SHRI ARVINDBHAI LALLUBHAI LAKHANKIYA,,SURAT vs. THE ACIT, CIRCLE-9,, SURAT

This appeal by the Assessee is directed against the order of Ld.Commissioner of Income Tax(Appeals)-3 {‘CIT(A’)}, Surat dated 10.03.2016 which in turn arises from the assessment order passed under section 143(3) read with section (r.w.s) 147 of Income –tax Act (‘Act’) , dated 28.02.2014 for the assessment year 2006-07.

Grounds raised by the Assessee read as under: “I. The learned CIT(A) has grievously erred in law and on facts in confirming the re-opening of assessment u/s.147 after the expiry of 4 years from the end of relevant Assessment Year as assessment was made u/s. 143(3) without any failure on the part of appellant. The re-opening be held as time barred. II. The learned CIT(A) has grievously erred in law and on facts in confirming the order of Assessing Officer without appreciating the law that reference to DVO was made after completion of assessment proceedings. The re-opening should be held as null and void. III. The learned CIT(A) has grievously erred in law and on facts in confirming the additions of Rs. 44,65,300/- on the basis of Valuation Report of DVO without Shri ArvindbhaiLallubhaiLakhankiya Vs. ACIT, Circle-9, Surat/ for A.Y. 2006-07 appreciating the facts of acceptance of books of accounts and ignoring the Provision of Section 50C(3) of the Act. The addition should be deleted. IV. The learned CIT(A) has grievously erred in law and on facts in confirming the re-opening of assessment us . 147 of the Act when reference to DVO was made by CIT(A), Assessing Officer had no jurisdiction for re-assessment. The re-opening be held as null & void being non-jurisdictional. V. The learned CIT(A) has grievously erred in law and on facts in confirming the addition of Rs.44,65,300/- without appreciating the facts and detailed explanation of market value of adjacent properties. The addition should be deleted.

Brief facts of the case are that the assessee is a building contractor engaged in construction of raw houses. The assessee filed his return of income for A.Y. 2006-07 on 04.08.2006 declaring income of Rs.26,11,859/-. The return was processed under section 143(1) of the Act on 31.05.2007, accepting the income returned. Thereafter, the case was selected for scrutiny and assessment was completed under section 143(3) on 15.12.2008 assessing total income of Rs.56,25,860/-. The Assessing Officer (AO) while passing the assessment order besides the other additions/disallowance made addition of Rs.30,14,000/- on account of undisclosed investment on purchase of three piece of land. The A.O. made addition with regard to the purchase of land in (i) Survey No. 379 Block no.358 admeasuring 1.13 acre, (ii) Survey No. 394 Block No. 347 admeasuring 4957 Meters and (iii) Survey No. 409/2 Block no 387 admeasuring 8094 Meters all in Village Pal. The A.O. while making addition took his view that the Jantri value revised from 01.04.2008 represent the correct value in place of old Jantri value which were in existence since 1998. The A.O. 2 Shri ArvindbhaiLallubhaiLakhankiya Vs. ACIT, Circle-9, Surat/ for A.Y. 2006-07 further noted that the rate of agriculture land is Rs. 7000/- per Square Meter (PSM) and developed land is at Rs. 14,000/- PSM. However, the real rate in the developed area is Rs. 20,000/ to 25,000/-PSM.On show cause notice the assessee stated that rate stated in the show cause notice were not applicable in the year 2006-07. The Jantri price for year 2006- 07 were Rs. 400/- PSM. The assessee also stated that market price of the land was Rs. 14,00,000/-, which is mentioned on the documents of sale itself. The assessee’s share in the purchased land is 50% and the assessee has shown Rs. 781,400/- in his books of account including the cost of Stamp. The reply of the assessee was not accepted by the A.O. The madeestimation of investment in land at Rs. 50,00,000/-. The A.O. further noted that a survey u/s.133A was conducted on at the premises of assessee. The statement of assessee was recorded under section 131, wherein the assessee disclosed income of Rs. 15,60,000/-. The undisclosed income declared by the assessee matched with the estimation of investment in land. Being aggrieved by the additions, the assessee filed appeal before the ld.CIT(A).

