ACIT Vs M/s. Ardra Associates (ITAT Cochin)
The primary issue raised by the Revenue in this case is with regard to the conclusion of the CIT that rejection of books of account is not a pre-requisite for referring the valuation of asset u/s 142A of the I.T. Act. In this connection, the contention of the assessee and the ground on which the CIT had passed the order is that the reference to Valuation Officer itself is not in accordance with the law. The reason put forward by the AO for reference to DVO for the valuation of the construction of property is that the value declared by the assessee is less. At this point of time the A.O. has not given an opportunity to the assessee to explain the reason for the difference. Further as per section 69B of the I.T. Act when the value of investment is not recorded in the books of account or the value expended on making such investment exceeds the value recorded in the books of account in this behalf maintained by the assessee, then only the question of referring to Valuation Officer for arriving at correct value is to be followed. As rightly pointed out by the Ld. AR, the assessee had got the books of accounts audited as per the requirement of statute and also duly filed the tax audit report. The AO had not identified any mistake / omission in any of these records and the only reason put forward for reference is the difference between the value as per the report of the approved valuer, who valued as per the requirements of lending institutions and as recorded in the books of account.
Prior to 2014, in the absence of specific provision for reference to Departmental Valuation Officer (DVO), for estimating the cost of construction of a property/investment, the Assessing Officers (AO) were using the power of summons u/s 131, survey u/s 133 and power of enquiry u/s 142(1). The use of these powers by AO’s for reference to DVO, were being questioned and the various judicial forums and High Courts had taken conflicting views as to the legitimacy of use of such powers. This had been put on rest based on the judgment of Supreme Court in the case of Amiya Bala Paul v CIT 2003 (262 ITR 407), wherein the Apex Court has categorically concluded that there no power to Assessing Officer for making reference to DVO for valuation of investments for assessment purpose
Finance (No.2) Act, 2004 has inserted Section 142A as a new section, with retrospective effect from 19th November 1972 to neutralise the decision of the Supreme Court in Amiya Bala Paul v CIT (supra). As per section 142A, as introduced by Finance (No.2) Act, 2004 the Assessing Officer can refer to Valuation Officer to make an estimate of value of any investment referred to in Section 69 or Section 69B. Therefore, section 142A has given power to AO to refer to the DVO for the purpose of estimating value of any investment for making assessment subject to certain conditions.
Even after insertion of section 142A of the I.T. Act, there are number of judicial pronouncements holding that the reference to DVO under section 142A of the I.T. Act is possible only upon finding that the books of accounts maintained by the assessee is not correct and the value estimated by the Assessing Officer varies substantially from what is recorded in the books of accounts. The various judicial pronouncements confirms that the process of estimation cannot be done if the investment is properly recorded in the books of accounts and the Assessing Officer is satisfied with the correctness and completeness of such books of accounts. If the AO is not satisfied with the correctness and completeness of the books of accounts, he should record his findings and reasoning and reject the books of accounts to proceed for estimation of the value of investments by referring to DVO.
Section 142A of the I.T. Act was substituted vide Finance (No.2) Act, 2014 w.e.f 1.10.2014. As per the said substitution the reference to section 69, 69B etc …. had been removed and it has made as a general provision stating that Assessing Officer can refer to DVO to estimate the value of any asset, property or investment for the purpose of assessment. The sub section (2) of 142A of the I.T. Act states that the Assessing Officer may make a reference to DVO whether or not he is satisfied about correctness or completeness of the accounts of the assessee. The ITAT Delhi Bench in the case of Westland Buildtech (P) Ltd. v. ITO Ward-18 (3), New Delhi (2016) 76 Taxman.com 142 (Delhi – Trib.) had occasion to consider the amendment to section 142A of the I.T. Act by the Finance Act, 2014.
This finding of the Tribunal make the law very clear and unambiguous to the effect that the rejection of books of account, as decided by the Apex Court in the case of Sargam Cinema reported in 328 ITR 513 is valid for all assessment years prior to 01.10.2014, till the section is amended to neutralize the decision of the Apex Court.
