C.R.Selvaraju, Salem V. ITO, Namakkal

ITA 1012/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4013 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 25-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS R ILAVARASIJCITD R
• Assessee Lawyers: T S LAKSHMIVENKATARAMAN
• Keywords: Rejection of books of accounts; Unexplained investment; Capital asset converted into stock in trade; Value adopted by valuation officer; Valuation report
• Section: 131; 69; 145; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , ! ' ! # . $ , % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER . / ITA NO. 1012/MDS/2017 / ASSESSMENT YEAR : 2010-11 SHRI C.R. SELVARAJU NSR MALL, D.NO.195, SALEM ROAD, NAMAKKAL POST, NAMAKKAL DT. 637 001. PAN BSJPS 7393 N ( /APPELLANT) V. THE INCOME-TAX OFFICER, WARD-(1), NAMAKKAL. RESPONDENT) / APPELLANT BY : SHRI T.S.LAKSHMIVENKATARAMAN, FCA / RESPONDENT BY : MRS. R. ILAVARASI, JCIT,D.R ! / DATE OF HEARING : 03.07.2017 '# ! / DATE OF PRONOUNCEMENT: 12.07.2017 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) D ATED 30.3.2017 FOR THE ASSESSMENT YEAR 2010-11. - - ITA 1012/MDS/17 2 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 1. THE ORDER OF THE LEARNED CIT(APPEALS), SALEM DT . 30.3.2017 IN ITA NO.332/2015-16 IS OPPOSED TO THE FACTS OF THE CASE AND IS NOT LEGALLY MAINTAINABLE. 2. THE LEARNED CIT(A) IS NOT JUSTIFIED IN NOT FOLLO WING THE ORDER OF ITAT IN THE CASE OF APPELLANT FOR THE ASST . YEAR 2011-12 IN ITA NO. 100/MDS/2015 DT. 22.05.2015. 3. THE APPELLANT FILED DETAILED WRITTEN SUBMISSIONS DATED 20.03.2017 IN THE COURSE OF APPEAL PROCEEDINGS BEFO RE THE FIRST APPELLATE AUTHORITY. THE LEARNED CIT(APP EALS) IS NOT JUSTIFIED IN NOT CONSIDERING ALL THE SUBMISSION S IN ITS PROPER PERSPECTIVE. 4. THE ORDER OF ITAT PASSED IN THE CASE OF APPELLAN T FOR THE ASST. YEAR 2011-12 SQUARELY COVERS THE ISSUES B OTH AS TO FACTS AND LEGALITY FOR THE YEAR UNDER APPEAL. IN VIEW OF THIS FACTUAL POSITION, THE LEARNED CIT(A) S HOULD HAVE FOLLOWED THE ORDER OF ITAT A REFERRED TO ABOVE INSTEAD OF TAKING A DIFFERENT VIEW FOR THE YEAR UND ER APPEAL. 5. EVEN ASSUMING FOR A MOMENT BUT NOT CONCEDING THA T THE ACTION OF CIT(A) IN CONFIRMING THE ORDER OF AO AS CORRECT, THE LEARNED CIT(A) SHOULD HAVE GIVEN DIREC TIONS TO THE AO TO ADOPT STATE PWD RATES AS AGAINST CPWD RATES ADOPTED BY DISTRICT VALUATION OFFICER. THE A BOVE DIRECTION WAS GIVEN IN THE CASE OF APPELLANT BY THE FIRST APPELLATE AUTHORITY FOR THE ASSESSMENT YEAR 2011-12 . 6. IN THE WRITTEN SUBMISSION DT. 20.03.2017 FILED B EFORE CIT(A), IN PARA 7, DETAILED FACTS AS TO INVESTMENT MADE BY TENANT NAMELY BY M/S. JAYASURIYA RETAIL VENTURE LTD. WAS BROUGHT ON RECORD ALONG WITH DOCUMENTARY EVIDENCES. THE LEARNED CIT(A) IS NOT JUSTIFIED IN NOT GIVING ANY FINDINGS IN HIS APPELLATE ORDER REGARDIN G THE ABOVE FACTUAL POSITION. IF THE ABOVE FACTOR IS TAK EN INTO - - ITA 1012/MDS/17 3 ACCOUNT THERE IS NO SCOPE FOR ADDITION TOWARDS UNDERSTATEMENT IN COST OF CONSTRUCTION AND THE ENTI RE ADDITION SHOULD HAVE BEEN DELETED. 7. IN VIEW OF THE ABOVE GROUNDS AND THE OTHER FACTS TO BE ADDUCED AT THE TIME OF HEARING THE APPELLANT PRAYS THE ADDITION OF 3,29,21,079/- MADE BY THE ASSESSING OFFICER AND SUSTAINED BY CIT(A) MAY BE DELETED AND JUSTICE RENDERED. 