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TMI Blog2021 (6) TMI 362X X X X Extracts X X X X X X X X Extracts X X X X ..... and held that the valuation report of the DVO cannot constitute a reliable piece of evidence. CIT(A) has also made reference to various other judgments and has come to the conclusion that ingredients of Section 147 of the Act are not fulfilled in the instant case and consequently reopening is not permissible in the facts and circumstances of the case - No error in the conclusion drawn by the CIT(A) in holding so. Without repeating the same, we decline to interfere with the conclusion drawn by the CIT(A) holding the assumption of jurisdiction by the AO u/s.147 of the Act to be bad in law. Reference to the Valuation Officer u/s 142A - HELD THAT:- As not possible for a Valuation Officer to comply with the mandate of reference u/s 142A of the Act viz. (i) issue notice to the assessee for collection of information, (ii) enter the premises under subject matter of reference, (iii) inspect and examine the contemporaneous position on fair value of the project, (iv) apply his mind to the facts available and (v) prepare valuation report. Even after receipt of valuation report, the AO is expected to confront the same to the assessee and give him proper opportunity to defend his position on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s captioned above are inter-connected and involves common issue. Accordingly, all the three matters were heard together for adjudication purposes. 3. We shall take Revenue's appeal in ITA No. 1525/Ahd/2018 concerning AY 2010-11 as a lead case for adjudication. ITA No. 1525/Ahd/2018 - AY- 2010-11 4. The ground of appeal raised by the Revenue reads as under: "1.1 That in the facts and circumstances of the case, and in law, the Ld.CIT(Appeals) has erred in allowing the assessee' s appeal, without appreciating the facts discussed in the assessment order and the remand report. 1.2 That in the facts and circumstances of the case, and in law, the Ld, CIT(Appeals) has erred in holding that the reference made by the AO u/s 142A was invalid, without appreciating the facts discussed in the assessment order and the remand report. 1.3 That in the facts and circumstances of the case, and in law, the Ld. CIT(Appeals) has erred in holding that the reference made by the AO u/s 142A without rejecting books of account was invalid. 1.4 That in the facts and circumstances of the case, and in law, the Ld, CIT(Appeals) has erred in holding that the reference made by the AO u/s 142A without rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... papers, documents etc., of incriminating nature, marked as various annexures, were found and impounded. These loose papers etc. so impounded revealed several transactions which were not found recorded in the books. On being confronted, the partner of the Assessee firm conceded and declared a lump-sum amount of ₹ 1.75 crores as its unaccounted income in the course of survey proceedings. Such declaration made in survey was also reportedly incorporated suitably while determining the total income of the Assessee. The return for AY 2010- 11 was selected for a regular assessment and a regular assessment was made under S. 143(3) of the Act. The total income was assessed at ₹ 1,94,25, 530/- for AY 2010-11 vide an assessment order dated 28.03.2013. 7. In the course of the regular assessment, the AO inter alia invoked S. 142A of the Act and made reference to the Valuation officer [also referred to as District Valuation Officer (DVO)] vide its letter dated 26/02/2013 requiring him to estimate the value of some Construction projects so undertaken and give a report to him thereon, for the purposes of making the assessment. The Valuation report from the DVO was however not received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... versed. The relevant operative para of the order of CIT(A) for its finding is reproduced below for easy reference: " 3. 6. The legal position on the issue of reopening of assessment on the basis of report of the DVO has been discussed by various judicial authorities and the catena of decisions are in favour of the appellant. In ACIT Vs Dhariya Construction Co. [ 2010] 328 ITR 515 (SC),the Supreme Court, in its short order dated 16. 2.2010, held as follows:- " Having examined the record, we find that in this case, the Department sought reopening of the assessment based on the opinion given by the District Valuation Officer (DVO). The opinion of the DVO per se is not an information for the purposes of reopening assessment under section 147 of the Income- tax Act, 1961. The Assessing Officer has to apply his mind to the information, if any, collected and must form a belief thereon. In the circumstances, there Is no merit in the civil appeal. The Department was not entitled to reopen the assessment. Civil appeal is, accordingly, dismissed. No order as to costs." Reliance can also be made upon the judgments of Punjab & Haryana High Court in the case of CIT Vs Darsan S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer. The Assessing Officer cannot, merely on the basis of DVO' s report, reopen