During the appellate proceedings, a reference was made to the District Valuation Officer (DVO) for valuation of properties in question, however, during the pendency of appeal a valuation report from DVO was not received before finalization of order by 3 Shri ArvindbhaiLallubhaiLakhankiya Vs. ACIT, Circle-9, Surat/ for A.Y. 2006-07 the ld.CIT(A), the ld.CIT(A) deleted the addition.Aggrieved by the deleting various additions, including addition on account of undisclosed investment, the Revenue filed appeal before Tribunal. However, the Revenue has not challenged the order in deleting the undisclosed investment in three plot of land.

Subsequently, the valuation report was received in the office of AO. The DVO valued the value of three plot of land at Rs. 79,38,000/-. On the basis of valuation of DVO, AO took his view that value of three plots were of Rs.79,38,000/- and that the assessee has shown investments in land at Rs. 34,73,700/- only. The AO made a reason to believe that assessee made undisclosed investment of Rs.44,65,300/- in three properties. On the basis of the aforesaid reason, the ld.AO reopened case u/s.147 of the Act. Notice u/s.148 dated 12.03.2013 was served upon the assessee. In the notice under section 148, the assessee was required to file revised return of income within 30 days of receipt of notice. The AO recorded that no return in response to notice under section 148 of the Act was furnished by the assessee till 16.07.2013. The AO served notice under section 142(1) dated 29.08.2013. The assessee vide its letter dated 10.09.2013 stated that he had already filed his return on 04.08.2006 and requested that the same may be treated as a return in response to notice u/s.148 of the Act.

The objection of assessee was not accepted and the objection of the assessee was disposed off by AO on 27.01.2014. After disposal of the objection, the ld.AO proceeded to make the reassessment. The AO after serving notice u/s.143(2) of the Act, issued a show cause notice dated 11.02.2014 asking assessee as to why the difference in value, declared by him and that of DVO should not be added to undisclosed investment.

The reply of assessee was not accepted by the AO. The ld.AO took his view that reference under section 50C(2) is not made in the matter. The valuation of land in question is covered by the provision of section 142A(1) of the Act. The AO further took his view that the contention of assessee that purchase price was in accordance with the Jantri price is not acceptable, because the real value of the investment is more important for taxation purpose. The old Jantri price was not revised for so many years, which does not show the true value of land. The Government revised Jantri price in 2008 and as per Jantri price per square meter, the price of agricultural land in the concerned area was Rs.7000 PSM. The assessee in its return 6 Shri ArvindbhaiLallubhaiLakhankiya Vs. ACIT, Circle-9, Surat/ ITA No.965/AHD/2016 for A.Y. 2006-07 of income disclosed his investment in three land at Rs.34,73,700/- only. Therefore, the difference between the two values (Rs.79.39,700/- minus Rs. 34,73,700/-) being Rs.44,65,300/- was treated as undisclosed investment and added to the income of assessee in the assessment order passed by 143(3) r.w.s 147 on 28.02.2014.

On appeal before the ld.CIT(A), the action of ld.AO in reopening as well as in making addition on account of undisclosed investment was upheld. Further, aggrieved the assessee has filed this appeal before this Tribunal.

We have heard the submissions of ld. Authorised Representative (AR) of the assessee and ld.Departmental Representative (DR) for the Revenue and perused the material available on record. Ground No.1 relates to validity of reopening of assessment under section 147 of the Act. The ld.AR of the assessee submits that initially assessment under 143(3) was completed on 15.12.2008. The copy of the assessment order is placed on record. The case of the assessee was reopened by issuing notice under section 148 on 12.03.2013. The case was reopened after four years from the end of relevant assessment year. The assessee was served with the reasons recorded by the ld.AO along with his letter dated 25.11.2013, the copy of reasons recorded is placed on record at page no.50-51 of the paper book. The assessee filed its 7 Shri ArvindbhaiLallubhaiLakhankiya Vs. ACIT, Circle-9, Surat/ for A.Y. 2006-07 objections vide letter dated 09.12.2013. In the objections, the assessee specifically contended that reasons recorded are not correct. The case was reopened after expiry of four years from the end of relevant assessment year, and there was no failure on the part of the assessee in disclosing truly all material facts necessary for his assessment. The assessee disclosed all facts fully and truly. The reopening was made solely on the basis of report of DVO. The assessee also stated in its objection that the copy of valuation report is not provided to the assessee. The ld.AR further submits that while passing the assessment order under section 143(3) on 15.12.2008, the AO made estimated addition on account of same issue. The assessee filed appeal before the ld. CIT(A). The ld. CIT(A) after considering the submission of the assessee deleted the entire addition. Though, the revenue filed appeal before the Tribunal but the deleting addition on account of estimated addition was not challenged. Thus, the issue attained finality.

