THE ITO, WARD-1,, ANAND vs. M/S. DEVRAJ DEVELOPERS,, ANAND

आदेश/O R D E R

PER PRADIP KUMAR KEDIA - AM:

The captioned three appeals have been filed at the instance of the Revenue against the common order of the Commissioner of Income Tax (Appeals)-4, Vadodara (‘CIT(A)’ in short), dated 16.03.2018 arising in the assessment order dated 14.12.2016, 30.03.2016 &

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14.12.2016; respectively, passed by the Assessing Officer (AO) under s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (the Act) concerning AY 2009-10 to 2011-12.

ITA No. 1525/Ahd/2018 - AY- 2010-11

“1.1 That in the facts and circumstances of the case, and in law, the Ld.CIT(Appeals) has erred in allowing the assessee’s appeal, without appreciating the facts discussed in the assessment order and the remand report. 1.2 That in the facts and circumstances of the case, and in law, the Ld, CIT(Appeals) has erred in holding that the reference made by the AO u/s 142A was invalid, without appreciating the facts discussed in the assessment order and the remand report. 1.3 That in the facts and circumstances of the case, and in law, the Ld. CIT(Appeals) has erred in holding that the reference made by the AO u/s 142A without rejecting books of account was invalid. 1.4 That in the facts and circumstances of the case, and in law, the Ld, CIT(Appeals) has erred in holding that the reference made by the AO u/s 142A without rejecting books of account was invalid, even though Circular no.1/2015 (para 43.2) specifically says that Section 142A of the Income-tax Act does not envisage rejection of books of account as a pre-condition for reference to the Valuation Officer for estimation of the value of any investment or property. 1.5 That in the facts and circumstances of the case, and in law, the Ld. CIT(Appeals) has erred in allowing the assessed

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appeal, without appreciating that the reopening of assessment u/s 147 was justified and in accordance with law, considering the reasons recorded and the facts of the case. 1.6 That in the facts and circumstances of the case, and in law, the Ld. CIT(Appeals) has erred in observing that the investment as per the books of account exceeded the investment determined by the DVO towards cost of construction, without appreciating the facts discussed in the assessment order and the remand report. 1.7 That in the facts and circumstances of the case, and in law, the Ld. C.I.T.(Appeals) erred in allowing the assessee's appeal without appreciating the findings of the AO in the remand report, and in misinterpreting the findings of the AO.”

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transactions which were not found recorded in the books. On being confronted, the partner of the Assessee firm conceded and declared a lump-sum amount of Rs. 1.75 crores as its unaccounted income in the course of survey proceedings. Such declaration made in survey was also reportedly incorporated suitably while determining the total income of the Assessee. The return for AY 2010-11 was selected for a regular assessment and a regular assessment was made under S.143(3) of the Act. The total income was assessed at Rs. 1,94,25,530/- for AY 2010-11 vide an assessment order dated 28.03.2013.

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proceedings, the valuation report of DVO was confronted to the Assessee and an amount of Rs.78,05,744/- was added to the income previously assessed having regard to the difference in the value of investment in two different projects of the assessee as estimated in DVO report qua the project costs declared by the assessee. On similar premise, additions were also made on account of wide differences in AY 2009-10 & 2011-12 as well, under S. 143(3) r.w.s. 147 of the Act, after issuance of notices under S. 148 of the Act for respective years.

“3.6. The legal position on the issue of reopening of assessment on the basis of report of the DVO has been discussed by various judicial authorities and the catena of decisions are in favour of the appellant. In ACIT Vs Dhariya Construction Co. [2010] 328 ITR 515 (SC), the Supreme Court, in its short order dated 16.2.2010, held as follows:- "Having examined the record, we find that in this case, the Department sought reopening of the assessment based on the opinion given by the District Valuation Officer (DVO). The opinion of the DVO per se is not an information for the purposes of reopening assessment under section 147 of the Income-tax Act,

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1961. The Assessing Officer has to apply his mind to the information, if any, collected and must form a belief thereon. In the circumstances, there Is no merit in the civil appeal. The Department was not entitled to reopen the assessment.

Civil appeal is, accordingly, dismissed. No order as to costs."

Reliance can also be made upon the judgments of Punjab & Haryana High Court in the case of CIT Vs Darsan Singh [2005] 272 ITR 650 (P & H), the judgment of Madras High Court in CIT Vs V.T. Rajenderan [2007] 288 ITR 312 (Mad) and the judgment of Madhya Pradesh High Court in Prakash Chand Vs Dy. CIT [2004] 269 ITR 260 (M.P.) in which it was held that the notice of reassessment on the basis of report of the Valuation Officer is not valid. It was held that DVO's report is only an information and not the material on the basis of which the assessment may be reopened. Such a report cannot be an arithmetic appreciation of the materials used for constructions nor the expenses incurred by the assessee in that regard. The observations made by the DVO do not amount to material warranting satisfaction on the part of the Assessing Officer for reason to believe that the income had escaped assessment.

