TMI Blog2015 (5) TMI 1186X X X X Extracts X X X X X X X X Extracts X X X X ..... if such a report is considered to be obtained u/s.142A of the Act. Since reference to DVO being held as invalid, the assessment thereafter based on that DVO report also be invalid. - Decided in favour of assessee. - I.T.A. No. 100/Mds/2015 - - - Dated:- 22-5-2015 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER For the Appellant : Shri. T.S. Lakshmi Venkataraman, C.A. For the Respondent : Shri. A.V. Sreekanth, IRS, JCIT. ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER This appeal filed by assessee is directed against the order of the Commissioner of Income Tax (Appeals), Salem, dated 14.11.2014 for the assessment year 2011-12. 2. The assessee has raised the following grounds:- 01. The order of the learned CIT(A) Salem dated 14.11.2014 in ITA No.263/2013-14 is opposed to the facts of the case and is not legally maintainable. 02. The learned CIT(A) is not justified in giving direction to the Assessing Officer to adopt state PWD rates in the place of CPWD rates as adopted by the valuation officer in estimating the cost of construction of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of commercial building is about 900 per sq.ft i.e. the total cost of construction is about ₹ 4,50,00,000/- (50,000/- x 900). 3.2 Consequently, the assessee has filed a letter dated 19.07.2013 wherein it was stated that he has started to construct commercial shopping complex at Salem Road, Namakkal during the period of April'2009 and it was completed during the period September'2010. Then the rental income was arrived by way of letting out to Kannan Departmental Stores Pvt Ltd' and given break-up details for the cost of construction of building is as under:- A.Y. 2010-11 ₹ 1,18,85,976/- A.Y. 2011-12 ₹ 32,35,800/- Total ₹ 1,51,21,776/- The assessee has not produced any books of account, bills/vouchers for cost of construction of building so far 19.07.2013. In the absence of the books of accounts, it was presumed by AO that the assessee has not maintained any books of accounts and bills/vouchers for cost of construction of building. Therefore to verify the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment 22,77,250 10756 Bans Steel 37,39,671 137.06 Tone Blue metal 6,05,200 436 units Bricks 4,99,400 170250 No's Labour 43,93,925 - Sand 5,92,780 454 units Electrical fittings 2,21,402 -- Grill Items 1,48,380 --- Glass 72,340 --- Lift 9,30,000 --- Front Elevation 8,64,500 -- Paint 65,155 --- Sundry Building items ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout independent verification of the bills and vouchers 6). Reference to the Valuation Officer is made by the assessee s representative without rejecting the books of accounts. 3.7 Books of accounts for cost of construction produced by the assessee's representative verified by the Assessing Officer. According to Assessing Officer, the assessee has not maintained the books of account and bills/vouchers properly. It was observed by Assessing Officer that the books of accounts are prepared at the time of assessment only with the available bills and most of the expenses are supported with self made bills/vouchers. Hence the books of account and bills/vouchers produced cost of construction building are rejected by Assessing Officer. Further, the Assessing Officer observed as follows:- 1). While the assessee claims that almost all vouchers are produced, it is to be stated that the vouchers are available in respect of purchase of steel, cement, blue metal to some extent all the other vouchers are all self made and it is not corroborated. 2). Since it is not proved that the assessee engaged the services of an Architect, it is felt that to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 89,63,245/- towards cost of construction for the assessment year 2011-12. Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). 4. The Commissioner of Income Tax (Appeals) placing reliance on the judgment of jurisdictional High Court in the case of CIT vs. Shri. Raya R. Govindarajan in ITA No.255/2014, dated 22.07.2014 observed that the Assessing Officer is justified in adopting the value as for the CPWD rates and confirmed the addition. Against this, the assessee preferred an appeal before us. 5. The ld. Authorised Representative submitted that the Assessing Officer is not justified in referring the case to District Valuation Officer for determining the cost of construction of the building. He also submitted that the Assessing Officer rejected the books of accounts of the assessee on the reason that expenditures are supported by self made vouchers. According to the ld. Authorised Representative it cannot be a reason to reject the books of accounts unless he pinpoint specific defect in the books of accounts. Further, he submitted the written submissions as follows:- (i) Skelton structure only provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DCIT vs. Satish Cold Storage (36 ITR (Tribunal) 435 (Lucknow) and Sargam Cinema vs. CIT 328 ITR 513 (SC). d. In the course of proceedings before CIT(A) Salem, the assessee filed details of cost of construction as per state PWD rates according to which the cost of construction comes to ₹ 1,48;16,071/-. e. The directions of CIT(A) to the assessing officer is to adopt the values as per the state PWD rates and not to adopt CPWD rates as taken by the valuation officer. f. A copy of working given to CIT (A) arriving at a cost of construction at H. 1,48,16;071 as per PWD rates was given to the assessing officer. The assessing officer has passed a revision order dated 07.01.15 to give effect to the order of CIT(A} and he has given a relief of ₹ 3390,280/-. The basis for arriving for at the above figure is not available in the revision order. No opportunity was given by the assessing officer to the assessee before passing the order dt 07.01.15. g. As could be seen from page number 4 of the assessment order, the books of accounts for the cost of