CELESTIAL STEEL STRUCTURES PVT. LTD, Nagpur V. THE ACIT, CENTRAL CIRCLE-1(3), Nagpur

ITA 290/NAG/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3127 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 01-07-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D RAVI KUMAR
• Assessee Lawyers: R V LOYA
• Keywords: Unexplained investment; Search and seizure; Document seized; Opportunity of being heard; Principle of natural justice; Valuation report; Documents seized
• Section: 143(3); 133A; 153A; 69; 132; 90; 2; 15

Judgement Text

1 ITA NOS. 290 & 291/NAG/2013 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER . (SMC) ITA NO S . 2 90 & 291 /NAG/201 3 ASSESSMENT YEAR S : 200 5 - 06 & 2006 - 07. CELESTIAL STEEL STRUCTURES PVT. LTD., ASSTT. COMMISSIONER OF INCOME - TAX, NAGPUR. VS. CENTRAL CIRCLE - 1(3), NAGPUR. PAN AACCC5474D APPELLANT. RESPONDENT. APPELLANT BY : SHRI R.V. LOYA. RESPONDENT BY : SHRI D. RAVI KUMAR. DATE OF HEARING : 30 - 12 - 2015 DATE OF PRONOUNCEMENT : 23 RD FEBRUARY, 2016. O R D E R BOTH THESE APPEALS HAVE BEEN FILED BY THE ASSESSEE PERTAINING TO THE ASSESSMENT YEARS 2005 - 05 AND 2006 - 07 ARISING FROM TWO SEPARATE ORDERS OF LEARNED CIT(APPEALS) - 16, MUMBAI (CAMP NAGPUR) BOTH DATED 04 - 04 - 2013. 2. A : ITA NO. 290/NAG/2013: THE LEAD YEAR IS A SSESSMENT YEAR 2005 - 06 AND THE SUBSTANTIVE GROUNDS RAISED ARE REPRODUCED BELOW : (1) THAT THE ORDER OF THE ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(3) , NAGPUR IS BAD IN LAW AND WRONG ON FACTS AND THE LEARNED C.I . T.(A) HAS ERRED IN CONFIRMING THE SAME. THAT THE NOTICE ISSUED U/S.153C AND THE PROCEEDINGS THEREAFTER IS BAD IN LAW. ON THE FACTS AND CIRCUMSTANCES OF THE CASE ACTION OF BOTH THE AUTHORITIES IS UNJUSTIFIED. (2) THAT THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN REJECTING THE ASSESSEE ' S CONTENTION THAT THE REFERENCE MADE BY THE AO TO THE DEPARTMENTAL VALUATION OFFICER (DVO) WAS ILLEGAL AND ULTRA VIRES. THE LEARNED CIT(A) ERRED IN UPHOLDING THAT THE REFERENCE HAS RIGHTLY BEEN MADE TO THE DVO AND THE AO WAS CORRECT IN ADOPTING THE REPORT OF DVO. 2 ITA NOS. 290 & 291/NAG/2013 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON BASIS OF EXPLANATIONS PROVIDED THE ACTION OF THE AUTHORITY IS UNJUSTIFIED. (3) THAT THE ASSESSING OFFICER ERRED IN LAW AND ON FACT IN MAKING ADDITION OF RS.6 ,79,530/ - U/S.69 AS UNEXPLAINED INVESTMENT IN THE FACTORY BUILDING WHICH IS UNDER CONSTRUCTION AND THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION. ON T HE FACTS AND CIRCUMSTANCES OF THE CASE THE ACTION OF THE AUTHORITY IN HOLDING THAT THE OBJECTIONS O F THE ASSESSEE ARE WITHOUT FORCE IS HIGHLY UNJUSTIFIED AND IS LIABLE TO BE SET ASIDE. (4) THAT THE ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN TAKING THE VALUE OF CONSTRUCTION WORK - IN - PROGRESS AT RS.50,29,911/ - AS PER REPORT OF DVO INSTEAD OF ACTUAL COST OF CONSTRUCTION WORK - IN - PROGRESS RS . 