TMI Blog2021 (6) TMI 362X X X X Extracts X X X X X X X X Extracts X X X X ..... s also made reference to various other judgments and has come to the conclusion that ingredients of Section 147 of the Act are not fulfilled in the instant case and consequently reopening is not permissible in the facts and circumstances of the case - No error in the conclusion drawn by the CIT(A) in holding so. Without repeating the same, we decline to interfere with the conclusion drawn by the CIT(A) holding the assumption of jurisdiction by the AO u/s.147 of the Act to be bad in law. Reference to the Valuation Officer u/s 142A - HELD THAT:- As not possible for a Valuation Officer to comply with the mandate of reference u/s 142A of the Act viz. (i) issue notice to the assessee for collection of information, (ii) enter the premises under subject matter of reference, (iii) inspect and examine the contemporaneous position on fair value of the project, (iv) apply his mind to the facts available and (v) prepare valuation report. Even after receipt of valuation report, the AO is expected to confront the same to the assessee and give him proper opportunity to defend his position on the contents of valuation report. Apparently not possible to complete the assessment on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that all the three matters captioned above are inter-connected and involves common issue. Accordingly, all the three matters were heard together for adjudication purposes. 3. We shall take Revenue s appeal in ITA No. 1525/Ahd/2018 concerning AY 2010-11 as a lead case for adjudication. ITA No. 1525/Ahd/2018 - AY- 2010-11 4. The ground of appeal raised by the Revenue reads as under: 1.1 That in the facts and circumstances of the case, and in law, the Ld.CIT(Appeals) has erred in allowing the assessee s appeal, without appreciating the facts discussed in the assessment order and the remand report. 1.2 That in the facts and circumstances of the case, and in law, the Ld, CIT(Appeals) has erred in holding that the reference made by the AO u/s 142A was invalid, without appreciating the facts discussed in the assessment order and the remand report. 1.3 That in the facts and circumstances of the case, and in law, the Ld. CIT(Appeals) has erred in holding that the reference made by the AO u/s 142A without rejecting books of account was invalid. 1.4 That in the facts and circumstances of the case, and in law, the Ld, CIT(Appeals) has erred in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness premises of the Assessee under S. 133A of the Act and admittedly several loose papers, documents etc., of incriminating nature, marked as various annexures, were found and impounded. These loose papers etc. so impounded revealed several transactions which were not found recorded in the books. On being confronted, the partner of the Assessee firm conceded and declared a lump-sum amount of ₹ 1.75 crores as its unaccounted income in the course of survey proceedings. Such declaration made in survey was also reportedly incorporated suitably while determining the total income of the Assessee. The return for AY 2010- 11 was selected for a regular assessment and a regular assessment was made under S. 143(3) of the Act. The total income was assessed at ₹ 1,94,25, 530/- for AY 2010-11 vide an assessment order dated 28.03.2013. 7. In the course of the regular assessment, the AO inter alia invoked S. 142A of the Act and made reference to the Valuation officer [also referred to as District Valuation Officer (DVO)] vide its letter dated 26/02/2013 requiring him to estimate the value of some Construction projects so undertaken and give a report to him thereon, for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in projects/schemes for all these years on the basis of valuation report was thus negated and reversed. The relevant operative para of the order of CIT(A) for its finding is reproduced below for easy reference: 3. 6. The legal position on the issue of reopening of assessment on the basis of report of the DVO has been discussed by various judicial authorities and the catena of decisions are in favour of the appellant. In ACIT Vs Dhariya Construction Co. [ 2010] 328 ITR 515 (SC),the Supreme Court, in its short order dated 16. 2.2010, held as follows:- Having examined the record, we find that in this case, the Department sought reopening of the assessment based on the opinion given by the District Valuation Officer (DVO). The opinion of the DVO per se is not an information for the purposes of reopening assessment under section 147 of the Income- tax Act, 1961. The Assessing Officer has to apply his mind to the information, if any, collected and must form a belief thereon. In the circumstances, there Is no merit in the civil appeal. The Department was not entitled to reopen the assessment. Civil appeal is, accordingly, dismissed. No order as to costs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must form a belief thereon. There has to be something more than the