B.P. ERGO LTD,MUMBAI vs. DCIT 6(1), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य सद�य, राजे�� राजे�� केकेकेके अनुसार अनुसार/ PER Rajendra A.M.- लेखा लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the order,dated 20/06/2014,of CIT(A)-14,Mumbai,the assessee has filed the present appeal.Assessee-company, engaged in the business of manufacturing and selling of various kind of furnitures,filed its return of income on 14/10/2010, declaring income of Rs.1.17 crores.The Assessing Officer (AO) completed the assessment u/s.143(3)of the Act,on 19/03/2013, determin- ing its income at Rs.10,37,42,230/-.

2.Effective ground of appeal is about addition of Rs.28.65 lakhs made u/s. 69C of the Act. During the course of hearing,the AO directed the assessee to furnish various details in respect of addition to its fixed assets. In its response, the assessee submitted factory-plan,erection certificates, certificates of the architect and bills relating to architect fee for plant etc. from the perusal of certificate of the architect, the AO observed that the architect estimated his fees based on the project cost of Rs.8 crores, that the assessee had shown a total project cost at around Rs. 5 crores.He asked the assessee to explain as to why the project cost should not be taken at Rs. 8 crores.The AO observed that it was very difficult to accept that architect,who was authority in the construction design and evaluation of the structure would quote from figure that too file calculating his fees.After considering the explanation of the assessee in that regard the AO held that the assessee had concealed the expenses to the tune of Rs.3 crores in the project. Invoking

6488/M/14- BP ERGO Ltd. the provisions of section 69 C of the Act,he added the said amount to the total income of the assessee.

3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA). Before him, the assessee argued that during the year under consideration it had made addition to building amounting to Rs.6.64 crores, that it had furnished all the necessary details,including the Architectural Consultancy Agreement(ACA)during the assessment proceed -ings, that the agreement was entered into with Munish & Associates(M&A)on 27/07/2009, that fees to be paid to the consultant was fixed at 1.25% of the cost of the project estimated to be at Rs.5 crores as per the agreement,that the AO based on only one of the invoices came to the conclusion that cost of the project was Rs.8 crore,that referring to that invoice he made an addition of Rs.3 crores, that the part B of ACA dealt with consultancy fees to be paid, that part C of the agreement estimated the value of work for which agreement was entered into, that based on the agreement the consultant head raised its bill for various services rendered as per the agreement, that in the bill raised on 11/03/2010 the estimated cost of project was erroneously mentioned at Rs.8 crores, that the assessee noted that the bill of the consultant was not as per agreement, that the facts were brought to the notice of the consultant, that corrections were made in the bills, that the consultant had never issued any certificate stating that the cost of the project was Rs.8 crores, that there was an inadvertent mistake on part of the consultant, that the errors was rectified in the bill and payments were made accordingly, that the assessee had obtained written clarification from the consultant with respect to clerical error in one of the bills, that in the subsequent financial year it had constructed the additional for, on the said building and the total cost of construction of the building is Rs.9.06 crores, that the cost of building incurred by the assessee and capitalise in its books of account as on 31/03/2010 was Rs.6.64 crores inclusive of allocation of preoperative expenses capitalised along with the cost of building, that the consultant had certified that building was completed in March, 2010, that remaining part of the building was completed in subsequent years, that it had incurred further cost of construction of building in the AY.2011-12, amounting Rs.2.40 crores,that the total cost of building as on 31/03/2011 was Rs. 9.05 crores, that it had capitalised additional cost of construction of building to the tune of Rs.2.41 crores in the subsequent financial years, that the AO was not justified in making the addition based on estimated value of cost of project,that the assessee had capitalised 2

6488/M/14- BP ERGO Ltd. building cost of Rs.6.64 crores and not Rs.5crores as assumed by the AO, that he had not brought out any finding on record that the assessee had incurred cost more than what had been capitalised in the books of accounts. 3.1.After considering the assessment order and the submissions of the assessee, he held that the AO had referred the matter to the DVO for determining the cost of the project, that vide his report dated 27/08/2013 the DVO had estimated the cost of investment at Rs.9.55 crores, that the DVO had considered the cost of investment shown by the assessee at Rs.6.37 crores for the year under consideration. He directed the AO to consider the estimated cost of investment for the year under consideration as per valuation report given by the DVO and the differential only be considered for addition in the computation of total income instead of Rs.3 crores.

