TaxTMI 
TaxTMI 
TaxTMI 
2002 (3) TMI 927
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....on contract basis on which the receipts of ₹ 12,83,350 have been declared. 2.2 At the time of assessment proceedings, when the assessee produced various books of account, the AO noted there was an alleged stock register, which was freshly written. This was written by the accountant at the division office and not at the site. He also noted that no separate stock registers for different projects were maintained. As per entries in the alleged stock register, the material for construction has been issued, but no receipts, etc. have been maintained for issuing the same. For which project, the material was issued is also not known. The AO, therefore, recorded the statement of Shri Rajesh Saxena, the accountant of the assessee, who makes entries in the books of account. In his statement Shri Saxena admitted that the entries in the stock register were made on the basis of information given by Mistri. However, Shri Saxena was not able to pint point the name of the Mistri, who used to give that information. The AO also observed that when the materials were issued, no voucher in token of the issue of material, was maintained. Besides above, the accountant also stated the entries in the....
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....may not be applied. The assessee made his written submissions vide letter dt. 21st March, 2000. However, the reply dt. 21st March, 2000, was not found to be satisfactory by the AO. On this date, the AO asked the assessee to furnish the details of investments made during financial year 1999-2000 also. However, the assessee stated that the details of investments made by it during financial year 1999-2000 were not available at present. 2.6 The AO, therefore, rejected the books of account under s. 145(3) of the Act mainly due to the following defects : (1) Proper stock register and work-in-progress register was not maintained; (2) No separate particulars of expenses are maintained for each project; (3) Some of the purchases made in cash, are not verifiable. 2.7 He accordingly held that the assessment of the assessee has to be made as per the provisions of s. 144 of the Act. He, therefore, held that : (1) On the contract receipts of ₹ 12,83,350, 8 per cent net profit rate will be applied; (2) The pro rata undisclosed investment in Friends Apartments during the relevant assessment year comes to ₹ 81,69,717, which is added to the total income of the assessee; (3)....
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.... 1st April, 1997. (2) There was no basis with the AO for making reference to the DVO to estimate the cost of construction. (3) The property, namely, Friends Apartments was under construction as on 31st March, 1997, and even on 9th Dec., 1999, i.e. the date of alleged visit by DVO. Though the DVO has estimated the cost of construction in respect of Friends Palace also, the AO did not make any addition on account of undisclosed investment in that building on the ground that the same was under construction, but rejecting the same claim in respect of Friends Apartments was whimsical. (4) Bifurcation of the investment in each year on pro rata basis was imaginary as in some year, there may be substantial investment whereas in some year, it can be only nominal. (5) The difference in estimating of cost on main items (cost incurred by the assessee vis-a-vis cost estimated by DVO) was as under : Item DVO rate/cost Actual rate/cost Lifts ₹ 13.68 lacs each ₹ 5.75 lacs each (contract filed) Marble Stone ₹ 335 per sq. m. plus cost of laying ₹ 181 per sq. m. Green Marble Stone ₹ 507 per sq. m. plus cost of laying ₹ 150 per sq. m. (bills file....
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....nts as contemplated under ss. 69, 69A and 69B refer to bullion, jewellery, money or valuable articles, and not to stock-in-trade, for the very simple reason that the stock-in-trade can be determined from the books of account and other records and it cannot be said that such investments are found unrecorded in the books. (10) The AO while invoking the provisions of s. 69, has not discharged his burden of proof, while making the addition. It is a settled law that even if the assessee's explanation is rejected, it is for the AO to establish that the incomes have actually accrued/investments have been made before invoking these deeming provisions. For making the addition under s. 69, the onus rests with the Department which has not been discharged and as such, the addition is illegal. Cases relied on were (a) J.S. Parkar vs. V.V. Palekar (1974) 94 ITR 616(Bom); (b) CIT vs. Daya Chand Jain (1975) 98 ITR 280(All); (c) Brijlal Rupchand vs. ITO (1975) 40 TTJ (Ind) 668; (d) Rajpal Singh vs. ITO (1991) 39 TTJ (Del) 544; and (e) R.K. Syal vs. Asstt. CIT (2000) 66 TTJ (Chd) 656, 687. 2.9 The submissions of the assessee which are summarised above, were forwarded to the AO who has submitt....
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....atisfied, the AO could not make a reference in exercise of general power of enquiry as held in the case of Hotel Amar vs. CIT (1993) 115 CTR (Ori) 393: (1993) 200 ITR 785(Ori). In the case of Prem Hotel vs. ITO (1997) 93 Taxman 237(J&K), it has been held that the procedure prescribed under s. 131(1)(d) cannot be adopted without giving first a hearing to the assessee because it is a settled principle of law that if a person expresses doubt about the account furnished by the assessee, he must atleast be given a shown-cause notice. Thus, the very basis for making a reference being missing and reference having been made in utter disregard of legal provisions it cannot be held valid and addition made on the basis of such invalid reference cannot be sustained. It may be mentioned that in the past also the same AO assessing other builders being assessed in his charge like Puspanjali Construction Co. and Kaveri Resorts (P) Ltd., no reference to valuation cell has been considered necessary and rightly so because such a reference is not provided in respect of valuation of stock-in-trade/work-in-progress which is part of P&L a/c and cannot be termed as investment calling for a reference. 2.1....
