TMI Blog2020 (2) TMI 790X X X X Extracts X X X X X X X X Extracts X X X X ..... ia, Accountant Member For the Appellant : Shri Sreehari Kutsa, Advocate For the Revenue : Shri Manjeet Singh, Addl.CIT ORDER PER SHRI N.V.VASUDEVAN, VICE PRESIDENT : This is an appeal by the assessee against the order dated 20-12-2018 of CIT(A), Kalaburagi relating to assessment year 2007-08. 2. The assessee is a partnership firm engaged in the business of construction and real estate. The firm filed its return of income for the assessment year 200708 on 29-10-2007 admitting a loss of ₹ 27,19,420/-. The return filed was processed u/s 143(1) on 10-01-2009. Consequent to survey u/s 133A conducted in the case of the assessee on 05-02-2007. the return of income filed was taken up for scrutiny under compulsory category. During the survey and the assessment proceedings, the Assessing Officer noted that the assesee was constructing a multiplex theatre by name Fun Junction Multiplex at Sy No.1/1B, Aland Road. Brahampur. Gulbarga, a commercial complex by name Siddhartha Plaza on Plot No.122. Sy. No.1/1B, Aland Road, Brahampur, Gulbarga and an apartment by name Sai Residency at Plot No.35, 36, 47 48, Sy. No.1/1 B, Aland Road. Brahampur, Gulbarga. 3. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency 4,35,175 4. Value of the land not disclosed in the balance sheet 95,16,000 5. Disallowance of expenditure 75,000 Total Income Assessed 3,09,59,635 6. Aggrieved, the assessee filed appeal before the CIT(Appeals). The CIT(Appeals) dismissed the appeal of the assessee and upheld the additions. The assessee filed further appeal before the ITAT in ITA No.1066/Bang/2013 dated 10.03.2014. It was contended by the assessee before the ITAT that it was not provided with a copy of the DVO's report so that objections could be filed against the valuation. The assessee has also raised questions on the validity of the reference made to valuation cell u/s 142A. The ITAT by its order dated 10.3.2014 set aside the order of the CIT(Appeals) and remanded the assessment for a de novo consideration by the AO with the following remarks. 13. We are of the view that this appeal can he disposed on the short ground that the report of the DVO has not been furnished to the assessee. We therefore set aside the order of the CIT(Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The hearing was adjourned to 18-11-2015 and then to 16-12-2015, 11-01-2016 and 25-01-2016 at the request of the assessee. The assessee went on requesting for adjournment citing the revision petition before the ITAT as reason. Even on 25-01-2016, an adjournment letter was filed saying that their chartered accountant is bereaved. On being informed that the proceedings will be concluded ex-parte, the assessee finally filed a reply to the show-cause notice through its authorized representative on 25-01-2016. 10. In the letter dated 25-01-2016 the assessee raised objections regarding the validity of making a reference to the DVO u/s 142A of the IT Act, 1961 (Act). It was contended that the buildings that were referred for valuation to the DVO was part of the stock-in trade of the business of the assessee and therefore, the difference between the investments in construction of the building as recorded in the books of account and as estimated by the DVO if any, can only be added as unexplained expenditure u/s 69C of the Act. The assessee pointed out that in sec.142A of the Act there is no reference to the provisions of sec.69C of the Act and therefore, there cannot be a valid referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Form 3CD filed by the asscssee are enclosed to this order as Page Nos.12 to 14. It is clear from these statements that the assessee has not debited any expenditure in respect of the alleged stock-in-trade, to the profit and loss account. The investments in work-in-progress are reflected in the balance sheet without routing them through the profit and loss account and hence provisions of Sec.69C arc not applicable to these investments. As such, there is no infirmity in the reference made to DVO for valuation of these assets. 11. Apart from the above objections the other objection of the assessee was that the DVO in estimating the cost of construction adopted CPWD rates which was in incorrect. According to the assessee only local PWD rates ought to have been adopted. The assesse also claimed deduction on account of self supervision. The AO rejected the plea of the assessee for applying local PWD rates and gave deduction at 7.5% of the cost of construction towards self supervision. The addition originally made by the AO was reduced as follows; 23. To sum up, the following additions are made to the returned income: (Rupees) 1. Fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Shah Bazar Land Val Vaue of the land estimated by the DVO 95,16,000 Le Less: Cost admitted in by the assessee Nil Va Value of the undisclosed investment brought to tax u/s 69 95,16,000 5. Addition made towards un-vouched Expenditure 75,000 12. The Assessee was aggrieved by the aforesaid order of AO and filed appeal before the CIT(A). Before the CIT(A) similar contentions were raised as were put forth before the AO and all these contentions were rejected by the CIT(A) for the very same reason that were assigned by the AO. One of the objections by the assessee before the CIT(A) was that the assessee maintained books of accounts in which he had recorded the cost of construction of 4 properties in question. He highlighted before the CIT(A) the fact that the AO called for the books of accounts in the course of assessment proceedings and the same were produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciate that the reference made by the AO to the valuation