SHREE KRISHNA COLONISERS,RAIPUR vs. PRINCIPLE COMMISSIONER OF INCOME TAX, RAIPUR-1, RAIPUR

As informed at the beginning of the hearing by the Ld. AR of the assessee that these two cases belong to two Assessee’s but from one group under same management, having common and identical issues except the quantum of additions, thus, for the sake of convenience and brevity, these matters are heard together, accordingly we are disposing off the issues raised against the impugned orders, under this common order:

That order u/s 263 is illegal and not as per the provisions of the Income tax Act 1961, due to illegal and invalid reference made by the A.O. u/s 142A, reference made without any basis of material for making reference, without existence of relevant facts for application of section 142A, without relevance of valuation got done at market value for examination of expenditure incurred at cost or having assumed that the DVO's report itself is relevant material for assessment of difference as alleged

The learned PCIT has initiated section 263 merely to lift time limitation u/s 153 and grant unfettered time and power to the A.O. to conduct roving enquiry so that it may any how come out something out of Assessee’s no tax liability, at the cost of undue harassment of tax assessment.

The assessee humbly prays that he may be allowed to add, amend or alter any ground of appeal at the time of hearing.

The Brief facts of the case are that the assessee is a partnership firm deriving income from real estate business. Return for the AY 2017-18 was filed on 25.10.2017 declaring total income of Rs. 6,18,49,750/-. A Survey u/s 133(A) was conducted at the premises of concerns of the assessee on 27.01.2017. Later on, the case of the assessee was selected for scrutiny through CASS under the category complete scrutiny. Statutory notices were issued and served on the assessee. In response to the notices, the assessee had submitted replies which were duly considered by the Ld. AO. During the survey proceedings u/s 133A, certain material in the form of a Classmate copy ITA No. 96/RPR/2022, Shri Krishna Builders

The case of the assessee was subsequently examined by the Ld. PCIT, who observed that during the course of assessment proceedings, the AO had made reference u/s 142A(1) of the I.T. Act for elucidation of valuation of immovable property in the case of M/s Shree Krishna Colonisers to the valuation officer of the Income Tax department. It was noticed by the Ld. PCIT that the issue pertaining to discrepancies found in WIP in respect of the assessee were left open by the AO to be decided after the receipt of the report of DVO, Bhopal. From the case records, Ld. PCIT has further gathered that on receipt of the DVO’s report dated 24.12.2020, there was a huge difference in valuation as per books and DVO’s report as on dated of survey. Considering such facts, a show cause notice u/s 263 dated 03/02/2022 was issued to the assessee to furnish its replies in support of its claim. In response assessee has submitted its replies to the Ld. PCIT on various dates i.e., 08.02.2022, 09.02.2022, 16.02.2022, 28.02.2022, 01.03.2022, 08.03.2022 and 12.03.2022. All the replies of assessee were considered and reproduced by the Ld. PCIT in order u/s 263, however, he was not impressed by the contentions raised by the assessee, supported with explanations and case laws, so finally, invoking the provisions of Explanation-2 of section 263 and has set aside the assessment order passed u/s 143(3) by the Ld. AO, ITA No. 96/RPR/2022, Shri Krishna Builders

Aggrieved by the aforesaid order of Ld. PCIT, now the assessee has preferred the present appeal before us.

Ld. AR on behalf of the assessee before us, has furnished a written synopsis, the same is extracted as under:

During assessment proceedings, assessee objected to valuation done by the Department's valuer Shri Manish Pilliwar. The assessment order came to be passed on 30.12.2019. However, in view of objection raised by assessee, the AO made reference u/s 142A(l) to DVO on 29.12.2019 i.e., just one day prior to passing of the assessment order. The AO completed assessment u/s 143(3) accepting the value of WIP as per books, subject to a note that the issue of difference in WIP would be decided after receipt of the DVO's report.

