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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI VIJAY PAL RAO & SHRI S. JAYARAMAN
Per Vijay Pal Rao, Judicial Member These three appeals by the assessee are directed against the composite order dated 31.08.2015 of CIT(A) for the assessment years 2011-12 to 2013- 14. Since these three appeals are arising from the assessments framed u/s. 143(3) r.w.s. 153A of the IT Act and involve common issues therefore, these to 1492/Bang/2015 Page 2 of 20 three appeals were clubbed together for the purpose of hearing and are being disposed of by this composite order.
There is a delay of 43 days in filing these appeals by the assessee. The assessee has filed a petition for condonation of delay which is supported by an affidavit. The ld. AR of the assessee has submitted that since the appeals of the assessee for three years have been disposed of by the CIT(A) by a composite order, the assessee applied for certified copy of the impugned order to file three separate appeals before the tribunal. He has submitted that the said order was received by the assessee on 10.09.2015 through post and thereafter the assessee applied for certified copy of the respective orders passed by the CIT(A) as well as by the Assessing Officer. It took sometime for them to make available the certified copies and therefore the assessee could not file these appeals within a period of limitation and there was a delay of 43 days in filing these appeals. The ld. AR has submitted the delay in filing the appeals is neither deliberate nor willful but it was due to the reasons beyond control of the assessee. Hence he has pleaded that the delay of 43 days in filing of the appeal may be condoned.
On the other hand the ld. DR has vehemently opposed the condonation of delay and submitted that the assessee cannot take plea of obtaining the to 1492/Bang/2015 Page 3 of 20 certified copies of the order when the original copy of the order was supplied to the assessee.
Having considered the rival submissions as well as relevant material on record, it is noted that the assessee has explained the reasons for the delay in filing the appeals in the affidavit that the appeals of the assessee were disposed of by the CIT(A) by a composite order and therefore the assessee applied for certified copies of the order passed by the CIT(A) as well as the Assessing Officer. This process of taking the certified copy took sometime and therefore there is a delay in filing the appeals. It is pertinent to note that there is nothing on record to suggest that by filing the appeal belatedly the assessee intended to achieve some ulterior purpose or motive. Therefore when the assessee was not going to take any benefit by delaying the filing of appeals then in the facts and circumstances of the case the reasons explained by the assessee as stated under Solemn Oath in the affidavit cannot be disbelieved. Hence in the facts and circumstances of the case as well as in the interest of justice we are satisfied that the assessee was having reasonable cause for not filing the appeal within the period of limitation.
Hence delay of 43 days in filing of appeal is condoned.
For the assessment year 2011-12 the assessee has raised the following revised grounds.
Ground No. 1 is general in nature and does not require any specific adjudication.
Ground No. 2 is regarding the addition on an account of investment in house construction. Assessee was gifted the property by his father vide deed dated 19.05.2010. The Assessing Officer noted that the house is a three storeyed house with a lift on the northern side which connects all three floors. The AO in the assessment proceedings referred the valuation of the house property to District Valuation Officer(DVO). The DVO valued cost to 1492/Bang/2015 Page 5 of 20 of the construction of the building at Rs. 1,40,72,700/-. The AO made addition of Rs. 33,93,325 for the assessment year 2011-12 based on the valuation of the DVO. The assessee challenged the action of the Assessing Officer before the CIT(A). The CIT(A) after considering the sources explained by the assessee has reduced the addition to Rs. 20,40,000/- as against 33,93,325/- made by the Assessing Officer.
Before the tribunal the ld. AR of the assessee has submitted that the DVO has valued the cost of construction by applying the CPWD rates whereas the assessee has claimed that state PWD rates should be applied for the purpose of valuation of the cost of construction and further 10% rebate shall be allowed on account of personal supervision. He has pointed out that the AO has allowed only 6% supervision rebate instead of 10% claimed by the assessee. The ld. AR of the assessee has relied upon the decision of the Hon’ble Madras High Court in the case of CIT Vs K. Jayakumar, (2013)
216 taxmann.com 0166 and submitted that the Hon’ble High Court has held that the working out the cost of construction on state PWD rate should be considered. He has also relied upon the decision of the Chennai bench of the tribunal in case of K. Damodaraswamy Naidu Vs ACIT (1997) 59 ITD 0510 and submitted that the tribunal while dealing with the identical issue of CPWD rates or state PWD rates held that the valuation shall be computed following the state PWD rates. Thus the ld. AR has contented that the AO to 1492/Bang/2015 Page 6 of 20 may be directed to apply the state PWD rates for computation of the cost of construction and further allow 10% supervision rebate to arrive at cost of construction. In support of the claim of 10% the self supervision rebate, he has relied upon the decision of the Jodhpur bench of the tribunal in the case of ITO Vs Dr. Anand Chhabra (2007) 107TTJ 0831. The ld. AR has also relied upon the decision of the Chennai bench of the tribunal in case of DCIT Vs Smt. C.K. Sumathy, (2010) 6 ITR 0193.
