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TMI Blog2018 (9) TMI 952X X X X Extracts X X X X X X X X Extracts X X X X ..... in the year in which the impugned expenditure was set off against income recognized, if any. Such an action is not warranted, since it is based on the report of the DVO, for which reference was made without rejecting books of account. Accordingly, we reverse the finding of CIT(A). The grounds of appeal raised by the assessee are thus, allowed. - ITA No. 977/PUN/2015 - - - Dated:- 10-9-2018 - MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO, AM Appellant by : Shri Suhas P Bora Respondent by : Shri Achal Sharma ORDER Per Sushma Chowla, JM The appeal filed by the assessee is against the order of CIT(A)-11, Pune, dated 30.01.2015 relating to assessment year 2010-11 against order passed under section 143(3) of the Income-tax Act, 1961 (in short the Act ). 2. The assessee has raised the following grounds of appeal:- 1. The Learned CIT(A) erred both in law as well in facts in making reduction in the work-in-progress recorded by the appellant on the basis of conjectures and surmise. 2. The Learned CIT(A) erred in law and as well as in facts to rely upon the report of the Government Valuer who was unlawfully commissioned under section 131(1)(d) by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenses. The Assessing Officer further observed that sum of ₹ 26,26,900/- was incurred on account of civil cost of construction and remaining amount consisted of Architect fees, PMC expenses, etc. The Assessing Officer show caused the assessee to explain as to why the appropriate expenses for cost of civil construction shown in Annexure-1 should not be disallowed. The assessee in reply submitted that total expenses of ₹ 1.81 crores had been incurred and breakup of the same was filed, which have been transferred to work-in-progress. The Assessing Officer rejecting the explanation of assessee held that as per Valuer s report, it was observed that no work was executed during the period from 2009-10 to 2010-11, but expenses of ₹ 13.17 crores was spent on material and direct expenses. In the year 2009-10, sum of ₹ 1.81 crores was spent on material, where the major contributor was of PMC charges and direct expenses; hence the said direct expenditure of ₹ 26,26,900/- was disallowed on account of bogus expenses claimed as construction expenses. 5. The CIT(A) upheld the order of Assessing Officer as the assessee but for furnishing the breakup of expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Representative for the assessee further pointed out that the books of account were not rejected by the Assessing Officer and in the absence of the same, no addition was warranted in the hands of assessee. 8. The learned Departmental Representative for the Revenue stressed that incurring of expenditure in the hands of assessee was in dispute, hence disallowance under section 37(1) of the Act. He further pointed out that the facts before the Pune Bench of Tribunal were different. 9. The learned Authorized Representative for the assessee in rejoinder pointed out that the Assessing Officer in paras 3 and 5 had disallowed the expenses but the CIT(A) in para 4.3.5 has modified the order; but it is established that the audited books of account were not rejected by either Assessing Officer or CIT(A). Our attention was drawn to the details of cost of civil construction of expenses totaling ₹ 26,26,900/-, which are placed at pages 218 to 249 of Paper Book, wherein the amounts were paid through cheque and even TDS was deducted. 10. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is with regard to expenditure which has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ises in the present appeal is whether where the books of account of the assessee were audited and the said audited books of account have not been rejected, can the addition or disallowance be made in the hands of assessee, on the basis of any reference made to the DVO. 12. The Hon'ble Supreme Court in Sargam Cinema Vs. CIT (supra) had held that where the books of account have not been rejected, then no reference could be made to the DVO for assessing the cost of construction. 13. Applying the said principle, the Pune Bench of Tribunal in Dr. Shivaji Ramchandra Kolekar Vs. ITO (supra) had held as under:- 6. We have carefully considered the rival submissions on this aspect. In the present case, the Assessing Officer has invoked Section 69B of the Act to tax the difference in the value of cost of construction as estimated by the DVO and that declared by the assessee in his books of account. Section 69B of the Act empowers the Assessing Officer to tax an amount invested by the assessee which is found to be over and above the amount recorded in the books of account maintained. However, a crucial expression in Section 69B of the Act is that the Assessing Officer ought to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the DVO for estimation of the cost of construction of the Hospital Building. In our considered opinion, the material on record does not show what was the nature of local enquiries and what was the material gathered which could show any infirmity/discrepancy in the cost of construction declared by the assessee in the account books maintained. Therefore, considering the entire discussion in the assessment order, we find that the Assessing Officer could not have referred the matter to the DVO because the books of account were not rejected, following the parity of reasoning laid down by the Hon‟ble Supreme Court in the case of Sargam Cinema (supra). 14. Applying the said ratio laid down by the Hon'ble Supreme Court in Sargam Cinema Vs. CIT (supra) to the facts of the present case, we hold that where the Assessing Officer has failed to reject the books of account of assessee, then no reference could be made to the DVO for verifying the cost incurred for the project The Mall . The assessee in any case had debited the said expenditure to the head Work-in-progress , which has to be set off against the income in later years. Accordingly, we hold that there is no merit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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