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TMI Blog2020 (2) TMI 790X X X X Extracts X X X X X X X X Extracts X X X X ..... , Vice President And Shri A.K. Garodia, Accountant Member For the Appellant : Shri Sreehari Kutsa, Advocate For the Revenue : Shri Manjeet Singh, Addl.CIT ORDER PER SHRI N.V.VASUDEVAN, VICE PRESIDENT : This is an appeal by the assessee against the order dated 20-12-2018 of CIT(A), Kalaburagi relating to assessment year 2007-08. 2. The assessee is a partnership firm engaged in the business of construction and real estate. The firm filed its return of income for the assessment year 200708 on 29-10-2007 admitting a loss of ₹ 27,19,420/-. The return filed was processed u/s 143(1) on 10-01-2009. Consequent to survey u/s 133A conducted in the case of the assessee on 05-02-2007. the return of income filed was taken up for scrutiny under compulsory category. During the survey and the assessment proceedings, the Assessing Officer noted that the assesee was constructing a multiplex theatre by name Fun Junction Multiplex at Sy No.1/1B, Aland Road. Brahampur. Gulbarga, a commercial complex by name Siddhartha Plaza on Plot No.122. Sy. No.1/1B, Aland Road, Brahampur, Gulbarga and an apartment by name Sai Residency at Plot No.35, 36, 47 48, Sy. No.1/1 B, Aland Road. Brahampur, Gulbarga. 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be filed against the valuation. The assessee has also raised questions on the validity of the reference made to valuation cell u/s 142A. The ITAT by its order dated 10.3.2014 set aside the order of the CIT(Appeals) and remanded the assessment for a de novo consideration by the AO with the following remarks. 13. We are of the view that this appeal can he disposed on the short ground that the report of the DVO has not been furnished to the assessee. We therefore set aside the order of the CIT(Appeals) and remand the assessment for a de novo consideration by the Assessing Officer. The AO will furnish a copy qf the DVO's report to the assessee and call for his objection. Thereafter, the AO will decide the issue in accordance with law, after affording the assessee opportunity of being heard. The assessee is at liberty to raise all objections regarding the validity of the reference u/s 142A of the Act. All issues are left open. 7. Pursuant to the order of the ITAT the AO took up proceedings in compliance with the order of the ITAT. According to the AO, copies of the valuation reports in respect of land and the three buildings were supplied to the assessee. By a letter on 19-06-2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t were referred for valuation to the DVO was part of the stock-in trade of the business of the assessee and therefore, the difference between the investments in construction of the building as recorded in the books of account and as estimated by the DVO if any, can only be added as unexplained expenditure u/s 69C of the Act. The assessee pointed out that in sec.142A of the Act there is no reference to the provisions of sec.69C of the Act and therefore, there cannot be a valid reference u/s 142A of the Act to the DVO. In this regard the assessee placed reliance on the decision of the Hon ble Delhi High Court in the case of CIT Vs Aar Pee apartments Pvt.Ltd.(2009) 227 CTR 495 wherein it was held that since there is no mention of sec.69Cin sec.142A of the Act the AO could not refer the matter regarding the cost of construction of project to DVO under sec.142A of the Act. This argument was rejected by the AO with the following observations; 12.Objections of the assessee are not tenable. The Fun Junction Multiplex was shown as a fixed asset in the balance sheet of the assessee. Even depreciation was also claimed on this asset. This fact was not disputed by the assessee. The Shah Bazar S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee only local PWD rates ought to have been adopted. The assesse also claimed deduction on account of self supervision. The AO rejected the plea of the assessee for applying local PWD rates and gave deduction at 7.5% of the cost of construction towards self supervision. The addition originally made by the AO was reduced as follows; 23. To sum up, the following additions are made to the returned income: (Rupees) 1. Fun Junction Multiplex Complex: C Cost of construction estimated by the DVO 4,36,13,000 L Less: Rebate for self-supervision @ 7.5% 32,70,975 N Net cost of construction estimated 4, 4,03,42,025 L Less: Cost of construction admitted by the assessee 2,60,75,445 Dif Difference in cost of construction brought to tax u/s 69B 1,42,66,580 2. Siddharth Plaza - Commercial Complex Cost of construction estimated by the DVO (Before rebate for sell-supervision) 1,41,05,447 Less: Rebate for self-supervision @ 7.5% 10,57,909 Net cost of construction estimated 1,30,47,538 C Cost of construction as on 31-03-2007 - 72.84% 95,03,827 L Less: Cost of construction admitted by the assessee 35,48,720 Di Difference in cost of construction brought to tax u/s 69B 59,55,107 3. Sai Residency - R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) gave the following decision; 6.4 Ground no.4 though, this ground the appellant has objected for the application of provisions of section 14A of the Act since there was amendment to that section w.e.f.01-10.2014 to the effect that all the section for reference to the valuation cell is being removed. The appellant contentions are not acceptable because of the fact that the appellant is relying on the amendment made w.e.f.01.10.2014. However, it is not correct5 on the part of the appellant to bring in the amendments made to the provisions of section 142A with effect from a later date. The assessment under consideration is 2007-08. Thus, the amendment to the above provision cannot be made applicable to the year under reference, as the amendment is not with retrospective effect. In the fact and circumstances of the case this ground is untenable and therefore, dismissed . 15. Aggrieved by the order of CIT(A), the assessee is in appeal before the Tribunal. We have heard the parties at length. Before we proceed to decide the appeal on merits, we are of the view that it would be appropriate to decide ground no.2 raised by the assessee before us as preliminary issue. Ground no.2 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or quite sometime, the legal basis of a reference to Valuation Officer of the Department to determine cost of construction of buildings was the subject-matter of controversy before various Courts, some courts deciding in favour and some against the revenue, till the issue was decided by the Apex Court in the case of Smt. Amiya Bala Paul v. CIT [2003] 262 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. 18. 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 referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer has the power to make a reference to the Valuation Officer for estimating the value of investment, expenditure, etc. This section has been inserted with retrospective effect from 15th November, 1972 to save the cases where such references have been made in the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the assessee may produce and any other evidence in his possession gathered, after giving an opportunity of being heard to the assessee. (5) The Valuation 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). 23. 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 Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of being heard, take into account such report in making the assessment or 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. 24. 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 69 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts. 25. It is clear from the aforesaid exposition of law on the issue that the reference to DVO in the present case is illegal and any addition made on the basis of such report cannot be sustained. The addition made by the AO is therefore, liable to be deleted on the short ground. In view of the conclusion on ground no.2 we do not wish to go into other grounds of appeal and the additional grounds of appeal before us. 26. The only other surviving grounds the grievance of the assessee projected in ground no.12 raised before the Tribunal which relates to adhoc disallowance of a sum of ₹ 75,000/- in respect of unvouched expenditure. The AO disallowed a sum of ₹ 75,000/-out of the expenses debited in P L account. The assessee did not produce vouchers in respect of expenses given in the P L account. The AO therefore, disallowed a sum of ₹ 75,000/- out of the expenses debited in P L account. The submission of the ld.Counsel for the assessee was that the AO has not pointed out any specific item of expenditure which are to be disallowed and that wherever fringe benefit tax is payable on expenses the same has been paid by the assessee. 27. We have considered the rival ..... X X X X Extracts X X X X X X X X Extracts X X X X
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