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TMI Blog2022 (8) TMI 302X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax [Appeals] of the National Faceless Appeal Centre [CIT[A] for short] is not justified in sustaining the addition of Rs. 27,48,608/- as the proportionate alleged unexplained investment in construction of the hospital building for the year under appeal relying upon the valuation report of the DVO dated 27/11/2014 under the facts and in the circumstances of the appellant's case. 2.1 The learned CIT[A] ought to have appreciated that the appellant had maintained proper books of accounts along with bills and vouchers in support of the investment in the cost of construction of the hospital building in the ordinary course of business, which were filed before various government authority and banker-s and with the I.T.O from time to time and therefore, the addition made based on the report of the DVO without rejection of the books of accounts maintained by the appellant was bad in law and the same is liable to be deleted. 2.2 The learned CIT[A] further erred in failing to appreciate that the impugned addition was made by relying on the report of the DVO, who had not given any opportunity to the appellant to file objections for the proposed value assessed by him and thus, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2011 the investment in the building shown at Rs.3,18,25,554. A statement was recorded from the MD of the assessee-company during the course of survey. In answer to question No.9 of the said statement, the MD admitted that there may be some differences in the value of the building and to account for any such differences and any other differences in the account, he offered an additional income of Rs.50 lakh in the hands of the assessee for the assessment year 2012-2013. However, in the sworn statement recorded u/s 131(1) of the I.T.Act on 24.07.2013, the MD of the assessee-company reviewed his declaration and offered an additional income of Rs.50 lakh for assessment year 2013-2014 instead of assessment year 2012- 2013, as admitted earlier during the course of survey. Considering the difference in value of building found between the valuation report and the balance sheet and the admission of additional income by the MD, the matter was referred to the Departmental Valuation Cell. The District Valuation Officer had furnished his report on 27.11.2014, as per which the cost of construction has been valued at Rs.6,21,68,000. As per the balance sheet as on 31.03.2014, the cost of investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be sustained. In the instant case, admittedly, reference was made by the A.O. to the DVO on 18.11.2013. Further, the books of account of the assessee was not rejected prior to the reference to the DVO. In such a scenario, it was held by various judicial pronouncements that reference to the DVO is bad in law and any addition made on the basis of such report cannot be sustained. The Bangalore Bench of the Tribunal in the case of M/s.Shetty Constructions v. ACIT (supra) after considering various amendments to section 142A of the I.T.Act and judicial pronouncements on the issue [especially Hon'ble Apex Court judgment in the case of Sargam Cinema v. CIT (supra)] held that rejection of books of account is a precondition for making reference to the DVO (reference made prior to 01.10.2014). The relevant finding of the Bangalore Bench of the Tribunal in the case of M/s.Shetty Constructions v. ACIT (supra), reads as follow:- "17. We have given careful consideration to the rival submissions in sofar as it relates to ground no.2 raised by the assessee in its appeal. As far as ground no.2 raised by the assessee is concerned, the admitted factual position is that the properties in question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him. (2) The Valuation Officer to whom a reference is made under subsection (1) shall, for the purposes of dealing with such reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957). (3) On receipt of the report from the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment: Provided that nothing contained in this section shall apply in respect of an assessment made on or before the 30th day of September, 2004, and where such assessment has become final and conclusive on or before that date, except in cases where a reassessment is required to be made in accordance with the provisions of section 153A. 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)." 19. In Circular No.5 of 2005 dated 15.7.2005 issued by the CBDT, the insertion of the aforesaid section has been explained thus: "Cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment or re-assessment. It has been provided in the proviso to the new section that the provisions of the same shall not apply in respect of an assessment made on or before the 30th day of September, 2004 and where such assessment has become final and conclusive on or before that date, except in cases where a reassessment is required to be made in accordance with the provisions of section 153A. This amendment takes effect retrospectively from 15th November, 1972." 20. The Finance Act, 2010 inserted the words "or fair market value of any property referred to in sub-section (2) of section 56 is required to be made". This amendment is insignificant as far as the present appeal is concerned. 21. It has been held by the Hon'ble Supreme Court in the case of Sargam Cinemas Vs. CIT 262 ITR 513 (SC) that rejection of books of accounts is a pre-condition for making a reference to DVO. Therefore in cases where this requirement was not satisfied, the addition made on account of unexplained investments in construction was being deleted. It is only with a view to remove such hurdle that Sec.142A of the Act was substituted by inserting a new Sec.142A by the Finance (No.2) Act, 2014, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of assessments where reference made 43.1 The provisions contained in section 142A of the Income-tax Act, before its amendment by the Act, provided that the Assessing Officer may, for the purpose of making an assessment or reassessment, require the Valuation Officer to make an estimate of the value of any investment, any bullion, jewellery or fair market value of any property. On receipt of the report of the Valuation Officer, the Assessing Officer may after giving the assessee an opportunity of being heard take into account such report for the purposes of assessment or reassessment. 