The ld. AR for the assessee submits that no addition on account of valuation report of DVO in the reopening assessment can be made against the assessee. The provisions of section 50C is not applicable on the purchaser. The AO disposed off of the objections of the assessee vide order dated 27.01.2014, copy of which is placed on record by page no.56 to 58 of the paper book. The order on the objections of the 8 Shri ArvindbhaiLallubhaiLakhankiya Vs. ACIT, Circle-9, Surat/ for A.Y. 2006-07 assessee is based on misconception of the AO. The assessee made investment and paid consideration in accordance with Jantri value of relevant period. The AO relied on the Jantri rate on 2008. However, the assessee purchased the land in A.Y. 2006-07 and Jantri rate of A.Y. 2006-07 is applicable. The ld.AR of the assessee submits that copy of Jantri rates applicable during the relevant period showing the rate is placed on record.In support of his submissions, the ld.AR relied upon the decision of Hon'ble Jurisdictional High Court in Gayatri Enterprises vs. ITO in Tax Appeal No.399 of 2019,Bombay High Court in CIT Vs TulsidassKalichand (supra), Rajasthan High Court in SardarKehar Singh Vs CIT (supra) and Calcutta High Court in Reliance Jute Industries Ltd Vs ITO (supra) and decision of Tribunal in ACIT Vs Balkishan Poddar (supra).

On the other hand, the ld.DR for the Revenue submitted that reopening was not beyond the four years from the end of relevant assessment year. The AO has sufficient material for reopening of the case under section 147. The DVO in his report has mentioned that there is variation in the purchase value. The real value of the three plots were higher, which is certainly a fresh material on the basis of which the AO has reason to believe that income of the assessee has escaped assessment by not disclosing fully and truly all the material facts for assessment. The Ld. DR for the revenue further submits that 9 Shri ArvindbhaiLallubhaiLakhankiya Vs. ACIT, Circle-9, Surat/ for A.Y. 2006-07 reference was made by A.O. on the direction of the ld. CIT(A) for valuation of assets. The report of valuer/DVO was not received before passing the order by the ld. CIT(A). When the report of the DVO was received in the office of AO, it was a fresh material and the AO was well within his right to reopen the assessment beyond four year. The Ld. DR for the revenue prayed for upholding the validity of reopening under section147. In support of her submissions the Ld. DR for the revenue relied on the following decision; (i) Yogendra Kumar Gupta Vs ITO (51 taxmann.com 383 SC), (ii) R.K Malhotra ITO Vs Kashturbhai Lalbhai (107 ITR 537 SC), (iii) CIT Vs PVS Beedies (P) Ltd (103 Taxman 294 SC), (iv) ACIT Vs Rajesh Jhaveri Stock Broker (P) Ltd 161 Taxman 316 SC and (v) Yuvraj Vs UOI ( 315 ITR 84 SC).

We have considered the submissions of both the representatives and gone through the order of the tax authorities below. We have also deliberated on various case laws relied by the parties. There is no dispute that during the initial assessment proceedings under section 143(3) the A.O. examined the issue of investment in three plots made by the assessee in during the relevant financial year. There is no dispute that A.O. made addition with regard to investment made on these three plots in the assessment order passed under section 143(3) dated 15.12.2018. The assessee challenged the addition in first appeal before ld. CIT(A). The ld. Shri ArvindbhaiLallubhaiLakhankiya Vs. ACIT, Circle-9, Surat/ ITA No.965/AHD/2016 for A.Y. 2006-07 CIT(A) in his order dated 23.05.2011 deleted the estimated addition of estimated addition of alleged unaccounted investment. The Ld. CIT(A) while deleting the estimated addition recorded that there is no evidence with AO for such estimated additions. It was further recorded that he directed the AO to obtain a report of DVO under section 142A. The AO not submitted report of DVO despite passing over of two years, thus, he has no option but to decide the appeal on the basis of certificate of Sub-Registrar that purchase price is correct.

We have seen that the revenue filed appeal against the order of Ld. CIT(A) dated 23.05.2011, before Tribunal, however, the finding of Ld. CIT(A) on the issue of deleting estimated addition of alleged unaccounted investment was not challenged.

The A.O. again reopened the assessmen under section 147 on 12.03.2013. Notice under section 148 was served on the assessee. The AO recorded the following reasons of reopening; “Reasons recorded for reopening of assessment The assessee has filed his return of income on 04.08.2006 declaring total income at Rs. 26,11,857/- and assessment was completed u/s 143(3) of the Act on 15.12.2008 determining total income at Rs. 56,25,860/-. It is noticed from the assessment record that assessee purchased immoveable properties, the details of the report of the Asstt. Valuation Officer in a tabular form is as under Sr. Description of Date Declared Assessed Difference No. property valuation Value for his (Assessed Share value- excluding Declared stamp Value) 11 Shri ArvindbhaiLallubhaiLakhankiya Vs. ACIT, Circle-9, Surat/ for A.Y. 2006-07 duty and other charges (Rs.) 03.06.2005 22,66,200/- 36,83,000/- 14,16,800/- 1 Old S No. 379 & Block No. 358 Pal Surat 2 Old RS No. 394 28.02.2006 7,00,000/- 19,90,000/- 12,90,000/- & Block No. 347 Pal Surat 3 S No. 409/2 17.02.2006 5,07,500/- 22,66,000/- 17,58,500/- Block No. 387 Pal Surat Total 34,73,700/- 79,39,000/- 44,65,300/- From the above table, it is seen from valuation report that the assessee has invested in property Sr No. 1 to 3 above at Rs. 79,39,000/- and has shown only Rs. 34,73,700/-. Therefore, the unexplained investment in property comes to Rs. 44,65,300/-for A.Y. 2006-07. Thus, I have reason to believe that income has escaped assessment in the hand of the assessee of Rs. 44,65,300/- for A.Y. 2006-07 being unexplained investment in property. Therefore, I have a reason to believe that there is escapement of income on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that assessment year. Hence, case of the for AY 2006-07 is reopened. Issue notice u/s 148 of I.T. Act. This notice is being issued after obtaining the approval of the CIT-III vide letter No.SRT/CIT- III/ITO(Tech)/147/ALL/2012-13 dated 11.03.2014.

Before us, the ld. AR for the assessee vehemently argued that the reopening on the basis of report of the DVO is not valid and / or there was no failure on the part of the assessee in fully and truly disclosing all the material while filing the return of income for assessment. We find merit in the submissions of the ld AR for the assessee that how, the report of the DVO can be a basis to form an opinion by the AO that the assessee has not disclose all the facts fully and truly while filing return of income. These facts are purely hypothetical and imagine of mind of AO, how the assessee would have disclosed the imaginary things, which were not in existence at the time of filing the return of income. In our view the onus was on the AO to bring evidence on record to prove that the assessee has paid more amounts while purchasing these three pieces of land, than what has been recorded in his books of account. The AO has neither recorded such averments in the reasons recorded nor raised any question the assessee during the assessment. The AO directly came on the conclusion on the basis of the report of DVO that assessee made investment which is not recorded in the books of assessee. The AO without discharging 13 Shri ArvindbhaiLallubhaiLakhankiya Vs. ACIT, Circle-9, Surat/ for A.Y. 2006-07 his onus directly concluded on unexplained investment. In our view section 142A merely speaks about the estimate of the valuation of investments. Estimate cannot take the place of actual investment.

