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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI VIJAY PAL RAO & SHRI B.M. BIYANI
आदेश/O R D E R
Per Bench:
Feeling aggrieved by a consolidated appeal-order dated 28.03.2018 passed by learned Commissioner of Income-Tax (Appeals), Bhopal [“Ld. CIT(A)”],
M/s. Shriniwas Education Society Bhopal. - & 480/Ind/2018 & C.O. Nos.14 & 15/Ind/2019 - A.Ys. 2013-14 & 14-15 which in turn arises out of assessment-orders dated 31.03.2016 and 25.10.2016 passed by learned Dy. CIT, (Central-I), Bhopal [“Ld. AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”], the revenue has filed the captioned Appeals and the assessee has filed the captioned Cross- Objections. These Appeals and Cross-objections involve identical issues and relate to the same assessee, therefore they are being disposed of by this single common order for the sake of convenience.
Heard the learned Representatives of both sides at length and case- records perused.
Briefly stated the facts are such that the returns of AY 2013-14 and 2014-15 filed by assesee-society were subjected to scrutiny assessments wherein the AO made additions of Rs. 8,68,80,857/- and 3,94,27,706/- respectively in those two assessment-years u/s on account of undisclosed investment in construction of building u/s 69B. Aggrieved, the assessee contested those additions in first-appeal before CIT(A) on legality as well as merit. The CIT(A) allowed assessee’s appeal on legality aspect without adjudicating merit. Now, the revenue has come in captioned appeals assailing the orders of first-appeal. The assessee has also filed Cross- Objections.
Revenue’s appeals:
4. It emerged during hearing on perusal of assessment-order, Para No. 2/3, that the AO made impugned additions, by making a reference to M/s. Shriniwas Education Society Bhopal. - & 480/Ind/2018 & C.O. Nos.14 & 15/Ind/2019 - A.Ys. 2013-14 & 14-15 Departmental Valuation Officer (DVO) u/s 142A and after taking into account the final report dated 25.03.2014 submitted by DVO to him, on the basis of difference in the cost of construction recorded in books of account of assessee and the valuation thereof reported in DVO’s report. Thereafter, during first-appeal, the CIT(A) deleted addition by concluding thus:
“9. This is important to refer that in the case of appellant itself for assessment years 2010-11, 2011-12 & 2012-13 having similar facts and circumstances, additions made u/s 69B on the basis of DVO’s report have already been deleted by my Ld. predecessor vide order of appeal Nos. CIT(A)-3/BPL/IT-222 to 224/2014-15 dated 19.10.2016. Therefore, following the “rule of consistency” order passed by my Ld. Predecessors in the case of the appellant is precedent in this case. It has been held in the case of CIT vs. Velimalai Rubber Co. Ltd. (Ker) 181 ITR 299 that through the principal of res judicata is not applicable to income tax proceedings but when a question of law or fact was decided in assessee’s own case for an earlier assessment year and an identical question came up for consideration for a later year, tribunal was justified in placing reliance on earlier decision. In view of above discussion, it is held that reference made to the District Valuation Officer u/s 142A of the Act by the AO for valuation of hospital building was not legally valid. Ld. AO resorted to making reference u/s 142A to DVO without pointing out any defects in books of accounts and without even rejecting the books which is a sine qua non for making reference to DVO as held by Hon'ble Supreme Court and numerous other High Court. As the reference is held to be bad in law non-maintainable, all consequential actions including the additions made by the AO on account of difference in valuation, between value estimated by DVO vis-à-vis shown in books are not sustainable. Additions made on the account with respect to reference to DVO in both the assessment years are therefore deleted. Ground # 2 to 4 are hereby allowed for both years.” [Emphasis supplied] 5. Now, before us, Ld. DR for revenue supported the order of AO and submitted that the AO has validly made additions on the basis of difference in investment recorded in assessee’s books and reported in DVO’s report; therefore the AO’s action must be upheld.
M/s. Shriniwas Education Society Bhopal. - & 480/Ind/2018 & C.O. Nos.14 & 15/Ind/2019 - A.Ys. 2013-14 & 14-15 6. Per contra, Ld. AR for assessee supported the order of CIT(A). He submitted that the AO made reference to DVO without pointing out any defect in the audited books of account of assessee and without rejecting those books of account. Ld. AR submitted that under the provisions of section 142A, existing at the relevant time, it was judicially held by several courts including Hon’ble Supreme Court in Sargam Cinema Vs. CIT (2010)
328 ITR 513 (SC) that no reference u/s 142A to DVO could be made without rejecting books of account. Therefore, the reference made by AO to DVO is itself invalid and consequently the additions made by AO were also illegal. Ld. AR submitted that the CIT(A) has rightly deleted addition for this very reasoning, following the landmark decision of Hon’ble Supreme Court.
