TaxTMI 
TaxTMI 
2015 (5) TMI 1186
X X X X Extracts X X X X
X X X X Extracts X X X X
....essing Officer in page 4 of the assessment order has rejected the books of accounts on the ground that the same were prepared now only with available bills and most of the bills/vouchers is supported by self made documents. The Assessing Officer while rejecting the books of accounts should pinpoint specific defects in the books of accounts and on general observation as above rejection of books is not legally sustainable. 04. The assessee produced quantitative details for the construction activity before the assessing officer which has not been rejected or found to be false. In view of this the addition towards cost of construction need to be deleted." 3. The brief facts of the case are that the assessee is an 'individual', derives income from rental income and lorry transport business carried out in the name of C.R. Transport & N.S.R. Transports. He had filed his return of income for the assessment year 2011-12 on 06.03.2012, admitting an income of Rs. 4,49,100/- and the same was processed u/s.143(1) of the Income Tax Act on 09.03.2012. Later the case was selected for scrutiny. On perusal of the return of income, it was found that the assessee has admitted cost of construction....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aniam, ITP appeared on 03.10.2013 with power of attorney along with cash flow statement, statement of affairs, capital account and name & address of the sundry creditors are produced. On this day, he has not produced any evidences for maintaining the books of account and bills/vouchers for cost of construction of building admitted by the assessee. Further he was asked to produce the source for the cash deposits by the assessee at TMB and Kotak Mahindra Bank Ltd and the case was adjourn to 14.10.2013. 3.4 In the mean-time, the valuation report from the District Valuation Officer, Chennai received by Assessing Officer on 01.01.2014. As per the DVO report the cost of construction was worked out at Rs. 6,55,43,700/- and after deducting the cost of the work carried out by the tenant, the cost of construction determined by the DVO works out to Rs. 5,70,06,100/-. The cost of construction determined by the Valuation Cell works out to approximately H1,068 per sq. ft. 3.5 The assessee's representative has appeared before Assessing Officer on 02.01.2014 and copy of the Valuation Report was served on the representative, asked to file his comments on the same. Also he was asked to produ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unts and bills/vouchers are produced. The assessee has raised following objections is as under; 1)The assessee claimed that he has furnished vouchers to the extent of Rs. 1,42,67,3331- which is almost the entire vouchers as opposed to the statement in the report that he had furnished only part vouchers 2). The DVO did not ask for quantity particulars from the assessee 3). Adoption of CPWD rates as against State PWD rates that too suitably reworked over the period of construction as against the 2011 CPWO rate adopted by the DVO. 4). Adoption of architects fee at 2% of the cost when he had not availed the services of one. 5). The cost of construction in respect of the work done by the tenant (H. 85,37,600) is merely adopted as per details furnished to the Assessing Officer and deducted from the total cost without independent verification of the bills and vouchers 6). Reference to the Valuation Officer is made by the assessee's representative without rejecting the books of accounts. 3.7 Books of accounts for cost of construction produced by the assessee's representative verified by the Assessing Officer. According to Assessing Officer, the assessee has not main....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stencies are noted in this Valuation Report. The registered valuer has not provided for the sand used whereas the assessee stated that 454 units of sand were used. Also the registered valuer has given the period of commencement and completion of building from April'2009 to March'2010 however the assessee stated that the period of commencement and completion of building from April'2009 to September'2010. There is also a difference in the constructed area which is shown at 53,331 sq.ft in the approved valuer's report as against an area of 57,347 sq.ft mentioned in the DVO's report. Thus, he rejected the valuation report from Registered valuer. 3.11 Accordingly, the Assessing Officer made an addition of Rs. 89,63,245/- towards cost of construction for the assessment year 2011-12. Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). 