3. GROUND NOS. 2 TO 4 IS WITH REGARD TO ADOPTION OF DVOS REPORT FOR THE PURPOSE OF DETERMINING THE COST OF CONSTRUCTION OF A SHOPPING COMPLEX SO TO FRAME ASSESSMENT ON THAT BASIS. 4. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS CONSTRUCTED A COMMERCIAL SHOPPING COMPLEX AT SALEM ROAD, NAMAKKAL DURING THE PERIOD APRIL, 2009 TO SEPTEMBER , 2010. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSEE HAS ALSO FURNISHED THE FOLLOWING DETAILS REGARDING TOTA L INVESTMENT MADE TOWARDS COST OF CONSTRUCTION OF SUCH COMMERCIA L SHOPPING COMPLEX: SL.NO. DESCRIPTION AMOUNT 1. INVESTMENT MADE DURING THE PREVIOUS YEAR 2009-10 1,18,58,976 2. INVESTMENT MADE DURING THE PREVIOUS YEAR 2010-11 32,35,800 3. TOTAL INVESTMENT ON CONSTRUCTION 1,51,21,776 - - ITA 1012/MDS/17 4 AFTER GOING THROUGH THE DETAILS, IT IS OBSERVED BY THE AO THAT THE ASSESSEE HAS INCURRED 78.6% OF THE COST OF CONSTRUC TION DURING THE FY 2009-10 AND REMAINING COST OF 21.4% DURING T HE FY 2010-2011. HOWEVER, THE ASSESSEE HAS NOT FURNISHED ANY BOOKS OF ACCOUNTS, BILLS / VOUCHERS IN SUPPORT OF T OTAL COST CLAIMED TO HAVE BEEN INVESTED TOWARDS CONSTRUCTION OF SUCH BUILDING, BEFORE THE AO. THEREFORE, THE VALUATION WAS REFERRED TO THE DVO. SINCE, THE ASSESSEE DID NOT SUBSTANTIATE HIS COST OF CONSTRUCTION WITH REFERENCE TO THE BOOKS OF ACCOUNT AND VOUCHERS, THE AO ADOPTED THE VALUATION OF THE DVO A ND ESTIMATED THE COST OF CONSTRUCTION. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS). 5. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. AR HAS STATED THAT THE TRIBUNAL, CHENNAI C BENCH, H AS ALLOWED THE APPEAL IN ENTIRETY IN ASSESSEES OWN CASE AGAINST T HE ORDER PASSED BY THE CIT(APPEALS) FOR THE AY 2011-12, WHER EIN IT HAS BEEN HELD THAT THE AO CANNOT REFER THE MATTER TO TH E VALUATION OFFICER WITHOUT REJECTING THE BOOKS OF ACCOUNTS. 6. AFTER CONSIDERING THE SUBMISSION OF THE LD. AR, THE - - ITA 1012/MDS/17 5 CIT(APPEALS) OBSERVED THAT THE LD. AR HAS SIMPLY RE LIED ON THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE WITHOU T BRINGING ANY OTHER INACCURACIES IN THE ASSESSMENT ORDER. FU RTHER, THE CIT(APPEALS) OBSERVED THAT THE ASSESSEE HAD NOT EV EN FILED THE RETURN OF INCOME IN TIME. HE HAS MADE A BELATED RE TURN OF INCOME FOR AY 2010-11 ON 31.3.2011 RETURNING TOTAL INCOME OF 2,09,600/- ON ESTIMATION BASIS CLAIMING BENEFIT OF SEC.44AE OF THE ACT AND HAS CLAIMED A REFUND OF 19,100/-. 6.1 THE CIT(APPEALS) OBSERVED THAT THE ASSESSEE HAS ADOPTED DELAYING TACTIC AND AN UN-COOPERATIVE ATTIT UDE WHICH HAS BEEN NARRATED BY THE AO AT SEVERAL PLACES IN HIS OR DER. ACCORDING TO THE CIT(APPEALS), SUCH AN ATTITUDE BY THE ASSESSEE WILL MAKE IT VERY DIFFICULT FOR THE AO TO ARRIVE AT TRUE AND CORRECT INCOME OF THE ASSESSEE. THEREFORE, THE CIT(APPEAL S) OBSERVED THAT THE AO IS FORCED TO ADOPT ALL THE TOOLS AVAILA BLE TO HIM INCLUDING RELYING ON THE VALUATION REPORT TO ARRIVE AT TRUE AND CORRECT INCOME OF THE ASSESSEE. THE AO HAS REJECT ED THE BOOKS OF ACCOUNT OF THE ASSESSEE BEFORE ADOPTING THE VALU ATION REPORT AND TO THAT EXTENT THE ORDER OF THE TRIBUNAL HAS BE EN COMPLIED WITH. THE CIT(APPEALS) OBSERVED THAT THE FACTS OF THIS - - ITA 