TMI Blog2018 (5) TMI 2096X X X X Extracts X X X X X X X X Extracts X X X X ..... nough for the Assessing Officer to initiate the assessment proceedings for the assessment year 2007-08 to assess the correct income of the assessee. We, therefore, set aside the findings of the learned Commissioner of Income Tax (Appeals) and hold that the assessment for the assessment year 2007-08 u/s 153A r.w.s. 143(3) of the Act was valid. The relevant grounds of the revenue for the assessment year 2007-08 are allowed. Addition for the undisclosed investment in land and building - HELD THAT:- On the objections raised by the assessee, learned Commissioner of Income Tax (Appeals) again directed for a fresh valuation. Vide Departmental Valuation Officer s valuation report dated 17.5.2016 the fair market value of the property was valued assessment ₹ 70,05,000/-. As a result, the addition was sustained at ₹ 7,05,000/-. These facts clearly show that there was variation in the valuation report of the Departmental Valuation Officer. This is not the revenue s case that there was any objection by the Registrar for payment of stamp duty and the purchase consideration was also not questioned. The alleged addition is also within the range of 10% of the cost of land and build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,00,042 4.7.2013 8,00,000 0 2010-11 24.9.2010 3,05,619 4.7.2013 3,05,620 0 2011-12 31.3.2012 3,05,463 4.7.2013 3,45,645 0 2012-13 29.9.2012 37,41,190 4.9.2013 7,41,190 30,00,000 4. During the course of assessment proceedings as well as on examination of seized records it was revealed that the assessee purchased a house property at 71, Bajaj Khana Chowk, Ratlam, vide registered sale deed dated 5.2.2007. Incriminating material was found showing that unaccounted construction activities were carried out during F.Y. 2011-12. On being confronted, the assessee surrendered an additional income of ₹ 30 lacs as unexplained investment in construction of house during assessment year 201213. A sum of ₹ 28,61,054/- and ₹ 33,00,963/- was already shown by the assessee as cost of construction during assessment years 2010-11 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings u/s 153A in absence of incriminating documents whereas, as per the Income Tax Act and in the light of various case laws the assessment proceedings cannot be invalid when a search warrant was issued in the name of the assessee. (ii) On the facts and in the circumstances of the case, the ld. CIT(A) has erred in holding that additions based on incriminating material only can be made in abated/completed assessment. (iii) Whether returns processed u/s 143(1) can be treated as completed assessment despite the fact that Hon'ble Apex Court has categorically held that processing of return u/s 143(1) does not amount to assessment in the case of ACIT vs. Rajesh Jhaveri Stock Broker Pvt. Ltd. Case No. 2830 of 2007. 8. The learned Departmental Representative supported the observations of the Assessing Officer and further referring to ground no. 3 of the appeal, submitted that the assessment for the assessment year 2007-08 in the case of the assessee was processed u/s 143(1)(a) of the Act. Further, in view of the Hon'ble Apex Court judgment in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Limited Case No. 2830/2007 wherein the Hon'ble Apex Court has held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cture of the building was commenced in next two years i.e. A.Y. 2008-09 and A.Y. 2009-10. The appellant had submitted return of income u/s 139(1) of the Act on 29.10.2007 declaring the same at ₹ 1,88,153/- which was processed u/s 143(1) of the Act. Search proceedings were initiated on 07.09.2011 in case of appellant and his family members. In response to notice u/s 153A of the Act return of income was submitted declaring the same income on 04.07.2013. During search proceedings, certain loose papers were found relating to purchase of construction material and labour payments etc. pertaining to A.Y. 2012-13. The assessee had surrendered an additional income of ₹ 30 lacs as unexplained investment in construction of house during A.Y. 2012-13. (Page 68 to 80 of P.B). (iii) The AO made reference to the District Valuation Officer to estimate the cost of construction but he estimated the fair market value of land as well cost of building under construction purchased by the appellant at ₹ 142.34 lacs as against ₹ 69.76 lacs as per registered sale deeds including cost of stamps relevant for A.Y. 2007-08. Said valuation report was objected by the appellant due to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to A.Y. 2012-13 