessment order wherein the AO has summarized these opportunities provided by him to the assessee. The grievance of the assessee in ground No. 2 is that the authorities below did not appreciate the reasons shown by the assessee for seeking adjournment on 18.12.2007 due to illness of Karta'of the assessee HUF. On perusal of the assessment order we find that in relation to alleged profit after allowing capitalization of correct value of land and building at Rs. 76,28,000/- proposed by the AO, the contention of the assesee remained that in building , plant and machinery purchased by the assessee, the assessee had demolished the building first and machines were dismantled and taken out at afterwards. The assessee in the trading of factories purchase and sale, had purchased an old factory named as M/s. Acme Industries Ltd. situated in Mujjafarnagar. 6. For consideration of ? 245 lakhs the bid was for purchase of land, building, plant and machinery. The assessee claimed to have sold the entire plant and machinery except land and building for a sum of ? 2,25,71,039/- and claimed to earn ? 10,55,164/- as gross profit. As regard the land and building (remained unsold) the same was capitalised for an amount of Rs. 30 lac and transferred to balance sheet under the head land and building. The AO was of the view that during the year assessee has sold only plant and Page 5 of 31 machinery for a total consideration of Rs. 2,25,71,0397- and the land and building was capitalised and shown as fixed assets on an incorrect valuation. The AO was also of the view that the assessee has claimed bogus expenses on account of crane hiring charges, gas cutting charges, labour charges, labour welfare, legal fees, loading & unloading expenses. The assessee claimed that the plant and machinery cannot be disposed off untill the building is demolished and assessee was ready to provide any other evidence such as copy of agreement or valuation report etc. if it is so required. A copy of affidavit sworn by the assessee claiming the same facts was also filed. The AO did not agree with this claim of the assessee and noted that having an industrial plant or unit is set up, building is first thing to be constructed. The machines are fixed thereafter. Same is the case of dismantling the plant and machinery and it is not that the building is demolished first and machines will be taken out / dismantled afterwards observed the AO. Vide ordersheet entry dated 17.12.2007 assessee was asked to furnish copy of agreement entered with such contractor who had undertaken the job of dismantled the building. The assessee did not comply with. The assessee was also required to produce evidence of incurring the expenses debited in profit and loss account. There was no compliance on the part of the assessee on 10.12.2007, the date fixed and adjournment was sought for five days. The AO explained the assessee that the case shall be barred by limitation on 31st December, 2007 and accordingly adjournment was allowed for 13.12.2007. The assessee made another application seeking adjournment for minimum seven days on which a last opportunity was given and the case was adjourned for 17.12.2007. On this date again an adjournment application for one day time was furnished which was acceded to and the date was fixed for 18.12.2007. On this date the assessee submitted that the copy of agreement will be submitted within one week. The AO noted that if assessee's request is considered then the date of next hearing will be 26.12.2007. Since 25th December will be holiday on account of Christmas. The AO accordingly conveyed that further adjournment will not be possible as enough time had already been given to him. While summarizing the dates afforded to assessee to represent its case, the AO noted that the query regarding capitalization of land and building was raised on 5.11.2007 but assessee deliberately avoided the production of his evidence before him and sought adjournment one after another. Vide his reply dated 7.12.2007 the assessee has submitted that he is ready to provide any other evidence such as copy of agreement on valuation report etc. if it is so required, but when the same was required by the AO he did not produce the same before him. The AO has noted further that it was submitted before him on behalf of the assessee that the assessee had gone out of station w.e.f 11.12.2007 and will return back on 17.12.2007. It was stated so in the adjournment application submitted on 11.12.2007 on behalf of the assessee. On 18.12.2007 in his reply the assessee furnished copies of medical prescription dated 27.11.2007, culture and sensitivity report dated 12.12.2007 and Page 6 of 31 copy of other pathological report dated 17.12.2007 in support of illness of assessee. We thus find that there is contradiction in the reasons shown on behalf of the assessee for seeking adjournments before the AO. Even if we accept the explanation of the Ld. AR before us that the assessee was actually ill and due to that he could not comply with the requirement of the AO, we do not find much substance that due to the said illness of the assessee the copy of agreement etc. could not furnished before the AO. The reason being that undisputedly vide his reply dated 7.12.2007 submitted before the AO , the assessee had stated that he was ready to provide any other evident such as copy of agreement or valuation report etc. if it is so required. In other words on the basis of these evidence the assessee had asserted his claim that building was demolished first and machineries were dismantled and taken away afterwards. We thus come to the conclusion that the evidence was readily available with the Ld. Counsel representing the assessee / assessee to support its claim and there was no reason for seeking adjournments again and again for this purpose. It is also evident from the assessment order that the AO in between 7.12.2007 and 18.12.2007 has acceded the requests made on behalf of the assessee for adjournments on 7.12.2007, 11.12.2007, 13.12.2007, 17.12.2007 but the assessee has failed to avail these opportunities. It is also established proposition of law that onus always lies upon the claimant to establish its claim. We thus do not find substance in the grievance of the assessee raised in ground No. 2 that adequate and sufficient opportunity was not afforded to assessee to present his case before the AO. Ld. CIT(A) was thus justified in rejecting such allegation of the assessee raised before him. Ld. First appellate order in this regard is thus upheld. Ground No. 2 is accordingly rejected.
7. So far as the grievance raised in ground No. 3 regarding rejection of request for admission of additional evidence under Rule 46A by the Ld. CIT(A) is concerned, we after having going through the orders of the authorities below, do not find substance in such contention. Ld. CIT(A) has not only discussed the opportunities afforded time to time by the AO to the assessee for furnishing evidence, if any , in support of the claim of the assessee but has also discussed the quality of evidence admission of which was requested by the assessee under Rule 46A of the Income Tax Rules. We are of the considered view that when the assessee was not able to furnish the claimed evidence despite several opportunities and has produced such evidence before appellate authority, the only inference would be that it is an afterthought. If those evidences would have been furnished alongwith the reply of the assessee filed on first occasion before the AO, there would have been less chance to doubt the veracity of such evidence. Allowability of additional evidence under Rule 46A of Income Tax Rules is an exceptional circumstances and such circumstances have been narrated therein under which the appellate authority can allow admission of such Page 7 of 31 evidence after recording the reasons for the same in writing. These reasons are as under:- A. "where the [Assessing Officer] has refused to admit evidence which ought to have been admitted ; or B. where the appellant was prevented by sufficient cause from C. producing the evidence which he was called upon to produce by the [Assessing Officer]; or D. where the appellant was prevented by sufficient cause from producing before the [Assessing Officer] any evidence which is relevant to any ground of appeal
; or E. where the [Assessing Officer] has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal."
