TaxTMI 
TaxTMI 
2021 (6) TMI 362
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....l in ITA No. 1525/Ahd/2018 concerning AY 2010-11 as a lead case for adjudication. ITA No. 1525/Ahd/2018 - AY- 2010-11 4. The ground of appeal raised by the Revenue reads as under: "1.1 That in the facts and circumstances of the case, and in law, the Ld.CIT(Appeals) has erred in allowing the assessee' s appeal, without appreciating the facts discussed in the assessment order and the remand report. 1.2 That in the facts and circumstances of the case, and in law, the Ld, CIT(Appeals) has erred in holding that the reference made by the AO u/s 142A was invalid, without appreciating the facts discussed in the assessment order and the remand report. 1.3 That in the facts and circumstances of the case, and in law, the Ld. CIT(Appeals) has erred in holding that the reference made by the AO u/s 142A without rejecting books of account was invalid. 1.4 That in the facts and circumstances of the case, and in law, the Ld, CIT(Appeals) has erred in holding that the reference made by the AO u/s 142A without rejecting books of account was invalid, even though Circular no. 1/2015 (para 43. 2) specifically says that Section 142A of the Income-tax Act does not....
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....impounded revealed several transactions which were not found recorded in the books. On being confronted, the partner of the Assessee firm conceded and declared a lump-sum amount of Rs. 1.75 crores as its unaccounted income in the course of survey proceedings. Such declaration made in survey was also reportedly incorporated suitably while determining the total income of the Assessee. The return for AY 2010- 11 was selected for a regular assessment and a regular assessment was made under S. 143(3) of the Act. The total income was assessed at Rs. 1,94,25, 530/- for AY 2010-11 vide an assessment order dated 28.03.2013. 7. In the course of the regular assessment, the AO inter alia invoked S. 142A of the Act and made reference to the Valuation officer [also referred to as District Valuation Officer (DVO)] vide its letter dated 26/02/2013 requiring him to estimate the value of some Construction projects so undertaken and give a report to him thereon, for the purposes of making the assessment. The Valuation report from the DVO was however not received by the AO in the course of ongoing assessment proceedings. In the meanwhile, having regard to the limitation period available for complet....
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....The legal position on the issue of reopening of assessment on the basis of report of the DVO has been discussed by various judicial authorities and the catena of decisions are in favour of the appellant. In ACIT Vs Dhariya Construction Co. [ 2010] 328 ITR 515 (SC),the Supreme Court, in its short order dated 16. 2.2010, held as follows:- " Having examined the record, we find that in this case, the Department sought reopening of the assessment based on the opinion given by the District Valuation Officer (DVO). The opinion of the DVO per se is not an information for the purposes of reopening assessment under section 147 of the Income- tax Act, 1961. The Assessing Officer has to apply his mind to the information, if any, collected and must form a belief thereon. In the circumstances, there Is no merit in the civil appeal. The Department was not entitled to reopen the assessment. Civil appeal is, accordingly, dismissed. No order as to costs." Reliance can also be made upon the judgments of Punjab & Haryana High Court in the case of CIT Vs Darsan Singh [ 2005] 272 ITR 650 (P & H),the judgment of Madras High Court in CIT Vs V. T. Rajenderan [ 2007] 288 ITR 312 (....
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....' s report may be based only on his opinion or on some tangible material. In the former case it would be only estimation or guesswork. it may be mentioned here that the A. O, has relied mainly on the report of the DVO without pointing out any defect or discrepancy much less any material defect in the books of account of the assessee, and the expenditure incurred by the assessee in construction and shown in the books of account are duly supported by bills and vouchers and only ad hoc and minor additions in respect of cost of construction were made in assessment proceedings under taken by the A. O. u/s 143 (3) of the Act. From the copy of the Office Note furnished by the A. O. along with remand report, it was clear that no serious deficiency was noticed by the A. O. in respect of cost of construction either in books of accounts/vouchers produced during scrutiny assessments of in the material impounded during the survey. Before passing the order on 28. 03. 2013; the A. O. in para 4 of " Office Note" has mentioned as under:- " 4. The various bocks of accounts/documents/vouchers etc. found/impounded during the survey as per annexure- A and bank accounts as per annexure- M h....
