9911796707
TMI Blog2007 (9) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... t case when Assessing Officer has not rejected the books of account by pointing out any defects reference to the DVO will not be valid and, therefore, DVO's report could not be utilized for framing assessment even if such a report is considered to be obtained u/s 142A. Since reference to DVO being held as invalid, the assessment/reassessment framed thereafter would also be invalid. As a result, we uphold the order of the Ld. CIT(A) though on different grounds. We do not consider it necessary to deal with the other issues as they are of academic interest only. As a result, the assessments for the assessment years 1998-99, 1999-2000,2000-01 are also held invalid. Order of the Ld. CIT(A) is confirmed though on different grounds. Grounds of the revenue relating to this issue are rejected. Similarly, following our decision for assessment year 2001102, the orders of Ld. CIT(A) for the assessment years 2003-04 and 2004-05 are also confirmed though on different grounds. In the result, the appeals filed by the revenue for all these six assessment years are dismissed. - Member(s) : D. C. AGRAWAL., DR. O. P. SHUKLA. ORDER Per D.C. Agrawal, Accountant Member.-These a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... management committee in respect of loan and the copy of the meeting proceedings were in the nature of self-serving documents and only an afterthought. 5. Any other ground that may arise or become incidental during the pendency of appeal." 3. The facts of the case are described in the appeal for the assessment year 2001-02 which we will take up first and thereafter follow it for other years, if required. 4. The assessee is a society registered under the Societies Registration Act, 1860. The assessee was granted registration under section 12A of the Income-tax Act with effect from 1-4-1997. During the course of the assessment, the Assessing Officer referred the property constructed by the society to the valuation cell. However, the report was not received up to the end of the financial year 2003-04 when the assessment for the assessment year 2001-02 was getting time barred. Therefore, the Assessing Officer completed the assessment on 26-3-2004 without considering the DVO's report as it was not received till that date. The report seems to have been received after 31-3-2004. On that basis the Assessing Officer reopened the assessment and issued notice under section 148 on 15-3-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... context of definition of charitable purpose wherein Apex Court observed "We have already seen that merely because education is imparted in the school that by itself cannot be regarded as a charitable object. Today education has acquired a wider meaning. If education is imparted with the profit motive, to hold, in such a case as charitable purpose will not be correct". The Assessing Officer during the course of assessment proceedings for the assessment year 2002-03 obtained the comments of assessee on the cost of construction determined by DVO and referred the same to the DVO for counter comments which are reproduced by the Assessing Officer in his order as under:- "....The assessee during the course of valuation proceedings failed to submit an abstract giving cost, building expenditure made by him as regards to building material used payment to labour done. The building material account, i.e., cement, steel, bricks, marble, glaze tiles, labour payment etc. Here he was asked essentially and particularly to give evidence and to submit these details so that information as regards to quantity and amount financial year-wise could be made available for perusal. Further it is to empha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d considering the ratio of judgments in the case of CIT v. Hyderabad Race Club Charitable Trust [2003] 262 ITR 194 (AP) and CIT v. Estate of V.L. Ethiraj [1982] 136 ITR 12 (Mad.), Birmingham Properties Ltd., Dy. CIT v. Galaxy Capital Finance Ltd (ITAT, Lucknow), it is held that addition made by the Assessing Officer on the basis of DVO's report is not justified and the same are deleted." The thrust of the Ld. CIT(A) is that even if the difference is to be added as assessee's income then same will be exempt under section 11 as it is applied for the charitable purposes. The Ld. CIT(A) has also referred to the arguments of the Ld. A.R. of the assessee that the Assessing Officer has not said a single word about any construction expenses not recorded in the regular books of account and without rejecting the books there is no applicability of section 69. 7. Before us the Learned D.R. submitted that Ld. CIT(A) failed to go into the question whether assessee is entitled to any exemption under section 10(22)/10(23C)(iiiad). Therefore, the case requires to go back to the Ld. CIT(A) for adjudicating this issue. Further, the Ld. CIT(A) has also failed to adjudicate on the issue whether add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are) v. Dy. CIT [2003] 263 ITR 13 and of Hon'ble Kerala High Court in Agappa Child Centre v. CIT [1997] 226 ITR 211 for the proposition that when certain property is utilized by prohibited persons then exemption would not be available. The case of the revenue is that some of the funds are utilized by the assessee in non-charitable function as described by the Assessing Officer in the assessment order. 8. Against the above submissions of the Learned D.R., the Ld. A.R. of the assessee submitted that none of the case laws referred to by the Learned D.R. referred to rejection of books of account before referring the property to the valuation cell. According to him, a reference to valuation cell for determining the cost of construction would be valid only when the defects in the books of account of the assessee are pointed out and provisions of section 145 are invoked for estimation of income. In the present case, according to Ld. A.R. of the assessee, the Assessing Officer has not rejected the books of account as is evident from the assessment order for the assessment year 2001-02 originally made on 26-3-2004 and also even in the reassessment order made on 27-12-2005. There is no whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable to the assessee and, therefore, such addition could be held taxable by the Assessing Officer. 9. We have considered the rival submissions and perused the material on record. There are several issues raised by the parties. The basic question is whether reference to Valuation Officer could be made without finding any defects in the books of account and rejecting the books under section 145. If reference held not valid the subsequent issues arisen would be of only academic interest. 