COMMISSIONER OF INCOME TAX-IV V. SIDDHARTH DEVELOPMENT CORPORATION

TAX APPEAL No. 778 of 2009

AI Insights

The case revolves around a dispute concerning the valuation of construction costs reported by Siddharth Development Corporation for the assessment year 1995-96. The Assessing Officer, suspecting underreporting of construction costs, referred the matter to the District Valuation Officer, who estimated a higher cost than reported by the assessee. The difference of Rs.21,45,377 was added to the assessee's income under section 69 of the Income Tax Act as unexplained investment. Siddharth Development Corporation appealed this addition, which was deleted by the Commissioner (Appeals) and upheld by the Tribunal. The Commissioner and the Tribunal found that the Assessing Officer had not rejected the books of account nor pointed out any specific defects therein, which was essential before making such an addition based on a valuation report.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 368940 (HC-GUJARAT)
• Appeal Type: High Court cases
• Pronouncement Date: 23-08-2010
• Appeal Filed By: Department
• Assessment Year: 1995-1996
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: MAUNA BHATT
• Keywords: Books of account; Cost of construction; District Valuation Officer; Valuation report; Scientific method of valuation
• Section: 69; 260A; 131(1)(d)

Judgement Text

"TAXAP/778/2009 1/11 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 778 of 2009 For Approval and Signature: HONOURABLE MS.JUSTICE H.N.DEVANI HON'BLE SMT. JUSTICE ABHILASHA KUMARI ========================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 T o be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================= COMMISSIONER OF INCOME TAX-IV - Appellant(s) Versus SIDDHARTH DEVELOPMENT CORPORATION - Opponent(s) ========================================= Appearance : MRS MAUNA M BHATT for Appellant(s) : 1, None for Opponent(s) : 1, ========================================= CORAM : HONOURABLE MS.JUSTICE H.N.DEVANI and HON'BLE SMT. JUSTICE ABHILASHA KUMARI Date : 23/08/2010 ORAL JUDGMENT (Per : HONOURABLE MS.JUSTICE H.N.DEVANI) Downloaded on : Thu Jun 05 16:03:10 IST 2025 Uploaded by B.U. PARMAR(HC00158) on Wed Sep 08 2010 2010:GUJHC:24599-DB NEUTRAL CITATION TAXAP/778/2009 2/11 JUDGMENT 1. In this appeal under section 260A of the Income T ax Act, 1961 (the Act), the appellant-revenue has proposed the following two questions : “[A] Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT (A) deleting an amount of Rs.21,45,377/- being addition u/s 69 of the I.T. Act? [B] Whether the Appellate Tribunal has correctly appreciated the evidence on record so as to arrive at a conclusion that the Assessing Officer is not justified in making addition u/s 69 of the Act?” 2. The assessment year is 1995-96 and the relevant accounting period is the year ended on 31.3.1995. 3. The respondent assessee was at the relevant time engaged in the business of construction activities. During the year under consideration, it had undertaken the development and construction work of Siddharth Cooperative Housing Society Ltd. The Assessing Officer called upon the assessee to furnish details of the work done by it, project plans and details of material purchased. According to the Assessing Officer, the cost of construction shown by the assessee was less as compared to the prevailing market rates. He, therefore, referred the valuation of cost of construction Downloaded on : Thu Jun 05 16:03:10 IST 2025 Uploaded by B.U. PARMAR(HC00158) on Wed Sep 08 2010 2010:GUJHC:24599-DB NEUTRAL CITATION TAXAP/778/2009 3/11 JUDGMENT to the Valuation Cell of the Income T ax Department by issuing commission under section 131(1)(d) of the Act for further valuation of the work done by the assessee during the year under consideration. The assessee vide letter dated 01.04.1997 filed the valuation report. The Assessing Officer found that there was a wide difference between the cost of construction shown by the assessee and that estimated by the District Valuation Officer. He, therefore, supplied a copy of the District Valuation Officer’s report to the assessee and called for its comments. The assessee, in turn asked for the basis of valuation done by the District Valuation Officer. The matter was referred to the District Valuation Officer who explained the method of valuation vide letter dated 24.3.1998, the contents whereof have been reproduced in paragraph 3.3 of the assessment order. 