TaxTMI 
TaxTMI 
2019 (5) TMI 1537
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....ts of the case are that on examination of the assessment records, it was seen that while completing the assessment the Assessing Officer omitted to look into the following issue: During the period 2006-07 to 2013-14, the assessee had constructed a building called 'Capital City' which was referred to the DVO for valuation. The valuation report was received on 03/04/2014. As per the DVO's report the cost of the building was Rs. 9,85,39,000 as against the value adopted by the assessee of Rs. 6,11,60,510/-. There was a difference of Rs. 3.74 crores between the value declared by the assessee and the report of the DVO. The proportionate unaccounted expenditure for AY 2013-14 was Rs. 33,63,288/-. This issue was not considered while completing the assessment. Hence, the CIT held that the assessment order dated 10/03/2016 was erroneous in so far as it was prejudicial to the interests of the Revenue. Accordingly, he invoked the provisions of section 263 of the Act. 3. Against this the assessee is in appeal before us. The Ld. AR submitted that the assessee is a partnership firm engaged in the business of real estate and construction work. The CIT passed order u/s. 263 of the Ac....
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....he period of construction from 2006-07 to 2012-13 relevant to the assessment years 2008- 09 to 2014-15. The assessments for A.Y. 2008-09 to 2012-13 without considering the DVO report had rendered the assessments erroneous and prejudicial to the interests of the revenue, thereby invoking the provisions of section 263 by the CIT vide order dated 04/03/2016. The details of the assessment years and amounts invested as declared by the assessee and as per the DVO report is as follows: Financial Year Cost of Construction declared by the Assessee/Appellant Proportionate of total cost declared by the Appellant Proportionate Cost as per DVO Difference in cost between the DVO and the Appellant 2006-07 78,677 0 0 0 2007-08 1,18,72,387 19.55 19264375 7313311 2008-09 1,03,01,925 16.84 16593967 6292042 2009-10 70,21,086 11.48 11312277 4291191 2010-11 1,23,14,410 2013 19835901 7521761 2011-12 1,05,39,899 17.23 16978270 6438371 2012-13 55,05,222 9.00 8868510 3363288 201 '3-14 35,27,174 100 98539000 37378490 3.3 It was submitted that the CIT(A), Kochi vide order d....
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....) 359 ITR 39/134 taxmann.com 644), the High Court of Punjab & Haryana held as under: "Learned counsel for the revenue was unable to justify that when the books of account in respect of cost of construction have been maintained by the assesses and the same were not rejected, how the matter could be referred to the DVO for assessing the value. Wherever the books of account are maintained with respect to the cost of construction, the matter can be referred to the DVO after the hooks of account are rejected by the revenue on some legal or justified basis. In the absence of the same, the reference to the DVO cannot be upheld. In view of the above, we do not find any substance in the appeal. No question of law arises in this appeal for consideration of this Court. Dismissed." 3.4 In the case of Dr. Raghuyendra Singh v. C1T [2014] 49 taxmann.com 544/12015] 229 Taxman 554 (Punj. & Har.) the provisions of Section 142A of the Act were taken into consideration, including the Circular No.5 of 2005, issued by the Central Board of Direct Taxes, to come to a similar conclusion that without rejecting the books of account, the matter should not be referred to the DVO. Relevant observati....
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.... * Ahmedabad ITAT in the case of Shree Ridhi Corporation (TS-5605- ITAT-2012 (Ahmedabad) * Madras High Court in the case of Family of SP. S.S. SP. Subramanian Chettiar (2015) 59 Taxmann.com 182 3.5 It was also submitted that the reference to the report of DYO cannot be made sans recording any finding that the books of accounts maintained by the assessee are not genuine or lacks credibility either by the CIT or by any authority till date. This has been affirmed in the following judgments: > Madras High Court in the case of KK Seshaiyer (2001) 166 CTR 527 > Rajasthan High Court in the case of CIT Vs Hotel Joshi (2000) 242 ITR 478; 3.6 It was submitted that the Assessing Officer had grossly erred in relying on the decision laid down in the case of Messrs Indira Hospital Research and Diagnostic Centre Vs ACIT (2012) 208 Taxman 12 (Karnataka). The ratio laid down in the said case mandates that any reference to the DVO and subsequent additions to the total income based on the DVO report can only be made if the Assessing Officer frames and opinion that the books of accounts maintained by the assessee are unreliable. On the contrary, no doubt has been expr....
