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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: Shri T.R. Senthil Kumar & Shri B.M. Biyani
आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
These appeals have been filed by the Revenue as against the orders dated 26.03.2018 & 23.03.2018 passed by the & 578/IND/2018 & Ors. A.Ys. 2010-11 & 2011-12 Page No 2 DCIT vs. M/s. Globus Mega Project Pvt. Ltd. Commissioner of Income Tax (Appeals)-1, Indore as against the assessment orders passed u/s. 153C read with section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2010-11 and assessment order passed u/s. 143 (3) of the Act relating to the Assessment Year 2011-12. The Cross Objections are filed by the assessee as against the respective Revenue appeals. Since common grounds are raised by the Revenue, we will take up as a lead case.
The brief facts of the case is that the assesse is a Private Limited Company engaged in Real Estate Business. There was a Search and Seizure operation u/s. 132 of the Act on 25.11.2010 in M.P. Bullion Group and certain documents belong to the assessee were seized. Therefore a notice u/s. 153C was issued and the assessment was completed making various disallowances and additions. We are concerned only with three additions namely additions made u/s. 69C of unexplained expenditure on the basis of District Valuation Officer’s report of Rs. 23,43,123/-, Non deduction of tax at source on Professional Fees and Advertisement expenses u/s. 40(a)(ia) of Rs. 91,00,002/- and disallowance of 20% of total expenditure on labour charges of Rs. 7,52,564/-.
The brief facts of the case is that during the course of search proceedings in the case of MP Bullion Group certain documents were belong to the assessee were found and seized. The assessee was constructing a residential project with the name Globus Green Acre. The assessee entered into a ratio agreement with M/s. & 578/IND/2018 & Ors. A.Ys. 2010-11 & 2011-12 Page No 3 DCIT vs. M/s. Globus Mega Project Pvt. Ltd. Goutam Builders (first party) wherein the first party has handed over all the rights to the second party (the assessee) to develop and construct multistoried residential flats, commercial units, bungalows etc. on the land situated at village Nayapura (Lalghat), Bhopal District. The construction of the project was started in the assessment year 2010-11. A references to the District Valuation Officer (DVO) was made by the Assessing Officer for the valuation of the cost of construction. The DVO assessed the cost of construction for the Financial Years 2009-10 to 2012-13. On perusal of the report of the DVO, it is noticed by the A.O. that there is a difference in the cost of construction shown by the assessee to that of the report given by DVO. The assessee claimed an expenditure of Rs. 3,86,61,977/- whereas the DVO assessed the cost of construction at Rs. 4,10,05,100/-. Thus there is a difference of Rs. 23,43,123/-.
3.1. After giving opportunity to the assessee, the Assessing Officer added the difference of Rs. 23,43,123/- as unexplained expenditure u/s. 69C of the Act. On further examination of the construction expenses, the A.O. noticed the assessee has made payment of legal and professional fees for Rs. 41,65,093/- and advertisement expenditure of Rs. 49,34,909/- but no TDS has been deducted on these payments. Therefore the A.O. disallowed the same u/s. 40(a)(ia) of the Act. The Assessing Officer while perusing the labour charges, found that they had made vouchers were not signed by the labours and therefore made an adhoc disallowance of 20% of the labour expenses and made an addition of Rs. 7,52,564/-. & 578/IND/2018 & Ors. A.Ys. 2010-11 & 2011-12 Page No 4 DCIT vs. M/s. Globus Mega Project Pvt. Ltd.
