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TMI Blog2014 (11) TMI 1163X X X X Extracts X X X X X X X X Extracts X X X X ..... he finding of the Ld. CIT(A) that the Assessing Officer was not justified in rejecting the books of account of the assessee. Unexplained expenditure for purchasing hotel - Held that:- CIT(A) has held that the amount of investment in hotel has been recorded by the assessee in the books of account and the source of said investment has also been supported by the sale proceeds of the agricultural land amounting to ₹ 1.16 crores and sale proceeds of the plot amounting to ₹ 2,09,11,282/- during the year. This fact has not been controverted before us. We find no reason to interfere with the order of the Ld. CIT(A) on this issue as the said amount is dully recorded in the books of account and the assessee has also explained the source. Addition towards alleged cash deposits into bank account - Held that:- It appears that there were deposits ₹ 14,18,736/- in Janlaxmi Bank and ₹ 14,01,090/- in Rajlaxmi Bank which have been recorded by the assessee in the books of account. If the amounts are recorded in the books of account then how the Assessing Officer has made the observation that the bank of account was not appearing in the audited balance sheet. In this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation report of the Govt. Approved Valuer. We consider it appropriate to give the direction to the Assessing Officer to consider the valuation report of the Approved Govt. Valuer filed by the assessee in respect of the fair mart value of as on 01-04-1981 and accordingly, decide the taxable capital gain as per the provisions of law. We make it clear that we are not expressing anything on merit in respect of correctness of the valuation report obtained by the assessee from the Govt. Approved Valuer. With this direction we allow the Ground Nos. 6 and 7 for the statistical purpose. - I.T.A. No. 1216/PN/2011 - - - Dated:- 27-11-2014 - G.S. Pannu and R.S. Padvekar, JJ. For Appellant: P.S. Naik For Respondents: Nikhil Pathak ORDER R.S. Padvekar, 1. This appeal is filed by the Revenue challenging the impugned order of the Ld. CIT(A)-I, Nashik, dated 19-07-2011 for the A.Y. 2008-09. The Revenue has taken the following grounds in the appeal: 1. On the facts and in the circumstances of the case the Honorable CIT(A)-I, Nasik erred in holding that the Assessing Officer was not justified in rejecting audited books of accounts by applying provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) for not approving the action of the Assessing Officer for rejection of the books of account u/s. 145(1) of the Income-tax Act. The facts which revealed from the records are as under. The assessee filed his return of income for the A.Y. 2008-09 on 29-07-2008 declaring total income of ₹ 2,75,86,680/-. The assessee's case was selected for scrutiny and assessment of the assessee has been completed by the Assessing Officer u/s. 143(3) of the Income-tax Act determining total income at ₹ 3,52,74,189/- vide assessment order dated 31-12-2010. The assessee is engaged in the business of land development and selling of plots. The assessee was originally an agriculturist. The assessee has converted part of his agricultural land in the year 1998 into business asset and has developed in the said land into plots and has sold some of the said plots in the F.Y. 2007-08 relevant to the A.Y. 2008-09. 3. The Assessing Officer has observed that the assessee has not furnished the details in the return of income in respect of the income declared. He has also pointed out that the assessee has left blank most of the part of the return. He has noted that even if the assessee has claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mercantile or cash. In this regard the appellant has stated that during the course of assessment proceedings, he was never given any opportunity to file his explanation against the reasons for rejection of book results. The appellant has pointed out that in fact he has followed mercantile method of accounting. 5.4 As the Assessing Officer examines the accounts of an assessee, he has to consider the following questions:- (1) Whether the assessee has regularly employed a method of accounting? (2) Even if regular adoption of a method of accounting is there, whether the Annual profits can properly be deduced from the method employed? (3) Whether the accounts are correctly maintained? (4) Whether the accounts maintained are complete in the sense that there is no significant omission therein: In the instant case the appellant has regularly following mercantile system of accounting. The Assessing Officer's finding on all the four questions is in the affirmative. Therefore, assessee's profits are to be computed on the basis of his accounts. In such a case, neither the first proviso to section 145(1) nor section 145(2) can be invoked. 