DVO submitted his report dt. 21.12.2020 (Krishna Grand City), 1 1 .01 .2021 (Krishna City) & 21.01.2021 (Krishna Apartment) as per which the valuation came as under: - Project Name WIP as per Value Difference books as on estimated by (IRS.) 27.01.2017 DVO (Rs.) Krishna Grand Cit , 4,23,67,000/- 6,28,45,900/- 2,04,78,900/- Bhilai Krishna City, 4,71,41,000/- 5,51,60,000/- 80,19,000/- Bhatapara Krishna Apartment, 1,46,19,000/- 1,41,29,300/- (-)4,89,700/- Baloda Bazar Total 10,41,27,000/- 13,21,35,200/- 2,80,08,200/-

On the basis of DVO's report, Id. Pr. CIT issued show cause notice u/s 263 dt. 03.02.2022 mentioning that difference between the DVO's estimate and the value reflected in books has resulted into error and prejudice within the meaning of sec. 263. Ignoring the submissions made by assessee, Id. Pr. CIT set aside the assessment order and directed the AO to frame fresh assessment in the light of DVO's report.

Objections taken by assessee (i) Detailed, item-wise objections filed with DVO. DVO considered only some of them and rejected the remaining. (ii) Letter filed before AO, who gave opportunity to assessee after receipt of DVO's report, pointing out mistakes in DVO's report. Letter dt. 14.02.2021 & 26.07.2021 (two letters of 26.07.2021) placed at PN 162 to 192 of PB. Contents described in para no. 6 to 10 below. ITA No. 96/RPR/2022, Shri Krishna Builders

Regarding difference in valuation of "Krishna Grand City, Bhilai" (Rs.2,04,78,900/-)

Regarding difference in valuation of "Krishna Apartment, Balodabazar" Differences explained in letter dated 26.07.2021 filed before AO & DVO, at PN 182 to 192 of PB.

Deduction on a/c of contractor's profit not allowed DVO's report is based on item rate basis/contract rate whereas assessee being builder, substantial savings of 15% on account of contractor's profit should have been deducted. Deduction of Rs. 1,98,20,280/- being 15% of Rs. 13,21,35,200/- (value worked out by DVO). Submission made before Id. Pr. CIT vide letter dated 08.02.2022 & 08.03.2022, at PN 9 to 16 & 27 to 33 of PB, relevant claim at PN 15 & 30 of PB, para no. (5) of letters. 10.Difference less than 15% is to be ignored (i) Ahmed Shareef vs DCIT (2021) 189 ITD 522 (Bang.) - Difference between cost of construction shown by assessee and as determined by AO being less than 15 per cent, same is to be ignored for purposes of addition, more so when the construction was spread over a period of seven years. (ii) 11.In view of above, order passed u/s 263 is illegal & unsustainable.

Based on aforesaid written submissions, it was the prayer of the Ld AR of the assessee that, the order passed u/s 263 is illegal and unsustainable, therefore, the same is liable to be quashed.

Ld. AR also placed his reliance on following judgments: (i) As is clear from sub-section 7 of section 142A of the Act, this provision provides that the Assessing Officer may, on receipt of the report from the Valuation Officer, and after giving the assessee an opportunity of being heard, take into account such report in making the assessment or reassessment. Thus, even this provision enjoins a duty on the Assessing Officer to hear the assessee on the report of the DVO before he can act upon the same.

It was the further submitted by the Ld. AR that the assessee has raised of the objections against the report of the DVO’s, which were raised before the AO after completion of the assessment when the report of the DVO’s was confronted to the assessee, objections were raised before the Ld. PCIT also but Ld. PCIT who was bound to decide upon and dispose off such objections has refrained to do so, therefore, the conclusion that the order of Ld. AO was erroneous as well as prejudicial to the nature of revenue was not established. Ld. AR placed his reliance in this respect from the following judgment.

However, we find that the CIT without pointing out any infirmity in the reply/explanations of the assessee, and as to why the same could not be accepted had rather hushed through the matter and concluded that the assessment order passed by the AO. was found to be erroneous and prejudicial to the interest of the revenue.

We are of the considered view that it is obligatory on the part of the CIT to consider the reply of the assessee in respect of the issues on which the order of the A.O. is sought to be revised by him. We are of the considered view that the CIT after receiving the reply/objections of the assessee in respect of the issues on which the order of the A.O. is sought to be revised, in all fairness, is required to deliberate on the same, and thereafter on the basis of the logical reasoning conclude as to whether in the backdrop of the reply/ explanations of the assessee can the order of the A.O. be characterized as both erroneous and prejudicial to the interest of the revenue. We are of the considered view that in the absence of clear observations of the CIT as to how the order of the A.O. after ITA No. 96/RPR/2022, Shri Krishna Builders

The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of juri iction u/s 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question.