The Hon’ble Jurisdictional High Court in Akshar Infrastructure (P) Ltd Vs CIT (2017) 79 taxmann.com 239 (Guj) held that where AO completed assessment under section 143(3) making certain addition in respect of unexplained investment, he could not reopen said assessment for enhancement of said addition merely on basis of report of DVO. It was also held that the opinion given by DVO was not per se information for purpose of reopening of assessment (Emphasis added by us).

The Hon’ble Rajasthan High Court in Sardar Kehar Singh Vs CIT (supra) also held that it is well established that reopening of assessment on the basis of subsequent valuation report is not justified inasmuch as the report is nothing more than a mere opinion. Such a report by itself does not lead to a reasonable belief of concealment of income justifying action under clause (a) of section 147, nor does it constitute 'information' justifying action under clause (a) of the said section and quashed the notice under section 147.

In view of the decisions of Hon’ble Jurisdictional and Rajasthan High Court, we are of the view that once the assessment under section 143(3) was completed and the AO has already made 14 Shri ArvindbhaiLallubhaiLakhankiya Vs. ACIT, Circle-9, Surat/ for A.Y. 2006-07 addition on the same issue, and on appeal it was deleted by ld CIT(A), the reopening of the assessment on the same issue on basis of report of DVO in not valid. Therefore, all subsequent action thereto is void-ab initio. Thus, the assessee succeeds on the legal issue.

Even on merit we note that Hon’ble Jurisdictional High Court in Gayatri Enterprises Vs ITO (supra) while considering the question of law "whether on the facts and in the circumstances of the case, the Tribunal was right in law in upholding that the order of the Principal CIT, which is based on the presumption that the difference between the stamp duty valuation and the actual purchase price is undisclosed investment in the hands of assessee purchaser, and therefore, the order of Assessing Officer not taxing the differences in hands of purchaser assessee is erroneous and prejudicial to the revenue" held that unless it was established on record by department that as a matter of fact, consideration as alleged by department did pass to seller from purchaser, it could not be said that department had any right to make any additions. It was further held that as per section 69B, no addition could be made under said section merely on basis of presumption. We have noted that the AO has not brought any material on record that the assessee has paid/invested money in purchase of these three plots, which is not recorded in the books of the assessee. Thus, in 15 Shri ArvindbhaiLallubhaiLakhankiya Vs. ACIT, Circle-9, Surat/ for A.Y. 2006-07 view of the above discussions the assessee also succeeds on merit.

The ratio in case laws relied by the ld. DR for the revenue is not helpful to revenue. The facts in those cases relied by ld. DR for revenue is quite deferent. In Yogender Kumar VS ITO (supra) the AO made reopening on basis of search carried out in case of another person, and came to know about loan transactions of assessee with a finance company, were bogus as said company was engaged in providing accommodation entries, it being a fresh information, the AO was justified in initiating reassessment proceeding in that case. In our view in the said case that AO has sufficient material and direct evidence for reopening. However, in the present case the AO made opinion on the basis of report of DVO, which is based on presumption. In R.K. Malhotra ITO Vs Kashturbhai Lalbhai (supra) and in CIT Vs PVS Beedies (supra) the intimation form Audit department was treated as valid ‘information’. However, the facts in the instant appeal are quite differ as discussed above, the AO made reopening solely on the basis of report of DVO. In Rajesh Jhaveri Stock Broker (P) Ltd (supra) the intimation under section 143(1) was issued. The assessee in that case has not disclosed the primary facts. Thus, the facts of Rajesh Jhaveri Stock Broker (P) Ltd (supra) are not applicable with the instant case. The assessee in the instant case has disclosed all 16 Shri ArvindbhaiLallubhaiLakhankiya Vs. ACIT, Circle-9, Surat/ ITA No.965/AHD/2016 for A.Y. 2006-07 facts necessary for assessment. In Yuvraj Vs UOI (supra), held that points were not decided while passing assessment order under section143(3).As noted earlier in the instant case, the AO while passing initial assessment order under section 143(3) considered the issue of investment and made addition on the same issue.

In the result the appeal of the assessee is allowed.