4. The Assessing Officer observed that despite opportunity having been granted to the assessee, the assessee had failed to point out any mistake in the valuation made by the District Valuation Officer. According to the Assessing Officer the method for valuation adopted by the District Valuation Officer was more scientific as it was based on the time tested method of CPWD as well as on the basis of rates applicable to lands situated in Ahmedabad. For the year under consideration, the assessee had shown the cost of construction work carried out during the year as Rs.57,03,118/-, whereas the District Valuation Officer estimated the cost of construction at Downloaded on : Thu Jun 05 16:03:10 IST 2025 Uploaded by B.U. PARMAR(HC00158) on Wed Sep 08 2010 2010:GUJHC:24599-DB NEUTRAL CITATION TAXAP/778/2009 4/11 JUDGMENT Rs.78,48,495/-. Placing reliance upon the report of the District Valuation Officer, the Assessing Officer made addition of Rs.21,45,377/- being the difference in the cost of construction as computed by the District Valuation Officer and that shown by the assessee, and added the same to the income of the assessee under section 69 of the Act. 5. The assessee carried the matter in appeal before Commissioner (Appeals), who deleted the addition. Against the order of Commissioner (Appeals), the revenue preferred appeal before the Tribunal, which came to be dismissed. 6. Mrs. M. M. Bhatt, learned Senior Standing Counsel for the appellant-revenue vehemently assailed the impugned order of the Tribunal, reiterating the grounds stated in the assessment order. It was further submitted that the Tribunal was not justified in holding that without rejecting the books of account the Assessing Officer was not justified in referring the matter regarding valuation of construction to the District Valuation Officer. According to the learned counsel, in absence of any defect being pointed out in the valuation report made by the District Valuation Officer, the Tribunal was not justified in holding that no addition could be made on the basis of the said report. That, in absence of any challenge to the report of the District Valuation Officer, the Tribunal was not justified in holding that the addition could not have been made on the basis of the same. Downloaded on : Thu Jun 05 16:03:10 IST 2025 Uploaded by B.U. PARMAR(HC00158) on Wed Sep 08 2010 2010:GUJHC:24599-DB NEUTRAL CITATION TAXAP/778/2009 5/11 JUDGMENT 7. Before Commissioner (Appeals), it was contended on behalf of the assessee that the Assessing Officer had not recorded any reasons as to why the valuation was required to be referred to the Valuation Cell without pointing out any defects in the books of accounts like suppression of receipts or inflation of expenditure; without rejecting the books of account, no reference could have been made to the District Valuation Officer for valuation of the property in question. Reliance was placed upon earlier decisions of the Tribunal for the proposition that when proper books of account had been maintained and the assessee had submitted a report of approved registered valuer who is also an expert, the Assessing Officer could not ignore the report of the registered valuer. It was also submitted that the assessee had requested the Assessing Officer to appraise the assessee of the rates adopted by the District Valuation Officer and the basis of estimation and the supporting evidence of the estimate and had requested the Assessing Officer to furnish specific rates of specific items vide several letters. That a letter was also written to the District Valuation Officer asking for the said information, which had not been furnished till the completion of assessment. It was contended on behalf of the assessee that the assessment made by the Assessing Officer by following the report of the District Valuation Officer without giving the clarifications as required by the assessee, could not be sustained. Since no details had been furnished by the Assessing Officer for the basis of estimate and the Downloaded on : Thu Jun 05 16:03:10 IST 2025 Uploaded by B.U. PARMAR(HC00158) on Wed Sep 08 2010 2010:GUJHC:24599-DB NEUTRAL CITATION TAXAP/778/2009 6/11 JUDGMENT rates of materials and labour adopted by the District Valuation Officer, the assessee was not in a position to tally the figures adopted by the District Valuation Officer. Various mistakes made by the District Valuation Officer were also pointed out viz., mentioning the total expenditure as Rs.2,01,71,273/- instead of the actual expenditure incurred by the assessee of Rs.2,12,38,668/-; not deducting 7.5% on account of self supervision, purchases, etc. though mentioned in the valuation report which worked out to Rs.20,14,371/-. It was also submitted that all expenses and receipts were supported by vouchers, bills and material evidences and not a single expenditure was accounted for without any material evidence. It was submitted that the Assessing Officer had not considered the fact that the assessee had purchased cement from the Gujarat State Civil Supplies Corporation at the rate of Rs.109/- per bag with carting whereas the prevailing market rate was Rs.133/- plus carting. That the assessee had furnished stage-wise construction chart and no defect or anything adverse had been brought out by the Assessing Officer. That the assessee had maintained books of account and furnished the details of purchases and receipts and also labour expenses with the measurement details and the Assessing Officer had not pointed out any defect in the books of account and without any adverse comment by the auditor in the audit report, the Assessing Officer had suspected the cost of construction shown by the assessee and referred the same to the District Valuation Officer. It was contended Downloaded on : Thu Jun 05 16:03:10 IST 2025 Uploaded by B.U. PARMAR(HC00158) on Wed Sep 08 2010 2010:GUJHC:24599-DB NEUTRAL CITATION TAXAP/778/2009 7/11 JUDGMENT that the District Valuation Officer had adopted adhoc arbitrary rates for different items in one lump but the detailed analysis as to how he had arrived at the rates had not been furnished to the assessee. That, according to the terms of the agreement, the assessee firm was to get fixed remuneration and was not entitled to more than the amount fixed by the development agreement and there was nothing on record nor any material to show that the assessee had received more than what had been shown in the books of account. That the assessee had objected to the valuation made by the District Valuation Officer and had furnished a registered valuer's report dated 28.03.1998 furnishing year-wise purchases of materials in quantity as well as the amount, labour and other expenses for the total figure of Rs.2,12,38,668/-. It was contended that the District Valuation Officer's report was only an opinion and not conclusive with supporting material and evidence. Various other contentions were raised also assailing the valuation report made by the District Valuation Officer. 8. The Commissioner (Appeals), upon appreciation of the evidence on record, was of the view that without rejecting the books of accounts, the Assessing Officer could not have referred the valuation of the construction to the District Valuation Officer. Placing reliance upon an earlier order made by Commissioner (Appeals), wherein it had been held that in a case where no case had been made out for rejecting the trading results disclosed by the assessee, the addition Downloaded on : Thu Jun 05 16:03:10 IST 2025 Uploaded by B.U. PARMAR(HC00158) on Wed Sep 08 2010 2010:GUJHC:24599-DB NEUTRAL CITATION TAXAP/778/2009 8/11 JUDGMENT to the cost of construction could not be made on the basis of the report of the District Valuation Officer. The Commissioner (Appeals) upon considering the totality of the facts of the case was of the view that the addition made by the Assessing Officer, could not be sustained. 9. The Tribunal, upon appreciation of the evidence on record, found that the Assessing Officer had not pointed out any defects in the books of account in respect of the cost of construction. According to the Tribunal, in the event the Assessing Officer was not inclined to accept the disclosed amount spent on construction, he should have brought on record cogent and tangible evidence before making the addition. It was not fair to subject the assessee to tax on the basis of such opinion of the District Valuation Officer under the deeming provision contained in the Income T ax Act without there being on record any corroborative evidence that the assessee did spend more than what was declared. The Tribunal, upon considering the evidence on record, was of the view that in the facts of the present case, there was nothing to suggest as to whether the Assessing Officer had examined the books of account or had any material in his possession which could lead to a prima facie conclusion that the books of account did not reflect true cost of construction, before making reference to the District Valuation Officer. It was further noted that it was not evident as to whether the Assessing Officer had examined the books of account to ascertain as to whether or not substantial Downloaded on : Thu Jun 05 16:03:10 IST 2025 Uploaded by B.U. PARMAR(HC00158) on Wed Sep 08 2010 2010:GUJHC:24599-DB NEUTRAL CITATION