In CIT Vs Kelvinator of India Ltd. [2010] 187 Taxman 312 (SC), the Supreme Court held that the Assessing Officer has no power to review his order. He has the power to re-assess. But re-assessment has to be based on fulfilment of certain pre-conditions and if the concept of "change of opinion" is removed, then, in the garb of re- opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. The Assessing Officer has power to re- open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. In the present case, the DVO's report is based on his opinion, and not on any material, which could form the basis of reopening of the cases, and thus, it can at best be treated as an information, which will not be sufficient material for recording 'reason to believe' to proceed in the matter. The opinion of the DVO, would not constitute tangible material for exercising powers of reopening the assessment.

The judgment of Apex Court in Dhariya Construction Co. (Supra) clearly lays down that the opinion of the DVO per se is not an information for the purposes of reopening assessment under Section 147 of the Income Tax Act, 1961. The Assessing Officer has to apply his mind to the material, if any, collected and must form a belief thereon. There has to be something more than the report of DVO for the belief of the Assessing Officer. The Assessing Officer cannot, merely on the basis of DVO's report, reopen the assessment. The DVO's report may be based only on his opinion or on some tangible material. In the former case it would be only estimation or guesswork. it may be mentioned here that the A.O, has relied mainly on the report of the DVO without pointing out any defect or discrepancy much less any material defect in the books of account of the assessee, and the expenditure incurred by the assessee in construction and shown in the books of account are duly supported by bills and vouchers and only ad hoc and minor additions in

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respect of cost of construction were made in assessment proceedings under taken by the A.O. u/s 143(3) of the Act. From the copy of the Office Note furnished by the A.O. along with remand report, it was clear that no serious deficiency was noticed by the A.O. in respect of cost of construction either in books of accounts/vouchers produced during scrutiny assessments of in the material impounded during the survey. Before passing the order on 28.03.2013; the A.O. in para 4 of "Office Note" has mentioned as under:-

"4. The various bocks of accounts/documents/vouchers etc. found/ impounded during the survey as per annexure-A and bank accounts as per annexure-M have been verified on test check basis and no adverse inference required to be drawn on verification."

From the above facts, it is clear that the issue of cost of construction had been examined by the A.O. before referring the case to the DVO. This reference was made without rejecting the books of accounts of the assesses. Moreover, in such situation, merely on the basis of report of the DVO, reopening has been held as invalid by the jurisdictional Gujarat High Court. In Kisan Proteins (P.) Ltd. Vs ACIT [2016] 74 taxmann.com 219 (Gujarat) it was held that where at time of making assessment under section 143(3), all relevant bills for construction of factory building were produced, Assessing Officer could not initiate reassessment proceedings on basis of report of DVO by taking a view that assessee had underestimated cost of construction of factory building. It has been observed by the Hon'ble High Court as under :-

"6. It is found from the record that the assessee-company has produced the entire construction along with the bills in detail and only after examining the same, the assessment order has been finalized and therefore a mere report of valuation cannot be construed as sufficient and tangible material which may permit the authority to reopen the assessment. In addition thereto, it appears that the Assessing Officer is satisfied with the correctness and complete notes of accounts of the assessee and nowhere even the method of accounting has been questioned and therefore when the entire construction account is made available to the Assessing Officer and only thereafter when the final assessment has taken place, DVO's report cannot be construed as tangible material which would warrant the authority to exercise the powers of reopening of assessment. The Apex Court time and again has propounded that the powers of reassessment cannot be exercised just to reensure the correctness of material which has already been examined. Further, not to review the opinion which has already been formulated and in large number of cases it has been propounded that reopening of assessment cannot be based upon mere change of opinion. One such decision which is reported in case of CIT v. Kelvinator of India Ltd. [2010] 320ITR 561/187 Taxman 312 (SC)."

Similar view has been taken by the Hon'ble Gujarat High Court in the case of Akshar Infrastructure (P.) Ltd. Vs ITO [2017] 79 taxmann.com 239 (Gujarat) wherein it was held that

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where Assessing Officer completed assessment under section 143(3) making certain addition in respect of unexplained investment, he addition merely could not reopen said assessment for enhancement of said on basis of report of DVO.

3.7. Ld. Authorized Representative has heavily relied on some other decisions of the jurisdictional High Court which are directly on this issue. In PCIT Vs J. Upendra Construction (P.) Ltd. [2015] 59 taxmann.com 144 (Gujarat), it is held by the Hon'ble Court as under:-

“4.1 At the outset, it is required to be noted that in the present case, the Assessing Officer made additions with respect to the difference in the cost of construction based upon and/or relying upon the DVO's report in the case of one M/s. Manjusha Estate Pvt Ltd. from whom, the assessee subsequently got the project. It is true that in the present case, copy of the DVO's report was furnished to the assessee during the reassessment proceedings. However, it is required to be noted that except the DVO's report, there was no further tangible material before the Assessing Officer. Therefore, solely on the basis of the DVO's report which, as per the catena of decisions of the Hon'ble Supreme Court as well as this Court, can be said to be the opinion of the DVO only, no addition can be made with respect to difference between the cost of construction determined by the DVO and shown by the assessee. 5. Under the circumstances and in the facts and circumstances of the case, it cannot be said that the learned Tribunal has committed any error in deleting the additions made by the Assessing Officer on account of difference of the cost of construction which was solely based upon the DVO's report. 5.1 Under the circumstances, no interference of this Court is called for and the present, appeals deserve to be dismissed as no question of law, much less, any substantial question of law arises in the present appeals. Once the addition made by Assessing Officer is deleted, the necessary consequences would be to delete the penalty imposed under Section 271(1) (c) of the Act."

