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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAJESH KUMAR
Instant appeal by the Department is directed against the order dated 14th May 2013, passed by the learned Commissioner (Appeals)– 2, Mumbai, for the assessment year 2009–10.
In ground no.1, Department has challenged the allowance of assessee’s claim of expenditure of ` 10,90,529.
Brief facts are, the assessee a company is engaged in the business of digging trenchless boring, laying of pipe and cable on 2 M/s. Rank Mercantile Pvt. Ltd.
contract basis and also trading in trenchless equipment. For the assessment year under consideration, assessee filed its return of income on 29th May 2009, declaring total income of ` 95,63,758. During the assessment proceedings, the Assessing Officer noticing that the assessee has claimed deduction on account of payments made to contractor issued notices under section 133(6) to the concerned persons. As observed by the Assessing Officer, the notice issued to Vaibhav Engineers, New Delhi, returned un–served with re–mark “not found”. As stated by the Assessing Officer, when this fact was pointed out to assessee with a request to furnish the correct address of the said party or a confirmation along with the bank statement of the concerned party, as stated by the Assessing Officer, the assessee expressed its inability to furnish the whereabouts of the party and sought further time to submit the same.
As observed by the Assessing Officer, in spite of sufficient opportunities being given since the assessee failed to submit relevant details in the absence of proper verification, the payment of ` 10,90,529 was disallowed and added back to the income of the assessee. Being aggrieved of such disallowance, assessee preferred appeal before the learned Commissioner (Appeals).
3 M/s. Rank Mercantile Pvt. Ltd.
In the course of hearing before the first appellate authority, the assessee submitted the correct postal address of the contractor Vaibhav Engineers and the confirmation from the party with PAN and the Assessing Officer under whose jurisdiction the said party was assessed. The assessee also submitted, the bills raised by the contractor for services and supplies made and also the details of amount paid by the assessee from time to time. The assessee also submitted documentary evidence to show that Vaibhav Engineers was working with the assessee as a sub–contractor and has done work for the assessee not only during the year but in earlier years also and the assessee has a running account with the said person. The learned Commissioner (Appeals) on the basis of submissions made and evidence produced called for a remand report from the Assessing Officer. In the remand report, the Assessing Officer after verifying the evidence submitted by the assessee, though, found to be in order but he nevertheless stated that as the assessee failed to furnish such evidence before the Assessing Officer in the course of assessment proceedings, such evidence need not be considered. The learned Commissioner (Appeals), after considering all facts and materials on record found that the assessee has not only furnished the confirmation from Vaibhav Engineers but also furnished its PAN and the details of Assessing Officer where the contractor was assessed. He also found
4 M/s. Rank Mercantile Pvt. Ltd. that in the course of remand proceedings, the Assessing Officer again issued notice under section 133(6) which was served on Vaibhav Engineers. From the aforesaid, the learned Commissioner (Appeals) concluded that the identity of the person concerned is proved. As far as the genuineness of the transactions is concerned, the learned Commissioner (Appeals) found, the sub–contractor has executed work on behalf of the assessee not in the impugned assessment year but in earlier years also and the assessee has deducted tax at source on the payment made to Vaibhav Engineers. He also found that Vaibhav Engineers has also confirmed the accounts and payments made through cheque were also reflected in the assessee’s bank account. In view of such documentary evidence, learned Commissioner (Appeals) holding the payment made to be genuine allowed assessee’s claim.
Learned Departmental Representative relying upon the observations of the Assessing Officer submitted, as the assessee had failed to produce the supporting evidence to justify the genuineness of payment made the disallowance made by the Assessing Officer was correct.
Learned Authorised Representative, on the other hand, strongly relying upon the findings of the learned Commissioner (Appeals) submitted, the assessee never expressed his inability to produce the 5 M/s. Rank Mercantile Pvt. Ltd.
details of the party in the course of assessment proceedings, but has only requested for adequate time to furnish details. He submitted, during the course of proceedings before the learned Commissioner (Appeals), assessee had submitted all necessary and relevant details relating to sub–contractor Vaibhav Engineers and the learned Commissioner (Appeals) after examining the evidence being satisfied with the genuineness of the transaction has allowed assessee’s claim.
