Deputy Commissioner of Income Tax, Central Circle-2, Kanpur V. M/s. Nisha Narendra Construction Private Limited, Kanpur

ITSSA 292/LKW/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 4313 (ITAT-LUCKNOW)
• Duration Of Justice: 3 year(s) 3 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 17-05-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 14-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHEELA CHOPRA
• Keywords: Unexplained investment; Search and seizure; Cost of acquisition; Fair market value; Valuation report; Set aside
• Section: 69; 145; 69B; 69A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH “B”, LUCKNOW BEFORE SHRI. A. D. JAIN, VICE PRESIDENT AND SHRI T. S. KAPOOR, ACCOUNTANT MEMBER ITA No.292/LKW/2019 Assessment Year: 2013-14 The Dy. CIT Central Circle-2 Kanpur v. M/s Nisha Narendra Construction (P) Ltd. 128/412, H/2 Block Kidwai Nagar, Kanpur TAN/PAN:AADCN7694K (Appellant) (Respondent) C.O. No.18/LKW/2019 [In ITA No.292/LKW/2019] Assessment Year: 2013-14 M/s Nisha Narendra Construction (P) Ltd. 128/412, H/2 Block Kidwai Nagar, Kanpur v. The Dy. CIT Central Circle-2 Kanpur TAN/PAN:AADCN7694K (Cross-Objector) (Respondent) Department by: Smt. Sheela Chopra, CIT (DR) Assessee by: Shri P. K. Kapoor, C.A. Date of hearing: 06 04 2022 Date of pronouncement: 18 05 2022 O R D E R PER A.D. JAIN, V.P.: These are Department’s appeal and assessee’s Cross Objection against the order of the ld. CIT(A)-IV, Kanpur, dated 28.2.2019 for assessment year 2013-14. 2. The Department has raised the following Grounds: Page 2 of 10 1. On facts & circumstances of the case and in law, the CIT(A) erred in deleting the addition of Rs.1,60,19,636/- made by AO u/s 69 based on valuation report on grounds that without pointing out any defects in books of accounts, the AO could not have made a reference to DVO u/s 142A without appreciating that section 142A has been completely amended w.e.f. 01/10/2014 wherein it has been provided that AO can make reference whether or not he is satisfied about the correctness or completeness of the accounts. 2. On facts & circumstances of the case and in law, the CIT(A) erred in deleting the addition of Rs.1,60,19,636/- made by AO u/s 69 based on valuation report by relying upon the decisions without appreciating that those decisions having rendered prior to amendment u/s 142A, were distinguishable on law. 3. On facts & circumstances of the case and in law, the CIT(A) erred in deleting the addition of Rs.1,60,19,636/- made by AO u/s 69 based on valuation report on ground that AO has not pointed out any defect in the value disclosed, without appreciating that before the AO or even before the DVO, no details of investment regarding constructions/renovation, bills/vouchers were produced even though the guest house in the said premises was being used for marriage/parties etc. 4. On the facts and circumstances of the case and in law, the CIT(A) failed to allude to the relevant facts & circumstances and misread the provisions of 142A to arrive at the conclusion. The order of the CIT(A) therefore suffers from perversity in view of the ratio of decision in case of Vijay Kumar Talwar 330 ITR 1(SC), Sudarshan Silk Saress 300 ITR 205(SC). 5. The order of the Ld. CIT(A) is erroneous in law and on facts of the case and is liable to be set aside and the order of the AO be restored. 3. The Grounds raised by the assessee in its Cross Objection read as under: Page 3 of 10 1. The Ld. Commissioner of Income Tax (Appeals)- 4, Kanpur has erred in law and on facts, in not holding and in not giving a specific finding that the provisions of section 142A of the Income Tax Act, 1961 are not applicable at all, and the reference made by the Ld. Assessing Officer to the District Valuation Officer to elucidate the cost of land/fair market value in respect of both immovable properties viz. 126/27 and 126/28T Block, Govind Nagár, Kanpur, being a part of the inventory of the closing stock of the business of the assessee appellant, to be valued only under the provisions of section 145A of the Income Tax Act, 1961, are not tenable in law. 2. Without prejudice to the foregoing, the ld. CIT(A) – 4, Kanpur has erred in law and on facts, in not holding and not giving a specific finding that the reference made by the ld. Assessing Officer to the District Valuation Officer to elucidate the cost of land/fair market value in respect of the immovable property No. 126/28 T Block, Govind Nagar, Kanpur, was wholly illegal, and not tenable in law, since the reference was made by the ld. Assessing Officer in respect of this property, in the case of Shri Narendra Kumar Srivastava (meant it to be individual), stated to be owned by Shri Narendra Kumar Srivastava (meant it to be individual), whereas the said property belonged to and owned by the assessee appellant company, on records. 3. Without prejudice to the (1), the ld. CIT(A)-4, Kanpur has erred in law and on facts, in not holding and in not giving a specific finding that the reference made by the ld. Assessing Officer to the District Valuation Officer to elucidate the cost of land/fair market value in respect of the immovable property No. 126/28 T Block, Govind Nagar, Kanpur, was wholly illegal, and not tenable in law, since the reference was made by the ld. Assessing Officer to elucidate the cost of land/fair market value in respect of this property, on the date 31.7.2017, and on which date 31.7.2017 the ld. Assessing Officer had no jurisdiction over the case of the assessee appellant company, which comes with effect from 28.9.2017. Page 4 of 10 4. At the outset, the ld. Counsel for the assessee has contended that he does not wish to pursue the Cross objection filed on behalf of the assessee. Therefore, the Cross Objection of the assessee is dismissed as withdrawn. 