8. None of the above condition has been fulfilled by the assessee to justify his request for admission of the additional evidence in the present case. As discussed above the AO had afforded sufficient time as and when requested by the assessee to furnish the evidence. The reason shown by the assessee for not producing the evidence as discussed above was also not tenable, since on the basis of the same evidence as discussed above was the assessee on earlier occasion before falling ill had already made a claim before the AO. Under these circumstances we are of the view that the Ld. CIT(A) has rightly rejected the request of the assessee for admission of the additional evidence under Rule 46A of the IT. Rules. The same is upheld. The ground No. 3 is accordingly rejected. Since the Ld. AR has not advanced his argument on other grounds we in the interest of justice direct the registry to fix the appeal for hearing on the remaining grounds in the category of part heard before the Bench on 5.9.2012 with advance notice to the parties.”
6. The order of the coordinate bench was challenged before the Hon'ble High Court and Hon'ble High Court was pleased to pass order dated 02.09.2014 rejecting the appeal of the assessee holding that appeal of the assessee against the interim order is not maintainable u/s 260A of the Act.
7. In view of above facts now we are required to adjudicate the balance grounds of appeal i.e. ground no 1 and 4 to 11 of the appeal.
8. Ground no. 1 of the appeal is general in nature and as same was also not dealt with in the interim order. For the sake of completeness we dismiss ground No. 1 of the appeal as general in nature.
9. The ground No. 4 to ground No. 7 of the appeal of the assessee are in substance contesting the addition of Rs. 7628000/- made by the ld
Page 8 of 31 Assessing Officer rejecting the books of account of the assessee. Brief facts of the issue is that during the year assessee has purchased an old factory by the name of M/s. Acme Industries at Muzaffarnagar for Rs. 245,00,000/- from PICUP , a financial institution in auction. The old factory was consisting of land, building, plant, and machinery. Assessee sold the plant and machinery for Rs. 22571039/- and has shown a gross profit of Rs. 1055164/- by transferring the land to the balance-sheet under the head land and building putting the price of land and building at Rs. 30 lakhs. Assessing Officer drew the profit and loss account of the assessee at page No. 2 of his assessment order that shows the above transaction. The contention of the ld Assessing Officer that cost of land and building of Rs. 30 lakhs which have been removed from the total purchases of Rs. 24515875/- making the total purchase of Rs. 21515875/- as net purchases and from that sales consideration of plant and machinery is adjusted of Rs. 22571039/- resulted into the gross profit. The contention of the Assessing Officer is that removal of this price of land, building of Rs. 30 lakhs from purchase consideration is incorrect, and assessee should have shown the cost of land and building in the closing stock. The ld Assessing Officer further questioned that there is no basis of arriving the value of land and building at Rs. 30 lakhs. The ld Assessing Officer asked the assessee to provide the details of the same but the assessee explained that such value has been derived on the basis of market estimation. It was further submitted later on that Rs. 30 lakhs attributable to cost of land only and not building and „ land and building‟ is wrongly mentioned in the trading account. The ld Assessing Officer issued notice u/s 133(6) to the seller who replied that the total consideration of Rs. 245 lakhs is consisting of land of Rs. 34.87 lakhs, building Rs. 71.41 lakhs and plant and machinery is Rs. 138.72 lakhs. The seller also submitted that inventory of plant and machinery. On further enquiry the seller submitted that the sold unit was never opertionalised and was attached during its implementation only and plant and machinery are also not older than 2 to 3 years. It also submitted a valuation report, which showed that total fair realization value of the property was determined by them at Rs. 253.59 lakhs, comprising of Page 9 of 31 plant and machinery and other fixed assets of Rs. 152.25 lakhs, building Rs. 70.34 lakhs and land Rs. 31 lakhs. For this the offer of the assessee of Rs. 245 lakhs was accepted. The property was registered in name of the assessee on 24.03.2007 and the description of the property stated to be land and building valuing Rs. 106.28 lakhs. Therefore, the Assessing Officer issued a show cause that why the value of land and building should not be taken at Rs. 106.28 lakhs and profit and loss account may not be redrawn. The assessee submitted explanation which was dealt with by ld Assessing Officer in para No. 4 to 7 opf the order for an addition of Rs. 76.28 laks as under:- “4. In response to above, the assessee filed a reply on 07.12.2007 relevant portion of which is reproduced below. That the assessee deals in taking the entire unit and sell that in the pieces. During the current year, the assessee has 'purchased the ACME Industries, from the PICUP for the aggregated cost Rs.245 Lacs and there was no bifurcation available with the"assessee, the procedure to get the old factory Is that the PIC-UP advertises for the sales of entire unit thereafter assessee makes its valuation and makes the bid to purchase of entire unit In the present case, a letter to purchase entire unit datec10.09.2004 given to PIC-UP for Rs.201 Lacs in which a proposal to get the entire unit was given. A copy of letter is enclosed. However this amount was denied by PIC-UP. Thereafter an offer for Rs.245 Lacs was given vide our letter dated 12.10.2004 which is enclosed. On this amount, the bid was finalized in our favor. However this amount was also for purchase of entire unit and thereafter a letter no 4485 dated 12.10.2004 was given by PIC-UP in which it was dearly stated that "sales of above assets (i.e. entire fixed assets of M/s ACME Industries Limited) has been approved by the competent Authority of the corporation in your favor for total safes consideration of Rs,245 Ldts". In this case, no case no fixed assets was given and which was on As is where Is", basis. Thereafter a letter dated November 2004 was also issued by PIC-UP in which also no bifurcations of fixed, assets was given and the overall possessions of the assets was given. Hence from above, It Is clear that assessee has purchased only entire unit for Rs.245 Lacs, further your honor has provided a copy of valuation report received in the PIC-UP office on 01.06.2002. On examining the valuation report, it Page 10 of 31 will be found that It was the internal valuation of PIC-UP which was made by PIC-UP for ascertaining the value of unit and the valuer has visited the unit of May 21, 2002. However while quoting the amount for purchasing the unit, the assessee has also got the valuation of asssets. Further your honor will also be agree with this concept that if one Building is closed for three years, the valuation of building will be very down. Further the valuer has made the valuation on the method that "Market Rate or Circle Rate whichever is higher. The value of land at Market is Rs.6 Lacs and according to Circle Rate it comes at_Rs.31 Lacs. First of all there is too much difference in the above rates. So in my view to adopt the Circle Rate is wrong because as per general principal of law it should be valued at "the amount whichever is low". Further the above Land was registered with the registrar on 23.04.2007 and after that on 16.08.2007. on both dates, the valuation of Land as per circle Rate comes at Rs.13.44 Lacs while in 2004 it should be approx 6 Lacs. So to consider the valuation report for the valuation of land is wrong because the valuation has been done on too much higher side and the evidence of document/sales deed has many time more importance in comparison to valuation report. Further your honor has provided a letter dated 14.11.2006 to the assessee. This letter is also based on the above valuation report and it was conveyed to the assessee even after completion of ^assessment year. So, the above letter has no reliability and should not be accepted. Further it is stated that during the year the assessee made an agreement made and agreement with labor contractor that he will demolish the factory and in this consideration all the material will be taken by contractor. No payment will be made by the assessee and the contractor will give no consideration for Building Malwa and further it is stated that the plant i and machinery cannot be disposed off until the Building is demolished because old machinery etc. cannot be brought out. However there are some bills through which the old material of Building such as iron and steel was sold, hence it is Established that the Building was a 31. 