The relevant paras of the decision of apex court are:
“3. In the present case, we find that the Tribunal decided the matter rightly in favour of the Assessee in as much as 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.
For the above reasons, the impugned judgment of the High Court is set aside and the order passed by the Tribunal stands restored to the file. Accordingly, the Assessee succeeds.” 7. Ld. AR also relied upon a recent decision of ITAT, Indore in DCIT-II, Bhopal Vs. Shri Agarwal Education & Welfare Society, order dated 19.10.2022, wherein the ITAT has considered the provision of section 142A, as amended from time to time, and applied the above proposition of law. The order of ITAT is extracted below:
M/s. Shriniwas Education Society Bhopal. - & 480/Ind/2018 & C.O. Nos.14 & 15/Ind/2019 - A.Ys. 2013-14 & 14-15 “15. Per contra, Ld. AR vehemently argued that the reference made by Ld. AO to DVO without rejecting books of accounts was itself beyond the scheme of section 142A and therefore illegal. Ld. AR relied upon several judicial rulings which have already been discussed by Ld. CIT(A) in his order, the leading being the direct authority by Hon’ble Supreme Court in Sargam Cinema Vs. CIT (2010) 328 ITR 513 (SC), wherein it was categorically held thus: “3. In the present case, we find that the Tribunal decided the matter rightly in favour of the Assessee in as much as 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.
4. For the above reasons, the impugned judgment of the High Court is set aside and the order passed by the Tribunal stands restored to the file. Accordingly, the Assessee succeeds.”
The assesse also relied upon Goodluck Automobile Pvt. Ltd. 359 ITR 306 (Guj), wherein it was held that the rejection of books of accounts should precede reference to DVO and, therefore, report of DVO cannot form the foundation for rejection of books of accounts. The Gujarat High Court held that once it was apparent from the records that while making the reference to DVO, the Assessing Officer had not rejected the books of account, then the reference made to DVO was not in consonance with the provisions of law and hence such reference was invalid. With these submissions, Ld. AR argued that when the reference made u/s 142A without rejecting the books of account is in itself invalid, consequently the addition made is also invalid.
That brings us to understand the law of section 131(1)(d) and 142A of the Income-tax Act, 1961. With the able assistance of learned Representatives of both sides, we are able to understand the legislative history of these sections. It is observed from submissions that initially there was no specific provision in Income-tax Act, 1961 to enable the assessing authorities to make reference to DVO for ascertaining value / cost of investment, etc. However, the Assessing Authorities used to make reference u/s 131(1)(d) but such action was held be non-maintainable in Amiya Bala Paul 130 taxmann 511 (SC). Thereafter, the Union Legislature introduced section 142A in Income-tax Act, 1961 by Finance Act, 2004, which again generated a new controversy as to whether the Ld. AO can make a reference to DVO without rejecting books of accounts of assessee or not? The matter travelled upto Hon’ble Supreme Court in Sargam Cinema (supra) wherein, relevant paragraph of decision re- produced earlier, the apex court categorically held that the assessing authority cannot make a reference to DVO without rejecting books of assessee. Thereafter, the Legislature again substituted a new version of section 142A w.e.f. 01.10.2014 whereby sub-section (2) in the section reads as under:
M/s. Shriniwas Education Society Bhopal. - & 480/Ind/2018 & C.O. Nos.14 & 15/Ind/2019 - A.Ys. 2013-14 & 14-15 “The Assessing Officer may make a reference to the Valuation Officer under sub-section (1) whether or not he is satisfied about the correctness or completeness of the accounts of the assessee” Learned Representatives fairly admitted that the latest version of sub-section (2), as reproduced above, which empowers the assessing authority to make reference to DVO without rejecting books of accounts, is effective from 01.10.2014 and not retrospectively. The effect of this legislative wisdom, as accepted by the learned representatives, is that the Assessing Officer was precluded from referring any matter to the DVO without the books of accounts being rejected by him and it is only after 01.10.2014 that sub-section (2) of section 142A empowers the Assessing Officer to make reference without rejecting books of account.
