YASHODABEN MANEKLAL SONI,VADODARA vs. THE INCOME TAX OFFICER, WARD-2, DAHOD

PER Ms. MADHUMITA ROY - JM:

The instant appeal filed by the assessee is against the order dated 24.11.2015 passed by the Commissioner of Income Tax (Appeals)-2, Vadodara arising out of the order dated 28.03.2013 passed under section 147 r.w.s 143(3) of the Income Tax Act, 1961 (The Act) for the Assessment Year 2007-08. 1. “The grounds of appeal mentioned hereunder are without prejudice to each other. 2. The assessment order under appeal is bad in law and deserves to be quashed. 3. In facts and in circumstances of the case The Ld. Assessing officer has grievously erred in law and on facts and in adding Rs.9,51,858/- on account of unexplained deposits and Honorable CIT(A)-2, Vadodara grievously erred in law and on facts in retaining the addition of to Rs.1,30,000/-.

- 2 - ITA Nos.359/Ahd/2016 Smt. Yashodaben M. Soni vs. The ITO Asst.Year – 2007-08 4. In facts and in circumstances of the case the Ld Assessing Officer has grievously erred in law and on facts in adding Rs.97,85,660/- on account of unaccounted investment and Honorable CIT(A)-2, Vadodara grievously erred in law and on facts in retaining the addition of Rs.25,00,000/-. 5. The Learned AO and the Hon’ble CIT(A) grievously erred in law and on facts in under taking/confirming reassessment proceedings and making the assessment u/s 143(3) r.w.s. 147. 6. The appellant craves, leave to add alter amend or withdraw any one or more grounds of appeal.” 2. The assessee, an individual filed its return of income on 28.03.2008 declaring total income of Rs.1,95,490/-. The same was processed u/s 143(1) of the Act. Subsequently, an inquiry was carried out by the ADIT, Investigation Wing, Baroda and on the basis of some information so gathered the case was reopened u/s 147 of the Act followed by series of notice u/s 148 of the Act upon the assessee. Notice u/s 143(2) was issued on 25/06/2012 and thereafter the reasons recorded for issuance of such notice as requested by the assessee was also provided to him. The reasons so recorded for reopening of assessment u/s 147 of the Act is as follows: “REASONS FOR REOPENING THE ASSESSMENT U/S 147 OF THE I.T. ACT

During the course of inquiry suggested by the investigation wing, Baroda, it was gathered that Smt. Yasodaben M. Soni, resident of Shantisadan Society, Station Road, Dahod has given here house property as security for bank guarantee enjoyed by the firm M/s. P Maniklal Soni & Co. and M/s. M.S. Gold (Prop. Smt Sarojben M. Soni). The Assessee also supplied the valuation report of the concerned property to the bank. In valuation report the cost of construction of the building was shown at Rs.1,57,85,660/-. The period of construction mentioned in valuation report is F.Y. 2006-07 relevant A.Y. 2007-08. Considering the gigantic investment of more than Rs.1.57 Crore, the sources of investment has not been disclosed by the assessee to the department.

Therefore, I have reason to believe that income of Rs.1,57,85,660/- for A.Y. 2007-08 has escaped assessment within the meaning of Section 147 of the I.T. Act. A notice u/s 148 is therefore required to be issued to the assessee.”

- 3 - ITA Nos.359/Ahd/2016 Smt. Yashodaben M. Soni vs. The ITO Asst.Year – 2007-08 On 18.03.2012, the assessee filed a written submission in support of his claim. However, the explanation given by the assessee was not found suitable by the Learned AR and he then with certain observations finalized the reassessment upon making addition of Rs.1,09,03,305/- against which assessee went in appeal. The Learned CIT(A) partly allowed the appeal in the following manner: “5.4.3. Now, coming to the addition of Rs.97,85,660/-, the main submission of the appellant is that the value of Rs.1,57,85,660/- determined by the registered value was market value of the property as on the date of valuation i.e. 20.11.2010 and the same cannot be adopted as the cost of construction of the property. A perusal of the valuation report shows that the valuer has clearly mentioned that the date of valuation was 20.11.2010 and the present market value of the property was Rs.6,37,77,000/- including realizable value of land of Rs.4,79,91,250/-. Accordingly, the realizable value of the property was said to be Rs.l,57,85,660/-. Thus, this value of the property was the market value as on the date of valuation and adoption of the same by the Assessing Officer as cost of construction in the F.Y. 2006-07 is not correct. In the remand report, the Assessing Officer has only stated that the assessee failed to prove and explain as to how the valuation of Rs.1,57,55,660/- shown in the valuation report is wrong. But nothing has been stated regarding claim of the appellant that this value was the market value as on 20.11.2010 and not the cost of construction in the F.Y. 2006-07.

5.4.3.1. The appellant has further submitted a reply dated 12,11.2014 enclosing therewith Appraisal Report of SBI dated 10.01.2006 wherein the Technical Expert Team jointly assessed the value of properly at Rs.81.78 lacs. Further another report dated 05.08.2006 of the same Registered Valuer Shri Atul v. Shah has been furnished. In this report, the period of construction of property has been shown as 2005-06 and cost of construction is determined at Rs.77,84,000/-. These valuation reports do not include the value of furniture and fixtures. However, the value of furniture and fixture has been determined at Rs.20 lacs as on 20.11.2010. 5.4.3.2. In view of these different reports, the Assessing Officer vide letter dated 05.05.2015 was directed to get the valuation done u/s. 142A. Accordingly, the Assessing Officer vide his letter dated 27.07.2015 submitted a Valuation Report dated 02.07.2015 of Valuation Officer-I, Ahmedabad. The Valuation Officer has determined the cost of investment excluding land and furniture at Rs.87,68,366/-. The bifurcation has been given as under:-

Year Cost declared by Cost estimated (Rs.) assessee (Rs.)

- 4 - ITA Nos.359/Ahd/2016 Smt. Yashodaben M. Soni vs. The ITO Asst.Year – 2007-08 2005-06 59,94,000/- 66,20,993/- 2006-07 21,39,000/- 21,47,373/- Total 81,33,000/- 87,68,366/-

The copy of Valuation Report of Valuation Officer was provided to appellant and the Ld. Authorized Representative vide order sheet entry dated 20.11,2015 has stated that he has nothing to say in respect of the valuation report.

5.4.4. From the Valuation Report as discussed above, it is clear that the investment in the property in the year under consideration is almost the same and minor variation can always be possible due to estimate. Thus, in my considered view, no addition on account of unexplained investment in the property is called for in this assessment year. It may be mentioned that the Departmental Valuation Officer has not considered the cost of Furniture and Fixture which must have been incurred in the year of completion i.e. A.Y. under consideration, Undisputedly, the cost of Furniture and Fixture have not been included in the cost disclosed by the appellant. Thus, even if the cost of construction is accepted as claimed by the appellant, the fact remains that this does not include the investment made by the appellant in furniture and fixtures, the market value of which has been estimated by the Valuer of assessee as on 20.11.2010 at Rs.20 lakhs. In the submissions made before the Assessing Officer and during the course of the current appellate proceedings, the appellant has not made any comment on this part of the valuation and neither has submitted any evidence to show that these investments were made out of disclosed source of income. It is a known fact that the value of furniture and fixtures depreciates over the period after being under use and hence, the value determined as on 20.11.2010 will also be less than the cost incurred by the appellant in the F.Y. 2006-07. Hence, it is held that the cost of investment in the furniture and fixtures by the appellant should have been about Rs.25 lakhs in the F.Y. 2006-07 and hence, the addition made by the Assessing Officer to this extent is upheld. The balance addition is directed to be deleted. Thus, appellant partly succeeds in respect of Ground No. 6.

Hence the instant appeal.

- 5 - ITA Nos.359/Ahd/2016 Smt. Yashodaben M. Soni vs. The ITO Asst.Year – 2007-08 concerned property to the said bank wherefrom it appears that the cost of the construction of the building was shown at Rs.1,57,85,660/-. The period of construction mentioned in the said valuation report was for financial year 2006-07 relevant assessment year 2007- 08. The case of the assessee is this that the value of Rs.1,57,85,660/- as determined by the registered valuer was market value of the property as on the date of valuation i.e. 20.11.2010 and the same cannot be adopted as cost of construction of the property. By and under a letter dated 20.11.2013 certain additional grounds were also taken before the Learned CIT(A), the assessee challenged the very issuance of notice u/s 148 of the Act. Since no income has escaped assessment and/or no income was under assessed, the said notice and the assessment order on that basis is bad in law and void as urged by the assessee. The reopening was done by the AO only on the basis of the information gathered by the ADIT Investigation Wing, Baroda, there was no such personal satisfaction by the Learned AO while reopening the proceeding u/s 147 of the Act. This was nothing but a borrowed satisfaction on which the reassessment was made by the Learned AO. Further that, it was the case of the assessee before the Learned CIT(A) that the reopening proceedings undertaken by the ADIT Investigation Wing, Baroda on the information of assessee’s property kept as guarantee with a bank enjoyed by family was the sole basis. The valuation report so placed before the Bank cost of construction of the building whereof Rs. 1,57,85,660/- was taken into consideration when the period of construction mentioned in the said valuation report was for F.Y. 2006-07. Thus the AO had reason to believe that income of Rs. 1,57,85,660/- for A.Y. 2007-08 has escaped assessment within the meaning of the Section 147 of the Act. The assessee contended before the Learned CIT(A) that such valuation report was made for the purpose of obtaining loan from the Bank and the valuation was made on 20.11.2010 much after the construction made on such property. In fact, according to the assessee the valuation report of the registered valuer was the market value and/or sale value and not the cost of the construction. The assessee further pointed out that while recording reasons the AO has recorded that the period of construction is F.Y. 2006-07 and relevant to I.T. A.Y.

- 6 - ITA Nos.359/Ahd/2016 Smt. Yashodaben M. Soni vs. The ITO Asst.Year – 2007-08 2007-08 whereas the valuation report says that the year construction was mentioned as 2005-06 i.e. F.Y. 2005-06. The cohesive reading of the two pages of valuation report, according to the assessee, the valuer meant that the year of commencement was F.Y. 2005-06 and completion is F.Y. 2006-07; in fact both the years were mentioned by the registered valuer in his valuation report. The Learned AO wrongly mentioned as only for F.Y. 2006-07 and the reasons so recorded was, therefore, factually incorrect and thus the reopening is bad in law and liable to be quashed. We justify such plea of the assessee. The assessee in her written submission reproduced the reasons recorded for reassessment proceeding for I.T. A.Y. 2006-07 which is as follows: (i). Your Honour may please refer to the copy of ‘reasons recorded’ on 03.10.2013 for I.T.A.Y. 2006-07 i.e. the proceeding assessment year, (copy enclosed). (ii). The following paragraphs are reproduced from the copy of reasons supplied to the assessee.

“However during the course of submission, it is explained by the assessee that for construction of property an investment of Rs.59,93,667/- was made in the F.Y. 2005-06 relevant to A.Y. 2006-07 and the assessee has not disclosed the valid sources of the said investment made F.Y. 2005-06 relevant to A.Y. 2006-07.

Therefore, I have reason to believe that income of Rs.59,93,667/- for A.Y. 2006-07 has escaped assessment within the meaning of section 147 of the IT Act. A notice u/s 147 is therefore required to be issued to assessee.”

If the contention of the assessee regarding the reasons recorded for reopening of assessment for A.Y. 2006-07 is taken into consideration then it clearly appears that the reasons recorded for A.Y. 2007-08 is incorrect; the same has been recorded without verifying the fact and only on assumption basis. The sanction given by the higher authorities for reopening of assessment for A.Y. 2006-07 & 2007-08 after four years from the end of the assessment year was also questioned before the Learned CIT(A).

- 7 - ITA Nos.359/Ahd/2016 Smt. Yashodaben M. Soni vs. The ITO Asst.Year – 2007-08 4. At the time of hearing of the instant appeal, the Learned Advocate appear for the assessee raised his preliminary objection as to the reopening of the assessment on the basis of the information gathered by the ADIT, Investigation Wing, Baroda. According to him, there was no independent personal satisfaction on the part of the AO for reopening of the assessment for A.Y. 2006-07 & 2007-08. Further that, the formation of opinion that the period of construction mentioned in the valuation report is F.Y. 2006-07 relevant to A.Y. 2007-08 factually not correct. Since the construction was brought over for the period of two years i.e. A.Y. 2006-07 & 2007-08, addition according to him cannot be made only for A.Y. 2007-08, it was further contended by the Learned AR that on the basis of the submission made by the assessee along with the explanation for cost of construction incurred in A.Y. 2006-07, the Learned AO made no addition towards such cost of construction while determining income u/s 143(3) of the Act. When such an explanation was accepted by the Learned AO for A.Y. 2006-07 such cost of construction which partly falls in A.Y. 2007-08 cannot be rejected by the same AO. It was also pointed out by the Learned AO that the valuation report clearly stated the market and/or sales value and not the cost of construction. The AO since made addition on market value and not on the cost of construction, such addition deserves to be deleted particularly where the assessee explained the costs of construction through its written submission for 2006-07 and 2007-08, both the years being reassessed by the Learned AO. The Learned DR on the other hand relied upon the order passed by the authorities below.

- 8 - ITA Nos.359/Ahd/2016 Smt. Yashodaben M. Soni vs. The ITO Asst.Year – 2007-08 escapement must have occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly which were material facts for assessment of that year, failure on the part of the assessee to make a return of income under section 139 or in response to notice u/s 142(1) or 148. Explanation 2 to Section 147 also clarifies the following for escaping assessment: a. Where no return of income has been furnished by as assessee although total income is above the taxable limit. b. Where a return of income has been furnished, but no assessment has been made and the assessee is found to have understates his income or claimed excessive loss, deduction etc. in the return. c. Where the assessee has failed to furnish a report in respect of any international transaction which he was required under section 92E. d. Where an assessment has been made, but income chargeable to tax has been under assessed or has been assessed at too low rate or any excessive loss or relief or depreciation allowance or any other allowance under the Act has been allowed. e. Where a person is found to have any assets (including financial interest in any entity) located outside India.”

No such issue of under estimating of any of income or allowing any such excessive claim has occurred in the instant case of the assessee. It also appears from the reasons so recorded by the Assessing Officer while reopening assessment that the sole basis was the valuation report submitted by the assessee for grant of loan before the Bank. Such basis being the valuation report cannot be considered to be justified for reopening of assessment. No personal satisfaction that the assessee has escaped assessment has been reflected in such reasons recorded by the AO. The reasons so recorded is nothing but the borrowed satisfaction from the Investigation Wing of ADIT, Baroda, which in our considered view does not entitle the AO to reopen the case of the assessee. Further that, the period of construction mentioned in the valuation report as of F.Y. 2006-07 relevant to A.Y. 2007-08 was reflecting in the reasons so recorded is also not factually correct. Further that, when part of construction cost incurred for A.Y. 2006- 07 was allowed by the Assessing Officer, balance amount which was incurred for the

- 9 - ITA Nos.359/Ahd/2016 Smt. Yashodaben M. Soni vs. The ITO Asst.Year – 2007-08 A.Y. 2007-08 ought not have been disregarded by the authorities below. The Valuation report which was submitted by the assessee for obtaining loan before the Bank cannot be considered to be a cogent/relevant material on which reopening of assessment can be done by the Learned AO.

It is clear in the present case of the assessee that the "reason to believe" is based on non existing material and therefore in the absence of tangible material to reach a reasonable belief that the income liable to tax has escaped assessment, the entire proceeding initiated u/s.147 of the Act is liable to be quashed. The judgment passed by the Hon'ble Bombay High Court in the case of CIT vs. Amitabh Bachchan, ITA No.4646 of 2010 on this issue held as follows: “The assessee had made a claim for 30% adhoc expenditure. This was withdrawn by the assessee when asked by the AO to substantiate. The reopening on the basis that the said adhoc expenditure constituted "unexplained expenditure" u/s 69 was based on the same material. There was no fresh tangible material before the AO to reach a reasonable belief that the income liable to tax has escaped assessment. It is a settled position of law that review under the garb of reassessment is not permissible.”

The Hon'ble Delhi High Court in the case of PR. Commissioner of Income-tax v. Tupperware India (P.) Ltd. reported in [2016] 236 Taxman 494, wherein the Court observed that the expression "reason to believe" cannot have two different standards or sets of meaning, one applicable where the assessment was earlier made under section 143(3) and another applicable where an intimation was earlier issued under section 143(1). The following ratio has been decided therein: “The reopening order of the Assessing Officer only refers to the report of statutory auditor under section 44AB which report was already enclosed with the return filed by the assessee. Therefore, factually, there was no new material that the Assessing Officer came across so as to have reasons to believe that the income had escaped assessment.”

- 10 - ITA Nos.359/Ahd/2016 Smt. Yashodaben M. Soni vs. The ITO Asst.Year – 2007-08

When factually the reasons so recorded by the Assessing Officer is not correct as mentioned hereinabove that too on the basis of a mere valuation report which is neither an incriminating material before the Assessing Officer particularly on which when no reasonable believe can be attributable that the income liable to tax had escaped assessment, the entire proceeding initiated u/s 147 of the Act is erroneous, arbitrary, bad in law and liable to be set aside. Hence the reopening of assessment is not valid and quashed. Consequently the addition is deleted.

This Order pronounced in Open Court on 28/02/2019

Sd/- Sd/- ( PRAMOD KUMAR ) ( Ms. MADHUMITA ROY ) VICE PRESIDENT JUDICIAL MEMBER

Ahmedabad; Dated 28/02/2019 Priti Yadav, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-2, Vadodara. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 08/01/2019 (Dictation Page 11) 2. Date on which the typed draft is placed before the Dictating Member …09/01/2019 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S …23/01/2019 5. Date on which the fair order is placed before the Dictating Member for pronouncement… 6. Date on which the fair order comes back to the Sr.P.S./P.S……. 7. Date on which the file goes to the Bench Clerk………………… 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………