M/S. ATUL BUILDCON PVT.LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX,CENTRAL CIRCLE-2

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TAXAP/926/2006HC GujaratGJHC24037910200619 December 2014Author: HONOURABLE MR. JUSTICE KS JHAVERI,HONOURABLE MR. JUSTICE K.J.THAKER7 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the question involved in the present case was squarely covered by its earlier decision in Tax Appeal Nos. 1151 to 1153 of 2005, decided on 11/12/2014. In that decision, the Court had observed that the AO made a reference to the DVO without rejecting the books of accounts. The CIT(Appeals) also did not conclude that the books of accounts were rejected. The Tribunal had relied on the Supreme Court decision in Sargam Cinema, which held that unless the books of accounts are rejected, the AO cannot make a reference to the Valuation Officer. The High Court reiterated that the reference to the DVO, not being in consonance with the provisions of law, was invalid, and the report made pursuant to such an invalid reference could not be the basis for addition. Therefore, the question was answered in favour of the assessee and against the department. The appeals were allowed.

What were the facts?

The appeals were filed by M/s. Atul Buildcon Pvt. Ltd. against the judgment and order of the Income Tax Appellate Tribunal (ITAT) which had partly allowed appeals preferred by the revenue. The dispute pertains to additions made towards the cost of construction based on the report of the Departmental Valuation Officer (DVO). In Tax Appeal No. 926 of 2006, the addition was Rs. 8,49,695, and in Tax Appeal No. 927 of 2006, it was Rs. 2,28,677. The High Court admitted these appeals by framing substantial questions of law.

What were the issues?

1. Whether, on the facts, the Tribunal was right in interpreting Section 69C and cognate provisions for upholding the addition of Rs. 8,49,695 towards the cost of construction based on the report of the Departmental Valuation Officer (DVO)? (Question of law) 2. Whether, on the facts, the Tribunal was right in interpreting Section 69C and cognate provisions for upholding the addition of Rs. 2,28,677 towards the cost of construction based on the report of the Departmental Valuation Officer (DVO)? (Question of law) Assessee's Contention: The ITAT had deleted the entire addition, primarily on the ground that the Assessing Officer (AO) could not have made a reference to the DVO without rejecting the assessee's books of accounts. The Tribunal held that the addition was baseless as it was merely based on the estimation of the DVO, and there was no incriminating material found during the search to suggest that the assessee had incurred expenditure over and above the declared amount. The assessee relied on decisions in Goodluck Automobiles and Sargam Cinema. Revenue's Contention: The judgment does not explicitly record the revenue's contentions. However, the framing of the questions of law indicates that the revenue likely argued that the addition based on the DVO's report was justified.

Which sections of the Income-tax Act were involved?

Section 69C,Section 69B,Section 132,Section 69

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
O/TAXAP/926/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL  NO. 926 of 2006 With  TAX APPEAL NO. 927 of 2006 FOR APPROVAL AND SIGNATURE:    HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ==================================== 1 Whether Reporters of Local Papers may be allowed to see  the judgment? 2 To be referred to the Reporter or not? 3 Whether their Lordships wish to see the fair copy of the  judgment? 4 Whether this case involves a substantial question of law as  to the interpretation of the constitution of India, 1950 or  any order made thereunder? 5 Whether it is to be circulated to the civil judge? ==================================== M/S. ATUL BUILDCON PVT.LTD.....Appellant(s) Versus ASSISTANT COMMISSIONER OF INCOME TAX,CENTRAL CIRCLE­ 2....Opponent(s) ==================================== Appearance: MR RK PATEL, ADVOCATE for the Appellant(s) No. 1 MRS MAUNA M BHATT, ADVOCATE for the Opponent(s) No. 1 ==================================== CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER   Page 1 of 7 O/TAXAP/926/2006 JUDGMENT Date : 19/12/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI)

1.

By   way   of   these   appeals,   the   appellant   has   challenged   the judgment and order of the Tribunal, whereby, the Tribunal has partly allowed the appeals preferred by the revenue.   While admitting   the   matters,   this   Court   has   framed   following substantial questions of law: “In Tax Appeal No. 926 of 2006: Whether on facts the Tribunal is right in interpreting Section 69­C and cognate provisions for upholding the addition of Rs.8,49,695/­ towards cost of construction on the basis of report of the Departmental Valuation Officer?” In Tax Appeal No. 927 of 2006: Whether on facts the Tribunal is right in interpreting Section 69­C and cognate provisions for upholding the addition of Rs.2,28,677/­ towards cost of construction on the basis of report of the Departmental Valuation Officer?”

2.