report of DVO for the belief of the Assessing Officer. The Assessing Officer cannot, merely on the basis of DVO' s report, reopen the assessment. The DVO' s report may be based only on his opinion or on some tangible material. In the former case it would be only estimation or guesswork. it may be mentioned here that the A. O, has relied mainly on the report of the DVO without pointing out any defect or discrepancy much less any material defect in the books of account of the assessee, and the expenditure incurred by the assessee in construction and shown in the books of account are duly supported by bills and vouchers and only ad hoc and minor additions in respect of cost of construction were made in assessment proceedings under taken by the A. O. u/s 143 (3) of the Act. From the copy of the Office Note furnished by the A. O. along with remand report, it was clear that no serious deficiency was noticed by the A. O. in respect of cost of construction either in books of accounts/vouchers produced during scrutiny assessments of in the material impounded during the survey. Before passing the order on 28. 03. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. One such decision which is reported in case of CIT v. Kelvinator of India Ltd. [ 2010] 320ITR 561/187 Taxman 312 (SC). Similar view has been taken by the Hon'ble Gujarat High Court in the case of Akshar Infrastructure (P.) Ltd. Vs ITO [ 2017] 79 taxmann. com 239 (Gujarat) wherein it was held that where Assessing Officer completed assessment under section 143(3) making certain addition in respect of unexplained investment, he addition merely could not reopen said assessment for enhancement of said on basis of report of DVO. 3.7. Ld. Authorized Representative has heavily relied on some other decisions of the jurisdictional High Court which are directly on this issue. In PCIT Vs J. Upendra Construction (P.) Ltd. [ 2015] 59 taxmann. com 144 (Gujarat), it is held by the Hon' ble Court as under:- 4.1 At the outset, it is required to be noted that in the present case, the Assessing Officer made additions with respect to the difference in the cost of construction based upon and/or relying upon the DVO' s report in the case of one M/s. Manjusha Estate Pvt Ltd. from whom, the assessee subsequently got the project. It is true that in the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng from the assessment orders passed by three different Assessing Officers on different dates who made routine additions on ad hoc basis, the detailed report of A. O. in respect of survey conducted in the case of appellant before the reassessment and the material impounded/statements recorded by the A. O. as well as surrender made by the appellant and accepted by the Department in respect of On Money and no reference was made to any incriminating material found during the course of survey or during the course of assessments made under 143 (3) in respect of cost of construction. 3.8 8 The decision of Sargam Cinema (Supra) and legal provision in respect of reference to DVO without rejecting books of accounts as provided in the un- amended/un- substituted section 142 Ahas been considered by jurisdictional High Court in Good Luck Automobiles (P.) Ltd. v. Asstt. CIT [ 2013] 26 taxmann. com 25 (Guj.). It has been held therein as under: 9............. The rejection of books of account should precede the reference to the Valuation Officer. As rightly contended by the learned counsel for the assessee, the report of the Valuation Officer cannot form the foundation for rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. At no stage of the assessment proceedings does the Assessing Officer appear to have mentioned that the books of account are defective or that the cost of construction as shown in the books of account is not the true cost of construction. Thus, while making the reference to the Valuation Officer, the Assessing Officer has not recorded any defect in the books of account nor has he rejected the same. Except for the difference in the estimated cost determined by the Valuation Officer and the actual cost as shown by the assessee, the Assessing Officer has not brought any material on record to establish that the assessee had made any unaccounted: investment in the construction of the building in question and that the books of account do not reflect the correct cost of construction. Under the circumstances, there was no occasion for the Assessing Officer to make a reference to the Valuation Officer. As held by the Supreme Court in the case of Sargam Cinema (supra), unless the books of account are rejected, the Assessing Officer cannot make a reference to the Valuation Officer. The reference made to the Valuation Officer, not being in consonance with the provisions of law,. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. e. f.1. 10. 