On the other hand, the ld. DR has relied upon the orders of the authorities below and submitted that the CIT(A) has already allowed the substantial relief to the assessee and therefore no further reduction in the addition on account of investment in cost of construction of house can be allowed.
We have considered the rival submissions as well as the relevant material on record. The limited grievance of the assessee in respect of this issue is application of CPWD rates or state PWD rates while computing the cost of construction. There is no dispute that the DVO while computing the valuation as per the valuation report has considered the CPWD rates despite the objections raised by the assessee. It is pertinent to note that this issue of applicability of state PWD rates has been considered by this tribunal in series of decisions. The tribunal has taken a consistent view that when the property is situated in the state PWD jurisdiction then the state PWD rates to 1492/Bang/2015 Page 7 of 20 should be applied to ascertain the cost of construction instead of CPWD rates. Hon’ble Rajasthan High Court in case of CIT Vs Dinesh Talwar 265 ITR 344(Raj) has affirmed the decision of the tribunal directing the AO to apply state PWD rate while computing the cost of construction of the building. Similar view has been taken by the Hon’ble Madras High Court in case of CIT Vs K. Jayakumar(supra). Thus when the property in question comes under the state PWD jurisdiction then the state PWD rates has to be applied for the purpose of computing the cost of construction on estimate basis. The DVO’s valuation of cost of construction is only an estimated valuation based on CPWD rates. Therefore the AO is directed to apply the state PWD rates for estimating the cost of construction of the house in question.
As regards the self supervision charges rebate rates is concerned, it is noted that the tribunal has taken a view that the rebate on account of self supervision of construction of house should be given at 10 to 15% of the cost of construction. The AO has given 6% rebate on account of self supervision. However, the assessee is demanding 10% rebate on this account. The ld. AR of the assessee has relied upon the decision of the Chennai bench of the tribunal in the case of DCIT Vs Smt. C.K. Sumathy (supra) wherein 15% deduction was directed to be allowed for self to 1492/Bang/2015 Page 8 of 20 supervision. The Jodhpur bench of the tribunal in the case of ITO Vs Dr. Anand Chhabra (supra) has held that such supervision rebate shall be given ranging from 7% to 10%. Therefore, in view of the various decisions of the tribunal on this issue we direct the AO to allow a rebate of 10% on account of self supervision while computing the rate of cost of construction. Hence this ground of the assessee’s appeal is partly allowed.
Ground No. 3 is regarding the addition on account of interest on FDR invested in the earlier years. The AO noted as per the seized material the assessee has made various investments in fixed deposits and National Savings Certificate on which the assessee earned interest. During the year the assessee received interest on Fixed Deposits of Rs. 51,347. On query the assessee submitted that interest on investment is reflected in the return of income wherein the interest income was shown at Rs. 72,642/-. Thus, the assessee contented before the AO that this amount of Rs. 51347/- is part of the interest income of Rs. 72,642/-. The AO did not accept this explanation of the assessee and made an addition of Rs. 51,347/-. The assessee challenged the action of the AO before the CIT(A). However, the CIT(A) has not adjudicated this issue.
Before us the ld. AR of the assessee has referred to the schedule 4 to Profit & Loss account at page 146 of the paper book and submitted that the total to 1492/Bang/2015 Page 9 of 20 interest of Rs. 72,642/- is comprising of the interest from bank deposits in various branches and further the interest on NSC has been separately shown in schedule 5. Therefore, the ld. AR has submitted that the assessee has already offered the interest income in the return of income. On the other hand, the ld. DR has relied upon the order of the AO and submitted that the AO has verified the record and found that the assessee has not offered the interest of Rs. 51,347/-
We have considered the rival submissions as well as relevant material on record. The AO made an addition of Rs. 51,347/- on account of interest on Fixed Deposit and National Savings Certificate. The assessee categorically stated before the AO that this amount of interest is already offered in the return of income as part of the interest income of Rs. 72,642/- This fact has been duly recorded by the AO in para 5.3. Despite that the AO has not accepted the explanation of the assessee. We note that as per schedule 4 of profit & loss account the assessee has shown the interest from banks at Rs. 72,642/- and further the interest of NSC at Rs. 2,641/-. Therefore, prima facie it appears that the interest received from the bank has been duly reflected as part of the interest income of Rs. 72,642/-. However, since the CIT(A) has not adjudicated this issue therefore, for the limited purpose of verification of this fact we set aside this issue to the record of AO to verify to 1492/Bang/2015 Page 10 of 20 the record and particularly schedule 4 & 5 of financial statement of the assessee and then decide the issue after giving an opportunity of hearing to the assessee.