5. Apropos the Department’s appeal, the ld. D.R. has contended that on the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs.1,60,19,636/- made by the Assessing Officer under section 69 of the I.T. Act, based on the valuation report, on ground that without pointing out any defects in the books of account, the Assessing Officer could not have made a reference to the DVO under section 142A of the I.T. Act, without appreciating that section 142A of the I.T. Act has been completely amended w.e.f. 01.10.2014, wherein, there is a provision that the Assessing Officer can make reference whether or not he is satisfied about the correctness or completeness of the accounts; that the CIT(A) erred in deleting the addition of Rs.1,60,19,636/-, relying upon the decisions, without appreciating that those decisions have been rendered prior to the amendment brought in section 142A of the I.T. Act; that the ld. CIT(A) erred in deleting the addition, observing that the Assessing Officer has not pointed out any defect in the value disclosed, without appreciating the fact that before the Assessing Officer or even before the DVO, no details of investment regarding constructions/renovation, bills/vouchers were produced even though the guest house in the said premises was being used for marriage/parties etc.; that the ld. CIT(A) failed to allude to the relevant facts and circumstances and misread the provisions of section 142A of the I.T. Act, to arrive at the conclusion; and that therefore, the order of the CIT(A) suffers from perversity in view of the ratio laid down in the case of ‘Vijay Page 5 of 10 Kumar Talwar vs. CIT’, 330 ITR 1(SC) and ‘Sudarshan Silk Sarees vs. CIT’, 300 ITR 205(SC). 6. On the other hand, supporting the impugned order, the ld. Counsel for the assessee has contended that the properties in question stand duly reflected consistently in the audited books of account of the assessee, as stock in trade; that since the properties had not been sold, the purchase value thereof had been declared in the balance sheet and the books of account; that the valuation of stock was to be done on cost or market value, whichever was lower; that in the case of the assessee, the stock had been valued at cost, since it was much lower than the market value; that this being so, there was no reason to estimate the fair market value; that as and when the stock is sold, the profit therefrom will be declared in the return of income; that in the search conducted, no incriminating material was found with regard to the assessee; that the search action also did not reveal any evidence of excess consideration paid over and above the agreement value to the seller, namely Shri Manoj Kumar Agrawal; that as rightly held by the ld. CIT(A), the Assessing Officer was not justified, under the above circumstances, to refer the properties for valuation to the Valuation Officer; that no fault whatsoever had been found by the Assessing Officer with the value of the properties as disclosed in the assessee’s books of account; that therefore also, reference of the valuation of the properties to the DVO was incorrect; that even the method of accounting consistently followed by the assessee, i.e., purchase cost, which is much lower than the market value, could not be faulted by the Assessing Officer; that further, even the Assessing Officer himself could not reject the books of the assessee, since he could not find any defect therein; that it is trite that the Page 6 of 10 provisions of section 142A of the I.T. Act do not take precedence over those of section 145 of the I.T. Act; that as such, the valuation given by the DVO could not be substituted for that disclosed by the assessee in its books of account; that the stand of the Department that the amended provisions of section 142A of the I.T. Act are applicable to the present case, is wholly incorrect, inasmuch as the assessment under consideration is for assessment year 2013 – 14, whereas the amended provisions of section 142A have expressly been made applicable, by substitution of the section by the Finance (No.2) Act, 2014, w.e.f. 1.10.2014; that the ld. CIT(A) has correctly relied on the decision in the case of ‘CIT vs. Shivakami Company Pvt. Ltd.’, 159 ITR 71 (SC) and that in the case of ‘K.P. Varghese vs. CIT’, 131 ITR 597 (SC); and that for these reasons, the appeal filed by the Department has no force whatsoever and the same is liable to be dismissed. 7. Heard. The issue is as to whether the ld. CIT(A) is correct in deleting the addition of Rs.1,60,19,636/- made by the Assessing Officer under section 69 of the Act, based on the valuation report of the DVO. A search and seizure operation was conducted at the premises of the assessee on 15.2.2016. In the search, no incriminating material was found relating to the assessee. The assessee had purchased two properties situated at house No. 126/27 and 126/28, T Block, Govind Nagar, Kanpur. In the assessment, the Assessing Officer referred the issue of valuation of the properties to the DVO. The difference between the valuation of the properties, as computed by the DVO and that disclosed in the books of the assessee, was added back by the Assessing Officer, as unexplained investment under section 69 of the Act. The ld. CIT(A) has deleted the addition. Page 7 of 10 8. The Department contends that the deletion of the addition made by the Assessing Officer is incorrect inasmuch as the ld. CIT(A) has failed to consider that as per the amended provisions of section 142A, the Assessing Officer could make reference to the DVO for valuation of the properties, whether or not he was satisfied about the correctness or completeness of the accounts of the assessee. 