We have considered the submissions of the parties and perused the material available on record. It is evident from the assessment order, the Assessing Officer disallowed the payment made to Vaibhav Engineers primarily for two reasons; firstly, the notice issued under section 133(6) returned un–served and; secondly, the assessee failed to furnish necessary details to prove the genuineness of the payment made. However, as it appears in the course of hearing before the learned Commissioner (Appeals), the assessee produced documentary evidence containing details of Vaibhav Engineers’ present address, PAN and jurisdiction of the Assessing Officer where it was assessed. Further, the assessee also submitted copies of ledger account confirmed by the concerned party in support of payment made. It is also proved on record by the assessee through documentary evidence, Vaibhav Engineers, had been carrying out work of the assessee as a sub–contractor from the earlier assessment years and has a running
6 M/s. Rank Mercantile Pvt. Ltd. account with the assessee which indicates that the assessee had been regularly making payment to Vaibhav Engineers against the bills raised by the party. In fact, the Assessing Officer, after examining all these evidences brought on record, had observed that they are in order and also noted that the assessee has furnished details of TDS on the payment to Vaibhav Engineers which were deposited to Government account. It is also evident that the notice issued under section 133(6) by the Assessing Officer in the course of remand proceeding was served on Vaibhav Engineers. Merely because in response to the said notice, the party did not appear before the Assessing Officer, the payment made by the assessee cannot be treated as non–genuine. It is not disputed that Vaibhav Engineers is a company having registered office at Delhi and the details of jurisdictional Assessing Officer where Vaibhav Engineers was assessed along with PAN was furnished by the assessee. If the Assessing Officer was so particular about ascertaining the true facts by examining Vaibhav Engineers, he could have done so by issuing a commission through the jurisdictional Assessing Officer. Without doing so, the Assessing Officer cannot reject the documentary evidences brought on record by the assessee when he himself has found them in order. Therefore, in the absence of any adverse material brought on record to demonstrate that the payment made by the assessee to Vaibhav Engineers, is not genuine, the Assessing Officer
7 M/s. Rank Mercantile Pvt. Ltd. cannot disallow the same. In view of the aforesaid facts and circumstances, finding no infirmity in the order of the learned Commissioner (Appeals) on the issue, we uphold the same by dismissing ground no.1, raised by the Department.
In ground no.2, the Department has challenged the decision of the learned Commissioner (Appeals) in deleting the addition made by the Assessing Officer under section 69B of the act on account of excess payment made towards acquisition of property.
Brief facts are, in the course of assessment proceedings, the Assessing Officer noticing that the assessee during the relevant previous year had purchased a flat being flat no.901, 9th Floor, Roshni Apartment, Bandra (W), Mumbai, called upon the assessee to produce necessary details including the agreement of sale. On verifying the agreement of sale, he noticed that though as per the terms of the agreement recorded sale consideration is shown as ` 72 lakh but the stamp duty authority have valued the property for stamp duty purpose at ` 1,24,41,500. On the basis of the valuation made by the stamp duty authority, the Assessing Officer formed an opinion that sale consideration of ` 72 lakh recorded in the books of account is not correct. For ascertaining correct market value of the property, the Assessing Officer also made a reference under section 142A of the Act
8 M/s. Rank Mercantile Pvt. Ltd. to the DVO for estimating the fair market value of the property. As stated by the Assessing Officer, the DVO in his report dated 22nd December 2011, estimated the value of property it ` 1,60,54,500. On the basis of the value determined by the DOV, the Assessing Officer called upon the assessee to explain why differential amount of ` 88,54,500 should not be treated as unexplained investment under section 69B. In response to the query raised by the Assessing Officer, assessee in its letter dated 22nd December 2011, submited that the sale transaction was finalised in the year 2005 during the construction of the building and the assessee at that time had paid an amount of ` 22,00,000 through cheque as advance out of the agreed sale price of ` 72 lakh. It was submitted, the assessee entered into agreement with the seller in the year 2008 when the building was nearing completion. The assessee submitted, during the gap of three years, the value of real estate has appreciated which resulted in payment of higher amount towards stamp duty at the time of registration. As far as the valuation of the DVO is concerned, the assessee objecting to the same submitted that the comparable instances of sale considered by the DVO is distinguishable for various reasons. It was further stated that as there is no evidence with the Department to show that the assessee has paid any amount over and above the sale consideration, no addition under section 69B can be made. The Assessing Officer,
9 M/s. Rank Mercantile Pvt. Ltd. however, did not find merit in the submissions of the assessee. He observed, as per the valuation of the stamp valuation authority as well as the DVO, the fair market value of the property is far more than the recorded sale consideration of ` 72 lakh. He observed, the assessee has failed to furnish satisfactory explanation against adoption of fair market value determined by the DVO, the differential amount of ` 88,54,500 is to be treated as un–explained investment under section 69B and added back to the income of the assessee. Being aggrieved of such addition, assessee challenged the same in appeal before the learned Commissioner (Appeals).
