TMI Blog2022 (8) TMI 302X X X X Extracts X X X X X X X X Extracts X X X X ..... in the sworn statement recorded on two different dates (i.e., on the date of survey on 11.07.2013 and u/s 131(1) of the I.T.Act on 24.07.2013), wherein he admitted that there may be some difference in the expenditure incurred in the building with the cost recorded in the books of account and also readily agreed to offer additional income of Rs.50 lakh in the hands of the assessee-company. Therefore, based on the declaration of the MD on two different dates, we confirm the addition of Rs.50 lakh for this assessment year. Moreover, we find that inspite of the addition of Rs.50 lakh, there is no tax liability for the assessment year 2013-2014 - ITA No.71/Bang/2022, 72/Bang/2022 & 73/Bang/2022 - - - Dated:- 13-6-2022 - Shri Chandra Poojari, AM And Shri George George K, JM Appellant by : Sri.V.Srinivasan, Advocate Respondent by : Sri.Narayana K.R., Addl.CIT -DR ORDER Per Bench : These appeals at the instance of the assessee are directed against three separate orders of the CIT(A), all dated 08.12.2021. The relevant assessment years are 2011-2012 to 2013-2014. Common issues are raised in these appeals, hence, they were heard together and are being dispos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the impugned addition of Rs. 27,48,607/- was spread equally over the years of construction without any basis or rationale and therefore, the addition made being opposed to facts and circumstances of the appellant's case ought to have been deleted. 3. Without prejudice to the above, the learned CIT[A] failed to appreciate that the cost of construction estimated by the learned DVO was highly excessive as he had adopted plinth area rates of CPWD instead of adopting local rates considering that the hospital building was constructed in Puttur, which is a small town in the mofussil area and therefore, the adoption of the higher CPWD rates was unwarranted and unjustified. 4. Without prejudice to the above, the learned CIT[A] ought to have appreciated that the rebate for self supervision of the construction of 4% allowed by the DVO was very paltry and the same deserves to be increased substantially. 5. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aper book comprises of 273 pages enclosing therein the computation of total income for the assessment year, various valuation reports submitted by the assessee, valuation report of the DVO, the written submissions filed before the various authorities, etc. The learned AR raised a preliminary contention that the A.O. has erred in referring the matter to the DVO without rejecting the books of account maintained by the assessee. It was submitted that prior to 01.10.2014 reference to the DVO without rejecting the books of account is bad in law and any addition made on the basis of DVO report cannot be sustained. In this context, the learned AR relied on the Hon ble Apex Court judgment in the case of Sargam Cinema v. CIT reported in 328 ITR 513 (SC) and the order of Bangalore Bench of the Tribunal in the case of M/s.Shetty Constructions v. ACIT in ITA No.286/Bang/2019 (order dated 12.02.2020). As regards the issue on merits, the learned AR assailed valuation done by the DVO as highly excessive. 6. The learned Departmental Representative supported the orders of the Income Tax Authorities. 7. We have heard rival submissions and perused the material on record. On a query from the Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of construction has been recorded by the assessee. This aspect has been examined in the case of Sargam Cinema (supra) and the law on this aspect is that Section 142A of the Income-tax Act, 1961 inserted by the Finance Act, 2004, with effect from November 15, 1972 enables the Assessing Officers to make a reference to Valuation Officer for the purpose of making assessment or reassessment under the Act. For quite sometime, the legal basis of a reference to Valuation Officer of the Department to determine cost of construction of buildings was the subject-matter of controversy before various Courts, some courts deciding in favour and some against the revenue, till the issue was decided by the Apex Court in the case of Smt. Amiya Bala Paul v. CIT [2003] 262 ITR 407 (SC). The legal basis of such references under sections 55A, 142(1), 131 and 133(6) was held as infirm in the said judgment. However, the law has been amended by the Finance Act No. 2, 2004 inserting section 142A with effect from November 15, 1972 enabling the Assessing Officers to make reference to Valuation Officer for the purposes of making an assessment or reassessment under the Act. 18. Sec.142A inserted by the F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation . Using this power, the Assessing Officer has been making a reference to the Valuation Officer for estimating the cost of construction of properties. The scope of power vested in an Assessing Officer under section 131 to make a reference to the Valuation Officer for estimating the cost of construction of properties has been a subject-matter of litigation. A new section 142A has been inserted by the Finance (No. 2) Act, 2004 to specifically provide that an Assessing Officer has the power to make a reference to the Valuation Officer for estimating the value of investment, expenditure, etc. This section has been inserted with retrospective effect from 15th November, 1972 to save the cases where such references have been made in the past and are still pending in litigation at one stage or the other. Sub-section (1) of the new section provides that where an estimate of the value of any investment referred to in section 69 or 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 for the purposes of making any assessment or re-assessment, the Assessing Officer may require the Va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer may make a reference to the Valuation Officer under sub-section (1) whether or not he is satisfied about the correctness or completeness of the accounts of the assessee. (3) The Valuation Officer, on a reference made under sub-section (1), shall, for the purpose of estimating the value of the asset, property or investment, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957). (4) The Valuation Officer shall, estimate the value of the asset, property or investment after taking into account such evidence as the assessee may produce and any other evidence in his possession gathered, after giving an opportunity of being heard to the assessee. (5) The Valuation Officer may estimate the value of the asset, property or investment to the best of his judgment, if the assessee does not cooperate or comply with his directions. (6) The Valuation Officer shall send a copy of the report of the estimate made under sub-section (4) or sub-section (5), as the case may be, to the Assessing Officer and the assessee, within a period of six months from the end of the month in which a reference is made under sub-section (1). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other evidence in his possession or gathered, after giving an opportunity of being heard to the assessee.If the assessee does not co-operate or comply with the directions of the Valuation Officer he may, estimate the value of the asset, property or investment to the best of his judgment. 43.4 It has also been provided that the Valuation Officer shall send a copy of his estimate to the Assessing Officer and the assessee within a period of six months from the end of the month in which the reference is made. 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 the assessment or reassessment. 43.5 Sections 153 and 153B of the Income-tax Act have also been amended to provide that the time period beginning with the date on which the reference is made to the Valuation Officer and ending with the date on which his report is received by the Assessing Officer shall be excluded from the time limit provided under the aforesaid section for completion of assessment or reassessment. 43.6 Applicability:- These amendments take effect from 1st October, 2014. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Sargam Cinemas (supra). The legislature did not make the law retrospective in operation nor were pending proceedings saved as was done when Sec.142A was inserted by the Finance (No.2) Act, 2004 w.r.e.f. from 15.11.1972. It cannot also be said that Sec.142A as inserted by the Finance Act, 2014 has retrospective effect. Therefore, We are of the view that the reference to DVO in the present case is invalid because as held by the Hon ble Supreme Court in the case of Sargam Cinemas Vs. CIT 262 ITR 513 (SC) rejection of books of accounts is a precondition for making a reference to DVO and there was admittedly no such rejection of books of accounts. 25. It is clear from the aforesaid exposition of law on the issue that the reference to DVO in the present case is illegal and any addition made on the basis of such report cannot be sustained. The addition made by the AO is therefore, liable to be deleted on the short ground. In view of the conclusion on ground no.2 we do not wish to go into other grounds of appeal and the additional grounds of appeal before us. 7.1 In the instant case, as mentioned earlier, reference to the DVO was made by the A.O. much prior to 01.10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciples of natural Justice in relying upon the report of the DVO for making the impugned addition. 3.3 The learned CIT[A] ought to have appreciated that the plinth area rates method of valuation adopted by the learned DVO was opposed to law and facts of the appellant's case in as much as the appellant has maintained bills and vouchers that were impounded at the time of survey and the same were also produced before the learned DVO and therefore, the adoption of the plinth area method of valuation is untenable and the impugned addition made on this basis deserves to be vacated. 4. Without prejudice to the above, the learned CIT[A] failed to appreciate that the cost of construction estimated by the learned DVO was highly excessive as he had adopted plinth area rates of CPWD instead of adopting local rates considering that the hospital building was constructed in Puttur, which is a small town in the mofussil area and therefore, the adoption of the higher CPWD rates was unwarranted and unjustified. 5. Without prejudice to the above, the learned CIT[A] ought to have appreciated that the rebate for self supervision of the construction of 4% allowed by the DVO was very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Asst.Year 2012-13 (previous year 2011-12). 10.1 Later, the statement u/s 131(1) of the I.T.Act on 24.07.2013, the MD reviewed his declaration and offered the additional income of Rs.50 lakh for the assessment year 2013-2014 instead of assessment year 2012-2013, as admitted earlier during the course of survey. The relevant question and answer to the same reads as follows:- Q2. During the course of survey u/s 133A carried out at M/s.Purtur City Hospital Pvt. Ltd., Puttur, a statement was recorded from you as Managing Director of the company. In the said statement you have declared an additional income of Rs.50,00,000/- in respect of the company for the Asst.Year 2012-13. Whether you have paid any tax towards the additional income declared and when will you be filing your revised return? Ans: Yes, on the date of survey I had declared additional income of Rs.50:00 lakhs for Asst.Year 2012-13. But, subsequently I had a meeting with the board of directors of the company and the directors have suggested to review the declaration on the basis of payments made for construction. Actually the major payments towards the construction and interior work of 4th and 5th floo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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