43,50,382/ - AND THE LEARNED CIT(A) ERRED IN FURTHER CONFIRMING THE SAME. THE ACTION OF THE AUTHORITIES IS HIGHLY UNJUSTIFIED AND ADHOC. 3. FACTS AS EMERGED FROM THE ASSESSMENT ORDER PASSED U/S 153C FOR ASSESSMENT YEAR 2005 - 06 DATED 31 - 12 - 2007 WERE THAT AN ACTION U/S 132 WAS CARRIED OUT AT THE PREMISES OF M/S PRABHU STEEL INDUSTRIES ON 27 - 09 - 2005. THE OBSERVATION OF THE AO WAS THAT DURING THE COURSE OF SEARCH OPERATION CERTAIN DOCUMENTS OF THE ASSESSEE WERE FOUND. DUE TO THE SAID REASON A NOTICE U/S 153A WAS ISSUED. FURTHER THE OBSERVATION OF THE AO WAS THAT THE ASSESSEE HAD OBJECTED THE ISSUANCE OF NOTICE U/S 153A OF THE I.T. ACT ON THE GROUND THAT THERE WAS NO NAME OF THE ASSESSEE MENTIONED IN THE WARRANT. THE SAI D OBJECTION WAS FOUND TO BE CORRECT. HENCE THE PROCEEDINGS U/S 153A WERE DROPPED BY THE AO. HOWEVER, THE AO HAD ISSUED ANOTHER NOTICE U/S 153C ON 15 - 11 - 2007. IN COMPLIANCE THE ASSESSEE HAS INFORMED THAT THE RETURN FILED IN REPLY OF THE NOTICE U/S 153A BE C ONSIDERED AS A RETURN IN COMPLIANCE OF NOTICE U/S 153C OF THE I.T. ACT. THEREAFTER THE ASSESSMENT PROCEEDINGS WERE STARTED. THE ASSESSEE HAS CHALLENGED THE INITIATION OF PROCEEDINGS U/S 153C OF THE I.T. ACT. 4. WHEN THIS ISSUE WAS RAKED BEFORE THE LEARNED CIT(APPEALS), THE SAME WAS REJECTED AFTER ASSIGNING THE FOLLOWING REASONS : THE AOS ORDER AND REPORTS, THE CONTENTIONS OF THE APPELLANT AS WELL AS MATERIAL ON RECORD HAVE BEEN CONSIDERED. AS REGARDS THE FIRST OBJECTION REGARDING ISSUE OF NOTICE U/S 153C, THE APPELLANT HAS FILED COPY OF HIS LETTER DATED 29/11/2007 SUBMITTED TO THE AO, WHICH MERELY STATES THAT THE ASSESSEE IS IN RECEIPT OF NOTICE U/S 153C AND THAT THE ASSESSEE OBJECTS TO THE NOTICE AS IT IS BAD IN LAW. IT IS FURTHER STATED IN SUCH LETTER 3 ITA NOS. 290 & 291/NAG/2013 THAT WITHOUT PREJUDICE TO THE AFORESAID, THE ASSESSEE HAS ALREADY FILED RETURN IN RESPONSE TO NOTICE U/S 153A WHICH MAY BE CONSIDERED THE RETURN OF INCOME FILED IN PURSUANCE TO NOTICE U/S 153C. THE LETTER MAKES IT CLEAR THAT THE APPELLANT ONLY RAISED A GENERAL OBJECTION SAYING THE NOTICE IS BAD IN LAW WITHOUT POINTING OUT ANY SPECIF IC GROUND FOR OBJECTION. THE APPELLANT ALSO FURTHER STATED THAT RETURN FILED EARLIER IN RESPONSE TO NOTICE U/S 153A BE TREATED AS RETURN FILED IN RESPONSE TO NOTICE U/S 153C. IN PROCEEDINGS U/S 153C R.W.S. 143(3) OF THE ACT THE AR OF THE ASSESSEE ALSO ATTE NDED FROM TIME TO TIME AND SUBMITTED DETAILS/CLARIFICATION SOUGHT BY THE AO. IT IS THEREFORE CLEAR THAT NO FURTHER OBJECTIONS WERE RAISED BY THE APPELLANT. IN THE ABSENCE OF ANY SPECIFIC OBJECTION AND THE ASSESSEES CONCURRENCE IN ASSESSMENT PROCEEDINGS, T HE FIRST OBJECTION REGARDING ISSUE OF NOTICE U/S 153C AS BEING BAD IN LAW IS NOT MAINTAINABLE AND IS REJECTED. 