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TMI Blog2024 (7) TMI 567X X X X Extracts X X X X X X X X Extracts X X X X ..... , to the AO 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) , in present case the report of the DVO was send to department way beyond the stipulated time period which shows complete violation of provisions of section 142A. Under such circumstances the report of DVO barred by limitation should be categorized as non-est, thus, cannot be the basis for revisionary proceedings u/s 263. The interpretations in the order of Shri Zulfi Ravdjee [ 2019 (11) TMI 76 - ITAT HYDERABAD] is based on principle of law laid down in the case of B.K. Khanna Co. vs Union Of India And Others [ 1984 (9) TMI 31 - DELHI HIGH COURT] wherein Hon ble High court has categorically interpreted the seriousness of word Shall placed in the sections and provisions of the Act and the significance and prerequisite of its mandatory compliance. Non adherence to such strict mandatory provision thus entails the proceedings illegal and the outcome as not est. Issue regarding valuation report without adhering to prerequisite conditions of prescribed in relevant section renders the reopening assessment bad has been discussed in the case of Reliance Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as it is prejudicial to the interests of the revenue. 2. In the facts, circumstances and material on all records relating to the assessment proceedings under the Income tax Act, 1961, the learned PCIT has erred to hold that in the order u/s 263 dated 25/03/2022, difference in column no. 7 in para no.2 which reckons to Rs. 2,80,08,200/-, is actual expenditure incurred by the assessee, as per section 69C or is unexplained expenditure incurred by the Assessee. 3. In the facts, circumstances, and material on all records relating to the assessment proceedings, the A.O. had passed the order u/s 143(3) dated 30/12/2019 after taking into account all relevant material which he gathered and had not omitted to assess any amount accrued, due or received on which the Assessee was liable to assessment. 4. That order u/s 263 is illegal and not as per the provisions of the Income tax Act 1961, due to illegal and invalid reference made by the A.O. u/s 142A, reference made without any basis of material for making reference, without existence of relevant facts for application of section 142A, without relevance of valuation got done at market value for examination of expenditure incurred at cost or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the assessee and has culminated the assessment. While finalizing the assessment order Ld. AO recorded that the assessee has raised certain observations regarding valuation of Work in Progress (WIP), which has been kept on record. A reference u/s 142A(1) of the Act has been made vide later dated 29.12.2019 to the valuation officer, Income Tax Department, Bhopal for elucidation of valuation of immovable property for assessment, with a request to submit the report in 45 days. The issue pertaining to discrepancies found in WIP in respect of the assessee was kept in abeyance to be decided after the receipt of the record of the Departmental Valuation Officer, Bhopal. 5. The case of the assessee was subsequently examined by the Ld. PCIT, who observed that during the course of assessment proceedings, the AO had made reference u/s 142A(1) of the I.T. Act for elucidation of valuation of immovable property in the case of M/s Shree Krishna Colonisers to the valuation officer of the Income Tax department. It was noticed by the Ld. PCIT that the issue pertaining to discrepancies found in WIP in respect of the assessee were left open by the AO to be decided after the receipt of the report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n raised by assessee, the AO made reference u/s 142A(l) to DVO on 29.12.2019 i.e., just one day prior to passing of the assessment order. The AO completed assessment u/s 143(3) accepting the value of WIP as per books, subject to a note that the issue of difference in WIP would be decided after receipt of the DVO's report. 3. DVO submitted his report dt. 21.12.2020 (Krishna Grand City), 1 1 .01 .2021 (Krishna City) 21.01.2021 (Krishna Apartment) as per which the valuation came as under: - Project Name WIP as per books as on 27.01.2017 Value estimated by DVO (Rs.) Difference (IRS.) Krishna Grand Cit , Bhilai 4,23,67,000/- 6,28,45,900/- 2,04,78,900/- Krishna City, Bhatapara 4,71,41,000/- 5,51,60,000/- 80,19,000/- Krishna Apartment, Baloda Bazar 1,46,19,000/- 1,41,29,300/- (-)4,89,700/- Total 10,41,27,000/- 13,21,35,200/- 2,80,08,200/- Copy of DVO's report at PN 77 to 81 (Krishna Grand City), PN 116 to 122 (Krishna City) PN 154 to 161 (Krishna Apartment). 4. On the basis of DVO's report, Id. Pr. CIT issued show cause notice u/s 263 dt. 03.02.2022 mentioning that difference between the DVO's estimate and the value reflected in books has resulted into error and prejudice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s report. Unless objections of assessee are considered and decided upon, no action can be taken in the matter of assessment. Therefore, whether any addition is required or not, can be concluded only after deciding upon the objections of assessee. iii) DVO's report is not final. Unless objections of assessee were invited in terms of sec. 142A (7) decided by AO/ Id. Pr. CIT/ DVO, no decision could be arrived at as to whether any addition was required which not having been made, resulted into prejudice to Revenue . iv) When the difference in valuation may vary, prejudice to Revenue cannot be established before deciding upon objections of assessee. In this process, involvement of DVO may also be required. v) Against the value estimated by DVO, assessee submitted objections giving complete details, which is placed at PN 162 to 195 of PB, vi) described in detail in para no. 6 to 9 infra. Such letters of objection were on record when Id. Pr. CIT examined. vii) Ld. Pr. CIT was bound to decide upon the objections of assessee before he could conclude on error and prejudice in terms of sec. 263. viii) Perusal of revision order shows that Id. Pr. CIT has not dealt with any of the objecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deduction on account of different items, Rs. 8,13,900/-, PN 184 of PB, para no. 5. vi) Deduction on account of flooring cost, Rs. 8,55,712/-, PN 184 195 of PB, para no. 6 4 respectively. Submission reiterated vide letter dt. 08.02.2022 ()8.03.2022 filed before Pr. CIT (PN 9 to 16 27 to 33 of PB respectively), relevant explanation on PN 15 (top portion) 30 of PB. 8. Regarding difference in valuation of Krishna City, Bhatapara Differences explained in letter dated 26.07.2021 filed before AO DVO, at PN 174 to 181 of PB. 9. Deduction on a/c of contractor's profit not allowed DVO's report is based on item rate basis/contract rate whereas assessee being builder, substantial savings of 15% on account of contractor's profit should have been deducted. Deduction of Rs. 1,98,20,280/- being 15% of Rs. 13,21,35,200/- (value worked out by DVO). Submission made before Id. Pr. CIT vide letter dated 08.02.2022 08.03.2022, at PN 9 to 16 27 to 33 of PB, relevant claim at PN 15 30 of PB, para no. (5) of letters. 