OM PRAKASH SINGH,ALLAHABAD vs. ACIT, CENTRAL CIRCLE, ALLAHABAD

The facts of the case are that a Survey operation under section 133A was carried out at M/s Aarav Neuro Clinic and M/s Aarav Pathology on 11.09.2018. Subsequent to the Survey, an assessment was completed under section 143(3) of the Act on 7.12.2019. Subsequently proceedings under section 147 of the Income Tax Act were initiated with the issue of a notice under section 148 dated 30.03.2001. Prior to the assessment proceedings, the ld. AO observed that the assessee had made an investment in the construction of a building at 147-A/2, Jawahar Lal Nehru Road, Tagore Town, Allahabad and on 29.01.2001, he made a reference to the Valuation Officer to estimate the value of the investment made in construction of the said hospital building. Upon receipt of the DVO’s report dated 16.03.2021, he formed reason to believe, on the basis of the estimated cost of construction determined by the Valuation Officer, that a sum of Rs.9,26,796/- had escaped assessment on this account in the concerned assessment year. He accordingly issued a notice under section 148 to assess escaped income to tax. The assessee did not file a return in response to the notice under section 148 or the subsequent notices under section 142(1). He submitted that the variation was less than 10%, and in view of the fact that the difference of Rs.9,26,796/- shown for the year was only 1.71% of the overall asset, the valuer’s report could not be considered as a sole reason for making addition of unexplained investment in land and building. However, the ld. AO held that the percentage of difference which stood at 7.71% was on the higher side and therefore, he added back the difference in investment of Rs.9,26,796/- as unexplained investment in hospital and building under section 69 of the Act and brought it to tax under section 115BBE. The assessee went in appeal before the ld. CIT(A). It was submitted that while the figure disclosed by the assessee was the actual expenditure incurred, the DDO had only estimated his value based upon some assumptions and therefore, there was bound to be some difference between the estimated value and the expenditure actually incurred. It was submitted that the difference in valuation was approximately 7.17% which is within the acceptable limit of 10%. It was further submitted that the Courts have held that if the deviation is within 10%, then no addition can be made by the ld. AO. For the same, he placed reliance on the decision of the ITAT, Delhi in the case of Geetika Sachdev vs. Income Tax Officer, Ward-3(2), Saharanpur and ACIT vs. Harpreet Hotels (Pvt.) Ltd,. He also relied on Income Tax Officer vs. Kaaddu Jaygyhosh Appasaheb. It was further submitted that charging the same to tax in the manner provided under section 115BBE were incorrect and needed to be deleted. Thereafter, the ld. CIT(A) placed reliance on the following decisions to hold that the valuation made by the DVO was a reasonable ground to make an addition. i. Krishan Kumar Jhamb vs. Income tax Officer, [2009] 179 Taxman 141 (Punjab & Haryana).

The assessee is aggrieved with the said dismissal of his appeal and is before us. Shri. Ashish Bansal, Advocate (hereinafter referred to as the ‘ld. AR’) represented the assessee and submitted that it was well established and accepted principle that a mere valuation report was not sufficient to conclude that the assessee had either concealed or has some unexplained investment. The difference in the Valuation report and the factual information has to be brought out with incriminating material, exhibiting the unexplained investment and merely on the basis of DVO’s report, an addition could not be arbitrarily made. It was further submitted that in this case, the reference to the valuation officer under section 142A was in itself bad in law and furthermore that the case could not be reopened only on the basis of the valuation report, because the valuation report was only an estimate and not proof of any income escaping assessment. Furthermore, it was submitted that the difference in value between what the valuation officer has estimated and what was shown in the books of the assessee being only 7.17%, the difference was liable to be ignored and the addition deleted on this account. Accordingly, it was prayed that the addition may be deleted as being illegal and not maintainable.