5. IN THE LIGHT OF THE ABOVE BACKGROUND, LEARNED A.R. MR. RAJESH LOYA HAS ARGUED GROUND NO. 1 BEFORE US CHALLENGING THE INVOCATION OF JURISDICT ION U/S 153C OF I.T. ACT. AFTER HEARING THE SUBMISSIONS OF BOTH THE SIDES I AM OF THE VIEW THAT AS PER THE PROVISIONS OF SECTION 153C WHERE THE AO IS SATISFIED THAT ANY DOCUMENTS WERE SEIZED BELONGED TO A PERSON OTHER THAN THE PERSONS REFERRED TO IN SECTIO N 153A, THEN THE SEIZED DOCUMENTS SHALL BE HANDED OVER TO THE AO HAVING JURISDICTION OVER SUCH OTHER PERSON AND THAT THE AO SHALL PROCEED AGAINST SUCH OTHER PERSON. THE AO IS, THEREFORE, EMPOWER ED TO ISSUE NOTICE AND ASSESS THE INCOME OF THE OTHER PERSON. CONSIDERING THE PROVISIONS OF SECTION 153C I HAVE NOTED THAT THERE WAS NO DISPUTE THAT DURING THE COURSE OF SEARCH CERTAIN DOCUMENTS STATED TO BE THE DOCUMENTS BELONGING TO THIS ASSESSEE WERE FOUND. SINCE IT WAS AN UNDISPUTED FACT THAT THE DOCUMENTS SO FO UND HAVE ACTUALLY BELONGED TO THE ASSESSEE, THEREFORE, IN MY CONSIDERED OPINION THE AO HAD THE JURISDICTION TO INVOKE THE PROCEEDINGS U/S 153C OF I.T. ACT. IN MY CONSIDERED OPINION THERE WAS NO IMPLICATION OR EFFECT IF THE AO HAS DROPPED THE PROCEEDINGS ST ATED TO BE WRONGLY INITIATED U/S 153A OF I.T. ACT. I, THEREFORE, HOLD THAT THE PROCEEDINGS U/S 153C WERE RIGHTLY INVOKED, HENCE THIS ARGUMENT IS HEREBY REJECTED. GROUND NO. 1 IS DISMISSED. 4 ITA NOS. 290 & 291/NAG/2013 6. IN THE NEXT GROUND THE ASSESSEE HAS CHALLENGED THE REFERENCE MAD E TO THE DVO ALTHOUGH NO BOOKS OF ACCOUNTS HAVE BEEN REJECTED, NOR THERE WAS ANY I NCRIMINATING MATERIAL AVAILABLE TO THE AO . 6.1 I HAVE PERUSED THE IMPUGNED ORDER PASSED U/S 153C OF I.T. ACT ACCORDING TO WHICH THE ONLY REFERENCE MADE BY THE AO WAS THAT THE ASSESSEE MADE A CONSTRUCTION WHICH WAS IN PROGRESS OF A FACTORY AND THE INVESTMENT UPTO THE YEAR UNDER CONSIDERATION WAS RS.43,50,382/ - . INTERESTINGLY THE OBSERVATION OF THE AO WAS THAT THERE WAS A DOUBT ABOUT THE INVESTMENT DISCLOSED WHICH ACCORDING TO HIM WAS LOWER THAN THE APPARENT VALUATION. TO ASCERTAIN THE CORRECT VALUATION THE MATTER WAS REFERRED TO THE VALUATION CELL. IN THE LIGHT OF THE REPORT OF THE DVO THE AO HAD FOUND THAT DURING THE PERIOD OF CONSTRUCTION OF 2004 - 05 THE ASSESSEE HAD DISCLOS ED THE INVESTMENT OF RS.43,50,382/ - , HOWEVER, THE DVO HAD VALUED THE SAME AT RS.50,29,911/ - . THE DIFFERENCE OF RS.6,79,529/ - WAS TAXED BY INVOKING THE PROVISIONS OF SECTION 69 OF I.T. ACT. THE SAID ADDITION WAS CHALLENGED BEFORE THE FIRST APPELLATE AUTHOR ITY. 7. BEFORE THE LEARNED CIT(APPEALS) IT WAS PLEADED THAT NEITHER ANY DEFECT WAS POINTED OUT IN THE BOOKS OF ACCOUNTS NOR THERE WAS ANY INCRIMINATING MATERIAL, HENCE THE REFERENCE TO THE DVO WAS BAD IN LAW. LEARNED CIT(APPEALS) WAS NOT CONVINCED AND DISM ISSED BOTH THE ARGUMENTS IN THE FOLLOWING MANNER : WITH REGARD TO THE SECOND CONTENTION THAT THE REFERENCE TO THE DVO IS INVALID AND HENCE THE AO CANNOT RELY UPON THE