03.2005. Your honor has provided the sale deed dated 23.04.2007 to the assessee on which behalf, your honor has assumed that building was in existence. But if we consider the same document, it will be noticed that there is not written that Page 11 of 31 building on that day was established it is simply written that the vendor advertised the sale assets in the newspaper and on the highest offer the sale was 'made. Further at point no. 4(a) it is stated that vendor is the owner of land & Building and vendor transfer in all its right, title and interest In and above the said property described. Hence from above it is clear that only land was transferred in favor of assessee because no building was situated on that date. Further your honor will be well known to this fact that land & building can be transferred through the documents which is registered with registrar office and other assets like machines, cars etc. can be transferred through sale bills etc. So, in my opinion, the value of land & building was written from that point of view only. Further your honor will also be equipped with this fact that registrar authority charges a stamp duty on the consideration amount. But even after noting the consideration amount n the documents. The registrar authority has no charged the stamp duty on consideration amount of Rs. 106.28 Lacs but charged on Rs. 13.45 lacs. This amount represents the sector rate. Hence ft is established that only land was transferred and building was not established so not transferred. Further you will be also known to this fact if the building is establishment on the date of registry, the stamp duty will be charged on the value of building also. For the verification, the representative of registrar authority physically examine the property also. Hence your honor can not ignore this fact that no stamp duty has been charged on the value of building consideration amount eves after notinig the same amount in the documents which was presented before him for being registered. Hence it is clear that only land was available on 23.04.2007 (date of registry) and no building was situated. Further the assessee was also sold the above property on 16th August 2007 for Rs. 15 lacs in this deed it is clearly stated at page No. 3 that M/s. SR Industries become the owner of the land vide sale deed 23.04.2007. Hence, it is proved that only land was transferred. Hence the correct value of Fixed Assets should be considered at Rs.245 Lacs because the assessee has purchase entity as on whole. However, the land which cannot be sold during the year was shown in the assets. So the capitalization should be taken at Rs. 30 lacs only.
Page 12 of 31 5. The aforesaid reply of assessee was seen. First of all it was claimed that-Mere was not bifurcation available with the assessee as the procedure to get the "old factory is that the PIC-UP f advertises for the sale of entire unit thereafter assessee makes Its valuation and-makes the bid to purchase of entire unit The assessee has further referred the letter dated 12,10;2004 of PIC- UP and claimed that vide this letter also no bifurcation of fixed assets was given. I fail to appreciate the assessee's claim. Any body who will make a offer for such purchase will first get the valuation of each items of bid. Infact the assessee himself admitted in his subsequent para that he has also got the valuation of assets. Even in the advertisement published by PIC- UP for sale of this unit, it is mentioned that Shri Prabhash Gupta, Sr, Manager (Project)may be contacted for other details and inspection of the unit. Infact the PIC UP had a valuation report dated 01.06.2002 that is well before the date of auction. It is not possible that the assessee will make a bid of Rs. 2.45 crores without any physical inspection of actual items. This is completely against prudence. Besides, the fact that the assessee get the valuation done by himself prior to making his bad has again been accepted vide his reply dated 07.12.2007 reproduced in para 4 Above. Had it not been so, then assessee would not have revised his bid dated 10.09.2004 from Rs. 201 lacs to Rs. 245 lacks as conveyed vide his letter dated 12.10.2004 send to PIC Up. This fact is also admitted by the assessee vide his reply dated 07.12.2007, reproduced in para 4 above. It has also been claimed that a letter was also issued by PIC UP in the month of November 2004 but the same was not produced for the reasons best known to assessee. Thus the contention of the assessee that he was ignorant of bifurcation of cost of land, building and plant and machinery is not accepted. The assessee vide his next submission has stated that the valuer has made the valuation on the method that market rate or circle rate whichever is higher and the Value of land at market rate is Rs.6 lacs and according to circle rate it comes at Rs.31 lacs. To this I can only say that this is the only acceptable method of valuing cost of any land. The assessee further contended that according to his view to adopt the circle rate is wrong because as per general principal of law it should be valued at the amount whichever is low. Let us be clear about it. The principal of taking a value at market rate or cost applies in the case of closing stock. The assessee now in a way is admitting that the unsold land & building was his closing stock!. Let us take the figure of Rs.6 lacs as the assessee himself suggest this value allegedly for land and recast his-trading A/c after capitalizing this value. Trading A/c: for the year ended on 31.03.2005 Page 13 of 31 Particular Amount Particular Amount Opening stock Nil Sales 2,25,71,039. 90 Purchases 2,39,15,875.00 Gross loss 13,44,836.00 2,45,15,875.00 Less: Cost of land 6,00,000.00 2,39,15,875.00 2,39,15,875. 00 It is not a 'case of gross loss. Here 1 would like to refer to the assessee's submission dated 05. 11.2007 that 'the cost of land was hot 'separately mentioned in the possession letter issued by PIC-UP and there was no other method by which way the cost of land could be arrived so, the market value was estimated and the Value 'of land was taken on the basis of market estimation. The assessee admits that the value of land was taken according to market, estimation which; was Rs.30 lacs, then how- corns: this estimation is being reduced to Rs. 6 lacs. The assessee also objected to the value taken in accordance^ the letter dated 14.11.2006 on the ground that this value was conveyed to him after completion of assessment year. I do agree to the view of the assessee true that the letter is dated 14.11.2006 but it is not the date which matters it only shows that the value adopted -by the assessee is incorrect. The assessee - further stated-that "during the year the assessee made-an agreement with labour contractor that he will demolish the factory and in this connection, all the material will be taken by contractor. No payment will be made by the assessee and the contractor will get no consideration for building malwa and further it is stated that the plant and machinery cannot be disposed off until the building is demolished, .because o/d machinery etc, cannot be brought out However there are some bills through which the old material of building such as iron and steel was sold. Hence, it is established that the building was demolished up to 31.03.2005. There is huge contradiction in above claim of assessee. The assessee claims that there are some bills through which the old material of building was sold. At the time of verification of sale bills, when each and every sale bill was seen, there was no bills for sale of building material. Besides when assessee entered an agreement with a labour contractor with the clause that all material will be taken by him, where is the question of selling building material by assessee? Even otherwise according to assessee he was not required to pay for labour on account of demolition and loading/unloading of material but he has debited the following expenses on these heads in his P/L A/c.
