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Facts
A search and survey operation was conducted at the assessee's business premises. The assessee had constructed a godown, and differences were found in the valuation of construction cost compared to the declared amount, leading to reopening of assessment u/s 148.
Held
The Tribunal held that reassessment proceedings could not have been initiated u/s 147 solely based on a Valuation Officer's report without any independent application of mind or tangible material. The report, especially when submitted beyond the stipulated time, cannot substitute audited accounts.
Key Issues
Whether reopening of assessment based solely on a Valuation Officer's report, especially when submitted late, is legally sustainable without independent corroborative material?
Sections Cited
147, 148, 69B, 115BBE, 132, 133A, 142A
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Income Tax Appellate Tribunal, CHANDIGARH BENCH “A”, CHANDIGARH
Before: SHRI. RAJPAL YADAV, VP & SHRI. KRINWANT SAHAY, AM
िनधा�रती की ओर से/Assessee by : Shri Ashwani Kumar & Ms. Deepali Aggarwal,C.A’s राज� की ओर से/ Revenue by : Shri Manav Bansal, CIT, DR सुनवाई की तारीख/Date of Hearing : 29/07/2025 उदघोषणा की तारीख/Date of Pronouncement : 03/09/2025 आदेश/Order PER KRINWANT SAHAY, AM: All the above appeals filed by the Assessee are against the separate orders of the Ld. CIT(A)-5, Ludhiana dt. 28/11/2024, 24/12/2024 and 28/11/2024 respectively.
2. Since the issues involved in all the above appeals are common and were heard together therefore they are being disposed off by this consolidated order for the sake of convenience and brevity.
We shall take appeal of the assessee in for the A.Y. 2016-17 as a lead case for discussion wherein the assessee has raised following grounds:
2 1. That order passed u/s 250 ofthe Income Tax Act, 1961 by the Learned Commissioner of Income Tax (Appeals)-5, Ludhiana is against law and facts on the file in as much as he was not justified to uphold the action of the Learned Assessing Officer in initiating the proceedings u/s 148 of the Act which is bad in law.
That he was further not justified to uphold the action of the Learned Assessing Officer in unilaterally relying upon the report of Valuation Officer and in making addition of alleged 2 difference of valuation of godowns of the appellant at Rs. | 11,41,830/- less 15% of the valuation done by the Ld. DVO by resort to the provisions of section 69B of the Act as unexplained investment and taxed as per the provisions of section 115BВЕ.
Briefly the facts of the case are that a search u/s 132 was conducted at the business premises of the AFI Group of case on 26.04.2018 and also survey u/s 133A was conducted at the business premises of the assessee. During the year under appeal, the assessee firm started constructing its godown at Kahanpura which was completed in the financial year 2017-18. The Learned Deputy Director of Income Tax (Inv.)-I, Ludhiana referred the matter of valuation to the Valuation Officer who gave his report dated 16.07.2018. There were some differences in the value of construction as valued by him and declared by the assessee which was made the basis of reopening the case by issuing notice u/s 148. The assessee was provided with the copy of valuation report on 04.03.2022 wherein the difference of construction cost as worked out by the Valuation Officer for the 3 years i.e. A/Y 2016-17 to 2018-19 at Rs. 38.12,360/-. In reply to show cause notice it was submitted that the cost declared by the assessee was supported by the relevant vouchers and the accounts of the assessee were duly audited. The construction cost for the year worked out at Rs. 30,31,493/- as against the amount shown to have incurred at Rs. 18,89,663/-, thereby there is a difference of Rs. 11,41,830/-. The Ld. 3 AO made addition of Rs. 11,41,830/- by ignoring the amount declared by the assessee in the audited accounts.
Against the order of the Ld. AO the assessee went in appeal before the Ld. CIT(A) who has partly allowed the appeal of the assessee by stating as under: “It is apparent that there is a binding judgment of the Hon’ble Supreme Court wherein, it has been held that the rates of local PWD have to be applied in place of CPWD for the purpose of valuation. In various decisions of the Hon’ble Courts and Hon’ble ITAT, it has been held that the PWD rates are usually lower than CPWD rates to the extent of 15 to 20%. Considering the facts of the case, submissions of the appellant and the fact that property in question is situated in a non-metro-city, it would be reasonable to allow the claim of average difference rate of CPWD and PWD rates @ 15%. The calculation of the valuation in the year under consideration can be done after giving a benefit of 15% from the valuation done by the valuation cell at CPWD rates. In view of the above discussion, it is held that benefit of margin of other 15% is to be given to the appellant in view of the judicial pronouncements quoted above. Therefore, this ground of appeal is partly allowed.”
6. Against the order of the Ld. CIT(A) the assessee preferred an appeal before the Tribunal.
During the course of hearing the Ld. AR submitted that there is no evidence/material on record which remotely suggests that the assessee has incurred any amount on the construction over and above the amount declared in the books of accounts. During the course of survey carried out at the business premises or during the search which took place at the other group concern of the assessee, no evidence was found which suggest that the assessee indulged with any other activities which resulted into income remaining unrecorded or the amounts have been spent without recording the same in the books of accounts. Merely on the basis
4 of valuation made by the DVO/VO related to the estimation of cost of construction of the factory building, the action of the Ld. AO considering the same as an escapement is unjustified particularly because it is only an estimate by Valuation Officer which cannot be substituted by the amount actually recorded in the books. 7.1 From the above, it can be inferred that reassessment proceedings could not have been initiated u/s 147 of the Act, in respect of assessment which has already been completed simply relying upon the valuation report and there was no tangible material on record to suggest that any amount was available for making such investment.
