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TMI Blog2011 (5) TMI 409X X X X Extracts X X X X X X X X Extracts X X X X ..... er. The survey report dated 20-9-2002, stating the estimated value of the building at Rs. 80.22 lakhs, was forwarded by the I.T.O. (TDS) to the Assessing Officer (AO) for further necessary action. Accordingly, after recording reasons for the same, notice under section 148 of the Act was issued on 16-1-2007. The assessee responded vide its letter dated 12-2-2007 by relying on its return filed on 31-10-2002. The matter was referred by the Assessing Officer to the Valuation Officer on 5-3-2007, and who vide his report dated 16-7-2007 (copy on record) valued the cost of construction of the assessee's hospital building, as incurred during the period September, 1999 to March, 2002, at Rs. 53.39 lakhs. Accordingly, the assessment was proposed by adding the difference; the investment on building per the assessee's books as on 31-3-2002 being at Rs. 36.13 lakhs, forwarding the said valuation report to the assessee on 17-7-2007. After considering each of the assessee's objections raised thereto, finding them as not acceptable/merited, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at no proceedings were pending before the Assessing Officer at the relevant time. 3.2 Coming to the facts of the present case, as explained by the ld. CIT(A), the notice under section 148 stood issued on 16-1-2007, while reference to the Valuation Officer was made only subsequently, on 5-3-2007. As such, the reference was valid. With regard to the formation of belief as to the escapement of income chargeable to tax from assessment, which only would admittedly validate the issue of notice under section 148, our first observation is that the matter is purely factual and cannot be decided de hors any material. It is only where the relevant material and information in the possession of the Assessing Officer at the time of issue of notice under section 148 is before us that we can state if a case for prima facie satisfaction by the Assessing Officer is made out or not, while here we do not even have the copy of the reasons recorded under section 148, which could indicate as to what these materials and information is. The proper 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and made first-hand enquiries, including qua the assessee's accounts. It is the credibility of this information, gathered first-hand, and on which he relies, and the truthfulness in reporting the same [which cannot be doubted, as any authority is statutorily presumed to have performed his duties in a regular manner - refer section 114(e) of the Indian Evidence Act, 1872)], that is of relevance. Also, it was not necessary for the Assessing Officer to verify the information conveyed to him before placing reliance thereon, i.e., for the purpose of formation of his belief, so that he was entitled to consider it as reliable. Reference in this context is made to the decisions in the case of ITO v. Purushottam Das Bangur [1997] 224 ITR 362/90 Taxman 541 (SC) and Brij Mohan Agarwal v. Asstt. CIT [2004] 268 ITR 400/140 Taxman 317 (All.). In our view, therefore, the said report, assuming so, would constitute a credible material and cannot be said to be pure guess work. Another factor that is to be considered in this regard is the 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 R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be said to possess expertise in valuation, to, at his discretion, require the Valuation Officer (VO) to estimate any investment referred to in section 69 or section 69B. Sections 69 & 69B are respectively titled 'Unexplained investment' and 'Amount of investment, etc., not fully disclosed in the books of account'. Clearly, building being a disclosed asset, reflected in the assessee's books of account, the addition in the present case could be and is only under section 69B, and not under section 69 of the Act, as mentioned in the assessment order. To this extent, the assessee's contention is correct, though it would be (and neither it is so contended) of any moment. This is as it is trite law that mere reference to a wrong section, as long as the authority exercising the power or the jurisdiction is vested therewith, or the ingredients for its exercise are satisfied, would be of no consequence. The Assessing Officer, thus, being of the prima facie view that the assessee's books of account did not reflect the full value 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 estima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um as disclosed therein, and no more, and would, thus, definitely merit examination and consideration on merits. 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. The assessee's argument is, thus, legally not tenable. 4.2 Further, though the assessee's ground (#2) is with respect to section 142A, which stands answered hereinbefore, the position would be much the same, we may add, addressing the issue in a more basic format and in a wider perspective, if instead of invoking section 142A, the Assessing Officer was to proceed to estimate to value the assessee's investment himself. This is for the reason that the reference to the VO by the Assessing Officer is not mandatory, and it may well be that in the circumstances of the case, the Assessing Officer may consider the reference as not proper, or the more proper course to be not to do so. This is for the reason that the purport and import of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e's income for the year under section 69 would require a further finding as to why he does not consider the assessee's explanation, including the materials on which reliance for the purpose is placed by him, as not satisfactory. It may well be that, notwithstanding so, the assessee has a reasonable explanation; he may have evidence of it (investment) being sourced from withdrawals in its books, choosing to keep the investment off its books at the same time; it could be that the investment has no relation with the assessee's books of account (for a particular source of income), and is acquired from other sources. 