TMI Blog2014 (9) TMI 607X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of any specific defect on this account, books of account cannot be rejected - relying upon Commissioner Of Income-Tax Versus Sheikhar Chand And Sons [1990 (5) TMI 24 - ALLAHABAD High Court] - the AO was not justified in rejecting the books of account and the CIT(A) was not justified in confirming the action of the AO with regard to invocation of provisions of section 145(3) of the Act – Decided in favour of assessee. Reference made to DVO – Held that:- Since, the order of the CIT(A) with regard to invoking the provisions of section 145(3) of the Act is set aside, therefore, the AO was not justified in referring the matter to the DVO. Following the decision in Sargam Cinema vs. CIT [2009 (10) TMI 569 - Supreme Court of India] - no addition could have been made by the AO and no addition could have been sustained by the CIT(A) – Decided in favour of assessee. The AO has got the valuation report of the building done from the DVO and the report was submitted to the assessee and the assessee got the valuation done from the registered valuer Mr. Manikant Garg in view of the DVO’s valuation, who pointed out the defect in the DVO’s report and the assessee submitted that the detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - and made addition of ₹ 12,74,724/- u/s 69 of the I.T.Act, 1961. 2. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of ₹ 30,79,789/- on account of construction of the building by not admitting the valuation of report provided by the Valuation Officer whereas he admitted the valuation report of the registered valuer whose report was got prepared by the assessee after receiving the valuation report from the VO of CPWD. 3. The above mentioned addition was deleted by the Ld. CIT(A) by rejecting the valuation report of the Valuation Officer and admitting the additional evidence provided by the assessee in the shape of valuation report of registered valuer after receiving the valuation report from the CPWD. 4. That it is prayed that the order of the Ld. CIT(A) be set aside and that of the AO be restored. 5. That the appellant craves leave to add or amend any ground of appeal before the appeal is heard or disposed off. 3. The brief facts of the case are that the assessee is running a Marriage Palace under the name and Style as Shri Gian Resrots at Sunam Road, Bhikhi. It was noticed by the AO that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have also been reproduced by the A.O. in para 2.4 of his order. The relevant para 2.3 to 3.1 including the observations made by the AO are reproduced for the sake of convenience as under: 2.3. The objections filed by the assessee firm were forwarded to the Valuation Officer for his comments vide this office letter No.1365 dated 20.01.2013. The Valuation Officer, vide his letter No. 112 dated 13.02.2013 offered his parawise comments on the objections and furnished necessary details from pages 1 to 34 alongwith the comments. The same was confronted to the assessee firm vide this office letter dated 20.02.2012 by providing a copy of the same and the assessee was required as to why difference of ₹ 88,23,290/- may not be added back to its income as unexplained investment within the meaning of section 69 of the Act by rejecting the book version u/s 145(3) of the Act. The assessee firm submitted his written submissions as under: .. 1. The cost of the building has been estimated by the Valuation Officer, Ludhiana at ₹ 1,58,07,300/- against which a sum of ₹ 52,61,406/- has been debited in the books of account. The cost has been estimated by the VO by applyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gian Resort has appointed me as a valuer to assess the cost of construction of their property. The department valuer has done the valuation of this property on the basis of plinth area ametho with cost index. The Plinth area method is just to assess to make the rough cost estimate for approvals of higher authorities. The specifications followed at site are quite different from the specification on which these rates are made. The nature of the building does not match with the nature of the building constructed at site on which these rates are based. The exact correct method to ascertain the correct value of cost of construction is the item rate method. In the item rate method the measurement of every item is take and rate of each and every is provided as per purchase bills. It is quite a lengthy process. In due course of time, I will prepare a detail report of these building and will submit to you. However, by seeing the valuation report of your valuer, there are few differences in the rates which ha not been considered by your valuer: Floor tiles: The rate for vitrified tiles of sizes 605 x 605 has been taken at 930.93 sq. m or ₹ 89.30 sq. ft, whereas the actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to the assessee but no valuation report of approved valuer has been submitted by the assessee during the course of assessment proceedings, which could be compared. However, the observations are being sent to the VO for his counter comments separately. But assessment being time barring, the same cannot be kept pending and is decided accordingly. Some of the observations made by the Approved Valuer are being considered while framing the assessment. 2.6. `In regard to estimated cost of earth filling at ₹ 21,24,450/- by the VO whereas the approved valuer estimated the cost of earth filling at ₹ 5,90,000/-. The assessee further submitted that the earth filling was provided by the seller of the land who had undertook to do the earth filling from free of cost and it also furnished an affidavit to this effect of the seller Sh. Bikar Singh of the said land. Spot enquiries were also made by deputing the inspector, who recorded the statement of Sh. Bikar Singh, seller of the said land. He made the inquiries and submitted his report dated 14.03.2013 which is placed on record. The seller Sh. Bikar Singh stated that the work of earth filling was done by him with the help of 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.No. Financial year Investment shown by the assessee Investment determined by the VO Investment determined after allowing rebate as mentioned in para Diff 1 2 3 4 5 (5-3) 1 2008-09 977639 33,54,082 2815364 18,37,725/- 2 2009-10 3629948 12453238 10453122 68,23,174/- Total 46,07,587/- 1,58,07,320/- 1,32,68,286/- 86,80,899/- 3.1. Keeping in view the foregoing facts