COMMISSIONER OF INCOME TAX-I AMRITSAR V. RAJESH MAHAJAN

ITA/371/2013

AI Insights

The case involves an appeal by the Commissioner of Income Tax, Amritsar against the decision of the Income Tax Appellate Tribunal, Amritsar Bench, which had allowed the appeal of Shri Rajesh Mahajan, the respondent. The core issue was the valuation of the construction cost of a hotel building, which the DVO assessed at a much higher value compared to the valuation provided by the assessee's approved valuer. The Tribunal relied on the Supreme Court's decision in Sargam Cinema vs. CIT, which stated that the Assessing Officer could not have referred the matter to the DVO without rejecting the books of account. The High Court upheld the Tribunal's decision, agreeing that the DVO's valuation could not be accepted without first rejecting the assessee's books of account.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 738800 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 14-07-2014
• Assessment Year: misc
• Other Referred Cases: Sargam Cinema vs. CIT, Bharathi Cement Corporation P. Limited v. Commissioner of Income Tax and others
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: DINESH GOYAL
• Keywords: Assessment; Construction cost; DVO; Income Tax; Valuation
• Section: 143(1); 145(3); 260A; 142A

Judgement Text

"ITA No.371 of 2013 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.371 of 2013 Date of decision: 14.7.2014 The Commissioner of Income Tax I, Amritsar ……Appellant Vs. Shri Rajesh Mahajan …..Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MR. JUSTICE JASPAL SINGH Present: Mr.Dinesh Goyal, Advocate for the appellant. Ajay Kumar Mittal,J. 1. This order shall dispose of ITA Nos.371 to 373 of 2013 as according to the learned counsel for the appellant, the issue involved in all these cases is similar. However, the facts are being extracted from ITA No.371 of 2013. 2. ITA No.371 of 2013 has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 23.5.2013, Annexure A.3 passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (in short, “the Tribunal') in ITA No.446 (Asr)/2012, for the assessment year 2008-09, claiming following substantial questions of law:- i) Whether the Hon’ble ITAT is right in deleting the addition by relying upon the decision of the Hon’ble 1 GURBAX SINGH 2014.08.30 10:37 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.371 of 2013 Supreme Court in the case of Sargam Cinema vs. CIT, (2010) 328 ITR 513 (SC) ignoring the fact that the AO had rejected the books of account of the assessee after referring the case to the DVO for valuation during the course of assessment proceedings for the assessment year 2006-07? ii) Whether the Hon’be ITAT is right in deleting the addition on merits also by ignoring the fact that all the objections to the Valuation report raised by the assessee were properly dealt with and replied by the DVO? iii) Whether in the facts and circumstances of the case, the order passed by the Hon’ble ITAT is perverse being contrary to material on record? 3. A few facts relevant for the decision of the controversy involved as narrated in ITA No.371 of 2013 may be noticed. The assessee is an individual. He filed his return for assessment year 2008-09 on 28.2.2009 at total income of ` 6,44,140/-. In the statement of income, the assessee had shown business income as proprietor of M/s Hotel ‘Namaskar’ and as partner of M/s Satish and Co. Malikpur and income from other sources being interest on deposits. The return was processed under Section 143(1) of the Act on 4.2.2010. The case was selected for scrutiny. While framing the assessment, it was noticed that during the previous year relevant to the assessment year 2006-07, the assessee had invested in the purchase of plot and construction of the hotel building at Queen’s Road, Armitsar known as hotel 'Namaskar'. During the course of assessment proceedings, the assessee had furnished report of the approved valuer determining the total cost of construction of the hotel building at ` 34,57,800/-. The case was referred under section 142A of the Act to the Departmental Valuation officer (DVO) for determining the actual cost of the construction of the hotel building. The 2 GURBAX SINGH 2014.08.30 10:37 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.371 of 2013 DVO after giving opportunity to the assessee determined the cost of construction of the hotel building at ` 1,03,06,617/- spread over the financial years relevant to assessment years 2006-07, 2007-08 and 2008-09. Copy of the valuation report was made available to the assessee to which he submitted objections which were replied to by the DVO. After giving show cause notice to the assessee and rejecting the books of account under Section 145(3) of the Act, addition of ` 10,22,982/- was made by the Assessing officer for the assessment year 2008-09 vide order dated 29.3.2010, Annexure A.1 for the difference between the cost of construction determined by the DVO and that declared by the assessee in his books of account. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 16.10.2012, Annexure A.2, the appeal was dismissed. The assessee filed further appeal before the Tribunal. Vide order dated 23.5.2013, Annexure A.3, the Tribunal allowed the appeal relying upon the decision of the Apex Court in Sargam Cinema’s case (supra) to the effect that Assessing Officer could not have referred the matter to the DVO without rejecting the books of account. Hence the instant appeal by the revenue. 4. Learned counsel for the revenue on the strength of the judgment of the Andhra Pradesh High Court in Bharathi Cement Corporation P. Limited v. Commissioner of Income Tax and others, (2013) 356 ITR 74 submitted that rejection of books of account was not a condition precedent for making assessment under section 142A(1) of the Act. It was urged that the Assessing officer had rightly referred the matter to the DVO who had determined the cost of the construction of the hotel building at `1,03,06,617/- as against total cost of construction of the hotel 3 GURBAX SINGH 2014.08.30 10:37 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.371 of 2013 building shown by the assessee on the basis of the report furnished at ` 34,57,800/-. 5. After hearing learned counsel for the appellant, we do not find any merit in the appeal. 6. In ITA No.806 of 2010, Dr. Raghuvendra Singh vs. Commissioner of Income Tax, Central Circle, Ludhiana, decided on 10.10.2013, while examining the scope of Section 142A of the Act, it was summarized by this Court as under:- “14.Section 142A of the Act has been incorporated primarily for verification of the value of any investment in respect of cases enumerated therein. The Assessing Officer would not be justified in invoking the aforesaid provision in every case and in a routine manner. Where the assessee maintains regular books of account for the purpose of construction of the asset and produces the vouchers, it would not be appropriate for the Assessing Officer to refer the matter to the DVO without first rejecting the books of account by prima facie concluding that the valuation appears to be more than what has been depicted in the books of account. However, wherever the assessee has not maintained the regular books of account of cost of construction of the asset and claims its valuation on the basis of estimate of the report of the registered valuer, the Assessing Officer is empowered to make a reference to the DVO after forming a prima facie opinion that the value of the investment is not genuinely disclosed and is required to be assessed for the purposes of Sections 69, 69A or 69B of the Act. In other words, Section 142A of the Act, thus, cannot be invoked where valuation of the cost of construction is bonafide and based on books of account which has not been rejected. The report of the DVO would be dealt with by the Assessing Officer under sub section (3) of Section 142A of the Act. There is logic and reasoning for adopting the aforesaid view. There appears to be 4 GURBAX SINGH 2014.08.30 10:37 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.371 of 2013 no occasion for the revenue not to accept the valuation of the cost of construction of an asset without rejecting the books of account maintained by the assessee. It would not only be unfair but against the public policy as well to assume that the assessee is dishonest and he must have submitted an incorrect account of expenses/investment.” 7. The Tribunal while accepting the appeal had noticed in its order dated 23.5.2013, Annexure A.3 as under:- “9. We have heard the rival contentions and perused the facts of the case. On perusal of the assessment order for the assessment year 2006-07, it is evident that the AO found that the assessee has invested in the purchase of plot and construction of the hotel building, asked the assessee to furnish valuation report of the approved valuer alongwith completion certificate issued by the competent authority. The same was furnished by the assessee. On receipt of the valuation report of the approved valuer from the assessee straightway, the AO referred the matter to the DVO for determining the cost of construction of the hotel building. The Departmental Valuation Officer submitted his report vide letter No.181 dated 4.12.2008 determining the cost of construction at ` 1,03,06,617/- as against ` 34,57,800/- valued by the approved valuer of the assessee. It is also not under dispute that the AO sought instruction from the Addl.CIT and on his instruction only the AO invoked the provisions of section 145(3) of the Act. Keeping in view the direction of the Addl.CIT and keeping in view the difference in the valuation report as determined by the DVO and the amount declared in the books of account which is evident at para 5 page 6 of AO’s order is not under dispute. In the facts and circumstances of the case, the law is very clear by the decision of Hon’ble Supreme Court in the case of Sargam Cinema vs. CIT(supra) where the AO could not have referred the matter to the DVO without books of account being rejected and therefore, reliance placed on the report of 5 GURBAX SINGH 2014.08.30 10:37 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.371 of 2013 the DVO was misconceived in the present case as well. The AO has not applied his mind as to the correctness or completeness of the accounts of the assessee and no dissatisfaction has been recorded by the AO. Nothing has been brought on record as regards to the conditions laid down in section 145(3) of the Act. Therefore, in the present facts and circumstances and in view of the decisions relied upon by the assessee mentioned hereinabove, no reference could have been made by the AO and such reference made by the AO is not legal and assessment so framed on such valuation report is bad in law and accordingly assessment so made is directed to be quashed. 