4.Before us,the Authorised Representative(AR) contended that no mistake was found in the books of accounts of the assessee, that addition u/s.69C was made on estimate basis, a reference can be made,for determining the fair market value and not for determining the cost of the of construction,that the issue in the case under consideration was to determine the cost of construction. He referred to page five of the paper book and argued that there was a mistake in the one of the bills raised by the consultant.The Departmental Representative(DR) supported the order of the FAA and argued that the architect had in its bill clearly mentioned the cost of the project at Rs.8 crores.

5.We have heard the rival submissions and perused the material before us. We find that assessee had carried out construction during the year under consideration, that it had entered into an ACA with M &A,that it had to pay commission at the rate of 1.25% to the consultant,that the consultant raised three bills for the services rendered by it to the assessee, that in one of the bills the rate as well as the total project cost was not as per the ACA, that in the bill the project cost was mentioned at Rs.8 crores, that the AO made a reference to the DVO, that he estimated the cost of construction of the plant, for the year under consideration,at Rs.6.37 crores, that the FAA directed the AO to restrict the addition made u/s.69C of the Act. We find that the entire dispute has arisen because of one of the bills, out of the three bills, issued by the architect, that vide its letter dt.13.6.13 the architect has clearly mentioned that there were errors in the bills raised in March 2010.The FAA has ignored the clarificatory letter issued by the 3

6488/M/14- BP ERGO Ltd. contractor. The AO had not rejected the books of account of the assessee and no defect has been pointed out as to how the amount capitalised under building account totaling to Rs.9.06 crores as on 31.3.12 was not reliable.Para-C of page 8 of PB talks of value of the work for which consultancy was to be paid and the estimated cost is mentioned at Rs.5 crores.Page10 and11 of the PB are bills of the architect. In both the bills the amount mentioned is Rs.5 crores.Pg-17 and 18 is the letter of the architect dt.13.6.13 wherein it had clarified the position about the value of property.It has been specifically mentioned in that letter that total cost of building upto 31.3.10 was Re.3.67crores.Besides,the assessee had given year-wise break up of expenditure made for construction of building and had capitalised the same.The accounts of the assessee were audited. In our opinion,there was no justification after letter of consultant to take the value of the building at Rs.8 crores.The assessee had obtained a valuation report from a chartered engineer who is also a registered valuer and same was submitted to the FAA.As per the report of the registered valuer the estimated total cost of investment is Rs.8.79,36,912/-.Thus there is a minor difference of Rs.36,106/- in the cost of investment shown by the assessee and cost estimated by the registered valuer.In these circumstances,restricting the addition to the figure mentioned in the report of the DVO,cannot be held be justifiable.Considering the peculiar facts and circumstances of the case, we hold that order of the FAA cannot be endorsed.Effective Ground of appeal is decided in favour of the assessee. As a result, appeal filed by the assessee is allowed. फलतः िनधा�रती अिधकारी �ारा दािखल क� गई अपील मंजूर क� जाती है. Order pronounced in the open court on 01st February, 2017. आदेश क� घोषणा खुले �यायालय म� �दनांक 01 फरवरी, 2017 को क� गई । /- Sd/- Sd/- (अमरजीत �सह /Amarjit Singh ) (राजे�� / Rajendra) �याियक सद�य / JUDICIAL MEMBER लेखा लेखा सद�य सद�य / ACCOUNTANT MEMBER लेखा लेखा सद�य सद�य मुंबई Mumbai; �दनांक/Dated : 01.02.2017. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1.Appellant /अपीलाथ�

2. Respondent /��यथ� 4

6488/M/14- BP ERGO Ltd.