Now we are in a position to consider the implications in assessee’s case. We observe that the Ld. AO has not rejected books of assessee. We further observe that the Ld. AO made reference to DVO on 06.08.2013 and DVO submitted report on 11.12.2013. Thus, the events of making reference to DVO have taken place before 01.10.2014 and that too without rejecting books of account. In such a situation, we suffice it to say that the Ld. AO was not justified to make a reference in the light of decision of Hon’ble Supreme Court in Sargam Cinema (supra) and the provision of sub-section (2) of section 142A. Thus, we find no infirmity in the order of the Ld. CIT(Appeals) on this aspect. Resultantly we uphold the order of Ld. CIT(A) by and Ground No. 2 of revenue is also dismissed.”
Ld. AR submitted that in the present case of assessee, the AO made reference and received report of DVO on 25.03.2014 which is prior to amendment in section 142A from 01.10.2014; therefore the case of assessee is directly covered by the decision of ITAT, Indore in Shri Agarwal Education & Welfare Society (supra). Hence the assessee deserves to succeed and these appeals of revenue must fail on this very reasoning.
We have considered rival submissions of both sides and perused the orders of lower-authorities. After a careful consideration, we find that the assessee’s case is directly covered by the decision of ITAT, Indore in Shri Agarwal Education & Welfare Society (supra) read with the decision of Hon’ble Supreme Court in Sargam Cinema (supra). Respectfully, following M/s. Shriniwas Education Society Bhopal. - & 480/Ind/2018 & C.O. Nos.14 & 15/Ind/2019 - A.Ys. 2013-14 & 14-15 the same, we are inclined to uphold the order of CIT(A) and dismiss both of the appeals of revenue. Ordered accordingly.
Assessee’s Cross-Objections:
The assessee has filed Cross-Objections. The main contention of assessee is that the Ld. CIT(A) has erred in not adjudicating Ground No. 5 to 12 of both years (and also Ground No. 15 of AY 2014-15) of the first-appeal raised by assessee before him, even though the CIT(A) has allowed preliminary Ground No. 2 & 4 favour of assessee. Ld. AR referred Para No. 10 and 11 of the order of CIT(A) where the CIT(A) has done so:
“10. It is, therefore, held that reference to the valuation officer by the AO was not maintainable. As the reference is held to be non-maintainable, all consequential actions including the additions made by the AO on account of difference in valuation, are not sustainable. Additions made with respect to all the three properties resulting into additions in both the assessment years are therefore deleted. As the reference and all consequential actions is held to be non-maintainable, all other grounds taken by the appellant with respect to valuation, namely Grounds # 5 to 11 for AY 2013-14 & 2014-15 covering the issue with respect to the method of valuation (being incorrect for a variety of reasons) are being academic in nature and hence not adjudicated upon.
Similarly, Ground # 12 for AY 2013-14 & Ground No. 15 (additional ground) for AY 2014-15 related to the issues as non-allowance of extra cost of construction as application of income for charitable purpose u/s 11 & 12 of the Act is rendered purely of academic nature because entire addition has been deleted. Hence, this ground does not require any adjudication.”
11. Ld. AR submitted that similar approach was also applied by CIT(A) in assessee’s own case for earlier AY 2006-07 to 2009-10 wherein the assessee contended before ITAT, Indore in C.O. No. 5 to 8/Ind/2017 for AY 2006- 07 to 2009-10 order dated 11.01.2023. While dealing assessee’s contention, the ITAT has, in Para No. 17 of order, directed the CIT(A) to adjudicate Grounds on merit. Therefore, in the present case also, same direction be given to CIT(A). Ld. DR for revenue did not have any objection to M/s. Shriniwas Education Society Bhopal. - & 480/Ind/2018 & C.O. Nos.14 & 15/Ind/2019 - A.Ys. 2013-14 & 14-15 this prayer of assessee. Therefore, adopting the same view as taken by Co- ordinate Bench in earlier years, we direct the CIT(A) to adjudicate Ground No. 4 to 9 raised by assessee before him after giving necessary opportunity to assessee. The assessee is also directed to extend full co-operation to CIT(A) for disposal of those grounds. Consequently, the assessee’s Cross- Objections are allowed.
Resultantly, the appeals of revenue are dismissed and cross- objections of assessee are allowed.
Order pronounced in the open court on 15.12.2023.