the assessment. The DVO' s report may be based only on his opinion or on some tangible material. In the former case it would be only estimation or guesswork. it may be mentioned here that the A. O, has relied mainly on the report of the DVO without pointing out any defect or discrepancy much less any material defect in the books of account of the assessee, and the expenditure incurred by the assessee in construction and shown in the books of account are duly supported by bills and vouchers and only ad hoc and minor additions in respect of cost of construction were made in assessment proceedings under taken by the A. O. u/s 143 (3) of the Act. From the copy of the Office Note furnished by the A. O. along with remand report, it was clear that no serious deficiency was noticed by the A. O. in respect of cost of construction either in books of accounts/vouchers produced during scrutiny assessments of in the material impounded during the survey. Before passing the order on 28. 03. 2013; the A. O. in para 4 of " Office Note" has mentioned as under:- " 4. The various b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20ITR 561/187 Taxman 312 (SC)." Similar view has been taken by the Hon'ble Gujarat High Court in the case of Akshar Infrastructure (P.) Ltd. Vs ITO [ 2017] 79 taxmann. com 239 (Gujarat) wherein it was held that where Assessing Officer completed assessment under section 143(3) making certain addition in respect of unexplained investment, he addition merely could not reopen said assessment for enhancement of said on basis of report of DVO. 3.7. Ld. Authorized Representative has heavily relied on some other decisions of the jurisdictional High Court which are directly on this issue. In PCIT Vs J. Upendra Construction (P.) Ltd. [ 2015] 59 taxmann. com 144 (Gujarat), it is held by the Hon' ble Court as under:- " 4.1 At the outset, it is required to be noted that in the present case, the Assessing Officer made additions with respect to the difference in the cost of construction based upon and/or relying upon the DVO' s report in the case of one M/s. Manjusha Estate Pvt Ltd. from whom, the assessee subsequently got the project. It is true that in the present case, copy of the DVO' s report was furnished to the assessee during the reassessment proceedings. Howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d hoc basis, the detailed report of A. O. in respect of survey conducted in the case of appellant before the reassessment and the material impounded/statements recorded by the A. O. as well as surrender made by the appellant and accepted by the Department in respect of " On Money" and no reference was made to any incriminating material found during the course of survey or during the course of assessments made under 143 (3) in respect of cost of construction. 3.8 8 The decision of Sargam Cinema (Supra) and legal provision in respect of reference to DVO without rejecting books of accounts as provided in the" un- amended/un- substituted section 142 Ahas been considered by jurisdictional High Court in Good Luck Automobiles (P.) Ltd. v. Asstt. CIT [ 2013] 26 taxmann. com 25 (Guj.). It has been held therein as under: " 9............. The rejection of books of account should precede the reference to the Valuation Officer. As rightly contended by the learned counsel for the assessee, the report of the Valuation Officer cannot form the foundation for rejection of the books of account 10. In the context of the controversy in issue it may also be germane to notice the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account are defective or that the cost of construction as shown in the books of account is not the true cost of construction. Thus, while making the reference to the Valuation Officer, the Assessing Officer has not recorded any defect in the books of account nor has he rejected the same. Except for the difference in the estimated cost determined by the Valuation Officer and the actual cost as shown by the assessee, the Assessing Officer has not brought any material on record to establish that the assessee had made any unaccounted: investment in the construction of the building in question and that the books of account do not reflect the correct cost of construction. Under the circumstances, there was no occasion for the Assessing Officer to make a reference to the Valuation Officer. As held by the • Supreme Court in the case of Sargam Cinema (supra), unless the books of account are rejected, the Assessing Officer cannot make a reference to the Valuation Officer. The reference made to the Valuation Officer, not being in consonance with the provisions of law,.was, therefore, invalid. Accordingly, the report made by the Valuation Officer pursuant to such an invalid reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 143 (3) of the Act} itself, the assessee produced his books of account before the A. O. Complete details were f i led before the Assessing Officer who proceeded to make only routine or ad- hoc additions on account of payments made to some labour. In respect of A. Y. 2009- 10, assessment was completed by the Joint Commissioner of Income Tax, who has not pointed out any defect in respect of cost of construction, The order was passed by him on 14. 