4. The Commissioner of Income Tax (Appeals) placing reliance on the judgment of jurisdictional High Court in the case of CIT vs. Shri. Raya R. Govindarajan in ITA No.255/2014, dated 22.07.2014 observed that the Assessing Officer is justified in adopting the value as for the CPWD rates and c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....statementor concealment of income is on the revenue and it is only when such burden is discharged it would be permissible to rely upon the valuation given by the DVO. b. An addition to wards under estimate of cost of construction cannot be made solely on the basis of report of the DVO. In view of the findings of the Delhi high court the addition made towards under estimate of cost of construction needs to be deleted. c. Further reliance is placed on the order of ITAT, Lucknow bench 'A' dated 16/10/14 in the case of DCIT vs. Satish Cold Storage (36 ITR (Tribunal) 435 (Lucknow) and Sargam Cinema vs. CIT 328 ITR 513 (SC). d. In the course of proceedings before CIT(A) Salem, the assessee filed details of cost of construction as per state PWD rates according to which the cost of construction comes to Rs. 1,48;16,071/-. e. The directions of CIT(A) to the assessing officer is to adopt the values as per the state PWD rates and not to adopt CPWD rates as taken by the valuation officer. f. A copy of working given to CIT (A) arriving at a cost of construction at H. 1,48,16;071 as per PWD rates was given to the assessing officer. The assessing officer has passed a revisi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the valuation report by the Inspector. The department vide letter dated 25.07.2013, referred the matter to the District Valuation Officer, Chennai as per the provisions of Sec. 142A of the Income Tax Act. Further he issued notice to the assessee on 18.09.2013 and the case was posted for hearing on 04.10.2013 by Assessing Officer. The assessee's representative appeared before the Assessing Officer on 03.10.2013 along with cash flow statement, statement of affairs, capital account and name and address of the sundry creditors. The assessee at that point of time not produced books of accounts. Later the case was adjourned to 14.10.2013 by Assessing Officer. In meantime, the District Valuation Officer, Chennai gave a valuation report on 01.01.2014. He determined the cost of construction at Rs. 5,70,06,100/-. The assessee's representative appeared before the Assessing Officer on 02.01.2014 and Assessing Officer gave a copy of the valuation report to him and Assessing Officer called for copy of building plan, building approval, copy of land deed and supporting evidences for cost of construction with break up. The assessee's representative appeared on 21.01.2014 before the Assessing Offic....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that 454 units of sand were used. Also the registered valuer has given the period of commencement and completion of building from April'2009 to March'2010 however the assessee stated that the period of commencement and completion of building from April'2009 to September'2010. There is also a difference in the constructed area which is shown at 53,331 sq.ft in the approved valuer's report as against an area of 57,347 sq.ft mentioned in the DVO's report. Thus, he rejected the valuation report from Registered valuer. 9. As seen from the above, the assessee has produced the books of accounts before the Assessing Officer. The Assessing Officer has rejected the books of accounts on the reason that the books of accounts were prepared by assessee at the stage of assessment and most of the expenses are supported by self made bills/voucheH. Hence, the books of accounts and bills/vouchers against the construction were rejected and reference was made to DVO u/s.142A of the Act. 10. The section 142A reads as follows:- "142A (1) for the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s results and estimate the income in certain circumstances. 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 deducted from method employed; 3. Whether the accounts are correctly maintained; and 4. Whether the accounts maintained are complete in the sense that there is no significant omission therein. If the answers to all the above four questions are in affirmative, then assessee's profits are to be computed on the basis of his accounts. In such case, neither the first proviso to section 145(1) nor section 145(2) can be invoked. In the findings on question Nos.1, 3 and 4 are in affirmative, but finding in question No.2 is negative, first proviso to section 145(1) comes in and computation has to be made on such basis and in such manner as Assessing Officer, may determine. If the findings on question No.1, 3 or 4 is in negative section 145(2) applies and Assessing Officer, may make a best judgment in manner provided for in section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g this basic approach of judicious evaluation projected the same issue as a warranting reason for rejection of book results. In such a scenario, if the learned Assessing Officer is in dispute with any particular item of expenditure as unverifiable, the same item should have been considered as specific addition in assessment. The general comment of the Assessing Officer clearly demonstrates that he could not quantify any specific expenditure as unverifiable which warrants for reference to the DVO. Inaction on the part of Assessing Officer to specifically quantify unverifiable expenditure for a specific addition in the assessment cannot empower such an Assessing Officer to resort to rejection of book results so as to invoke the provisions of Section 142A or 145. This particular reason relied upon by the Assessing Officer for rejecting the books is legally unsustainable as the same is not establishing any incompleteness or incorrectness of assessee's accounts rather than he is preoccupied with a view that the cost of construction disclosed by the assessee is very low. Judicial precedence is categorically in favour of an assessee in this context by holding that such actions of Assessin....