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TMI Blog2015 (9) TMI 1431X X X X Extracts X X X X X X X X Extracts X X X X ..... s of names and address of the persons from whom paddy and gunny bags were purchased, subsidy details, bank statements, names and address of the sundry creditors, details of stocks and name and address of the parties from whom cash loan received etc, among others. On perusal of the balance sheet, the Learned AO found that during the assessment year under appeal, the assessee had invested a sum of Rs. 19,45,680/- in his existing factory shed and reference was made to Department Valuation Officer (DVO) in terms of section 142A of the Act to determine the correct cost of construction of factory shed. The DVO determined the cost of construction at Rs. 21,51,929/- and the Learned AO proceeded to bring the difference in cost of construction amounting to Rs. 2,06,249 ( 2151929- 1945680) to tax u/s 69B of the Act which was also upheld by the Learned CITA. Aggrieved, the assessee is in appeal before us on the following ground:- "1. That the lower authorities have erred in facts and law in adding back Rs. 206249.00 towards unexplained investment without appreciating that such amount is fully covered by the addition to the returned income by way of estimation and hence the addition needs to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the asset and not on the basis of the valuation of the registered valuer, it was not open to the Assessing officer to make a reference to the District Valuation Officer unless the Assessing Officer formed an opinion that having regard to the nature of the asset and other relevant circumstances it was necessary to do so. If an account of the expenses of the construction of the asset are maintained regularly and supported by vouchers there should be no reason not to accept the same for determining the cost of construction of the asset. The Assessing Officer was required to assess the value of the asset on appreciation of material before him. The cost of construction arrived at by the Tribunal was wholly based on relevant considerations and hence no referable question of law arose." CIT vs K.Jayakumar reported in (2013) 35 taxmann.com 179 (Madras HC) - "Section 69 of the Income-tax Act, 1961 - Unexplained investments [Immovable properties] - Assessment year 1998-99 - Assessee constructed a shopping cum residential complex - Assessing Officer on basis of valuation done by DVO, adopted CPWD rates and completed assessment, thereby making addition - Whether on considering geographic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtension of lease. Hence, whether the assessee was the owner of the property or not was not directly relevant in considering the question of unexplained investment. As regards the legality of making an addition on the basis of the report of the DVO, the return filed by the assessee for the year in question was processed under section 143(1)(a) on 7-2-1992 which was reopened by issuing notice under section 143(2) and converted it into a scrutiny assessment. From 14-21992 till 31-3-1994, i.e. the date of assessment order, there was no remark in the order sheet to show that the books of account produced by the assessee contained defects or the cost of construction as recorded in the books was not supported by vouchers. The addition was not made mainly on the ground that the books and vouchers were not properly maintained but because there is huge/significant difference between the estimate made by the DVO and the cost of construction shown by the assessee. A careful reading of the order of the Commissioner (Appeals) as well as the order of the Assessing officer would made the matter explicitly clear that the Assessing officer had not called for the vouchers and did not point out any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Valuation Officer, in as much as, invalid reference could not be validated by subsequent observation of the Assessing Officer that the books maintained by the assessee could not be relied upon for want of proper vouchers. Further, the stand of the assessee was that the Assessing Officer had never asked for any details or pointed out any defects, could not be brushed aside, on a perusal of the order-sheet entries. Therefore, the Assessing Officer was not justified in making an addition merely on the basis of the valuation report of D.V.O." DCIT vs Smt.C.K.Sumathy reported in (2011) 44 SOT 65 (Chennai) - "Section 69 of the Income-tax Act, 1961 - Unexplained investments - Assessment year 2006-07 - Assessee, a civil contractor, had constructed a kalyanamandapam and shopping complex - Cost of construction had been admitted by assessee at Rs. 84,69,000 on basis of valuation report from an approved valuer - Assessing Officer referred matter to DVO, who submitted his valuation report wherein cost of construction was estimated at Rs. 1.11 crores - Accordingly, after giving 10 per cent rebate for selfsupervision, Assessing Officer adopted cost of construction at Rs. 1,02,77,894 - On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he instant case, we have already held hereinabove that the action of the Learned AO in rejecting the books of accounts is upheld as the same is done with cogent reasons by the learned AO and not objected by the learned AR for resorting to estimate the net profit of assessee for determining business income. The Hon'ble Apex Court in the case of Sargam Cinema vs CIT reported in (2010) 328 ITR 513 (SC) had held that reference to DVO could be made only after rejection of the books of accounts by the Learned AO. 2.6. Sec. 69B could be used even if business income is estimated as they do not come under any specific heads of income. Reliance in this regard is placed on the decision of Hon'ble Gujarat High Court in the case of Fakir Mohammed Haji Hassan vs CIT reported in 247 ITR 290. "7. It is, therefore, clear that, when the investment in or acquisition of gold, which was recovered from the assessee was not recorded in the books of accounts and the assessee offered no explanation about the nature and source of such investment or acquisition and the value of such gold was not recorded in the books of accounts, nor the nature and source of its acquisition explained, there could ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucted and interest on FD without appreciating that these are all business income which is already deemed to have been included within the ambit of estimated net profit." 3.2. The Learned AR argued that since the business income has been computed on an estimated basis @ 2% of turnover in terms of section 145(3) of the Act by rejecting the books of accounts, no separate addition need to be made for the aforesaid four items as they are part and parcel of business receipts only. In response to this, the Learned DR vehemently supported the orders of the lower authorities. 3.3. We have heard the rival submissions and perused the materials available on record. It is seen that the Learned AO having resorted to make estimate of business income computed @ 2% of total turnover at Rs. 4,01,930/- ought not to have made any separate addition towards insurance claim of Rs. 51,487/- ; interest subsidy of Rs. 3,53,707/- ; PF deducted of Rs. 11,094/- as they are part and parcel of business receipts. We hold that once the business income is determined on estimated basis, any further addition towards business income would only get telescoped with the net profit already determined on estimated basis. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee had filed the cash book during the course of assessment proceedings wherein certain monies were shown to have been received by the assessee to the tune of Rs. 80,40,000/-. The assessee when questioned about the veracity of the said receipts by the Learned AO produced a list of 453 persons from whom the amount was received. The Learned AO proceeded to make an addition u/s 68 of the Act to the tune of Rs. 80,40,000/- disbelieving the explanation of the assessee which was upheld by the Learned CITA after giving partial relief to the assessee. Aggrieved, the assessee is in appeal before us on the following grounds:- "3. That the addition towards cash credit is arbitrary in view of the fact that the appellant is not maintaining any credible books of accounts and as such having once rejected the books of account, no cognizance can be taken of the entries therein. 4. That the addition towards cash credit, without prejudice to the above ground, cannot extent, to genuine trade advances which has been repaid beyond doubt." 4.2. The Learned AR argued that once the business income is estimated u/s 145(3) of the Act by the Learned AO by rejecting the books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o addition could be separately made u/s 68 of the Act. We are of the opinion that the said addition could be made only when there is an external source from where the data / information is available with the Learned AO to make an addition such as amounts outstanding in the balance sheet filed by the assessee for which no satisfactory explanation is given to the Learned AO. We would like to state that the Learned AO having rejected the books of accounts had to do it in full and not in piecemeal. It would be pertinent to get into the judgement of the Pune Tribunal rendered in the case of Chander Mohan Mehta vs ACIT reported in (1999) 71 ITD 245 (Pune) which in turn relied on the decision of apex court, wherein it was held that :- Firstly, it was contended by the AO that statement of the assessee recorded u/s 131 should be either accepted or rejected in toto unless there is material on the record to prove the contrary. According to him, if the statement of the assessee to the effect that he was carrying on money lending business and certain amounts were advanced by way of loan aggregating to Rs. 89 lacs as mentioned in the loose paper is accepted, then as a corollary, the other part ..... X X X X Extracts X X X X X X X X Extracts X X X X
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