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.... Infrastructure (P.) Ltd. Vs ITO [ 2017] 79 taxmann. com 239 (Gujarat) wherein it was held that where Assessing Officer completed assessment under section 143(3) making certain addition in respect of unexplained investment, he addition merely could not reopen said assessment for enhancement of said on basis of report of DVO. 3.7. Ld. Authorized Representative has heavily relied on some other decisions of the jurisdictional High Court which are directly on this issue. In PCIT Vs J. Upendra Construction (P.) Ltd. [ 2015] 59 taxmann. com 144 (Gujarat), it is held by the Hon' ble Court as under:- " 4.1 At the outset, it is required to be noted that in the present case, the Assessing Officer made additions with respect to the difference in the cost of construction based upon and/or relying upon the DVO' s report in the case of one M/s. Manjusha Estate Pvt Ltd. from whom, the assessee subsequently got the project. It is true that in the present case, copy of the DVO' s report was furnished to the assessee during the reassessment proceedings. However, it is required to be noted that except the DVO' s report, there was no further tangible material....
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....se of appellant before the reassessment and the material impounded/statements recorded by the A. O. as well as surrender made by the appellant and accepted by the Department in respect of " On Money" and no reference was made to any incriminating material found during the course of survey or during the course of assessments made under 143 (3) in respect of cost of construction. 3.8 8 The decision of Sargam Cinema (Supra) and legal provision in respect of reference to DVO without rejecting books of accounts as provided in the" un- amended/un- substituted section 142 Ahas been considered by jurisdictional High Court in Good Luck Automobiles (P.) Ltd. v. Asstt. CIT [ 2013] 26 taxmann. com 25 (Guj.). It has been held therein as under: " 9............. The rejection of books of account should precede the reference to the Valuation Officer. As rightly contended by the learned counsel for the assessee, the report of the Valuation Officer cannot form the foundation for rejection of the books of account 10. In the context of the controversy in issue it may also be germane to notice the provisions of section 145(2) of the Act, as it stood at the relevant time, which provide....
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....of account is not the true cost of construction. Thus, while making the reference to the Valuation Officer, the Assessing Officer has not recorded any defect in the books of account nor has he rejected the same. Except for the difference in the estimated cost determined by the Valuation Officer and the actual cost as shown by the assessee, the Assessing Officer has not brought any material on record to establish that the assessee had made any unaccounted: investment in the construction of the building in question and that the books of account do not reflect the correct cost of construction. Under the circumstances, there was no occasion for the Assessing Officer to make a reference to the Valuation Officer. As held by the * Supreme Court in the case of Sargam Cinema (supra), unless the books of account are rejected, the Assessing Officer cannot make a reference to the Valuation Officer. The reference made to the Valuation Officer, not being in consonance with the provisions of law,.was, therefore, invalid. Accordingly, the report made by the Valuation Officer pursuant to such an invalid reference could not have been made the basis for addition under section 69 of the Act." ....
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....sessee produced his books of account before the A. O. Complete details were f i led before the Assessing Officer who proceeded to make only routine or ad- hoc additions on account of payments made to some labour. In respect of A. Y. 2009- 10, assessment was completed by the Joint Commissioner of Income Tax, who has not pointed out any defect in respect of cost of construction, The order was passed by him on 14. 12. 2011, whereas, the survey was conducted upon the assessee on 19. 02. 2010. Neither in the statements of the partner whose statements were recorded during survey, nor in the assessment order passed by JCIT on 14. 12. 2011, there was any reference to any discrepancy in the books of accounts/incriminating documents in respect of cost of construction and the surrender of Rs. 1,75, 00, 000/- was made in respect of " on money" received. Assessment Order in the case of assessee for A. Y. 2010- 11 was made by Dy. Commissioner of Income Tax on 28. 03,2013 and as mentioned above, ad- hoc a Edition of Rs. 1, 50, 000/- was made on account of labour and site expenses. In that order also it is clearly mentioned that books of accounts, vouchers etc. were produced for verificat....
