TaxTMI 
TaxTMI 
2019 (3) TMI 1978
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....ove case are as follows:- 4.1 The assessee is a company engaged in the business of running a five star hotel and a convention centre. For the assessment year 2002-2003, the return of income was filed on 30.10.2002 declaring a loss income of Rs.11,93,72,022. The return was processed u/s 143(1) of the I.T.Act on 04.02.2003. Subsequently, the assessment was taken up for scrutiny by issuance of notice u/s 143(2) of the I.T.Act. It was noticed by the Assessing Officer that assessee had completed construction of hotel building during the previous year relevant to the concerned assessment year. The cost of construction as per the books of account of the assessee was Rs.34,47,91,568. In support of the cost of construction, the assessee had filed valuation report from the Approved Valuer and Chartered Engineer. In the said report submitted by the Approved Valuer and Chartered Engineer, the cost of investment was estimated at Rs.33,45,33,333. The Assessing Officer was of the view that since the approved valuer's report showed less of investment than the value admitted by the assessee in its books of account, it was necessary to determine the correct value of investment and for the above s....
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....akes and duplications have crept-in in the valuation report, it has o be got corrected by the Valuation Officer. All other points raised by the assessee are to be considered only by the Valuation Officer. Since the case is getting barred by limitation on 31-3-2005, the contentions raised by the assessee could not be considered at this stage. Moreover, the value determined by the Valuation Officer u/s 142A is binding on the assessing officer. In the ircumstances, the difference in the value of investment in the hotel building as per the valuation report and the value recorded in the books amounting to Rs.2,46,74,432/- (Rs.36,94,66,000/- - Rs.34,47,91,568/-) is assessed to tax u/s 69B of the Act." 4.3 Aggrieved by the order of the assessment making addition u/s 69B of the I.T.Act, the assessee preferred appeal to the first appellate authority. The CIT(A) held that the A.O. is not justified in referring the issue to the Valuation Officer u/s 142A of the I.T.Act without rejecting the books of account of the assessee. Accordingly, the CIT(A) concluded that the addition made u/s 69B of the I.T.Act was not justified. The gist of the finding of the CIT(A) reads as follows:- &nb....
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....used the macro and top-down Plinth Area Rate and Cost Index Method (that uses the CPWD's across-the-board rates and figures, which even when adjusted for differentiations on account of specificity and customization driven by qualitative differences will result in statistical variations within certain Confidence Intervals); (ii) to have adopted figures such as Pile Foundation and Wood Work rates without demonstrated basis (such as average third party or market standards); (iii) To have made arbitrary (possibly necessary from a civil engineering standpoint) adjustments to the estimates as evidenced on page number 2 [at SI. Nos. 11.1.1 to 11.1.3 on percentage basis (6%, 15% and 100% respectively) of a mounts of Rs. 38.54 lakhs, Rs.85.83 lakhs and Rs. 123.87 lakhs respectively] against the head of account "SH Services", on page number 6 [at SI. No. 13.96 of an amount of Rs. 2.22 lakhs] against the head of account "Extra for Additional Storey's" and at page number 6 [at Sl. No. 13 .97 of an amount of Rs. 252.65 lakhs] against the head of account "Extra for Pile Foundation", resulting in all to a consolidated ad hoc adjustment totalling Rs. 503.16 crores. These ....
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....oner of Income Tax(Appeals) may be set aside and that of the Assessing Officer restored." 5. The revenue has also filed a written submission, which reads as follows: (i) As there was a huge difference i.e. Rs.1,02,58,235 between the cost of investment in M/s.MFAR Hotels, Kundanoor junction admitted by the assessee in books of account (Rs.34,47,91,568 and the value determined by the Approved Valuer (Rs.33,45,33, 333) there was a valid reason for reference u/s 142A of the I.T.Act to DVO by the Assessing Officer. (ii) The DVO has determined the value of cost of construction @ Rs.36,94,66,000 (vide report dated 23.03.2005). (iii) After affording opportunity on 28.03.2005 and after considering the reply dated 29.03.2005 of the assessee, the Assessing Officer determined u/s 69B amount of investment etc. not fully disclosed in the books of account in the books of account Rs.2,46,74,432 based the valuation and report of DVO. (iv) The CIT(A) has deleted the same on the ground that (a) for reference u/s 142A, the books of account should be rejected, (b) the addition of Rs.2,46,74,432 is unsupported, unwarranted and uncalled for and (c) DVO did not meet ....