construction have been produced by the assessee. The assessing officer has summarily rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atement, statement of affairs, capital account and name and address of the sundry creditors. The assessee at that point of time not produced books of accounts. Later the case was adjourned to 14.10.2013 by Assessing Officer. In meantime, the District Valuation Officer, Chennai gave a valuation report on 01.01.2014. He determined the cost of construction at ₹ 5,70,06,100/-. The assessee s representative appeared before the Assessing Officer on 02.01.2014 and Assessing Officer gave a copy of the valuation report to him and Assessing Officer called for copy of building plan, building approval, copy of land deed and supporting evidences for cost of construction with break up. The assessee s representative appeared on 21.01.2014 before the Assessing Officer and stated that assessee maintained books of accounts and bills/vouchers for the construction. However, he has not produced the same. Later, the assessee produced the books of accounts for cost of construction produced by the assessee's representative verified by the Assessing Officer. According to Assessing Officer, the assessee has not maintained the books of account and bills/vouchers properly. It was observed by Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luer's report as against an area of 57,347 sq.ft mentioned in the DVO's report. Thus, he rejected the valuation report from Registered valuer. 9. As seen from the above, the assessee has produced the books of accounts before the Assessing Officer. The Assessing Officer has rejected the books of accounts on the reason that the books of accounts were prepared by assessee at the stage of assessment and most of the expenses are supported by self made bills/voucheH. Hence, the books of accounts and bills/vouchers against the construction were rejected and reference was made to DVO u/s.142A of the Act. 10. The section 142A reads as follows:- 142A (1) for the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in section 69 of section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him . 11. Under the provision of Section 142A(1), the Assessing Officer could refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s there, whether the annual profits can properly be deducted from method employed; 3. Whether the accounts are correctly maintained; and 4. Whether the accounts maintained are complete in the sense that there is no significant omission therein. If the answers to all the above four questions are in affirmative, then assessee s profits are to be computed on the basis of his accounts. In such case, neither the first proviso to section 145(1) nor section 145(2) can be invoked. In the findings on question Nos.1, 3 and 4 are in affirmative, but finding in question No.2 is negative, first proviso to section 145(1) comes in and computation has to be made on such basis and in such manner as Assessing Officer, may determine. If the findings on question No.1, 3 or 4 is in negative section 145(2) applies and Assessing Officer, may make a best judgment in manner provided for in section 144 . It is evident from the assessment order that the Assessing Officer was not in dispute with the method of accounting followed by the assessee or compliance with the accounting standards prescribed under the Income Tax Act. The only disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unverifiable, the same item should have been considered as specific addition in assessment. The general comment of the Assessing Officer clearly demonstrates that he could not quantify any specific expenditure as unverifiable which warrants for reference to the DVO. Inaction on the part of Assessing Officer to specifically quantify unverifiable expenditure for a specific addition in the assessment cannot empower such an Assessing Officer to resort to rejection of book results so as to invoke the provisions of Section 142A or 145. This particular reason relied upon by the Assessing Officer for rejecting the books is legally unsustainable as the same is not establishing any incompleteness or incorrectness of assessee s accounts rather than he is preoccupied with a view that the cost of construction disclosed by the assessee is very low. Judicial precedence is categorically in favour of an assessee in this context by holding that such actions of Assessing Officers were held to be legally untenable. Absence of vouchers or the supporting evidence in respect of a particular item of expenditure cannot by itself empower an Assessing Officer to invoke provision of Section 142A or 145 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed books of accounts and duly furnished before the Assessing Officer and he has not appreciated the same and only on presumption that cost of construction was very low, he referred the matter to DVO without properly rejecting the books of accounts maintained by the assessee. In our opinion, reference to DVO u/s.142A(3) of the Act could be made when books of accounts are rejected by pinpointing defect therein. In other words, if the books of accounts are found to be correct and complete in all respect and no defect is pointed out therein and the cost of construction of building is recorded therein, addition referred u/s.142A (2) is not appropriate. Accordingly, we are of the considered view that in the present case when the Assessing Officer has not rejected the books of account by pin pointing any defects in the books of account reference to the DVO is not valid and, therefore, DVO s report could not be utilized for framing assessment even if such a report is considered to be obtained u/s.142A of the Act. Since reference to DVO being held as invalid, the assessment thereafter based on that DVO report also be invalid. This view of our is fortified by following precedents:- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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