hence the assessee had surrendered an additional income of ₹ 30 lacs invested in construction of house during A.Y. 2012-13. None of the loose paper found during search related to A.Y. 2007-08 to A.Y. 2011-12. There being no incriminating material relevant to A.Y. 2007-08, the assessment framed was without jurisdiction hence the same was struck down on that ground by learned CIT(A) being settled law by referring to following judgments, which deserves to be upheld :- All Cargo Global Logistics Ltd Vs DCIT 137 ITD 287 (Special Bench) CIT Vs Anil Kumar Bhatia 211 Taxman 453 (Delhi) CIT Vs Continental Warehousing Corporation 120 DTR 089 (Bom) Kabul Chawla Vs ACIT 151 ITD (Del) Gurinder Singh Bawa Vs DCIT 150 ITD 040 (Mum) Atul Barot Vs DCIT 44 Taaxman.com 167 (Mum) DCIT vs. Kalani Brothers Pvt. Ltd (2016) 27 ITJ 286 (Indore ITAT) Anant Steels Pvt Ltd vs. ACIT (2016) 28 ITJ 47 (Indore ITAT) (vii) Kind attention is invited to subsequent judgments wherein same view has been taken by Supreme Court and High Courts as under :- a. CIT vs. Singhgad Technical Education Society (2017) 397 ITR 344 (SC) b. Com. Income Tax vs. SKS Ispat Powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eized material. Obviously an assessment has to be made under this Section only on the basis of seized material. v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings ceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. We find that in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the property was purchased by registered sale deeds and no expenditure was found to have been incurred towards addition/alteration expenses at all for next two years. Addition confirmed to the extent of ₹ 7,05,000/- is, therefore, unjustified, improper, bad in law and deserves to be quashed. 12. Briefly stated, the facts of the case are that during the course of assessment proceedings the Assessing Officer on the strength of the valuation report made an addition of ₹ 72,57,600/- towards unexplained investment in purchase of land and building. During the appellate proceedings before the learned Commissioner of Income Tax (Appeals), the assessee s objection for the exorbitant valuation of land and building was forwarded to the Departmental Valuation Officer through the Assessing Officer and fresh valuation report dated 17.5.2016 was issued and the impugned addition was restricted to ₹ 7,05,000/- only as against ₹ 72,56,600/- made earlier. The learned Commissioner of Income Tax (Appeals) did not deal with this ground treating it as infructuous as she already gave a finding holding that the assessment proceedings were not valid. B) Now the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that there was variation in the valuation report of the Departmental Valuation Officer. This is not the revenue s case that there was any objection by the Registrar for payment of stamp duty and the purchase consideration was also not questioned. The alleged addition is also within the range of 10% of the cost of land and building shown by the assessee. We, therefore, are of the considered opinion that no addition was called for towards unexplained investment in purchase of property and we accordingly delete addition of ₹ 7,05,000/- and allow the Cross Objection of the assessee. 15. Now we shall take up cross appeals for the assessment years 2010-11 to 2012-13. In IT(SS) A No. 178/Ind/2016 for the assessment year 2010-11 the revenue has taken the following ground of appeal :- (i) On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the additions partly on account of unaccounted investment in house property. (ii) On the facts and in the circumstances of the case, the ld. CIT(A) has erred in not considering the findings of the Assessing Officer placed on the record by the A.O. (iii) On the facts and in the circumstances of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t only arbitrary but it is beyond imagination. Addition so confirmed at ₹ 28,38,693/- is unjustified, improper, bad in law and deserves to be quashed. 