TaxTMI 
TaxTMI 
2014 (4) TMI 154
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....unsustainable in law as held by Supreme Court and thereby erred in confirming the addition holding the reference to valuation cell to be valid. 3. Without prejudice, the ld. CIT(A) failed to appreciate that whereas the cost of flats submitted by the appellant pertained to materials cost, the cost determined by the DVO is inclusive of administrative and supervisory charges. The ld. CIT(A) therefore ought to have directed either to include administrative and supervisory charges to the cost submitted by the appellant or should have directed the deletion of administrative and supervisory charges from the value arrived at by the DVO. 4. On the facts and in the circumstances of the case since the difference in cost arrived at by the DVO and that of the cost submitted by the appellant (after taking into account administrative and supervisory charges) is below 10% of the total cost determined, the ld. CIT(A) ought to have directed for deletion of the addition made by the AO. 5. The learned CIT(A) further failed to appreciate the fact that in the earlier years the assessments were made after scrutiny and reference to valuation cell to estimate the expenditure of earlier year by ref....
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....o the DVO. He submitted that u/s 142A of the Act, only investment referred to in sections 69, 69A, 69B can be referred to DVO and not the investment referred in section 69C of the Act For this purpose he relied on the following judgements: a) CIT vs. AAR PEE Apartments (P) Ltd., 319 ITR 276 (Del) b) Raj Hans Builders vs. DCIT, 41 SOT 331 (Ahd) 6. According to the learned counsel for the assessee the investment made by the assessee in construction has been shown as current asset and it is not an investment referred to in section 69, 69A and 69B of the Act. He drew our attention to the dictionary meaning of the word 'investment' as per Law Lexicon "which means in economic terms, capital expenditure on physical productive assets for example, machinery, factory, building, roads, projects, houses and or stocks." Investment is an expenditure to acquire property or other assets. In order to produce revenue the assets were acquired. Placing of capital or laying out of money is intended to secure income or profits from its employment. 7. On the other hand, the learned DR submitted that the addition in this case was made u/s. 69C of the Act and there is no mention in the ....
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....e of Rs. 1.60 crores. In mean time the Assessing Officer made reference to the District Valuation Officer on 04-09-2006 and the DVO submitted the valuation report on 14-09-2009 as per which the cost of construction of the 22 properties was arrived at Rs55,83,05,733/-. The assessee has disclosed the cost of construction of these properties in its books at Rs.38,58,53,602. The difference between these two was worked at Rs. 17,24,53,131/- which was spread over to 5 assessment years. The unexplained expenditure relating to this assessment year 2007-08 was worked out at Rs. 6,51,01,056/-. Perusal of the assessment order shows that there is no reference to any material/evidence/information on the basis of which it could be said that the cost of construction was shown by assessee was understated or anything above what was disclosed by assessee in the books of account. It is a clear cut case that the assessee has produced the books of account but the Assessing Officer has not rejected or no defect was pointed out in the books of account regarding cost of construction of the project before reference to the DVO. We further find from the case records that even before verifying the books of ac....
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.... be made. This also shows that a reference to DVO u/s. 142A can be made only when a requirement is felt by the AO for making such reference. Requirement would arise or could be felt only when there is some material with the AO 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 AO is necessary which requires him to make a reference to the DVO u/s142A. It can only be during the course of pendency of assessment or reassessment that the AO 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 u/s.142A can be made during the course of assessment and reassessment and not for the purpose for initiating assessment. This view is clearly supported by the decision of Ahmedabad Bench in the case of Umiya Co-operative Housing Society Ltd. v ITO (2005) 94 TTJ 392 (Ahd), wherein....
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....herefore, even after the insertion of section 142A, the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment as provided u/s.147 and thereafter only the notice for reassessment can be issued u/s.148. Even after the insertion of section 142A there is no amendment in the language of section 147. Therefore, the condition prescribed u/s.147 for reopening of assessment still exists. The Hon'ble Gauhati High Court in the case of Bhola Nath Majumdar and the ITAT Jodhpur Bench in the case of Vijay Kumar (supra) have taken the view that the valuation report is only an opinion of the valuer and an opinion of a third party cannot be a reason to believe of the ITO. The Hon'ble Bombay High Court in the case of Jamnadas Madhavji and Co.(supra) have held that the Assessing Officer cannot issue summons u/s. 131 for the purpose of making investigation for reopening of the assessment. 9. In view of the above, we are of the opinion that the issue of notices u/s.148 in all three years under consideration was not in accordance with law. We, therefore quash the notices issued u/s.148 and consequently the assessments completed in pursuance to notices....
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....assessee and against the Revenue". 12. We further find from the case records that even if a reference u/s. 142A is made by the Assessing Officer on certain consideration such as anything find during the course of survey u/s 133A of the Act or on the basis of a tax evasion petition or a reference is required to be made during the course of other proceedings or a report of the DVO is available to the AO before making an assessment or reassessment then same can be utilized only in accordance with sub-Sec.(3) of Sec. 142A i.e., the assessee has to be given an opportunity of being heard before such a report is utilized and in accordance with Sec.145 where books of account are required to be rejected by pointing out some apparent defects. In our considered view the provisions of Sec. 142A cannot be read in isolation to Sec.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 he meaning of Sec.142A from the DVO. It is because the use ....
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....o him. Thus the power available under s. 142(1) is requiring the Valuation Officer to value any investment or bullion, jewellery or other valuable article referred in s.69, s 69A or s.69B of the Act,. These powers do not extend to estimate the amount of unexplained expenditure referred in s. 69C of the Act. Admittedly, in the present case the expenditure on construction are claimed and allowed as revenue expenditure and cannot be considered as an investment or bullion, jewellery etc. referred in s. 69, s. 69A or s.69B, of the Act. We accordingly hold that the reference to DVO is not in accordance with the provisions of s. 142A. Hence the decision of Hon'ble Supreme Court in the case of Smt. Amiya Bala Paul (supra) will still apply to hold that no addition can be made merely relying upon the value arrived at by DVO. In view of the above discussion, addition of Rs.19,69,881 is directed to be deleted." 7. We are in agreement with the aforesaid interpretation given by the Tribunal to Sec. 142(A) of the Act. Our discussion on this aspect proceeds as under: 8. Sec. 142(A) is to the following effect:- "142A. For the purposes of making an assessment of reassessment under this Act,....
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....ry, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year." 14. The scope and ambit of ss. 69B and 69C are altogether different. The connotation to the investment appearing in s. 69B has to be in the context of investments made in some property or any other type of investment and it could not be the business expenditure. The word 'investment' contained in s. 69B deals with investment in bullion, jewellery or other valuable articles, etc. if the contention of learned counsel for Revenue is accepted and the is given wider meaning as sought to be made out, the provisions of s. 69C shall be rendered otiose. 15. The learned counsel for Revenue however took another plea to buttress her submission. He submitted that having regard to the circumstances under which s. 142A was inserted by the Finance Act, 2004, it be deemed that the intention of legislature was to include even those un-explained expenditure stipulated in s. 69C. No doubt the need behind inserting s. 142A was to empower the AO to make a reference to the Valuation Officer as there was no such specific powers and existing provisio....