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....2) of the Act. The similar view was expressed by the Hon'ble Bombay High Court in the case of Jamuna Dass Madhav Ji & Co. & Anr. vs. J.B. Panchal, ITO & Anr. (1986) 58 CTR (Bom) 1: (1986) 162 ITR 331(Bom). Learned Departmental Representative further argued that the Hon'ble Orissa High Court in the case of Hotel Amar vs. CIT & Ors. (supra) had held that the DVO's report was a piece of evidence which the AO obtained in the course of enquiry and it was open to the assessee to rebut the said valuation. 2.15 It was further argued by the learned Departmental Representative that once the reference was made to the DVO and his report has been obtained, the AO has to give weightage to such report as it was an expert opinion. Before preparing the report, the DVO had given various opportunities to the assessee to put its case before him but the conduct of the assessee has been always non-co-operative which is evident from the fact that when AO asked the assessee to produce relevant documents before the DVO, the assessee has replied the AO that the necessary information has been furnished before the DVO. But what was done by the assessee was to challenge the powers of the DVO to ca....
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.... building was a stock-in-trade and, therefore, the DVO had every authority to value the cost of investment in the stock-in-trade. When the AO found that there was a vast difference between the cost of construction declared by the assessee and as estimated by the DVO, the AO had every right to consider this vital fact while making the assessment. It is an admitted position that the DVO's report was not a gospel truth but at the same time such report has an evidenciary value and has to be considered while computing the income of the assessee. Once the assessee fails to do so, the AO cannot be faulted. 2.18 Leaned Departmental Representative also stated that the CIT(A) was not justified in stating that the provisions of s. 145A were only declaratory in nature. Such provision was on substantive law and has been brought on the statute w.e.f. 1st April, 1999. Prior to asst. yr. 1999-2000, the provisions of s. 145(3) were validly invoked by the AO. In this regard, the learned Departmental Representative made the following submissions : 1. During the asst. yr. 1997-98 (financial year 1996-97) the assessee changed its method of accounting from completed contract method to percentage ....
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....er figure shown in the P&L a/c, which is the value of work done determined by the assessee on the basis of his cost sheet and not the actual sale. The actual sale is adjusted in the P&L a/c only in the year when project gets completed and is closed. (b) secondly, attention is invited to p. 9.3 of AS-7, which clearly says that "progress payments and advances received from customers may not necessarily reflect the stage of completion and, therefore, cannot usually be treated as equivalent to revenue earned". Hence, the revenue credited to the P&L a/c need not necessarily have a co-relation with the receipts from customers. However, under the head current liabilities and provisions in the balance sheet as at 31st March, 1997, the assessee has shown "Deposits from customers" amounting to ₹ 1,18,56,690.35, against which the value of work done credited in the P&L a/c is only ₹ 84,18,531.00. The assessee is intentionally trying to misrepresent the facts that no sale has been made. The amount above is the advances received against sale of flats, etc., which are under construction by the assessee. This is further substantiated by the fact that the auditor....
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....show the project-wise details. The same has been admitted by the auditors vide Note No. 8 under the head "Project/contract construction a/c". In view of these deficiencies, the books of account of the assessee have been rightly rejected under s. 145(3)". 2.19 Learned Departmental Representative also relied on the decisions in CIT vs. British Paints India Ltd. (1991) 91 CTR (SC) 108: (1991) 188 ITR 44(SC), CIT vs. B.N.B. Enterprises (2000) 161 CTR (Mad) 449: (2000) 242 ITR 439(Mad), Ram Chandra Singh Ramniklal vs. CIT (1961) 42 ITR 780(Pat), Amiya Kumar Roy & Anr. vs. CIT (1994) 206 ITR 306(Cal) and Agarwal Bros. vs. ITO (1993) 45 TTJ (Ind) 238. 3. On the other hand, learned counsel of the assessee stated that for rejecting the books of account, the AO has to point out the defects either in the books of account or in the method of accounting. As per provisions of s. 145(3), the books could be rejected where the accounting standard as notified under sub-s. (2) of s. 145 has not been regularly followed by the assessee. But as in the instant case, such accounting standard has been regularly followed, there was no question of even invoking the provisions of s. 145(3) of....