3. Without prejudice to above, the learned Commissioner of Income tax (A) erred in law in confirming the addition of ₹ 28,38,693/- based on DVO s report dated 17.05.2016 for the year under appeal i.e. A.Y. 2010-11. She ought to have considered that there was no basis or any incriminating material to estimate and allocate additional cost of construction in A.Y. 2010-11. The appellant maintained books of accounts wherein cost of construction was regularly accounted for hence difference, if any, due to estimation of cost as per DVO report should have been considered in A.Y. 2012-13 only i.e. the year in which the construction was completed and the appellant made additional surrender of income. In IT(SS) A No.164/Ind/2016 for assessment year 2011-12 the assessee has taken the following ground of appeal :- 1. That the learned Commissioner of Income tax (A) erred in law in confirming the addition of ₹ 32,75,163/- to the total income ignoring detailed reply along with approved valuer s report submitted before him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income tax (A) erred in law in allowing reduction in the cost of construction estimated by the DVO to the extent of 15% only ignoring the detailed written submissions and location of the property. Such estimation of cost made by DVO was not only arbitrary but it is beyond imagination. Addition so confirmed at ₹ 29,52,752/- is unjustified, improper, bad in law and deserves to be quashed. 16. From the perusal of the above grounds we find that the issues raised in these appeals revolves around the additions sustained by the learned Commissioner of Income Tax (Appeals) for the three assessment years for alleged unexplained investment in construction of building. For better understanding, we reproduce below the chart showing the additions made by the Assessing Officer and the relief given by the learned Commissioner of Income Tax (Appeals) :- Assessment Year As declared by appellant Revised estimate by DVO II as per report dtd. 17.05.2016 Difference considered by CIT(A) for adjudication Deductions allowed by CIT(A) @ 15% towards CPWD/ PWD rates 2010-2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t page no. 1 to 12 13 to 25 = 02) Search proceedings were initiated on 07.09.2011 in case of appellant and his family members. Certain loose papers were found relating to purchase of construction material and labour payments etc. pertaining to A.Y. 2012-13. The assessee had surrendered an additional income of ₹ 30 lacs as unexplained investment in construction of house during A.Y. 201213. (Page 68 to 80 of P.B). The AO made reference to the District Valuation Officer to estimate the cost of construction of residential house. The valuation report given by the District Valuation Officer was objected by the appellant vide letter dated 27.01.2014 because it contained various discrepancies and proper opportunity was not given by DVO. The AO did not consider the objection and vide para 11.4 of the assessment order he accepted the valuation report even without considering the mistakes pointed out by the appellant. Based on valuation report dated 21.01.2014 AO made additions of ₹ 136.82 lacs to the total income of the appellant for Assessment years 2010-11 to 2012-13 as unexplained investment in the house property. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 79/- in aggregate. Such construction work was carried out after search proceedings. Non-consideration of such investment of ₹ 12.09 lacs out of ₹ 17.68 lacs incurred as per books of account in October/November 2015 resulted into treatment of recorded explained expenditure as alleged unexplained expenditure. 1.2 The DVO not only measured constructed area of the building in excess as compared to Registered Valuer but even CPWD rates applied by him were also exorbitant as compared to applied by Registered valuer as detailed below :- Description Constructed Area Rates applied As per DVO As per Regd. Valuer By DVO By Regd. Valuer In sq.meter Sq.ft. Sq. meter per sq.meter Per Sq.ft. Per Sq. meter Basement 383 1750 127.28 ₹ 9,337/- ₹ 475/- ₹ 5,113/- Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (Page 65 of P.B. ) whereas normally such deduction is being allowed by the Hon ble Tribunals considering the contractors profit to the extent of 15% to 20%. The learned CIT(A) allowed the reduction to the extent of 15% only which was not justified at all considering the location of the property and personal supervision at all levels. Reliance is placed on following judgments :- S.no. Particulars Towards CPWD rates Towards self supervision Total 01) A. Abdul Rahim v. ITO, (2002) 258 ITR 714 (Mad.) 15% 11% 26% 02) Shri Jagmohan Jaiswal, (2008) 10 ITJ 187 (Trib.-Indore) 30% 10% 40% 03) Kalpana Surana v. ITO (2016) 28 ITJ 277 (Trib.