Similarly, in CIT Vs Berry Plastics (P) Ltd. (2013) 217 Taxman 39 (Guj.), it was held that in respect of valuation of land and building, DVO's report may b4 a useful tool in hands of Assessing Officer, nevertheless, it is an estimation and without there being anything more, it cannot form basis for addition under section 69B.

In view of the aforementioned discussion and the legal position as enunciated by the Apex Court in the cases of Dharia Construction (Supra) and Kelvinator of India Ltd. (Supra) and the judicial decisions rendered by the jurisdictional Gujarat High Court in the cases of J. Upendra Construction (Supra) Akshar Infrastructure (Supra) and Kisan Proteins (Supra), it is held that the reassessment made by the Assessing Officer solely on the basis of DVO report was not valid and

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to be quashed. This decision is taken after considering the ratio of Hon'ble apex Court rendered in the case of Sargam Cinema Vs CIT [2010] 328 ITR 513 (SC) which is heavily relied upon by the Ld. Authorized Representative. Also have considered in details the facts of the present case as emanating from the assessment orders passed by three different Assessing Officers on different dates who made routine additions on ad hoc basis, the detailed report of A.O. in respect of survey conducted in the case of appellant before the reassessment and the material impounded/statements recorded by the A.O. as well as surrender made by the appellant and accepted by the Department in respect of "On Money" and no reference was made to any incriminating material found during the course of survey or during the course of assessments made under 143(3) in respect of cost of construction.

3.8 The decision of Sargam Cinema (Supra) and legal provision in respect of reference to DVO without rejecting books of accounts as provided in the" un-amended/un-substituted section 142Ahas been considered by jurisdictional High Court in Good Luck Automobiles (P.) Ltd. v. Asstt. CIT [2013] 26 taxmann.com 25 (Guj.). It has been held therein as under:

"9............. The rejection of books of account should precede the reference to the Valuation Officer. As rightly contended by the learned counsel for the assessee, the report of the Valuation Officer cannot form the foundation for rejection of the books of account 10. In the context of the controversy in issue it may also be germane to notice the provisions of section 145(2) of the Act, as it stood at the relevant time, which provided that where the Assessing Officer is not satisfied with the correctness or completeness of the accounts of the assessee, or where no method of accounting has been regularly employed by the assessee, the Assessing Officer may make an assessment in the manner provided under section 144 of the Act. Therefore, when the Assessing Officer records that he is not satisfied about the correctness or completeness of the accounts of the assessee, etc., the Assessing Officer can make a best judgment assessment In other words, before proceeding to estimate the value of any investment the Assessing Officer has to record that he is not satisfied about the correctness or completeness of the accounts of the assessee........

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the fair price of construction, the Assessing Officer does not appear to have ascertained the correctness or otherwise of the cost of construction shown the assessee in its books of account Thus, prior to making the reference the Valuation Officer, the Assessing Officer has not ascertained as to what was the defect in the cost of construction disclosed by the assesses in returns of income. Moreover, it is apparent that the only reason for making the addition under section 69 of the Act is that there is a difference 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 account 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." 3.9 At this juncture, it is imperative to refer to the provisions of section 142Aof the IT Act, as applicable for the years under consideration which read 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.

The Ld. Authorized Representative for the assessee has contended that the A.O. has, without having any material and without recording any satisfaction that the assessee had made investment in construction of projects which is not recorded in his books of account and without rejecting the assessee's books of account, referred the matter to the DVO u/s 142A of the Act, only to examine the claim of investment. As per the Ld. A.R., this is not in accordance with law and in violation to the ratio laid down by the Apex Court in the case of Sargam Cinema (Supra). It is relevant to point out here that section

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142A stands amended w.ef. 01.04.2014 by the Finance (No. 2) Act 2014. Sections 142A(1) and (2), as amended by Finance (No.-2) Act 2014, read as follows:

142A. Estimate by Valuation Officer in certain cases.--(l) For the purposes of making an assessment or re-assessment 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 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 reference, have all the powers that he has under section 38Aof the Wealth-tax Act, 1957 (27 of 1957). The extant section 142Awas substituted for the erstwhile section, w.e.f. 1.10.2014. It nowhere states that it will be active respectively. In the present case, as observed in the assessment orders (passed under section 143(3) of the Act} itself, the assessee produced his books of account before the A.O. Complete details were filed before the Assessing Officer who proceeded to make only routine or ad-hoc additions on account of payments made to some labour. In respect of A.Y.2009-10, assessment was completed by the Joint Commissioner of Income Tax, who has not pointed out any defect in respect of cost of construction, The order was passed by him on 14.12.2011, whereas, the survey was conducted upon the assessee on 19.02.2010. Neither in the statements of the partner whose statements were recorded during survey, nor in the assessment order passed by JCIT on 14.12.2011, there was any reference to any discrepancy in the books of accounts/incriminating documents in respect of cost of construction and the surrender of Rs.1,75,00,000/- was made in respect of "on money" received.