in view as discussed in paras 2.1 to 2.7 above, by invoking the provisions of sec. 145(3) of the Act, the difference of ₹ 68,23,174/- on account of cost of unexplained investment as worked out above for the financial year 2009-10 relevant to the assessment year under consideration is added back to the income of the assessee firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the building. i) The DVO has compared main banquet hall with godown structure with steel trusses. There is a lot of difference between the specifications of main banquet hall and godown structure with steel truss. ii) In storage godown the flooring consist of 7 PCC over 9 sand filling with top cover of 2 CC flooring. In roofing tabular trusses of structural steel with AC sheet and rain water gutters are to be provided. But in the construction of this banquet hall ordinary MS pipe has been used with CG sheets. The cost of structural steel and AC sheet is quite high as compared to ordinary MS steel pipe and GI sheets. iii) As stated above, this a major part of the building and there is approx. 40% difference in the cost estimate. Since the major part of building which governs the major portion of construction has such a large difference so method of CPWD rates adopted is inappropriate for the estimate of cost of construction for the whole building as well. 2.9. The registered valuer has further pointed out that there is variation of as much as 55% in the cost estimated by VO for dry brick flooring by applying PAR CPWD approved and the cost estimated by him on detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no need to estimate the cost of these expenses. It has also been stated that the amount of ₹ 169198/- taken as builder efforts by the registered valuer be also deleted because the purchases were made from local market without any efforts. He has relied n the order of the ITAT,Amritsar Bench, in the case of Dr. Ramesh Kumar Anand vs. ITO, supra in which the AO himself allowed relief for builider s efforts ( para 12.2 of the order). According to the A/R of the appellant the AO has also failed to rebut the arguments of the registered valuer regarding the addition on account of earth filling expenses and he has only stated that no authentication of the statement/fact has been provided/brought on file ground and the AO has already allowed relief of 40% (para 9 of the assessment order). 2.13. It has been further stated by the A/R of the appellant that the detailed analysis of the registered valuer could not be submitted during the course of assessment proceedings because the same was a lengthy process and the AO did not allow proper further opportunity to the appellant on this that the assessment being time barring, the same cannot be kept pending. The A/R of the appellant has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an estimate of the valuation of the property and it cannot be said that whatever the valuation officer has stated is final and the detailed report should be preferred as compared to the estimate prepared on the basis of PAR approved by CPWD. The Ld. CIT(A) accordingly relying upon the decision in the case of ITO vs. Harchand Palace (supra), a relief of 40% on estimate of cost of construction made by the VO was allowed as against 10% allowed by the A.O. 13. As regards builder s efforts, the AO has estimated the amount of ₹ 169198/- being 1% of the estimated cost. The Ld. CIT(A) restricted the same at 0.50 of the estimated cost and the assessee had made purchases on FOR basis. 14. As regards expenses not related to PAR, the VO has taken the same on percentage basis and the DVO has taken the same at ₹ 11,93,468/-, as such 7.5% of the PAR and water supply/sanitary has been taken@ 4% of the PAR. But as per efforts of the registered valuer it comes to ₹ 3,97,574/- as worked out by the registered valuer on the basis of bills available on record. The separate calculation of the estimation of the cost of construction had been annexed by the Ld. CIT(A) as Annexure- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts of law as under: 1. Decision of Supreme Court in the case of Sargam Cinema vs. CIT 328 ITR 513. 2. CIT vs. Smt. Salochana Bhatia 20 Taxman.com 298 (P H) 3. CIT vs. Om Overseas (2009) 315 ITR 185 (P H) 4. DCIT vs. Harpreet Singh Prop. M/s. Akash Enterprises, Ferozepur.ITA No.317(Asr)/2013 dated 28.02.2014 (Asr). 5. Kashmir Steel Rolling Mills. vs. ACIT 155 Taxman 121 (Asr) 6. CIT vs. Rajni Kant Davi (2006) 150 Taxman 387 (All.) 7. CIT v. Poonam Rani (2010) 5 Taxman .com 76 (Del) 15.1. The Ld. counsel for the assessee also relied upon the decisions of various courts of law when the assessee had maintained books of account regularly, no addition can be made on the basis of the report of the DVO without pointing out any defects in the books, as under: i) Sheikhar Chand Sons 186 ITR 269 ii) Western Estates case 209 ITR 343 iii) Vindaban Chitra Mandir s case 209 ITR 520 iv) Shekhar Chand Jain Sons 32 TTJ 570 (Del) v) Tek Chand s case 52 ITD 197 (Jp) vi) Nishant Housing Development (P) Ltd. 52 ITDE 103 (Pat) vii) Smt. Uma Devi Jhawars 126 Taxation 452 (Cal) 15.2 The Ld. counsel for the assessee further argued that the registered val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the same, the AO was not justified in sustaining the addition of ₹ 12,74,574/- on account of earth filling, which in fact, has been deleted by the ld. CIT(A). Therefore, on this account, the books of account could not have been rejected. Secondly, the objection of the AO with regard to not debiting the expenses on account of fuel/diesel etc. it was submitted that all the expenses and details were submitted before the AO and no specific defect has been pointed out on this account as well. In the absence of any specific defect on this account, books of account cannot be rejected. Third objection is that the assessee has debited labour expenses which appears to be on the lower side as proportionate to the material purchased, in the opinion of the A.O. Such opinion of AO, without bringing any specific defect on record, cannot be a reason suffice to reject the books of account u/s 145(3) of the Act. 18. Lastly, as per letter dated 20.12.2012, the AO after having obtained DVO s report gave a show cause notice as to why difference between valuation report and the amount declared by the assessee should not be added to the income of the assessee and why the books of account sho ..... 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