TMI Blog2019 (2) TMI 2103X X X X Extracts X X X X X X X X Extracts X X X X ..... DVO s report is to be ignored and cannot be the basis to make the addition. Thus AO is not justified in referring the matter to the DVO u/s 142A(1) without first rejecting the books of account. So far as the observation of the ld.CIT(A) that the assessee has not produced the books of account completely as per requirement of the Assessing Officer is concerned, the same is contrary to the facts. The finding of the CIT(A) shows that the assessee has maintained regular books of account. The reply of the assessee before the Assessing Officer as well as the observation given by the Assessing Officer in the body of the assessment shows that the assessee has produced the books of account. Decided in favour of assessee. Addition u/s 68 - share application money received by the assessee from the three persons - Addition made as assessee failed to produce the above parties for his examination and the letters issued to the above three parties were not complied with since one letter was returned unserved and the other two parties did not respond - Assessee argued that proper opportunity was not granted to the assessee - HELD THAT:- Considering the totality of the facts of the case and in the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,08,729/-. He further noted that the value declared by the assessee as cost of construction includes development expenses of Rs. 18,81,388/- which is not construction cost. Therefore, the cost of construction declared by the assessee amounts to Rs. 1,62,27,341/-. The Assessing Officer, therefore, asked the assessee to explain the difference in the cost of construction at Rs. 4,01,79,659/- (i.e., Rs. 5,64,07,000/- (-) Rs. 1,62,27,341/-). The assessee filed detailed reply and objected to the valuation made by the DVO. However, the Assessing Officer rejected the objections raised by the assessee and added the amount of Rs. 4,01,79,659/- to the total income of the assessee as unexplained investment. 4. The Assessing Officer further noticed that the assessee received share application money of Rs. 20 lakhs from three persons, namely, Nepostel (India) (P) Ltd.- Rs. 10 lakhs, Ria Marketing Services (P) Ltd. Rs. 5 lakhs, and Invish Finvest (P) Ltd. Rs. 5 lakhs. On being asked by the Assessing Officer to produce the above parties for his examination, it was replied by the assessee that these persons being of means are busy in their social and official engagements cannot be produced today i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case in deleting the addition. ITA No.1992/Del/2008 1. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in not deleting in full the addition made by Ld. AO of Rs. 4,01,79,659/- on account of alleged unexplained investment in the factory building that too without any basis, material or evidences and has further erred in sustaining the addition of Rs. 1,18,54,248/- on this account. 2. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in not deleting in full the addition made by Ld. AO of Rs. 4,01,79,659/- on the ground that Ld. AO has erred in law and on facts in making a reference to Ld. DVO u/s 142A that too without pointing out any defects in the books of account and without rejecting the books of account and has further erred in relying upon the report furnished by the ld. DVO and in any case valuation report supplied by the valuation officer being bad in law and against the facts and circumstances of the case. 3. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in not reversing the action of Ld. AO in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting the appropriate relief as sought by the assessee in this regard. 5E That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in not accepting the quantity of oil tank structure at 136 KL as shown by the registered valuer of the assessee company in its report on the basis of sanction obtained of the competent authority and has further erred in accepting the same at 1410 KL as shown by Ld. DVO in its report that too without any basis, material or evidences and has further erred in not granting the appropriate relief as sought by the assessee in this regard. 5F That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in not accepting the rates of construction of oil tank structure @ 2.10 PL as shown by the registered valuer in its report and has further erred in accepting the same @ 3.25 PL as shown by Ld. DVO in its report that too without any basis, material or evidences and has further erred in not granting the appropriate relief as sought by the assessee in this regard. 6. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epting the rate of construction and capacity in respect of oil tank by wrongly considering this issue again u/s 154 and directing the Assessing Office in wrongful manner to adopt the measurement of 136KL taken by the registered valuer instead of 1410KL taken by the DVO and again directing the AO in wrongful manner to adopt the rates of oil tank structure at the rate of Rs. 2.10 PL(adopted by registered valuer of assessee) as against the rate of 3.25PL (adopted by DVO in his report). 8. Order of the Commissioner of Income Tax (Appeal), Bareilly dated: - 16- 09-08 may be set-a-side and that order of the Assessing Officer dated 26/12/2006 may be restored. 9. Any other grounds which may be taken during the course of appellate proceedings. 7. The ld. counsel for the assessee, at the outset, argued the first issue i.e., the addition made by the Assessing Officer on account of unexplained investment in the factory building totaling to Rs. 4,01,79,659/-. 8. The ld. counsel for the assessee, referring to page 4 of the assessment order, submitted that the Assessing Officer has referred the matter to the DVO u/s 142A of the Act vide letter dated 5th April, 2006. He submitted that before refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne the detailed and correct cost of construction of the factory building. Referring to the various replies given by the assessee, he submitted that the assessee has produced all the relevant books of account including cash book, ledger, bills and vouchers, etc. and, therefore, the finding of the ld.CIT(A) is not correct. 