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....e claim of the assessee by holding that reference to DVO was invalid and, therefore, any addition based on such reports had to be deleted. 5. We have, therefore, examined the findings of the CIT(A) in his regard. Sec. 142(1) of the Act provides that for the purpose of making an assessment, the AO can ask the assessee to furnish a return of income or other documents as the AO may require. Sub-s. (2) provides that for the purpose of obtaining full information in respect of the income or loss of any person, the AO may make such enquiry as he considers necessary. By virtue of powers under s. 131(1)(d), the AO has got powers to issue commission for the purposes of obtaining information in respect of income or loss. Such commission could be issued for seeking opinion of an expert during the course of assessment proceedings. There is no prerequisite for issuing commission. The opinion of the expert is not a gospel truth but certainly it has got persuasive value. Such opinion is not binding on the AO but it does not mean that the commission issued by the AO was invalid. Hon'ble Andhra Pradesh High Court in the case of Daulat Ram & Ors.(supra), in connection with reference to DVO under....
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....ertainly entitled to issue commissions for valuation of the property. When it is expected from an assessee that he would be honest and would pay the proper tax then it cannot be gainsaid that because some income has been declared, therefore, the Department would have no jurisdiction to make any investigation into the amount invested or the amount explained. In fact, the Department wants to make an investigation into the amount truly invested in raising the construction. If the Department comes to the conclusion that more than 10,89,000 rupees were spent in raising the construction they would certainly be entitled to take suitable proceedings under the IT Act against the declarant/assessee". 8. In view of above judicial pronouncements, we have no hesitation in holding that the AO was within his rights in issuing commission under s. 131(1)(d) of the Act to the DVO seeking his opinion on the cost of investment in the construction of Friends Apartments. CIT(A)'s findings in this regard are reversed. Consequently, the DVO who sits in the shoes of the AO by virtue of commission under s. 131(1)(d) could call for the information from the assessee under the above section. 9. Sec....
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....Sec. 69 is a part of Chapter VI. This chapter deals with the aggregation of income and set off or carry forward of loss. First part talks of aggregation of income which covers the ss. 66 to 69D of the Act. In s. 69, nowhere it has been provided that the section will be invoked only if certain undisclosed investments were made in a capital assets. If no such provision has been made in the section, it will be far-fetched argument that the addition under s. 69 of the Act could be made only when the undisclosed investment was made in a "capital asset". We fully agree with the observations of the learned Departmental Representative that in a case of a jewellery, the jewellery was a stock-in-trade. When search and seizure operation takes place, the jewellery which is stock-in-trade is valued and the cost of investment is estimated. The addition under s. 69 could be made if there was difference between the cost of investment in the stock-in-trade declared by the assessee and estimated by the authorised valuer. The finding of the CIT(A), therefore, did not find favour with us. 11. We have also perused the DVO's report. Certain inherent contradictions have been pointed out by....
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....O vide his letter dt. 2nd June, 2000, appraised the CIT(A) this fact. The DVO's comments are dt. 2nd June, 2000, which were received by the CIT(A) on 12th June, 2000, but by that date, the order was already passed by the CIT(A). The approximity of the dates will clearly show that there was undue delay on the part of the DVO in offering his comments. The CIT(A), therefore, acted in haste and passed the order even without waiting for the comments of the DVO when she was specifically informed on 2nd June, 2000, that the comments of the DVO are likely to be received very soon. We are making these observations keeping in view the fact that a weeks' time given to the DVO who sits in Jaipur was too little a time. Under the circumstances, we set aside the order of the CIT(A) on this point and direct him to consider the valuation report on merits. While doing so, the CIT(A) will consider various objections raised by the assessee and will also provide reasonable opportunity to the assessee as well as the AO to put their claim. For statistical purposes, the ground of appeal raised by the Revenue is allowed. 13. Ground Nos. 4 and 5 relate to the application of net profit rate at 4 per....
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.... of two other builders. Thus, she has given her reasons for application of 4 per cent net profit rate. The two builders were renowned builders and in case the Revenue was of the opinion that the facts in the case of the other two builders were not same, which has been stated by the CIT(A), it was at liberty to rebut the same by bringing contrary evidence. We also find that the assessee has also challenged the adoption of 4 per cent net profit rate by the CIT(A). Thus, while adjudicating assessee's appeal, we will consider this issue there. However, the Revenue's appeal on this ground is dismissed. 22. In the result, the Revenue's appeal is allowed for statistical purposes in respect of ground Nos. 1 to 3 and the appeal on ground Nos. 4 and 5 is dismissed. 23. Now, we will take up the appeal directed by the assessee. 24. The only ground taken by the assessee was against sustaining the income on contract receipts @ 4 per cent of the gross receipts on completed project as well as the work-in-progress. While directing to apply 4 per cent net profit, the CIT(A) has observed that this net profit rate was applied in respect of the other builders. The learned counsel has sta....