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....e in its defence, without considering the DVO's detailed report dated 2 3.03.20095 and DVO's letter dated 06.09.2006 (where all the objections raised by the assessee have not only been met but reasons for higher valuation been given). In view of the above, the Hon'ble ITAT may uphold the order of the Assessing Officer. 6. The learned AR strongly supported the order of the Assessing Officer. The learned AR submitted that section 142A of the I.T.Act had undergone substantial changes with effect from 01.10.2010 (amended vide Finance (No.2) Act, 2014). According to the learned AR, subsequent ot the amendment with effect from 01.10.2014, rejection of the books of account is not a condition precedent for reference to valuation u/s 142A of the i.T.Act. The learned AR submitted in this case the assessment year being 2006-2007, rejection of the books of account is a condition precedent prior to reference u/s 142A of the I.T.Act, in view of the judgment of the Hon'ble Apex Court in the case of Sargam Cinema v. CIT [(2010) 328 ITR 513 (SC)]. 7. We have heard the rival submissions and perused the material on record. In the instant case, the assessee had completed construct....
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....excessive investment made outside the books of account and rejection of books of account is a precondition for reference to DVO u/s 142A of the I.T.Act. 7.1 There are number of judicial pronouncements holding that the reference to DVO under section 142A of the I.T.Act is possible only upon finding that the books of accounts maintained by the assessee is not correct and the value estimated by the Assessing Officer varies substantially from what is recorded in the books of accounts. The various judicial pronouncements confirms that the process of estimation cannot be done if the investment is properly recorded in the books of accounts and the Assessing Officer is satisfied with the correctness and completeness of such books of accounts. If the AO is not satisfied with the correctness and completeness of the books of accounts, he should record his findings and reasoning and reject the books of accounts to proceed for estimation of the value of investments by referring to DVO. Therefore an analysis of various judicial pronouncements, confirm that rejection of books of accounts is a pre-condition for referring to DVO for estimating the value of investments. 7.2 Section 142A has un....
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....nt in Sargam Cinema's case (supra) and not the later amendment nullifying the pro tanto effect of this judgement". 7.3 The above finding of the Hon'ble Tribunal is to the effect that the rejection of books of accounts, as decided by the Apex Court is valid for all assessment years prior to 01.10.2014, till the section is amended to neutralise the decision of the Apex Court. 7.4 However, we notice that the Hon'ble Supreme Court in the case of CIT v. Sunita Mansingha [(2017) 393 ITR 121 (SC)] had held that the assessment cannot be said to be final and conclusive when appeal preferred by the Revenue u/s 260A of the I.T.Act was pending before the Rajasthan High Court. Accordingly, the Hon'ble Supreme Court was of the view that the amended provision of section 142A of the I.T. Act with effect from 01.10.2014 will have application provided the assessment has not attained finality. The relevant finding of the Hon'ble Supreme Court (at page 131 of 393 ITR) in the case of Sunita Mansingha (supra) reads as follows:- "............ In view of the fact that section 142A was inserted by the Finance (No.2) Act, 2004 (23 of 2004), with effect from November 15, 1972 and subsequen....
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.... Assessing Officer. On the contrary, the Assessing Officer did not give proper opportunity of hearing to the assessee on account of the assessment becoming time barred and this is clear from para 5 of the assessment order, wherein it is mentioned "since the case is getting time barred by limitation on 30.01.2005, the contentions raised by the assessee could not be considered at this stage". It was clear that there was no proper examination either by the DVO nor by the Assessing Officer with regard to the objections raised by the assessee in regard to the valuation report. The A.O. had also stated that DVO's report is binding on him. This statement of the A.O. is incorrect. The report of the DVO is only advisory in nature and not binding on A.O. Therefore, we deem it appropriate to restore the issue to the Assessing Officer to consider the objections of the assessee, so that the discrepancies / objections raised by the assessee to the valuation report could be addressed and a clear finding can be given on the discrepancies / objections of the assessee. It is ordered accordingly. 8. In the result, the Revenue's appeal is allowed for statistical purposes. ITA No.66/Coch/2017 ....