1012/MDS/17 6 ASSESSMENT YEAR ARE VERY DIFFERENT FROM THE ASSESSE ES OWN CASE DURING THE AY 2011-12 AND THEREFORE, THE BENEF ITS SHOULD NOT BE GIVEN TO THE ASSESSEE FOLLOWING THE ORDER OF THE TRIBUNAL BASED ON FACTS OF THAT ASSESSMENT YEAR. AGAINST TH IS, THE ASSESSEE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. ADMITTEDLY, THIS ISSUE CAME FOR CONSIDE RATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2011 -12 IN ITA NO.100/MDS/2015. THE TRIBUNAL VIDE ITS ORDER DATED 22.5.2015 HELD AS UNDER : 8. WE HAVE HEARD BOTH THE PARTIES PERUSED THE MAT ERIAL ON RECORD. IN THIS CASE THE ASSESSEE ADMITTED COST OF CONSTRUCTION OF 1,55,74,158/- LOCATED AT 196, SALEM MAIN ROAD, NAM AKKAL IN THE NAME OF N.S.R. MALL. ACCORDING TO THE ASSESSING OF FICER THE COST ADMITTED BY ASSESSEE IS VERY LOW ON COMPARING WITH THE BUILDING STRUCTURE. THE BUILDING COMPRISED OF BASEMENT/GROU ND FLOOR + 3 FLOORS (5 FLOORS). HE HAD DEPUTED AN INSPECTOR TO VISIT AND SUBMIT A REPORT. THE INSPECTOR SUBMITTED HIS REPORT ON 10 .07.2013. ACCORDING TO HIM THE COST OF CONSTRUCTION IS ABOUT 4,50,00,000/-. VIDE HIS LETTER DATED 19.07.2013, THE ASSESSEE OBJE CTED THE VALUATION REPORT BY THE INSPECTOR. THE DEPARTMENT V IDE LETTER DATED 25.07.2013, REFERRED THE MATTER TO THE DISTRI CT VALUATION OFFICER, CHENNAI AS PER THE PROVISIONS OF SEC. 142A OF THE INCOME - - ITA 1012/MDS/17 7 TAX ACT. FURTHER HE ISSUED NOTICE TO THE ASSESSEE ON 18.09.2013 AND THE CASE WAS POSTED FOR HEARING ON 04.10.2013 B Y ASSESSING OFFICER. THE ASSESSEES REPRESENTATIVE APPEARED BE FORE THE ASSESSING OFFICER ON 03.10.2013 ALONG WITH CASH FL OW STATEMENT, STATEMENT OF AFFAIRS, CAPITAL ACCOUNT AND NAME AND ADDRESS OF THE SUNDRY CREDITORS. THE ASSESSEE AT THAT POINT OF TIM E NOT PRODUCED BOOKS OF ACCOUNTS. LATER THE CASE WAS ADJOURNED TO 14.10.2013 BY ASSESSING OFFICER. IN MEANTIME, THE DISTRICT VA LUATION OFFICER, CHENNAI GAVE A VALUATION REPORT ON 01.01.2014. HE DETERMINED THE COST OF CONSTRUCTION AT 5,70,06,100/-. THE AS SESSEES REPRESENTATIVE APPEARED BEFORE THE ASSESSING OFFICE R ON 02.01.2014 AND ASSESSING OFFICER GAVE A COPY OF THE VALUATION REPORT TO HIM AND ASSESSING OFFICER CALLED FOR COPY OF BUILDING PLAN, BUILDING APPROVAL, COPY OF LAND DEED AND SUPP ORTING EVIDENCES FOR COST OF CONSTRUCTION WITH BREAK UP. T HE ASSESSEES REPRESENTATIVE APPEARED ON 21.01.2014 BEFORE THE A SSESSING OFFICER AND STATED THAT ASSESSEE MAINTAINED BOOKS O F ACCOUNTS AND BILLS/VOUCHERS FOR THE CONSTRUCTION. HOWEVER, HE H AS NOT PRODUCED THE SAME. LATER, THE ASSESSEE PRODUCED THE BOOKS OF ACCOUNTS FOR COST OF CONSTRUCTION PRODUCED BY THE ASSESSEE'S REP RESENTATIVE VERIFIED BY THE ASSESSING OFFICER. ACCORDING TO ASS ESSING OFFICER, THE ASSESSEE HAS NOT MAINTAINED THE BOOKS OF ACCOUN T AND BILLS/VOUCHERS PROPERLY. IT WAS OBSERVED BY ASSESSI NG OFFICER THAT THE BOOKS OF ACCOUNTS ARE PREPARED AT THE TIME OF A SSESSMENT ONLY WITH THE AVAILABLE BILLS AND MOST OF THE EXPENSES A RE SUPPORTED WITH SELF MADE BILLS/VOUCHERS. HENCE THE BOOKS OF A CCOUNT AND BILLS/VOUCHERS PRODUCED COST OF CONSTRUCTION BUILDI NG ARE REJECTED BY ASSESSING OFFICER. FURTHER, THE ASSESSING OFFIC ER OBSERVED AS FOLLOWS:- - - ITA 1012/MDS/17 8 1). WHILE THE ASSESSEE CLAIMS THAT ALMOST ALL VOUCH ERS ARE PRODUCED, IT IS TO BE STATED THAT THE VOUCHERS ARE AVAILABLE IN RES PECT OF PURCHASE OF STEEL, CEMENT, BLUE METAL TO SOME EXTENT ALL THE OT HER VOUCHERS ARE ALL SELF MADE AND IT IS NOT CORROBORATED. 