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TMI Blog2019 (9) TMI 628X X X X Extracts X X X X X X X X Extracts X X X X ..... 132 was conducted on 21.12.2015 in the group cases of Sri Alla Siva Reddy, Guntur. During the course of search, certain incriminating material was available in the premises of the searched person, therefore, the Assessing Officer (AO) has issued the notice u/s 153C of the Act and completed the assessment u/s143(3) r.w.s. 153C vide order dated 27.09.2018. 4. For the A.Y. 2015-16, the revenue has filed as many as five grounds of appeal. We extract the grounds raised by the department for the sake of clarity and convenience as under : 1. The order of the Ld.CIT(A) is erroneous both on the facts and in law. 2a. The Ld.CIT(A) ought not have concluded that allotment of shares by way of conversion cannot be treated as unexplained cash credit u/s 68. 2b. The Ld.CIT(A) is not correct in deleting the addition made since as per the amended provisions of sec8 of the Act through Finance Act, 2012, (proviso to sec. 68 of I.T.Act) the nature and source of any sum credited as share capital in the books of account of a closely held company shall be treated as explained only if the sources of funds are also explained by the recipient assessee company in the hands of the resident share holder. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-est and the action of the AO thereon cannot be upheld is contrary to the law. 3d. The Ld.CIT(A) ought not to have allowed further allowance of 7.5% self-supervision since the DVO has already allowed 7.5% on account of self-supervision. 3e. The Ld.CIT(A) ought not to have allowed further deduction of 15% on account of rate difference between CPWD and State PWD as the DVO has already taken into consideration the rates prevailing in the Guntur market during the period of construction on the basis of bills submitted by the assessee-company to the Departmental Valuation Officer. 4. The Ld.CIT (A) held in his Para No.5.2.1 that the report submitted by the DVO is non-est due to non submission of report by the DVO within due date prescribed in the I.T.Act, 1961. Further, in his Para No.5.2.2, the Ld.CIT(A) directed the AO to give further allowance of 7.5% on account of self-supervision and further deduction of 15% on account of rate difference between CPWD and State PWD. Hence, the Ld.CIT(A)'s decision in Para No.5.2.1 and 5.2.2 of his order are self contradictory, in the sense that when the valuation officers order itself was held to be non-est, then there is no question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. Tiruveedula Dileep 2257700 1126678 1608872 198317 5191567 12. Tiruveedula Pradeep 2445825 1220546 1700000 0 5366371 13. Y.Srinivasa Rao 940825 469626 660364 0 2070815 14. Y.Subrahmanyam 940825 469626 660364 0 2070815 15. YV Subba Rao 940825 469626 660364 370416 2441231 Total 37628030 18777493 21833889 5180256 83419668 Sl.No. Name of the person F.Y.2013-14 (in Rs.) F.Y.2014-15 (in Rs.) Total (in Rs.) 1. Alla Rajya Lakshmi 0 5,00,000 5,00,000 2. Alla Siddhartha 0 5,00,000 5,00,000 3. Alla Siva Reddy 14,87,500 5,00,000 19,87,500 4. Alla Nagarjuna Reddy 14,87,500 5,00,000 19,87,500 5. M/s Siva Constructions 0 24,00,000 24,00,000 6. Total 23,75,000 44,00,000 73,75,000 6.1 The co-owners along with family members of Alla Siva Reddy and the partnership firm have promoted the company by name Siva City Centre Private Ltd. (in short 'company') and transferred the land and building to the company. In lieu of the transfer of land and building under construction worth Rs. 8.34 crore, the company has paid the sum of Rs. 2.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lu, Smt.Sakala Sujatha, Sri Dileep Tiriveehula and Sri Subrahmanyam Yakkala for examination. Therefore, the AO made investment of following investors aggregating to Rs. 2,38,17,377/- as unexplained investment u/s 68 of the Act as per the details given below : Sl. Name Investment (Rs.) i. Sri P.Venkateswarlu 31,50,000 ii. Smt.Sakala Sujatha 49,70,764 iii. Sri Dileep Tiriveehula 51,91,567 iv. Sri Subrahmanyam Yakkala 20,70,815 v. Sri Venkata Subba Rao Yakkala 24,41,231 vi. Sri Chedella Manideep 22,05,000 vii. Sri T.V.S.Ramesh Babu 37,88,000 7. Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) deleted the addition made by the AO observing that the co-owners have made the investment in construction of the building from Financial Year 2010-11 to 2014-15 which is relevant period for the asst. year under consideration. The Ld.CIT(A) further observed that the investments made by all the co-owners during the assessment year under consideration was only Rs. 51,80,256/- which is relevant for the impugned assessment year. The year-wise breakup of the investments made by the co-owners was furnished b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Siddhartha 7875000 0 78,75,000 3. Alla Siva Reddy 14845053 (-)69,70,053 78,75,000 4. Alla Nagarjuna 11003850 (-)31,28,850 78,75,000 5. Chadella Manideep 2205000 0 22,05,000 6. K.Kiran Kumar 1890000 0 18,90,000 7. Potti Venkateswarlu 3150000 0 31,50,000 8. Sakala Sujatha 4970764 0 37,80,000 9. S.Venkateswara Rao 5984898 (-)30,80,662 40,95,000 10. T.V.S.Ramesh Babu 3780000 0 37,80,000 11. Tiruveedula Dileep 5191567 0 37,80,000 12. Tiruveedula Pradeep 5366371 (-)26,82,938 40,95,000 13. Y.Srinivasa Rao 2070815 0 15,75,000 14. Y.Subrahmanyam 2070815 0 15,75,000 15. YV Subba Rao 2441231 (-)18,57,861 15,75,000 Total 83419668 (-)204,19,668 630,00,000 7.2. The Ld.CIT(A) observed that the investment of co-owners was transferred to the assessee company in lieu of which the company had allotted the shares and there was no infusion of cash into the assessee company. Since the assessee had allotted the shares in lieu of cost of land and the amount was already spent on construction, there is no cash transaction involved in allotment of shares an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in land and construction of the building was explained in the individual hands of the directors which was assessed to tax in their individual hands. Therefore, there