The question of law raised in these appeals, had come up for consideration before this Court in Tax Appeal Nos. 1151 to 1153 of 2005. This Court, while deciding the said identical case by judgment and order 11/12/2014, has held in paragraph Nos. 5 and 6 as under:

“5. We have gone through the materials on record. In our view, the substantial question of law raised in this matter would no longer survive and it is already answered by this Court in its earlier decision in the case of Commissioner of Income Tax v. Vijaykumar D. Gupta  reported in  [2014] 365 ITR 470 (Gujarat), wherein it was observed as under:

“3. From   the   record   it   emerges   that   the Assessing Officer after  making a reference to DVO for ascertaining assessee’s investment in house   property   on   the   basis   of   such   return added   a   sum   of   Rs.10,77,724/under   section 69B   of   the   Act   being   assessee’s   unexplained investment.

4.

The assessee carried the matter in appeal. The CIT (Appeals) on facts analysed the case of the   assessee   again   and   retained   part   of   the addition, but granted partial relief. This order of CIT (Appeals) gave rise to two appeals to the Tribunal. The Tribunal deleted entire addition primarily   on   the   ground   that   the   Assessing Officer could not have made reference to the DVO without reference to the books of accounts and   such   reliance   on   the   DVO’s   books   of accounts was not justified. The Tribunal held and observed as under : “12.1 Admitted factual position is that the   AO   had   not   referred   any incriminating evidence which was found during the course of search. Although the Revenue   Department   had   found   the existence of a building but there was no evidence   that   the   assessee   had   in   fact incurred expenditure on construction of the   said   property   over   and   above   the amount already declared in the books of accounts. This is not an assessment which was   made   in   the   ordinary   course   of proceedings   but   admittedly   a   search under Section 132 was carried therefore it is expected that the addition consequent thereupon  should  be  corroborated  with evidence detected at the time of search. As far as the books of accounts of the assessee   and   the   recording   of  the investment   in   the   construction   of   the house were concerned, the AO had not found   any   discrepancy.   For   this   legal proposition,  a  decision  of  jurisdictional High  Court  pronounced  in   the  case   of Goodluck Automobiles, 26 Taxman.com 264 has been cited wherein the Court has held that unless the books of accounts are rejected the AO cannot make a reference to the Valuation Officer.  An another case law   relied   upon   was   Sargam   Cinema, 197 Taxman  203 [328 ITR 513 (SC)]. of DVO was baseless; hence, deserves to be deleted. We hold accordingly. The part addition sustained by learned CIT (A) is hereby deleted.”

5.

It is undisputed that the Assessing Officer made a reference to the DVO without rejecting the books of accounts. While retaining part of the additions even the CIT (Appeals) did not come to the conclusion that the Assessing Officer had rejected the books of accounts of the assessee. It was in this background that the Tribunal relied on the decision of the Supreme Court in the case of Sargam Cinema v. Commissioner of Incometax, reported in (2010) 328 ITR 513 (SC). This Court in the case of Goodluck Automobiles Pvt. Ltd. v. Assistant Commissioner of Incometax, reported in 359 ITR 306, in the context of this issue referring to the decision of the Supreme Court in the case of Sargam Cinema (supra) had observed as under:

“12. The   facts   of   the   present   case   may   be examined in the light of  the statutory scheme discussed hereinabove as well as the decision of the Supreme Court in Sargam Cinema (supra). In this regard, a perusal of the assessment order reveals   that   the   Assessing   Officer   has categorically recorded a finding to the effect that the   accounts  are   duly   audited   and   complete details   are   available.   From  the   tenor   of   the order of the Assessing Officer, it is apparent that he   has  made  the   reference   to   the   Valuation Officer merely to seek expert advice regarding the cost of construction. There is nothing in the assessment order to suggest that the Assessing Officer  had  any  doubt  regarding  the  cost  of construction   or   that   he   was   not   satisfied regarding the correctness or completeness of the books of account.   Before making the reference to the Valuation Officer for ascertaining the fair price of construction, the Assessing Officer does not appear to have ascertained the correctness or otherwise of the cost of construction shown by the assessee in its books of account.   Thus, prior to making the reference to the Valuation Officer, the Assessing Officer has not ascertained as   to   what   was   the   defect   in   the   cost   of construction   disclosed   by   the   assessee   in   its 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 in 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 accounts 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.”

6.

The  question  involved  in  the   present  case  is squarely covered by the observations of this Court in the aforesaid decision. In view of above, we are in complete   agreement   with   the   view   taken   by   the tribunal and the question raised in these appeals is answered against the department and in favour of the assessee. Accordingly, all these appeals are dismissed.”

3.

There is no dispute amongst both the learned counsels that the aforesaid decision will apply in the facts of this case also, as the facts and the question of law raised, are identical and therefore, we are not giving elaborate reasons.

4.

Accordingly, the question, “Whether on facts the Tribunal is right in interpreting Section 69­C and cognate provisions for upholding the addition towards cost of construction on the basis of report of the Departmental Valuation Officer?” is answered in favour of the assessee and against the department.  The appeals stand allowed accordingly. [ K. S. Jhaveri, J. ] [ K. J. Thaker, J. ] hiren

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