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2016 (9) TMI 759 - AT - Income TaxUnexplained investment - reference to DVO - Held that - We do not find any reason as to why the entire undisclosed income should not be allowed as being available to the assessee to meet the cost of investment towards the farm house/bungalow. There is no material at the disposal of the revenue that the additional income disclosed has been utilised otherwise. Under these circumstances and considering the totality of the facts of the case and considering the fact that the assessee has declared additional income of ₹ 3,43,24,198/- during the period from A.Y. 2006-07 to 2010-11 in his returns filed in response to notice u/s.153A the same in our opinion should be available to the assessee for investing in the bungalow. We, therefore, direct the AO to give set off of ₹ 3,43,24,198/- as against ₹ 1,81,21,667/- allowed by the Ld.CIT(A). So far as the contention of the assessee that the DVO has considered the 1992 rates as against 2007 and 2009 rates which were available in public domain is concerned, we also find some force in the above. Admittedly, the construction of the building has started during the period from 2006-07 which continued till 2010-11 and thereafter. Therefore, adoption of 1992 schedule of rates and multiplying the same by cost inflation index as against the available rate of 2007 or 2009 will give a distorted figure. The Ld. Counsel for the assessee filed a chart showing that because of these faulty method adopted by the DVO, the difference comes to ₹ 1,82,41,436/-. However, since the assessee has not maintained any books of account on day-to-day basis towards the investment in the bungalow, therefore, the property has to be valued by following the method of valuation/guidelines issued by various agencies. It is also a fact that the CPWD rates are higher than the local PWD rates. Further, we find some force in the submission of the Ld. Counsel for the assessee that instead of adopting 1992 rates and multiplying the same by cost inflation index the DVO could have adopted the current schedule of rates prescribed by CPWD and brought it down or made suitable adjustments. Since the assessee during the course of search in his statement recorded u/s.132(4) has also made a statement that the investment in the bungalow is about ₹ 12 crores, therefore, the valuation report filed by him from a registered valuer under the facts and circumstances of the case cannot be accepted. In view of the various lacunae pointed out by the Ld. Counsel for the assessee due to non adoption of the current schedule of rate and due to some calculation error the report filed by the DVO also cannot be accepted. In our opinion the investment in the property should be computed by reducing the various arithmetical inaccuracies in the report of the DVO and further adjusting the same to the 2007 indices or 2009 schedule of rates as against the 1992 rate adopted by the DVO. The obvious arithmetical errors as pointed by the Ld. Counsel for the assessee, the details of which are already reproduced at Para 27 comes to ₹ 1,30,01,048.81. Similarly, the difference due to adoption of 1992 rates as against 2009 guidelines gives a difference of ₹ 1,29,31,475/-. Thus, according to the Ld. Counsel for the assessee the differences comes to ₹ 2,59,32,523.81 (i.e. ₹ 1,30,01,048.81 1,29,31,475. Since the investment in the property has been estimated in absence of maintenance of proper books of account, therefore, there is bound to be some difference in the estimation. The amount calculated by the Ld. Counsel for the assessee at ₹ 2.59 crores cannot be accepted in toto. However, it also cannot be rejected because of certain obvious calculation mistakes and adoption of 1992 schedule of rates. Considering the totality of the facts of the case a further reduction of 20% from the value adopted by the DVO may be allowed to meet the ends of justice. This comes to ₹ 2,41,35,800/- as against ₹ 2,59,32,523/- calculated by the Ld. Counsel for the assessee. This in our opinion will meet the ends of justice. We hold and direct accordingly. Addition made by the AO u/s.40A(3) - Held that - We have also considered the various decisions cited before us. We find the assessee before completion of the assessment on 28-03-2013 vide his letter dated 18-03-2013 had submitted before the AO that undisclosed income disclosed by him for the A.Yrs. 2005-06 to 2009-10 amounting to ₹ 2,06,99,420/- has been invested by him in the Khanapur bungalow. According to the AO, since the stand has been taken by the assessee for the first time at the fag end of the assessment proceedings and since no credible evidence in support of this claim has been given, he rejected the claim of the assessee that no disallowance u/s.40A(3) can be made. It is the submission of the Ld. Counsel for the assessee that the amount involved in question has been invested in the construction of the farm house which is a capital expenditure and therefore provisions of section 40A(3) are not applicable. We find merit in the above submission of the Ld. Counsel for the assessee. In the preceding paragraphs, we have already held that the additional income disclosed by the assessee is available to him for investment in farm house/bungalow. Thus, the expenditure is capital in nature. It has been held in various judicial decisions that provisions of section 40A(3) are not