2). SINCE IT IS NOT PROVED THAT THE ASSESSEE ENGAGE D THE SERVICES OF AN ARCHITECT, IT IS FELT THAT TO THIS EXTENT RELIEF CA N BE GIVEN, WHICH WOULD AMOUNT TO . 6,47,465/- (THE DVO HAS ESTIMATED THE ARCHITECT FEE AT 1 % ONLY AS AGAINST 2% MENTIONED BY THE ASSESSEE IN HIS LETTER. 3). IT IS PERTINENT TO MENTION HERE THAT THE ASSESS EE HAS NOT MAINTAINED REGULAR BOOKS OF ACCOUNTS. THE ACCOUNTS PURPORTEDLY MAINTAINED FOR THE CONSTRUCTION (CONSTRUCTION A/C) BY ITSELF WOULD NOT QUALIFY AS BOOKS OF ACCOUNTS PER SE AND THE QUESTION OF MAKING A REFERE NCE TO THE VALUATION CELL ONLY AFTER REJECTING THE BOOKS OF ACCOUNTS DOE S NOT ARISE IN THIS CASE AS WAS HELD IN THE CASE OF SARGAM CINEMA VS. CIT (2 011) 197 TAXMANN203 (SC) QUOTED BY THE ASSESSEE. THE ASSESSEE WAS THEN EXAMINED UNDER OATH U/S 131 BY ASSESSING OFFICER ON 27.02.2014 TO QUESTION AND VE RIFY THE VARIOUS ASPECTS OF THE CONSTRUCTION OF THE BUILDING . THE ASSESSEE HAS STATED THAT THE CONSTRUCTION WORK WAS CARRIED O UT BY HIM PERSONALLY UNDER THE DIRECT SUPERVISION OF HIS FATH ER SHRI. C. RANGASAMY (REPLY TO Q. NO. 8). ACCORDING TO ASSESSING OFFICER THE REGISTERED VALUER HAS GIVEN THE BREAK- UP OF TH E MATERIAL USAGE BY THE ASSESSEE AND CERTAIN GLARING INCONSIST ENCIES ARE NOTED IN THIS VALUATION REPORT. THE REGISTERED VALU ER HAS NOT PROVIDED FOR THE SAND USED WHEREAS THE ASSESSEE STA TED THAT 454 UNITS OF SAND WERE USED. ALSO THE REGISTERED VALUER HAS GIVEN THE PERIOD OF COMMENCEMENT AND COMPLETION OF BUILDING F ROM APRIL'2009 TO MARCH'2010 HOWEVER THE ASSESSEE STATE D THAT THE PERIOD OF COMMENCEMENT AND COMPLETION OF BUILDING F ROM APRIL'2009 TO SEPTEMBER'2010. THERE IS ALSO A DIFFERENCE IN THE - - ITA 1012/MDS/17 9 CONSTRUCTED AREA WHICH IS SHOWN AT 53,331 SQ.FT IN THE APPROVED VALUER'S REPORT AS AGAINST AN AREA OF 57,347 SQ.FT MENTIONED IN THE DVO'S REPORT. THUS, HE REJECTED THE VALUATION REPOR T FROM REGISTERED VALUER. 9. AS SEEN FROM THE ABOVE, THE ASSESSEE HAS PRODUCE D THE BOOKS OF ACCOUNTS BEFORE THE ASSESSING OFFICER. THE ASSES SING OFFICER HAS REJECTED THE BOOKS OF ACCOUNTS ON THE REASON TH AT THE BOOKS OF ACCOUNTS WERE PREPARED BY ASSESSEE AT THE STAGE OF ASSESSMENT AND MOST OF THE EXPENSES ARE SUPPORTED BY SELF MADE BILLS/VOUCHE. HENCE, THE BOOKS OF ACCOUNTS AND BI LLS/VOUCHERS AGAINST THE CONSTRUCTION WERE REJECTED AND REFERENC E WAS MADE TO DVO U/S.142A OF THE ACT. 10. THE SECTION 142A READS AS FOLLOWS:- 142A (1) FOR THE PURPOSES OF MAKING AN ASSESSMENT OR REASSESSMENT UNDER THIS ACT, WHERE AN ESTIMATE OF T HE VALUE OF ANY INVESTMENT REFERRED TO IN SECTION 69 OF SECTION 69B OR THE VALUE OF ANY BULLION, JEWELLERY OR OTHER VALUABLE A RTICLE REFERRED TO IN SECTION 69A OR SECTION 69B IS REQUIRED TO BE MAD E, THE ASSESSING OFFICER MAY REQUIRE THE VALUATION OFFICER TO MAKE AN ESTIMATE OF SUCH VALUE AND REPORT THE SAME TO HIM . 