S.K. THERMOFORMERS,ALWAR vs. ITO, ALWAR

PER BHAGCHAND, AM

The assessee has filed an appeal against the order of the ld.

CIT(A), Alwar dated 03-02-2017 for the assessment year 2013-14

raising therein following ground:- ‘’That the AO has erred in law as well as on facts and circumstances of the case in making an addition of Rs. 26,75,105/- being the difference in the valuation of factory building as valued by the DVO and as per books of accounts and Ld. CIT(A) has erred in sustaining a sum of Rs.9,18,505/- out of the same, particularly when the books of accounts have been accepted by the AO and this sustaining of addition of Rs. 9,18,505/- is against the decision of the jurisdictional high court decision as given in case of CIT vs. Pratap Singh Amro Singh Rajendra Singh and Deepak Kumar 200 ITR 788 (Raj.)’’

ITA No.180/JP/2017 M/s. S.K. Thermoformers vs ITO, Ward- 1(5), Jaipur

2.1 Brief facts of the case are that the assessee is engaged in the

business of manufacturing of disposable items in the name and style as

M/s. S.K. Thermoformers. The assessee filed its return of income on

19-09-2013 declaring NIL income. The survey was conducted at the

business premises of the assessee on 03-01-2013. The AO during the

assessment proceeding observed that during the year the assessee

constructed a factory building. The cost of the building as per the books

of account of the assessee is Rs. 32,29,595/-. The AO has referred the

determination of the cost of the construction of the factory building to the

DVO who vide his report dated 7-01-2016 determined the cost of the

building adopting CPWD rates at Rs. 59,04,700/-. When confronted with

this report, the assessee filed the valuation report by registered valuer

who estimated the cost of construction adopting State PWD rates at

Rs. 36,21,811/-. The AO being not satisfied with the same made the

addition of Rs. 26,75,105/- (Rs. 59,04,700 minus Rs. 32,29,595) being the

difference between the construction cost recorded as per books of account

and that estimated by the DVO.

ITA No.180/JP/2017 M/s. S.K. Thermoformers vs ITO, Ward- 1(5), Jaipur

2.2 In first appeal, the ld. CIT(A) has sustained the addition of

Rs. 9,18,505/- by observing that the AO has referred the determination

cost of the construction of factory building to the DVO u/s 142A of the

Act. The ld. CIT(A) accepted that for the purpose of valuation of the

property the rates provided by the State PWD have to be applied.

Thereafter he worked out the cost of construction by applying Rajasthan

PWD rates at Rs. 41,48,108/- as worked out at pages 9 to 11 of his order.

The relevant observation of the ld. CIT(A)’s order at para 11 is

reproduced as under:-

‘’In view of the facts mentioned in the above mentioned chart, it is my considered view that even if applying the Rajasthan PWD rate, the valuation comes to Rs. 41,48,100/- as per calculation made in the chart above, after disallowing 15% deduction applied by the registered valuer. The appellant has declared the cost of construction at Rs. 32,29,595/-.Therefore, the addition on account of the difference of Rs. 9,18,505/- is sustained. Accordingly, the appellant’s ground of appeal on this issue is partly allowed.’’ 2.3 During the course of hearing, the ld.AR of the assessee prayed that

the ld. CIT(A) has erred in sustaining the addition of Rs. 9,18,505/- for

which the ld.AR of the assessee filed the following written submission.

‘’1. At the outset it is submitted that as per the report of DVO, the reference is made to him by the AO u/s 131(1)(d) of the Act (PB 14A). This section does not empower the AO to make the reference to the DVO to

ITA No.180/JP/2017 M/s. S.K. Thermoformers vs ITO, Ward- 1(5), Jaipur

determine the cost of construction of the property. Therefore, the reference itself is illegal and bad in law and on that basis no addition can be made.

Me & Mummy Hospital vs. ACIT & ORS (2014) 107 DTR 0209 (Guj) The Valuer’s report u/s 142A of the Act was for the purpose of estimating value of such investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B of the Act. Unless, therefore, there was prima facie application of sections 69, 69A and 69B of the Act, reference to the valuer is simply not permissible. It is only when there is some material before the Assessing Officer to hold that in case of an assessee falls under sections 69, 69A and 69B as the case may be, that he can, to estimate the value of such unexplained investment or expenditure in bullion, jewellery etc., call for the report of the Valuer. Initial starting point for triggering a reference to the Valuer, therefore, has to be invocation of sections 69,69A or 69B of the Act. It is only when any of these provisions come into play that the Assessing Officer can resort to section 142A for estimating the value of such investment or expenditure. Sequence cannot be put in the reverse. In other words, the Assessing Officer would have no authority to call for the report of the Valuer under section 142A to judge whether there has been any unexplained investment or expenditure as referred to in sections 69, 69A and 69B of the Act. It would only amount to fishing inquiry and not investigation under section 142A of the Act. It was opined that, the scheme of the provisions when read