12. 2011, whereas, the survey was conducted upon the assessee on 19. 02. 2010. Neither in the statements of the partner whose statements were recorded during survey, nor in the assessment order passed by JCIT on 14. 12. 2011, there was any reference to any discrepancy in the books of accounts/incriminating documents in respect of cost of construction and the surrender of ₹ 1,75, 00, 000/- was made in respect of " on money" received. Assessment Order in the case of assessee for A. Y. 2010- 11 was made by Dy. Commissioner of Income Tax on 28. 03,2013 and as mentioned above, ad- hoc a Edition of ₹ 1, 50, 000/- was made on account of labour and site expenses. In that order also it is clearly mentioned that books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he VO, Baroda on 05/03/2013. However. No any valuation report is received till date in response to the reference for valuation. Therefore, this assessment is finalized subject to the discrepancy as to the cost of construction if any, found as per the valuation report. The assessment may be reopened u/s, 147 of the Act, if so required taking into consideration the valuation report." From the above mentioned " Office- Note", it is clear that the A, 0. had not discovered any notable shortcoming in the books of accounts/vouchers maintained by the assessee. The assessment order for A. Y. 2011- 12 was passed by yet another officer who was Asstt. Commissioner of Income Tax and passed the order on 14. 03. 2014. Once more, the additions made were of routine nature., Addition of ₹ 2, 24,551/- was made on account of default u/s 40(a)(ia) of the Act, addition of ₹ 92, 000/- was made on ad hoc basis @10 % of site expenses (without pointing any discrepancy) and addition of ₹ 1, 00,000/- was made in respect of variation in Form 26AS due to some mistake in uploading of data. These additions too cannot make case for any reference to DVO on the ground of discrepanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchased (Rs) (a) DIRECT EXPS. incurred (Rs) (B) Land Purchase Cost (Rs) (C) Total (Rs) (A+B)-(C)=D 1 2007 - 08 2,03,78,868.00 1,32,77,832.00 0.00 3,36,56,700.00 2 2008 - 09 4,48,94,111.28 1,99,73,818.37 61,17,410.00 5,87,50,519.65 3 2009 - 10 2,49,49,960.00 1,65,09,010.00 0.00 4,14,58,970.00 4 2010 - 11 5,87,18,367.00 4,18,18,058.00 53,94,800.00 9,51,41,625.00 TOTAL 22,90,07,814.65 It is further submitted before me that the total cost of construction as estimated by the DVO for the various projects executed by the appellant for AY. 2008- 09 to 2011- 12 is ₹ 19,96, 15, 400/-. However, the appellant firm has disclosed total investment in the books of accounts for the various projects amounting to ₹ 22, 90,07,874/- which was supported by the audited books of accounts, P & L Account and Balance Sheet. This only goes to show that the investment made by the appellant firm and disclosed in the books of account is much higher than that estimated- by the DVO. The overall investment in question so disclosed in the books of account is higher than that estimated in the DVO' s report the question of their being any element of unexplained investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d provisions of Section 153 of the Act, non-receipt of DVO report notwithstanding. 12.1 It was submitted that the action under S. 142A was not challenged in the course of original assessment proceedings. It was contended that once a valid reference is made under S. 142A of the Act and report is drawn after affording opportunity to the assessee by the DVO in exercise of quasi judicial powers, such exercise under S. 142A does not pale into insignificance or become inoperative merely owing to a per force completion of the assessment proceedings before the receipt of the valuation report. It was added that the valuation report prepared by a the valuation cell under a statutory dictate and exercising quasi-judicial powers similar to AO has a definite sanctity and had become integral part of the record notwithstanding its receipt after the completion of assessment. Such report, prepared in a quasi judicial exercise, would provide a sound basis and consequently enable the Income Tax Authority concerned to take such action as permissible under the Act without any perceptible bar. It was contended that the report of the valuer, governed under S 142A, was relevant and germane to provide fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case, has distinguishable trappings in as much as such reports are prepared in exercise of quasi judicial powers and thus cannot equated with a valuation report obtained from a registered valuer. 