TaxTMI 
TaxTMI 
2007 (9) TMI 326
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....bsp; Addition 1998-99 Rs. 48,87,220 2. The Ld. CIT(A) failed to appreciate the fact that unexplained investment in the construction of the property in absence of any verifiable explanation was held to be income from undisclosed sources and resultantly exemption under section 11 could not be allowed on the same, as section 11 applies only to the 'income from property held for charitable or religious purposes'. 3. Any other ground that may arise or become incidental during the pendency of appeal." 2. In the assessment year 1999-2000, addition as per ground No. 1 is Rs. 30,35,757; in the assessment year 2000-01 the addition in ground No. 1 is Rs. 21,64,329; in the assessment year 2001-02 the addition contested is Rs. 32,91,309; in the assessment year 2003-04 the addition contested is Rs. 21,80,868 whereas in the assessment year 2004-05 the addition contested is Rs. 16,04,046. In the assessment year 2003-04, in addition to contesting addition on account of DVO's report deleted by the Ld. CIT(A), the revenue has also taken up following three mor....
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....t (i) original assessment was completed under section 143(3) on 26-3-2004 wherein it has disclosed all facts fully and truly and, therefore, there was no failure on the part of the assessee to disclose any material facts necessary for the assessment and (ii) the reference would be invalid on account of the decision of Apex Court in Amiya Bala Paul's case and further that provisions of section 142A would not be applicable in respect of the assessment completed on or before 30-9-2004. The Assessing Officer rejected the contention of the assessee by referring to the decision of Hon'ble Supreme Court in Ess Ess Kay Engg. Co. (P) Ltd. v. CIT [2001] 247 ITR 818 that on the basis of subsequent material assessment could be reopened and further that provisions of section 142A is squarely applicable in the case of the assessee and the proviso to that section does not put a bar in making a reference to the DVO and use of the DVO's report in an assessment if it has not become final and conclusive. The Assessing Officer also rejected the contention of the assessee that even if addition is made then the same would be exempt under section 10(23C)(iiiad) as sole activity of the assessee is educati....
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....ee failed to give the structural drawings for the foundation and superstructure. Whatever documents he has submitted they were never complete, with the casual approach because he had only submitted few bills, vouchers which did not reflect the actual! complete expenses pertaining to the investment in the property. It could also not be certified whether any non-billing expenditure, pre-operated expenses have been shown in the building investment ledger because he did hot furnish the quantity and expenses item-wise as called for. His contention is not tenable as the report is based on physical inspection considering the specification of the property, financial year-wise building expenditure as submitted by the assessee, period of construction, few relevant documents submitted by the assessee, the weighted building cost index of Lucknow as approved by competent authority instructions laid down by CBDT Instructions manual 1671. The report submitted is in order and the same may by upheld in toto." 5. The crux of the DVO's reply is that assessee did not co-operate with him and did not provide vouchers, drawings and other details which could have helped him in estimating the cost of....
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....ion to education and, therefore, exemption would not be available to the assessee in respect of other activities even though it might be granted exemption under section 10(23C)(iiiad) or under section 11. It was a clear case where assessee did not furnish full details to the DVO about the cost of construction and in absence of such details it would not have been possible to rely on the books of account and, therefore, the Assessing Officer was justified in making addition under section 69 in respect of the difference arisen on account of cost of construction. The Learned D.R. also submitted that section 142A does not require rejection of the books of account first. It only says that for the purpose of making assessment the Assessing Officer can make reference to the DVO for determining the cost of construction. It is not legally correct to put another condition before applicability of section 142A that books should be first rejected and then section 142A should be invoked. In other words, according to Learned D.R. invoking of section 142A does not depend upon rejection of the books under section 145 as the two are different sections operating in different field. The Learned D.R. re....
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....f section 142A can only be done for the purpose of making assessment and reassessment and not for forming the basis for reopening of the assessment. Ld. A.R. of the assessee also referred to the decision of ITAT, Lucknow "A" Bench in the case of Lucknow Public Education Society [ITA No. 265/L/2007] (sic) in the assessment year 2003-04 for the proposition that if no faults are found in the books of account or method of accounting followed by the assessee and there is no suppression of material facts in the account then speculative assessment of notional profits cannot be made and no reference to valuation cell for determining cost of construction can be made. Same decision was followed, as per Ld. A.R. of the assessee in ITO v. Avadh Education Society [IT Appeal Nos. 288 to 293 (L) of 2007] (sic) and finally the reference made to the ova and assessment made on that basis was held invalid. The Ld. A.R. of the assessee, thereafter submitted that assessment cannot be reopened on the basis of ova's report obtained subsequently. He relied on the decision of Hon'ble Calcutta High Court in Reliance Jute Industries Ltd. v. ITO [1984] 150 ITR 643. The Ld. A.R. of the assessee then supported ....
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....1994. The assessee society is running three schools in the name of Lucknow Public College at A-Block, Rajajipuram, B-Block, Rajajipuram and at Sahara States, Jankipuram, Lucknow. Books of account along with vouchers/bills and various other details were called for and examined on test check basis. Documents and books impounded during the course of survey under section 133A on 20-9-2002 were also examined vis-a-vis the assessee bank accounts and books of account'. Once this is the accepted position, then we are of the considered view that the Assessing Officer cannot resort to estimation. An addition on account of difference in cost of construction can be made only when the Assessing Officer resorts to estimate and before that he has to reject the books of account. No such finding has been given by the Assessing Officer. The books have not been rejected. The Hon'ble Rajasthan High Court in CIT v. Hotel Joshi confirmed the order of the Tribunal wherein it was held that if the books kept by the assessee do not show any infirmity then they have to be accepted and therefore difference between estimate of cost of construction as per DVO's report and what is shown by the assessee in the....