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....2013. However. No any valuation report is received till date in response to the reference for valuation. Therefore, this assessment is finalized subject to the discrepancy as to the cost of construction if any, found as per the valuation report. The assessment may be reopened u/s, 147 of the Act, if so required taking into consideration the valuation report." From the above mentioned " Office- Note", it is clear that the A, 0. had not discovered any notable shortcoming in the books of accounts/vouchers maintained by the assessee. The assessment order for A. Y. 2011- 12 was passed by yet another officer who was Asstt. Commissioner of Income Tax and passed the order on 14. 03. 2014. Once more, the additions made were of routine nature., Addition of Rs. 2, 24,551/- was made on account of default u/s 40(a)(ia) of the Act, addition of Rs. 92, 000/- was made on ad hoc basis @10 % of site expenses (without pointing any discrepancy) and addition of Rs. 1, 00,000/- was made in respect of variation in Form 26AS due to some mistake in uploading of data. These additions too cannot make case for any reference to DVO on the ground of discrepancy in cost of construction. The A. O. did no....
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....n the books of account for various projects as under: STATEMENT OF CONSTRUCTION COST INCURRED FOR THE PERIOD FROM 2007- 08 TO 2010- 11 Sr. No. F. Y. Material Purchased (Rs) (a) DIRECT EXPS. incurred (Rs) (B) Land Purchase Cost (Rs) (C) Total (Rs) (A+B)-(C)=D 1 2007 - 08 2,03,78,868.00 1,32,77,832.00 0.00 3,36,56,700.00 2 2008 - 09 4,48,94,111.28 1,99,73,818.37 61,17,410.00 5,87,50,519.65 3 2009 - 10 2,49,49,960.00 1,65,09,010.00 0.00 4,14,58,970.00 4 2010 - 11 5,87,18,367.00 4,18,18,058.00 53,94,800.00 9,51,41,625.00 TOTAL 22,90,07,814.65 It is further submitted before me that the total cost of construction as estimated by the DVO for the various projects executed by the appellant for AY. 2008- 09 to 2011- 12 is Rs. 19,96, 15, 400/-. However, the appellant firm has disclosed total investment in the books of accounts for the various projects amounting to Rs. 22, 90,07,874/- which was supported by the audited books of accounts, P & L Account and Balance Sheet. This only goes to show that the investment made by the appellant firm and....
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.... be received within limitation period statutorily available to AO for assessment as per extant provisions of S. 153 of the Act. The AO was thus constraint to proceed with the completion of regular assessment having regard to the embargo of limitation placed by way pre-amended provisions of Section 153 of the Act, non-receipt of DVO report notwithstanding. 12.1 It was submitted that the action under S. 142A was not challenged in the course of original assessment proceedings. It was contended that once a valid reference is made under S. 142A of the Act and report is drawn after affording opportunity to the assessee by the DVO in exercise of quasi judicial powers, such exercise under S. 142A does not pale into insignificance or become inoperative merely owing to a per force completion of the assessment proceedings before the receipt of the valuation report. It was added that the valuation report prepared by a the valuation cell under a statutory dictate and exercising quasi-judicial powers similar to AO has a definite sanctity and had become integral part of the record notwithstanding its receipt after the completion of assessment. Such report, prepared in a quasi judicial exercise....
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....side as a symbolic document or from anybody in street, notwithstanding implied possibility of some imperfections or mistake creeping in while arriving at such valuations. The Ld. DR pointed out the report of DVO prepared in pursuance of statutory mandate under S. 142A in the instant case, has distinguishable trappings in as much as such reports are prepared in exercise of quasi judicial powers and thus cannot equated with a valuation report obtained from a registered valuer. 12.4 The learned DR next asserted that there is no requirement in law for rejection of books of accounts per se prior to making a reference under s. 142A of the Act. A reference to Circular no. 1/2015 was made to buttress the aforesaid proposition. It was thereafter pointed out that survey detected huge unrecorded undisclosed income. The documents found indicated so and admitted by the partner of the Assessee. The books prepared could not be thus taken as solemn on the background of such despicable conduct. The AO thus acted reasonably in making reference to the DVO for estimation of value of projects to gauge the correctness as well as completeness of entries made by the Assessee in its books with the aid o....