5.5 It is settled posit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not pointed out as to how the accounting method followed by the appellant did not reflect the true and fair profit. The A.O. has not pointed out in respect of which income or expenditure and to what extent appellant has followed cash system of accounting instead of mercantile system. The A.O. has not made any enquiry with the appellant in this regard. The A.O. has rejected the books of accounts without pointing out as to how the true and fair profit could not be deduced as per audited books of accounts and only on the basis of remark of the auditor that the appellant has followed 'Generally Mercantile' method of accounting. Considering the above facts and totality of the facts of the case, I am of the considering view that the first reason stated by the A.O. for rejecting book result is not justified. The second reason stated by the A.O. that the audit report was signed on 20/12/2010 is not relevant and cannot be the reason for rejecting the audited books of account. The third reason stated by the A.O. that the commission expenses are not supported by proper vouchers and in respect of the said payment no tax has been deducted and paid by the assessee, is also not correc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting as generally mercantile, the assessee had not submitted the relevant details in the return of income filed by him, the assessee had not got his books of account audited within the specified time and the books of accounts maintained by the assessee were not supported by vouchers and hence the correctness and completeness of account were not reliable. b). The CIT(A) however has held that the Assessing Officer has rejected the books of account of the assessee by stating incorrect reasons and that the Assessing Officer has not given any opportunity to the assessee for rejecting book results. The CIT(A) has stated that the main reason for mentioning the method of accounts as generally mercantile was only due to an entry of ₹ 6,000/- being provision for accounting expenses. The CIT(A) stated that the transaction on which addition as unexplained payments/deposits was made by A.O. were recorded in the books of accounts, that the conclusion of A.O. regarding commission expenses was not correct and that the fact that the audit was conducted only on 20/12/2007 is not a relevant issue for rejecting the books of account of the assessee. c). The order of the CIT(A) is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is worth noting here that the main principles of auditing and reporting lay down the principal of 'materiality'. It cannot be said that by not providing for accounting charges of ₹ 6,000/- the profit declared by the assessee and books of account maintained are not true and fair. The Assessing Officer has not pointed out as to why and how correct profit is not deduced from the books of accounts and method of accounting of the assessee. 6.1 Ld. AR further argues that the Assessing Officer has also pointed out in the assessment order that though the assessee has maintained accounts on computer using accounting software but any computer is not appearing in his balance sheet of the assessee. While stating above reason the Assessing Officer ignored the fact that most of the small businessmen who cannot maintain books of accounts on their own or through employees allot the work of writing computerized books using accounting package to professional Accountants. Hence, the books of accounts can be maintained on computer using accounting package without owning computer and accounting package. The Assessing Officer has also stated another reason that the assessee has not au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer in respect of the nature of the said expenditure as required evidence may not be sufficient. The assessee has not made the provisions in respect of the accounting charges. We find that the Assessing Officer has given more importance to the fact that the assessee is not having any computer. In our opinion a fact also cannot be discarded that many times the assessee may engage professional accountant instead of taking the full liability of the employee and the accountant maintains the account. It is one of the recognized practices in the business or trade. Even if the assessee engaged in the land development and selling of plots but it appears that the said land was owned by the assessee and it was agricultural land which was under cultivation. Except showing minor discrepancy the Assessing Officer has not made out the case for rejection of the books of account by invoking Sec. 145 of the Act. We, accordingly, concur with the finding of the Ld. CIT(A) that the Assessing Officer was not justified in rejecting the books of account of the assessee. We, accordingly, dismiss Ground Nos. 1 and 2. 9. The next issue is in respect of addition of ₹ 15,00,000/- towards al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.O. is, therefore, not justified in making addition of ₹ 15,00,000/- on account of unexplained investment. Therefore, Ground Nos. 2 and 3 are allowed. Now, the Revenue is in appeal before us. 10. We have heard the parties and perused the record. The Ld. CIT(A) has held that the amount of investment in hotel has been recorded by the assessee in the books of account and the source of said investment has also been supported by the sale proceeds of the agricultural land amounting to ₹ 1.16 crores and sale proceeds of the plot amounting to ₹ 2,09,11,282/- during the year. This fact has not been controverted before us. We find no reason to interfere with the order of the Ld. CIT(A) on this issue as the said amount is dully recorded in the books of account and the assessee has also explained the source. Accordingly, Ground No. 3 is dismissed. 