TMI Blog2019 (1) TMI 956X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner which is not contemplated under the Income Tax Act, 1961. The Assessing Officer, while framing the assessment, may either accept the cost as given by the assessee or reject the same and make a best judgment assessment, but, there is no provision under the Act which permits the Assessing Officer to make a provisional assessment subject to the report of the District Valuation Officer. Once the Assessing Officer accepts the books of account and frames assessment, reopening the assessment solely on the basis of the report of the District Valuation Officer without any other material coming to his notice, would amount to mere change of opinion. In the facts of the present case, it is an admitted position that before making the reference to the District Valuation Officer, the Assessing Officer did not reject the books of account and on the contrary, framed the assessment on the basis of the cost of construction as reflected in the books of account. Under the circumstances, in the first place, no reference under section 142A of the Act as it stood at the relevant time could have been made without rejecting the books of account. Moreover, merely on the basis of the DVO' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .12.2013 proposing to reject the entire claim of deduction under section 80IB(10) of the Act, in response to which, the petitioner furnished written submissions as well as various details such as ledger accounts, bank statements, creditors confirmation, expenses account etc., from time to time. After considering the entire material, the Assessing Officer completed regular assessment under section 143(3) of the Act on 31.03.2014 on a total income of Rs.NIL after allowing the deduction of ₹ 12,75,91,278/- under section 80IB(10) of the Act. 2.1 Thereafter, by the impugned notice dated 30.03.2018 issued under section 148 of the Act, the Assessing Officer seeks to reopen the assessment of the petitioner for assessment year 2011-12. In response to the notice, the petitioner filed e -return of income on 30.06.2018 declaring total income at Rs.NIL after claiming deduction under section 80IB(10) of the Act. The petitioner also called upon the respondent to provide a copy of reasons recorded for reopening the assessment. Vide letter dated 30.07.2018, a copy of reasons recorded came to be furnished by the respondent, upon receipt whereof, the petitioner submitted objections dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act was finalized, and, therefore, the said valuation report cannot be construed as sufficient and tangible material which may permit the respondent to reopen the assessment. 3.3 It was further submitted that original assessment under section 143(3) of the Act was completed on 31.03.2014 and the District Valuation Officer prepared the report later on, whereas, the proceeding for reopening of assessment has been initiated after a gap of four years. According to the learned advocate, the inaction on the part of the respondent for such a long period amounts to tacit acceptance of the cost of construction as declared by the petitioner in its books of account. It was further contended that in the facts of the present case, there is no escapement of income. 3.4 Next, it was contended that the Assessing Officer, during the course of assessment proceedings, has made a reference to the District Valuation Officer to determine the cost of construction, which was not permissible in law, inasmuch as the Assessing Officer could not have referred the matter to the District Valuation Officer without first rejecting the books of account. In respect of such submission, the learned advocate pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Officer for ascertaining the correct cost of construction of the property. The District Valuation Officer furnished the cost of construction at ₹ 8,99,96,351/- whereas, the assessee, in the books of account, has shown the cost of construction at ₹ 5,94,52,001/- which clearly shows that the assessee has not correctly and truly disclosed the expenses incurred for the construction. Thus, there was failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment. 4.1 Referring to the assessment order under section 143(3) of the Act, it was pointed out that the Assessing Officer has passed the order as the assessment was getting time-barred and that in the assessment order itself, he has recorded that since report was not received from the DVO till date, the assessment was finalized accepting the cost of construction and on receipt of the valuation report, action will be taken if found necessary. It was submitted that, therefore, reference to District Valuation Officer was made under section 142A of the Act at the time of regular assessment proceedings; however, the petitioner had not challenged the same at the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioner. 4.3 Reliance was also placed on the decision of Allahabad High Court in the case of Sunder Carpet Industries v. Income-Tax Officer and Another, [2010] 324 ITR 417 , wherein, the court has held thus: [ 10] xxxxxx. Under section 142A of the Act, a reference can be made for the purposes of section 69. Section 69 says about the unexplained investment. We are of the view that investment made in the construction of the building, if not recorded in the books of account falls under Section 69 of the Act. With due respect, we are not able to subscribe to the view taken by the Delhi High Court in the case of CIT v. Aar Pee Apartments P.Ltd., 2009 319 ITR 276 wherein the Delhi High Court has held that investment made in the construction of building falls under expenditure incurred by the assessee and is covered under Section 69C of the Act and not under Section 69 and since Section 69 C is not covered under Section 142A of the Act, the reference to the Valuation Cell cannot be made for the purposes of determination of the investment made in construction of the building. [ 11] In this view of the matter, we are of the opinion that the reference made to the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Office cannot be made the sole basis for initiating action under section 147 read with section 148 of the Act, it can certainly be considered with other facts for forming the belief that the income of the assessee had escaped assessment. 