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....an be no valid inference of non-application of mind to the material produced by the assessee and formation opinion thereon. It was submitted that in view of the strict fetters imposed, an embargo placed by the first proviso to section 147 the jurisdictional requirement in the captioned appeal for AY 2009-10 is not fulfilled at all and thus the action of the AO under s. 147/148 of the Act is devoid of any legitimacy and hence uncalled for. 13.1 The Ld. Counsel for the Assessee further assailed the action of the AO for invoking S. 147 on the basis of 'change of opinion' doctrine. It was reiterated that the reopening of assessment completed under section 143(3) is not permissible in law merely on the basis of 'change of opinion' regardless of issuance of notice within 4 years or after 4 years from the end of the respective assessment year. It was contended that the AO has merely applied the outcome of valuation report without showing how the opinion formed earlier on the project costs were faulty. The books of account were not rejected at the time of making reference. 13.2 The Ld. Counsel also touched upon few aspects as per its brief note placed on record which we shall attempt....
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.... made a clear noting that " no valuation report is received till date in response to the reference for valuation. Therefore, this assessment is finalized subject to the discrepancy as to the cost of construction, if any, found as per valuation report. The assessment may be re- opened u/s 147 of the act, if so required taking into consideration the valuation report". The DVO, Ahmedabad vide letter dated 16/05/2013 (received on 20/05/2013) furnished the required report, As per this report there was difference in cost declared by the assessee and estimate by DVO, Ahmedabad as under: Name of project Financial year Building amount declared by the assessee Building amount estimated by valuation cell of income tax department Difference (4 - 3) 1 2 3 4 5 Dev Prasthan 2007 - 08 49,23,975 94,48,118 45,24,143 2008 - 09 3,52,36,135 6,17,45,261 2,65,09,126 2009 - 10 86,69,071 1,47,85,960 61,16,889 2010 - 11 0 0 0 Total 4,88,29,181 8,59,79,339 3,71,50,158 Dev Sarjan 2007 - 08 44,02,296 75,56,982 31,54,686 2008 - 09 1,12,16,836 1,75,84,313 63,67,477 ....
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..../-. The assessment was finalized u/s. 143(3) of the Income- tax Act, 1961 on 28/03/2013 determining total income at Rs. 1,94, 25, 530/-. 2. The assessee is engaged in the business of civil construction and development and other allied activities to construction. 3. Subsequently, on perusal of the order u/s 143(3) of the Act, it was noticed that there is an office note which revealed that there was a survey u/s 133A of the Act and the assessee had disclosed Rs. 1. 75 crore as undisclosed income. The same was reflected in the return of income filed by assessee. 4. It was further noticed that Assessing Officer vide letter no DCIT/Anand/Valuation/Devraj Devp/2012- 13 dated 26/02/2013 asked the District Valuation Officer, Valuation Cell, Income tax Department, Ahmedabad & Vadodara to estimate land and cost of construction pertaining to the assessee. As the assessment was getting time barred, the assessment was finalized on 28/03/2013 without getting the report from the District Valuation Officer. He, however, made a clear noting that " no valuation report is received till date in response to the reference for valuation. Therefore, this assessment is finalized ....
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....partment cannot be considered for one F. Y. difference between building amount declared by the assessee and building amount estimated by valuation cell of income tax department is represented in tabular form as under: Name of project Financial year Building amount declared by the assessee Building amount estimated by valuation cell of income tax department Difference (4 - 3) 1 2 3 4 5 Dev Prasthan 2007 - 08 49,23,975 94,48,118 45,24,143 2008 - 09 3,52,36,135 6,17,45,261 2,65,09,126 2010 - 11 0 0 0 Dev Sarjan 2007 - 08 44,02,296 75,56,982 31,54,686 2008 - 09 1,12,16,836 1,75,84,313 63,67,477 2010 - 11 22,92,913 30,63,046 7,70,133 Dev Red Square 2007 - 08 0 0 0 2008 - 09 0 0 0 2010 - 11 53,56,473 71,67,818 18,11,345 Dev Vrund 2007 - 08 0 0 0 2008 - 09 0 0 0 2010 - 11 1,69,82,780 3,25,78,618 1,55,95,838 On the basis of the above information, it i....