2014.It nowhere states that it will be active respectively. In the present case, as observed in the assessment orders (passed under section 143 (3) of the Act} itself, the assessee produced his books of account before the A. O. Complete details were f i led before the Assessing Officer who proceeded to make only routine or ad- hoc additions on account of payments made to some labour. In respect of A. Y. 2009- 10, assessment was completed by the Joint Commissioner of Income Tax, who has not pointed out any defect in respect of cost of construction, The order was passed by him on 14. 12. 2011, whereas, the survey was conducted upon the assessee on 19. 02. 2010. Neither in the statements of the partner whose statements were recorded during survey, nor in the assessment order passed by JCIT on 14. 12. 2011, there was any reference to any discrepancy in the books of accounts/incriminating documents in respect of cost of construction and the surrender of ₹ 1,75, 00, 000/- was made in respect of on money received. Assessment Order in the case of assessee for A. Y. 2010- 11 was made by Dy. Commissioner of Income Tax on 28. 03,2013 and as mentioned above, ad- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Karian International Site work has been disclosed as liability in the balance sheet. 8. The reference for valuation was made to the DVO, Ahmedabad/the VO, Baroda on 05/03/2013. However. No any valuation report is received till date in response to the reference for valuation. Therefore, this assessment is finalized subject to the discrepancy as to the cost of construction if any, found as per the valuation report. The assessment may be reopened u/s, 147 of the Act, if so required taking into consideration the valuation report. From the above mentioned Office- Note , it is clear that the A, 0. had not discovered any notable shortcoming in the books of accounts/vouchers maintained by the assessee. The assessment order for A. Y. 2011- 12 was passed by yet another officer who was Asstt. Commissioner of Income Tax and passed the order on 14. 03. 2014. Once more, the additions made were of routine nature., Addition of ₹ 2, 24,551/- was made on account of default u/s 40(a)(ia) of the Act, addition of ₹ 92, 000/- was made on ad hoc basis @10 % of site expenses (without pointing any discrepancy) and addition of ₹ 1, 00,000/- was made in respect of va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7556982 7556982 2008- 09 17584313 17584313 2009- 10 7021957 7021957 2010- 11 3063046 3063046 Total (B) 35226299 Dev Red Square 2007- 08 0 0 2008- 09 0 0 2009- 10 24175771 21475771 2010- 11 7167818 7167818 [ Total (C) 28643589 Dev Vrund 2007- 08 0 0 2008- 09 0 0 2009- 10 17187555 17187555 2010- 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment does not arise. The A. O. has not found any discrepancy in the books of accounts and has not rejected the books of accounts before proceeding to take up the matter with the DVO. No clinching evidence has been brought on the record by the A. O, in terms of undisclosed investments made in various projects executed and based on the report of DVO, the A. O. proceeded further without any base. When the appellant made a disclosure of ₹ 1. 75 crores on account of suppression of income and not on account of unaccounted cost of investment or expenses, the view put forth by the A. O, is irrelevant and unwarranted. These contentions of the Authorized Representative that the total investment made by the appellant in its various projects as reflected in its balance sheet was more than the estimate made by the DVO, were also sent to Assessing Officer for verification vide my letter dated 29. 09. 2017 while seeking his Remand Report. The Assessing Officer has not offered his comments on this contention of the appellant which is verifiable from the balance sheets of past 5 years produced before me. Thus, the contention of the Authorized Representative that the investments as per the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmane to provide foundation and sufficient basis for holding a bonafide belief that chargeable income has escaped assessment. It was contended that at the stage of issuance of notice under S. 148. the AO was merely obliged to form a prima facie believe on escapement on the basis of some evidence and the established factum of escapement at the stage of issuance of reopening notice is not the requirement of law. It was contended that in the present circumstances, where the valuation report of DVO coming to the possession of AO after assessment showing signification differences in the value of project costs and providing a plausible basis for formation of believe on escapement, it was the duty of the AO to invoke the powers available under s.147 of the Act to re-assess the total income of the Assessee after giving a reasonable opportunity to the Assessee, which is what was done by the AO. 12.2 It was contended in elaboration that Section 147 of the Act does not put any fetters on the power of the AO to exercise jurisdiction of reopening the assessment in the given circumstances. The AO is entitled to invoke jurisdiction under S. 147 on fulfillment of the requirement of existence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. On receipt of the valuation report after completion of assessment, the AO compared it with the corresponding project costs declared by the Assessee and realized of under-reporting in such costs. Consequently, the AO rightfully invoked the powers under S. 147 of the Act to assume jurisdiction for reassessment of escaped income as pointed out in the expert report. It was thus contended that the CIT(A) has failed to appreciate the purport of valuation report obtained under S. 142A in letter as well as in spirit and misdirected himself in law in holding the assumption of jurisdiction under s. 147 of the Act by the AO as void bad in law on the basis of such report. 