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....he Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase "prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to lev....
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....icer, especially when the books of accounts of the Appellant are correctly maintained. The High Court of Delhi in CIT vs. Abhinav Kumar Mittal reported in [2013] 351 ITR 20 (Delhi) held as under: "However, we find that the Income Tax Appellate Tribunal as well as the Commissioner of Income Tax (Appeals) had concluded, on facts, that there was no material found during the search to justify the reference to the DVO for his valuation of the said properties. The Tribunal held that there must be some material to show that the investment made by the assessee was outside the books o. This, according to the Tribunal, was a condition precedent for making a reference to the DVO. The Tribunal also held that, in any event, the DVO's report was based on incomparable sales and, therefore, could not be relied upon. The Tribunal also held that the burden was on the revenue to show that the real investment in the said properties was greater than the apparent investment, as disclosed by the respondent assessee. The Tribunal held on facts, that the said burden had not been discharged by the revenue. Consequently, the Tribunal held in favour of the assessee and against the revenue and found t....
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....ation report could be utilised, namely for completion of assessment in conformity with the valuation report was no longer existent, the assessment having been completed in the meantime. In such circumstances, to allow the assailed valuation proceedings to continue, would mitigate against well known canons of strict construction of statutes. A similar view was also upheld in Prakash Chand Vs Deputy Commissioner of Income-tax (2004) 269 1TR 260. It was submitted that the ITAT, Kolkata in Machinery Agencies (India) v. Deputy Commissioner of Income Tax in [2012] 27 taxmann.com 168 (Kolkata-Trib) held that if the DVO report, which was received subsequent to the assessment order, was to be accepted, then the concept of finality of assessment will have to be buried deep and time limit for framing the assessments will have to be ignored all together. The scheme of the Income Tax Act, does not visualise unfettered discretions being conferred upon the Commissioners to tinker with the completed assessments. A similar view was upheld in the case of ACIT Vs Navalkishor Guruprasad Jaiswal and Others (ITA Nos. 274,275/Nag/2013 and 274/Nag/2014) The Ld. AR also relied on the decision of the ITAT, ....
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....permitted under the Act. Furthermore, even if the DVO report were in the records of the Assessing Officer, the Assessing Officer is duty bound to afford opportunity to the assessee to object to the findings of the Report and only then finalize the assessment after considering the objections of the assessee. The assessee submitted that the DVO report was never a part of the record during the finalization of the assessment proceedings and is a document which has been received at a much later time (much after the time limit prescribed for completion of assessment). 3.9.6 It was submitted that by directing the Assessing Officer to consider the DVO report (which was received much after the finalization of the assessment, i.e., 03.04.2014), the Assessing Officer had reopened a finalized assessment and the same would be without considering the objections of the assessee to the findings of the DVO. 3.9.7 It was further submitted that as per Sub-clause (c) Section 263 of the Act, if the order passed by the Assessing Officer has been the subject matter of any appeal filed, the powers of the Principal Commissioner shall extend only to such matters as had not been considered and decided ....
