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TMI Blog1997 (2) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... officer. As per the report of the Dist. valuation officer (DVO), the amount invested during the year was estimated at Rs. 6,56,457. The difference between the actual investment shown by the assessee and the estimate made by the valuation cell works out to Rs. 3,51,887. In response to the show-cause notice issued by the Assessing Officer directing the assessee to explain as to why the difference should not be taken as unexplained investment in the construction of the market complex, assessee filed detailed reply contending, inter alia, that the Assessing Officer is not justified in obtaining an expert opinion of the Dist. valuation cell for determining the cost of construction by issuing summons under section 131(1)(d) of the Income-tax Act, 1961. However, the Assessing Officer was of the opinion that the reference to the valuation officer is proper as it helps the Assessing Officer in framing the assessment order on sound reasoning and without any bias/prejudice. As regards the registered valuer's report submitted by the assessee, Assessing Officer observed that the cost of construction determined by the Registered Valuer was simply based on the rates figuring in P.W.D. Manual wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer was, in the absence of vouchers, justified in referring the case to the valuation cell. He has further recorded his reasons to explain that the rate adopted by the valuation cell is preferable to that of the P.W.D. schedule of rates adopted by the registered valuer. 6. Further aggrieved, assessee is in appeal before us. Ld. counsel for the assessee contended before us that the commercial complex is constructed by the assessee as per the agreement between Burdwan Municipality and the assessee-firm. He further submitted that upon construction of the property, the commercial complex becomes the property of the Municipality and the limited right that the assessee had, in his capacity as lessee, is to recover the cost of construction and hence the assessee cannot be said to be a gainer by investing unaccounted for money. The main thrust of the argument of the ld. counsel is that the assessee not being the owner of the property, there cannot be a question of unaccounted investment in such property. He has taken us through various clauses in the agreement in support of his aforesaid submission. Ld. counsel further submitted that the books were maintained regularly and all the expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , (c) CIT v. Vindaban Chitra Mandir [1944] 209 ITR 520/73 Taxman 673 (All.), (d) CIT v. Western Estates [1994] 209 ITR 343 (Cal.), (e) Dhirajlal Girdharilal v. CIT [1954] 26 ITR 736 (SC), (f) CM. Francis & Co. (P.) Ltd. v. CIT [1970] 77 ITR 449 (Ker.), (g) Shekhar Chand Jain & Sons v. IAC 32 TTJ (Delhi) 570, (h) ITO v. Tek Chand [1995] 52 ITD 197 (Jp.), (i) Nishant Housing Development (P.) Ltd. v. ACIT [1995] 52 ITD 103 (Pat.), (j) Supdt. of Taxes v. Omkarmal Nathmal Trust AIR 1975 SC 2065, (k) Smt. Uma Devi Jhawar v. ITO 126 [1995] Taxation 452 (Cal.), (l) Godhumal Kewalram v. ITO [IT Appeal No. 255 (All.) of 1971-72]. 7. On the other hand, ld. departmental representative submitted that though the assessee is not the owner of the property, it is entitled to be benefited on account of superior construction, by virtue of the lease agreement, and hence it can be said to be an interested party in the construction work. He has referred to several clauses in the lease deed to impress upon us that the assessee would be benefited by making a quality construction as it is entitled to recover not only the cost of construction but also some additional amount. As regards th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the question as to whether the assessee is the owner of the property or not, in considering the question of unexplained investment, is not directly relevant. At any rate, we find from the lease agreement that the assessee would be indirect beneficiary as it not only recovers the cost as shown to the Municipality but also an additional amount for a period of 25 years, which is subject to further extension of lease. We are, therefore, not impressed with the arguments of the ld. counsel for the assessee in that regard. 9. As regards the legality of making an addition on the basis of the report of the DVO, we find substantial force in the contentions of the ld. counsel for the assessee for the following reasons. As could be seen from the order-sheet entry, the return filed by the assessee for the assessment year 1991-92 was processed under section 143(1)(a) on 7-2-1992 which was reopened by issuing notice under section 143(2) and converted it into a scrutiny assessment. From 14-2-1992 till 31-3-1994 (date of assessment order), there is no remark in the order-sheet to show that the books of account produced by the assessee contained defects or the cost of construction as recorded in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner (Appeals) has rejected the contention of the assessee on the ground that no detailed vouchers of building materials were produced by the assessee either before the registered valuer or before the DVO. A careful reading of the order of the Commissioner (Appeals) as well as the order of the Assessing Officer would make the matter explicitly clear that the Assessing Officer has not called for the vouchers and did not point out any defects in the books maintained by the assessee wherein the cost of construction was recorded. In fact, at the time of making the reference to the valuation officer under section 131(1)(d) of the Act, the Assessing Officer did not seem to have rejected the books of account maintained by the assessee and it was only at the time of making an assessment, in order to justify the addition to be made on the basis of the DVO's report, it was observed that the assessee has not produced vouchers before the valuation officer. Even at that point of time, the Assessing Officer has never called for the books or vouchers in his independent right to look for the defects, if any, at this juncture. It may be relevant, at this point to analyse the judicial precedent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly, addition cannot be made on the basis of the report of the DVO without pointing out any defects in the books : (a) Sheikhar Chand & Sons' case (b) Western Estate's case (c) Vindaban Chitra Mandir's case (d) Shekhar Chand Jain & Son's case (e) Tek Chand's case (f) Nishant Housing Development (P.) Ltd.'s case (g) Smt. Uma Devi Jhawar's case. 12. From the aforesaid judgment the following proposition would emerge : (a) For the purpose of making an addition, towards unexplained investment, the Assessing Officer is under legal obligation to verify the books and vouchers maintained by the assessee in support of the cost of construction shown by him and point out specific defects ; (b) Upon rejection of the books or upon pointing out defects, the Assessing Officer would acquire the right to refer the matter to the valuation officer, if so required ; and (c) When the assessee produces registered valuer's report based on the State P.W.D. rates, it cannot be simply rejected without giving cogent reasons. 13. Admittedly, the valuation made by the registered valuer is based on the P.W.D. rate schedule and it is not the case of the department that proper cost of cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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