An order or remit cannot be passed by the IT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous.

The CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing officer was erroneous.

Ld. CIT DR on the other hand has vehemently supported the order of Ld. PCIT u/s 263 and submitted that the AO has passed the order without considering the report of DVO, therefore, the same is undoubtedly an erroneous order and the differential valuation in the books of valuation of DVO itself justifies that the order of AO was prejudicial to the interest of revenue, thus the prompting of provision of section 263 to initiate the revisionary proceedings against the assessee was justified and correct course of action ITA No. 96/RPR/2022, Shri Krishna Builders

We have considered the rival contentions, perused the material available on record in his case laws raised before us for our consideration. In the present case the controversy raised by the assessee was w.r.t. initiation of revisionary proceedings u/s 263 based on the DVO’s report called for under the provisions of section 142A(1) by the Ld. AO, which was received after the culmination of the assessment. In this respect, the assessee has contended that DVO’s report is not binding on AO to be followed to support this contentions reliance was placed on order of the coordinated bench of ITAT, Cochin wherein in ITA No.66/Coch/2017 for the AY 2002-2003 vide order dated 13.03.2019, it was the observation of bench that “The AO had stated that the DVO’s report is binding on him, this statement of AO is incorrect. The report of DVO’s is only an advisory in the nature and not binding on the AO.” Ld. AR further submitted that as per section 142A (7), the AO may consider the DVO’s report in making assessment, but only after giving assessee an opportunity of being heard. No such opportunity during the assessment proceedings were provided to the assessee, however, after completion of the assessment proceedings the report of DVO almost after one year has been provided to the assessee i.e. the reference was made by the Ld AO on 29.12.2019 and the reports were furnished by the DVO on 21.12.2020, 11.01.2021, 21.01.2021, copies ITA No. 96/RPR/2022, Shri Krishna Builders

In backdrop of aforesaid observations, certain admitted facts of the case are that the Ld PCIT has not dealt with the objections raised by the assessee regarding anomalies in the report of the DVO, which was the sole basis for invoking and initiating the proceedings u/s 263. Moreover as per subsection (4) of section 142A, it was incumbent upon the valuation officed to “The Valuation Officer shall, estimate the value of the asset, property or investment after taking into account such evidence as the assessee may produce and any other evidence in his possession gathered, after giving an opportunity of being heard to the assessee., apparently no such opportunity was provided to the assessee. Further as per sub section (6) of section 142A “The Valuation Officer shall send a copy of the report of the estimate made under sub-section (4) or sub-section (5), as the case may be, to the Assessing Officer and the assessee, within a period of six months from the end of the month in which a reference is made under sub-section (1)”, in present case the report of the DVO was send to department way beyond the stipulated time period which shows complete violation of provisions of section 142A. Under such circumstances the report of DVO barred by limitation should be categorized as non-est, thus, cannot be the basis for revisionary proceedings u/s 263. 14. Our view is supported by the decision of coordinate bench of ITAT Hyderabad in the case of Shri Zulfi Revddjee vs ACIT in ITA No. 2415/HYD/2018 vide order dated 05/09/2019, wherein the tribunal has held as under: ITA No. 96/RPR/2022, Shri Krishna Builders

Having regard to the rival contentions and the material on record, we find that the relevant A.Y before us is A.Y 2013-14 and the return of income was filed on 30.09.2013. Therefore, 21 months from such date would expire on 31.3.2016. Thus, the assessment order u/s 143(3) was required to be passed by 31.03.2016 but since the AO has made a reference to the valuation officer u/s 142A of the Act, vide letter dated 19.02.2016, and the valuation report was filed on 20.7.2017, the said period will have to be excluded for determining the time limit. However, the question before us is the period allowed to the DVO ITA No 2415 of 2018 Zulfi Revdjee Hyderabad.

