DY. CIT V. M/S. RAVI BUILDERS

TAXAP/17/2000

AI Insights

The case revolves around a tax dispute involving M/S. Ravi Builders, a partnership firm engaged in construction, and the Revenue, represented by the Deputy Commissioner of Income Tax (DY. CIT). Following search and seizure operations under Section 132 of the Income Tax Act, 1961, at the premises of the Ravi Builders Group, the Assessing Officer (AO) made block assessments and added Rs.10,23,545 to the assessee's income, alleging undervaluation of a building and land. The Tribunal deleted this addition, leading to the Revenue's appeal. The High Court's decision focused on whether the addition could be made based on the District Valuation Officer's report obtained during the block assessment proceedings.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 744766 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 12-08-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income-tax Vs. Kantilal B. Kansara (HUF), CIT v. Dr. M.K.E. Memon
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S N SOPARKAR
• Assessee Lawyers: PRANAV DESAI
• Keywords: Block assessment; Construction business; District Valuation Officer; Undervalued; Valuation
• Section: 132; 69C; 158BC

Judgement Text

"O/TAXAP/17/2000 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 17 of 2000 For Approval and Signature: HONOURABLE MR.JUSTICE M.R. SHAH 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 ============================================= DY. CIT....Appellant(s) Versus M/S. RAVI BUILDERS....Opponent(s) ============================================= Appearance: MR PRANAV G DESAI, ADVOCATE for the Appellant(s) No. 1 MR SN SOPARKAR, SR. ADVOCATE for the Opponent(s) No. 1 ============================================= CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE K.J.THAKER Date : 12/08/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) [1.0] Feeling aggrieved and dissatisfied with the impugned judgment and order dated 31.08.1999 passed by the learned Income Tax Appellate Tribunal [hereinafter referred to as “Tribunal”] in ITA (SS) 4/RJT/98 for the block period 1986­87 to 24­25.12.1996, the Revenue has preferred the present tax appeal to consider the following substantial question of law. Page 1 of 6 O/TAXAP/17/2000 JUDGMENT “Whether the learned Appellate Tribunal is right in law and on facts in deleting the addition of Rs.9,55,375/­ and whether the said finding is not perverse in the absence of any reasons?” [2.0] That the assessee is a partnership firm belonging to one Ravi Builders Group of cases and derives income from the business of construction. Search and seizure operations were carried out by the Income Tax Authorities under Section 132 of the Income Tax Act, 1961 [hereinafter referred to as “Act”] at the business and residential premises of the group resulting in seizure of bulk of documents and records. The AO made the block assessments in the various cases of the group, namely, Ravi Holdings Pvt. Ltd., Ravi Builders as well as the assessee firm. It appears that during the block assessment proceedings with respect to the assessee firm, the AO was of the opinion that the cost of land and the cost of building declared by the assessee at Rs.10,80,930 and Rs.59,70,252/­ does not reflect the correct cost with respect to the building known as ‘Ravi Darshan’. The AO was of the opinion that the assessee has undervalued the cost of the land and building ‘Ravi Darshan’ and therefore, the case of the assessee was referred to the valuation committee of the department to work out the fair market cost of the land and building and according to the District Valuation Officer, the cost of the land is Rs.11,54,000/­ instead of Rs.10,80,830/­ declared by the assessee and the cost of the building was Rs.69,35,627/­ instead of Rs.59,80,252/­ declared by the assessee. Therefore, the AO was of the opinion that the assessee has undervalued the cost of the land and building ‘Ravi Darshan’ to the extent of Rs.10,23,545/­ and therefore, after giving an opportunity to the assessee, directed to add the aforesaid difference i.e. Rs.10,23,545/­ into the income of the assessee on account of unaccounted cost of construction of the aforesaid building ‘Ravi Darshan’. [2.1] Feeling aggrieved and dissatisfied with the aforesaid addition of Rs.10,23,545/­, the assessee preferred appeal before the learned Page 2 of 6 O/TAXAP/17/2000 JUDGMENT Tribunal. It was submitted on behalf of the assessee that as such the cost of the land as well as the cost of the construction were duly accounted for in the books and therefore, the AO had no jurisdiction to make the addition on the basis of the report of the District Valuation Officer while making the block assessment under section 158BC of the Act. It was specifically submitted that as such the reasonableness of the cost debited in the books, may be considered by the AO during the course of regular assessment proceedings and not while making the block assessment under section 158BC of the Act. Number of other submissions were also made on behalf of the assessee against the addition of aforesaid amount of Rs.10,23,545/­. [2.2] That the learned Tribunal by impugned judgment and order has directed to delete the aforesaid addition of Rs.10,23,545/­ by observing that since the building in question represents the stock in trade of the assessee, any addition on account of unexplained investment in purchase of land and/or construction of building