applicable to capital expenditure. Therefore, we hold that the CIT(A) was not justified in confirming the disallowance made by the AO u/s.40A(3) of the I.T. Act. We accordingly set aside the order of the CIT(A) and the grounds raised by the assessee for A.Yrs. 2006-07, 2008-09 and 2010-11 on this issue are allowed. Rejection of relief on account of excess disclosure in gold - Held that - A perusal of the Panchanama shows that the list/inventory of jewellery shows jewellery/gold ornaments valued at ₹ 19,50,000/- in the name of Sweta V. Bire, daughter of the assessee. Further in our opinion some relief should have been granted to the assessee on account of jewellery belonging to different family members in the light of the CBDT Instruction No.1916 dated 11-05-1994. Merely because the assessee has made the claim towards the fag end of the assessment proceedings, the same cannot be a ground to reject the plea of the assessee for giving appropriate relief. The Hon ble Bombay High Court in the case of Balmukund Acharya Vs. DCIT reported in 2008 (12) TMI 88 - BOMBAY HIGH COURT has held that the Apex Court and the various High Courts have ruled that the authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If any assessee, under a mistake, misconception or on not being properly instructed is over-assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. In view of the above discussion, we restore the issue to the file of the AO with a direction to decide the issue afresh in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. This ground by the assessee is accordingly allowed for statistical purposes
Issues Involved:
1. Addition on account of investment in the bungalow. 2. Disallowance under section 40A(3) for cash payments. 3. Relief on account of excess disclosure in gold. Detailed Analysis: 1. Addition on Account of Investment in the Bungalow: Facts and Contentions: - The assessee, a builder and developer, was found to have made substantial investments in a bungalow during a search operation. - The Department’s approved valuer initially valued the bungalow at ?24,82,49,207, but the assessee disclosed an additional income of ?9 crores due to discrepancies. - The DVO later valued the bungalow at ?12,06,79,000, leading to an addition of ?9,31,86,279 by the AO for various years. Assessee's Arguments: - The assessee contested the high valuation, arguing errors in the DVO’s report, including the use of outdated CPWD indices and failure to account for post-search expenditures. - The assessee also highlighted that the construction started only after necessary permissions were obtained in 2006, not during FY 2005-06 as assumed by the DVO. Tribunal's Findings: - The Tribunal found merit in the assessee’s claim that construction could not have started before obtaining necessary permissions. - It directed the AO to delete the addition of ?1,30,30,201 for AY 2006-07, recognizing that initial expenditures were for land development. - The Tribunal allowed a further reduction of ?2,41,35,800 due to computational errors and outdated indices used by the DVO. - Self-supervision charges were increased to 12.5%, granting additional relief of ?1,14,64,505. - The Tribunal also directed the AO to give full set-off for additional income disclosed by the assessee, totaling ?3,43,24,198. Final Computation: - The total undisclosed investment to be added was recalculated to ?32,61,782, apportioned across AY 2007-08 to 2010-11. 2. Disallowance Under Section 40A(3) for Cash Payments: Facts and Contentions: - The AO disallowed 20% of certain cash expenditures under section 40A(3), totaling ?1,11,000 for AY 2006-07, ?4 lakhs for AY 2008-09, and ?7,40,483 for AY 2010-11. Assessee's Arguments: - The assessee argued that these expenditures were capital in nature, related to the construction of the bungalow, and hence section 40A(3) should not apply. Tribunal's Findings: - The Tribunal agreed with the assessee, noting that section 40A(3) does not apply to capital expenditures. - It held that the additional income disclosed by the assessee was available for investment in the bungalow. - The disallowance under section 40A(3) was thus set aside. 3. Relief on Account of Excess Disclosure in Gold: Facts and Contentions: - During the search, jewellery valued at ?1,65,60,991 was found, with the assessee declaring ?67 lakhs as additional income for AY 2011-12. - The assessee later claimed an excess disclosure of ?37,24,917. Assessee's Arguments: - The assessee argued that part of the jewellery belonged to family members and should be exempted as per CBDT Instruction No. 1916. - The assessee also pointed out that some jewellery belonged to his daughter, which should not be included in his account. Tribunal's Findings: - The Tribunal found merit in the assessee’s claim and noted that the jewellery included items belonging to the assessee’s daughter. - It directed the AO to re-examine the issue, considering the CBDT instructions and providing appropriate relief. Conclusion: The Tribunal provided significant relief to the assessee by revising the valuation of the bungalow, enhancing self-supervision charges, and granting full set-off for additional income disclosed. It also set aside disallowances under section 40A(3) and directed a re-examination of the jewellery valuation issue, ensuring fair treatment and adherence to legal provisions.
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