TMI Blog2019 (5) TMI 1537X X X X Extracts X X X X X X X X Extracts X X X X ..... O may refer the matter to the DVO for the purpose of estimation of the value of the asset, property or investment and get a copy of the report from the DVO. The word may makes it discretionary to refer the matter to the DVO. It cannot be said by any stretch of imagination that it is mandatory. Therefore, we are of the view that CIT is not justified in exercising jurisdiction u/s. 263 of the Act. Accordingly, we quash the order passed by CIT u/s. 263 of the Act. Since we have quashed the order of CIT passed u/s. 263 of the Act, we refrain from going into other grounds of appeal of the assessee. The appeal of the assessee allowed. Condonation of delay of 201 days - change of chartered Accountants - HELD THAT:- We have heard the rival submissions and perused the affidavit. Originally the assessee s appeals were handled by the Chartered Accountant, Shri S. Sivaramakrishnan aged 70. Later, the assessee changed the chartered accountant by a new person. Hence, there was a delay of 201 days in filing the appeals before the Tribunal. We find that the reason explained by the assessee is bona fide and there is sufficient cause for filing the appeals belatedly by 201 days. Accordingly, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, it was seen that while completing the assessment the Assessing Officer omitted to look into the following issue: During the period 2006-07 to 2013-14, the assessee had constructed a building called Capital City which was referred to the DVO for valuation. The valuation report was received on 03/04/2014. As per the DVO s report the cost of the building was ₹ 9,85,39,000 as against the value adopted by the assessee of ₹ 6,11,60,510/-. There was a difference of ₹ 3.74 crores between the value declared by the assessee and the report of the DVO. The proportionate unaccounted expenditure for AY 2013-14 was ₹ 33,63,288/-. This issue was not considered while completing the assessment. Hence, the CIT held that the assessment order dated 10/03/2016 was erroneous in so far as it was prejudicial to the interests of the Revenue. Accordingly, he invoked the provisions of section 263 of the Act. 3. Against this the assessee is in appeal before us. The Ld. AR submitted that the assessee is a partnership firm engaged in the business of real estate and construction work. The CIT passed order u/s. 263 of the Act wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the valuation made by the DVO, the cost of which was spread over the period of construction from 2006-07 to 2012-13 relevant to the assessment years 2008- 09 to 2014-15. The assessments for A.Y. 2008-09 to 2012-13 without considering the DVO report had rendered the assessments erroneous and prejudicial to the interests of the revenue, thereby invoking the provisions of section 263 by the CIT vide order dated 04/03/2016. The details of the assessment years and amounts invested as declared by the assessee and as per the DVO report is as follows: Financial Year Cost of Construction declared by the Assessee/Appellant Proportionate of total cost declared by the Appellant Proportionate Cost as per DVO Difference in cost between the DVO and the Appellant 2006-07 78,677 0 0 0 2007-08 1,18,72,387 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... figure and the cost disclosed in books of accounts, vouchers and bills of the assessee to which the assessee replied vide letter dated 19/02/2016 demonstrating the rationality of the assessee s value of the building disclosed in his books of accounts against the non-viable valuation of the DVO. The Ld. AR suited that the action of the Assessing Officer in referring the matter to the DVO while not rejecting the books of the assessee is not in accordance with the established law. It is a settled position of law that for a reference to the District Valuation Officer, the condition precedent must be to reject the book of accounts of the assessee. For this purpose, he relied on the judgment of the Supreme Court in the case of CIT vs. Sargam Cinema 197 taxman 203 (SC) wherein it was held as under: In the present case, we find that the Tribunal decided the matter rightly in favour of the Assessee inasmuch as the Tribunal came to conclusion that the assessing authority could not have referred the matter to the Departmental Valuation Officer(DVO) without the books of accounts being rejected. In the present case, a categorical finding is recorded by the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he DVO after forming a prima facie opinion that the value of the investment is not genuinely discussed and is required to be assessed for the purpose of Sections 69, 69A or 69B of the Act. In other words, Section 142A of the Act, thus, cannot invoked when valuation of the cost of construction is bonafide and based on books of account which has not been rejected. The report of the DVO would be dealt with by the Assessing Officer