TMI Blog2011 (5) TMI 409X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the matter, i.e., without having the informed opinion of the expert, expressed after considering all the relevant materials, including the assessee's explanations & the books of account - But that is a matter, firstly, of fact and, secondly, a matter subsequent, i.e., only after reference under section 142A is made, and at the time of its implementation by the VO - Decided against the assessee. whether the rejection of accounts is a prerequisite for invocation of section 69 or section 69B - Held that: VO has considered the books of account at para 1.1 of his report under the heading the 'Method Adopted', stating therein as to why the 'accounting method' is not adopted by him - It is the reasonableness of the Assessing Officer's finding as to the non-satisfaction with the assessee's explanation, on which the validity of the addition under section 69, in the final analysis, depends - the assessee's contention is neither valid legally or in the facts of the case; the books having been found relevant, though not bearing the full cost of construction. Taxability of excess investment u/s 68B - relevant assessment year - Section 69B mandates the deeming of unexplained investment m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment was made by bringing the difference (Rs. 17,26,203) to tax, assessing the total income at Rs. 20.81 lakhs on 31-12-2007. The assessee challenged the same on several, primarily factual, grounds before the first appellate authority who, however, found the assessee's objections, including legal, as not valid and confirmed the assessment as made. Aggrieved, the assessee is in appeal before us. 3.1 The assessee has before us, impugned the assessment on both legal and factual grounds, and each of which we shall take up, considering the legal objections first. Vide its first ground, the assessee impugns the assumption of jurisdiction by the Assessing Officer for issue of notice under section 148. It is on the basis that the reassessment notice has been issued by making a general remark as: 'On enquiry it was found that the value of the building was around Rs. 80 lakhs. The WDV of the building as per the assessee's accounts ' The same, it is contended, is only a bald statement, not giving rise to the formation of a belief as to escapement of income from assessment. The Inspector of the Income-tax, through whom the survey at its premises in September, 2002 was carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r course for the assessee, where it wished to impugn the validity of the notice under section 148, which was neither done before the assessing authority nor at the first appellate stage, was to at the minimum obtain a copy of the recorded reasons and also a copy of the material (report) forming the basis thereof. The law in the matter is amply clear. All that is required for the Revenue to assume a valid jurisdiction under section 148 - where the re-opening is within four years of the end of the relevant assessment - as in the present case, is the existence of cogent material that would lead a person of normal prudence, acting reasonably, to a honest belief as to the escapement of income from assessment, and nothing more [refer : Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC)]. Satisfaction, it may be appreciated, is essentially a subjective phenomenon, so that what is principally to be seen is whether it is based on some objective material or not; the sufficiency or the correctness of the material being not relevant at that stage. It would be open to the assessee in the assessment proceedings to show that the assumption of facts at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e extent of difference between the reported value of construction and that reflected by the assessee's books, being as stated in the notice - at Rs. 80 lakhs and Rs. 36.13 lakhs respectively. As such, while it could be said to be improper; valuation being intrinsically an estimation exercise, to give weight to every reported difference, under the circumstances, in our view, the Assessing Officer, ostensibly acting on the report, was relying on credible, reliable material and information in his possession, which led to a bona fide belief as to non-disclosure of the actual, full cost of construction in the books and, consequently, escapement of income from assessment to tax to the extent of shortfall. The assessee has also not brought any material to dislodge this factual inference in any manner. We decide accordingly. This would also answer, i.e., apart from Ground No. 1, the first limb of the assessee's Ground No. 4. 3.3 As regards the decision relied upon, as afore-discussed, the same is on a different set of facts. The report by the registered valuer stood submitted by the assessee to the Assessing Officer prior to the issue of notice under section 148, which was neither contro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the investment in building, was therefore obliged to first estimate, and then assess the same as income, i.e., after confronting the assessee with the said estimation and considering his objection/s thereto, if any, where found not satisfactory. For the purpose, he would either proceed to estimate the same himself or refer the matter to the VO. In the present case, the Assessing Officer follows the latter path. We have already found the reference to VO under section 142A as valid, i.e., it satisfies the requirements of the section. As such, the assessee's contention that the Assessing Officer ought to have first found the assessee's books of account as not reliable, and reject the same, before he could invoke section 142A, is neither warranted by law nor by the dictates of a fair procedure, which would only require that the entire material on which the assessee places reliance is properly considered and, likewise, the material and/or information that the authority relies on (or wishes to place reliance on), is confronted to the assessee. In fact, the VO is himself required to consider the assessee's case and explanations, including - though not limited to - its books of account. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reference under section 142A is to assist the Assessing Officer, at his option - to be exercised judiciously - toward and for the purpose of section 69 and section 69B, i.e., the matter is entirely factual. Section 142A follows section 142, which is titled 'Enquiry before assessment', falling under Chapter XIV - 'Procedure for assessment'. Section 142 authorizes the Assessing Officer to, for the purpose of making an assessment under the Act, require any person to furnish the requisite information, including the books of account or documents, i.e., as specified. The power is circumscribed in terms of time period to which the accounts may relate; the necessary internal approvals, that would be required for certain specific information or certain specific accounts, etc. and includes the power to direct the audit of the assessee's accounts, considering their nature and complexity. The Legislature only deemed it fit to incorporate the provision of reference to VO, not as a sub-section of section 142 but as a separate section, following it. In other words, the same is only to be considered as a part of the enquiry before assessment undertaken by the Assessing Officer, albeit through a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined for any source of income. The valuation of investment, as would be apparent, is intrinsic to the application of section 69 or section 69B, and which we have observed section 142A to be toward. It is only where the valuation has been made by the Assessing Officer that the value as reflected in the books of account could possibly be compared with. As such, non-acceptance of books, prior to such valuation would be like putting the cart before the horse. The books of account, it may be appreciated, are a part of the assessee's explanation, and constitutes an evidence on which it relies. It would, therefore, be necessarily required to be considered and met, and which is implied in the Assessing Officer's finding aforesaid, on the tenability of which, again, would the validity of the application of the provision (section 69B) depend. Again, therefore, the assessee's books of account having been duly considered, we do not find or consider that there is any requirement in law for 'rejection of accounts' prior to invocation of section 69B. Section 69 and section 69B are, in fact, para materia; the latter being only an extension of the former. This is as it would be clearly defeative of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not to be relied upon and the assessment framed on 'best judgment' basis, and the requirement of section 145(3) is toward the same. Sections 68 to 69C, on the other hand, are not toward any particular source of income, and the assessee's reliance on the books of account is only in explanation of the veracity of the recorded transactions, i.e., the normal rule, that apparent is real unless proven otherwise by the person who alleges it to be not so is dispensed with, as where the books for the year record a credit in the name of another person (section 68), and an obligation cast on the assessee to show that, notwithstanding so, the credit, in fact, belongs to such other person, i.e., is required to prove the genuineness of the transaction reflected in the accounts. Similarly, where the Revenue has evidence that the investment (made during the year) is not recorded in the assessee's books of account, or partially recorded, the difference, where not satisfactorily explained, may be deemed as his income. That is, the said sections represent specific rules of evidence, statutorily mandated. If the books of account were themselves to be taken as a final proof of the transactions refl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count at para 1.1 of his report under the heading the 'Method Adopted', stating therein as to why the 'accounting method' is not adopted by him. Again, he has allowed a self-supervision rebate at 7.5 per cent (on the gross cost of Rs. 69.62 lakhs), i.e., at Rs. 5.23 lakhs, and only on the basis of the records/documents produced by the assessee evidencing direct engagement of materials and labour (refer : para 9 of the VO's report), and which the Assessing Officer found reasonable; the assessee claiming the same before him at Rs. 10 lakhs. Similarly, he has allowed another deduction at Rs. 6.20 lakhs for using goods of inferior specification, i.e., when compared with the CBDT approved Central Public Works Department (CPWD) specification schedule, and for procuring cement and steel directly at cheaper rates (refer: para 7 Annexure B to the VO's Report). Surely, this reduction is only on the strength of the books of account and other materials produced by the assessee, and which has also been considered by the Assessing Officer. Clearly, therefore, it cannot be said that no reliance has been placed by the Revenue authorities in assessing the value of the investment, and in adopting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e effective plinth area rate, i.e., after factoring in the deductions, which is only toward material and labour rates, would work out to much less, in line with that adopted by the registered valuer. Further, the specific findings by a technical expert have not been controverted by the assessee at any stage, including before us, the second appellate authority. In the case of Medical Trust Hospital v. ITO (in IT Appeal Nos. 306 to 308/Coch/2003, dated 1-2-2011), it has been, after factually examining the matter, held by the Tribunal (Cochin Bench) that the Kerala PWD rates are only for determining fair market rent and, in fact, are not applicable to RCC framed structures (bearing RCC beams, columns and slabs). In view of the foregoing, we find no merit in the assessee's grievance qua non-adoption of the Kerala PWD rates. We decide accordingly, disposing the second limb of the assessee's ground #4. 6. The last issue qua the impugned addition raised by the assessee's appeal is in respect of consideration of the entire excess investment as for the relevant assessment year, per Gd. #3. We find the same as valid. Section 69B mandates the deeming of unexplained investment made during a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... timation of the actual investment made by the assessee during the relevant year as possible under the circumstances, and which would depend in good measure on the credible evidences led by the assessee, who shall be heard in the matter. Further, construction being an on-going process, it may be that some material stands procured up to March 2001, and in respect of which the construction work is carried out subsequently, i.e., during financial year 2001-02, the relevant previous year, i.e., there is some unused material at site as on 31-3-2001, which is bound to be. Though the same would definitely not enter in the reckoning of the x per cent, i.e., the physical construction up to 31-3-2001, proportionate reduction for the material purchased has to be allowed, as the investment has been made prior to the commencement of the relevant previous year. Also, it would not matter if the liability arising against the said material has been discharged by the assessee or not; the fact of purchase itself amounting to incurring of expenditure toward the investment. We decide accordingly. 7. We may finally advert to the case law relied upon by the assessee, i.e., to the extent not already con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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