would be neutralized by the corresponding deduction allowable to the assessee for arriving at the profits from the construction business. Consequently, the learned Tribunal deleted the aforesaid addition of Rs.10,23,545/­. [2.3] Feeling aggrieved and dissatisfied with the impugned order passed by the learned Tribunal directing to delete the aforesaid addition of Rs.10,23,545/­, the Revenue has preferred the present tax appeal to consider the question of law. [3.0] Shri Pranav G. Desai, learned Advocate appearing on behalf of the Revenue has vehemently submitted that the learned Tribunal has materially erred in directing to delete the addition of Rs.10,23,545/­. It is submitted that on the basis of the District Valuation Officer’s report which was not challenged by the assessee when the difference in the valuation was noted by the AO, the AO was justified in making addition Page 3 of 6 O/TAXAP/17/2000 JUDGMENT of aforesaid amount of Rs.10,23,545/­ being difference in the valuation declared by the assessee as well as the valuation report of the District Valuation Officer. It is submitted by Shri Desai, learned Advocate appearing on behalf of the Revenue that as such the learned Tribunal has not considered the provisions of section 69C of the Act at all. It is submitted that therefore the impugned order passed by the learned Tribunal deserves to be quashed and set aside. [4.0] On the other hand, Shri S.N. Soparkar, learned Counsel appearing on behalf of the assessee has vehemently submitted that as such on the basis of the District Valuation Officer’s report, which was subsequently obtained by the AO during the course of the assessment proceedings, such difference between the valuation declared by the assessee and the valuation report by the District Valuation Officer could not have been added as undisclosed income in a block assessment proceedings under section 158BC of the Act. In support of his above submissions, he has relied upon the decision of the Division Bench of this Court in the case of Commissioner of Income­tax Vs. Kantilal B. Kansara (HUF) reported in (2011)337 ITR 187 (Guj.). He has also relied upon the decision of the Bombay High Court in the case of CIT v. Dr. M.K.E. Memon reported in 248 ITR 310 (Bom.). It is submitted that the aforesaid submission was made by the assessee before the learned Tribunal. It is submitted that therefore the learned Tribunal is justified in directing to delete the aforesaid addition of Rs.10,23,545/­, which was on the basis of the District Valuation Officer, which was obtained subsequently. Making above submissions and relying upon above decisions, it is requested to dismiss the present appeal. [5.0] Heard learned Advocates appearing on behalf of respective parties at length. At the outset it is required to be noted that the AO directed to Page 4 of 6 O/TAXAP/17/2000 JUDGMENT make addition of Rs.10,23,545/­ being the difference of value of land and the cost of construction with respect to the building ‘Ravi Darshan’ on the basis of the report of the District Valuation Officer, which admittedly was obtained during the course of the block assessment proceedings. It is required to be noted that as such it is not the case on behalf of the Revenue that on the basis of any material collected during the course of the search and/or during the inquiry at the time of search, the aforesaid undervaluation was found. Therefore, the short question which is posed for consideration of this Court is whether on the basis of the material collected subsequently and that too during the course of the block assessment proceedings under section 158BC of the Act, such addition could have been made? As such the aforesaid question is squarely covered by the decision of the Division Bench of this Court in the case of Kantilal B. Kansara [HUF] (Supra). In the aforesaid decision the Division Bench of this Court has specifically observed and held that addition under Section 158BD of the Act can be made only in respect of the material disclosed at the time of search or pursuant to any inquiry made in relation to the search. In the aforesaid case also, the addition was made by the AO solely based upon the report made by the District Valuation Officer, which was referred during the course of the assessment proceedings. To the aforesaid the Division Bench has observed that the report of the District Valuation Officer cannot be stated to be material found during the course of the search and therefore, addition made on the basis of the District Valuation Officer’s report was not permissible. [5.1] Applying the aforesaid decision of the Division Bench of this Court in the case of Kantilal B. Kansara [HUF] (Supra) to the facts of the present case, the addition of Rs.10,23,545/­ made by the AO solely based upon the report of the District Valuation Officer, which was collected during the course of the block assessment proceedings, was not Page 5 of 6 O/TAXAP/17/2000 JUDGMENT permissible under section 158BC of the Act. Under the circumstances, no error has been committed by the learned Tribunal in directing to delete the aforesaid addition of Rs.10,23,545/­. [6.0] In view of the above, present tax appeal deserves to be dismissed and is, accordingly, dismissed. The aforesaid question of law is answered against the Revenue and in favour of the assessee. In the facts and circumstances of the case, there shall be no order as to costs. Sd/­ (M.R. SHAH, J.) Sd/­ (K.J. THAKER, J.) Ajay Page 6 of 6 "