DVO'S REPORT, EVEN IF IT IS HELD THAT THE AO MADE REFERENCE BEFORE PROCEEDINGS U/ S. 153C WERE INITIATED, THE FACT REMAINS THAT PROCEEDINGS U/S. 153A HAD BEEN INITIATED AND MATERIAL GATHERED EARLIER CAN ALWAYS BE USED IN ASSESSMENT PROCEEDINGS ON A SUBSEQUENT DATE. IT IS ADDED THAT IN ITO V BALSAHEB B. BARBALE, (2007) 107 TT J PUNE 779, DECIDED ON 30/11/2006, WHERE ONE OF THE ISSUES INVOLVED WAS THAT THE REFERENCE WAS MADE WHEN NO PROCEEDING WAS PENDING AND THAT THE REFERENCE TO THE DVO WAS ITSELF BAD IN VIEW OF THE DECISION OF THE SUPREME COURT IN THE CASE OF SMT. AMIYA BA LA PAUL (2003) 262 ITR 407 (SC), THE IT AT HELD THAT THE AO NOT BEING A COURT, CAN RELY UPON 'MATERIAL' WHICH MAY NOT STRICTLY BE EVIDENCE ADMISSIBLE UNDER THE INDIAN EVIDENCE ACT, FOR THE PURPOSE OF MAKING AN ORDER OF ASSESSMENT. IN MAKING AN ASSESSMENT THE AO DOES NOT ACT MERELY ON WHAT IS TECHNICALLY DESCRIBED AS 'EVIDENCE' IN THE INDIAN EVIDENCE ACT. IT MAY BE SEEN FROM SECTIONS 142 AND 143 THAT THE AO MAY ALSO ACT ON THE 'MATERIAL' GATHERED BY HIM. THE WORD 'MATERIAL' CLEARLY SHOWS 5 ITA NOS. 290 & 291/NAG/2013 THAT THE AO IS N OT FETTERED BY THE TECHNICAL RULES OF EVIDENCE AND THAT HE MAY ACT ON 'MATERIAL', WHICH MAY NOT, STRICTLY SPEAKING, BE ACCEPTED AS EVIDENCE IN A COURT OF LAW. FURTHER THAT HOWEVER, THE EVIDENCE BROUGHT ON RECORD WITHOUT THE KNOWLEDGE OF THE ASSESSEE AND USED AGAINST HIM WITHOUT GIVING HIM AN OPPORTUNITY TO REBUT IT, OFFENDS THE PRINCIPLES OF NATURAL JUSTICE. THE ASSESSEE HAS GOT THE RIGHT TO URGE THAT HE BE APPRISED OF ANY MATERIAL COLLECTED BEHIND HIS BACK AND THEN TO OFFER COUNTER - EVIDENCE. THE IT A T WENT ON TO STATE THAT THE COURTS HAVE HELD THAT EVEN THOUGH A SEARCH AND SEIZURE OPERATION MAY BE IN CONTRAVENTION OF SECTION 132, STILL THE MATERIAL OBTAINED THEREBY IS LIABLE TO BE USED. THE DOCUMENTS RECOVERED AT A SEARCH WHICH WAS NOT ABS OLUTELY ACCORDING TO LAW CAN BE UTILIZED FOR ASSESSMENT. THERE IS NO DIRECT CONNECTION BETWEEN THE ASSESSMENT OF TAX AND THE METHOD BY WHICH A DOCUMENT UTILIZED THEREFOR E IS FOUND OUT. ILLEGALITY OF THE SEARCH DOES NOT VITIATE THE EVIDENCE COLLECTED DURI NG SUCH ILLEGAL SEARCH. HENCE EVEN IF IT HELD THAT THE REFERENCE WAS INVALID, THE AO IS WITHIN HIS RIGHTS TO USE THE MATERIAL GATHERED UNDER SUCH REFERENCE S LONG AS THE AO APPRISES THE ASSESSEE OF THE MATERIAL AND DOES NOT USE IT BEHIND THE ASSESSEE'S BACK. IN THE PRESENT CASE, THE APPELLANT WAS GIVEN SUFFICIENT OPPORTUNITY OF BEING HEARD BOTH IN ASSESSMENT AS ALSO APPEAL PROCEEDINGS AND TO RAISE ITS OBJECTIONS ON THE DVO'S REPORT. FURTHER, AS PER RECORD, THE THEN CIT(A), CIT(A) - I, NAGPUR, ALSO IN TH E COURSE APPEAL PROCEEDINGS CALLED FOR THE REPORT OF THE DVO SEEKING THE DVO'S OPINION ON VARIOUS ASPECTS OF THE VALUATION REPORT. A COPY OF THE DVO'S RESPONSE (LETTER DATED 07/09/2011) WAS ALSO PROVIDED TO THE APPELLANT