Assessment Order in the case of assessee for A.Y.2010-11 was made by Dy. Commissioner of Income Tax on 28.03,2013 and as mentioned above, ad-hoc a Edition of Rs.1,50,000/- was made on account of labour and site expenses. In that order also it is clearly mentioned that books of accounts, vouchers etc. were produced for verification. Along with the Remand Report, the Assessing Officer has also sent the copy of the "Office Note" appended with the Asstt. Order dated 28.03.2013, Following points are noticeable from the said "Office Note" :-

"OFFICE NOTE: 1. This case was re-assigned to the undersigned for assessment purpose by the Jt.CIT, Anand Range, Anand vide order No. AND/Jt.CIT/Order-120/2012-13 dated 15/01/2013 made u/s.120 of the IT Act, 1961. 2. The case was selected for scrutiny as it was covered in survey U/S.I33A of the Act. The assessment order in this case is passed after passed after discussion with the Jt.CIT, Anand Range, Anand from time to time.

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From the above mentioned "Office-Note", it is clear that the A,0. had not discovered any notable shortcoming in the books of accounts/vouchers maintained by the assessee. The assessment order for A.Y.2011-12 was passed by yet another officer who was Asstt. Commissioner of Income Tax and passed the order on 14.03.2014. Once more, the additions made were of routine nature. , Addition of Rs.2,24,551/- was made on account of default u/s 40(a)(ia) of the Act, addition of Rs.92,000/- was made on ad hoc basis @10% of site expenses (without pointing any discrepancy) and addition of Rs.1,00,000/- was made in respect of variation in Form 26AS due to some mistake in uploading of data. These additions too cannot make case for any reference to DVO on the ground of discrepancy in cost of construction. The A.O. did not reject the assessee's books of account before referring the matter to the Valuation Cell of the Department, as noted in the assessment order itself the reference was made solely to examine the veracity of the assessee's claim of investment in construction. That being so, the matter stands squarely covered in favour of the assessee by the decision of Jurisdictional High Court in

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the case of Good Luck Automobile (supra), wherein the decision of the Apex Court in the case of Sargam Cinema Vs CIT [2010] 328 ITR 513 (SC) has been followed. Therefore, it is held that the reference made by the A.O. U/S.142A of the Act without rejection of the assessee's books of account was invalid.

3.10 Though, in the aforementioned para, I have decided the issue in favour of the appellant and the Grounds of Appeal No.1 & 2 regarding validity of reassessment as well as reference to DVO u/s 142A without rejecting books of accounts, have been decided in favour of the appellant, I would also like to point that appellant will also succeed on merits on the peculiar facts of the case which have not been controverted by the Assessing Officer. The Authorized Representative has contended that the A.O. has made additions only on the basis of the report of the DVO. The total cost of construction as estimated by the DVO for the various projects executed by the appellant firm for A.Y.2008-09 to 2011-12 are as under.

Estimated by valuation Cell, Income Tax Department, Ahmedabad

Financial Year Building Work Total Building (Rs.) Work Dev Prasthan

2007-08 9448118 9448118 2008-09 61745261 61745261 2009-10 14785960 14785960 2010-11 0 0 Total (A) 85979339 Dev Sarjan

2007-08 7556982 7556982 2008-09 17584313 17584313 2009-10 7021957 7021957 2010-11 3063046 3063046 Total (B) 35226299 Dev Red Square

2007-08 0 0 2008-09 0 0 2009-10 24175771 21475771 2010-11 7167818 7167818 [Total (C) 28643589 Dev Vrund

2007-08 0 0 2008-09 0 0 2009-10 17187555 17187555 2010-11 32578618 32578618 Total (D) 49766173 Grand Total(A+B+C+D) 199615400

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As against this, the appellant has shown total investment in the books of account for various projects as under:

STATEMENT OF CONSTRUCTION COST INCURRED FOR THE PERIOD FROM 2007-08 TO 2010-11

Sr. F.Y. Material DIRECT Land Total (Rs) No. Purchased EXPS. Purchase (A+B)-(C)=D (Rs) (a) incurred (Rs) Cost (Rs) (B) (C)

1 2007-08 2,03,78,868.00 1,32,77,832.00 0.00 3,36,56,700.00

2 2008-09 4,48,94,111.28 1,99,73,818.37 61,17,410.00 5,87,50,519.65

3 2009-10 2,49,49,960.00 1,65,09,010.00 0.00 4,14,58,970.00

4 2010-11 5,87,18,367.00 4,18,18,058.00 53,94,800.00 9,51,41,625.00

TOTAL 22,90,07,814.65

It is further submitted before me that the total cost of construction as estimated by the DVO for the various projects executed by the appellant for AY.2008-09 to 2011-12 is Rs.19,96,15,400/-. However, the appellant firm has disclosed total investment in the books of accounts for the various projects amounting to Rs.22,90,07,874/- which was supported by the audited books of accounts, P & L Account and Balance Sheet. This only goes to show that the investment made by the appellant firm and disclosed in the books of account is much higher than that estimated-by the DVO. The overall investment in question so disclosed in the books of account is higher than that estimated in the DVO's report the question of their being any element of unexplained investment does not arise. The A.O. has not found any discrepancy in the books of accounts and has not rejected the books of accounts before proceeding to take up the matter with the DVO. No clinching evidence has been brought on the record by the A.O, in terms of undisclosed investments made in various projects executed and based on the report of DVO, the A.O. proceeded further without any base. When the appellant made a disclosure of Rs.1.75 crores on account of suppression of income and not on account of unaccounted cost of investment or expenses, the view put forth by the A.O, is irrelevant and unwarranted. These contentions of the Authorized Representative that the total investment made by the appellant in its various projects as reflected in its balance sheet was more than the estimate made by the DVO, were also sent to Assessing Officer for verification vide my letter dated 29.09.2017 while seeking his Remand Report. The Assessing Officer has not offered his comments on this contention of the appellant which is verifiable from the balance sheets of past 5 years produced before me. Thus, the contention of the Authorized Representative that the investments as per the books far exceeded the estimation made by the DVO is also correct. However, this Ground does not require adjudication as the reassessment based solely on the report of the DVO which too is based on invalid reference (without rejecting books of

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accounts), has already been held as invalid. In the result, the Grounds of appeal of the appellant are allowed.”

