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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 ..... ing disposed of by this consolidated order. 3. First, we shall take Revenue's appeals in ITA Nos.2867 to 2869/AHD/2016. To adjudicate these appeals of Revenue, we take lead case in ITA No. 2867/AHD/2016 for assessment year 2008-09. 4. Grounds of appeal raised by Revenue (in lead case in ITA No.2867/AHD/2016), are as follows: "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the appeal of the assessee and in quashing the reopening proceedings u/s 148 of the Act even though the AO has formed his belief for escapement of income on the basis of the incriminating documents/files impounded during the survey proceedings. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has ignored the loose papers files, which constituted admissible evidences were relied upon by the assessee and AO while forming belief of escapement of income and not completely relying upon the basis of DVO's report. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in accepting the argument of assessee that books of account were not rejected before referring the matter to DVO; even though th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Bl-18 under the impounded documents. Apart from this, there was also impounding of documents etc. in the case of M/s K.K. Biscuit Bakery. The statements of the following persons were recorded during and after the survey: (i) Shri Khemchand Tharwani Proprietor M/s K.K. Biscuit Bakery on 10.11.2009. (ii)Shri Khemchand Tharwani Proprietor M/s K.K. Biscuit Bakery on 13.11.2009. (iii) Shri Rajeshbhai Khemchand Tharwani on 13.11.2009. (iv) Shri Mahendra B. Patel, a labour contractor on 23.11.2009. During the survey there was no disclosure of additional income by the assessee in either of the two proprietary concerns i.e. M/s K.K Biscuit Bakery and M/s K.K. Plaza. During the course of recording of the statement, assessee admitted that the project of M/s K.K. Plaza was started in 2007 and it contains 8 floors in which there are 54 shops and 35 flats. The total built up area was approximately 73,000 sq. ft. Regarding the assessment year under reference, the assessee filed the return of income on 24.09.2009 declaring total income at Rs. 12,21,950/-. 7. The assessing officer referred the matter to DVO u/s 131(l)(d) of the Act, for estimating the cost of investment in the buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the accounts or not accounted for. Due to this reason, the assessing officer mentioned that it requires rejection of books of accounts u/s 145 of the Act and the difference of Rs. 2,54,03,150/- has to be considered as unexplained investments made by the assessee. Then the assessing officer concludes that all this has led him to believe that income to the extent of Rs. 2,54,03,150/- has escaped assessment within the meaning of section 147 of the Act. 9. The purpose to make, reference to the DVO, in fact, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O. The learned counsel further pointed out that report of DVO is not an information for re-opening assessment u/s 147 of the Act. The AO has to apply his mind to the information if any collected and must form a belief on them. Therefore, ld Counsel prays the Bench that order passed by ld CIT(A) may be upheld. 13. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, 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 addre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessed cost of construction for the F.Y. 2007-08 related to A.Y. 2008-09 at Rs. 3,40,09,203/- (excluding land) as against the assessee has shown cost of construction of Rs. 86,06,053/- (As per DVO report). Thus, it is observed that the assessee had made unexplained investment of Rs. 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 Rs. 2,54,03,150/- being cost of construction determined by the DVO at Rs. 3,40,09,203/- and shown by the assessee at Rs. 86,06,053/- should be considered as unexplained investment by the assessee. [6] Considering the facts stated above, I have reason to believe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment, 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 of the Assessing Officer and the formation is belief regarding escapement of income. (f) The fact that the words "definite information" which were there in section 34 of the Act of 1922 before 1948, are not there in section 147 of the 1961 Act would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 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 the cost of construction by the DVO as the assessee has not presented his case before the DVO', which is contrary to the facts and evidence on record. The assessee had furnished before the DVO copies of bills and vouchers, copy of the detailed building plan and copy of development permission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 Rs. 126/- without disclosing the base for the same. vii) DVO's valuation shows cost of construction at Rs. 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 Officer, the assessee raised a number of objections without any supportive evidence. In the circumstances, I do not feel any need to interfere in the addition made by the Assessing Officer based on the report of DVO but in my considered view the assessee is entitled to deduction of 15% being supervision chargers. The observation of the Assessing Officer that the assessee is an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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