12.4 The learned DR next asserted that there is no requirement in law for rejection of books of accounts per se prior to making a reference under s. 142A of the Act. A reference to Circular no. 1/2015 was made to buttress the aforesaid proposition. It was thereafter pointed out that survey detected huge unrecorded undisclosed income. The documents found indicated so and admitted by the partner of the Assessee. The books prepared could not be thus taken as solemn on the background of such despicable conduct. The AO thus acted reasonably in making reference to the DVO for estimation of value of projects to gauge the correctness as well as completeness of entries made by the Assessee in its books with the aid of S. 142A of the Act. 12.5 It was also contended that the AO was under statutory compulsion to pass the assessment order in the absence of enlargement of limitation period at the relevant time in view of pre-amended provisions of S. 153 of the Act. On receipt of the valuation repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal for AY 2009-10 is not fulfilled at all and thus the action of the AO under s. 147/148 of the Act is devoid of any legitimacy and hence uncalled for. 13.1 The Ld. Counsel for the Assessee further assailed the action of the AO for invoking S. 147 on the basis of 'change of opinion' doctrine. It was reiterated that the reopening of assessment completed under section 143(3) is not permissible in law merely on the basis of 'change of opinion' regardless of issuance of notice within 4 years or after 4 years from the end of the respective assessment year. It was contended that the AO has merely applied the outcome of valuation report without showing how the opinion formed earlier on the project costs were faulty. The books of account were not rejected at the time of making reference. 13.2 The Ld. Counsel also touched upon few aspects as per its brief note placed on record which we shall attempt to deal with appropriately in later paragraphs wherever considered expedient. 14. We have carefully considered the rival submissions and perused the orders of the lower authorities. In the instant case, the first appellate authority has invalidated the action of AO on the grounds of lack of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, if so required taking into consideration the valuation report". The DVO, Ahmedabad vide letter dated 16/05/2013 (received on 20/05/2013) furnished the required report, As per this report there was difference in cost declared by the assessee and estimate by DVO, Ahmedabad as under: Name of project Financial year Building amount declared by the assessee Building amount estimated by valuation cell of income tax department Difference (4 - 3) 1 2 3 4 5 Dev Prasthan 2007 - 08 49,23,975 94,48,118 45,24,143 2008 - 09 3,52,36,135 6,17,45,261 2,65,09,126 2009 - 10 86,69,071 1,47,85,960 61,16,889 2010 - 11 0 0 0 Total 4,88,29,181 8,59,79,339 3,71,50,158 Dev Sarjan 2007 - 08 44,02,296 75,56,982 31,54,686 2008 - 09 1,12,16,836 1,75,84,313 63,67,477 2009 - 10 46,01,946 70,21,957 24,20,011 2010 - 11 22,92,913 30,63,046 7,70,133 Total 2,25,13,991 3,52,26,299 1,27,12,308 Dev Red Square 2007 - 08 0 0 0 2008 - 09 0 0 0 2009 - 10 1,40,50,445 2,14,75,771 74,25,326 2010 - 11 53,56,473 71,67,818 18,11,345 Total 1,94,06,918 2,86,43,589 92,36,671 Dev Vrund 2007 - 08 0 0 0 2008 - 09 0 0 0 2009 - 10 78,44,037 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturn of income filed by assessee. 4. It was further noticed that Assessing Officer vide letter no DCIT/Anand/Valuation/Devraj Devp/2012- 13 dated 26/02/2013 asked the District Valuation Officer, Valuation Cell, Income tax Department, Ahmedabad & Vadodara to estimate land and cost of construction pertaining to the assessee. As the assessment was getting time barred, the assessment was finalized on 28/03/2013 without getting the report from the District Valuation Officer. He, however, made a clear noting that " no valuation report is received till date in response to the reference for valuation. Therefore, this assessment is finalized subject to the discrepancy as to the cost of construction, if any, found as per valuation report. The assessment may be re- opened u/s 147 of the act, if so required taking into consideration the valuation report". The DVO, Ahmedabad vide letter dated 16/05/2013 (received on 20/05/2013) furnished the required report, As per this report there was difference in cost declared by the assessee and estimate by DVO, Ahmedabad as under: Name of project Financial year Building amount declared by the assessee Building amount estimated by valuat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 2008 - 09 0 0 0 2010 - 11 1,69,82,780 3,25,78,618 1,55,95,838 On the basis of the above information, it is observed that in the case of the assessee the income to the tune of ₹ 3, 28, 76,603/- has been escaped. To bring the escaped income to the tax the assessee' s case may be reopened if deemed f it. Therefore, the approval may be granted for reopen the assessment for the year under consideration." 15.3 3 Reasons for reopening for assessment for AY 2011- 12 is reproduced hereunder: 2011-12 " The assessee is engaged in the business of civil construction and development and other allied activities to construction. Subsequently, on perusal of the order u/s 143(3) of the Act, it was noticed that there is an office note which revealed that there was a survey u/s 133A of the Act and the assessee had disclosed ₹ 1. 