12.1 It was submitted that the action under S. 142A was not challenged in the course of original assessment proceedings. It was contended that once a valid reference is made under S. 142A of the Act and report is drawn after affording opportunity to the assessee by the DVO in exercise of quasi judicial powers, such exercise under S. 142A does not pale into insignificance or become inoperative merely owing to a per force completion of the assessment proceedings before the receipt of the valuation report. It was added that the valuation report prepared by a the valuation cell under a statutory dictate and exercising quasi-judicial powers similar to AO has a definite sanctity and had become integral part of the record notwithstanding its receipt after the completion of assessment. Such report, prepared in a quasi judicial exercise, would provide a sound basis and consequently

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enable the Income Tax Authority concerned to take such action as permissible under the Act without any perceptible bar. It was contended that the report of the valuer, governed under S 142A, was relevant and germane to provide foundation and sufficient basis for holding a bonafide belief that chargeable income has escaped assessment. It was contended that at the stage of issuance of notice under S. 148. the AO was merely obliged to form a prima facie believe on escapement on the basis of some evidence and the established factum of escapement at the stage of issuance of reopening notice is not the requirement of law. It was contended that in the present circumstances, where the valuation report of DVO coming to the possession of AO after assessment showing signification differences in the value of project costs and providing a plausible basis for formation of believe on escapement, it was the duty of the AO to invoke the powers available under s.147 of the Act to re-assess the total income of the Assessee after giving a reasonable opportunity to the Assessee, which is what was done by the AO.

12.2 It was contended in elaboration that Section 147 of the Act does not put any fetters on the power of the AO to exercise jurisdiction of reopening the assessment in the given circumstances. The AO is entitled to invoke jurisdiction under S. 147 on fulfillment of the requirement of existence of reasons to form a reasonable belief towards escapement of income. The material in possession firmly suggested escapement of income. It was also contended that in the absence of valuation report, it cannot be said that a summary acceptance of cost of project capitalized in the books is actuated by ‘change of opinion’. It was thus submitted that no fault could have been found in the act of the AO for the purposes of exercise of jurisdiction under s.147 of the Act.

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12.3 As regards the observation of the CIT(A) that the opinion of the DVO per se is not an information for the purposes of reopening assessment, the learned DR submitted that such observation is totally misplaced. It was essentially contended that the exercise of valuation would naturally involve some elements of subjectivity by the expert concerned but however the report of the DVO in exercise of statutory powers conferred under s.142A of the Act cannot be brushed aside as a symbolic document or from anybody in street, notwithstanding implied possibility of some imperfections or mistake creeping in while arriving at such valuations. The Ld. DR pointed out the report of DVO prepared in pursuance of statutory mandate under S. 142A in the instant case, has distinguishable trappings in as much as such reports are prepared in exercise of quasi judicial powers and thus cannot equated with a valuation report obtained from a registered valuer.

12.4 The learned DR next asserted that there is no requirement in law for rejection of books of accounts per se prior to making a reference under s.142A of the Act. A reference to Circular no.1/2015 was made to buttress the aforesaid proposition. It was thereafter pointed out that survey detected huge unrecorded undisclosed income. The documents found indicated so and admitted by the partner of the Assessee. The books prepared could not be thus taken as solemn on the background of such despicable conduct. The AO thus acted reasonably in making reference to the DVO for estimation of value of projects to gauge the correctness as well as completeness of entries made by the Assessee in its books with the aid of S. 142A of the Act.

12.5 It was also contended that the AO was under statutory compulsion to pass the assessment order in the absence of enlargement of limitation period at the relevant time in view of pre-amended provisions of S. 153 of the Act. On receipt of the valuation report after completion of assessment, the AO compared it with the

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corresponding project costs declared by the Assessee and realized of under-reporting in such costs. Consequently, the AO rightfully invoked the powers under S. 147 of the Act to assume jurisdiction for reassessment of escaped income as pointed out in the expert report. It was thus contended that the CIT(A) has failed to appreciate the purport of valuation report obtained under S. 142A in letter as well as in spirit and misdirected himself in law in holding the assumption of jurisdiction under s.147 of the Act by the AO as void & bad in law on the basis of such report.

12.6 On sustainability of additions on facts, the learned DR placed reliance upon the re-assessment order. It was submitted that the valuation report was confronted to the Assessee in the course of re- assessment proceedings. The assessee has failed to demolish the value arrived at by the Expert. It was further submitted that figures of cost of project in reasons recorded were never questioned or disputed by the assessee in the course of assessment. It was thus urged that the action of the CIT(A) be set aside both on jurisdiction as well as on merits and in the same token, the action of the AO be restored.