12.6 6 On sustainability of additions on facts, the learned DR placed reliance upon the re-assessment order. It was submitted that the valuation report was confronted to the Assessee in the course of re- assessment proceedings. The assessee has failed to demolish the value arrived at by the Expert. It was further submitted that figures of cost of project in reasons recorded were never questioned or disputed by the assessee in the course of assessment. It was thus urged that the action of the CIT(A) be set aside both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s invalidated the action of AO on the grounds of lack of jurisdiction under S. 147 r. w. s. 148 of the Act. The first appellate authority has also concluded the issue on merits in favour of the assessee and deleted certain additions made by the AO towards costs of construction on the basis of valuation report. The Revenue has challenged the action of the CIT(A) both on the point of legitimacy of assumption of jurisdiction under s. 147 of the Act as well as reversal of additions on aspects of merits. 15. The competence and regularity of issuance of notice under S. 148 r.w. s S, 147 is under challenge which goes to the root of the matter. Hence, it may be pertinent of reproduce the respective reasons recorded for each assessment year in appeal for easy reference: 15.1 1 Reasons for reopening for assessment for AY 2010- 11 is reproduced hereunder: 2010-11 In this case, the assessee filed its return of income for Asstt, Year 2010- 11 on 14/10/2010 declaring business income of ₹ 1, 13,17, 245/-. Subsequently a revised return of income was e- filed on 18/03/2011 declaring total income at ₹ 1, 92, 70,561/-. The assessment was finalized u/s. 143(3) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010 - 11 0 0 0 Total 4,88,29,181 8,59,79,339 3,71,50,158 Dev Sarjan 2007 - 08 44,02,296 75,56,982 31,54,686 2008 - 09 1,12,16,836 1,75,84,313 63,67,477 2009 - 10 46,01,946 70,21,957 24,20,011 2010 - 11 22,92,913 30,63,046 7,70,133 Total 2,25,13,991 3,52,26,299 1,27,12,308 Dev Red Square 2007 - 08 0 0 0 2008 - 09 0 0 0 2009 - 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act read with Explanation - 2(c)(i) thereto for the Asstt. Year 2010- 11. 15.2 2 Similarly, reasons for reopening for assessment for AY 2009-10 is iterated hereunder: 2009-10 In this case, the assessee filed its return of income for Asstt, Year 2010- 11 on 14/10/2010 declaring business income of ₹ 1, 13,17, 245/-. Subsequently a revised return of income was e- filed on 18/03/2011 declaring total income at ₹ 1, 92, 70,561/-. The assessment was finalized u/s. 143(3) of the Income- tax Act, 1961 on 28/03/2013 determining total income at ₹ 1,94, 25, 530/-. 2. The assessee is engaged in the business of civil construction and development and other allied activities to construction. 3. Subsequently, on perusal of the order u/s 143(3) of the Act, it was noticed that there is an office note which revealed that there was a survey u/s 133A of the Act and the assessee had disclosed ₹ 1. 75 crore as undisclosed income. The same was reflected in the return of income filed by assessee. 4. It was further noticed that Assessing Officer vide letter no DCIT/Anand/Valuation/Devraj Devp/2012- 13 dated 26/02/2013 asked the District V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22,92,913 30,63,046 7,70,133 Total 2,25,13,991 3,52,26,299 1,27,12,308 Dev Red Square 2007 - 08 0 0 0 2008 - 09 0 0 0 2009 - 10 1,40,50,445 2,14,75,771 74,25,326 2010 - 11 53,56,473 71,67,818 18,11,345 Total 1,94,06,918 2,86,43,589 92,36,671 Dev Vrund 2007 - 08 0 0 0 2008 - 09 0 0 0 2009 - 10 78,44,037 1,71,87,555 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,12,16,836 1,75,84,313 63,67,477 2010 - 11 22,92,913 30,63,046 7,70,133 Dev Red Square 2007 - 08 0 0 0 2008 - 09 0 0 0 2010 - 11 53,56,473 71,67,818 18,11,345 Dev Vrund 2007 - 08 0 0 0 2008 - 09 0 0 0 2010 - 11 1,69,82,780 3,25,78,618 1,55,95,838 On the basis of the above information, it is observed that in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45,24,143 2008 - 09 3,52,36,135 6,17,45,261 2,65,09,126 2009 - 10 86,69,071 1,47,85,960 61,16,889 2010 - 11 0 0 0 Total 4,88,29,181 8,59,79,339 3,71,50,158 Dev Sarjan 2007 - 08 44,02,296 75,56,982 31,54,686 2008 - 09 1,12,16,836 1,75,84,313 63,67,477 2009 - 10 46,01,946 70,21,957 24,20,011 2010 - 11 22,92,913 30,63,046 7,70,133 Total 2,25,13,991 3,52,26,299 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, 46, 32, 166/- - ₹ 4, 28, 09, 482). Thus, this is a case of escapement of income . 