TMI Blog2008 (5) TMI 314X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the assessment proceedings under s. 148/147 and learned CIT(A) has erred in confirming the action of the AO. Ground No. 2: The learned AO has erred in making the reference to DVO under s. 142A and learned CIT(A) has erred in confirming the action of the AO. Ground No. 3: The learned AO has erred in making addition of Rs. 25,07,483 on account of unexplained investment and learned CIT(A) has erred in confirming the action of the AO. 3. We have heard the parties. The brief facts of the case are that the assessee is a partnership firm which is engaged in the business of building construction and selling the same. The assessee filed its return of income for the relevant period declaring income loss Rs. 4,02,630. The return was processe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enquiry that the cost of construction of such type of building was between Rs. 400 to Rs. 425 per sq. ft. He accordingly informed the AO that the cost of construction of such building was around Rs. 65 lacs to Rs. 70 lacs. The AO after receipt of report of DVO initiated the proceedings under s. 147 of the Act after recording reasons in this regard. 4. The AO while completing the assessment, made the addition of Rs. 25,07,483 on account of cost of construction worked out by the DVO vis-a-vis the cost disclosed by the assessee in his books of account. While making the addition, the AO made following observations in the assessment order: "The Departmental Valuer has valued the property at higher cost than that declared by the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which the AO could form the belief that income has escaped assessment are the survey carried out in the case of Smt. Krishna Soni who is also partner in assessee firm, where to ascertain the cost of construction of the property named as 'Goverdhan Plaza' (property of the assessee), a reference under s. 142A was made to the DVO who submitted the report on 10th March, 2005 valuing the total cost at Rs. 69,37,952 (Rs. 52,79,285 for the impugned year and Rs. 16,58,667 for the following year) and the investment shown by the assessee was Rs. 27,71,802 during the impugned year and Rs. 8,70,856 in the following year. The Ward Inspector also reported that huge investment of Rs. 65 lacs to Rs. 70 lacs have been made in the building. Therefore, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as an expenditure than the investment. Any reduction of cost of construction will result into more profit and more tax. Whereas general tendency in such business is to declare more construction than the actual cost. The assessee vide letter dt. 20th Jan., 2005 had brought to the notice of the AO in the case of Smt. Krishna Devi Soni that the assessee has maintained complete books of account relating to construction on day-to-day basis. Therefore, all the material facts like complete books of account and vouchers were already available before the AO before the date of reference to the DVO. The assessee filed the return of income on 20th July, 2001 and there was no assessment pending before the reference was made by the AO. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment (P) Ltd. vs. Asstt. CIT (1995) 52 ITD 103 (Pat). 9. The learned Departmental Representative on the other hand supported the orders of the authorities below. 10. We have perused the facts of the case. We are convinced with the arguments made by Shri Mahendra Gargieya, advocate that the Inspector's report cannot be said to be a material to form a belief that income of the assessee has escaped assessment. Also in the present case, the DVO's report which is an opinion cannot be a material to suggest that income of the assessee has escaped assessment. Moreover, the assessee has brought to the notice of the AO vide letter dt. 20th Jan., 2005 much before making the reference that the assessee is maintaining complete books of account and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee was nothing but an expenditure incurred and it was not an investment. Therefore, the entire cost was not an investment but only an expenditure falling within s. 69C. Therefore, the reference so made was invalid. Therefore, in such circumstances and facts of the case and various decisions relied upon hereinbefore, the AO does not acquire jurisdiction in initiating the reassessment proceedings under s. 147 of the Act and further he is not justified in making the reference to the DVO. Thus, ground Nos. 1 and 2 of the assessee are allowed. 11. As regards the issue on merit, the AO has made the addition on the basis of DVO's report as discussed hereinbefore. The AO has observed that the vouchers were self-made and were not having th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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