Crane hiring charges 55,730.00 Gas cutting charges 36,085.00 Labour charges 2,62,500.00 Labour welfare 3,675.00 Loading & unloading expenses - 2,37,540.00 Has the assessee claimed bogus expenses on these account!. The assessee further claimed that the plant & machinery cannot be disposed off until the building is demolished and the assessee is ready to provide any other evidence such as agreement copy or valuation report etc., if it is required. A copy of affidavit sworn in by assessee claiming the same facts was also filed. I do not agree to this view/ claim of the assessee. Whenever, an industrial plant or unit is set-up, building is first thing to be erected or constructed. Machineries are fixed thereafter. Same is the case of .dismantling the plant & machinery is not so that the, building is demolished first and machines will be taken out/dismantled afterwards. Vide order-sheet entry dated 07.12.2007 the assessee was asked to furnish copy of agreement entered with such contractor who has undertaken the job of dismantling the building. But the same was not made available. Assessee was also required to produce evidences of incurring the expenses debited in P & L A/c and also give comments pm applicability of section 40(a) of the Income Tax Act, 1961 on such payments but no compliance was made on i0.12.2007iandladjoumment was sought for five (days. It was explained that the case shall be barred by limitation" on 31.12.2007 and accordingly adjournment was allowed till 13.12.2007 to which the bearer of letter refused to sign. However another application seeking adjournment for minimum seven days wa's furnished on 13.12.2007 to which it was clarified that that a last opportunity, adjournment is allowed till 17.12.2007. On this date again an adjournment application one days time was furnished which was acceded to and the date was fixed for 18.12.2007. On this date, the assessee submitted that the copy of agreement Will be submitted within one week. If the assessee's request is considered then the 'date of next hearing will be 26.12.2007 (since 25th December will be holiday on A/c of Christmas). It was conveyed to him that further adjournment will not be possible as enough time had already been given to him. However I would like to put on record the details of adjournment sought in this case.
SI. Notice Date Date Nature of Adjourned No. U/s 42(1)/143(2) of notice of fixture/ compliance/ Reasons for hearing for adjournment 1. Notice 143(2) 18.09.2006 27.09.2006 None attended. 2. 142(1)/143(2) 17.05.2007 05.06.2007 An , application seeking 27.06.2007 along with adjournment for 20 days questionnaire was filed on the ground that the requirements are not ready. 3. 27.06.2007 None attended 4. 142(1) 17.07,2007 24.07.2007 An application seeking 14.08.2007 adjournment for 15 days was filed on the ground that the counsel is busy in filing of returns.
Page 15 of 31 5. 14.08.2007 An application seeking 21.08.2007 adjournment for 15 days was filed on the ground that the accountant has not rejoined. 6. 21.08.2007 Written submission 07.09.2007 filed. Examined & queries were give. 7. 07.09.2007 Part details filed. Adjourned 14.09.20G7 till 14.09.2007 for remaining replies. 8. 14.09.2007 Part details filed. Adjourned 24.09.2007 till 24.09.2007 for remaining replies. 9. 24.09.2007 Shri Buphesh Gupta, 05.10.2007 FCA & assessee attended & details filed till date were examined. Further queries were given. 10. 05.10.2007 An application seeking 12.10.2007 adjournment for 15 days was filed on the ground that the counsel is busy in appeal matters. 11. 12.10.2007 None attended 12. 142(1)/271(1)(b) 15.10.2007 24.10.2007 An application seeking 02.11.2007 adjournment for 15 days was filed on the ground that the counsel is busy in tax audit. 13. . 02.11.2007 An application seeking 05.11.2007 adjournment for 15 days was filed on the ground that the counsel is busy in fifing of returns. 14. : 05.11,2007 Shri Buphesh Gupta, FCA 14,11.2007 attended & filed written submission. Further queries were given.
14.11.2007 Shri Buphesh Gupta, FCA & 19.11.2007 sought time. Adjourned till / 19.11.2007.. 16. 19.11.2007 Shri Buphesh Gupta, FCA & 29.11.2007 . fifed details and produced cash book, ledger & sale bills only, which were examined. Further queries were given 17 29.11.2007 None attended. 18. 30.11.2007 An application seeking 06.12.2007 adjournment was filed on medical ground of counsel. 19. 06.12.2007 None attended.
Page 16 of 31 20. 07.12.2007 Shri Buphesh Gupta, FCA 11.12.2007 Jfcjjjed details. Further queries were given. . 21. 11.12.2007 An application seeking 13.12.2007 adjournment for 5 days was filed on ground of that the assessee has gone out of station due to any death. Adjourned till 13.12.2007 .(But .the bearer 'of the letter did not note the datel 22. 13.12.2007 An application seeking 17.12.2007 adjournment for minimum 7 days was filed on ground of that the assessee has not returned. Conveyed that it is tne last opportunity and no further time will be given. 23. 17.12.2007 Another application seeking 18.12.2007 one days time was furnished mentioning that the assessee has returned back today & the counsel could not prepare the reply. 24. 18.12.2007 Furnished reply only. Sought one week's time for furnishing copy of agreement. Further adjournment was disallowed.