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....order to arrive at the cost of renovation and construction claimed by the assesses for the assessment year 2006-07." 3.9.8 It was submitted that similar views akin to the above had been upheld in CIT vs K Jayakumar [2013] 35 Taxmann.com 179 and recently by the Supreme Court in Sunita Mansingha [2017] 80 Taxmann.com 258. In addition, the assesses have consistently reiterated that the DVO's report suffers from the following grave factual infirmities: * The building has foundation in column footing and not raft footing. In raft footing the entire coverage of the building will be thick RCC slab whereas in column footing it is only columns erected on footings underneath each column and not on the entire coverage of the building. Mistakenly the DVO has adopted the value for raft foundation and rate adopted is CPWD rate. For raft foundation the quality of material will be much more than what is required for the foundation in column footing. The average value adopted for the framed structure/ sq. mtr. by the DVO is more than Rs. 10,750/- where as the amount actually spent by us is Rs. 2,86,78,056/- which works at to Rs. 5035/-/Sq. Mtr. * In the case of Tile floorin....
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....dent to assume that the sewage to be treated in a commercial complex with occupancy for only 8 hours a day is far less than a residential building which has occupancy all the 24 hours in a day. * In the case of compound wall, the assessee has done only minor repairs and random plastering of the existing structure. * The assessee had paid architectural fee only for the drawings and supervisions were conducted by supervisors of the assessee. 3.9.9 The Ld. AR submitted that it is a trite position of law, crystallized by various Courts/Tribunals, that when the Assessing Officer has no cogent material available to satisfy himself about the requirement of Section 69, no reference to the DVO can be made under Section 142A of the Act. The Ld. AR relied on the judgment of the High Court of Gujarat in Anand Banwarilal Adhukia vs. DCIT reported in [2016] 75 taxmann.com 301 wherein it was held as follows: "The other relevant provision which is required to be considered is section 69 of Act pertains to unexplained investment, whereas section 69A pertains to unexplained money etc not fully disclosed in books of accounts and therefore, these statutory provisions are ....
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....aid decision and found that the case of Bharathi Cement (P) Ltd. was altogether on a different set of circumstances from the present case. In that case, the Assessing Officer was of the view that despite several reminders, the assessee had not produced any material and just dragged on the time so as to see that final assessment cannot be undertaken and therefore, in the background of that particular case, the issue was dealt with of section 142A of the Act." 3.12 It was submitted that the Assessing Officer erred in contending that the DVO has expertise in the valuation of buildings failing to appreciate that the report of the DVO being a mere estimate, cannot take precedence over the actual facts and valuation is an estimate and therefore, cannot be given precedence over real facts unless the real figures are defective. According to the ld. AR, this position was reiterated by various courts including the Supreme Court in the case of Daulatram Rawatmull (1964) 53 ITR 574 (SC). Reliance was also placed on Dr. S.V. Krishna Reddy vs. Dy. CIT (514-516/HYD/2009} and M/s. Legend Estates Pvt. Ltd. vs. Dy. CIT [I.T.A. No. 1542/Hyd/2010] in this regard. Thus, it was prayed that the order ....
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.... summons u/s 131, survey u/s 133 and power of enquiry u/s 142(1). The use of these powers by AO's for reference to DVO, were being questioned and the various judicial forums and High Courts had taken conflicting views as to the legitimacy of use of such powers. This had been put on rest based on the judgment of Supreme Court in the case of Amiya Bala Paul v CIT 2003 (262 ITR 407), wherein the Apex Court has categorically concluded that there no power to Assessing Officer for making reference to DVO for valuation of investments for assessment purpose 5.2 Finance (No.2) Act, 2004 has inserted Section 142A as a new section, with retrospective effect from 19th November 1972 to neutralise the decision of the Supreme Court in Amiya Bala Paul v CIT (supra). As per section 142A, as introduced by Finance (No.2) Act, 2004 the Assessing Officer can refer to Valuation Officer to make an estimate of value of any investment referred to in Section 69 or Section 69B. Therefore, section 142A has given power to AO to refer to the DVO for the purpose of estimating value of any investment for making assessment subject to certain conditions. 5.3 Even after insertion of section 142A of the I.T....