FOR COMMENTS/REBUTTAL THERE ON. SINCE THE POWERS OF CIT(A) INCLUDE POWER TO MAKE ENQUIRIES, THE APPELLANT'S OBJECTION IS WITHOUT FORCE. IN RESPECT OF THE THIRD OBJECTION THAT THE AO DID NOT POINT OUT ANY DEFECTS IN THE APPELLANT'S BOOKS OF ACCOUNT AND IN THE ABSENCE OF REJECTION OF BOOKS THE REFERENCE TO DVO IS INVALID, IT HAS BEEN HELD SMT. KIRAN LATA V. IT AT (2009) 318 ITR 44 (UTTARAKHAND), THAT WHERE IN A CASE LOW INVESTMENT, THE AO'S SATISFACTION TO INVITE DVO CA NNOT BE SAID TO BE ILLEGAL OR UNJUST AND IT IS ALSO NOT NECESSARY TO REJECT THE BOOKS OF ACCOUNT AS SUCH REJECTION IS IMPLIED AND WHATEVER SHOWN BY ASSESSEE IN ACCOUNTS CANNOT BE TAKEN AS GOSPEL TRUTH. IN ITO V. BALRAM JHANWAR (2009) 123 TTJ (IOD - TRIB) 717, IT WAS HELD THAT WHERE THERE WERE CIRCUMSTANCES THAT WARRANTED ESTIMATION OF COST OF CONSTRUCTION BY REFERENCE TO EXPERT, IT WAS WITHIN COMPETENCE OF ASSESSING OFFICER AND MADE VALID REFERENCE AS PER SECTION 142A. THUS THE APPELLANT'S CON TENTION ON THIS AS PECT ALSO HAS NO FORCE. 8. FROM THE SIDE OF THE APPELLANT, LEARNED A.R. MR. RAJESH LOYA APPEARED AND VEHEMENTLY PLEADED THAT THE AO HAS NOT DISCUSSED ANY INCRIMINATING MATERIAL ON THE BASIS OF WHICH HE PRESUMED THAT THERE WAS HIGHER INVESTMENT MADE BY THE ASSESSEE. RAHER HE HAS MERELY APPLIED HIS GUESS WORK AS IS APPARENT FROM THE LANGUAGE USED IN THE ASSESSMENT ORDER. SINCE THERE WAS NO INCRIMINATING MATERIAL AND THE ASSESSMENT WAS BEING MADE U/S 153C OF I.T. ACT, HENCE THE REFERENC E WAS BAD IN LAW. CASE LAWS CITED ARE AS UNDER : (1) NO REFERENCE CAN BE MADE TO DVO IN CASE NO INCRIMINATING DOCUMENTS ARE FOUND AT THE TIME OF SEARCH. CIT VS. ABHINAVKUMAR MITTAL (2013) 351 ITR 20. 6 ITA NOS. 290 & 291/NAG/2013 DEEPAK KUMAR AGARWAL VS. CIT (2014) 40 CCH 311 (MUM) TR IBUNAL. (2) NO REFERENCE CAN BE MADE TO DVO UNTIL THE BOOKS ARE REJECTED BY THE AO. SARGAM CINEMA VS. CIT (2010) 328 ITR 513 (SC). NIRPALSINGH VS. CIT (2014) 266 CTR (P&H) 108. CIT VS. SWARAJ COLD STORAGE PVT. LTD. (2013) 36 TAXMANN.COM 428 (ALL.) PRALHADKUMAR JINDAL VS. ACIT (2013) 140 ITD 147 (ITAT AGRA BENCH). (3) NO REFERENCE CAN BE MADE TO DVO UNLESS THE AO HIMSELF MAKES AN APPLICATION OF MIND BY INVOKING OR EXAMINING THE ISSUE U/S 69, 69A AND 69C. ME & MUMMY HOSPITAL VS. ACIT (2014) 107 DTR 20 9 (GUJ.) (4) THAT NO PROCEEDINGS WERE PENDING ON THE DATE (24 - 04 - 2007) WHEN THE REFERENCE WAS MADE TO THE DVO. THE HIGH COURT IN THE CASE OF UMOYA CO - OPERATIVE HOUSWING SOCIETY LTD.S CASE 314 ITR 272 (GUJ) HELD THAT WHEN THERE IS NO ASSESSMENT PROCEEDING OR REASSESSMENT PROCEEDING OF THE ASSESSEE PENDING BEFORE THE ASSESSING OFFICER, THERE IS NO JUSTIFICATION FOR MAKING REFERENCE UNDER SECTION 142A [TAX APPEAL NO S. 1496 TO 1498 OF 2005 DATED 12 - 7 - 2006]. THE SLP OF REVENUE AGAINST THE JUDGMENT WAS ALSO DIS MISSED BY THE APEX COURT IN SLP NO. CC 187 OF 2007 DAQTED 7 - 3 - 2007. FOLLOWED BY ITAT IN LEGEND ESTATES PVT. LTD. VS. DCOT (HYD) 1542/HYD/2010 DT. 30.03.2012. RAJHANS BUILDERS VS. DCIT (AHMEDABAD) (2010) 41 SOR 331. 