officer u/s 142 to the Act is not sustainable in la on the facts and circumstances of the case . It can be seen from ground no.2 raised by the assessee, it the plea of the Assessee that since reference to the DVO made by the AO was without rejecting the books of accounts maintained by the assessee, the report of the DVO and the consequent addition made to the total income by the AO as unexplained investments in construction cannot be sustained. On this issue ld.counsel for the assessee placed reliance on the decision of the Hon ble Supreme Court in the case of Sargam Cinema (supra) besides placing reliance on the decision of the Hon ble Delhi High Court in the case of CIT Vs Ambience Developers and Infrastructures Pvt.Ltd. 210 Taxmann 186(Del.) and the Hon ble Gujarat High Court in the case of M/s Goodluck Automobiles Pvt.Ltd., Vs ACIT 359 ITR 306(guj.) 16. The ld.DR placed reliance on the order of the CIT(A) on the issue of validity of reference to DVO. 17. We have given careful consideration to the rival submissions in sofar as it relates to ground no.2 raised by the assessee in its appeal. As far as ground n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A or section 69B or fair market value of any property referred to in sub-section (2) of section 56 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. (2) The Valuation Officer to whom a reference is made under sub-section (1) shall, for the purposes of dealing with such reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957). (3) On receipt of the report from the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment: Provided that nothing contained in this section shall apply in respect of an assessment made on or before the 30th day of September, 2004, and where such assessment has become final and conclusive on or before that date, except in cases where a reassessment is required to be made in accordance with the provisions of section 153A. Explanation.-In this section, Valuation Officer has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957). 19. In Circular No.5 of 2005 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter giving the assessee an opportunity of being heard, take into account such report in making such assessment or re-assessment. It has been provided in the proviso to the new section that the provisions of the same shall not apply in respect of an assessment made on or before the 30th day of September, 2004 and where such assessment has become final and conclusive on or before that date, except in cases where a reassessment is required to be made in accordance with the provisions of section 153A. This amendment takes effect retrospectively from 15th November, 1972. 20. The Finance Act, 2010 inserted the words or fair market value of any property referred to in sub-section (2) of section 56 is required to be made . This amendment is insignificant as far as the present appeal is concerned. 21. It has been held by the Hon ble Supreme Court in the case of Sargam Cinemas Vs. CIT 262 ITR 513 (SC) that rejection of books of accounts is a pre-condition for making a reference to DVO. Therefore in cases where this requirement was not satisfied, the addition made on account of unexplained investments in construction was being deleted. It is only with a view to remove such hurd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been explained thus: 43. Estimate of value of assets by Valuation Officer and time limit for completion of assessments where reference made 43.1 The provisions contained in section 142A of the Income-tax Act, before its amendment by the Act, provided that the Assessing Officer may, for the purpose of making an assessment or reassessment, require the Valuation Officer to make an estimate of the value of any investment, any bullion, jewellery or fair market value of any property. On receipt of the report of the Valuation Officer, the Assessing Officer may after giving the assessee an opportunity of being heard take into account such report for the purposes of assessment or reassessment. 43.2 Section 142A of the Income-tax Act does not envisage rejection of books of account as a pre-condition for reference to the Valuation Officer for estimation of the value of any investment or property. Further, the said section 142A does not provide for any time limit for furnishing of the report by the Valuation Officer. 43.3 Accordingly, section 142A has been substituted so as to provide that the Assessing Officer may, for the purposes of assessment or reassessment, require the assis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B or (iii) fair market value of any property referred to in sub-section (2) of section 56 is required to be made. Because the law was retrospective in its operation, the legislature wanted to safeguard concluded assessments being reopened and therefore by proviso to Sec.142A(3) of the Act, it was Provided that nothing contained in section 142A shall apply in respect of an assessment made on or before the 30th day of September, 2004, and where such assessment has become final and conclusive on or before that date. The requirement that finding that the books of accounts maintained by the Assessee is not correct and the value estimated by the AO varies substantially from what is recorded in the books of accounts is required to be satisfied before making a reference to DVO. It has been held by the Hon ble Supreme Court in the case of Sargam Cinemas Vs. CIT 262 ITR 513 (SC) that rejection of books of accounts is a pre-condition for making a reference to DVO. Therefore in cases where this requirement was not satisfied, the addition made on account of unexplained investments in construction w ..... 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