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submitted that there can be no valid inference of non-application of mind to the material produced by the assessee and formation opinion thereon. It was submitted that in view of the strict fetters imposed, an embargo placed by the first proviso to section 147 the jurisdictional requirement in the captioned appeal for AY 2009-10 is not fulfilled at all and thus the action of the AO under s.147/148 of the Act is devoid of any legitimacy and hence uncalled for.

13.1 The Ld. Counsel for the Assessee further assailed the action of the AO for invoking S. 147 on the basis of ‘change of opinion’ doctrine. It was reiterated that the reopening of assessment completed under section 143(3) is not permissible in law merely on the basis of ‘change of opinion’ regardless of issuance of notice within 4 years or after 4 years from the end of the respective assessment year. It was contended that the AO has merely applied the outcome of valuation report without showing how the opinion formed earlier on the project costs were faulty. The books of account were not rejected at the time of making reference.

13.2 The Ld. Counsel also touched upon few aspects as per its brief note placed on record which we shall attempt to deal with appropriately in later paragraphs wherever considered expedient.

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assumption of jurisdiction under s.147 of the Act as well as reversal of additions on aspects of merits.

15.1 Reasons for reopening for assessment for AY 2010-11 is reproduced hereunder:

2010-11

"In this case, the assessee filed its return of income for Asstt, Year 2010-11 on 14/10/2010 declaring business income of Rs.1,13,17,245/-. Subsequently a revised return of income was e-filed on 18/03/2011 declaring total income at Rs.1,92,70,561/-. The assessment was finalized u/s. 143(3) of the Income-tax Act, 1961 on 28/03/2013 determining total income at Rs.1,94,25,530/-. 2. The assessee is engaged in the business of civil construction and development and other allied activities to construction. 3. Subsequently, on perusal of the order u/s 143(3) of the Act, it was noticed that there is an office note which revealed that there was a survey u/s 133A of the Act and the assessee had disclosed Rs. 1.75 crore as undisclosed income. The same was reflected in the return of income filed by assessee. 4. It was further noticed that Assessing Officer vide letter no DCIT/Anand/ Valuation/Devraj Devp/2012-13 dated 26/02/2013 asked the District Valuation Officer, Valuation Cell, Income tax Department, Ahmedabad & Vadodara to estimate land and cost of construction pertaining to the assessee. As the assessment was getting time barred, the assessment was finalized on 28/03/2013 without getting the report from the DVO, He, however, made a clear noting that " no valuation report is received till date in response to the reference for valuation. Therefore, this assessment is finalized subject to the discrepancy as to the cost of construction, if any, found as per valuation report. The assessment may be re-opened u/s 147 of the act, if so required taking into consideration the valuation report". The DVO, Ahmedabad vide letter dated 16/05/2013 (received on 20/05/2013) furnished the required report, As per this report there was difference in cost declared by the assessee and estimate by DVO, Ahmedabad as under:

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Name Financial year Building Building Difference (4-3) of project amount amount declared by estimated by the assessee valuation cell of income tax department 1 2 3 4 5 Dev Prasthan 2007-08 49,23,975 94,48,118 45,24,143 2008-09 3,52,36,135 6,17,45,261 2,65,09,126 2009-10 86,69,071 1,47,85,960 61,16,889 2010-11 0 0 0 Total 4,88,29,181 8,59,79,339 3,71,50,158 Dev Sarjan 2007-08 44,02,296 75,56,982 31,54,686 2008-09 1,12,16,836 1,75,84,313 63,67,477 2009-10 46,01,946 70,21,957 24,20,011 2010-11 22,92,913 30,63,046 7,70,133 Total 2,25,13,991 3,52,26,299 1,27,12,308 Dev Red 2007-08 0 0 0 Square 2008-09 0 0 0 2009-10 1,40,50,445 2,14,75,771 74,25,326 2010-11 53, 56,473 71,67,818 18,11,345 Total 1,94,06,918 2,86,43,589 92,36,671 Dev Vrund 2007-08 0 0 0 2008-09 0 0 0 2009-10 78,44,037 1,71,87,555 93,43,518 2010-11 1,69,82,780 3,25,78,618 1,55,95,838 Total 24826817 4, 97,66,173 2,49,39,356 Grand total 11,55,76,907 19,96,15,400 8,40,38,493

As per section 142A of the Act, 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 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. On receipt of the report from the valuation officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment. As the assessee has declared only Rs 1,75 crore as unaccounted income and there is unaccounted investment of to the tune of Rs.8,40,38,493/- over the years, there is clear cut difference between these two figures amounting to Rs.6,65,38,493/-(Rs. 8,40,38,493/- -1,75,00,000/-). Thus, this is a case of escapement of income.

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147 of the Act read with Explanation -2(c)(i) thereto for the Asstt. Year 2010-11. "

15.2 Similarly, reasons for reopening for assessment for AY 2009-10 is iterated hereunder:

2009-10

"In this case, the assessee filed its return of income for Asstt, Year 2010-11 on 14/10/2010 declaring business income of Rs.1,13,17,245/-. Subsequently a revised return of income was e-filed on 18/03/2011 declaring total income at Rs.1,92,70,561/-. The assessment was finalized u/s. 143(3) of the Income-tax Act, 1961 on 28/03/2013 determining total income at Rs.1,94,25,530/-.