9. FROM THE SIDE OF THE REVENUE, LEARNED D.R. HAS SUPPORTED THE ORDER OF LEARNED CIT(APPEALS). HE HAS ARGUED THAT THERE WAS NO REQUIREMENT FOR ANY MATERIAL AND THE SATISFACTION OF THE AO WAS SUFFICIENT TO MAKE THE REFERENCE TO THE VALUATION C ELL. LEARNED D.R. HAS REFERRED THE CASE LAWS AS CITED BY LEARNED CIT(APPEALS). 7 ITA NOS. 290 & 291/NAG/2013 10. I HAVE HEARD THE SUBMISSIONS OF BOTH THE SIDES. THIS PRELIMINARY OBJECTION QUESTIONING THE MANNER IN WHICH THE IMPUGNED REFERENCE WAS MADE TO THE VALUATION CELL APPEARS TO BE CORRECT AND LEG ALLY SUSTAINABLE IN THE EYES OF LAW. REASON BEHIND THIS OBSERVATION IS THAT THE IMPUGNED ORDER PASSED U/S 153C WAS A CRYPTIC ORDER WHEREIN THERE WAS NO MENTION OF ANY INCRIMINATING MATERIAL DUE TO WHICH IT COULD BE HELD BY THE AO THAT THE INVESTMENT WAS MA DE TOWARDS THE CONSTRUCTION OF THE FACTORY BUILDING MORE THAN THE INVESTMENT SHOWN IN THE BOOKS OF ACCOUNTS. IT IS NOT THE CASE OF THE REVENUE THAT CERTAIN EVIDENCES SUCH AS BILLS OR VOUCHERS OF BUILDING MATERIAL WERE UNEARTHED AT THE TIME OF SEARCH WHICH WAS NOT FOUND RECORDED IN THE BOOKS OF ACCOUNTS SO AS TO HOLD THAT THE INVESTMENT SHOWN IN THE BOOKS OF ACCOUN T S WERE NOT GENUINE. IN THE ABSENCE OF ANY SUCH INCRIMINATING MATERIAL I FIND NO REASON FROM THE ORDER OF THE AO THAT WHY HE HAS DOUBTED OR APPREH ENDED THAT THE INVESTMENT IN THE BOOKS OF ACCOUNTS OF RS. 43,50,382/ - WAS INCORRECT OR TOWARDS LOWER SIDE. RATHER I HAVE NOTICED THAT THE AO HIMSELF WAS UNDER DOUBT AND SIMPLY MENTIONED THAT IT COULD BE POSSIBLE THAT THE ASSESSEE HAD MADE INVESTMENT IN THE SAID FACTORY CONSTRUCTION OVER AND ABOVE THE INVESTMENT DISCLOSED. IN MY CONSIDERED OPINION WHEN THE PROCEEDINGS HAVE BEEN INITIATED U/S 153C OF I.T. ACT I.E. IN CONSEQUENCE UPON A SEARCH U/S 132, THEN THE REVENUE DEPARTMENT SHOULD HAVE IN ITS POSSESSION SOME POSITIVE EVIDENCE TO MAKE AN ADDITION. THIS IS NOT A CASE OF A REGULAR ASSESSMENT WHERE A GENERAL ENQUIRY OR GENERAL INVESTIGATION COULD BE MADE. 11. IN THE LIGHT OF THE ABOVE OBSERVATIONS AND THE FACTUAL POSITION, I HAVE EXAMINED A DECISION OF CIT VS . ABHINAVKUMAR MITTAL 351 ITR 20 (DEL.) WHEREIN ALMOST ON IDENTICAL FACTS IT WAS HELD THAT THE REFERENCE TO DVO WAS NOT IN ACCORDANCE WITH LAW. THERE WAS NO MATERIAL AGAINST THE ASSESSEE IN THAT CASE ALTHOUGH A SEARCH U/S 132 AND A SURVEY U/S 133A WAS COND UCTED. THE AO HAD MADE A REFERENCE TO THE DVO BUT IN APPEAL THE ITAT DELETED THE IMPUGNED 8 ITA NOS. 290 & 291/NAG/2013 ADDITION BY HOLDING THAT THERE WAS NO JUSTIFICATION FOR REFERENCE TO DVO. IN FURTHER APPEAL THE HONBLE COURT HAS HELD THAT THE BURDEN WAS ON REVENUE TO SHOW THAT RE AL INVESTMENT IN PROPERTIES WAS GREATER THAN APPARENT INVESTMENT AS