Brief of the Case
ITAT Ahmadabad held In the case of ACIT vs. Shri Kanakkumar J. Jariwala that mere valuation report is not sufficient to conclude that the assessee has made unexplained investment. From perusal of the assessment, nowhere it reveals that inspite of search, Revenue was in a position to lay its hands on any material exhibiting the unexplained investment made by the assessee, over and above one stated in the books of accounts.
Facts of the Case
A search operation u/s 132 was carried out at the premises of Colourtex Group of Surat on 26.7.2006. The assessee is a member of this group and his premises were also searched on 26.7.2006. A notice under section 153A was issued upon the assessee. To this notice, the assessee has filed his return of income on 31.3.2007 declaring total income at Rs.51,65,170/-.The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. The AO has rejected the books result of the assessee. He found that the assessee had constructed a building at RS No.175, paiki, Block No.G-2, Bhestan, Surat. The AO was not satisfied with the cost of construction shown in the books of accounts. He formed an opinion that there was an under-invoicing of bills, and therefore, the AO made reference to the valuation officer, who has determined the value of the property. On the basis of report there were difference on account of declared cost and estimated cost. Consequently additions were made for these differences.
Contention of the Assessee
The ld counsel of the assessee submitted that various Hon’ble High Courts are unanimous on the point that if during the course of search, no incriminating material was found, exhibiting unexplained investment by an assessee, then merely on the basis of DVO’s report, the addition cannot be made. He relied upon the following judgments: Hon’ble Gujarat High Court in the case of CIT Vs. Jayendra N. Shah, (2014) 52 taxmann.com 54 (Gujarat), The Hon’ble High Court in the case of CIV Vs. Vasudev Construction (2014) 44 taxmann.com 30 (Kar.), CIT Vs. Berry Plastics P. Ltd., (2013) 35 taxmann.com 296 (Guj) , CIT Vs. Sadhna Gupta (IT Appeal No.434 of 2012) (Delhi HC), CIT Vs. Lahsa Construction P. Ltd., (2014) 42 taxmann.com 549 (Delhi) and Gookluck Automobils P. Ltd. Vs. ACIT (2012) 26 taxmann.com 254 (Guj).
Contention of the Revenue
The ld counsel of the revenue supported AO’s order.
Held by CIT (A)
CIT (A) deleted the partly addition made by AO. It was held that the DVO as well as Assessing officer has not considered the various objection of the appellant like various common boundries, common wall etc. which will reduce the estimated cost of construction. Accordingly, after considering the assessee’s submissions, in my view it will be reasonable to estimate cost (including land) at Rs. 23,03,200/- (i.e. 75% of Rs. 30,70,933/- the value determined by the DVO). After taking into account the correct cost disclosed in the books of account of Rs. 18,00,000/- the addition called for is calculated at Rs. 5,03,200.
Held by ITAT
In the case of CIT vs. Sadhna Gupta (IT Appeal No.434 of 2012) (Delhi HC) on the issue whether merely on the basis of the DVO’s report, an addition can be made or not, it was decided that the law seems to be well settled that unless and until there is some other evidence to indicate that extra consideration had flowed in the transaction of purchase of property, the report of the DVO cannot form the basis of any addition on the part of the revenue.
Also in the case of CIT vs. Jayendra N. Shah (2014) 52 taxmann.com 54 (Gujarat), the case was decided in favour of assessee by holding that the addition was made merely on the basis of the DVO’s report without there being any other material. Moreover, the DVO had also substantially relied on jantri rates and had made other references for arriving at the valuation. Same in the case of CIT Vs. Berry Plastics P. Ltd., (2013) 35 taxmann.com 296 (Guj), the Hon’ble Gujarat High Court held that DVO’s report may be a useful tool in the hands of the Assessing Officer, Nevertheless it is an estimation and without there being anything more, cannot form basis for additions under Section 69B of the Act. In absence of any other material on record, addition was correctly deleted.
On the basis of above judgments, it is clear that mere valuation report is not sufficient to conclude that the assessee has made unexplained investment. From perusal of the assessment, nowhere it reveals that inspite of search, Revenue was in a position to lay its hands on any material exhibiting the unexplained investment made by the assessee, over and above one stated in the books of accounts. CIT (A) has not adjudicated this issue, rather, gave substantial relief on the ground that the DVO has erred in determining the fair market value of the investment. We do not find any reason to interfere in the order of the CIT(A), but we uphold his order for different reason i.e. the issue is covered in favour of the assessee by the decision of the Hon’ble High Courts.
As far as Cross appeal (CO) filed by the assessee is concerned, we are of the view that sub-section 4 of section 253 authorises the respondent to file cross-objection on receipt of notice in appeal. The CO is required to be filed within 30 days of receipt of notice and it is to be verified in the manner akin to an appeal, but, the CO is to be filed against any part of the order impugned in the appeal. In the CO filed by the assessee, he has nowhere demonstrated his grievances against any part of the order of the CIT (A), as such, the CO is not maintainable in the present form.
Accordingly, appeal of the revenue as well as cross appeal of the assessee dismissed.