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.... the I.T.Act. In this connection, the contention of the assessee and the ground on which the First Appellate Authority had passed the order is that the reference to Valuation Officer itself is not in accordance with the law. The reason put forward by the AO for reference to DVO for valuing the hotel building is that the valuation report of the Approved Valuer submitted by the assessee is lower than the value declared in the books of accounts. At this point of time the A.O. has not given an opportunity to the assessee to explain the reason for the difference. Further as per section 69B of the I.T.Act when the value of investment is not recorded in the books of account or the value expended on making such investment exceeds the value recorded in the books of account in this behalf maintained by the assessee, then only the question of referring to Valuation Officer for arriving at correct value is to be followed. As rightly concluded by the learned First Appellate Authority the assessee had got the books of accounts audited as per the requirement of statute and also duly filed the tax audit report. The AO has not identified any mistake / omission in any of these records and the only r....
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....eject the books of accounts to proceed for estimation of the value of investments by referring to DVO. The Hon'ble High Court of Gujarat in the case of Goodluck Automobile (P) Ltd. v. ACIT (359 ITR 306)(Guj), while analyzing section 142A stated as follows:- "From the language employed in the heading of the section as well as the opening part of the said section it can be seen that the expression used by the Legislature is "estimate". Thus a resort can be made to the said provision by the Assessing Officer for the purpose of estimating the value of any investment in the circumstances referred to therein. It is common knowledge that the question of estimate arises only when the books of account of the assessee are not reliable. In other words, if the Assessing Officer is of the view that the computation of taxable income cannot be based on the books of accounts of the assessee he can reject the books of accounts and proceed to estimate the taxable income of the assessee. The question of making an estimate of the value of any investment referred to in section 69 of the Act would arise only when the Assessing Officer finds that the assessee has made investments which are not r....
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....is insertion. This shows that the position of the law laid down by the Supreme Court in Sargam Cinema v. CIT (2010) 328 ITR 513 for not making any addition on the basis of the Departmental Valuation Officers report without first rejecting the books of accounts, is valid up to the period prior to the insertion of sub-section (2). As the assessment year under consideration is 2006-2007, being the year anterior to the amendment, the same will be governed by the judgement in Sargam Cinema's case (supra) and not the later amendment nullifying the pro tanto effect of this judgement". 7. This finding of the Tribunal make the law very clear and unambiguous to the effect that the rejection of books of account, as decided by the Hon'ble Apex Court in the case of Sargam Cinema reported in 328 ITR 513 is valid for all assessment years prior to 01.10.2014, till the section is amended to neutralize the decision of the Apex Court. 8. The Hon'ble High Court of Gujarat in the case of Principal Commissioner of Income Tax v. Sanjay Hiralal Thakkar (Tax Appeal Nos.832 and 837 of 2016 - judgment dated 21.12.2016) had held that the reference to DVO without rejecting the books of accou....
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....d JM relies on the judgment of the Hon'ble Apex Court in the case of CIT v. Sunita Mansingha [(2017) 393 ITR 121 (SC)]. According to me the judgment of the Hon'ble Apex Court in the case of Sunita Mansingha (supra) will not apply to the facts of the present case. The Hon'ble Apex Court in the case of Sunita Mansingha (supra) was interpreting proviso to section 142A(3) of the I.T.Act (which was in existence from the date of insertion of section 142A of the I.T.Act till section 142A of the I.T.Act was substituted w.e.f. 01.10.2014). The newly substituted section 142A(3) of the I.T.Act w.e.f. 01.10.2014 does not have a proviso. Therefore, the principle laid down by the judgment of the Hon'ble Supreme Court does not have application to the newly inserted section 142A of the I.T.Act. I do admit that section 142A of the I.T.Act is a procedural section and applies to the pending proceedings. In other words, the law on the date of referring the case to the Valuation Officer u/s 142A of the I.T.Act has to be applied. In this case, the Assessing Officer referred for valuation u/s 142A of the I.T.Act on 06.12.2004. The law that is applicable as on 06.12.2004 is a provision prior to its insert....