10. So far as the merit of the case is concerned, the ld. counsel for the assessee submitted that the amount sustained by the ld.CIT(A) is not just and proper since he has not considered the arguments advanced by the assessee and has not granted self supervision charges at 10%. Further, there are certain arithmetical errors in the totaling and application of abnormal rate of construction of underground water tank and various other items. He has not considered the report of the registered valuer in the right perspective. He accordingly submitted that both legally and factually, the order of the CIT(A) is not sustainable and, therefore, the additions made by the Assessing Officer and sustained by the CIT(A) should be deleted. So far as the relief granted by the CIT(A) is concerned, he strongly supported the order of the CIT(A) to this extent. 11. The ld. DR, on the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the books of account and only thereafter he gets the authority as per law to make any reference to the D.V.O for the ascertainment of correct amount of cost incurred by the appellant company. A.R. has argued repeatedly that this is a condition precedent to enable A.O. to assume jurisdiction to make reference to the D.V.O. He has relied upon plethora of decisions of various High Courts and the Income Tax Appellate Tribunal including the decisions from Hon ble Allahabad High Court. I have considered the argument of A.R. and I have also gone through case laws relied upon by him. I find force in the arguments of A.R. It is clear from the assessment order that the Books of Accounts were produced and examined by A.O on 13-02-2006. During this period, the A.O. made the detailed examination of records of appellant Co. and no defect was pointed out by him and there was no such finding recorded in the assessment order that it was not possible for him to ascertain cost of construction from these books of account. The appellant is a company whose accounts have been audited and the auditors have not pointed out any defect. The A.O. made reference to DVO on 05-04- 2006 and before doing that A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r correctance is not doubted then these should be accepted and AO has no cause for making reference to DVO. Moreover the rejection of books of account is a condition precedent to reference to the DVO. I intend to agree to the AR that after the insertion of section 142A of the I. T. Act by Finance Act 2004, the AO is bound to follow the law as per bounded by jurisdiction of High Court. Besides, if the value of an asset is determined and claimed by an assessee on the basis of regular books of accounts maintained for that purpose and not on the basis of registered valuers valuation report, the reference to the DVO by the AO is not proper. Section 55A of I.T. Act requires specially vide sub clause (ii) of clause (b) that the AO as to record the basis or reasons for making a reference to DVO for ascertaining the fair market value of asset having regard to the nature of the asset and other relevant circumstances. In the light of decision of CIT Vs Hotel Joshi as mentioned (Supra) it is also not necessary to accept the report of the DVO based on CPWD rates nor it is necessary to accept the report of the registered valuer based on PWD rates because the cost of construction varies from plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment. Would the language of Section 142A mean that before proceeding to call for a report of the Valuation Officer, the books of accounts must be rejected. 19. The judgment in Bhawani Shankar Vyas (supra) also came up for consideration before the Supreme Court in the case of Sargam Cinema Vs. Commissioner of Income -Tax, [2010] 328 ITR 513 (SC)], wherein the Supreme Court has held that the Assessing Authority cannot refer the matter to the Departmental Valuation Officer without first rejecting the books of account. Once that be the law as declared by the Supreme Court, it is not possible for us to consider the contention advanced on behalf of the revenue. 20. For the aforesaid reasons, the questions of law as framed would not arise and, consequently, all the appeals are dismissed. 14. We find the Hon'ble Allahabad High Court in the case of CIT vs Subhash Chandra Gupta (supra) has held that the Assessing Officer cannot refer the matter to the DVO without first rejecting the books of account. Similar view has been taken by the Hon'ble Allahabad High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 513 (SC). 5. Sri Sidharth Dhaon, learned counsel for Revenue, however, submitted that there is another judgment of Andhra Pradesh High Court in Bharathi Cement Corporation Pvt. Ltd. Vs. Commissioner of Income Tax and others, (2013) 356 ITR 74, which is a decision dismissing appeal of Assessee at the stage of admission. It is submitted that therein a divergent view has been taken. 6. We find that in the judgment of Andhra Pradesh High Court, judgment in Sargam Cinema Vs. Commissioner of Income Tax (supra) has been noticed in para 16 and it has been held that since it is a short judgment and facts are not very clear, therefore, same will not help the Assessee. 7. It appears that relevant facts were not brought to the notice of the Bench which caused decision in Sargam Cinema Vs. Commissioner of Income Tax (supra) but so far as this Court's judgment in Commissioner of Income Tax-I, Kanpur Vs. M/s Sahyog Jan Kalyan Samiti, Kanpur (supra) is concerned, we find that in the appeal preferred by Revenue, it was admitted by it that law laid down in Sargam Cinema Vs. Commissioner of Income Tax (supra) on the similar question is clearly applicable and has been answered against Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has made the reference to the DVO without first rejecting the books of account. The grounds raised by the assessee are accordingly allowed on this issue and the grounds raised by the Revenue are dismissed. 19. Now, coming to the second issue i.e., the addition u/s 68 is concerned, we find the Assessing Officer, in the instant case, made addition of Rs. 20 lakhs being share application money received by the assessee from the three persons named earlier on the ground that the assessee failed to produce the above parties for his examination and the letters issued to the above three parties were not complied with since one letter was returned unserved and the other two parties did not respond. It is the submission of the ld. counsel for the assessee that proper opportunity was not granted to the assessee and, therefore, he has no objection if the matter is restored to the file of the Assessing Officer with a direction to give one final opportunity to the assessee to substantiate with evidence to his satisfaction regarding the identity and credit worthiness of the share applicants and the genuineness of the transaction. 20. Considering the totality of the facts of the case and ..... 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