10. Difference less than 15% is to be ignored (i) Ahmed Shareef vs DCIT (2021) 189 ITD 522 (Bang.) - Difference between cost of construction shown by assessee and as determined by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the considered view that the CIT after receiving the reply/objections of the assessee in respect of the issues on which the order of the A.O. is sought to be revised, in all fairness, is required to deliberate on the same, and thereafter on the basis of the logical reasoning conclude as to whether in the backdrop of the reply/ explanations of the assessee can the order of the A.O. be characterized as both erroneous and prejudicial to the interest of the revenue. We are of the considered view that in the absence of clear observations of the CIT as to how the order of the A.O. after considering the explanation/objections filed by the assessee was found to be erroneous in respect of the said respective issues, thus, can safety be held to have failed the fundamental requirement for valid assumption of jurisdiction as per the mandate of law. ITO vs DG Housing Projects Ltd. (2012) 343 ITR 329 (Del.), relevant findings at 16, 17 19 of order. 16. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he report of DVO s is only an advisory in the nature and not binding on the AO. Ld. AR further submitted that as per section 142A (7), the AO may consider the DVO s report in making assessment, but only after giving assessee an opportunity of being heard. No such opportunity during the assessment proceedings were provided to the assessee, however, after completion of the assessment proceedings the report of DVO almost after one year has been provided to the assessee i.e. the reference was made by the Ld AO on 29.12.2019 and the reports were furnished by the DVO on 21.12.2020, 11.01.2021, 21.01.2021, copies of report furnished at page 77-81, 116-122 and 154-161 of the Assessee s paper book, this was again in violation of provisions of section 142A(6), wherein the report of DVO must reach the Assessing Officer within the period of six months from the end of the month in which a reference is made under subsection (1), for completeness and for interpretations, provisions of section 142A are extracted as under: 142A. (1) The Assessing Officer may, for the purposes of assessment or reassessment, make a reference to a Valuation Officer to estimate the value, including fair market value, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , within a period of six months from the end of the month in which a reference is made under sub-section (1) , in present case the report of the DVO was send to department way beyond the stipulated time period which shows complete violation of provisions of section 142A. Under such circumstances the report of DVO barred by limitation should be categorized as non-est, thus, cannot be the basis for revisionary proceedings u/s 263. 14. Our view is supported by the decision of coordinate bench of ITAT Hyderabad in the case of Shri Zulfi Revddjee vs ACIT in ITA No. 2415/HYD/2018 vide order dated 05/09/2019, wherein the tribunal has held as under: 7. Having regard to the rival contentions and the material on record, we find that the relevant A.Y before us is A.Y 2013-14 and the return of income was filed on 30.09.2013. Therefore, 21 months from such date would expire on 31.3.2016. Thus, the assessment order u/s 143(3) was required to be passed by 31.03.2016 but since the AO has made a reference to the valuation officer u/s 142A of the Act, vide letter dated 19.02.2016, and the valuation report was filed on 20.7.2017, the said period will have to be excluded for determining the time limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Shall placed in the sections and provisions of the Act and the significance and prerequisite of its mandatory compliance. Non adherence to such strict mandatory provision thus entails the proceedings illegal and the outcome as not est. 16. The issue regarding valuation report without adhering to prerequisite conditions of prescribed in relevant section renders the reopening assessment bad has been discussed in the case of Reliance Jute and Industries Ltd. vs Income-Tax Officer and Ors dated 23 March, 1984 reported in 1984 150 ITR 643 Cal, wherein Hon ble Calcutta High court had held that provisions of law need to be followed strictly, failure of compliance to prerequisite essential conditions tantamount the valuation as incompetent, so as the assessment based on such report. The relevant observations are as under:- 5. Dr. Pal, in support of his above contention, has relied on the decision in the case of CIT v. Ranchhoddas Karsondas , to show that an assessee is entitled to file his return any time before his assessment, provided there is no time-limit. Their Lordships of the Supreme Court while deciding that case observed that even a return filed on the last day could not be igno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not reopened, the WTO was not entitled to make a reference under Section 16A of the W.T. Act. It has been urged that although the aforesaid case was distinguishable on facts, yet the principle laid down 'therein applies on all fours to the facts of the present case inasmuch as during the pendency of the valuation proceeding the assessment having been completed, the said proceeding has lost its utility. It is not contended that there has been any reopening of the assessment so as to open up a scope for application of the valuation report to such reopened proceeding which would have also been a pending assessment proceeding. Moreover, in terms of the decision in the case of Nawal Kanwar v. WTO , the Rajasthan High Court laid down that the report of the Valuation Officer under Section 16A could not be used as the basis for reopening an assessment already completed. Though the reference for valuation, in that case, was made in connection with a completed assessment, yet the reason for which such a valuation proceeding was declared void ab initio holds good in a case where during the pendency of the valuation proceeding the assessment is completed, because the whole purpose of a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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