75 crore as undisclosed income. The same was reflected in the return of income filed by assessee. It was further noticed that Assessing Officer vide letter no DCIT/Anand/Valuation/Devraj Devp/2012- 13 dated 26/02/2013 asked the District Valuation Officer, Valuation Cell, Income tax Department, Ahmedabad & Vadodara to estimate land and cost of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment. As the assessee has declared building amount only ₹ 2, 46,32, 166/- and the value estimated by valuation cell of income tax of ₹ 4, 28, 09,482/- over the years, there is clear cut difference between these three figures amounting to ₹ 1, 81, 77,316/- (₹ 2, 46, 32, 166/- - ₹ 4, 28, 09, 482). Thus, this is a case of escapement of income". 16. A. Y. 2010-11 is stated to be the lead year for the purpose of adjudication. To begin with, we shall address ourselves to the question of legitimacy of reopening of assessment in the facts of the present case. It is the case of the Revenue that the valuation report received by the AO under s.142A of the Act after the closure of the assessment constitutes relevant material for the purpose of enabling the AO to invoke Section 147 of the Act and reopen the assessment so completed without the availability of valuation report. It is further contended that the formal rejection of books prior to invocation of Section 142A of the Act is not indispensible having regard to the plain language ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case. We see no error in the conclusion drawn by the CIT(A) in holding so. Without repeating the same, we decline to interfere with the conclusion drawn by the CIT(A) holding the assumption of jurisdiction by the AO under s.147 of the Act to be bad in law. 18. There is another important perspective to the whole controversy. The AO has made reference to the Valuation Officer under s.142A of the Act at the fag end of the limitation period available to the AO for completion of the assessment. The reference to the Valuation Officer was made on 26/02/2013 requiring him to estimate the value of some construction projects so undertaken. The assessment was soon completed thereafter on 28. 03. 2013. Thus, an effective period of one month has been given to the Valuation Officer to observe the procedure mandated under s.142A of the Act and furnish the valuation report. Overtly, it is not possible for a Valuation Officer to comply with the mandate of reference under s. 142A of the Act viz. (i) issue notice to the assessee for collection of information, (ii) enter the premises under subject matter of reference, (iii) inspect and examine the contemporaneous position on fair value of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diction as well as his findings on merits. 23. In the result, appeal of the revenue in ITA no. 1526/Ahd/2018 for AY 2011- 12 is dismissed. ITA No. 1524/Ahd/2018 - AY- 2009-10 24. We shall now turn to the appeal of revenue in ITA No. 1524/Ahd/2018 concerning AY 2009-10. 25. The ground of appeal raised by Revenue reads as under: "1.1 That in the facts and circumstances of the case, and in law, the Ld.CIT(Appeals) has erred in allowing the assessee' s appeal, without appreciating the facts discussed in the assessment order and the remand report. 1.2 That in the facts and circumstances of the case, and in law, the Ld, CIT(Appeals) has erred in holding that the reference made by the AO u/s 142A was invalid, without appreciating the facts discussed in the assessment order and the remand report. 1.3 That in the facts and circumstances of the case, and in law, the Ld. CIT(Appeals) has erred in holding that the reference made by the AO u/s 142A without rejecting books of account was invalid. 1.4 That in the facts and circumstances of the case, and in law, the Ld, CIT(Appeals) has erred in holding that the reference made by the AO u/s 142A without rejecting books of account was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... caped assessment. Starting point for application of first proviso is the allegation from AO in the reasons recorded towards failure on the part of assessee to disclose material facts fully and truly. The escapement of income chargeable to tax must be alleged to be owing to failure on the part of the Assessee to disclose fully and truly all material facts. Thus, the proviso to section 147 of the Act casts exemplary burden of meeting additional condition. 28. A bare perusal of reasons recorded reveals a stoic silence on such allegation. The AO has nowhere alleged any failure on the part of assessee. In the absence of such allegation, it is elementary that the additional conditions of first proviso are not fulfilled. In the absence of such allegation, the notice issued under S. 148(2) for AY 2009- 10 is clearly time- barred and thus vitiated in law. The case covered by proviso can not be reopened merely on the pretext that there was no conscious consideration of the pointed facts at the time of the assessment. In the absence of any demonstrable allegation together with evidence in its support, the notice under S. 148(2) of the Act has been rightly quashed by the CIT(A) owing to emba ..... X X X X Extracts X X X X X X X X Extracts X X X X
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