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....ate Circle-1(2), Kochi. APPELLANT RESPONDENT Revenue by : Smt. A.S Bindhu, Sr. DR Assessee by : Sri K.T Mohanan, CA Date of hearing : 23.08.2019 Date of Pronouncement : 04.09.2019 ORDER PER N.V. VASUDEVAN, VICE PRESIDENT The above appeals by the revenue and cross objection of the Assessee for AY 2002-03, came to be heard by the Division Bench. There was difference of opinion between the members constituting the division Bench. The Hon'ble President in exercise of his powers u/s.255(4) of the Income Tax Act, 1961 (Act) has nominated me as a third member. The members of the Division Bench have agreed on the following two questions as the questions which will project the difference of opinion between the members constituting the Division Bench. 1. Whether on the facts and circumstances of the case, whether rejection of books of account is condition precedent for reference u/s.142A of the I.T.Act? 2. Whether section 142A of the I.T.Act substituted w.e.f.1.10.2014 by the Finance (No.2) Act, 2014 has application to the facts of the instant case? 3. The facts and circumstances under....
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....7 of the Act making further addition of Rs.11,95,000/-. That is how two appeals came to be filed by the Assessee against the two assessment orders before CIT(A). 5. The CIT(A) held that the A.O. was not justified in referring the issue to the Valuation Officer u/s 142A of the Act without rejecting the books of account of the assessee. Accordingly, the CIT(A) concluded that the addition made u/s 69B of the Act was not justified. 6. Against the orders of the CIT(A), the revenue filed appeals before the Tribunal. The Assessee filed CO in the appeal by the revenue against the order of CIT(A) in the appeal against the order of the AO u/s.143(3) dated 30.3.2015. This how the two appeals by the revenue against the orders of the CIT(A) came to be filed before the Tribunal. 7. The Division Bench heard the appeals as well as the CO of the Assessee. The learned JM in his order did not dispute the legal position that without rejecting books of accounts maintained by an Assessee evidencing incurring of expenses for construction of the hotel building, no valid reference can be made to a DVO. He also held that any addition made on the basis of DVO's report without a valid reference by th....
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....preme Court Judgment, the amendment to Sec.142A of the Act applies to all pending proceedings and the Assessee's case was before the Tribunal and therefore it was a pending proceeding and therefore the question of valuation of investment in construction of hotel building on the basis of objections to the DVO's report by the Assessee should be looked into and therefore the issue of valuation was set aside to the AO for fresh consideration. The following were the relevant observations of the learned JM: "7.5 Admittedly, section 142A of the I.T.Act is a procedural provision and applies to pending assessments. In the instant case, the reference u/s 142A of the I.T.Act to the DVO was made on 06.12.2004 and the assessment was completed only vide order dated 30.03.2005. The assessment so completed vide order dated 30.03.2005 has not become final and conclusive because the appeal was filed by the Revenue and the same is being considered by the Tribunal. Therefore, going by the dictum laid down by the Hon'ble Supreme Court since the assessment has not attained finality, the amended provisions of section 142A of the I.T.Act (with effect from 01.10.2014) will have application to ....
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....following view: 10. The learned JM in his order had stated that section 142A of the I.T.Act is a procedural section and applies to the pending assessment. Further, the learned JM states that the assessment in this case has not attained finality, since the appeal filed by the Department to the Tribunal was pending when section 142A of the I.T.Act was substituted with effect from 01.10.2014. Therefore, according to the learned IM, section 142A of the I.T.Act substituted with effect from 01.10.2014 has application to the facts of the present case. For concluding so, the learned JM relies on the judgment of the Hon'ble Apex Court in the case of CiT v. Sunita Mansingha [(2017) 393 JTR 121 (SC)] According to me the judgment of the Hon'ble Apex Court in the case of Sunita Mansingha (supra) will not apply to the facts of the present case. The Hon'ble Apex Court in the case of Sunita Mansingha (supra) was interpreting proviso to section 142A(3) of the I.T.Act (which was in existence from the date of insertion of section 142A of the I.T.Act till section 142A of the I.T.Act was substituted w.e.f. 01.10.2014). The newly substituted section 142A(3) of the I.T.Act w.e.f. 01.....