7.2 Attention is invited to various judicial pronouncements by different courts of law, wherein, it has been held that, without having any satisfaction on record, and, without any application of mind, the Ld. Assessing Officer could not draw a presumption on the basis of valuation report of DVO related to the investment made in the purchase / construction of property that the income chargeable to tax has escaped assessment, and, notice issued U/s 148 of the Income-Tax Act, 1961 would be an invalid notice, I. The Hon'ble Apex Court in the case of Assistant Commissioner of Income Tax V/s Dhariya Construction Co. reported in 197 Taxmann 202, has laid down as under :-
Having examined the record, we find that in this case, the Department sought reopening of the assessment based on the opinion given by the District Valuation Officer (DVO). The opinion of the DVO per se is not an information for the purposes of 5 reopening assessment under section 147 of the Income-tax Act, 1961. The Assessing Officer has to apply his mind to the information, if any, collected and must form a belief thereon. In the circumstances, there is no merit in the civil appeal. The Department was not entitled to reopen the assessment. Civil appeal is, accordingly, dismissed.
II. The Hon'ble Gujarat High Court in the case of M/s Avakar Infrastructure Company Vs. DCIT Circle -9 reported in 67 Taxmann.com page 39 has held as under :- Unexplained investment in property under 69 of the Act - Reassessment Whether while report of DVO may form foundation for reopening assessment, there must still be some reasons which warrant holding belief that income chargeable to tax has escaped assessment so as to necessitate issuance of a notice under section 148 - Held, yes - Assessing Officer referred matter to DVO for determining cost of construction of project of assessee and based upon report of DVO, reopened assessment for year under consideration on ground that assessee had under- reported cost of investment to tune of difference between cost of investment as declared by it and as estimated by DVO - There was nothing to indicate that Assessing Officer had independently applied his mind to record of case to ascertain as to whether cost of investment as declared by assessee was in fact under- reported - Whether reopening of assessment merely on basis of report of DVO was without authority of law and could not be sustained.
7.3 During the course of search and survey operation at the AFI group of cases the Ld. DDIT (Investigation)-!, Ludhiana observed that factory building/godown is being constructed at village Kahanpura. By exercising powers given by the provisions of section 132(9D) of the Act, a reference was made to the valuation officer to estimate the cost of construction. As required by the provisions of section 132(9D) of the Act, the valuation Officer has to submit his report within sixty days from the date when reference is made. However, in the instant case, the report was submitted much after
6 the period of sixty days. For the purposes, section 132(9D) is being reproduced hereunder :- (9D) The Authorized officer may, during the course of the search or seizure or within a period of sixty days from the date on which the last of the authorizations for search was executed, make a reference to a Valuation Officer referred to in section 142A, who shall estimate the fair market value of the property in the manner provided under that section and submit a report of the estimate to the said officer within a period of sixty days from the date of receipt of such reference. 7.4 “In the case of the assessee, the reference was made on 01.05.2018 by the Ld. DDIT (Investigation)-I, Ludhiana. Whereas the Ld. DVO has submitted his report dated 16.07.2018. Thus, the same is much after the time period allowed in the Act, thus no cognizance should be taken on the basis of valuation repot submitted by the Ld. DVO”. 7.5 The Ld. AR has also submitted that the accounts of the assessee firm were audited by the firm of chartered accountants. The Ld. Assessing Officer has not pin pointed any discrepancy in the maintenance of accounts particularly with respect of the investment made in the construction of factory building, still he proceeded to make the addition of Rs. 11,41,830/- on account of difference in the cost estimated by the DVO and declared which is solely relying upon the valuation report of the Valuation Officer.
7.6 Ld. AR referred to the judgement of the Hon'ble Ahmedabad Bench of ITAT in the case of Chirag Dashrathbhai Patel in dated 27.05.2021, their Lordships have been held as under :-
7 Hon'ble Bench dismisses Revenue's appeal, deletes additions of Rs. 33.01 Cr. u/s 69B made on the basis of DVO's report for AY 2012-13; Assessee-lndividual, during the year, received salary and rental income in respect of school building and other amenities, AO referred the case to the DVO for valuation of property, and made additions on basis of his report, On appeal CIT(A) granted relief to the Assessee stating addition cannot be made merely on the basis of report; ITAT opines that there has to be some material in possession/consideration of the AO before referring matter to the DVO for valuation u/s 142A; Refers to Delhi HC ruling in Sadhna Gupta wherein it was held that report of the DVO cannot be the basis of any addition, unless there is some other evidence to indicate flow of extra consideration in the transaction of purchase of property; Holds that in the present case there are no corroborative evidences other than the DVO report, and thus addition cannot be made; Upholds CIT(A)'s order.
Per contra, the Ld. DR relied on the orders of the lower authorities.
We have heard the rival contentions of both the parties and perused the material available on the record. From the above discussion, we are of the affirm view that re-opening of the assessment proceedings only on the basis on DVO report is not warranted. Further neither any evidence or record was found during the course of survey which suggest any amount incurred on construction of godowns without recording the same in the books of accounts nor the books of accounts of the assessee were rejected. In the result, the appeal of the assessee is to be allowed.
Both the parties fairly submitted that the facts and circumstances of other two appeals i.e and 91/ Chd/2025 are exactly identical to the Appeal in except the amount involved in these appeals, therefore, our findings and directions given in ITA No.
8 127/Chd/2025 shall apply mutatis mutandis to these two appeals which are accordingly allowed.
In the result, all the above appeals of the assessee are allowed.