16. A. Y. 2010-11 is stated to be the lead year for the purpose of adjudication. To begin with, we shall address ourselves to the question of legitimacy of reopening of assessment in the facts of the present case. It is the case of the Revenue that the valuation report received by the AO under s.142A of the Act after the closure of the assessment constitutes relevant material for the purpose of enabling the AO to invoke Section 147 of the Act and reopen the assessment so completed without the availability of valuation report. It is further contended that the formal rejection of books prior to invocation of Section 142A of the Act is not indispensible having regard to the plain language of the fact read with CBDT Circular No. 1/2015 issued in the context of substituted provision of Section 142A of the Act. The assessee, on the other hand, contends in his defense that firstly, the AO could not have proceeded to make reference under s. 142A of the Act without formal rejection of books of accounts which was not done at the time of original assessment proceedings. A reference to the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 142A of the Act at the fag end of the limitation period available to the AO for completion of the assessment. The reference to the Valuation Officer was made on 26/02/2013 requiring him to estimate the value of some construction projects so undertaken. The assessment was soon completed thereafter on 28. 03. 2013. Thus, an effective period of one month has been given to the Valuation Officer to observe the procedure mandated under s.142A of the Act and furnish the valuation report. Overtly, it is not possible for a Valuation Officer to comply with the mandate of reference under s. 142A of the Act viz. (i) issue notice to the assessee for collection of information, (ii) enter the premises under subject matter of reference, (iii) inspect and examine the contemporaneous position on fair value of the project, (iv) apply his mind to the facts available and (v) prepare valuation report. Even after receipt of valuation report, the AO is expected to confront the same to the assessee and give him proper opportunity to defend his position on the contents of valuation report. It is thus apparently not possible to complete the assessment on the basis of such valuation report within the availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and circumstances of the case, and in law, the Ld.CIT(Appeals) has erred in allowing the assessee s appeal, without appreciating the facts discussed in the assessment order and the remand report. 1.2 That in the facts and circumstances of the case, and in law, the Ld, CIT(Appeals) has erred in holding that the reference made by the AO u/s 142A was invalid, without appreciating the facts discussed in the assessment order and the remand report. 1.3 That in the facts and circumstances of the case, and in law, the Ld. CIT(Appeals) has erred in holding that the reference made by the AO u/s 142A without rejecting books of account was invalid. 1.4 That in the facts and circumstances of the case, and in law, the Ld, CIT(Appeals) has erred in holding that the reference made by the AO u/s 142A without rejecting books of account was invalid, even though Circular no. 1/2015 (para 43. 2) specifically says that 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. 1.5 That in the facts and circumstances of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessee to disclose fully and truly all material facts. Thus, the proviso to section 147 of the Act casts exemplary burden of meeting additional condition. 28. A bare perusal of reasons recorded reveals a stoic silence on such allegation. The AO has nowhere alleged any failure on the part of assessee. In the absence of such allegation, it is elementary that the additional conditions of first proviso are not fulfilled. In the absence of such allegation, the notice issued under S. 148(2) for AY 2009- 10 is clearly time- barred and thus vitiated in law. The case covered by proviso can not be reopened merely on the pretext that there was no conscious consideration of the pointed facts at the time of the assessment. In the absence of any demonstrable allegation together with evidence in its support, the notice under S. 148(2) of the Act has been rightly quashed by the CIT(A) owing to embargo of limitation under 1st Proviso in addition to main provisions of Section 147 of the Act. We thus decline to interfere. 29. The appellate order of CIT(A) on merits is also endorsed for the reasons mentioned in para 20 of this order. 30. In the result, appeal of the revenue in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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