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....2 ITR 407 (SC). The legal basis of such references under sections 55A, 142(1), 131 and 133(6) was held as infirm in the said judgment. However, the law has been amended by the Finance Act No. 2, 2004 inserting section 142A with effect from November 15, 1972 enabling the Assessing Officers to make reference to Valuation Officer for the purposes of making an assessment or reassessment under the Act. 13. Sec.142A inserted by the Finance (No. 2) Act, 2004, w.r.e.f. 15-11-1972 and as amended by the Finance Act, 2010, w.e.f. 1-7-2010, read as under : '142A. Estimate by Valuation Officer in certain cases.-(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 section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B or fair market value of any property referred to in sub-section (2) of section 56 is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him. (2) The Valuation Officer to whom a reference is made under sub-section (1)....
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....he past and are still pending in litigation at one stage or the other. Sub-section (1) of the new section provides that 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 for the purposes of making any assessment or re-assessment, the Assessing Officer may require the Valuation Officer to make an estimate of the same and report to the Assessing Officer. Sub-section (2) of the new section provides that the Valuation Officer to whom such a reference is made under sub-section (1) shall, for the purpose of dealing with such reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957. Sub-section (3) of the new section provides that on receipt of the report from the Valuation Officer, the Assessing Officer may after giving the assessee an opportunity of being heard, take into account such report in making such assessment or re-assessment. It has been provided in the proviso to the new section that the provisions of the same shall not apply in respect of an ....
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....ion Officer may estimate the value of the asset, property or investment to the best of his judgment, if the assessee does not co-operate or comply with his directions. (6) The Valuation Officer shall send a copy of the report of the estimate made under sub-section (4) or sub-section (5), as the case may be, to the Assessing Officer and the assessee, within a period of six months from the end of the month in which a reference is made under sub-section (1). (7) The Assessing Officer may, on receipt of the report from the Valuation Officer, and after giving the assessee an opportunity of being heard, take into account such report in making the assessment or reassessment. Explanation.-In this section, "Valuation Officer" has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957)." 18. In Circular No.1 of 2015 dated 21.1.2015 issued by the CBDT, the reasons for substitution of new Sec.142A in place of the earlier Sec.142A of the Act has been explained thus: "43. Estimate of value of assets by Valuation Officer and time limit for completion of assessments where reference made 43.1 The provisions contained in....
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....r reassessment. 43.5 Sections 153 and 153B of the Income-tax Act have also been amended to provide that the time period beginning with the date on which the reference is made to the Valuation Officer and ending with the date on which his report is received by the Assessing Officer shall be excluded from the time limit provided under the aforesaid section for completion of assessment or reassessment. 43.6 Applicability:- These amendments take effect from 1st October, 2014." 19. It can be seen from the aforesaid history of Sec.142A, that the original provisions were introduced for the purpose of enabling to specifically provide that an Assessing Officer has the power to make a reference to the Valuation Officer for estimating the value of investment, expenditure, etc. The power was given to make a reference to the Valuation Officer purpose for the purposes of making an assessment or reassessment under this Act, (i) where an estimate of the value of any investment referred to in section 69 or section 69B or (ii) the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B or (iii) fair market value of any property referre....
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....d by inserting a new Sec.142A by the Finance (No.2) Act, 2014, which no longer requires rejection of books of accounts of an Assessee to make a reference to the DVO. 21. Whether the observations in the case of Sunita Mansingha (supra) can be the basis to hold that the reference to the DVO is valid in the present case, is the next aspect on which I need to delve. In the case of CIT Vs. Sunita Mansingha 393 ITR 121 (SC), the facts were that during the search conducted at residence of the assessee, the Assessing Officer found that the assessee had half share in a firm and a farm house-cum-swimming pool was constructed by the firm. The Assessing Officer referred the properties, namely, residential house as well as farm house to the DVO for evaluating cost of construction and in turn the cost of the properties was determined at higher figure as against the cost declared by the firm as cost of construction. Accordingly, the Assessing Officer made addition of difference as income from undisclosed sources as investment in cost of construction of the properties. The Tribunal set aside the additions made by the Assessing Officer. On further appeal by the Revenue, the Rajasthan High Court ....