43.2 Section 142A of the Income-tax Act does not envisage rejection of books of account as a pre-condition for reference to the Valuation Officer for estimation of the value of any investment or property. Further, the said section 142A does not provide for any time limit for furnishing of the report by the Valuation Officer. 43.3 Accordingly, section 142A has been substituted so as to provide that the Assessing Officer may, for the purposes of assessment or reassessment, require the assistance of a Valuation Officer to estimate the value, including fair market value, of any asset, property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) fair market value of any property referred to in sub-section (2) of section 56 is required to be made. Because the law was retrospective in its operation, the legislature wanted to safeguard concluded assessments being reopened and therefore by proviso to Sec.142A(3) of the Act, it was Provided that nothing contained in section 142A shall apply in respect of an assessment made on or before the 30th day of September, 2004, and where such assessment has become final and conclusive on or before that date. The requirement that finding that the books of accounts maintained by the Assessee is not correct and the value estimated by the AO varies substantially from what is recorded in the books of accounts is required to be satisfied before making a reference to DVO. It has been held by the Hon'ble Supreme Court in the case of Sargam Cinemas Vs. CIT 262 ITR 513 (SC) that rejection of books of accounts is a pre-condition for making a reference to DVO. Therefore in cases where this requirement was not satisfied, the addition made on account of unexplained investments in construction was being deleted. It is only with a view to remove such hurdle that Sec.142A of the Act was substituted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The learned Commissioner of Income tax [Appeals] of the National Faceless Appeal Centre [CIT[A] for short] ought to have appreciated that the statement recorded u/s 131[1] of the Act dated 24/07/2013 from Mr. Bhaskar, Managing Director, at the time of survey was erroneous and same could not form the basis for making the impugned addition of Rs. 50,00,0001- under the facts and in the circumstances of the appellant's case. 3. Without prejudice to the above, the learned CIT[A] is not justified in sustaining the addition of Rs. 50,00,000/- as the alleged unexplained investment in construction of the hospital building for the year under appeal relying upon the valuation report of the DVO dated 27/11/2014 under the facts and in the circumstances of the appellant's case. 3.1 The learned CIT[A] ought to have appreciated that the appellant had maintained proper books of accounts along with bills and vouchers in support of the investment in the cost of construction of the hospital building in the ordinary course of business, which were filed before various government authority and bankers and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the valuation of the building. 10. We have heard rival submissions and perused the material on record. The statement recorded from the MD during the course of survey in answer to question No.9, the MD of the assessee-company had offered Rs.50 lakh as additional income on account of difference in value between the books of account of the assessee and the actual cost. The relevant question and answer read as follows:- "Q9. As per details given by you in the answer to Q No.6 the cost of construction of the building measuring 45300 sq.ft. works out to Rs.4,335,56,000/-. But as per the copy of your latest balance sheet for F.Y.2012-13 impounded vide page No.17 of PCH/1/22 the cost of building has been shown at Rs.3,54,46,685/-. It is also seen from the valuation report of the approved valuer Shri.Prasanna N. Bhat, that the building has been valued at Rs.5,13,84,900/- as on 2.3.2011. How do you account for the difference in value of the building? A9. I wish to submit that I do not have much knowledge regarding the cost of construction and the rate mentioned by me is only an approximate rate as per my knowledge. Further, the figure mentioned in the Balance Sheet of FY 2012-13 is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Rs.6,21,68,000 instead of Rs.4,61,73,596 as per the books of account of the assessee as on 31.03.2014. Therefore, there is a difference of Rs.1,59,94,431. The addition based on the DVO's report was deleted by us only on the preliminary objection, namely, that the books of account of the assessee was not rejected prior to the reference to the DVO. The rejection of the DVO's report on preliminary objection does not mean the value found therein is totally incorrect. This fact is reinforced by the MD in the sworn statement recorded on two different dates (i.e., on the date of survey on 11.07.2013 and u/s 131(1) of the I.T.Act on 24.07.2013), wherein he admitted that there may be some difference in the expenditure incurred in the building with the cost recorded in the books of account and also readily agreed to offer additional income of Rs.50 lakh in the hands of the assessee-company. Therefore, based on the declaration of the MD on two different dates, we confirm the addition of Rs.50 lakh for this assessment year. Moreover, we find that inspite of the addition of Rs.50 lakh, there is no tax liability for the assessment year 2013-2014. The other grounds on merits / demerits on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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