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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI CHANDRA POOJARI
O R D E R Per N.V. Vasudevan, Vice President
These are three appeals by the assesseee against three orders all dated 28.03.2019, passed under section 263 of the Income Tax Act, 1961 (hereinafter called ‘the Act’) by the PCIT, Hubballi, in respect of Assessment Years 2011-12, 2012-13 and 2013-14.
2. The facts and circumstances under which these appeals arise for consideration are identical. The assessee is an individual. He derives income from agriculture. There was an information emanating from the Tax Evasion petition that the assessee had invested Rs.1.2 Crores in constructing a residential property at Hubballi. The AO conducted an enquiry and based on the outcome of the enquiry had reason to believe that the income of the assessee chargeable to tax for Assessment Years 2011-12, 2012-13 and 2013-14 had escaped assessment. Notice under section 148 of the Act dated 27.07.2015 was issued to the assessee for making an assessment under section 147 of the Act for Assessment Years 2011-12 to 2013-14. An Order of Assessment dated 30.12.2016 was passed by the AO for all the three Assessment Years wherein the AO did not make any addition on account of unexplained investment in construction of house property.
The CIT in exercise of his powers under section 263 of the Act on perusal of the record of Assessment of the assessee for the aforesaid Assessment Years found that the AO made tax evasion enquiry and in that enquiry statement of the assessee was recorded on 31.03.2014 wherein the assessee had admitted that his total investment in movable and immovable property was to the extent of Rs.2 Crores to 2.5 Crores. The investment in the construction of the house property was shown by the assessee in the books at Rs.52,14,444/-. Before passing the Order of the Assessment under section 143(3) r.w.s. 147 of the Act dated 30.12.2016 for all the three Assessment Years, the AO had made a reference to the District Valuation Officer (DVO) on 29.06.2016. The DVO had given the valuation report dated 28.12.2016 but the same was received by the AO only on 03.01.2017. The assessment for the three Assessment Years was getting time barred by 31.12.2016. The AO therefore did not have any occasion to wait for the DVO’s report and proceeded to pass the Order of Assessment without making any addition on account of unexplained investment in the construction of house property.
The CIT also noticed that the DVO in his report had valued the property at Rs.78,82,000/- as against the book value of Rs.52,14,444/-. There was thus a difference of Rs.26,67,556/- which had to be brought to tax as unexplained investment. Since the AO failed to make the aforesaid addition based on the DVO’s report, a show cause notice dated 14.02.2018 was issued to the assessee proposing to revise the Order of Assessment for the three Assessment Years under section 263 of the Act as it was erroneous and prejudicial to the interest of the Revenue.
In the proceedings before CIT, the assessee made submission justifying the investment in construction as per the books of accounts and contended that the DVO’s report was inflated and unrealistic. The major contention of the assessee was that the DVO had applied CPWD rates whereas state PWD rates would be the most appropriate yardstick. The assessee also objected to the CIT for invoking the provision of section 263 of the Act on the ground that the AO had done proper enquiries before completing the assessment and has taken a plausible view. Therefore CIT should not revise the Orders under section 263 of the Act.
The CIT however rejected the stand taken by the assessee and the CIT held that when the ITO makes a reference to DVO and without waiting for the report, passes an Order of Assessment accepting the assessee’s valuation and when subsequently DVO’s report is available showing higher investment in construction then the CIT was justified in invoking the powers under section 263 of the Act. In coming to the aforesaid conclusion of the CIT, relied on the decision of the ITAT, Bengaluru B Bench in the case in the case of M/s. Islamic Academy of Education, Mangaluru Vs. ACIT to 658/Bang/2010 wherein the Tribunal followed the decision of the Hon’ble Supreme Court in the case of Sri Manjunatheswara Packing Products and Camphor Works 231 ITR 53 (SC). The CIT ultimately set aside the Order of Assessment on the point and directed the AO to pass a fresh Order of Assessment after giving assessee opportunity of being heard. Following were the relevant observations of the CIT:
9. In view of the above, it is clear that loss will be caused to the Revenue and undue advantage will be gained by the assessee if the report of the VO is not considered, Hence, the Assessing Officer is directed to modify the assessments for AYs 2011-12, 2012-13 & 2013-14, considering the valuation report of the Valuation Officer after providing due opportunity of being heard to the assessee. The Assessment year wise estimation of escapement of income is tabulated on pro-rata basis as under : Cost of Percentage Cost of Construction of Construction Progressive Year wise constructions (Book (Valuation AY FY Difference Difference Value) completed # Officer)# 2011-12 2010-11 1845000 35.38 % 2788652 943652 943652 2012-13 2011-12 5136444 98.50 % 7763770 2627326 1683674 2013-14 2012-13 5214444 7882000 100.00% 2667556 40230 2667556 10. In view of the foregoing, I have no hesitation to come to the conclusion that the assessment order passed by the Assessing Officer u/s.143(3) rws 147 on 30/12/2016, is erroneous in as much as it is prejudicial to the interest of revenue and as such, under the powers vested in me u/s.263 of the Income Tax Act, 1961, the said assessment order is set aside with a direction to the Assessing Officer to pass a fresh assessment order, after collecting all the relevant information on the above issue and providing due opportunity to the assessee.
Aggrieved by the order of the CIT, the assessee has preferred the present appeals before the Tribunal. Learned Counsel for the assessee reiterated submissions as were made before the CIT which was to the effect that the AO before completing the assessment had made proper and adequate enquiries. This argument, in our view, is without merit because the AO completed the assessment and the DVO’s report was not available with him. Perusal of the Assessment Order does not show any other enquiry made by the AO. In these circumstances, we are of the view that the order of the AO was erroneous and the CIT was justified in invoking the provisions of section 263 of the Act.
Another submission made by the learned Counsel for the assessee was that in terms of section 142A(6) of the Act, the DVO is expected to send a copy of his report within 6 months from the end of the month in which a reference was made under sub-section 1 of section 142A of the Act. It was pointed out that a reference in question was made on 29.06.2016 whereas the report of the DVO was made available to the AO only on 03.01.2017, beyond the period of 6 months mentioned in section142A(6) of the Act and therefore the valuation report has to be regarded to be non-est in law. The learned Counsel submitted that in the absence of a valid DVO report, there was no basis for the CIT to come to a conclusion that the Orders of Assessment were erroneous and therefore the jurisdiction under section 263 of the Act was not validly invoked.
We have given a careful consideration to the submissions made by the learned Counsel for the assessee and are of the view that these aspects would not vitiate the orders passed under section 263 of the Act. However, the assessee will be at liberty to raise the issue with regard to the legality of the DVO’s report in the light of the provisions of section 142A of the Act. As to whether the time limit and procedure laid down under section 142A of the Act are mandatory or directory will also be in the aspect which can be examined in the proceedings pursuant to the impugned order passed under section 263 of the Act. With these observations, we dismiss these appeals of the assessee.
In the result, appeals of the assessee are dismissed.
Pronounced in the open court on the date mentioned on the caption page.