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TMI Blog2022 (4) TMI 806X X X X Extracts X X X X X X X X Extracts X X X X ..... t, cannot be reopened as held by the Hon'ble Supreme Court in the case of M/s Dhairya Construction Co. [ 2010 (2) TMI 612 - SC ORDER] therefore, it is abundantly clear that reassessment proceedings initiated by the assessing officer is bad in law and therefore should be quashed. CIT(A) during the appellate proceedings, observed that there were no such discrepancies in the construction expenses - the assessing officer is referring to certain material without describing them and quantifying the amounts contained therein. There should be a live link between the material coming to the notice of the Assessing Officer and the formation of belief regarding the escapement of income. In the present case, there is no material except the valuation report of DVO which has a live link and base for the assessing officer to form a belief regarding the escapement of income. Rather, the natural conclusion which can be drawn is that the assessing officer has re-opened the assessment on the basis of DVO's valuation report - we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A), be set-aside and that the order of the Assessing Officer be restored. 5. The relevant material facts, as culled out from the material on record, are as follows. The assessee is an individual and is mainly engaged in the business of manufacturing of bread, biscuit, cakes etc., as well as retail of such items manufactured by reputed brands. Besides, the assessee is also engaged in building and development activities. The assessee filed his return of income on 29.09.2008 declaring total income of ₹ 15,29,470/-. Subsequently, a survey proceedings u/s 133A of the Act was carried out in assessee s case on 10.11.2009 and certain documents were impounded. On examination of the documents, so impounded, it was found that some of the material relates to construction expenses pertaining to K.K. Plaza, a project being developed by the so named proprietary concern of the assessee. It was also observed by assessing officer that entries of such expenses are neither accounted for nor reconcilable inasmuch as even no proper books of accounts were maintained in respect of K.K.Plaza. It was also observed from the records, that there was complete absence of willingness or cooperat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laza as under: Sr. No. Financial Year Cost Of Investment Difference Assessee's Valuation DVO's Valuation 1 2007-08 8606053 34009203 25403150 2 2008-09 10254444 35822577 25568133 3 2009-10 8225831 27007405 18781574 4 2010-11 4796114 14853373 10057259 5 2011-12 706864 1905354 1198490 6 2012-13 868625 1935223 1066598 TOTAL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was for calculation and adoption of rates that references were made to the DVO where the assessee was supposed to assist the DVO in arriving at the most reasonable rate applicable to assessee s case. However, the assessee failed to do so. The assessee has also not furnished any report on cost of construction by his architect/engineer as assured by him. Thus, in view of the preceding discussion, the assessing officer was of the considered opinion that the books of account as maintained by the assessee do not portray the picture of assessee s actual state of affairs completely and truly and are, therefore, rejected by invoking provision of Section 145 of the Act. Accordingly, the amount of ₹ 2,54,03,150/-, (₹ 3,40,09,203- ₹ 86,06,053), being the value of suppressed expenditure/investment of the assessee in the building K.K. Plaza was accordingly added back to the total income of the assessee. 10. Aggrieved, by the order of the Assessing Officer, the assessee carried the matter in appeal before Ld. CIT(A) who has deleted the addition made by Assessing Officer. Aggrieved, the Revenue is in appeal before us. 11. Shri Abhishek Gautam, Sr. DR for the Revenue pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that issue involved in this lis is no longer res-integra. The Assessment, on the basis of DVO's report, cannot be reopened as held by the Hon'ble Supreme Court in the case of M/s Dhairya Construction Co. reported in 328 ITR 555 and in the case of Sargam Cinema reported in 328 ITR 513. Therefore, Let us, first analyze the reasons recorded by the assessing officer. For the sake of clarity, the reasons recorded by the assessing officer are re-produced below: Form for recording the reasons for initiating proceedings u/s 147 of the Income tax Act, 1961. Name and address of the assessee M/s. Shri Khemchand Kungmal Tharwani Prop, of K. K. Biscuit Bakery 154-155, GIDC, Kabilpore, Navsari. 