2018 (2) TMI 1365 - AT - Income Tax

Validity of reopening assessment - unexplained investment - survey u/s 133A - no books of accounts were found at the business premises of the assesses - Held that - It is not a matter of case of dispute about the quantum of investment or the source of investment but the assessee has neither maintain the books of accounts or accounts of the construction of the shopping complex nor has filed the return of income for the assessment year under consideration. Therefore, all these facts are sufficient to form the belief that the income assessable to tax has escaped assessment. At the stage of initiation of proceedings u/s 147/148 what is required is prima facie reasons to belief that the income assessable to tax has escaped assessment and the AO is not required to establish the correctness of the reasons at this stage. Therefore, when the assessee firm has failed to produce a single document during the course of survey proceedings and post survey inquiry to show the source of investment which cannot be treated as income of the assessee firm then, the vague statements giving estimated details without supporting evidence would not help the case of the assessee - Decided against assessee Cost of construction adopted by the AO on the basis of DVOs valuation report as against the cost declared by the assessee - estimation of cost of construction by adopting State PWD rate by the ld. CIT(A) instead of CPWD rates adopted by DVO - Held that - We find that it is settled proposition of law that when the assessee has claimed the deduction on accounts of self supervision then appropriate deduction ought to have been given on this account while determining the cost of construction. Further, when certain expenditure were incurred by the tenants of the shops as claimed in the affidavit as well as in their statements then, the said claim should not have been denied without bringing contrary material on record. Similarly the assessee has claimed that the ld. CIT(A) has adopted incorrect State PWD prescribed rates therefore, all these aspects require a proper verification and examination at the time of determination of cost of construction of the shopping complex in question. The other issues raised by the assessee are also required to be considered in light of the relevant evidence produce by the assessee. There is no points in adopting two separate rates when the CIT(A) has impermissible accepted the State PWD rates of determining the cost of construction then the cost of extra items are also be determined by applying the State PWD rates. The assessee has claimed to have paid architecture fee of ₹ 2 lacs whereas the DVO has adopted the estimated fee @ 1% of total cost. We are of the considered view that estimation of fee is required only when the assessee has failed to produce the evidence in support of the actual fee paid. Thus, if the assessee has claimed to have made the payment of ₹ 2 lacs only on account of architecture fee then, without examination of the correctness of the payment and relevant evidence, the estimated value cannot be adopted. Therefore, the issue of determination of cost of construction is remitted to the record of the Assessing officer to examine and decide afresh.

Issues Involved:
1. Validity of Reassessment Proceedings under Section 147 of the Income Tax Act, 1961.
2. Service of Notice under Sections 148 and 143(2) of the Income Tax Act.
3. Justification of Reference to the DVO under Section 142A for Estimating Cost of Construction.
4. Acceptance of Cost of Construction Declared by the Assessee.
5. Adoption of PWD Rates vs. CPWD Rates for Cost of Construction.
6. Allowance of Deductions for Self-Supervision Charges, Electrical Fittings, and Paint Costs Incurred by Tenants.
7. Consideration of Cost of Purchases of Lift and its Valuation.
8. Valuation of Extra Items and Architect Fees.
9. Acceptance of Cost of Construction for Different Financial Years.
10. Confirmation of Addition on Account of Unexplained Investment in Cost of Construction.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:
The reassessment proceedings were initiated following a survey under Section 133A at the business premises of the assessee firm, where no books of account were found, and statements were recorded from the partners. The AO issued a notice under Section 148 after recording reasons based on these statements. The assessee argued that there was no material evidence of income escaping assessment, and the reassessment was based on suspicion. However, the Tribunal upheld the initiation of reassessment proceedings, noting that the physical existence of the shopping complex and the statements regarding investment constituted tangible material to form a belief that income had escaped assessment.

2. Service of Notice under Sections 148 and 143(2):
The assessee did not press ground regarding the improper and unlawful service of notice under Sections 148 and 143(2). Consequently, these grounds were dismissed as not pressed.

3. Justification of Reference to the DVO under Section 142A:
The reference to the DVO for estimating the cost of construction was justified due to the absence of books of accounts and supporting evidence during the assessment proceedings. The Tribunal found no error in the AO’s decision to seek an independent valuation from the DVO.

4. Acceptance of Cost of Construction Declared by the Assessee:
The assessee produced books of accounts during the remand proceedings, which the AO verified. Despite this, the Tribunal noted that the books were prepared after a significant delay and were not maintained regularly. Hence, the cost of construction declared by the assessee was not accepted, and the valuation by the DVO was deemed necessary.

5. Adoption of PWD Rates vs. CPWD Rates for Cost of Construction:
The CIT(A) adopted State PWD rates instead of CPWD rates for determining the cost of construction. The Tribunal upheld this decision, referencing various judicial precedents, including the Hon’ble Supreme Court’s ruling that local PWD rates should be applied for valuation purposes.

6. Allowance of Deductions for Self-Supervision Charges, Electrical Fittings, and Paint Costs Incurred by Tenants:
The Tribunal acknowledged the need for deductions on account of self-supervision charges and expenditures incurred by tenants for electrical fittings and paint. It was noted that these aspects were not properly considered by the authorities below, and the matter was remitted back to the AO for fresh examination and appropriate deductions.

7. Consideration of Cost of Purchases of Lift and its Valuation:
The DVO valued the lift at ?19,03,500/- based on CPWD guidelines, while the actual purchase cost was ?3,78,420/-. The Tribunal found that the actual cost should be considered, and the issue was remitted back to the AO for re-evaluation.

8. Valuation of Extra Items and Architect Fees:
The DVO’s valuation of extra items and architect fees was contested. The Tribunal directed the AO to re-examine these valuations, considering the actual payments and State PWD rates, as the CIT(A) had accepted the latter for other aspects.

9. Acceptance of Cost of Construction for Different Financial Years:
The Tribunal noted discrepancies in the division of the total cost of construction over different financial years. It directed the AO to consider the division over five years as claimed by the assessee and re-evaluate the cost for each year accordingly.

10. Confirmation of Addition on Account of Unexplained Investment in Cost of Construction:
The Tribunal remitted the issue of unexplained investment back to the AO for fresh consideration, taking into account the various objections and relevant evidence provided by the assessee.

Cross Appeal by Revenue:
The Revenue’s appeal regarding the restriction of addition by the CIT(A) was dismissed. The Tribunal upheld the CIT(A)’s decision to adopt State PWD rates for valuation, referencing judicial precedents supporting this approach.

Conclusion:
The appeals of the assessee were partly allowed for statistical purposes, and the appeal of the Revenue for the assessment year 2012-13 was dismissed. The Tribunal directed the AO to re-examine and decide afresh on various issues, ensuring appropriate deductions and correct valuation based on the evidence provided.

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