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....he correct position and then proceed to make assessment on the basis of estimation for which purpose he can resort to the provisions of section 142A of the Act and make a reference to the Valuation Officer for estimating the value of such investments. Thus on a plain reading of section 142A of the Act, it is apparent that the question of estimating the value of any investment would arise only when the books of accounts are not reliable. Accordingly the Assessing Officer would first be required to reject the books of accounts before making a reference to the valuation officer. The rejection of books of accounts should precede the reference to the Valuation Officer". 5.4 Section 142A of the I.T. Act was substituted vide Finance (No.2) Act, 2014 w.e.f 1.10.2014. As per the said substitution the reference to section 69, 69B etc .... had been removed and it has made as a general provision stating that Assessing Officer can refer to DVO to estimate the value of any asset, property or investment for the purpose of assessment. The sub section (2) of 142A of the I.T. Act states that the Assessing Officer may make a reference to DVO whether or not he is satisfied about correctness or comp....
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....ng Officer has not rejected the books of account the reference u/s 142A of the I.T. Act itself was bad in law and therefore DVO's report cannot be the basis of addition. The High Court, after taking notice of substitution of section 142A of the I.T. Act with effect from 1.10.2014, held that "it is true that subsequently there is an amendment to section 142A of the Act, however considering the provisions of law prevailing at the relevant time under consideration, before making reference to DVO the Assessing Officer was required to reject the books of accounts." 5.7 The Agra Bench of the Tribunal in the case of Sanjeev Parashar Aligra v. ITO [ITA No.230/Agra/2016 - order dated 07.12.2017), after referring to the judgment of the Gujarat High Court in the case of Goodluck Automobiles (P) Ltd. v. ACIT (supra) and the judgment of the Supreme Court in the case of Sargam Cinema (supra), held that the reference made by the Assessing Officer under section 142A of the I.T. Act without rejection of books of account is invalid. It is further held by the Tribunal that "there is no merit in the Department's content that extent of section 142A is applicable retrospectively. The section has spec....
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..../s. 263 of the Act, we refrain from going into other grounds of appeal of the assessee. The appeal of the assessee in ITA No. 241/Coch/2018 is allowed. ITA Nos. 495 to 499 (Assessee's appeals) 6. There was a delay of 201 days in filing these appeals before the Tribunal. The Ld. AR has filed a condonation petition accompanied by an affidavit stating that originally the assessee's appeals were handled by the Chartered Accountant, Shri S. Sivaramakrishnan aged 70, S/o. S. Subramania Iyer, residing at 'Lakshmi', XXXV/1256, Pazhayanadakkavu, Thrissur-680 001. Partner, M/s. Vasu & Sivaram, Chartered Accountants, 10th Floor, Capital City, Korapath Lane, Thrissur-680 020. Later, the assessee changed the chartered accountant by a new person. Hence, there was a delay in filing the appeals before the Tribunal. To this effect, the Chartered Accountant, Shri S. Sivaramakrishnan has filed an affidavit stating the above change which reads as follows: "1. I. V.Parameswaran, S/o. R.Vasu Iyer, aged 69 years, residing at "Sivasakthi", Thottekkat Lane, Punkunnam P O, Thrissur - 680002._ being the Partner of the Applicant firm, M/s Ardra Associates, in the above case state that I know th....
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....lays or laches on its part for preferring an Appeal. The Applicant is of the bonafide belief that the impugned order issued by the Respondent is liable to be set aside for the grounds stated in the accompanying Memorandum of Appeal. 6. It is humbly prayed that based upon the totality of the circumstances mentioned above this Hon'ble Income Tax Appellate Tribunal, Cochin may be pleased to consider the prayer of the applicant in granting the condonation for delay 0f 201 days in appearing before this Hon'ble Tribunal for justice and equity. It is a trite position of law, crystallized by the Hon'ble Supreme Court of India in Collector, land acquisition anantnag and another verus Mst. Katiji and others, reported in 1987 (28) E.L.T. 185 S.C.) that refusal to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties. Furthermore the Hon'ble Supreme Court of India in Esha Bhattacharjee v. Managing Committee of Rash unathpur Academy & Ors. Reported in (2013) 12 SCC 649 was p....