The interpretations in the order of ITAT Hyderabad in the case of Shri Zulfi Ravdjee (supra) is based on principle of law laid down by Hon’ble Delhi Highcourt in the case of B.K. Khanna & Co. vs Union Of India And Others on 14 September, 1984 reported in 156 ITR 796, wherein Hon’ble Highcourt has categorically interpreted the seriousness of word ‘Shall’ placed in the sections and provisions of the Act and the significance and prerequisite of its mandatory compliance. Non adherence to such strict mandatory provision thus entails the proceedings illegal and the outcome as not est.

The issue regarding valuation report without adhering to prerequisite conditions of prescribed in relevant section renders the reopening ITA No. 96/RPR/2022, Shri Krishna Builders

Dr. Pal, in support of his above contention, has relied on the decision in the case of CIT v. Ranchhoddas Karsondas , to show that an assessee is entitled to file his return any time before his assessment, provided there is no time-limit. Their Lordships of the Supreme Court while deciding that case observed that even a return filed on the last day could not be ignored on the ground that the Department would be driven to complete the assessment proceeding within a few hours or lose the right to send a notice under Section 34(1). The argument of inconvenience was held to be hot a decisive argument and there were means and methods which could be availed of by the Department to save the bar of limitation from becoming operative. It was further pointed out by their Lordships of the Supreme Court that it was for the courts to administer the laws as they stood and they were seldom required to be astute to defeat the law of limitation. Dr. Pal relied on this decision to counter the submissions on behalf of the respondents that the ITO had no other alternative but to complete the assessment without waiting for the valuation report to avoid the bar of limitation. In the facts and circumstances of the case, it is, however, found that sufficient time was still left for the ITA No. 96/RPR/2022, Shri Krishna Builders

Reliance was also placed on the decision in the case of Satyendra Chunder Ghosh v. WTO , where it was held by B.C. Basak J. that in the case of a completed assessment, which was not reopened, the WTO was not entitled to make a reference under Section 16A of the W.T. Act. It has been urged that although the aforesaid case was distinguishable on facts, yet the principle laid down 'therein applies on all fours to the facts of the present case ITA No. 96/RPR/2022, Shri Krishna Builders

In my view, there is considerable force in the arguments of Dr. Pal and the valuation proceeding is liable to be quashed on the grounds that :

The Rule is, therefore, made absolute and the impugned proceedings is quashed by a writ of certiorari. Let a writ of mandamus also issue directing the respondents to forbear from proceeding any further with, or making any valuation under or pursuant to, the impugned reference. There will be, however, no order as to costs.

In terms of aforesaid guiding principle led by the Hon’ble High Courts referred to supra and respectfully following the decision of ITAT Hyderabad in the case of Zulfi Revdjee (supra), in absence of any contrary information or decision by the revenue to counter these observations, we have no hesitation to concur with the contentions raised by the Ld AR that the non- disposal of the objections of the assessee on DVO’s report by the Ld PCIT in revisionary proceedings against the principle of natural justice, though set aside to AO for opportunity to assessee, however the report of DVO was prepared, completed and furnished by the DVO to the department beyond the stipulated time provided in section 142A(vi) of the Act, thus the same is against the mandate of law and literal interpretation of provisions of section 142A, therefore the revisionary proceedings initiated u/s 263 ITA No. 96/RPR/2022, Shri Krishna Builders

In the result appeal of the assessee M/s Shree Krishna Colonisers in ITA . 95/RPR/2022 stands allowed.

Since appeal in the case of M/s Shree Krishna Colonisers in ITA No. 95/RPR/2022 is decided by us in favour of the assessee, having similar facts and circumstances, our decision rendered therein shall equally apply in the case of Shree Krishna Builders in ITA No. 96/RPR/2022. In result the appeal of the assessee is allowed.

In combined result both the above appeals of the assessees are allowed in terms of our aforesaid observations.

""यथ" / The Respondent- 3. आयकर आयु"(अपील) / The CIT(A), 4. आयकर आयु" / CIT ITA No. 96/RPR/2022, Shri Krishna Builders

िवभागीय "ितिनिध, आयकर अपीलीय अिधकरण, रायपुर/ DR, ITAT, Raipur 6. गाड" फाईल / Guard file.