11. The next issue is in respect of addition towards alleged cash deposits into bank account totaling to ₹ 13,91,296/-. The Assessing Officer has discussed this issue in Para Nos. 7 and 7.1. The Assessing Officer has noted that as per the AIR information received in the case of the assessee he has deposited cash on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeds of plots in the earlier years. The A.O. has taxed the substantial profit/surplus amounting to more than ₹ 2.75 crores offered to tax by the appellant, however, he has not accepted the investment made by the appellant out of the said funds. The A.O. has made the addition in respect of deposits in banks u/s. 69 of the Act, ignoring the fact that for making such addition u/s. 69 the following two conditions are to be fulfilled: i) The investment is not recorded in the books of account; and ii) The explanation offered by the appellant towards source of investment is not satisfactory. In the case of the appellant, the investment has been recorded in the books of account and the source of the investment has also been satisfactory explained. The appellant has also pointed out specific entries of receipts in respect of sale of land and plots appearing in the audited cash book in support of the source of deposits in Janlaxmi Bank. The contention of the A.O. that no evidence has been produced in support of the deposits in bank is found to be factually incorrect. The contention of the A.O. that the said bank accounts have not been reflected in the balance sheet does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 1,16,000/- in place of ₹ 1.61 crores. The matter was referred to the DVO, who valued the property at ₹ 1.76 crores. The Assessing Officer, therefore, made the addition of ₹ 15 Lacs which was difference between the valuation made by the DVO and sale consideration shown by the assessee. The assessee challenged the addition before the Ld. CIT(A). The Ld. CIT(A) has dealt with the issue in details and there is more clarity on the facts pertaining to the issue. The reasons best known to the Assessing Officer, he has not discussed at all the entire facts on the DVO's valuation. The Ld. CIT(A) deleted the addition by giving the following reasons: 10.2 I have carefully considered the facts of the case, the assessment order and the rival contentions. The first contention of the appellant is that the DVO has erred in not considering expenditure of ₹ 24,00,000/- to be incurred by the purchaser of the land for compound wall around the Nala in the agricultural land at S. No. 264/1. In this regard the DVO has accepted the fact about Nala and expenditure of ₹ 24 lacs in respect of compound wall by the purchaser. The DVO, however, not considered this expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts noted in the order of Ld. CIT(A) it is stated that the Assessing Officer has referred the land at S. No. 264/1 and 265/1 at Village-Mhasarul for valuation by DVO as on 01-04-1981. It appears that the DVO had asked the assessee to file the valuation report of above lands as on 01-04-1981. It appears that the assessee prepared the valuation report from the Govt. approved valuer and as per the report prepared by the Govt. Approved Valuer the value of those lands as on 01-04-1981 was shown as under: Particulars of land Value as on 01/04/1981 claimed by the appellant while computing capital gain Value as on 01/04/1981 as per the valuation report of government approved registered valuer S.No. 264/1 Mhasrul 12,00,000 36,67,465 S.No. 265/1 Mhasrul 2,00,000 13,76,000 16. The DVO did not submit the valuation report of the above lands as on 01-04-1981 but informed the Assessing Officer by letters dated 16-11-2010 accepting the value of the land declared by the assessee. Before Ld. CIT(A) the assessee raised t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... going on, the assessee got his valuation done from the Govt. Approved Valuer and lodge new claim with the Assessing Officer that the fair market value of those lands as on 01-04-1981 is much more higher and by mistake the assessee took the smaller value. The Assessing Officer rejected the claim of the assessee and confined to the valuation declared by him for computation of the capital gain. 18. Now, the question before us is whether the Ld. CIT(A) can give the directions to the Assessing Officer to get the valuation done by the DVO when admittedly the DVO has given his opinion in respect of the valuation adopted by the assessee for computation of the capital gain. In our opinion the Ld. CIT(A) has exceeded his jurisdiction and authority by directing the Assessing Officer to refer the matter to the DVO for ascertaining the fair market value (FMV) of land bearing S. No. 264/1 and 265/1 at Mhasrul as on 01-04-1981. We, therefore, cancel the directions of the Ld. CIT(A) to the extent that the Assessing Officer should ask the DVO to file copies of the valuation report of the lands at S. No. 264/1 and 265/1 valuing the said lands on 01-04-1981. We also cancel the directions of the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X
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