Ground No. 4 is regarding disallowance of Rs. 24,987/- being 30% of the administrative expenses relating to the professional income. The AO noted that the assessee has admitted professional receipts of Rs. 5,72,356/- against which expenditure like printing & stationery, telephone charges, vehicle maintenance etc of Rs. 83,339/- were debited apart from depreciation of Rs. 39,525/- The AO asked the assessee to substantiate the expenses incurred with respect of earning of professional income along with the documentary evidence. In reply the assessee stated that he was an advocate and in full time employment in 2007-08 and parallelly started practice in Financial Year 2008-09. He has further stated that he got into full time practice since Financial Year 2011-12. The AO noted that the assessee has not provided any documentary evidence towards administrative expenses of Rs. 83,339/- as are reflected in Income and Expenditure account. Accordingly, the AO has made adhoc disallowance of 30% amounting to Rs. 24,987/-. The assessee challenged the action of the AO before the CIT(A) but could not succeed. Since the assessee could not produce evidence to prove the explanation, the CIT(A) has confirmed the addition made by the AO.
Before us the ld. AR has submitted that the assessee has shown the professional receipt of Rs. 5,72,356/- against which the assessee has claimed administrative expenses of Rs. 83,339/- which comes to 14.5% of the professional receipts. Thus, the ld. AR has contented that by any standard the quantum of administration expenses in relation to the total professional receipts are reasonable and are below the normal claim in similar cases. The ld. AR has even referred the amendment vide Finance Bill 2016 in section 44ADA which provides for estimating the income of an assessee engaged in any profession whose total gross receipt does not exceed Rs. 50 Lakhs in the previous year. Thus, the revenue considered 50% of the gross receipt of the profession as reasonable expenses to be allowed for computing taxable income from profession. The assessee has claimed the administrative expenses below 15% of the gross receipts and therefore adhoc disallowance of 30% is not justified. On the other hand, the ld. DR has relied upon the orders of the authorities below and submitted that when the assessee has not substantiated his claim by filing the supporting evidence, then the disallowance of 30% is justified. to 1492/Bang/2015 Page 12 of 20 17. We have considered the rival submissions as well as relevant material on record. The assessee has shown the professional receipts of Rs. 5,72,356/- against which the assessee has claimed administrative expenses of Rs. 83,339/- which is less than 15% of the professional receipts. Once the professional income and gross receipts are not in dispute then it is an impossible proposition that the professional income should be earned without any corresponding expenses. Considering the quantum of the expenses which is less than 15% of the gross receipts we find that the adhoc disallowance of 30% is exorbitant and is an extreme view. Accordingly, considering the facts and circumstances of the case when the claim of the assessee is less than 15% of the gross professional receipts we restrict the disallowance for want of supporting evidence to 10% of the expenses instead of 30%. Accordingly, we modify the orders of the authorities below and direct the AO to restrict the disallowance at 10%.
For the assessment year 2012-13, the assessee has raised the following revised grounds.
Ground No. 1 is general in nature and does not require any specific adjudication.
Ground No. 2 is regarding addition on account of investment in construction of house. This issue is common as for the assessment year 2011-12. In view of our finding on this issue for the assessment year 2011-12 this issue stands disposed of in same terms.
Ground No. 3 is regarding disallowance of 30% of administrative expenses. This issue is common as for the assessment year 2011-12. In view of our to 1492/Bang/2015 Page 14 of 20 finding on this issue for the assessment year 2011-12 this issue has been disposed of in same terms.
For the assessment year 2013-14, the assessee has raised the following revised grounds. to 1492/Bang/2015 Page 15 of 20 23. Ground No. 1 is general in nature and does not require any specific adjudication. 24. Ground No. 2 is regarding addition on account of investment in construction of house. This issue is common as for the assessment year 2011-12. In view of our finding in this issue for the assessment year 2011-12 this issue stands disposed of in same terms.
Ground No. 3 is regarding addition on account of unexplained gold and silver to the extent of Rs. 17,71,225/-. During the course of search u/s. 132, gold articles(Jewellery) weighing 1072.77 gram and silver articles weighing 773.5 grams were found as inventories at bank locker belonging to the assessee. Apart from this, gold jewellery weighing 322 grams was also found at the residence of the assessee. In the assessment the AO made an addition of Rs. 38,63,176/- as unexplained investment in jewellery. The assessee challenged the action of the AO before the CIT(A). The CIT(A) has allowed the credit for 800 grams of gold and entire silver articles as per the CBDT circular and consequently reduced the addition to Rs. 17,71,225/- Aggrieved by the order of the CIT(A) sustaining the addition of Rs. 17,71,225/- the assessee has raised this issue.