It may be seen that query regarding capitalization of land & building was raised as on 05.11.2007 but the assessee deliberately avoided the production of his evidence before AO and sought adjournment one after another. Even on the last date of hearing, one week time was sought. It .was assessee who himself claimed existence of an evidence in shape of an agreement It was again the assessee who vide his reply dated 07.12.2007 submitted that he is ready to provide any other evidence such as agreement copy or valuation report etc., if it is required. But when the same was required by the AO, he did not produce the same before trim (deliberately!). It may be noted that it is not the AO who refused to admit the so-called evidence. Was the assessee prevented by sufficient cause from-producing his evidence before AO? Reference is .invited to the nature of compliance/reasons for adjournment as mentioned at SL. No. 21 to 23. It was admitted that the assessee was gone out of station w.e.f 11.12.2007 and returned back on 17.12.2007. vide last reply submitted on 18.12,2007, copies of medical prescription (Modern Heart Care Clinic, Ghaziabad) dated 27.11.2007, culture & sensitivity report (Vrinda Diagnostic Center, Page 17 of 31 Ghaziabad) dated 12.12.2007 and copy of hemogram & other routine examination dated J7.12.2007 (Dr. Lal Path Labs, Ghaziabad) were also submitted in support*of illness of assessee. The report of Vrinda Diagnostic Center is dated 12.12.2007. Similarly sample was collected by Dr. Lal Path Labs on 15.12.2007 at Ghaziabad. According to reasons for adjournment, the assessee was out of station on both these dates (Vide adjournment application submitted on 11.12.2007, it was claimed that the assessee is gone out of station & has returned only"brt^ 17.12.2007 meaning thereby that assessee was out of station w.e.f 11.12.2007 to 17.12.2007). I can now understand that the assessee has nothing to produce before AO or is deliberately avoiding production on the apprehension that the AO may make further enquiry. Or this may be the reason for which the assessee want to make compliance at the fag end of the December so that AO will left with no option but to conclude the assessment without making proper enquiry. Considering all these factors, I proceed to decide the issue treating that assessee has noting further to submit or produce as proceedings cannot be prolonged till fag end of the December 07 Besides, the PIG-UP vide their letter elated 09.10.2007 has also provided a copy of (sale deed) dated 23.04.2007 whereby land & building was transferred to assessee .for a consideration of Rs,106.28 lacs received already by PIC-UP through sale proceeds of Rs.245 lacs. According to this document, the building was in existence'(at least) till the date of execution of this sale deed i.e. 23.04.2007. The assessee vide his above written submission claims that at point no AA(a) of sale deed)/? Is stated that vendor is the owner of land and building and vendor transfers in all its right, title and interest In and above the said property described. A copy the deed in question was provided to the assessee on 19.11.2007. The para 4, 4(a)&4(b)of the said deed is reproduced herein below.
The vendor advertised the sale of the said assets in the newspapers and on the highest offer of Rs.106.28 lakhs only received from vendee for purchase of the said assets being acceptable to the vendor, the vendor, agreed to sell and the vendee agreed to purchase the said assets for the sale consideration of Rs.106.28 lakhs (Rupees One Hundred Six Lakhs Twenty Eight Thousand only). a. That for consideration of the sum of Rs.106.28 lakhs (Rupees One Hundred Six Lakhs Twenty Eight Thousand only), receipt whereof the vendor doth hereby acknowledge, the vendor doth hereby absolutely sell and transfer in favour of the vendee, all its right, title and interest in and over the said property described in the schedule attached hereto consisting of Page 18 of 31 the land, buildings, hereditaments to be rightful owner of all the vendor's title and interest in the said assets. b. That on and form the date of execution of these presents the vendee shall become entitled to the said assets i.e. land, buildings and all construction made thereon at Khasra No.252 and 253, situated at village Jat Mujhera Pargana, Tehsil & Distt Muzaffarnagar, more specifically described in the schedule attached hereto What are the said, assets? Is it only land which was transferred for a consideration of Rs.i06j28" lacs receipt whereof the PIC-UP has acknowledged in the sale deed executed on 23.04,2007. The, said assets mentioned in para 4 has been elaborated in subsequent sub-para :4(a) & 4(b) of this, deed as, reproduced above. The assessee made a deal of Rs.245 lacs with PIC-UP to, -purchase the unit as it is where it is. The unit obviously comprises land, building and plant & machinery. How the value of the 'said assets has been arrived by PIC-UP and agreed by; assessee. Let us see the following breakup of the valuation of assets or the total value of Rs.245 lacs. Land Rs.34,87 lakhs Building Rs.71.41 lakhs Total of land and building Rs.106.28 lakhs Plant and machinery Rs. 138.72 lakhs , Rs.245.00 lakhs According to above it was the undisputedly land & building which was transferred by execution of sale deed on 23.04.2007 for a value of Rs.106.28 lacs which the PlC-UP has received from assessee. It is therefore documented that the building was very much in existence till the date of execution of this sale deed. As per the sale deed, the assessee has also signed as one of its part and as such cannot deny it now. It appears that since the plant & machinery were almost new (as informed by PIC-UP that the unit was attached during its implementation i.e. on 06.02.2002 and sold in September 2004 the assessee got a good price thereof. The assessee's another claim that even stamp duty has been paid on a price other than the sale consideration, I am unable to make any comment on the issue of correctness of stamp duty as it is a subject matter of local revenue authorities. However there are exception where stamp duty is charged at a rate other than the circle rate notified by District Magistrate. In cases of sale by development authorities and UP Avas Vikas Parishad, the stamp duty is charged on a different rate i.e. on a price lesser than the Page 19 of 31 notified circle rate. Thus the assessee's this claim is of no relevance. As regards the claim of assessee that in the subsequent sale deed only the land is mentioned, I am again unable to make any comment as the assessee is free to demolish the building and sell the land & malwa thereafter or even sell the land in small prices as has been done by him.
In view of the above, it is proved that during the year under consideration, the assessee has soid only plant & machinery for a total consideration of Rs.2,25,71,039.90 and the land & building was capitalized and shown fixed assets on an incorrect valuation.