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....4,02,296 75,56,982 31,54,686 2008 - 09 1,12,16,836 1,75,84,313 63,67,477 2009 - 10 46,01,946 70,21,957 24,20,011 2010 - 11 22,92,913 30,63,046 7,70,133 Total 2,25,13,991 3,52,26,299 1,27,12,308 Dev Red Square 2007 - 08 0 0 0 2008 - 09 0 0 0 2009 - 10 1,40,50,445 2,14,75,771 74,25,326 2010 - 11 53,56,473 71,67,818 18,11,345 Total 1,94,06,918 2,86,43,589 92,36,671 Dev Vrund 2007 - 08 0 0 0 2008 - 09 0 0 0 2009 - 10 78,44,037 1,71,87,555 93,43,518 2010 - 11 1,69,82,780 3,25,78,618 1,55,95,838 Total 24826817 4,97,66,173 2,49,39,356 Grand total 11,55,76,907 19,96,15,400 8,40,38,493 As per section 142 A of the Act, for the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B is required to be made, the Assessing Officer may require the Valuation ....
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.... 515 (SC) in this regard. 17. We find that CIT(A) has made threadbare analysis of facts and applicable law while reversing the action of the AO. Both questions i.e. correctness of jurisdiction under s. 147 of the Act as well as merits of the case have been adjudicated on rational grounds. We notice that the CIT(A) has inter alia observe that the books of accounts have not been rejected in the original assessment proceedings. Coupled with this, the office note of the AO gives an infallible impression that the AO, at the time of original assessment, was broadly satisfied with the correctness of the books. Therefore, while a formal rejection of books may not, at times, be possibly necessary an abstract position of law, an implied dissatisfaction on the books could not be gauged either from the original assessment or from the attendant office note. We also simultaneously notice that CIT(A) has relied upon the decision rendered in the case of Dhariya Construction (supra) and held that the valuation report of the DVO cannot constitute a reliable piece of evidence. The CIT(A) has also made reference to various other judgments and has come to the conclusion that ingredients of Section 1....
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....he CIT(A) has deleted the addition made by AO under s. 69B of the Act on the ground that cost of project declared in the books exceed the fair value determined by the DVO. While granting relief to the Assessee, the CIT(A) has inter alia made reference to a tabulated statement showing cost of constructions incurred in various assessment years and observed that the cost of construction as per books stands at Rs. 22, 90, 07,814/- which is excess of Rs. 19,96,15, 400/- determined by AO based on the valuation report. Where the cost of project as tabulated in the first appellate order shown to be in excess of the value determined by the DVO, is found to be true, the whole proceedings would fall flat and become otiose. No rebuttal of such factual observations have been made by Revenue. We thus see no reason to interfere with the appellate order of CIT(A) on findings of facts. 21. In the result, the appeal of the Revenue is dismissed. 22. The appeal of the Revenue in ITA No. 1526/Ahd/2018 relevant to AY 2011-12 has emanated in the identical background and similar factual matrix. The grievance of the revenue as per its grounds of appeal is identical. Hence, the observations in I....
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.... assessee' s appeal without appreciating the findings of the AO in the remand report, and in misinterpreting the findings of the AO." 26. While the factual matrix in this appeal are identical, the AO in this case concerning AY 2009-10 has issued notice under section 148(2) on 30. 03. 2016 i. e. after 4 years from the end of relevant of assessment year. Under the first proviso to S. 147, the cases where assessment is made u/s 143(3) or under S. 147 and four years has lapsed from the end of relevant ass. year, two conditions must be satisfied as per the plain phraseology of the Act. a) Primary condition as contained in the main provision to S. 147 namely, holding 'reason to belief' that the chargeable income has escaped assessment. b) Additional condition as contained in the first proviso to s. 147 that the such escapement of income is attributable to failure of Assessee to disclose material facts fully and truly. Both conditions must be cumulatively satisfied to invoke S. 147/148 in such cases. 27. To put it differently, as per first proviso to S. 147, for issuance of notice after 4 years from the end of relevant assessment year, the Assessing Officer ....