DISCLOSED BY THE ASSESSEE. THE APPEAL FILED BY THE REVENUE WAS DISCAR D ED. I HAVE ALSO EXAMINED THE CASE LAW OF DEEPAK AGRAWAL VS. ACIT 40 CCH 311 (MUM.) TRIBUNAL WHEREIN A SEARCH U/S 132 WAS CONDUCTED AND THE ASSESSMENT WAS COMPLETED U/S 153A. WHEN THE MATTER WAS CARRIED BEFORE THE TRIBUNAL IT WAS HELD THAT THERE WAS NO INCRIM INATING MATERIAL BEFORE THE AO TO SUPPORT THE ADDITION. THE VALUATION REPORT GENERATED WAS MERELY AN ESTIMATE AND NOT BASED UPON ANY INCRIMINATING MATERIAL. FINALLY IT WAS HELD THAT IN THE ABSENCE OF ANY INCRIMINATING MATERIAL NO ADDITION IS SUSTAINABLE. 1 1.1 I HAVE ALSO EXAMINED THE ALTERNATIVE PLEA OF THE ASSESSEE THAT WHEN THE BOOKS OF ACCOUNTS HAVE NOT BEEN REJECTED OR NOTHING WRONG WAS FOUND IN THE BOOKS OF ACCOUNTS IN RESPECT OF THE CONSTRUCTION ACCOUNT WHEREIN THE EXPENDITURE WAS RECORDED , THEN THE REFERENCE TO THE DVO WAS IMPROPER. THIS ISSUE HAS BEEN ADDRESSED BY THE HONBLE SUPREME COURT IN THE CASE OF SARGAM CINEMA VS. CIT 328 ITR 513 (SC) WHEREIN THE VERDICT WAS THAT THE AO COULD NOT HAVE REFERRED TH E MATTER TO THE DVO WITHOUT THE BOOKS OF ACCOU NTS BEING REJECTED. RELIANCE PLACED ON SUCH D V OS REPORT WAS HELD TO BE MISCONCEIVED. THIS VIEW OF THE HONBLE SUPREME COURT WAS FOLLOWED IN THE CASE OF NIRPALSINGH VS. CIT 359 ITR 938 (P&H). THERE ARE FEW MORE DECISIONS CITED BEFORE US BUT KEEPING BREVIT Y IN MIND I HEREBY RESTRICT MY VERDICT IN FAVOUR OF THE ASSESSEE BY PLACING RELIANCE ON FEW IMPORTANT DECISIONS DISCUSSED IN THE FOREGOING PARAGRAPHS. AS A RESULT, THE OBJECTION RAISED IN GROUND NO. 2 IS HEREBY UPHELD AND THIS GROUND IS ALLOWED. 12. ALTHOU GH THE LEGALITY OF THE REFERENCE HAS BEEN DECIDED IN THE ABOVE PARAGRAPH BUT FOR THE SAKE OF COMPLETENESS IT IS JUSTIFIABLE TO EXAMINE THE MERITS OF THE ADDITION AS RAISED VIDE GROUND NOS. 3 AND 4 REPRODUCED SUPRA. MY 9 ITA NOS. 290 & 291/NAG/2013 ATTENTION HAS BEEN DRAWN ON THE DVOS REPORT AND PLEADED THAT PLINTH AREA RARE WAS ADOPTED BY THE DVO. IT HAS FURTHER BEEN OBJECTED THAT CERTAIN EXTRA ITEMS WERE ADDED WHICH WERE NOT CONSTRUCTED WITHIN THE PERIOD FOR WHICH THE ASSESSMENT WAS MADE. THE ARGUMENT BEFORE ME WAS THAT THE ASSESSM ENT YEAR UNDER CONSIDERATION WAS PERTAINING TO THE FINANCIAL YEAR 2004 - 05. HOWEVER, INSPECTION WAS MADE IN THE YEAR 2007 - 08, HENCE THE YEAR - WISE BIFURCATION TOWARDS CONSTRUCTION WAS NOT APPRECIATED BY THE DVO. THE AO HAS DULY RECORDED THAT THE CONSTRUCTI ON WAS INCOMPLETE. THE OBJECTION SO RAISED APPEARS TO BE INCORRECT BE C AUSE THE DVO HAS MENTIONED THAT THE OFFICE BLOCK WAS INCOMPLETE AND THERE WAS A INCOMPLETE FACTORY STRUCTURE. EVEN DURING THE COURSE OF HEARING IT WAS STATED THAT THE CONSTRUCTION WAS ABUNDANT DUE TO CERTAIN UNAVOIDABLE CIRCUMSTANCES. CONSIDERING ALL THESE ASPECTS I AM OF THE VIEW THAT THE DVOS REPORT WAS MAINLY ON ESTIMATION, HENCE CANNOT SUBSTITUTE THE ACTUALS AS RECORDED IN THE BOOKS OF THE ASSESSEE, SPECIALLY WHEN THE SAME HAVE N OT BEEN OBJECTED OR DOUBTED BY THE REVENUE DEPARTMEN T . I, THEREFORE, HOLD THAT THE ADDITION WAS NOT SUSTAINABLE IN THE EYES OF LAW. GROUND NOS. 3 AND 4 ARE ALLOWED. 