Aggrieved against the additions, the assessee filed an appeal before the Ld. CIT(A). The assessee submitted the A.O. was not justified in making the addition on the basis of report of the DVO. When the books of accounts and documents seized by the department in respect of the Project itself was available to the department. There was no requirement to refer the matter to the DVO u/s. 142A of the Act and no addition can be made u/s. 69C of the Act. Relying upon the Hon’ble Supreme Court judgment in the case of Sargam Cinema vs. CIT [2011] 197 Taxmann.com 203 (SC), the Ld. CIT(A) held that without rejection of books, the A.O. is not supposed to refer the case to DVO and therefore deleted the additions made by the assessing officer. The assessee further produced before the Ld. CIT(A), copy of the ledger account of legal and professional fees paid to various parties namely Municipal Corporation, Bhopal, there is no TDS is required and wherever and advertisement charges are paid, necessary TDS were being deducted and remitted to the Government account. On verification of the same, the ld. CIT(A) deleted the addition made on account of 40(a)(ia). Disallowance of adhoc expenditure of 20% on labour charges, the ld. CIT(A) deleted the same. After verification of the books of account and supporting documents/vouchers, Muster Roll signed and thumb impression affixed by the labours.
5. Aggrieved against the same, the Revenue is in appeal before us raising the following Grounds of Appeal: 1. "Whether on facts and circumstances of the case, the Ld. CIT(A) was justified in deleting addition of Rs. 23,43,123/- on account of unexplained expenditure as per the DVO report?" & 578/IND/2018 & Ors. A.Ys. 2010-11 & 2011-12 Page No 5. DCIT vs. M/s. Globus Mega Project Pvt. Ltd.
2. "Whether on facts and circumstances of the case, the Ld. CIT(A) was justified in deleting addition of Rs. 91,00,002/- u/s 40(a)(ia) of the Income Tax Act, 1961?"
3. "Whether on facts and circumstances of the case the Ld. CIT(A) was justified in deleting addition of Rs.7,52,564/- on account of disallowance of labour expenses?"
Ld. CIT/DR Mr. P.K. Mitra appearing for the Revenue loged in virtual hearing belatedly for the reason that the internet connectivity in his office room is not good enough. Further in the virtual hearing, he could not switch on the video and presented the case through Audio mode only for the reason of low brandwith of internet connection. This problem is being expressed by the Ld. D.R. even in many earlier occasions. Therefore we direct the Department that the Ld. CIT/DR be provided with proper and adequate infrastructures with good internet speed and electronic communication facility for effective conducting of virtual hearing by the DR office.
Regarding first ground namely unexplained expenditure made u/s. 69C based on DVO’s report, the Ld. D.R. submitted that following the Hon’ble Supreme Court judgment in the case of Sargam Cinema (cited supra) without rejection of books of account, the A.O. cannot refer to Departmental Valuation Officer u/s. 142A. Therefore the Ld. CIT(A) is correct in deleting the addition made by the Ld. A.O. As far as regarding the second ground of addition made u/s. 40(a)(ia), the ld. CIT/DR supported the order of the Assessing Officer. Similarly, ground no. 3 namely adhoc & 578/IND/2018 & Ors. A.Ys. 2010-11 & 2011-12 Page No 6 DCIT vs. M/s. Globus Mega Project Pvt. Ltd. disallowance on labour charges, the ld. CIT/DR supported the order of the Assessing Officer.
Per contra, Ld. Counsel Mr. Manoj Fadnis submitted that the accounts of the assessee company have been duly audited the assessing officer has not pointed out specific deficiency in the books of account. However the Assesing Officer has not accepted the expenditure claimed by the assessee in the construction of the project and has referred the matter to the District Valuation Officer without rejecting the books of account which is against the settled principle of law laid down by the Hon’ble Supreme Court in the case of Sargam Cinema (cited supra).
8.1. The ld. A.R. also relied upon the Hon’ble Madras High Court judgment in the case of CIT vs. A.L. Homes reported in (2018) 401 ITR 285 and Tribunal judgment in the case of Westland Buildtech (P.) Ltd. vs. ITO New Delhi reported in (2016) 76 taxmann.com 142 and also Delhi Tribunal in the case of Toffee Agricultural Pvt. Ltd. 141 Taxmann.com 429. Thus the addition made on account of unexplained expenditure is liable to be deleted.