On the other hand, Shri. A.K. Singh, ld. Sr. DR (hereinafter referred to as the ‘ld. Sr. DR’) submitted that the following the introduction of section 142A, the reopening of an assessment on the basis of the DVO’s report was justified. Reliance was placed on the decision of the Hon’ble Allahabad High Court in the case of CIT-2, Lucknow vs. Sangam Builders (2013) 40 taxman.com 450 (Allahabad) wherein the Hon’ble High Court had held that the ratio laid down by the Hon’ble Supreme Court in the case of Smt. Amiya Bala Paul vs. CIT [2003] 262 ITR 407 (SC) had been nullified by the insertion of section 142A and therefore, additions could be made on the basis of reference made to the DVO. Reliance was also placed on the decision of Hon’ble Allahabad High Court in the case of Sundar Carpet Industries vs. ITO [210] 324 ITR 417 (Allahabad) wherein it had been held that the DVO’s report constituted material for entertaining a belief of escaped income in the years under consideration and therefore, the re-assessment was justified. Similarly, the ld. DR drew our attention to the decision of the Hon’ble Delhi High Court in the case of Bawa Abhai Singh vs. DCIT [2001] 253 ITR 183 (Delhi) wherein the writ petition of the assessee against the reopening of the assessment on the basis of the DVO’s report was rejected. The following case laws were also relied upon. i. CIT vs. Achamma Chacko [2010] 326 ITR 258 (Kerela) ii. Vippy Processors Pvt. Ltd., vs. CIT [2001] 249 ITR 7 (M.P.) The ld. DR also submitted that a paper book containing judgments supporting the proposition that only those original assessments which were completed and became final and conclusive on or before 30.09.2004, were excluded from the ambit of section 142A and that sufficiency or adequacy of reasons recorded under section 148 or the correctness of material before the ld. AO could not be considered in appeal. Thus, the ld. DR argued that in view of the change in the law owning to the insertion of section 142A, ground no. 1 of the assessee’s grounds of appeal was not maintainable. With regard to the submissions of the ld. AR on the merits of the case, the ld. DR argued that the perusal of the valuation report would demonstrate that the assessee had not furnished labour payment bills and vouchers, structural drawings of the building and valuer’s report before the Valuation Officer and therefore, in the absence of documents to substantiate the year wise expenditure in the construction of building, the accounts could not be relied upon and it was the estimated done by the Valuation Officer which has to be taken.

With regard to the issue on merits, it is observed that as per the valuation report, the total estimated cost of construction is Rs.5,41,36,100/- against the total investment of Rs.5,05,12,596/- disclosed in the returns. Thus, the variation in the value disclosed by the assessee in his returns and the value estimated by the Valuation Officer is 7.1%. We are in concurrence with the view that there would always be some difference in the estimate determined by the Valuation Officer and the actual expense recorded, because the valuation is based on a given set of parameters while the actuals are based on many variable factors. It is only if there is a large difference in the estimation of construction by the Valuation Officer and the actual cost displayed, that it can be said that the cost of construction has been suppressed. Where the cost of construction as disclosed in the returns varies marginally from that estimated by the Valuation Officer, it cannot be said that there 7 has been undisclosed investment in the construction of that building merely because of this difference. It is observed that amendments have been brought into sections 50C and section 55A (through Rule 111AA) of the Income Tax Act, 1961 indicating a tolerance margin of 10% and 15% respectively between the fair market value as shown by the assessee and as determined by the Valuation Officer. While there is no explicit mention of such tolerance limit within the provisions of section 142A, the principles laid down in the Act, in respect to section 50C and section 55A have been recognized in various judicial pronouncements. The ld. AR has placed reliance on two such case laws i.e. ACIT vs. Harpreet Hotels (P.) Ltd. vide and Geetika Sachdev vs. ITO, Ward-3(2), Saharanpur in ITA No.6638/Del/2018. After considering the fact that the variation between the value of the property and cost of construction shown by the assessee in his accounts and that estimated by the Valuation Officer is less than 10% both in absolute terms and in terms of the amount stated to be invested and determined to be invested during the year (Rs.1,29,19,804/- viz. a viz. Rs.1,38,46,600/-), we are of the view that the ld. AO is not justified in concluding that there was unexplained investment only on account of the estimate determined by the Valuation Officer. We also observe that the valuation report of the Valuation Officer is contradictory in the sense that, while in Column 3.2 of his report he has recorded that the assessee has not furnished the valuer’s report, in Column 9.1, he has given comments on the valuer’s report and why it could not be relied upon. Be that as it may, since the Valuation Officer has himself recorded the fact that the assessee was showing cost of building more than that of the approved valuer, that report is not relevant to the facts of the assessee’s case. Therefore, in consideration of the minor variation in the cost of construction disclosed by the assessee and that determined by the Valuation Officer, we are of the opinion that the same is within the tolerance range and accordingly no conclusion of unexplained investment could be arrived at on that