is no case for explanation of the source again in the hands of the company. The company has not made allotment of shares from the unexplained sources. There was no credit in the company which remained unexplained. The issue regarding the settlement of pre existing liability was considered by Hon'ble Madras High Court in the case of V.R.Global Energy (P) Ltd. Vs. ITO, wherein the Hon'ble Madras High Court held as under : "24. The question of whether the learned Tribunal erred in confirming the valuation of shares allotted in settlement of the pre-existing liability taxable as unexplained cash credit, does not involve any question of law, far less any substantial question of law." 10.1. While supporting the order of the AO, the Ld.DR argued that the credit worthiness of the directors was not established and the burden is on the assessee to prove the sources and responding to the argument of the Ld.AR, the Ld.DR submitted that there was no pre existing liability in this case, hence, the case law relied upon by the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luation Officer (DVO). During the assessment proceedings, it is observed that the AO referred the cost of construction of the building to the DVO on 12.09.2017 and the DVO has submitted the report on 30.05.2018 determining the cost of construction at Rs. 19,84,03,000/-. Copy of the valuation report was furnished to the assessee and the assessee was asked to explain why the difference amount in the cost of construction should not be brought to tax u/s 69 of the Act as unexplained investment. In response to the notice issued by the AO, the assessee filed objection stating that the DVO required to submit the report within six months from the end of the month in which the reference was made and in the instant case, the DVO had submitted the report on 30.05.2015 which is beyond the limitation period provided in the Act, thus argued that the report was time barred and the same required to be treated as invalid and the AO is not permitted to make the additions on the basis of invalid valuation report. The assessee further stated that the cost of construction declared was Rs. 16,62,70,878/- before the DVO which the DVO had endorsed in his report and requested to allow the rebate for rate d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjection supporting the order of the Ld.CIT(A). The Ld.DR relied on the orders of the AO and the Ld.AR relied on the orders of the Ld.CIT(A). 14. We have heard both the parties and perused the material placed on record. In the instant case, the AO referred the cost of construction to DVO on 12.09.2017 and the DVO has submitted the report on 14.06.2018. The time limit available for the DVO to submit the report is six months from the end of the month in which the reference is made, which got expired on 31.03.2017 and clearly establishes that the DVO has submitted the report beyond the time limit available in the act. The Ld.CIT(A) held that the report submitted by the DVO is non-est in law and has no value in the eyes of the law. Accordingly deleted the addition made by the AO. For the sake of clarity and convenience, we extract para No.5.2.1 of the Ld.CIT(A) which reads as under : "5.2.1. The first issue raised by the appellant is that the report of DVO should have been submitted by DVO within 6 months from the end of the month in which reference is made by the Assessing Officer. The reference was made by the Assessing Officer on 12.09.2017 and the report of DVO should have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is obligatory on the part of the DVO to submit the report within time permissible in the Act. If the DVO does not submit the report within the time limit permissible in the Act, the AO is also permitted to make best judgement assessment u/s 144 of the Act. Though the assessee raised objection before the AO, the AO ignored the objection raised by the assessee and discussed the issue of time limit available for completion of assessment and justified the assessment without considering the actual objection raised by the assessee. Since there is no extension of time for submission of report is allowed under the Act and no concession was made available to the DVO for non cooperation of the assessee, the report submitted by the DVO beyond the time limit is invalid and is to be treated as non-est. The Ld.CIT(A) rightly held that the report of the DVO cannot be relied upon or considered by the AO to frame the assessment u/s 143(3). In the grounds of appeal, though the department contended that AO has not fully relied upon the DVO's Valuation report and taken as a guidance, it is found from the order of the AO that the assessment was framed on the basis of the DVO's report. This fact is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also reduction on bank loans as alternate grounds without conceding the validity of the assessment. The Ld.CIT(A) is bound to dispose off all the grounds raised by the assessee. Thus, the Ld.CIT(A) rightly adjudicated the grounds raised by the assessee both on validity of assessment made on invalid valuation report and also on rebates requested by the assessee. Thus we do not find any error in the order of the Ld.CIT(A) in adjudicating the alternate grounds. In this regard, we confine ourselves in holding that the Ld.CIT(A) is right in adjudicating the alternate grounds, but we are not going into merits of the order of the Ld.CIT(A) with regard to allowances granted by the Ld.CIT(A) in respect of rebate for rate differences, savings for self supervision etc. and the said issues are kept open. 18. Since we have held that the additions made on the basis of invalid report are unsustainable, we uphold the order of the Ld.CIT(A) and dismiss the appeals of the revenue. Therefore, we consider it is not necessary to adjudicate the grounds raised by the revenue with regard to allowances granted by the Ld.CIT(A) in respect of rate differences and self supervision. 19. Since we have dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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