13. B: ITA NO. 291/NAG/2013: GROUNDS RAISED ARE REPRODUCED BELOW: (1) THAT THE ORDER OF THE ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(3), NAGPUR I S BAD IN LAW AND WRONG ON FACTS AND THE LEARNED C . I . T . (A) HAS ERRED I N CONFIRMING THE SAME . ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE ACTION IS UNJUSTIFIE D . (2) THAT THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN REJECTING THE ASSESSEE ' S CONTENTION THAT THE REFERENCE MADE BY THE AO TO THE DEPARTMENTAL VALUATION OFFICER (DVO) WAS ILLEGAL AND ULTRA VIRES . THE LEARNED CIT(A) ERRED I N UPHOLDING THAT THE REFE RENCE HAS RIGHTLY BEEN MADE TO THE DVO AND THE AO WAS CORRECT IN ADOPTING THE REPORT OF DVO . ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON BASIS OF EXPLANATIONS SUBMITTED THE ACTION OF THE AUTHORITY IS ILLEGAL AND UNJUSTIFIED. (3) THAT THE ASSESSING OFFICER ERRED IN LAW AND ON FACT IN MAKING ADDIT I ON OF RS.2,26,740 / - U / S.69 AS UNEXPLAINED INVESTMENT IN THE FACTORY BUILDING WHICH IS UNDER CONSTRUCTION AND THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE ACTION OF THE 10 ITA NOS. 290 & 291/NAG/2013 AUTHORITY IN HOLDING THAT THE OBJECTIONS OF THE ASSESSEE AR E WITHOUT FORCE IS HIGHLY UNJUSTIFIED AND IS LIABLE TO BE SET ASIDE . (4) THAT THE ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN TAKING THE VALUE OF CONSTRUCTION WORK - IN - PROGRESS AT RS.16,81,307 / - AS PER REPORT OF DVO INSTEAD OF ACTUAL COST OF CONSTRU CTION WORK - IN - PROGRESS RS.14,54,567 J - AND THE LEARNED CIT(A) ERRED IN FURTHER CONFIRMING THE SAME . THE ACTION OF THE AUTHORITIES IS HIGHLY UNJUSTIFIED AND ADHOC. 14. ALL THE GROUNDS FOR ASSESSMENT YEAR 2006 - 07 ARE IDENTICAL WITH THE GROUNDS AS DISCU SSED WHILE DECIDING THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2005 - 06. EVEN THE REVENUE AUTHORITIES HAVE FOLLOWED THE VIEW TAKEN EARLIER FOR ASSESSMENT YEAR 2005 - 06 IN IDENTICAL MANNER. HENCE THE GROUNDS RAISED FOR ASSESSMENT YEAR 2006 - 07 ARE HEREBY DECIDE D ON THE SAME LINES AS HELD SUPRA. TO CONCLUDE, BOTH THE APPEALS ARE PARTLY ALLOWED. 15. IN THE RESULT, BOTH THE APPEALS OF ASSESEE ARE PARTLY ALLOWED. ORDER PRODUCED IN THE OPEN COURT ON THIS 23 RD DAY OF FEBRUARY, 2016. SD/ - (MUKUL K. SHRAWAT) JUDIC IAL MEMBER NAGPUR, DATED: 23 RD FEBRUARY, 2016. 11 ITA NOS. 290 & 291/NAG/2013 COPY FORWARDED TO : 1. CELESTIAL STEEL STRUCTURES PVT. LTD. C/O M/S LOYA BA GRI & CO., C.AS. GANDHIBAGH, NAGPUR - 440002. 2. A.C.I.T., CENTRAL CIRCLE - 1(3) , NAGPUR. 3. C.I.T., NAGPUR. 4. CIT(APPEALS) - , NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER WAKODE. ASSISTANT REGISTRAR, ITAT, NAGPUR