2 PAN AALPT1806G 3 Status Individual 4 District Circle ACTT, Navsari Circle, Navsari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in correct cost of construction. The DVO has furnished his report on 20/05/2013. On verification of report furnished by the DVO, it is observed that the DVO has assessed cost of construction for the F.Y. 2007-08 related to A.Y. 2008-09 at ₹ 3,40,09,203/- (excluding land) as against the assessee has shown cost of construction of ₹ 86,06,053/- (As per DVO report). Thus, it is observed that the assessee had made unexplained investment of ₹ 2,54,03,150/- during the F. Y. 2007-08. [5] It is pertinent to note that the DVO in his report mentioned that the assessee has not submitted any ledger account in support of investment and submit only a few bills / vouchers which do not carry any significance. It is further submitted that during the course of survey proceedings, loose files were found and impounded at BI-8 and BI-18 which shows that certain bills and vouchers are not co-related with the accounts or not accounted. Looking to the facts and circumstances of the case, it is required to reject the books of account maintained by the assessee u/s 145 of the Act and the difference of ₹ 2,54,03,150/- being cost of construction determined by the DVO at ₹ 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of ITO V/s Lakhmani Mewaldas (1976) 103 ITR 437 summarized as to what constitutes reason to believe for the purpose of section 147 of the Act, as follows: (a) The powers of the Assessing Officer to reopen an assessment, though wide, are not plenary. (b) The words of the statute are reason to believe and not reason to suspect . (c) The reopening of an assessment after the lapse of many years is a serious matter. Since the finality of a judicial or quasi-judicial proceedings are sought to be disturbed, it is essential that before taking action to reopen the assessment, the requirements of the law should be satisfied. (d) The reasons to believe must have a material bearing on the question on escapement of income. It does not mean a purely subjective satisfaction of the assessing authority; the reason be held in good faith and cannot merely be a pretence. (e) The reasons to believe must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the ITA Nos. 292 of 2015 299 of 2015 Page 9 of 14 material coming to the notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned addition without appreciating the fact that the reference made by the AO to the Valuation Officer for determination of cost of construction was not justified in law as the AO has not rejected the books of account of the assessee before making such reference and the conditions required u/s 142A and 131(1)(d) of the I.T. Act were not fulfilled. 3. In the facts and circumstances of the case as well as in law, the learned Commissioner of Income Tax (Appeals) Valsad grossly erred in not deleting the impugned addition, in utter disregard to the fact that the AO has made reference to the DVO on 11/12/2012 u/s 131(1)(d) of the I.T. Act for determination of cost of construction whereas on the date of such reference, assessment proceedings for A.Y 2012-13 were not initiated and the first statutory notice u/s 143(2) was issued only on 12/8/2013. Therefore, the reference made by the AO to the DVO is illegal. 4. In the facts and circumstances of the case as well as in law, the learned Commissioner of Income Tax (Appeals) Valsad grossly erred in not deleting the impugned addition by capriciously holding that the assessee was not having any objection to the estimation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) Reference to DVO was made without fulfilling all the condition of Section 131(1)(d) of the Act. iii) The DVO worked out the cost of construction only by adopting the method of CPWD plinth area rate 2007 and cost index method in spite of the fact that the full details were supplied by the assessee. iv) No reduction in the cost of construction was made by considering 15% as supervision charges. v) The DVO worked out the year wise cost of construction without disclosing the basis for the same. vi) The DVO arrived at average weighted CI for the period on the base year at ₹ 126/- without disclosing the base for the same. vii) DVO s valuation shows cost of construction at ₹ 1500/- per sq.ft. which is much higher than the actual cost. 21. After considering the submission of assessee, the ld CIT(A) partly allowed the appeal of the assessee observing as follows: ..Before the DVO, the assessee has not presented his case despite opportunity of being heard was given. By not availing the opportunity, it can be inferred that the assessee was not having any objection to the estimation of cost of construction made by DVO. Before the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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