11. UNDER THE PROVISION OF SECTION 142A(1), THE ASSESSING OFFICER COULD REFER THE MATTER TO DVO FOR ASCERTAIN ING THE COST OF CONSTRUCTION WHEN THE PROCEEDING IS PENDING BEFORE HIM. HOWEVER, BEFORE REFERRING TO THE DVO THE ASSESSING OFFICER SHALL REJECT THE BOOKS OF ACCOUNTS. PERUSAL OF THE ASSES SMENT ORDER SHOWS THAT THERE IS NO REFERENCE TO ANY MATERIAL /E VIDENCE/ INFORMATION ON THE BASIS OF WHICH IT COULD BE SAID THAT THE COST OF - - ITA 1012/MDS/17 10 CONSTRUCTION WAS SHOWN BY ASSESSEE WAS UNDERSTAND O R ANYTHING ABOVE WHAT WAS DISCLOSED BY ASSESSEE IN THE BOOKS O F ACCOUNTS. IT IS CLEAR FROM THE ASSESSMENT ORDER THAT THE ASSESSE E HAD PRODUCED BOOKS OF ACCOUNTS TO THE ASSESSING OFFICER, THE ASS ESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS WITH REFERENCE TO T HE COST OF CONSTRUCTION ON THE REASON THAT EXPENDITURE ARE SUP PORTED BY SELF MADE VOUCHERS/BILLS. WE NOTICED THAT EVEN BEFORE V ERIFYING THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE AND WI THOUT PINPOINTING ANY DEFECT IN THE BOOKS OF ACCOUNTS REG ARDING COST OF CONSTRUCTION REFERENCE WAS MADE TO THE DVO FOR VALU ATION. AS SEEN FROM THE ASSESSMENT ORDER AND NARRATED IN THE EARLIER PARA OF THIS ORDER, THE ASSESSEE HAS MAINTAINED BOOKS OF ACCOUNTS AND PRODUCED THE SAME BEFORE THE ASSESSING OFFICER. AC CORDING TO THE ASSESSING OFFICER BOOKS OF ACCOUNTS WAS PREPARED AT THE TIME OF ASSESSMENT ONLY. VARIOUS EXPENDITURES ARE SUPPORT ED BY SELF MADE VOUCHERS. BUT THE ASSESSING OFFICER HAS NOT FO UND OUT ANY DEFECT IN THE BOOKS/RECORDS/BILLS/ETC. WITHOUT CAU SING ANY DEFECTS IN BOOKS REGULARLY MAINTAINED AND WITHOUT REJECTING THE BOOKS U/S.145 OF THE ACT, THERE IS NO REASON TO REFER THE MATTER TO D.VO ON THE PRESUMPTION THAT THE COST /INVESTMENT IN CON STRUCTION IS LOW. THE ASSESSING OFFICER COULD REJECT THE BOOKS OF ACCOUNTS IN THE FOLLOWING POSSIBLE THREE SITUATION. (A) NON-COMPLIANCE WITH METHOD OF ACCOUNTING IN A CONSI STENT MANNER. (B) NON-COMPLIANCE WITH ACCOUNTING STANDARDS PRESCRIBED UNDER SECTION 145 OF THE INCOME TAX ACT. (C) ACCOUNTS WERE MAINTAINED BY AN ASSESSEE, WHICH WERE INCOMPLETE AND INCORRECT. - - ITA 1012/MDS/17 11 SECTION 145 GIVES THE POWER TO REJECT THE BOOKS RES ULTS AND ESTIMATE THE INCOME IN CERTAIN CIRCUMSTANCES. AS T HE ASSESSING OFFICER EXAMINES THE ACCOUNTS OF AN ASSESSEE, HE HA S TO CONSIDER THE FOLLOWING QUESTIONS:- 1. WHETHER THE ASSESSEE HAS REGULARLY EMPLOYED A METHO D OF ACCOUNTING. 2. EVEN IF REGULAR ADOPTION OF A METHOD OF ACCOUNTING I S THERE, WHETHER THE ANNUAL PROFITS CAN PROPERLY BE DEDUCTED FROM METHOD EMPLOYED; 3. WHETHER THE ACCOUNTS ARE CORRECTLY MAINTAINED; AND 4. WHETHER THE ACCOUNTS MAINTAINED ARE COMPLETE IN TH E SENSE THAT THERE IS NO SIGNIFICANT OMISSION THEREIN. IF THE ANSWERS TO ALL THE ABOVE FOUR QUESTIONS ARE IN AFFIRMATIVE, THEN ASSESSEES PROFITS ARE TO BE COMPUTED ON THE B ASIS OF HIS ACCOUNTS. IN SUCH CASE, NEITHER THE FIRST PROVISO T O SECTION 145(1) NOR SECTION 145(2) CAN BE INVOKED. IN THE FINDINGS ON QUESTION NOS.1, 3 AND 4 ARE IN AFFIRMATIVE, BUT FINDING IN QUESTION NO.2 IS NEGATIVE, FIRST PROVISO TO SECTION 145(1) COMES IN AND COMPUTATION HAS TO BE MADE ON SUCH BAS IS AND IN SUCH MANNER AS ASSESSING OFFICER, MAY DETERMINE. IF THE FINDINGS ON QUESTION NO.1, 3 OR 4 IS IN NEG ATIVE SECTION 145(2) APPLIES AND ASSESSING OFFICER, MAY MAKE A BE ST