ITA No.180/JP/2017 M/s. S.K. Thermoformers vs ITO, Ward- 1(5), Jaipur

harmoniously would lead to a situation where in case the Assessing Officer, during the pendency of assessment or reassessment, is of the opinion that sections 69, 69A and 69B of the Act can be invoked; in order to estimate such unexplained investment or expenditure in acquisition of bullion, jewellery or valuable article, he can resort to valuation by the Valuation Officer in terms of sub-section (1) of section 142A of the Act. In the present case, no such material emerges from the record. To the contrary, neither from the order of reference nor from any other material, the respondent could point out that the Assessing Officer had invoked the provisions of sections 69,69A or 69B of the Act and in the process desired to obtain the estimate of unexplained investment or expenditure and for which purpose DVO’s report was called. He simply gave no reasons in the order. No independent reasons, either flowing from the file or even in the form of an affidavit assuming the same would be permissible, are brought to our notice. Thus quite apart from the petitioner’s grievance that the Assessing Officer merely acted under the directives of the superior and did not, on his own application of mind, desire to call for the report, in absence of any valid reasons for making a reference, it was opined that, the order must fail. Impugned order dated 30.3.2005 was quashed. The petition was allowed. Anand Banwarilal Adhukia vs. DCIT (2017) 148 DTR 262 (Guj.) Unless there is prima facie application of Section 69, reference to the valuer u/s 142A is simply not permissible. It is only when there is some material before the AO to hold that the case of an assessee falls u/s 69, as the case maybe, that he can, to estimate the value of such unexplained investment or expenditure in bullion, jewellery, etc. and can call for the report of the valuer. Initial starting point for triggering a reference to the valuer, therefore, has to be invocation of Section 69 and therefore, unless and until such contingencies are reflecting on record, reference u/s 142A cannot be resorted to. The AO had no cogent material available to satisfy himself about the requirement of Section 69 and therefore, in absence of it, the reference could not have been made u/s 142A.

ITA No.180/JP/2017 M/s. S.K. Thermoformers vs ITO, Ward- 1(5), Jaipur

Patna High Court in case of Bimla Singh vs. CIT 308 ITR 71 where it was held that the difference between the cost of construction declared by the assessee and that estimated by the valuer being less than 15%, the same is to be ignored.

In view of above, the addition confirmed by Ld. CIT(A) be directed to be deleted.’’

2.4 On the other hand, the ld. DR supported the order of the ld.

CIT(A).

2.5 I have heard the rival contentions and perused the materials

available on record. In this case, it is noted that the AO made the addition

of Rs. 26,75,105/- (Rs. 59,04,700 [Valuation done by the DVO] minus

Rs. 32,29,595 [valuation as per books of account] ) being the difference

between the construction cost recorded as per books of account and that

estimated by the DVO. The ld. CIT(A) in first appeal has sustained the

addition of Rs.9,18,505/- by observing as under:-

‘’…. it is my considered view that even if applying the Rajasthan PWD rate, the valuation comes to Rs. 41,48,100/- as per calculation made in the chart above, after disallowing 15% deduction applied by the registered valuer. The appellant has declared the cost of construction at Rs. 32,29,595/- .Therefore, the addition on account of the difference of Rs. 9,18,505/- is sustained. Accordingly, the appellant’s ground of appeal on this issue is partly allowed.’’

Taking into consideration the submissions of the assessee and the order of

the ld. CIT(A) on the issue in question. The ld. CIT(A) fairly

ITA No.180/JP/2017 M/s. S.K. Thermoformers vs ITO, Ward- 1(5), Jaipur

accepted the value at Rs. 41,48,100/- which also comes as per calculation by applying the Rajasthan PWD Rates. The approach of estimation by the ld. CIT(A) is fair and just. I find no reason to interfere with his order as the ld. CIT(A) had rightly held that for the purpose of valuation of property, State PWD rates have to be applied to the plinth area of construction for each floor as given by the DVO in the report. Thus the solitary ground of the assessee is dismissed.

5.0 In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 4 /10/2017

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