To verify the sales made by assessee, details of buyers were sought and notices U/s 133(6) of the Income-tax Act, 1961 were issued. The following table contains the details of verification exercise. SI. Name & address Sale Result Transacti Remark No. i value of on as per notice party 1 M/s Shri Krishna 70,000/ Replied 72,800/ Sales - Corporation, Delhi 2. M/s Premsons 45,93,1 Replied 48,78,18 The assessee is director vin( Forging (P) Ltd., 88/- 8/- Ghaziabad individual, capacity. Other than this transaction of loan/repayment have been made & the total of this A/c tallies at Rs.l,96,30,000/- with a closing - balance of Rs.49,56,810/- 3 M/s Venus 50000 Rubber Plast ; (P) Ltd Ghaziabad 4 M/s Hindon 5,02,47 Replied 5,02,470 The assessee is Forge (P) 0/- 7-shown director- in .Limited, as individual' ' Ghaziabad purchase capacity. Other (shown as than this unsecured loan transaction of Page 20 of 31 .Joan) 'loan/repayment have been made & the tota! of this A/c tallies at Rs.30,40,875/- 5 M/s Jai 2,50,00 . Mateshwari Steel 0/- (P) Ltd. Ghaziabad 6 M/s Bankey 6,60,36 ; Bihart Ispat (P) 07- Ltd, 7 M/s Prem 2,50,00 Return Engineering 07- ed Worlcs unserv ed 8 M/s Bajrang 27,29,7 Return Concast (P) Ltd.' 58/- ed unserv ed 9 M/s Arkey 5,21,10 Return Contractor, 07- ed Kanpur unserv ed 10 M/s Adarsh 1,13,71 Return Agro Udyog, 57- ed Muzaffarnagar unserv (complete ed address not given) 11 M/s Balaji steel 1,80,02 Return Traders, 57- ed Ghaziabad unserv ed 12 M/s Bharat 30,0007 Return Petroleum, - ed Muzaffarnagar unserv ed 13 M/s Bihar Tube 4,00,00 - Limited (address 07- not given) 14 M/s Farhana 3,00,13 Return Page 21 of 31 Agro Udyog, Bag 27- ed h pat unserv ed 15 M/s Gagan 1,05,35 Traders, s/- Modinagar 16 M/s Gunjnanak 2,03,2 Replied Denied to have Iron Store, 18/- made any Aligarh purchase/sate from assessee 17 M/s Kha.n and 35,15G/ Sirohi, - Bulandshahar 18 M/s Madhu 1,11,15 Return - - Steel Traders, 07- ed Muzaffarnagar unserv (complete ed address not given) 19 M/s M, I Scrap 3,05,21 * • ' •-. . Traders, 57- Muzaffarnagarsh ri Mohd. Khan Kabadi, Muzaffarnagar (complete address not given) 20 Shri Mohd. 2,59,28 Return Khan Kabadi, 5/- ed Muzaffarnagar unserv ed 21 Shri Mo"hd. 1,11,53 Return .--'"•• Yunus (complete 0/- ed address not unserv given) ed 22 M/s Ravi Steet 1,11,27 Return Traders, 87- ed Ghaziabad unserv ed 23 M/s Shivam 1,06,77 Return Steel Traders, 77- ed Ghaziabad unserv Page 22 of 31 (complete ed address not given) -- 24 M/s S. K. Steel 1,03,78 Return Traders, 5/- ed Muzaffarndqar unserv ed 25 M/s Sonu 2,85,54 Steels, Aligarh 57- 26 M/s Sri 8,67,62 Replied 8,67,640/ The entire Gopala Iron 0/- - payments have India (P) been made in cash Ltd. Ghaziabad &. in between . cash of Rs.92,380/- has also been repaid.
Besides above the vide his reply dated .19.11.2007, the assessee submitted the a list wherein M/s Shri Ji Oil Dehyderaton (complete address not given) has been shown as as creditor for Rs.65000/. Interestingly this name does not appear in the balance sheet in the list of creditors. It is admitted that the assessee has not made purchases other than PIC-UP then how come M/s. Shri JI Oil Dehyderation be his creditor. All these shows that books of A/cs are not reliable and sale made by assessee could not be verified. As the book results/trading result are incorrect as much as they do not show the correct income of assessee, provisions of section 145(3) are invoked and trading A/c of assessee is rejected. The capitalization of land & building is allowed but only at a correct value mentioned as under. Land Rs.34.87 lakhs Building Rs.71.41 lakhs Total of land & building Rs.106.28 lakhs The trading A/c of assessee is therefore recasted below to deduce the correct gross profit Trading A/c for the year ended on 31.03.2005 Particular Amount Particula Amount r Opening stock Nil Sales 2,25,71,039.90 Page 23 of 31 Purchases 1,38,87,875.00 2,45,15,875.00 less: (fixed assets transferred to balance sheet) Cost of land 34,87,000.00 Cost of building 71,41,000.00 Gross profit 8683164.90 2,25,71,039.90 2,25,71,039.90 The gross profit will therefore be taken at Rs,86,83,164.90 instead of Rs.10,55,164.90. The difference of Rs.76,28,000/- (Rs.86,83, 164.90 - Rs.10,55,164.90) shall be added in the Income of assessee as extra profit Penalty proceedings U/s 271(l)(c) of the Income Tax Act, 1961 for concealment of income as aforesaid and furnishing inaccurate particulars within the ^meaning of explanation 1 to the sub-section (1) of the section 27l(l)(c) of the Income Tax Act, 1961 are initiated.”
On appeal before the ld CIT(A) he also confirmed the above addition as under:- “5.2 Regarding ground of appeal no. 2: Nothing can be more farcical than this argument of assesee. Anyone can find, from the assessment order and from perusal of assessment records, the glaring fact that assesee has, all along, adopted an attitude of non-compliance and a delaying tactics; obviously because truth was not on its side. The AO has put forth a complete summary of such non-compliance/adjournments on pages 9 of assessment order. The AO has given as many as 24 opportunities, since 17.05.2007, when assessment proceedings started substantively by issuance of detailed questionnaire u/s 142(1). And still, the appellant has the audacity to raise the aspect of Natural Justice. The AO clearly mentions that query regarding capitalization of land & building was raised as back as on .05.11.2007, but assessee avoided production of evidence (any agreement for dismantling Of P & M), Seeking adjournment one after another. Even after as many as 10 opportunities (between 5.11.2007 to 18.12.2007), and even after clearly told that now matter is to be finalized, and no further adjournment can be given; the assesee, for obvious reasons, asks for further adjournment. It is crystal clear that the assesee was buying time to fabricate evidence. Had there been any such agreement in reality; same could have been produced within days. At least, complete name and address of the contractor; contractor's confirmation, and other primary correspondence etc anything should have been provided. In Page 24 of 31 fact, there are other glaring contradictions, as I would discuss later, while discussing this issue on merits. What is concluded, here that all such agreements/affidavits provided later, in appeal, are self-serving and afterthought fabrications. The AO had given more than ample opportunities to assesee for producing evidences. This ground is rejected. 5.3 Regarding grounds of appeal no. 3, 4. 5 & 6 i.e. regarding capitalization of correct amount of Land & Building:
5.3.1 I am completely in agreement with AO's views that the deal, between assesee and Pie-up, was based on approximate valuation of Land, of Building and of Plant and Machinery-separately done by both the parties, viz, assesee and . The assessee has all along, tried to hide the market value of the land, for obvious reasons (to deflate the trading profit on sale of Plant & Machinery), while Pic-up has twice provided such estimated values, Pic-up is an independent body and is certainly of much more repute and reliability, and, hence, the values of land, building, plant and machinery; intimated by it; have correctly been taken as basis for interferences, by AO. 5.3.2 Both the valuation estimates—(a) the valuation report of M/s Shreeniwas Associates Inc., Lucknow, and (b) the valuation as made by Pic-up, vide its letter dated 14.11.2006 addressed to assessee are extremely important as well as reliable; both almost match (refer to page 4 of assessment order), and such values of land, of Building, and of Plant & Machinery, almost seal the impugned issue, against the appellant. 5.3.3 Agreement for dismantling Plant & Machinery, produced in appeal, is clearly an after-thought fabrication. Similarly, all affidavits being tendered before me are of interested parties, and in any case, after-thought fabrication. There is absolutely no justifiable reason (appellant has not even mentioned any such reason), as to what prevented assesee to furnish such documentary evidences, during assessment proceedings. I strongly depreciate the appellant's efforts of inserting fabricated evidences, and, hence, J don't admit appellant's plea of admission of these as additional evidences. Thus, there is no question of giving any opportunity to AO U/R 46A. Reliance is placed on various case-laws: (i) Add-evidence can be admitted if there are sufficient reasons for not adducing them earlier and it is decisive for PUC Jagannath Pd Kanhaiya Lal 171/596 (All) (ii) The mere fact that the evidence sought to be produced as vital and important does not provide a substantial cause to allow its admission at the appellate stage, especially when the evidence was Page 25 of 31 available to the party at the initial stage and had not been produced by him without any sufficient cause. CIT Vs. Jainpur Udyog Ltd. (Raj) 227 ITR 345 Velji Deoraj & Co. Vs. CIT (Bom) 68 ITR 708 Jyotsna Suri Vs. DCIT (ITAT, Del) 61 ITD 139 A.K.Babu Khan Vs. CIT (AP) 102 ITR 757 DCIT Vs. Vira Construction Co. (ITAT, Mum TM) 61 ITD 33 Ram Prasad Sharma Vs. CIT (All) 119 ITR 867 (iii) No reason for not producing the additional evidence before the lower authorities—Application for admission deserves to be rejected. If admitted, the provisions of Rule 46A to be followed.
N.B. Surti Family Trust Vs. CIT (Guj) 288 ITR 523 Ranjit Kumar Choudhury (Gau) 288 ITR 179 5.3.4 The appellant's claim that building was demolished, in order to dismantle Plant and Machinery, is, just a make-shift excuse and is rejected as per following arguments: (i) Building is not required to be demolished for dismantling of Plant and Machinery. Even for dismantling furnaces; only some portion of base earth is required to be dug up, and some minor support walls may be required to be broken. So, argument of demolishing the entire building , which is a huge component as per authentic valuation reports on record, is preposterous and certainly an instance of "telling many lies to support one lie". (ii) Had such a huge building been demolished; there would have been, apart from agreement with contractor, some primary correspondences; bills raised by contractor; bill of sale of demolished items, many of which would be 'complete' items (as mentioned in detail in valuation reports) not requiring even breakage and hence, to be resold, may be on a lesser value; sale bills of Scrap items like bricks, scrap iron parts, wood items which together would be in large no. and of substantial amounts etc. etc. Nothing much of these is present, as specifically mentioned by AO; whatever little bills were furnished are of very little import, and are likely to be some minor amounts of bricks lying on the site on elsewhere. To reiterate, non-availability of such basic evidences and non-furnishing of any such agreement for dismantling; in fact, non-mentioning of any such contractor's name and address are supportive of each other.
Page 26 of 31 (iii) There is another glaring contradiction, as mentioned by AO on page 8 of assessment order reproduced, for ready reference: - “……….There is huge contradiction in above claim of assesee. The assessee claims that there are some bills through which the old material of building was sold. At the time of verification of sale bills, when each & every sale bill was seen, there was no bills for sale of building material. Besides, when assesee entered an agreement with a labour contractor with the clause that all material will be taken by him, where is the question of selling building material by, assesee? Even otherwise according to assesee he was not required to pay oft labour on account of demolition and loading/unloading of material but he has debited the following expenses to these heads in his P & L A/c......." (iv) Even reliance, by the appellant, on order of S.T.Deptt is of no help, because, it pressed carefully this order itself mentions that assesee had not maintained his accounts correctly. (v) At the time of registration also, both Land and Building were clearly mentioned in the sale deed (refer to page 12 of assessment order) 5.3.5 The AO's entire reasoning as elucidated on pages 7, 8, 9, 11 & 12 of assessment order are very cogent; the same are agreed upon and are not repeated here, for the sake of brevity. 53.6 Thus, the action of the AO, of rejecting book results u/s 145(3) and of recasting the trading account is upheld. The AO has sound basis of inferring that1 only Plant and Machinery were sold in this year, and of valuing the capitalized amounts for Land and Building, at Rs. 106.28 lakhs, and, thereby, working out the G.P. at Rs. 86,83,164. Addition of Rs. 76,28,000/- is confirmed.”
11. The assessee aggrieved with the above finding of the lower authorities contested that the accounts of the assessee are audited and method of accounting is regularly followed by the assessee where there is no defect pointed out by the ld Assessing Officer. The sales tax authorities have accepted the details of sale recorded of plant. It was further contended that the ld CIT(A) has erred in accepting the presumption of Assessing Officer that building was not demolished till 23.04.2007 on account of sale deed of but he had no material against the primary and clinching Page 27 of 31 evidence. He further submitted that even if the capital of land and building is taken at the value given in the financial account then again there would not be any difference and additions can be sustained only for Rs. 4.87 lakhs instead of Rs. 76.28 lakhs. He further submitted that addition is made purely on guess work. He further submitted that it is not possible to take out plant and machinery without demolition of building and therefore, the rejection of the fact of demolition is devoid of any merit. He therefore, submitted that addition made by the ld Assessing Officer and confirmed by the ld CIT(A) is devoid of any merit and deserves to be deleted.
Against this the ld DR vehemently relied upon the order of the ld Assessing Officer and ld CIT(A). He further stated that fact stated in those orders as well as the conduct of the assessee overwhelmingly demonstrates that books of account of the assessee are not at all reliable and therefore, it has been correctly rejected. With respect to quantum addition he submitted that it is apparent that assessee has credited the value of the land and building at a wrong value to deflate the profit. Firstly, the value of the land is taken at Rs. 30 lakhs from the trading account and not included in the closing stock. Further, there is no value of building in closing stock which is Rs. 71.41 lakhs included by the assessee in purchases shown in the profit and loss account. He submitted that it is highly unbelievable and without any basis or reasons that there is neither a closing stock of that building nor sale of the building. All the explanation given by the assessee are silent on these aspects. In view of this he submitted that addition of Rs. 76.28 lakhs is correct.