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.... Joshi it was held by Hon'ble Rajasthan High Court that in case where the value of the asset was claimed by the assessee on the basis of regular books of account maintained for the purpose of construction of the asset and not on the basis of the valuation of the registered valuer, it was not open to the Assessing Officer to make a reference to the District Valuation Officer unless the Assessing Officer formed an opinion that having regard to the nature of the asset and other relevant circumstances it was necessary to do so. If an account of the expenses of the construction of the asset are maintained regularly and supported by vouchers there should be no reason not to accept the same determining the cost of construction of the asset. The Assessing Officer was required to assess the valuation of the asset on appreciation of material before him. 9.3 The jurisdictional High Court in the case of Smt. Uma Devi Jhawar v. ITO has held that the valuation made by the DVO could not be lawful or relevant material on the basis whereon the ITO could have had any reason to believe or could bona fide and lawfully have believed that any income as regards the construction of the house property h....
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....h as, invalid reference could not be validated by subsequent, observation of the Assessing Officer that the books maintained by the assessee could not be relied upon for want of proper vouchers. It was, therefore, held therein that the Assessing Officer was not justified in making addition merely on the basis of the valuation report of DVO. 9.5 Further the Hon'ble Madras High Court in the case of K.K. Seshalya 246 ITR 351, has held that when the actual cost of construction is duly recorded in the books of account, the creditability of which is not doubted, the opinion of the DVO cannot straightway be substituted for the actual cost recorded in the assessee's books. 9.6 Similar position has also been laid down by the Agra Bench of ITAT in the case of Hind Lamps Ltd. v. DCIT 68 ITD 586, ITAT, Bench of Delhi in the case of Naresh Bahl v. ITO 41 ITD 298 and the Ahmedabad Bench of ITAT in the case of ITO v. Tandel Automobiles 38 ITD 438. 8. Similar views were also taken by the Lucknow Bench of the Tribunal in ITA No. 61 (Luc.)/2001 in DCIT v. M/s. Galaxy Capital (order passed on 19-5-2006). Accordingly, we hold that the Assessing Officer does not get jurisdiction to refer the p....
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.... 269 pointed out that if there are two sets of report, one by assessee's valuer and other by departmental valuer and there is no evidence that there was unexplained investment in the said construction then there is no reason to reject the report submitted by the assessee. Similarly, in CIT v. Vindraban Chitra Mandir [1994] 209 ITR 520 (All.) it was held that when there is no evidence of unexplained investment then DVO's report cannot be substituted for assessee's report. Hon'ble Rajasthan High Court in CIT v. Pratapsingh Amrosingh Rajendra Singh & Deepak Kumar [1993] 200 ITR 788 held that in respect of investment made in property there can be only two methods to find out the correct position - (i) examination of books of account which have been maintained properly and (ii) valuation report. If the assessee has maintained proper books of account and all details are mentioned in such books of account which are duly supported by vouchers and no defects are pointed out and the books are not rejected then the figures shown therein have to be followed. The valuation report could be taken into consideration only when the books of account are not reliable or are not supported by proper vou....
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....er section 142A can be made only when a requirement is felt by the Assessing Officer for making such reference. Requirement would arise or could be felt only when there is some material with the Assessing Officer to show that whatever estimate assessee has shown is not correct or not reliable. The use of word 'require' is not superfluous but signifies a definite meaning whereby some preliminary formation of mind by the Assessing Officer is necessary which requires him to make a reference to the DVO under section 142A. In other words, it is only during the course of pendency of assessment or reassessment that the Assessing Officer can frame his mind to refer the property to valuation cell of the Department. Such mind can be framed if there is a basis to think that the assessee may have understated the cost of construction or whatever is declared by him in this regard is not believable. Therefore, it is quite apparent that reference to valuation cell under section 142A can be made during the course of assessment and reassessment and not for the purpose for initiating reassessment. This view is clearly supported by the decision of Ahmedabad Bench in Umiya Co-operative Housing Society ....
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....sidered view the provisions of section 142A cannot be read in isolation to section 145. In other words, if books of account are found to be correct and complete in all respect and no defect is pointed out therein and cost of construction of building is recorded therein, then the addition on account of difference in cost of construction could not be made even if a report is obtained within the meaning of section 142A from the DVO. It is because the use of the report of the DVO obtained under section 142A is not mandatory but is discretionary as the word used is 'may' therein. Accordingly, we are of the considered view that in the present case when Assessing Officer has not rejected the books of account by pointing out any defects reference to the DVO will not be valid and, therefore, DVO's report could not be utilized for framing assessment even if such a report is considered to be obtained under section 142A. Since reference to DVO being held as invalid, the assessment/reassessment framed thereafter would also be invalid. As a result, we uphold the order of the Ld. CIT(A) though on different grounds. We do not consider it necessary to deal with the other issues as they are of acade....