9. The present provisions of section 142A (2) were substituted for the old ones by the Finance (No.2) Act, 2014, w.e.f. 1.10.2014, as follows: “142A. (1) The Assessing Officer may, for the purposes of assessment or reassessment, make a reference to a Valuation Officer to estimate the value, including fair market value, of any asset, property or investment and submit a copy of report to him. (2) The Assessing Officer may make a reference to the Valuation Officer under sub-section (1) whether or not he is satisfied about the correctness or completeness of the accounts of the assessee.” 10. The provisions of the section before amendment w.e.f. 1.10.2014 were as under: “142A.(1) For the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B [or fair market value of any property referred to in sub-section (2) of section 56] is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him. (2) The Valuation Officer to whom a reference is made under sub-section (1) shall, for the purposes of dealing with such Page 8 of 10 reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957).” 11. A reading of the extant provisions of section 142A(1) and (2), juxtaposed with the erstwhile provisions of section 142A (1) and (2) reveals that earlier, the Assessing Officer could refer the valuation of the property to the DVO where an estimate of the value of such property was reported to be made. Under the present provisions, however, the Assessing Officer may make reference to the DVO whether or not he is satisfied about the correctness or completeness of the accounts of the assessee. 12. The present provisions have expressly been made applicable with effect from 1.10.2014. The year under consideration is assessment year 2013 – 14. Therefore, it is the earlier provisions which are applicable for our present purposes and not the amended ones. As noted herein above, in the search conducted, no incriminating material was found against the assessee. The search also did not reveal any evidence of excess consideration paid by the assessee to the seller of the properties, over and above the agreement value. The Assessing Officer also did not find any fault with the valuation of the properties as disclosed by the assessee in its books of account. The assessee Company is consistently following the method of accounting of valuation of closing stock at purchase cost, which is lower than the market value. No defect whatsoever was found by the Assessing Officer in the said method of accounting consistently followed by the assessee. As no defect could be found therein, the Assessing Officer did not reject the books of account of the assessee. This is entirely in keeping with the decision of the Hon'ble Supreme Court in the case of ‘Sargam Cinema vs. CIT’, 328 ITR 513 (SC), wherein, their Lordships held that where the Page 9 of 10 books of account were not rejected by the Assessing Officer, no reference could validly be made to the DVO for valuation of the property and for making addition. Obviously, ‘Sargam Cinema’ (supra) is applicable to the case of the assessee and the amendment brought in concerning the provisions of section 142A of the I.T. Act have no adverse effect inasmuch as the amended section has expressly been made applicable w.e.f. 1.10.2014. To reiterate, undisputedly, the year under consideration is Assessment Year 2013-14, due to which fact, the amended provisions, in absence of express direction to the contrary, cannot be made applicable to the year under consideration. To make it further clear, it would be appropriate to add that the present provisions of section 142A(2) provide that the Assessing Officer may make reference to the Valuation Officer under sub- section (1) of section 142A of the I.T. Act, whether or not he is satisfied about the correctness or completeness of the accounts of the assessee. Evidently, there was no analogous provision in the section prior to the amendment. In such facts and circumstances, the ld. CIT(A) has correctly held that the Assessing Officer was not justified in referring the matter to the DVO and adopting the valuation suggested by the DVO and making addition on the basis thereof. 13. The ld. CIT(A) has correctly relied on ‘CIT vs. Shivakami Company Pvt. Ltd.’ (supra) ‘ K.P. Varghese vs. CIT’ (supra). The Hon’ble Supreme Court has long since settled the law that unless there is evidence of excess consideration having been paid in the transaction of immovable property, no higher price can be taken in the computation of income. 14. In the peculiar facts and circumstances of the case, as discussed herein above, the Department has failed to show as to Page 10 of 10 how the decisions in ‘Vijay Kumar Talwar vs. CIT’ (supra) and ‘Sudarshan Silk Sarees vs. CIT’ (supra), sought to be relied on by the Department, stand violated. 15. In view of the above, finding no merit therein, the Grounds raised by the Department are rejected. 16. In the result, the appeal of the Department is dismissed, whereas the Cross Objection filed by the assessee is dismissed as withdrawn. Order pronounced in the open Court on 18/05/2022. Sd/- Sd/- [T. S. KAPOOR] [A. D. JAIN] ACCOUNTANT MEMBER VICE PRESIDENT DATED:18/05/2022 JJ: Copy forwarded to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR By order Assistant Registrar