In the course of hearing before first appellate authority, the assessee reiterating the stand taken before the Assessing Officer submitted, at the time of entering into agreement for purchase of flat, the building was under construction, hence, the flat was not at the stage of “ready to sell”. It was submitted, after completion of construction of flat, the assessee entered into a deed of confirmation which was registered on 8th August 2008 and the possession of property was given to the assessee on 9th August 2008. The assessee submitted, as per the terms of section 69B, there must be evidence before the Department to indicate that the assessee has paid any amount over and above the sale consideration recorded in the books of account. It was submitted, unless there is evidence before the 10 M/s. Rank Mercantile Pvt. Ltd.
Department, the Assessing Officer cannot make a reference to the DVO for valuation of the property because the provisions of section 142A can only be brought into play for quantification of the income over expenditure. It was submitted, when there is no evidence before the Department except the valuation report, no addition can be made under section 69B as value determined by the DVO is only on estimation basis. In support of the contention raised, the assessee relied upon a number of decisions. The learned Commissioner (Appeals), after considering the submissions of the assessee in the light of the facts and material on record, as well as the judicial precedents observed that for invoking the provisions of section 69B, the Assessing Officer must have material on record to prove that the actual expenditure made by the assessee is more than the amount recorded in the books of account. He observed, as there was no material on record to prove that the assessee has expended more than what is recorded in the books of account no addition under section 69B can be made. Accordingly, he deleted the addition.
Learned Departmental Representative, more or less, relying upon the reasoning of the Assessing Officer submitted, as the fair market value determined both by the stamp valuation authority as well as by the DVO far exceeded the recorded sale consideration of ` 72 lakh, the 11 M/s. Rank Mercantile Pvt. Ltd.
Assessing Officer was justified in making addition under section 69B of the Act.
Learned Authorised Representative, on the other hand, strongly supporting the order of the learned Commissioner (Appeals) submitted, there being no evidence before the Department to demonstrate that assessee has paid more than the recorded sale consideration no addition under section 69B can be made. In support of such submission, he relied upon the following decisions:–
i) CIT v/s Dinesh Jain (HUF), [2012] 25 Taxmann.com 550 (Del.); and ii) DCIT v/s Minoo Jai Buhariwalla, ITA no.1106/Mum./2012, dated 18th March 2016.