under sub section (3) of Section 142A of the Act. There is logic and reasoning for adopting the aforesaid view. There appears to be no occasion for the revenue not to accept the valuation of the cost of construction of an asset without rejecting the books of account maintained by the assesse. It would not only be unfair but against the public policy as well to assume that the assesse is dishonest and he must have submitted an incorrect account of expenses/investment. It was submitted that the above-mentioned dictum has also been upheld in the following judgments: Andhra Pradesh High Court in the case of Lakshmi Constructions [2014] 369 ITR 271. Gujarat High Court in the case of Goodluck, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.8 It was further submitted that for he purpose of making a reference to the valuation officer it is required to make an estimation of the investment made by the assessee. However, in the present matter there is no requirement for estimation of the investment. As the assessee was maintaining the books of account for the purpose of construction and all the transactions were recorded in the books of account there was absolutely no requirement for making a reference to the DVO for the purpose of estimating the cost of construction. It was submitted that as the books of accounts of the assessee had not been rejected, the same was accepted by the Assessing Officer and since the assessee s books of accounts are meticulously maintained, the very reference to the DVO was not justified. 3.9 It was submitted that the Pr. CIT (Central) erred in exercising his jurisdiction under Section 263 of the Income Tax Act, 1961. To assume revisionary jurisdiction under Section 263 of the Income Tax Act, the Principal CIT must be satisfied of the following: The order of the Assessing Officer sought to be revised is erroneous, AND ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue unless the view takenby the Income-tax Officer is unsustainable in law. The Ld. AR also relied on the following decisions: i) CIT vs. Gabriel India Ltd. (1993) 114 CTR (Bom) 81. ii)Iron Trading Co vs. CIT [(2003) 263 ITR 437 (P H)] iii) CIT vs. Sunbeam Auto Ltd [(2011) 332 ITR 167 (Delhi)] 3.9.1 The Ld. AR submitted that it is a crystallized position of law that when two opinions are possible, revisionary jurisdiction u/s. 263 of the Act must not be exercised. He relied on the judgment of the Supreme Court of India in the case of CIT vs. Amitabh Bachchan reported in 2016 (3) KLT SN 4 (C. No.3) wherein it was held as under: There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with by the Commissioner under S. 263 of the Act merely on the ground th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion that the additios ade in the instant case are not sustainable and accordingly, we delete the same. Considering our decision o the legal issue in favour of the assessee, the other grounds demand no specific adjudication. Thus, on the legal ground the assessee succeeds and rest o the grounds are dismissed as academic. 3.9.3 The Ld. AR submitted that the CIT erred in exercising his revisionary jurisdiction by holding the order u/s 143(3) read with section 153A Of the Act for the AY 2008-09 solely on the ground the Department Valuation Report was not considered by the Assessing officer. It was submitted that this exercise of revisionary power by the Principal Commissioner under Section 263 of the Act is erroneous for the reason that the Department Valuation Report was received by the Assessing officer after the time limit prescribed for completion of assessment. Furthermore, it was submitted that the same could not be considered as a part of the record for the purpose of revising any order under Section 263 of the Act. According to the Ld. AR, the act of the CIT in directing the Assessing Officer to consider the DVO report, which came into existence after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larly maintained and without pointing out any defects in the books the cost of construction was referred to DVO. We are of the view, on the basis of evidences produced before us, that the assesses has regularly maintained books of account and various records along with supporting evidences of various raw materials like cement, steel, bricks, sand, wood, labour cost, sanitarywares etc. but the AO has not found out any defect in the books/records/bills etc. and has not rejected books of account. Without causing any defects in books regularly maintained and without rejecting the books u/s.145 of the Act there is no reason to add any amount on the presumption that the cost/investment in construction is low. Thus, without rejecting the books of account regularly maintained, the addition cannot be made only on the basis of the DVO's report. 