5. Before adverting to the merits of the rival contentions, reference may be made to the reasons recorded for reopening the assessment, which read thus: REASONS FOR REOPENING OF THE ASSESSMENT IN CASE OF M/S. DARSHAN BUILDCON FOR AY. 2011-12 U/S. 147 OF THE INCOME -TAX ACT . 1 Brief details of the assessee The assessee carries on the business of construction and filed its return of income for A.Y. 2011-12 on 21/09/2011 declaring income of Rs.Nil after claiming deduction of ₹ 12,75,91,278/- u/s. 80IB(10) of the Act. The return filed by the assess was taken up for scrutiny and the assessment was completed u/s. 143(3) of the Act on 31/03/2014 determining total income at Rs.Nil after allowing deduction u/s. 80IB(10) of the Act as claimed by the assessee. As the issue of determining the cost of construction was referred to the DVO. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose fully and truly all the material facts necessary for the assessment, the income of the assessee to the extent of ₹ 3,05,44,350/- has escaped assessment within the meaning of Section 147 of the Act. 7. Seventh paragraph will include escapement of income chargeable to tax in relation to any assets (including financial interest I any entity) located outside India: N.A. 8. Applicability of the provisions of section 147/151 to the facts of the case: In this case a return of income was filed for the year under consideration and regular assessment u/s. 143(3) or reassessment u/s. 147 was made on 31/03/2014. Since, 4 years from the end of the relevant year has expire in this case, the requirements to initiate proceedings u/s. 147 of the Act are reason believe that income for the year under consideration has escaped assessment because of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment for the assessment year under consideration. It is pertinent to mention here that reasons to believe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the petitioner on the basis of the report dated 31.03.2014 furnished by the DVO estimating the cost of construction at ₹ 8,99,96,351/-. In the backdrop of the facts and the contentions noted herein above, the question that arises for consideration is whether the reopening of assessment for assessment year 2011-12 in case of the petitioner solely based upon the report of the District Valuation Officer is valid? 7. On behalf of the petitioner, it has been contended that sole reliance cannot be placed upon the report of the District Valuation Officer without ascertaining or coming to the conclusion that the books of account of the petitioner company are not correct and without rejecting the same, reopening of assessment cannot be resorted to. It was pointed out that during the assessment proceedings, relevant bills pertaining to the construction had been produced and after considering the same, the assessment had been finalized. It was contended that to allow the authority to reopen the assessment would, therefore, amount to reopening a concluded assessment on a mere change of opinion. It was pointed out that the assessment order under section 143(3) of the Act has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant time provided that where an estimate of the value of any investment referred to in section 69 or section 69B of the Act is required to be made for the purpose of making assessment or reassessment under the Act, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him. Section 69 of the Act refers to unexplained investments and provides that where, in the financial year immediately preceding the assessment year, the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year. Therefore, for the purpose of invoking section 142A of the Act, the Assessing Officer has to first come to the conclusion that the assessee has made investments which are not recorded in the books of account, in which case, he would reject the books of account under sub-section (3) of section 145 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account, it is not permissible for the Assessing Officer to make a reference under section 142A of the Act. 11. The learned advocate for the respondent has drawn the attention of the court to the existing provisions of sub-section (2) of section 142A of the Act, which provide that the Assessing Officer may make a reference to the Valuation Officer under sub-section (1) whether or not he is satisfied about the correctness or completeness of the accounts of the assessee. In the opinion of this court, since sub-section (2) of section 142A of the Act in its existing form has been brought on the statute book by substituting the earlier provision with effect from 01.10.2014, viz., subsequent to the reference made by the Assessing Officer, such provision would not be applicable to the facts of the present case which would be governed by section 142A as subsisting on the date when the order of reference was made. 12. In Sargam Cinema, Haldwani V. Commissioner of Income Tax, Haldwani, (2010) 15 SCC 546 , the Supreme Court has held thus: 2. In the present case, we find that the Tribunal had decided the matter rightly in favour of the assessee inasmuch as the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport of the DVO made during the pendency of the assessment can be relied for the purpose of reopening the assessment. 15. The decision of the Supreme Court, in the case of Indo- Aden Salt Manufacturing and Trading Co. Pvt. Ltd. (supra) also does not come to the aid of the respondent inasmuch as, except for the report of the District Valuation Officer, there is no other material to show that the petitioner had not shown fully and truly all material facts relevant for the assessment. 16. The decision of the Allahabad High Court in the case of Sunder Carpet Industries (supra) would also not carry the case of the respondent any further, inasmuch as, in the facts of the case, the returns for all the assessment years had been processed and accepted summarily under section 143(1)(a) and there was no scrutiny assessment under section 143(3) of the Act. 17. The decision of the Punjab and Haryana High Court in the case of Grover Nursing Home (supra), on the contrary supports the case of the petitioner inasmuch as the court has opined that, even though the report of the Departmental Valuation Officer cannot be made the sole basis for initiating action under section 147 r ..... 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