Before us the ld. AR of the assessee has submitted that the wife of the assessee has received most of the jewellery in question on the occasion of to 1492/Bang/2015 Page 16 of 20 marriage on 02.08.1998. Therefore, the rates of the gold as prevailing at the time of marriage should be applied for valuing the jewellery in question.
The ld. AR has further submitted that the family of the assessee consist of himself, his wife and two sons born in the year 2002 and 2007. Since the assessee belongs to Reddy community whether it is customary to receive gifts on occasions like wedding, birthday etc. The AO has wrongly assumed that the jewellery was acquired during the Financial Year 2012-13 and applied the prevailing rate at the time of search instead of the rate prevailing when this jewellery was received by way of gifts at the time of marriage and remaining on the occasion of the birth of his sons. Thus, the ld. AR has contented that the AO has adopted the rate of gold prevailing at the time of search instead of the rate at the time of acquisition of jewellery in question as gift. He has referred to the details of the rate of gold jewellery at the relevant point of time of marriage, birth of first child and birth of second child. The ld. AR has submitted that the assessee had explained the occasions and times of jewellery received by the wife of the assessee then the rates prevailing at that point of time should have been applied for the purpose of addition.
On the other hand, the ld. DR has relied upon to orders of the authorities below and submitted that when the jewellery was detected during the search to 1492/Bang/2015 Page 17 of 20 and no record was produced by the assessee regarding the acquisition / purchase of the jewellery then presumption is raised that the jewellery was acquired during the year of search and it has to be assessed as undisclosed income of the assessee of the Financial Year in which the search was conducted.
We have considered the rival submissions as well as the relevant material on record. The limited issue raised before us by the assessee is regarding the rate of the gold to be applied for computing the unexplained income on account of investment in gold. The gold articles were found in the locker of the assessee as well as at the residence of the assessee. As per the descriptions of the articles found during the search we note that all these gold items are jewellery meant for women. Therefore, the entire jewellery found during the search was women jewellery. The assessee claimed that the majority of the jewellery was received by the wife of the assessee at the time of marriage in the year 1998 and remaining was received on the occasion of the birth of first son in the year 2002 and second son in the year 2007. Thus, the assessee claimed that the gold rates prevailing at the time of marriage as well as at the time of the birth of the sons may be applied for the purpose of computing the income on this account. The CIT(A) though allowed the benefit as per the Board Circular no. 1916 dated 11.05.1994 and therefore out of the total jewellery found during the search the CIT(A) has to 1492/Bang/2015 Page 18 of 20 allowed the credit of 800 grams of gold and the entire silver articles of 773.5 grams. It is pertinent to note that once the assessee has claimed that the jewellery was received by his wife at the time of wedding as well as at the occasion of the birth of sons then it becomes relevant to consider whether the jewellery found during the search was old jewellery or it was a newly made jewellery. When the AO has not given a finding that the jewellery was newly made jewellery then the jewellery items as per the list clearly reflects that these are of routine jewellery items of women some of which are considered as part of ishtridhan and are part of the jewellery gifted to a women at the time of wedding. Accordingly, in the absence of any contrary finding by the AO that all the jewellery items are manufactured in the Financial Year 2012-13, the explanation of the assessee is plausible and cannot be brushed aside. Therefore, in view of the facts and circumstances of the case that the assessee belongs to a Reddy community whether there is a custom of giving the jewellery on the occasion of wedding as well as occasion of birth of children, we are of the considered view that the rate of gold jewellery has to be applied as prevailing at the time of the marriage of the assessee as well as at the time of the birth of the sons of the assessee. Accordingly, we set aside this issue to the record of the AO for applying the rate of gold as prevailing at the time of the wedding as well as births of the children of the assessee by considering the to 1492/Bang/2015 Page 19 of 20 proportionate amount of jewellery on the occasions being wedding and birth.
Ground No. 4 is regarding addition of Rs. 1,00,000/- being cash found in the bank locker. We have heard the ld. AR as well as the ld. DR as well as the relevant material on record. When there is no dispute that the cash was found from the locker it has to be included in the income of the assessee in the absence of any explanation. However, the assessee is entitled for telescopic adjustment of this amount against the addition of income if any in respect of Assessment Year 2011-12 and 2012-13.
Ground No. 5 is regarding disallowance of 30% of the administrative expenses relating to the professional income. This issue is common as for the assessment year 2011-12. In view of our finding in this issue for the assessment year 2011-12 this issue has been disposed of in same terms.
In the result the appeals of the assessee are partly allowed. Pronounced in the open court on this 08th day of March, 2017