3.9.4 Reliance was also placed on the decision of Chennai Bench of the ITAT in C.R. Selvaraj vs. ITO (ITA No.100/Mds/20150. Furthermore, no incriminating evidence was unearthed from the assessee s premises which would suggest any anomaly in the books of accounts. The Ld. AR relied on the decision of the ITAT,, Patna in Binoy Ku ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer was barred from exercising powers u/s 263 of the Act at least with regard to the subject matter. According to the Ld. AR, the DVO's report is bad in law and presents a fanciful valuation as it adopts the CPWD rates for valuation and not the state PWD rates while valuing the property of the assessee. He relied on the judgment of the Jurisdictional High Court in the case of CIT vs. Smt. Vasantha (ITA No. 109 of 2008 decided on 21.10.2008) wherein it clarified the position of law that when there is variation between CPWD rates and PWD rates prevailing in the State and since the building that is constructed is within the State, naturally, the Department is expected to take into consideration the PWD rates prevailing in the State. Furthermore, he relied on the decision of the Jurisdictional High Court in the case of C.S Daniel v. DCIT (ITA No.251 of 2012 decided o 11/11/2013) wherein it was held as follows: ' We place reliance on an earlier decision of this Court in I.T.A. No.109 of 2008 dated 21.10.2008 wherein their Lordships at paragraph 5 onwards opined that the valuation of property has to be made keeping in view the Kerala PWD rates and not Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ality is only ₹ 41/-per Sq.ft. In the case of Internal Electrical Installations the DVO has taken the value as 12.5% of the total RCC structural cost arrived at by him, which is a highly inflated figure where as the actual amount spent was only 5.5% of structural cost. It was submitted that this was a commercial building and only open wiring for minimum points were provided and the tenants would have to rewire the room to suit their requirements. In the case of plumbing the DVO has taken the value as 4% of the total RCC structural cost arrived at by him, which has a cascading effect as the value of structural work is highly escalated. It was informed that the assessee had done up only 12 bathrooms for the entire area. In the case of Electrical HT Work, the cascading effect of the structural cost has created the same impact on the DVO's valuation. In the case of Over Head Tank Fire Sump Tank, the value adopted by the DVO is highly inflated at ₹ 19.76/-per Litre. The ready made tanks are available at less than ₹ 3/- per litre, which justifies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure or is found to be the owner of any bullion, related to a case where assessee had made certain investment or expenditure or is found to be the owner of any bullion, jewellery etc and the same are not properly recorded in the books of account. The court in a decision of ME and Mummy Hospital (supra), while referring to these statutory provisios read with section 142A of the Act is simply not permissible . It is only when there is some material before the Assessing Officer to hold that in case of an as falls under section 69, as the case may be, that he can, to estimate the value of such unexplained investment or expenditure in bullion, jewellery etc and call for report of the valuer and therefore, the Division Bench of this Court has observed that initial starting point for triggering a reference to the valuer, therefore, has to be invocation of section 69 of the Act and therefore, unless and until such contingencies are reflecting on the record, reference under suction 142A cannot be resorted to. 3.10 It was submitted that the above-mentioned dictum has been upheld in the following judgments: Chennai Special Bench in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Dy. CIT [I.T.A. No. 1542/Hyd/2010] in this regard. Thus, it was prayed that the order of the CIT dated 15/03/2018 may be quashed and set aside for all the assessment years. 4. On the other hand, the Ld. DR relied on the orders of the CIT passed u/s. 263 of the Act and submitted that the Assessing Officer received the DVO report before passing the assessment order. However, the Assessing Officer failed to consider the same. Hence, the CIT invoked the provisions of sec. 263 of the I.T. Act and directed the Assessing Officer to consider the DVO report. The Ld. DR submitted that there is no error committed by the CIT in this action of invoking provisions of sec. 263 of the Act. 5. We have heard the rival submissions and perused the record. The primary issue raised by the Revenue in this case is with regard to the conclusion of the CIT that rejection of books of account is not a pre-requisite for referring the valuation of asset u/s 142A of the I.T. Act. In this connection, the contention of the assessee and the ground on which the CIT had passed the order is that the reference to Valuation Officer itself is not in accordance with the law. The reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of estimating value of any investment for making assessment subject to certain conditions. 