The judgment of the Apex Court in the case of CIT v. Sunita Mansingha [(2017) 393 ITR 121 (SC)] will not apply to the facts of the present case. The Apex Court in the case of Sunita Mansingha (supra) was interpreting proviso to section 142A(3) of the I.T. Act (which was in existence from the date of insertion of section 142A of the I.T. Act till section 142A of the I.T. Act was substituted w.e.f. 01.10.2014). The newly substituted section 142A(3) of the I.T. Act w.e.f. 01.10.2014 does not have a proviso. Therefore, the principle laid down by the judgment of the Supreme Court does not have application to the newly inserted section 142A of the I.T. Act. It is admitted that section 142A of the I.T. Act is a procedural section and applies to the pending proceedings. In other words, the law on the date of referring the case to the Valuation Officer u/s 142A of the I.T. Act has to be applied. In this case, the Assessing Officer referred for valuation u/s 142A of the I.T. Act on 06.12.2004. The law that is applicable as on 06.12.2004 is a provision prior to its insertion of section 142A with effect from 01.10.2014. Therefore, going by the judgment of the Apex Court in the case of Sargam Cinema (supra), which was in force at the relevant time states that it is mandatory that the books of account need to be rejected prior to referring the case for valuation u/s 142A of the I.T. Act. Further, we rely on the decision of the ITAT, Delhi Bench in the case of Jithendra Singh Chaddha in ITA No.2732/Del/2018 dated 31/12/2018 wherein it was held that reference of matter to the DVO by the Assessing Officer for valuation of property is not mandatory. In our opinion, the provisions of section 142A of the Act provides that the Assessing Officer may refer the matter to the DVO for the purpose of estimation of the value of the asset, property or investment and get a copy of the report from the DVO. The word ‘may’ makes it discretionary to refer the matter to the DVO. It cannot be said by any stretch of imagination that it is mandatory. Therefore, we are of the view that CIT is not justified in exercising jurisdiction u/s. 263 of the Act. Accordingly, we quash the order passed by CIT u/s. 263 of the Act. Since we have quashed the order of CIT passed u/s. 263 of the Act, we refrain from going into other grounds of appeal of the assessee. The appeal of the assessee in ITA No. 241/Coch/2018 is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
The appeal filed by the assessee in ITA No. 241/Coch/2018 is directed against the order passed u/s. 263 of the Act by the Pr. CIT (Centr al), Kochi dated 15/03/2018 for the assessment year 2013-14. The appeals filed by the assessee in ITA Nos.495 to 499/Coch/2016 are directed against the different orders passed u/s. 263 of the Act by the Pr. CIT(Central), Kochi dated 04/03/2016. The appeals filed by the Revenue in ITA Nos. 374 to 375/Coch/2017 are directed against the different orders passed under section 143(3) r.w.s. 263 of the Act by the CIT(A)-IV, Kochi dated 12/05/2017.
2. First we shall take up the assessee’s appeal in ITA No.241/Coch/2018. The facts of the case are that on examination of the assessment records, it was seen that while completing the assessment the Assessing Officer omitted to look into the following issue:
During the period 2006-07 to 2013-14, the assessee had constructed a building called ‘Capital City’ which was referred to the DVO for valuation. The valuation report was received on 03/04/2014. As per the DVO’s report the cost of the building was Rs.9,85,39,000 as against the value adopted by the assessee of Rs.6,11,60,510/-. There was a difference of Rs.3.74 crores between the value declared by the assessee and the report of the DVO. The proportionate unaccounted expenditure for AY 2013-14 was Rs.33,63,288/-. This issue was not considered while completing the assessment.
Hence, the CIT held that the assessment order dated 10/03/2016 was erroneous in so far as it was prejudicial to the interests of the Revenue. Accordingly, he invoked the provisions of section 263 of the Act.
3. Against this the assessee is in appeal before us. The Ld. AR submitted that the assessee is a partnership firm engaged in the business of real estate and construction work. The CIT passed order u/s. 263 of the Act whereby the assessment was set aside and a fresh assessment was directed to be framed. There was a search in the business premises of the assessee on 02/09/2013 and the books of accounts, vouchers, bills and other documents were scrutinized for the assessment years 2006-07 to 2012-13. The assessee received a notice of summons from the Assessing Officer u/s. 131 of the Act on 05/10/2011 wherein the assessee was required to give evidence and produce books of accounts and other documents. In response, the assessee produced books of accounts and documents which contained details of transactions in respect of construction of Flats, Commercial buildings, including the assessee’s project ‘Capital City’. Thereafter, the assessee received an order u/s. 131 of the Act dated 07/10/2011 impounding the following documents produced for further verification and quantification of the income of the assessee:
i) One page classe notebook containing misc. expenses of the project capital court – Sl. No.15.
ii) One Zebra office file containing details of payments to M.H. Constructions for the project Capital Court – Sl. No. 38.
iii) One Enson office file containing receipts and payment details – Aayilyam Constructions for the project Capital Court – Sl. No.43.
3.1 The assessee submitted further details with respect to assessee’s project Capital Horizon, Capital lotus, Capital Heritage, Capital Village, Thrissur, Capital Village, Palakkad, Capital Galaxy, Capital Symphony, Capital Saffron and construction details of Capital City/Court, Thrissur. Further, on perusal of the income tax returns made by the assessee, the Assessing Officer issued assessment orders u/s. 143(3) r.w.s. 153A of the Act for the above mentioned assessment years dated 28/03/2014. It was submitted that the time limit for completion of assessments was 31/03/2014.
3.2 During the course of assessment proceedings, the assessee’s project ‘Capital City’ was referred to the District Valuation Officer for valuation u/s. 142A of the Act on 15/01/2014. It was submitted that the assessee received the report from the DVO dated 28/03/2014 on 18/11/2015, much after the time limit prescribed for completion of assessment. The DVO valued the property at Rs.9,85,39,000/- as against Rs.6,11,60,510/- declared by the assessee and the valuation made by the DVO, the cost of which was spread over the period of construction from 2006-07 to 2012-13 relevant to the assessment years 2008-09 to 2014-15. The assessments for A.Y. 2008-09 to 2012-13 without considering the DVO report had rendered the assessments erroneous and prejudicial to the interests of the revenue, thereby invoking the provisions of section 263 by the CIT vide order dated 04/03/2016. The details of the assessment years and amounts invested as declared by the assessee and as per the DVO report is as follows:
