Commissioner of Income Tax, Rajkot-I V. Kamdar and Associates

TAXAP/1152/2005

AI Insights

The case involves a series of tax appeals by the Commissioner of Income Tax, Rajkot-I against Kamdar and Associates, concerning the reassessment of income tax based on construction costs. During the reassessment under Section 148 of the Income Tax Act, 1961, a discrepancy was noted between the construction cost reported by Kamdar and Associates and the cost estimated by the Departmental Valuation Officer. The Assessing Officer added this difference to the income of the assessee. However, the Commissioner (Appeals) and the Appellate Tribunal later deleted this addition, leading to the present appeals by the tax department. The core legal issue was whether the Tribunal was correct in law to delete the addition made based on the valuation difference.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 798698 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 11-12-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax v. Vijaykumar D. Gupta, Goodluck Automobiles Pvt. Ltd. v. Assistant Commissioner of Income Tax, Sargam Cinema v. Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: R K PATEL
• Assessee Lawyers: PRANAV DESAI
• Keywords: Appellate Tribunal; Cost of construction; Income Tax; Re-assessment; Valuation Officer
• Section: 148; 69B

Judgement Text

"O/TAXAP/1151/2005 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1151 of 2005 With TAX APPEAL NO. 1152 of 2005 AND TAX APPEAL NO. 1153 of 2005 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI Sd/­ and HONOURABLE MR.JUSTICE K.J.THAKER Sd/­ ====================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? No 2 To be referred to the Reporter or not ? No 3 Whether their Lordships wish to see the fair copy of the judgment ? No 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 ? No 5 Whether it is to be circulated to the civil judge ? No ====================================== COMMISSIONER OF INCOME TAX, RAJKOT­I.....Appellant(s) Versus KAMDAR AND ASSOCIATES.....Opponent(s) ====================================== Appearance: MR PRANAV G DESAI, ADVOCATE for the Appellant(s) No. 1 MR RK PATEL, ADVOCATE for the Opponent(s) No. 1 ====================================== CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and Page 1 of 5 O/TAXAP/1151/2005 JUDGMENT HONOURABLE MR.JUSTICE K.J.THAKER Date : 11/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of these appeals, the appellant has challenged the common judgment and order of Income Tax Appellate Tribunal dated 16.3.2005 in ITA No.167, 168 and 169/RJT/2000, whereby the tribunal has dismissed the appeals of the revenue. Since the facts and the issue involved in this matters are similar, all these appeals are disposed of by this common judgment. 2. The brief facts leading to the filing of the present appeal are that during the re­assessment proceedings under Section 148 of the Income Tax Act, 1961 it was observed by the Assessing Officer that there was a difference in the cost of construction disclosed by the respondent as against the cost worked out as per the prevailing market rates by the Departmental Valuation Officer. The difference was, therefore, added to the income of the assessee. The Commissioner (Appeals) deleted the addition by relying upon the decision in the case of the respondent­ assessee for the year 1984­85. The said order was confirmed by the Appellate Tribunal relying upon its decision in the appeal arising out of the order of the Commissioner (Appeals) for assessment year 1984­85. Being aggrieved by such order, present appeals are preferred by the appellant department. 3. At the time of admitting the appeal, following substantial question of law was framed for consideration of this Court. “Whether on the facts and circumstances of the case, the Appellate Tribunal was right in law in deleting the addition made on account of difference in the cost of construction as disclosed by the Page 2 of 5 O/TAXAP/1151/2005 JUDGMENT respondent as against valued by the District Valuation Officer?” 4. Learned counsel for the appellant submitted that the tribunal has committed an error in allowing the deletion of difference of cost of construction disclosed by the assessee as against the valuer's report. 5. We have gone through the materials on record. In our view, the substantial question of law raised in this matter would no longer survive and it is already answered by this Court in its earlier decision in the case of Commissioner of Income Tax v. Vijaykumar D. Gupta reported in [2014] 365 ITR 470 (Gujarat), wherein it was observed as under: “3. From the record it emerges that the Assessing Officer after making a reference to DVO for ascertaining assessee's investment in house property on the basis of such return added a sum of Rs.10,77,724/­ under section 69B of the Act being assessee's unexplained investment. 4. The assessee carried the matter in appeal. The CIT (Appeals) on facts analysed the case of the assessee again and retained part of the addition, but granted partial relief. This order of CIT (Appeals) gave rise to two appeals to the Tribunal. The Tribunal deleted entire addition primarily on the ground that the Assessing Officer could not have made reference to the DVO without reference to the books of accounts and such reliance on the DVO's books of accounts was not justified. The Tribunal held and observed as under : “12.1 Admitted factual position is that the AO had not referred any incriminating evidence which was found during the course of search. Although the Revenue Department had found the existence of a building but there was no evidence that the assessee had in fact incurred expenditure on construction of the said property over and above the amount already declared in the books of accounts. This is not an assessment which was made in the ordinary course of proceedings but admittedly a search under Section 132 was carried therefore it is expected that the addition consequent thereupon should be corroborated with evidence detected at the time of search. As far as the books of accounts of the assessee and the recording of the investment in the construction of the house were concerned, the AO had not found any discrepancy. For this legal proposition, a decision of jurisdictional High Court pronounced in the case of Goodluck Automobiles, 26 Taxman.com 264 has been cited wherein the Court has held that unless the books of accounts are Page 3 of 5 O/TAXAP/1151/2005 JUDGMENT rejected the AO cannot make a reference to the Valuation Officer. An another case law relied upon was Sargam Cinema, 197 Taxman 203 [328 ITR 513 (SC)]. Our attention has again been drawn on few case laws which was referred before learned CIT(A), viz. Bajranglal Bansal, 241 ITR 64 (Del.), Ushakant N. Patel Vs. CIT 282 ITR 553 (Guj). In the light of these case laws and considering the totality of the facts and circumstances of the case, we are of the considered opinion that learned CIT(A) has not considered the fundamental questions as pointed out by the assessee that there was no material, what to say an incriminating material, in the possession of the Revenue Department, therefore, the entire addition being merely based upon the estimation of DVO was baseless; hence, deserves to be deleted. We hold accordingly. The part addition sustained by learned CIT (A) is hereby deleted.” 5. It is undisputed that the Assessing Officer made a reference to the DVO without rejecting the books of accounts. While retaining part of the additions even the CIT (Appeals) did not come to the conclusion that the Assessing Officer had rejected the books of accounts of the assessee. It was in this background that the Tribunal relied on the decision of the Supreme Court in the case of Sargam Cinema v. Commissioner of Incometax, reported in (2010) 328 ITR 513 (SC). This Court in the case of Goodluck Automobiles Pvt. Ltd. v. Assistant Commissioner of Incometax, reported in 359 ITR 306, in the context of this issue referring to the decision of the Supreme Court in the case of Sargam Cinema (supra) had observed as under : “12. The facts of the present case may be examined in the light of the statutory scheme discussed hereinabove as well as the decision of the Supreme Court in Sargam Cinema (supra). In this regard, a perusal of the assessment order reveals that the Assessing Officer has categorically recorded a finding to the effect that the accounts are duly audited and complete details are available. From the tenor of the order of the Assessing Officer, it is apparent that he has made the reference to the Valuation Officer merely to seek expert advice regarding the cost of construction. There is nothing in the assessment order to suggest that the Assessing Officer had any doubt regarding the cost of construction or that he was not satisfied regarding the correctness or completeness of the books of account. Before making the reference to the Valuation Officer for ascertaining the fair price of construction, the Assessing Officer does not appear to have ascertained the correctness or otherwise of the cost of construction shown by the assessee in its books of account. Thus, prior to making the reference to the Valuation Officer, the Assessing Officer has not ascertained as to what was the defect in the cost of construction disclosed by the assessee in its returns of income. Moreover, it is apparent that the only reason for making Page 4 of 5 O/TAXAP/1151/2005 JUDGMENT the addition under section 69 of the Act is that there is a difference in the cost of construction as determined by the Valuation Officer and as shown by the assessee. At no stage of the assessment proceedings does the Assessing Officer appear to have mentioned that the books of account are defective or that the cost of construction as shown in the books of account is not the true cost of construction. Thus, while making the reference to the Valuation Officer, the Assessing Officer has not recorded any defect in the books of account nor has he rejected the same. Except for the difference in the estimated cost determined by the Valuation Officer and the actual cost as shown by the assessee, the Assessing Officer has not brought any material on record to establish that the assessee had made any unaccounted investment in the construction of the building in question and that the books of account do not reflect the correct cost of construction. Under the circumstances, there was no occasion for the Assessing Officer to make a reference to the Valuation Officer. As held by the Supreme Court in the case of Sargam Cinema (supra), unless the books of accounts are rejected, the Assessing Officer cannot make a reference to the Valuation Officer. The reference made to the Valuation Officer, not being in consonance with the provisions of law, was, therefore, invalid. Accordingly, the report made by the Valuation Officer pursuant to such an invalid reference could not have been made the basis for addition under section 69 of the Act.” ” 6. The question involved in the present case is squarely covered by the observations of this Court in the aforesaid decision. In view of above, we are in complete agreement with the view taken by the tribunal and the question raised in these appeals is answered against the department and in favour of the assessee. Accordingly, all these appeals are dismissed. Sd/­ (K.S.JHAVERI, J.) Sd/­ (K.J.THAKER, J) *malek Page 5 of 5 "