5.3 Even after insertion of section 142A of the I.T. Act, there are number of judicial pronouncements holding that the reference to DVO under section 142A of the I.T. Act is possible only upon finding that the books of accounts maintained by the assessee is not correct and the value estimated by the Assessing Officer varies substantially from what is recorded in the books of accounts. The various judicial pronouncements confirms that the process of estimation cannot be done if the investment is properly recorded in the books of accounts and the Assessing Officer is satisfied with the correctness and completeness of such books of accounts. If the AO is not satisfied with the correctness and completeness of the books of accounts, he should record his findings and reasoning and reject the books of accounts to proceed for estimation of the value of investments by referring to DVO. The High Court of Gujarat in the case of Goodluck Automobile (P) Ltd. v. ACIT (359 ITR 306)(Guj), while analyzing section 142A stated as follows:- From the language emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent for the purpose of assessment. The sub section (2) of 142A of the I.T. Act states that the Assessing Officer may make a reference to DVO whether or not he is satisfied about correctness or completeness of the accounts of the assessee. The ITAT Delhi Bench in the case of Westland Buildtech (P) Ltd. v. ITO Ward-18 (3), New Delhi (2016) 76 Taxman.com 142 (Delhi - Trib.) had occasion to consider the amendment to section 142A of the I.T. Act by the Finance Act, 2014. The finding of the Delhi Bench of the Tribunal reads as follows: It is relevant to note that sub-section (2) of section 142A as inserted by the Finance (NO.2) Act 2014, with effect from 1.10.2014 provide that the Assessing Officer may make a reference to the valuation officer under section (1) whether or not he is satisfied about the correctness or completeness of the accounts of the assessee. There was no analogous provision prior to this insertion. This shows that the position of the law laid down by the Supreme Court in Sargam Cinema v. CIT (2010) 328 ITR 513 for not making any addition on the basis of the Departmental Valuation Officers report without first rejecting the books of accounts, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer under section 142A of the I.T. Act without rejection of books of account is invalid. It is further held by the Tribunal that there is no merit in the Department s content that extent of section 142A is applicable retrospectively. The section has specifically being made applicable by legislature itself w.e.f. 01.10.2014 and so it cannot be said to operate retrospectively . 5.8. The judgment of the Apex Court in the case of CIT v. Sunita Mansingha [(2017) 393 ITR 121 (SC)] will not apply to the facts of the present case. The Apex Court in the case of Sunita Mansingha (supra) was interpreting proviso to section 142A(3) of the I.T. Act (which was in existence from the date of insertion of section 142A of the I.T. Act till section 142A of the I.T. Act was substituted w.e.f. 01.10.2014). The newly substituted section 142A(3) of the I.T. Act w.e.f. 01.10.2014 does not have a proviso. Therefore, the principle laid down by the judgment of the Supreme Court does not have application to the newly inserted section 142A of the I.T. Act. It is admitted that section 142A of the I.T. Act is a procedural section and applies to the pending proceedings. In other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an has filed an affidavit stating the above change which reads as follows: 1. I. V.Parameswaran, S/o. R.Vasu Iyer, aged 69 years, residing at Sivasakthi , Thottekkat Lane, Punkunnam P O, Thrissur - 680002._ being the Partner of the Applicant firm, M/s Ardra Associates, in the above case state that I know the facts of the case. 2. It is humbly submitted that this Condonation for delay application is before this Hon'ble Income Tax Appellate Tribunal in Appeal preferred against the impugned Order No. C.No. 23(84)/Tech/CIT(C) 15-16/817 dated 04.03.2016 for the Assessment Year 2008-09 passed by the Principal Commissioner of Income Tax (Central), Cochin received by the Applicant on 07.03.2016 and with an Appeal for the restoration and recall of the abovementioned appeal. 3. It is humbly submitted that this prayer with a request for condonation of delay for an extension of time to file this petition before this Hon'ble Income Tax Appellate Tribunal at Cochin. The Applicant submits that there is a delay of approximately 201 days in preferring the above numbered Appeal. 