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....sed the affidavit. Originally the assessee's appeals were handled by the Chartered Accountant, Shri S. Sivaramakrishnan aged 70. Later, the assessee changed the chartered accountant by a new person. Hence, there was a delay of 201 days in filing the appeals before the Tribunal. We find that the reason explained by the assessee is bona fide and there is sufficient cause for filing the appeals belatedly by 201 days. Accordingly, we condone the delay and admit the appeals for adjudication. 7. The facts of the case are that the while completing the assessment for AY 2008-09, reference was made to Dist. Valuation Officer, for ascertaining the cost of construction of one of the properties of the assessee, namely Capital City. The report was received after the completion of assessment. The valuation report has not been considered. The difference in valuation for AY 2008-09 is as under: Cost disclosed as per assessment (Rs.) Proportion of total cost declared by the assessee (%) Proportionate cost as per DVO (Rs.) Difference in cost between assessee and DVO (Rs.) 1,18,72,387 19.55 1,92,64,375 73,91,988 In view of the above, the CIT was of the opinion that....
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....T by exercising power u/s. 263 of the Act, remitted the issue to the Assessing Officer to conduct necessary inquiries/verifications and passing consequential orders, after giving the assessee opportunity of being heard. 7.3 For the assessment year 2011-12, the CIT observed that there was difference in valuation for ascertaining the cost of construction of one of the properties of the assessee as under: Cost disclosed as per assessment (Rs.) Proportion of total cost declared by the assessee (%) Proportionate cost as per DVO (Rs.) Difference in cost between assessee and DVO (Rs.) 1,23,14,140 20.13 1,98,35,901 75,21 ',761 The CIT observed that non-consideration of valuation report rendered the assessment erroneous in so far as it is prejudicial to the interest of the Revenue. Hence, the CIT by exercising power u/s. 263 of the Act, remitted the issue to the Assessing Officer to conduct necessary inquiries/verifications and passing consequential orders, after giving the assessee opportunity of being heard. 7.4 For the assessment year 2012-13, the CIT observed that there was difference in valuation for ascertaining the cost of construction of one of the p....
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....en one possible view in this case. It cannot be said that the assessment order passed by the Assessing Officer is erroneous in so far as it is prejudicial o the interests of the Revenue. More so, as discussed earlier, once the Assessing Officer has accepted the books of account, there is no question of referring the valuation of the property to the DVO. In other words, to exercise power u/s. 142A, the Assessing Officer primarily shall reject the books of account, then only she can go for valuation by the DVO. As discussed in earlier appeal in ITA No.241/Coch/2018, we quash the order passed by the CIT u/s. 263 of the Act for these assessment years. In the present case, the Assessing Officer being satisfied about the value of the construction of the property declared by the assessee in its books of account, cannot refer the matter to the DVO. Therefore, it could be said that the Assessing Officer has taken one possible view in this case. Thus, it cannot be said that the assessment order passed was erroneous and prejudicial to the interests of the Revenue. In view of the ratio laid down by the Supreme Court in the case of CIT vs. Greenworld Corporation (314 ITR 81), we find that the A....
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....07-08 to 2010- 11. Accordingly, the addition made by the assessing officer is deleted and appeal on this ground is allowed." 11.1 Similarly, another project named "Capital City" was also referred to the DVO for valuation. However, the Valuation Report was received by the AO after he passed the assessment order and, therefore, he could not consider the Valuation Report while framing the assessment order. The Pr. CIT found the order passed by the AO as erroneous and prejudicial to the interests of Revenue for non-consideration of Valuation Report, and set aside the assessment with a direction to consider the Valuation Report and redo the assessment after giving due opportunity of being heard to the Appellant. As a consequence, the AO gave an opportunity to the appellant and the appellant raised various objections on DVO's Valuation Report and pointed at various mistakes in the said Valuation Report. However, the AO just brushed aside the objections raised by the appellant by simply stating that all the objections have already been dealt with by the DVO in the Valuation Report. The AO mechanically adopted the figures of Valuation Report and made additions in proportion of th....