We have considered the submissions of the parties and perused the material available on record as well as examined the decisions relied upon by the learned Authorised Representative. On a perusal of the assessment order, it is patent and obvious that the very basis for addition under section 69B of the Act, is the value determined by the DVO at ` 1,60,54,500. The Assessing Officer has not referred to any other material or evidence brought on record which could demonstrate that assessee has paid any amount over and above the recorded sale consideration of ` 72 lakh. The only material available before the Assessing Officer is the valuation made by the stamp valuation
12 M/s. Rank Mercantile Pvt. Ltd. authority as mentioned in the sale consideration and the report of the DVO. Even the Assessing Officer has not thought it appropriate to enquire with the seller of the flat to ascertain the actual consideration received by her. Apart from referring the valuation to the DVO, the Assessing Officer, as it appears, has not conducted any enquiry to ascertain whether the assessee has made any payment towards sale consideration out of the books. Therefore, in the absence of any evidence brought on record to conclusively prove that any consideration over and above the recorded sale consideration changed hands between the buyer and seller of the property, addition under section 69B cannot be made. On a reading of the provisions contained in section 69B, it is noticed that where the Assessing Officer finds that the expenditure incurred by the assessee in acquiring a valuable article or thing, has exceeded the amount recorded in the books of account, such excess amount can be treated as income of the assessee. The expression “finds” as used in section 69B, has been interpreted by the Hon'ble Delhi High Court in Dinesh Jain (HUF) (supra), to denote that it should be on the basis of some evidence. The Tribunal, Mumbai Bench, in Minoo Jai Buhariwalla (supra) while considering similar nature of dispute, held as under:–
“4. We have considered the submissions of the parties and perused the material available on record. While the learned Departmental Representative relied upon the reasoning of the 13 M/s. Rank Mercantile Pvt. Ltd.
Assessing Officer, learned Authorised Representative relying upon a number of judicial pronouncements supported the reasoning of the learned Commissioner (Appeals). On a conspectus of facts and material brought on record, we find that as per the purchase / sale deed, the recorded consideration for which the assessee bought the property from the vendor is ` 1.10 crore. However, the Assessing Officer having found that as per the stamp duty authority, the FMV of the property is ` 25,000 per sq.ft. made a reference to the DVO to determine the value of the property and accordingly, the DVO submitted his report determining the value of property of ` 1,49,56,000. Solely on the basis of the report submitted by the DVO, Assessing Officer treated the differential amount between the recorded sale consideration and value determined by the DVO as unexplained investment under section 69B of the Act. It is evident from record that the assessee had furnished an affidavit from the seller confirming the fact that she has not received any amount over and above the recorded sale consideration of ` 1.10 crore. It is further evident, the Assessing Officer has not made any enquiry or brought positive evidence on record to establish the fact that the assessee has in reality paid any on–money over and above the recorded sale consideration of ` 1.10 crore. It is well known fact that the value determined by the DVO is on estimation basis only. Hence, unless there are positive evidence to show that on–money was paid, no addition merely on the basis of value determined by the DVO can be made. The matter also can be looked in from another angle. There is no dispute that assessee is the purchaser of the property and not the seller. In case of seller of the property, the Assessing Officer could have adopted the value determined by the stamp valuation authority in case of understatement of sale in view of the deeming provisions of section 50C and in that context could have referred the matter for valuation by DVO. However, in case of purchaser of property the Assessing Officer cannot take recourse to such method to arrive at a conclusion that the recorded sale consideration is not the actual value paid by the assessee, but something over and above the recorded sale consideration was paid. For making addition under section 69B, the Assessing Officer simply cannot rely upon the value determined by the DVO but has to bring cogent and positive evidence on record to prove payment of on–money. In the present case, no evidence has been brought on record to establish that fact. In fact, as it appears, the Assessing Officer even has not made any effort to enquire with the vendor to ascertain the actual sale consideration paid by the assessee. In such circumstances, the addition made by the Assessing Officer merely relying upon the DVO’s report cannot be sustained. Therefore, finding no infirmity in the order of the learned Commissioner (Appeals), we
14 M/s. Rank Mercantile Pvt. Ltd. uphold the same by dismissing the ground raised by the Department.”
Therefore, applying the principle enunciated in the decisions referred to above to the facts of the present case, we are of the view that no addition under section 69B can be made. Accordingly, upholding the order of the learned Commissioner (Appeals), we dismiss the ground raised by the Department.
In the result, Department’s appeal is dismissed. Order pronounced in the open Court on 13.05.2016