TAXAP/778/2009 9/11 JUDGMENT additions/alterations referred to by the District Valuation Officer in his letter dated 24.03.1998 had been accounted for in the books of account or that deviations had not been reflected in the books of account. The Tribunal was of the view that if the books of account have been properly maintained wherein all details have been recorded by the assessee, duly supported by vouchers/documents and no defects are pointed out and the books are not rejected, the result shown by them is bound to be accepted. The Tribunal found that in the present case, there was no cogent or tangible material to come to the conclusion that the assessee had spent more amount than what it claimed for the relevant construction. The Tribunal noted the alternative argument of the assessee that since the assessee is in the business of construction, even if the cost of construction is enhanced that will not have impact on the profits because the entire amount would be deductible and dismissed the appeal. 10. From the facts noted hereinabove, it is apparent that the Assessing Officer has made the addition in question merely on the basis of the valuation report made by the District Valuation Officer. The only reason assigned by the Assessing Officer is that the method adopted for valuation by the District Valuation Officer is more scientific and the assessee had not pointed out any defect in the report of the District Valuation Officer. The Assessing Officer, while making the addition, has not pointed out any defect in the books of account maintained by the assessee neither is there anything Downloaded on : Thu Jun 05 16:03:10 IST 2025 Uploaded by B.U. PARMAR(HC00158) on Wed Sep 08 2010 2010:GUJHC:24599-DB NEUTRAL CITATION TAXAP/778/2009 10/11 JUDGMENT on record to indicate that the Assessing Officer had examined the books of account to ascertain as to whether or not, the substantial additions/alterations referred to by the District Valuation Officer had been accounted for in the books of account or that the deviations referred to by the District Valuation Officer were not reflected in the books of account. Besides, apart from the fact that the assessee had maintained proper books of account, which had been audited under section 44B of the Act, all details recorded by the assessee were duly supported by vouchers/documents. In the circumstances, in absence of any defect being pointed out in the books of account maintained by the assessee; in absence of any cogent reasons being assigned to indicate as to why the valuation report of the District Valuation Officer was required to be given precedence as against the report of the registered valuer submitted by the assessee; as well as in absence of any cogent or tangible material being brought on record to indicate that the assessee had in fact spent more than what it had claimed in relation to the construction in question, the Assessing Officer was not justified in making the addition merely on the basis of the valuation report submitted by the District Valuation Officer. 11. In the light of the view taken by the Court, it is not necessary to enter into the merits of the question as to whether the Tribunal was justified in holding that the Assessing Officer could not have referred the matter to the District Valuation Officer without first rejecting the Downloaded on : Thu Jun 05 16:03:10 IST 2025 Uploaded by B.U. PARMAR(HC00158) on Wed Sep 08 2010 2010:GUJHC:24599-DB NEUTRAL CITATION TAXAP/778/2009 11/11 JUDGMENT books of account maintained by the assessee, leaving it open to the revenue to agitate the same in an appropriate case. It is also clarified that while dismissing the appeal for the reasons aforestated, the Court does not endorse the view that when the assessee is in the business of construction, even if the cost of construction is enhanced and the addition is made under section 69 of the Act as unexplained investment, the same would not have an impact on the profits because the entire amount would be deductible. 12. In the light of the aforesaid discussion, the Court does not find any infirmity in the impugned order of the Tribunal in upholding the deletion of the addition made under section 69 of the Act solely on the basis of the report of the District Valuation Officer, so as to warrant interference. In absence of any question of law, much less, a substantial question of law, the appeal is dismissed. [HARSHA DEVANI, J.] [SMT. ABHILASHA KUMARI, J.] parmar* Downloaded on : Thu Jun 05 16:03:10 IST 2025 Uploaded by B.U. PARMAR(HC00158) on Wed Sep 08 2010 2010:GUJHC:24599-DB NEUTRAL CITATION "