JUDGMENT IN MANNER PROVIDED FOR IN SECTION 144. IT IS EVIDENT FROM THE ASSESSMENT ORDER THAT THE AS SESSING OFFICER WAS NOT IN DISPUTE WITH THE METHOD OF ACCOUNTING FO LLOWED BY THE ASSESSEE OR COMPLIANCE WITH THE ACCOUNTING STANDARD S PRESCRIBED - - ITA 1012/MDS/17 12 UNDER THE INCOME TAX ACT. THE ONLY DISPUTE, WHICH MADE HIM INVOKE SECTION 142A WAS THE ASSUMPTION THAT THE ASS ESSEES EXPENDITURE WERE SUPPORTED BY SELF MADE VOUCHERS. H OWEVER, HE COULD NOT SUBSTANTIATE ANYTHING TO PROVE THAT ITS A CCOUNTS WERE INCOMPLETE AND INCORRECT. 12. IN OUR OPINION, THE ASSESSING OFFICER PREJU DGED THE ISSUE AS COST OF CONSTRUCTION DECLARED BY ASSESSEE IS VERY L OW AS ON THAT REASON HE REFERRED THE VALUATION OF CONSTRUCTION TO DVO WHICH CLEARLY SHOW THAT THERE IS NO PROPER APPRECIATION O F THE FACTS OF THE CASE. IT WAS BROUGHT TO OUR NOTICE THAT THE ASS ESSEE HAS PRODUCED BOOKS OF ACCOUNTS, BILLS/VOUCHERS SHOWING COST OF CONSTRUCTION. ACCORDING TO ASSESSING OFFICER CERTA IN EXPENDITURE OF THE ASSESSEE WERE SUPPORTED BY SELF MADE VOUCHER S. THE ASSESSEE ALSO PRODUCED DETAILS OF LOAN AVAILED/SOUR CE FOR CASH DEPOSITS, COPY OF LAND DEED AND BREAK UP DETAILS ON COST OF CONSTRUCTION. THE ASSESSING OFFICER ALSO AGREED TH AT THE ASSESSEE HAD UNDERTAKEN CONSTRUCTION OF SKELETAL SUPERSTRUCT URE OF THE BUILDING AND INTERIOR WORK OF THE BUILDING WAS ENT IRELY DONE BY THE TENANT (FLOORING TILES, AIR CONDITIONING, WOOD PART ITIONS, FALSE CEILING, ELECTRICAL WIRING, INTERNAL PAINTING, GENS ET INSTALLATION). HOWEVER, THE ASSESSING OFFICER HAS NOT READY TO ACC EPT THE SAME ON THE REASON THAT CERTAIN EXPENDITURE WERE SELF MA DE VOUCHERS. IN OUR OPINION, IN THIS LINE OF BUSINESS ACTIVITY O F CIVIL CONSTRUCTION, CERTAIN ITEMS OF EXPENDITURE TO A SMALL AND REASONA BLE EXTENT MAY NOT BE SUPPORTED WITH PROPER EXTERNAL EVIDENCE I.E. CERTAIN LABOUR PAYMENTS AND PURCHASE OF MATERIALS SUCH AS BRICKS, SAND ETC., UNDOUBTEDLY, SUCH ITEMS WOULD BE WELL WITHIN THE AC CEPTABLE LIMITS OF REASONABLENESS. ANYHOW, SUCH ITEMS OF EXPENDITU RE WOULD BE WELL SUPPORTED BY SELF MADE VOUCHERS. IT BE APPREC IATED THAT SUCH - - ITA 1012/MDS/17 13 TYPE OF EXPENDITURE WOULD BE ACCEPTABLE AT THE THRE SHOLD ON THE BASIS OF REASONABLENESS. IT IS IMPERATIVE TO INCUR SUCH EXPENDITURE AND THE SAME CANNOT BE DISPUTED BY THE ASSESSING AU THORITIES. TEST OF REASONABLENESS HAS BEEN WIDELY ACCEPTED IN VARIOUS JUDICIAL PRONOUNCEMENTS FOR ALLOWABILITY OF SUCH EX PENDITURE IN THE HANDS OF ASSESSEE. THE LEARNED ASSESSING OFFICER IGNORING THIS BASIC APPROACH OF JUDICIOUS EVALUATION PROJECTED TH E SAME ISSUE AS A WARRANTING REASON FOR REJECTION OF BOOK RESULTS. IN SUCH A SCENARIO, IF THE LEARNED ASSESSING OFFICER IS IN DI SPUTE WITH ANY PARTICULAR ITEM OF EXPENDITURE AS UNVERIFIABLE, THE SAME ITEM SHOULD HAVE BEEN CONSIDERED AS SPECIFIC ADDITION IN ASSESSMENT. THE GENERAL COMMENT OF THE ASSESSING OFFICER CLEARL Y DEMONSTRATES THAT HE COULD NOT QUANTIFY ANY SPECIFI C EXPENDITURE AS UNVERIFIABLE WHICH WARRANTS FOR REFERENCE TO THE DVO. INACTION ON THE PART OF ASSESSING OFFICER TO SPECIFICALLY QU ANTIFY UNVERIFIABLE EXPENDITURE FOR A SPECIFIC ADDITION IN THE ASSESSME NT CANNOT EMPOWER SUCH AN ASSESSING OFFICER TO RESORT TO