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. Coming to section 69B, the Assessing Officer has to give a specific finding that the amount expended on making the investment exceeds the amount recorded in its respect in the assessee's books of account maintained 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g under the head of income 'Profits and gains of business or profession' or 'income from other sources', the two sources of income for which the books of account is mandated by the Act, except for some defined exclusions. Clearly, if the income (from a particular source) is to be assessed by not relying on the assessee's books of account maintained and produced, the Assessing Officer has to issue a finding as to their unreliability for the purpose, and in terms of the stated parameters therefor, i.e., where he wishes to disregard the book results. The scope of the section is different from that under Chapter VI 'Aggregation of income and set off of loss'. We are unable to see as to how the requirements of two separate sections could be juxtaposed. The books of account are only for certain sources of income, on the basis of which the assessee determines his income and files his return of income accordingly. Non-acceptance thereof; the presumption in law being as to their reliability, is, therefore, a perquisite, if the same 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndisclosed income. If the assessee is unable to prove the acquisition in a different year or the gift from another person, as the case may be, the same would stand to be included in his income, though it may have, in reality, nothing to do with his current year's business. It is perhaps for such like situations that it is often said that equity and taxation are strange bed-fellows and do not always go hand in hand. In other words, the applicability of the said sections and the impugning of the books of account are not necessarily linked to each other. The law contemplates no such requirement, which has only been imputed by the assessee, though where the books of account are relied upon, the Assessing Officer has to necessarily consider the same on merits, and state as to why the books of account are not reliable, or despite so, the section is still invocable under the circumstances. The matter is clearly and essentially factual. 4.4 Further on, in the facts of the case, we find that the 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. Again, he has allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efined specifications of construction in the State PWD Circulars, such as foundation, plinth height; floor height; bearing capacity of the soil, type of doors, windows; type of fittings, etc. The rates issued are without specifications, and subject to arbitrary increases from time to time. The adoptability of such rates is, therefore, very limited. The CPWD rates by the Government of India are worked scientifically by adopting the material and labour rates as prevailing at a particular place at a particular time, and bear exhaustive specifications. Further, these rates cannot be considered as Delhi plinth area rates and, further, are subject to adjustments on the basis of specifications of the subject property, as done by him at para 7 of his report, allowing deductions aggregating to Rs. 21.89 lakhs (refer para 10 of the abstract of cost/PB pg. 39). Also, he has expressed his inability to appreciate the basis on which the plinth area rates of Rs. 3,900 to Rs. 4,700 have been adopted by the registered valuer, even as the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the first phase (i.e., up to 31-3-2002) has been completed up to 31-3-2001, i.e., physically, the assessed cost of construction for the year has to be taken at (100-x) per cent only. Reducing therefrom the cost of construction as reflected in the assessee's books of account as on 31-3-2001, would yield the investment made during the year and, thus, the extent to which it is not reflected in the books of account. This is stated by way of an example, and this x per cent must be considered in terms of the equivalent cost (of the entire construction), as it may well be that the percentage has to be worked out separately for each area of construction, so that the x per cent is different for different aspects of construction and, resultantly, required to be worked out separately. Further, being a technical matter, it would be preferable to, as in the first instance, refer the matter to the VO, being essentially only in continuation of the same; the premise of the whole exercise being to obtain as close and as correct an estimation 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 cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of the DVO's report, and directed the Tribunal to decide the appeal on merits, i.e., by considering the assessee's claim on facts. Similar view stands expressed by the Hon'ble Delhi High Court in the case of Bawa Abhai Singh v. Dy. CIT [2002] 253 ITR 83/[2001] 117 Taxman 12 (Delhi). The second decision relied upon is CIT v. V.A. Oli Mohammed [2008] 296 ITR 570 (Mad.). The said decision in fact supports the Revenue's case inasmuch as the assessment in this case too was under section 143(3) read with section 147, i.e., as in the instant case. Secondly, the hon'ble court upheld the invocation of the section and directed to spread the excess cost of construction over the construction period. We have, likewise, directed for appropriate relief, restoring the matter, being factual, to be determined on the examination of the relevant facts, so that our decision gets endorsed by the said decision. The decision by the Tribunal in the case of Agencies Rajasthan (P.) Ltd. (supra) also supports the said view. The decision qua adoption of State PWD rates stands already considered while answering the assessee's relevant ground/s (also refer para 5). 8. The fifth and the last ground, which is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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