The DVO, Ahmedabad vide letter dated 16/05/2013 (received on 20/05/2013) furnished the required report, As per this report there was difference in cost declared by the assessee and estimate by DVO, Ahmedabad as under:

Name Financial year Building Building Difference (4-3) of project amount amount declared by estimated by the assessee valuation cell of income tax department 1 2 3 4 5 Dev Prasthan 2007-08 49,23,975 94,48,118 45,24,143 2008-09 3,52,36,135 6,17,45,261 2,65,09,126

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2009-10 86,69,071 1,47,85,960 61,16,889 2010-11 0 0 0 Total 4,88,29,181 8,59,79,339 3,71,50,158 Dev Sarjan 2007-08 44,02,296 75,56,982 31,54,686 2008-09 1,12,16,836 1,75,84,313 63,67,477 2009-10 46,01,946 70,21,957 24,20,011 2010-11 22,92,913 30,63,046 7,70,133 Total 2,25,13,991 3,52,26,299 1,27,12,308 Dev Red 2007-08 0 0 0 Square 2008-09 0 0 0 2009-10 1,40,50,445 2,14,75,771 74,25,326 2010-11 53, 56,473 71,67,818 18,11,345 Total 1,94,06,918 2,86,43,589 92,36,671 2007-08 0 0 0 Dev Vrund 2008-09 0 0 0 2009-10 78,44,037 1,71,87,555 93,43,518 2010-11 1,69,82,780 3,25,78,618 1,55,95,838 Total 24826817 4, 97,66,173 2,49,39,356 Grand total 11,55,76,907 19,96,15,400 8,40,38,493

Name Financial year Building Building Difference (4-3) of project amount amount declared by estimated by the assessee valuation cell of income tax department

1 2 3 4 5 Dev Prasthan 2007-08 49,23,975 94,48,118 45,24,143 2008-09 3,52,36,135 6,17,45,261 2,65,09,126 2010-11 0 0 0

Dev Sarjan 2007-08 44,02,296 75,56,982 31,54,686

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2008-09 1,12,16,836 1,75,84,313 63,67,477 2010-11 22,92,913 30,63,046 7,70,133

Dev Red 2007-08 0 0 0 Square 2008-09 0 0 0 2010-11 53, 56,473 71,67,818 18,11,345

2007-08 0 0 0 Dev Vrund 2008-09 0 0 0 2010-11 1,69,82,780 3,25,78,618 1,55,95,838

On the basis of the above information, it is observed that in the case of the assessee the income to the tune of Rs.3,28,76,603/- has been escaped. To bring the escaped income to the tax the assessee’s case may be reopened if deemed fit. Therefore, the approval may be granted for reopen the assessment for the year under consideration.”

15.3 Reasons for reopening for assessment for AY 2011-12 is reproduced hereunder:

2011-12

“The assessee is engaged in the business of civil construction and development and other allied activities to construction.

Subsequently, on perusal of the order u/s 143(3) of the Act, it was noticed that there is an office note which revealed that there was a survey u/s 133A of the Act and the assessee had disclosed Rs. 1.75 crore as undisclosed income. The same was reflected in the return of income filed by assessee.

It was further noticed that Assessing Officer vide letter no DCIT/Anand/ Valuation/Devraj Devp/2012-13 dated 26/02/2013 asked the District Valuation Officer, Valuation Cell, Income tax Department, Ahmedabad & Vadodara to estimate land and cost of construction pertaining to the assessee. As the assessment was getting time barred, the assessment was finalized on 28/03/2013 without getting the report from the District Valuation Officer. He, however, made a clear noting that " no valuation report is received till date in response to the reference for valuation. Therefore, this assessment is finalized subject to the discrepancy as to the cost of construction, if any, found as per valuation report. The assessment may be re-opened u/s 147 of the act, if so required taking into consideration the valuation report".

The DVO, Ahmedabad vide letter dated 16/05/2013 (received on 20/05/2013) furnished the required report, As per this report there was

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difference in cost declared by the assessee and estimate by DVO, Ahmedabad as under:

Name Financial year Building Building Difference (4-3) of project amount amount declared by estimated by the assessee valuation cell of income tax department 1 2 3 4 5 Dev Prasthan 2007-08 49,23,975 94,48,118 45,24,143 2008-09 3,52,36,135 6,17,45,261 2,65,09,126 2009-10 86,69,071 1,47,85,960 61,16,889 2010-11 0 0 0 Total 4,88,29,181 8,59,79,339 3,71,50,158 Dev Sarjan 2007-08 44,02,296 75,56,982 31,54,686 2008-09 1,12,16,836 1,75,84,313 63,67,477 2009-10 46,01,946 70,21,957 24,20,011 2010-11 22,92,913 30,63,046 7,70,133 Total 2,25,13,991 3,52,26,299 1,27,12,308 Dev Red 2007-08 0 0 0 Square 2008-09 0 0 0 2009-10 1,40,50,445 2,14,75,771 74,25,326 2010-11 53,56,473 71,67,818 18,11,345 Total 1,94,06,918 2,86,43,589 92,36,671 2007-08 0 0 0 Dev Vrund 2008-09 0 0 0 2009-10 78,44,037 1,71,87,555 93,43,518 2010-11 1,69,82,780 3,25,78,618 1,55,95,838 Total 24826817 4, 97,66,173 2,49,39,356 Grand total 11,55,76,907 19,96,15,400 8,40,38,493

As per section 142A of the Act, 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 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. On receipt of the report from the valuation officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment. As the assessee has declared building amount only Rs.2,46,32,166/- and the value estimated by valuation cell of income tax of Rs.4,28,09,482/- over the years, there is clear cut difference between these three figures amounting to Rs.1,81,77,316/- (Rs.2,46,32,166/- - Rs.4,28,09,482). Thus, this is a case of escapement of income".