10. On merits as well, the assessee has submitted his valuation report and also the submissions as mentioned hereinabove, where the objection raised by the assessee before the DVO with regard to the CPWD rates which are 30% higher than the market rate, in DVO’s report the plinth area rate was not valid, duct area was not properly finished and was kept open upto fourth floor which was approximately 200 square yards. The contract rate was ` 650- per square feet in such type of construction of the assessee. The DVO has considered A class construction whereas the assessee has made C class construction and that too at 238 square yards of land. DVO has given benefit of self supervision of 7.5% where the assessee is eligible to self supervision rebate @ 15% since all the material has been purchased by the assessee. Above all, valuation report of the approved valuer, M/s A-one Consultants was not considered and no defect has been pointed out. The assessee has given the counter comments of the Valuation Officer’s report. The assessee has given the affidavit that there existed raw structure at the time of purchase of land by the assessee, which is declared as opening balance of the impugned year, which has not been considered. In the facts and circumstances of the present case, the Valuation Officer and the authorities below have not taken the submission of the assessee in right perspective. In such circumstances and facts of the case,if the 6 GURBAX SINGH 2014.08.30 10:37 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.371 of 2013 objection of the assessee mentioned in his written submissions and explanation put before the learned CIT(A) and the AO are taken into consideration, the difference in cost of construction declared by the assessee or as valued by the Valuation officer will be correct amount of investments made by the assessee. Moreover, as per our findings hereinabove, no defect has been pointed out by any of the authorities below with regard to the investments made by the assessee and therefore, no addition is required to be made under section 69 of the Act. Therefore, addition so made is directed to be deleted. Therefore, all the grounds of the assessee are allowed.” 8. According to the revenue, there was difference of ` 10,22,982/- in the valuation of the investment in the construction of Hotel Building for this assessment year. The Tribunal had accepted the valuation report of the assessee and thus concluded that the valuation of the approved valuer, M/s A-One Consultants furnished by the assessee was correct. The Tribunal had recorded that the assessee had furnished valuation report from an approved valuer who had assessed the valuation at ` 34,57,800/- as against valuation based on Departmental Valuation Officer (DVO) at ` 1,03,06,617/-. The assessee had claimed that the DVO had valued the construction at CPWD rates which were 30% higher than the market rate. It was 'C' class construction @ ` 650/- per square feet as against evaluated as 'A' class by DVO. The plot of land was 238 square yards. The plinth area rate and duct area was not properly taken into account by the DVO. Further, only 7.5% of the total valuation was allowed for personal supervision as against 15% permissible under law. The benefit of valuation of raw structure existing at the site had not been allowed by the DVO. Learned counsel for the revenue has not been able to show that the findings recorded by the Tribunal are illegal or perverse. 7 GURBAX SINGH 2014.08.30 10:37 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.371 of 2013 9. Adverting to the judgment relied upon by the learned counsel for the appellant in Bharathi Cement Corporation P. Limited's case (supra), it may be noticed that in that case, the issue before the Andhra Pradesh High Court was with regard to the notice issued to the assessee for making reference to the DVO. The Assessing Officer was yet to take a decision and pass final order regarding reassessment and the valuation of the investment in question. The writ petition was dismissed as premature. The facts being different, no advantage can be derived by the revenue from the said judgment. 10. In view of the above, no substantial question of law arises. Consequently, the appeals stand dismissed. (Ajay Kumar Mittal) Judge July 14, 2014 (Jaspal Singh) Judge 8 GURBAX SINGH 2014.08.30 10:37 I attest to the accuracy and integrity of this document High Court Chandigarh "