8.2. Regarding u/s. 40(a)(ia) disallowance, the ld. D.R. taken us to page no. 72 of the Paper Book which is the ledger account relating to legal and professional fees wherein a sum of Rs. 11,33,500/- is paid to Municipal Corporation, Bhopal on 03.08.2009. Similarly various payments made to local authorities which does not require any TDS. The assessee also produced copy of the receipt by the Municipal Corporation of Bhopal at page no. 73 of the Paper Book. & 578/IND/2018 & Ors. A.Ys. 2010-11 & 2011-12 Page No 7 DCIT vs. M/s. Globus Mega Project Pvt. Ltd. On 21.10.2010 payment of Rs. 25,000/- paid to Juris Consultants, Bhopal towards professional fees wherein appropriate TDS was deducted. Similarly in the case of Juris & Fair Consultants Ltd. as against the payment of Rs. 2,20,600/- appropriate TDS was being deducted. The Ld. Assessing officer without verification of these details simply invoked 40(a)(ia). Similarly advertisement and publicity expenses, our attention was invited to the ledger account at page no. 101 of the Paper Book wherein advertisement charges were paid duly deducting appropriate TDS to Aquarius Inc. Bhopal. Therefore the entire disallowance is liable to be deleted.
8.3. Regarding third ground of appeal, the ld. A.R. taken us to page nos. 135 to 190 of the Paper Book wherein the ledger account of labour charges, various bills and vouchers and muster roll of the labourer’s record were produced. After verification of the above details, the ld. CIT(A) has deleted the adhoc disallowance of 20% made by the assessing officer. Therefore this does not require any interference and the deletion is to be upheld.
We have heard both sides and perused the material available on record including the Paper Book filed by the assessee. It is seen from the record, the assessing officer referred the matter regarding the cost of construction of the project M/s. Globus Green Acre to the District Valuation Officer. The District Valuation Officer assessed the cost of construction for the period during the financial year 2009-10 to 2012-13. The ld. A.O. while referring the case for DVO u/s. 142A, the assessing officer has not doubted the books of & 578/IND/2018 & Ors. A.Ys. 2010-11 & 2011-12 Page No 8 DCIT vs. M/s. Globus Mega Project Pvt. Ltd. account maintained by the assessee. It is an admitted fact the books of account are duly audited by Chartered Accountant.
9.1. It is well settled principle of law by the Hon’ble Supreme Court of India in the case of Sargam Cinema that assessing authority cannot refer any matter to DVO without books of account being rejected by him. This judgment is being followed by Hon’ble Madras High Court in the case of A.L. Homes (cited supra) wherein the Hon’ble High Court held that the judgment of the Supreme Court in Sargam Cinema clearly laid down the law without rejection of books of account, the A.O. cannot refer the matter under 142A with the DVO.
9.2. It is appropriate to quote the applicability of Section 142A of the Act, the Co-ordinate Bench of Delhi Tribunal in Westland Miltech Pvt. Ltd. (cited supra) held as follows: 4. ……………. It is observed that the only dispute on this issue is about the investment made by the assessee in purchase of 11 plots in the course of its business. Whereas the assessee went by the rates given in sale deeds as a proper measure of investment made, the AO estimated the investment made by the assessee on the basis of the DVO's report, which valuation was partially reduced by the Id. CIT (A). The AO, in making this addition did not reject the books of account maintained by the assessee and straightway went ahead in making the addition on the basis of the DVO's report. The Hon'ble Supreme Court in the case of Sargam Cinema v. CIT [20101 328 ITR S13/r2011] 197 Taxman 203 has held that where the books of account are not rejected by the AO, no reference can be validly made to the DVO for making an addition. The reliance of the Id. DR on some contrary judgment of some non-jurisdictional High Court is misplaced. It is obvious that when an issue has been decided by the Hon'ble Supreme Court, no lower Court, much less C\ the Tribunal, can disobey the same. Relying on the direct judgment from the Hon'ble Summit Court on ' this issue, the action taken by the AO in making the addition on the basis of the DVO's report, without first rejecting the books of account, cannot be sustained. & 578/IND/2018 & Ors. A.Ys. 2010-11 & 2011-12 Page No 9 DCIT vs. M/s. Globus Mega Project Pvt. Ltd.