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the CIT(A) has inter alia observe that the books of accounts have not been rejected in the original assessment proceedings. Coupled with this, the office note of the AO gives an infallible impression that the AO, at the time of original assessment, was broadly satisfied with the correctness of the books. Therefore, while a formal rejection of books may not, at times, be possibly necessary an abstract position of law, an implied dissatisfaction on the books could not be gauged either from the original assessment or from the attendant office note. We also simultaneously notice that CIT(A) has relied upon the decision rendered in the case of Dhariya Construction (supra) and held that the valuation report of the DVO cannot constitute a reliable piece of evidence. The CIT(A) has also made reference to various other judgments and has come to the conclusion that ingredients of Section 147 of the Act are not fulfilled in the instant case and consequently reopening is not permissible in the facts and circumstances of the case. We see no error in the conclusion drawn by the CIT(A) in holding so. Without repeating the same, we decline to interfere with the conclusion drawn by the CIT(A) holding the assumption of jurisdiction by the AO under s.147 of the Act to be bad in law.

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premises under subject matter of reference, (iii) inspect and examine the contemporaneous position on fair value of the project, (iv) apply his mind to the facts available and (v) prepare valuation report. Even after receipt of valuation report, the AO is expected to confront the same to the assessee and give him proper opportunity to defend his position on the contents of valuation report. It is thus apparently not possible to complete the assessment on the basis of such valuation report within the available time frame of one month. Apparently, the AO has completed the assessment on provisional basis as an empty formality with an implicit idea to reopen the case at a later stage in the event of deviations reported in the valuation report. This approach, in our view, is not in sync with quasi judicial task of assessment. Such action cannot be endorsed which may lead to drastic civil consequences that may arise from reopening a completed assessment.

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thus see no reason to interfere with the appellate order of CIT(A) on findings of facts.

ITA No. 1524/Ahd/2018 - AY- 2009-10

“1.1 That in the facts and circumstances of the case, and in law, the Ld.CIT(Appeals) has erred in allowing the assessee’s appeal, without appreciating the facts discussed in the assessment order and the remand report. 1.2 That in the facts and circumstances of the case, and in law, the Ld, CIT(Appeals) has erred in holding that the reference made by the AO u/s 142A was invalid, without appreciating the facts discussed in the assessment order and the remand report. 1.3 That in the facts and circumstances of the case, and in law, the Ld. CIT(Appeals) has erred in holding that the reference made by the AO u/s 142A without rejecting books of account was invalid.

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1.4 That in the facts and circumstances of the case, and in law, the Ld, CIT(Appeals) has erred in holding that the reference made by the AO u/s 142A without rejecting books of account was invalid, even though Circular no.1/2015 (para 43.2) specifically says that Section 142A of the Income-tax Act does not envisage rejection of books of account as a pre-condition for reference to the Valuation Officer for estimation of the value of any investment or property. 1.5 That in the facts and circumstances of the case, and in law, the Ld. CIT(Appeals) has erred in allowing the assessed appeal, without appreciating that the reopening of assessment u/s 147 was justified and in accordance with law, considering the reasons recorded and the facts of the case. 1.6 That in the facts and circumstances of the case, and in law, the Ld. CIT(Appeals) has erred in observing that the investment as per the books of account exceeded the investment determined by the DVO towards cost of construction, without appreciating the facts discussed in the assessment order and the remand report. 1.7 That in the facts and circumstances of the case, and in law, the Ld. C.I.T.(Appeals) erred in allowing the assessee's appeal without appreciating the findings of the AO in the remand report, and in misinterpreting the findings of the AO.”

a) Primary condition as contained in the main provision to S. 147 namely, holding ‘reason to belief’ that the chargeable income has escaped assessment.

b) Additional condition as contained in the first proviso to s. 147 that the such escapement of income is attributable to failure of Assessee to disclose material facts fully and truly.

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Both conditions must be cumulatively satisfied to invoke S.147/148 in such cases.

The case covered by proviso can not be reopened merely on the pretext that there was no conscious consideration of the pointed facts at the time of the assessment. In the absence of any demonstrable allegation together with evidence in its support, the notice under S. 148(2) of the Act has been rightly quashed by the CIT(A) owing to embargo of limitation under 1st Proviso in addition to main provisions of Section 147 of the Act. We thus decline to interfere.

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This Order pronounced on 08/06/2021

Sd/- Sd/- (RAJPAL YADAV) (PRADIP KUMAR KEDIA) VICE PRESIDENT ACCOUNTANT MEMBER Ahmedabad: Dated 08/06/2021 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,

उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।