10. We notice that during the course of assessment for the assessment year 2001-02 when the reference was made the Assessing Officer mentioned following comments about the books:- "Books of account and other details were called for and examined. Balance Sheet, shows......" The reassessment order framed on 27-12-2005 also does not say anything about nature of books of account which are claimed to be audited. Thus, it is apparent that Assessing Officer did not find any defect in the books of account which required to be rejected by invoking section 145. Then the question arises whether reference to the DVO would be valid without finding any defect in the books of account. On these facts, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed various decisions on the subject and held that unless books are rejected, by finding out any defect therein, addition on account of DVO's report could not be made. The Assessing Officer, in the present case, had examined the books of account and did not find any defect and did not reject the same. The reference to the DVO by the Assessing Officer to as certain the cost of construction of the property is not based on the finding that books of account produced by the assessee are, in any way, not reliable and or defective so as not to consider the cost of construction recorded therein as correct. It would be pertinent to quote paras 9.1 to para 9.6 from the decision of Birmingham Properties Ltd.:- 9.1 In the case of CIT v. Pratap Singh, Amra Singh, Rajendra Singh Deepak Kumar, it has been held by the Hon'ble Rajasthan High Court that in respect of investment made in property, there can be only two methods to find out the correct position (i) examination of books of account which have been maintained properly (ii) valuation report. If the assessee has maintained proper books of account and all details are mentioned in such books of account, which are duly supported by vouchers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntractors/bills produced by it in support of the construction cost incurred. Furthermore, the observation of the CIT(A) was also accepted by the High Court to the effect that the construction cost being a revenue expenditure in the case of the assessee-firm, who carried out the construction as a part of the business activity, it had no tax advantage in reducing the construction cost. 9.4 The co-ordinate Bench of ITAT, that is, ITAT, Kolkata Bench 'E' in the case of Modern Constructions Developments Projects Promotion v. ACIT has review that considered various decisions including the decision of CIT v. Western Estates, Smt. Uma Devi Jhawar v. ITO and Pratapsingh, Amrosingh, Rajendra Singh and Deepak Kumar and following propositions as emerged from various details have been laid down- (a) for the purpose of making addition towards unexplained investment, the Assessing Officer was under legal obligation to verify the books and vouchers maintained by the assessee in support of the cost of construction shown by him and points out specific defects; (b) upon rejection of the books or upon pointing out of the defects the Assessing Officer would acquire right to refer the matter to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ld. CIT(A). This ground of the revenue is rejected." 11. This order was followed in Avadh Education Society's case. Further, in Modern Construction Development Project Promotion's case it was held by the Tribunal as under:- "13. Admittedly, the valuation made by the registered valuer is based on the PWD rate schedule and it is not the case of the department that proper cost of construction cannot be ascertained by adopting the PWD rate schedule, though a case was made out by the revenue that the basis adopted by CPWD rate is superior to that of the method followed by the registered valuer. From the order sheet of the Assessing Officer as well as the assessment order, it could be seen that the reference to the valuation officer was made without pointing out any defects in the books of account maintained by the assessee. The observation of the Assessing Officer that vouchers were not produced by the assessee before the valuation cell cannot, in our opinion, support the case of the revenue to justify the reference to the valuation officer, inasmuch as, invalid reference cannot be validated by subsequent observation of the Assessing Officer that the books maintained by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses 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 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) shall, for the purposes of dealing with such reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957). (3) 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 reassessment." The starting words of this section are for the purpose of making an assessment or reassessment under this Act...... It shows that process of assessment is initiated and, therefore, process of reassessment is also should be treated as initiated. The word 'making' should be presumed to be associated with both 'assessment or 'reassessment'. There cannot be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings. 8. When the process of reopening of assessment ends and the assessment is validly reopened thereafter the process of making reassessment starts. Therefore; even after the insertion of section 142A, the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment as provided under section 147 and thereafter only the notice for reassessment can be issued under section 148. Even after the insertion of section 142A, there is no amendment in the language of section 147. Therefore, the condition prescribed under section 147 for reopening of assessment still exists. The Hon'ble Gauhati High Court in the case of Bhola Nath Majumdar and the Tribunal, Jodhpur Bench, in the case of Vijay Kumar have taken the view that the valuation report is only an opinion of the valuer and an opinion of a third party cannot be a reason to believe of the ITO. The Hon'ble Bombay High Court in the case of Jamnadas Madhavji Co. has held that the Assessing Officer cannot issue summons under section 131 for the purpose of making investigation for reopening of the assessment." 15. Notwithstanding even if a reference under section 142A is made by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the submissions of the ld. Representatives of the parties and have perused the records of the case. The short dispute to be decided in the present appeal is whether in view of the contents of sanction letter issued pursuant to the resolution passed by the Society regarding grant of loan to its members, officials, employees, the assessee was required to make provision for interest in its books of account and whether the security furnished by the Manager was an admissible security under law or not. The contents of resolution as well as sanction letter are not disputed by the Department. As per the sanction letter, Shri C.P. Singh was required to repay the principal amount first and then the interest was to be paid by him. The accrual of interest is inextricably linked with loan. As far as accrual of interest is concerned, it is linked with the loan and, therefore, the interest accrues as and when the loan has been given irrespective of the fact that its payment might have been deferred to a future date, but that does not affect the accrual of interest. The accrual of interest is different from the terms "Contract for its payment". Therefore, we are of the considered opinion that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