REJE CTION OF BOOK RESULTS SO AS TO INVOKE THE PROVISIONS OF SECTION 1 42A OR 145. THIS PARTICULAR REASON RELIED UPON BY THE ASSESSING OFFI CER FOR REJECTING THE BOOKS IS LEGALLY UNSUSTAINABLE AS THE SAME IS N OT ESTABLISHING ANY INCOMPLETENESS OR INCORRECTNESS OF ASSESSEES ACCOUNTS RATHER THAN HE IS PREOCCUPIED WITH A VIEW THAT THE COST OF CONSTRUCTION DISCLOSED BY THE ASSESSEE IS VERY LOW . JUDICIAL PRECEDENCE IS CATEGORICALLY IN FAVOUR OF AN ASSESSE E IN THIS CONTEXT BY HOLDING THAT SUCH ACTIONS OF ASSESSING OFFICERS WERE HELD TO BE LEGALLY UNTENABLE. ABSENCE OF VOUCHERS OR THE SUPPO RTING EVIDENCE IN RESPECT OF A PARTICULAR ITEM OF EXPENDITURE CANN OT BY ITSELF EMPOWER AN ASSESSING OFFICER TO INVOKE PROVISION OF SECTION 142A OR 145 OF THE ACT IN REJECTING THE BOOKS OF ACCOUNT . IN OUR OPINION, REJECTION OF BOOKS CANNOT BE RESTORED TO SIMPLY ON THE BASIS OF - - ITA 1012/MDS/17 14 ABSENCE OF SOME VOUCHERS AND FAILURE TO PRODUCE THE SAME BY THE ASSESSEE. IN OTHER WORDS, ANY SUCH SITUATION SHOULD ONLY WARRANT A SPECIFIC ADDITION BY THE ASSESSING OFFICER IF HE CO MES TO A CONCLUSION THAT SUCH EXPENDITURE HAD NOT BEEN INCUR RED OR NOT VERIFIABLE. INSTEAD OF ADOPTING THIS ACCEPTED APPRO ACH IF AN ASSESSING OFFICER RESORTS TO A CONVENIENT APPROACH OF REJECTING THE BOOKS IN TOTAL BEFORE EXAMINING THE SAME AND REFERR ING THE MATTER TO DVO AND SUCH ACTION WOULD BE ILLEGAL AGAINST THE TENETS OF LAW. IN OUR OPINION, ON ACCOUNT OF MERE ABSENCE OF VOUCH ERS TO SUBSTANTIATE ENTRIES FOR THE ACCOUNTS, ACCOUNT IN T OTAL CANNOT BE REJECTED. IN THIS SCENARIO A VERY GENERAL FINDING M ADE BY THE ASSESSING OFFICER WITHOUT ANY SPECIFIC FOCUS ON ANY PARTICULAR ITEM OF EXPENDITURE, ENTIRE ACCOUNTS CANNOT BE REJECTED UNDER SECTION 145(3). ACTION OF THE ASSESSING OFFICER CLEARLY DEM ONSTRATES THAT HE COULD NOT GATHER ANY DETAILS OR FIND ANY IRREGUL ARITY IN MAINTENANCE OF THE BOOKS SO AS TO JUSTIFY REJECTION OF BOOKS IN TOTO. IT WAS ALSO ESTABLISHED BEYOND DOUBT THAT ASS ESSING OFFICER COULD NOT QUANTIFY ANY SPECIFIC AMOUNT OF EXPENDITU RE FOR DISALLOWANCE. ABSENCE OF SOME OF THE VOUCHERS OR SE LF MADE VOUCHERS WAS PROJECTED AS A REASON FOR REJECTION OF BOOKS. IF AT ALL THERE WAS ANY LAPSE ON THE PART OF THE ASSESSEE IN RESPECT OF MAINTAINING VOUCHERS OF A PARTICULAR ITEM OF EXPEND ITURE, THE SAME MAY WARRANT, AT THE MOST A SPECIFIC ADDITION AND NO THING BEYOND THAT. A MINOR IRREGULARITY CANNOT BE BLOWN OUT OF P ROPORTION TO RESORT A CONVENIENT APPROACH OF THE REJECTION OF TH E BOOK RESULTS SO AS TO REFER THE MATTER TO DVO. IN VIEW OF THE SA ME, THE REASONING OFFERED BY THE ASSESSING OFFICER FOR REJE CTING THE BOOKS AS LEGALLY UNSUSTAINABLE PROPOSITION. EVEN ON THIS ISSUE, THE LEARNED ASSESSING OFFICER WOULD HAVE RESORTED TO A MORE SPECIFIC APPROACH OF IDENTIFYING SUCH EXPENDITURE, WHICH ARE NOT - - ITA 1012/MDS/17 15 ACCEPTABLE AND ARE ON THE HIGHER SIDE FOR DISALLOWA NCE INSTEAD OF REJECTING BOOK RESULTS IN TOTO. COURTS HAVE REPEAT EDLY HELD THAT REASONABLENESS OF THE EXPENDITURE SHOULD BE JUDGED FROM THE VIEW POINT OF THE BUSINESS CARRIED ON BY THE ASSESSEE AN D NOT FROM THE VIEW POINT OF THE REVENUE AUTHORITIES. 