We have carefully considered the rival contentions. Looking to the facts of the case vide letter dated 12.10.2004 the assessee was awarded by accepting its offer for sale of entire fixed assets of M/s. ACME Industries ltd, Muzaffarnagar which was acquired by Pradeshiye Financial institute of Uttar Pradesh ( PICUP) u/s 29 of State Financial Corporation Act for Rs. 245 lakhs. According to the information given by PICUP the breakup of the sales price of Rs. 245 lakhs was confirmed by pic up vide their letter dated 14.11.2006 as under:-
Page 28 of 31 a. Land Rs. 34.87 lakhs b. Building Rs. 71.41 lakhs C. Plant and machinery Rs. 138.72 lakhs Total Rs. 245 lakhs 14. This fact further once again was confirmed by PICUP vide letter dated 14.11.2006. The assessee entered into sale deed on 23.04.2007 with Pradeshiya Industrial and Investment Corporation of UP Ltd (PIC UP) wherein, the above property was transferred in the name of the assessee. From the above transaction it is apparent that assessee has acquired three different assets from these transactions in the form of (i) land, (ii) building and (iii) plant and machinery. Undisputedly the assessee has also treated it as its business assets and therefore, should have shown purchases in its trading account of these three items totaling in all Rs. 2.45 crores. The assessee has debited above sum to the profit and loss account by reducing Rs. 30 lakhs being the cost of land and building from this sum and net debit to the trading account was Rs. 21515875/- which resulted into the gross profit of Rs. 1055164/-. The amount of Rs. 30 lakhs stated in the profit and loss account is related to land and building but later on admitted that it pertains to only the land value and does not include the value of the building. Therefore a question arises that if the Rs. 30 lakhs only pertains to the value of land then why the closing stock did not include the cost of the building comprising in the original sale price of Rs. 71.41 lakhs not shown in the trading account. the answer to the above query was given by the ld AR that assessee has given a contract for demolition of the building and no consideration has been received on sale of building and similarly no cost has been incurred for demolition. The above submission of the assessee remains unsubstantiated. Furthermore, it is very strange that the assessee purchases a building of Rs. 71.41 lakhs in the total consideration of Rs. 245 lakhs and same is explained as given to the contractor without consideration. Furthermore, merely explaining that no consideration is received the affidavit of third party does not suffice. Furthermore, the order of the sales tax department does not also help the case of the assessee because it is merely stated as statement of facts and there is no reference that sales tax department has engaged in to any enquiry on Page 29 of 31 these aspects. The assessee also did not demonstrate with any evidence that for the purpose of dismantling of plant and machinery for its sale it is necessary that building is also required to be dismantled. This fact is also apparent from the certificate of the architect. It is also apparent that no relationship between the date of sale of spare parts and dismantling of the building was substantiated by the assessee. In any way it is the onus of the assessee to state its facts correctly and timely before the lower authorities and it cannot take on ride the government machinery where the facts are available with him even before filing of the return of income such as details of dismantling and persons who dismantled it. Furthermore, the ld Assessing Officer has given almost 24 opportunities to the assessee to substantiate its case. Further, when the main trading account of the assessee is faulty which neither discloses the correct amount of purchases nor discloses the closing stock, we find no infirmity in the order of the lower authorities in confirming the action of rejection of books of account u/s 145(3) of the Act. Further, the assessee did not care to substantiate its claim despite the full opportunity to show that a building of Rs. 71 lakhs did not result into any sale consideration to the assessee or why same was not included in the closing stock. Further, the assessee also could not substantiate when the building was demolished even the value of Rs. 30 lakhs for land shown by the assessee in its trading account was also not substantiated by the assessee. In view of the above we do not have any alternative but to confirm the finding of the lower authorities which are based on sound reasoning and on the material made available by the assessee. In the result ground No. 4 to 7 of the appeal of the assessee are dismissed.
15. Ground No. 8 of the appeal of the assessee is against sustaining the disallowance of Rs. 40,000/- out of total expenses by the ld CIT(A). The ld CIT(A) in his order has stated that against the above disallowance assessee has not given any sufficient reason and therefore, he upheld the disallowance of Rs. 40000/- out of Rs. 50000/-. The ld Assessing Officer has made this disallowance as stated in para No. 8 of his order. The assessee before the ld Assessing Officer did not produce the attendance register of labour and therefore, he made disallowance of Rs. 50,000/- Page 30 of 31 which has been reduced by the ld CIT(A) to Rs. 40000/-. The assessee submitted that in past no such disallowance has been made. To substantiate this he submitted the order of the assessment in case of the assessee for Assessment Year 2007-08 wherein, in assessment u/s 143(3) the returned income was accepted. We have carefully perused the order of the assessment for AY 2007-08, we could not see whether there was any labour expenditure or not in that year. In view of this we do not find any reason to deviate from the order of the ld CIT(A). Therefore, ground No. 8 of the appeal of the assessee is dismissed.
Ground No. 9 of the appeal of the assessee is with respect to addition of Rs. 35000/- made by the ld Assessing Officer as unexplained expenses for payment of rent of Delhi office which was reduced by the ld CIT(A) to Rs. 25000/-. The ld Assessing Officer has made this disallowance on account of appearance of address of assessee at 63, Vasdha Enclave, Pitampura, New Delhi-34. The reason for this above address was not given by the assessee and therefore, ld Assessing Officer estimated the rent of Rs. 5000/- per month and made an addition of Rs. 35000/- which was reduced by the ld CIT(A) to Rs. 25000/-. We have not been given any details which gives us a reason to reduce the disallowance confirmed by the ld CIT(A). the ground of the assessee that expenditure is also required to be deducted cannot be accepted in view of proviso to section 69C of the Act. Therefore, ground No. 9 of the appeal of the assessee is dismissed.
Ground No. 10 of the appeal of the assessee is against sustaining the addition of Rs. 2 lakhs by the ld CIT(A). During the course assessment proceeding it was noted by the AO that a sum of Rs. 2.45 crores was paid by the assessee to the seller of property from various bank accounts of other entities. With respect to entry of ARKEY Contractor of Rs. 5 lakhs only Rs. 3 lakhs was confirmed by and therefore Rs. 2 lakhs remained unconfirmed was added by the ld Assessing Officer. the ld CIT(A) confirmed the addition because of the reason that assessee could not show the source of Rs. 2 lakhs of payment which is part of Rs. 2.45 crores. Before us the ld AR could not lead any evidence to show that a sum of Rs. 2 lakhs is paid from known sources of the income of Mr.