4. The Applicant/ Petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties. Furthermore the Hon'ble Supreme Court of India in Esha Bhattacharjee v. Managing Committee of Rash unathpur Academy Ors. Reported in (2013) 12 SCC 649 was pleased to reiterate the principles relating to condonation of delay by a court. The Hon'ble Court was pleased to sum the principles up as follows: The principles for dealing with application for condonation of delay are as follows: ( i) There should be a liberal, pragmatic, justice-oriented, non-pedantic approach while dealing with an application for condonation of delay, for the courts are not supposed to legalise injustice but are obliged to remove injustice. ( ii) The terms sufficient cause should be understood in their proper spirit, philosophy and purpose regard being had to the fact that these terms are basically elastic and are to be applied in proper perspective to the obtaining fact situation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Officer, for ascertaining the cost of construction of one of the properties of the assessee, namely Capital City. The report was received after the completion of assessment. The valuation report has not been considered. The difference in valuation for AY 2008-09 is as under: Cost disclosed as per assessment (Rs.) Proportion of total cost declared by the assessee (%) Proportionate cost as per DVO (Rs.) Difference in cost between assessee and DVO (Rs.) 1,18,72,387 19.55 1,92,64,375 73,91,988 In view of the above, the CIT was of the opinion that the order u/s. 143)(3) r.w.s. 153A passed by the Assessing Officer dated 28/03/2014 is prima facie erroneous in so far as it is prejudicial to the interest of the revenue. Before the CIT, the assessee submitted that there were various anomalies on the part of the DVO in making assumptions and the rate and assumptions made by the Assessing Officer was o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 The CIT observed that non-consideration of valuation report rendered the assessment erroneous in so far as it is prejudicial to the interest of the Revenue. Hence, the CIT by exercising power u/s. 263 of the Act, remitted the issue to the Assessing Officer to conduct necessary inquiries/verifications and passing consequential orders, after giving the assessee opportunity of being heard. 7.3 For the assessment year 2011-12, the CIT observed that there was difference in valuation for ascertaining the cost of construction of one of the properties of the assessee as under: Cost disclosed as per assessment (Rs.) Proportion of total cost declared by the assessee (%) Proportionate cost as per DVO (Rs.) Difference in cost between assessee and DVO (Rs.) 1,23,14,140 20.13 1,98,35,901 75,21 ,761 The CIT observed that non-consideration of valuation report r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due enquiry with the assessee. Consequent to this, the CIT invoked the provisions of section 263 for the AY 2013-14. In these assessment years, the DVO report was received subsequent to passing of the assessment order, i.e. on 28/03/2014. Hence, the CIT exercised power u/s. 263 of the Act for these assessment years and directed the Assessing Officer to consider the valuation report. The Assessing Officer is not expected to consider the valuation report submitted by the DVO after framing the assessment. Therefore, it cannot be said that the Assessing Officer has committed any error in not considering the valuation report submitted by the DVO after the assessment, when he has completed assessments as per books of account of the assessee. Therefore, it can be said that the Assessing Officer has taken one possible view in this case. It cannot be said that the assessment order passed by the Assessing Officer is erroneous in so far as it is prejudicial o the interests of the Revenue. More so, as discussed earlier, once the Assessing Officer has accepted the books of account, there is no question of referring the valuation of the property to the DVO. In other words, to exercise power u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flaws in the Valuation Report prepared by the DVO to the AO during original assessment proceedings. But the AO went on to make addition on the basis of DVO's Valuation Report. The matter travelled to CIT(A) and the C1T(A) deleted the addition made by the AO with the following concluding remarks: ..... if there is no doubt that there is a distortion in the valuation made by the DVO, which is because of incorrect appreciation of facts, and prima facie, the rejection of the contentions raised by the appellant and, the same have not been given consideration to, by the Assessing Officer, during the course of assessment proceedings. Thus, it is found that there has been no basis for the higher valuation given by the DVO lo be adopted by the AO. Accordingly, the addition made by the Assessing Officer is not sustainable for the Asst. Yrs. 2007-08 to 2010- 11. Accordingly, the addition made by the assessing officer is deleted and appeal on this ground is allowed. 11.1 Similarly, another project named Capital City was also referred to the DVO for valuation. However, the Valuation Report was received by the AO after h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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