The Id. DR then contended that the position laid down by the Hon'ble Supreme Court is no more relevant after the insertion of section 142A of the Act. We are not convinced with the submission in so far as the extant assessment year is concerned. It is relevant to note that sub- section (2) of section 142A as inserted by the Finance (No. 2) Act, 2014, w.e.f. 1.10.2014 provides that : The Assessing Officer may make a reference to the Valuation Officer under sub-section (1) whether or not he is satisfied about the correctness or completeness of the accounts of the assessee.' There was no analogous provision prior to this insertion. This shows that the position of law laid down by the Hon'ble Supreme Court in Sargam Cinema (supra) for not making any addition on the basis of the DVO's report without first rejecting the books of account, is valid up to the period prior to the insertion of sub-section (2). As the assessment year under consideration is 2006-07, being, a year anterior to the amendment, the same will be governed by the judgment in Sargam Cinema (supra) and not the later amendment nullifying the pro tanlo effect of this judgment.
9.3. Thus going by the above judicial precedents, we are of the considered view that the assessment year involved herein is A.Y. 2010-11 which is prior to the insertion of sub-section (2) to Section 142A by the Finance Act, 2014 with effect from 2014. Therefore without rejection of books of account the assessing officer ought not to have referred the matter to DVO to determine the cost of construction of the Project of the assessee. Therefore the ground no. 1 raised by the Revenue does not find any merit and the addition made u/s. 69A deleted by the Ld. CIT(A) is hereby upheld.
9.4. Regarding addition made u/s. 40(a)(ia), it is seen from page no. 57 to 71 of the Paper Book filed by the assessee wherein the assessee filed its quarterly TDS returns by the assessee relating to the assessment year 2010-11. However without looking into these details, the assessing officer made disallowance u/s. 40(a)(ia) which is arbitrary. The Ld. CIT(A) after verification of the details have deleted the additions which does not require any interference by & 578/IND/2018 & Ors. A.Ys. 2010-11 & 2011-12 Page No 10 DCIT vs. M/s. Globus Mega Project Pvt. Ltd. us. Therefore Ground no. 2 is devoid of merits and the same is rejected.
9.5. Regarding ground no. 3 namely adhoc disallowance of labour expenses, the assessee produced all the details namely Ledger account, bills/vouchers and Muster Roll of the employees who worked for the construction project. It is seen from record, the same have been produced before the Assessing officer, but without assigning any good reason, the A.O. has made an adhoc disallowance at 20%. Therefore the addition is without any legal basis and therefore the deletion made by Ld. CIT(A) is hereby upheld.
For the above reasons, the grounds raised by the revenue are hereby rejected and the appeal filed by the Revenue is dismissed.
11.1. Two grounds raised by the Revenue are deletion of unexplained expenditure u/s. 69C and labour charges. Both the above issues have been dealt by us in in this common order, following the similar ratio of the decision on identical facts except the figures, the grounds raised by the Revenue are hereby rejected and the Revenue appeal is dismissed.
C.O. Nos. 26 & 26/IND/2019 filed by the assessee which are basically in support of the order passed by the Ld. CIT(A). As we & 578/IND/2018 & Ors. A.Ys. 2010-11 & 2011-12 Page No 11 DCIT vs. M/s. Globus Mega Project Pvt. Ltd. have upheld the order of the Ld. CIT(A), the Cross Objections filed by the Assessee are hereby allowed.
In the result, both the appeals filed by the Revenue are dismissed and C.O. filed by the assessee are allowed.
Order pronounced as per Rule 34 of I.T.A.T. Rules 1963 on 09-09-2022 Sd/- Sd/- (B.M. BIYANI) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Indore: Dated 09/09/2022 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file.