NIRPAL SINGH vs. COMMISSIONER OF INCOME TAX JALANDHAR

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ITA/522/2009HC Punjab & HaryanaPHHC01084639200916 September 2013Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE JASPAL SINGH4 pages
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What did the High Court hold?

The High Court found merit in the assessee's submissions. It was undisputed by the revenue that the assessee's books of account were never rejected. The Court referred to the Supreme Court's decision in Sargam Cinema's case, which held that an assessing authority cannot refer a matter to the DVO without rejecting the books of account maintained by the assessee. The Tribunal had made a categorical finding that the books were never rejected, and reliance on the DVO's report was therefore misconceived. Similar views were expressed in the other cited cases. Consequently, the substantial questions of law were answered in favour of the assessee and against the revenue. The appeal was allowed, and the addition made by the AO and sustained by the Tribunal was deleted.

What were the facts?

The assessee, Nirpal Singh, proprietor of M/s Aujla Filling Station, filed his income tax return for assessment year 2005-06 declaring an income of ₹1,28,010. His case was selected for scrutiny. The assessee had recorded investments in his books of account for the construction of his petrol pump, supported by bills and vouchers. The Assessing Officer (AO) referred the valuation of this investment to the Assistant Valuation Officer (AVO). The AVO's report estimated the petrol pump building's valuation, leading the AO to make an addition of ₹5,84,586 as unexplained investment under Section 69 of the Income Tax Act, 1961, and frame an assessment order. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the assessee's appeal. The revenue appealed to the Income Tax Appellate Tribunal (Tribunal), which partly allowed the revenue's appeal, sustaining an addition of ₹5,79,586. The assessee has now filed this appeal before the High Court.

What were the issues?

The High Court had to decide the following substantial questions of law: 1. Whether the Tribunal erred in law and facts by upholding the AO's reference to the AVO under Section 142A without rejecting the assessee's books of accounts, which recorded the investment in construction, and without any material indicating understatement or suppression of investment. 2. Whether the Tribunal was right in law and facts in adding ₹5,79,586 to the assessee's income as unexplained investment under Section 69 of the Income Tax Act, 1961, based on the AVO's report. 3. Whether the Tribunal was right in law and facts in sustaining the entire addition of ₹5,79,586 made by the AO for assessment year 2005-06. Assessee's contentions: The assessee argued that the AO's reference to the Departmental Valuation Officer (DVO) was invalid without rejecting the books of account. The assessee relied on the Supreme Court judgment in Sargam Cinema v. Commissioner of Income Tax, and High Court judgments in CIT v. Chohan Resorts, Goodluck Automobiles (P) Limited v. Assistant Commissioner of Income Tax, and CIT v. Lucknow Public Educational Society. Revenue's contentions: The revenue supported the order passed by the Tribunal.

Which sections of the Income-tax Act were involved?

Section 260A,Section 142A,Section 69,Section 143(3)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of decision:16.9.2013 Nirpal Singh Prop. M/s Aujla Filling Station, Kapurthala ...Appellant Versus Commissioner of Income Tax-2, Jalandhar

...Respondent CORAM: HON'BLE MR.JUSTICE AJAY KUMAR MITTAL HON'BLE MR. JUSTICE JASPAL SINGH Present: Mr. Ravish Sood, Advocate for the appellant. Mr. Vivek Sethi, Advocate for the respondent. Ajay Kumar Mittal,J.

1.

This appeal has been preferred by the assessee under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 28.11.2008, Annexure A.4, passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (in short, “the Tribunal”) in ITA No.405 (ASR)/2008, for the assessment year 2005-06, claiming following substantial questions of law:-

1.

Whether the Tribunal had misdirected itself in law and on facts of the case, by failing to appreciate that the AO without rejecting the Books of accounts wherein the investment towards construction of the Petrol Pump stood duly

recorded,

nor

referring

to any material/evidence/information on the basis of which it could be said that the investment reflected by the assessee was understated or suppressed, had therein erred in making a reference to the AVO by invoking the provisions of section 142A?

2.

Whether the Tribunal is right in law and facts of the case in Singh Gurbax 2013.09.24 14:36 integrity of this document High Court Chandigarh making an addition of ` 5,79,586/- in the hands of the assessee appellant on the basis of the report of the AVO, as an unexplained investment under section 69 of the Income Tax Act, 1961?

3.

Whether the Tribunal is right in law and facts of the case in sustaining the entire addition of ` 5,79,586/- so made by the AO in the hands of the assessee appellant in the Assessment year 2005-06?

2.

Briefly, the facts necessary for adjudication of the controversy involved, as narrated in the appeal, may be noticed. The appellant is an individual. He is running a petrol pump under the name and style of M/s Aujla Filling Station at Village, Daburji, Kartarpur road, Kapurthala. During the year under consideration, the assessee filed his income tax return declaring an income of ` 1,28,010/- . The case of the appellant was picked up for scrutiny under Section 143(2) of the Act. The appellant had made investment towards the construction of the aforesaid Petrol pump which stood recorded by him in his books of account under the head 'Building account', 'Plant and Machinery account' and 'Furniture and Fixture account' duly supported by purchase bills/expenses vouchers etc. The Assessing Officer referred the valuation of the said investment to the Assistant Valuation Officer, Income Tax Department, Jalandhar. The Assistant Valuation Officer vide his report dated 21.11.2007 estimated the valuation of the Petrol pump building on the basis of which the Assessing Officer made an addition of an amount of ` 5,84,586/- and thereafter framed assessment under Section 143(3) of the Act at an amount of `27,16,399/- vide order dated 19.12.2007, Annexure A.

1.

Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 27.3.2008, Annexure A.2, the CIT(A) allowed the appeal. Not satisfied with the order, the revenue filed appeal before the Singh Gurbax 2013.09.24 14:36 integrity of this document High Court Chandigarh Tribunal. Vide order dated 28.11.2008, Annexure A.4 partly allowed the appeal whereby addition of ` 5,79,586/- made by the Assessing Officer as unexplained investment under Section 69 of the Act was sustained. Hence the present appeal by the assessee.

3.

Learned counsel for the assessee submitted that the assessee was maintaining books of account with respect to the cost of construction and the Assessing Officer inspite of the same, without rejecting the books of account, had referred the matter to the Departmental Valuation Officer (DVO). It was urged that in view of judgment of the Apex Court in Sargam Cinema v. Commissioner of Income Tax, (2010) 328 ITR 513, this Court in CIT v. Chohan Resorts, (2012) 253 CTR (P&H) 106, Gujarat High Court in Goodluck Automobiles (P) Limited v. Assistant Commissioner of Income Tax, (2012) 254 CTR (Guj) 1 and Allahabad High Court in CIT v. Lucknow Public Educational Society, (2011) 339 ITR 588 (All), the action in referring the matter to the DVO was bad.

4.

On the other hand, learned counsel for the revenue supported the order passed by the Tribunal.

5.

After hearing learned counsel for the parties, we find merit in the submission made by learned counsel for the assessee.

6.

It was not disputed by the learned counsel for the revenue that the books of account produced by the assessee were never rejected. The Apex Court in Sargam Cinema's case (supra) held that the assessing authority could not have referred the matter to the DVO when there was no rejection of books of account maintained by the assessee. It was observed as under:- “In the present case, we find that the Tribunal decided the matter rightly in favour of the assessee inasmuch as Singh Gurbax 2013.09.24 14:36 integrity of this document High Court Chandigarh the Tribunal came to the conclusion that the assessing authority could not have referred the matter to the Departmental Valuation Officer (DVO) without the books of account being rejected. In the present case, a categorical finding is recorded by the Tribunal that the books were never rejected. This aspect has not been considered by the High Court. In the circumstances, reliance placed on the report of the DVO was misconceived.” Similar view was taken in Chohan Resorts, Goodluck Automobiles (P) Limited and Lucknow Public Educational Society's cases (supra).

7.

In view of the above, the substantial questions of law are answered in favour of the assessee and against the revenue. Accordingly, the appeal is allowed. (Ajay Kumar Mittal) Judge September 16, 2013

(Jaspal Singh) 'gs'

Judge Singh Gurbax 2013.09.24 14:36 integrity of this document High Court Chandigarh

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