-Indore) 25% - 25% 04) Nandu Atmaram Rajput vs. DCIT, Pune, ITA No.1036 to 1041/PN/2014 dated 05.08.2016 20% 12.5% 32.5% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of cost of construction made by DVO is unrealistic ignoring the locality as well actual constructed area. The learned counsel for the assessee further with regard to Pro-rata allocation of unexplained cost of construction in A.Y. 2010-11 2011-12 stated that certain loose papers were found relating to purchase of construction material and labour payments etc. during search pertaining to A.Y. 2012-13 only against which an additional income of ₹ 30 lacs was surrendered. No incriminating material was found during search which relate to earlier years hence in case any amount is considered as unexplained investment in construction of house, it has to be assessed for A.Y. 2012-13 only. Reliance is placed on recent judgment of Delhi High court in the case of Pr. Commissioner of Income tax vs. Meeta Gutgutia (2017) 395 ITR 526 wherein it has been held as under :- Any and every document cannot be and is not an incriminating document. No addition can be made for a particular assessment year without there being an incriminating material qua that assessment year which would justify such an addition. The Hon ble Supreme Court in the case of CIT vs. Singhgad Technical Education ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made the addition of ₹ 136.82 lacs. The assessee challenged the report of the Departmental Valuation Officer and at the request of the assessee, the learned Commissioner of Income Tax (Appeals) directed for a fresh valuation report. The Departmental Valuation Officer vide report dated 17.5.2016 estimated the cost of construction at ₹ 214.73 lacs. Accordingly, the addition was reduced to ₹ 123.11 lacs. During the appellate proceedings, the assessee raised various objections for the alleged mistakes committed by the Departmental Valuation Officer making excessive valuation. However, the assessee partly succeeded as the learned Commissioner of Income Tax (Appeals) allowed 15% for CPWD rates deduction calculating at ₹ 32.16 lacs, thereby sustaining the addition to ₹ 90.95 lacs. 22. We further find that during the course of hearing, the learned counsel for the assessee drew our attention to some glaring mistakes committed by the Departmental Valuation Officer which, in our view, are correct to the extent as mentioned below :- (i) The addition to cost of construction of ₹ 12,08,979/- which the assessee has actually paid by account payee cheque du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on upto 12.5% of self supervision charges was held to be justified whereas the Departmental Valuation Officer has given deduction of 2.5% only. 23. As observed by us in the preceding paragraphs wherein facts emanating out of the submissions made by the learned counsel for the assessee, multiple valuation reports prepared by the registered Valuer as well as Departmental Valuation Officer clearly depict that the valuation of investment in construction of the building has been overstated and looking to the fact that the impugned building is situated in Ratlam, rates taken for the purpose of valuation are excessive. We, therefore, in the given facts and circumstances of the case, find it justified to calculate the valuation of the building after giving relief/deduction/relaxation, as discussed above, against the total valuation made by the Departmental Valuation Officer vide his report dated 17.5.2006 in following manner :- Particulars Amount Rs. 1. Valuation taken by D.V.O. before giving rebate for self supervision and the addition for consultancy and external service charges (appearing at page 65 of the paper book) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted quoting the judgment of the Hon'ble Delhi High Court in the case of CIT Vs.Dharampal Limited; ITA No. 512/2016 dated 21.8.2017 submitted that both the lower authorities erred in sustaining the addition in those assessment years for which no incriminating material was found during the course of search and, therefore, the addition, if any, to be sustained towards the alleged unaccounted investment in construction of building should be made only for assessment year 2012-13. 26. Per contra, the learned DR vehemently argued supporting the orders of the lower authorities. 27. We have heard both the parties and perused the material available on record as also gone through the judgment referred to and relied upon by the learned counsel for the assessee. This fact is not disputed at any stage during the assessment proceedings before the Assessing Officer and the learned Commissioner of Income Tax (Appeals) that apart from the documents relating to purchase of property, incriminating material relating to construction of building was found relating to F.Y. 2011-12 i.e. assessment year 2011-12. The search party as well as learned Assessing Officer could not bring on record any io ..... X X X X Extracts X X X X X X X X Extracts X X X X
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