13. THUS IN OUR OPINION, IN THIS CASE THE ASSESS EE MAINTAINED BOOKS OF ACCOUNTS AND DULY FURNISHED BEFORE THE ASS ESSING OFFICER AND HE HAS NOT APPRECIATED THE SAME AND ONLY ON PRE SUMPTION THAT COST OF CONSTRUCTION WAS VERY LOW, HE REFERRED THE MATTER TO DVO WITHOUT PROPERLY REJECTING THE BOOKS OF ACCOUNT S MAINTAINED BY THE ASSESSEE. IN OUR OPINION, REFERENCE TO DVO U/S.142A(3) OF THE ACT COULD BE MADE WHEN BOOKS OF ACCOUNTS ARE RE JECTED BY PINPOINTING DEFECT THEREIN. IN OTHER WORDS, IF THE BOOKS OF ACCOUNTS ARE FOUND TO BE CORRECT AND COMPLETE IN AL L RESPECT AND NO DEFECT IS POINTED OUT THEREIN AND THE COST OF CO NSTRUCTION OF BUILDING IS RECORDED THEREIN, ADDITION REFERRED U/ S.142A (2) IS NOT APPROPRIATE. ACCORDINGLY, WE ARE OF THE CONSIDERED VIEW THAT IN THE PRESENT CASE WHEN THE ASSESSING OFFICER HAS NOT REJ ECTED THE BOOKS OF ACCOUNT BY PIN POINTING ANY DEFECTS IN THE BOOKS OF ACCOUNT REFERENCE TO THE DVO IS NOT VALID AND, THER EFORE, DVOS REPORT COULD NOT BE UTILIZED FOR FRAMING ASSESSMENT EVEN IF SUCH A REPORT IS CONSIDERED TO BE OBTAINED U/S.142A OF THE ACT. SINCE REFERENCE TO DVO BEING HELD AS INVALID, THE ASSESSM ENT THEREAFTER BASED ON THAT DVO REPORT ALSO BE INVALID. THIS VIE W OF OUR IS FORTIFIED BY FOLLOWING PRECEDENTS:- (I) DCIT VS. SATISH COLD STORAGE 36 ITR (TRIBUNAL) 435 (LUCKNOW) WHEREIN HELD THAT ASSESSING OFFICER COULD NOT REFER THE MATTER TO DVO WITHOUT BOOKS OF ACCOUNT BEING REJECTED. - - ITA 1012/MDS/17 16 (II) SARGAM CINEMA VS. CIT (328 ITR 513)(SC) WHEREI N HELD THAT REFERENCE TO DVO WAS MADE WITHOUT REJECTING THE BOO KS OF ACCOUNT, THE REFERENCE TO THE D.V.O. ITSELF IS BAD IN LAW. ACCORDINGLY, WE ARE INCLINED TO ALLOW THE APPEAL OF THE ASSESSEE. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.100/MDS/2015 IS ALLOWED. 8. WE FIND THAT THE AO ALSO IN THIS ASSESSMENT YEAR RELIED ON THE SAME VALUATION REPORT, WHICH WAS CONSIDERED AS INVALID BY THE TRIBUNAL FOR THE PURPOSE OF FRAMING ASSESSME NT FOR THE ASSESSMENT YEAR 2011-12. WHEN THE TRIBUNAL CONSIDE RED THE SAID VALUATION REPORT AS INVALID FOR THE PURPOSE OF ASSESSMENT YEAR 2011-12, HOW IT COULD BE CONSIDERED AS VALID SO AS TO ASCERTAIN THE COST OF CONSTRUCTION AND TO MAKE AD DITION AS UNEXPLAINED INVESTMENT FOR THE ASSESSMENT YEAR 2010 -11. THE DVOS REPORT CANNOT BE OBTAINED BEFORE THE COMMENCE MENT OF THE ASSESSMENT PROCEEDINGS AND ALSO BEFORE REJECT ION OF BOOKS OF ACCOUNT OF THE ASSESSEE. BEING SO, IN OUR OPINI ON, THE ASSESSMENT FRAMED, ON THE BASIS OF SUCH INVALID D VOS REPORT IS BAD IN LAW. ACCORDINGLY, WE QUASH THE ASSESSMEN T ORDER FOR THIS ASSESSMENT YEAR ALSO AS DISCUSSED BY THE TRIBU NAL IN EARLIER - - ITA 1012/MDS/17 17 OCCASION IN ITS ORDER CITED SUPRA. SINCE, WE HAV E QUASHED THE ASSESSMENT ORDER ITSELF FOR THE ASSESSMENT YEAR UND ER CONSIDERATION, WE REFRAIN FROM GOING TO THE OTHER G ROUNDS OF APPEAL RAISED BY THE ASSESSEE FOR THIS ASSESSMENT Y EAR.. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED ON 12 TH JULY, 2017 AT CHENNAI. SD/- SD/- ( $ % . & '( ) ( ) * + , ) DUVVURU RL REDDY - ./012304556037- 8 9: /JUDICIAL MEMBER ! 9:;<<5=1>01>?@AB@3 )8 /CHENNAI, C9 /DATED, THE 12 TH JULY, 2017. K S SUNDARAM 9D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H- /CIT(A) 4. H /CIT 5. FIJ K /DR 6. J(L /GF.