Atul Buildcon Pvt. Ltd. vs Assistant Commissioner of Income Tax

K.S. Jhaveri, J.—By way of these appeals, the appellant has challenged the judgment and order of the Tribunal, whereby, the Tribunal has partly allowed the appeals preferred by the revenue. While admitting the matters, this Court has framed following substantial questions of law:

"In Tax Appeal No. 926 of 2006:

Whether on facts the Tribunal is right in interpreting Section 69C and cognate provisions for upholding the addition of Rs. 8,49,695/- towards cost of construction on the basis of report of the Departmental Valuation Officer?"

In Tax Appeal No. 927 of 2006:

Whether on facts the Tribunal is right in interpreting Section 69C and cognate provisions for upholding the addition of Rs. 2,28,677/- towards cost of construction on the basis of report of the Departmental Valuation Officer?"

The question of law raised in these appeals, had come up for consideration before this Court in Tax Appeal Nos. 1151 to 1153 of 2005. This Court, while deciding the said identical case by judgment and order 11/12/2014, has held in paragraph Nos. 5 and 6 as under:

"5. We have gone through the materials on record. In our view, the substantial question of law raised in this matter would no longer survive and it is already answered by this Court in its earlier decision in the case of Commissioner of Income Tax Vs. Vijaykumar D. Gupta, , wherein it was observed as under:

"3. From the record it emerges that the Assessing Officer after making a reference to DVO for ascertaining assessee''s investment in house property on the basis of such return added a sum of Rs. 10,77,724/- under section 69B of the Act being assessee''s unexplained investment.

The assessee carried the matter in appeal. The CIT (Appeals) on facts analysed the case of the assessee again and retained part of the addition, but granted partial relief. This order of CIT (Appeals) gave rise to two appeals to the Tribunal. The Tribunal deleted entire addition primarily on the ground that the Assessing Officer could not have made reference to the DVO without reference to the books of accounts and such reliance on the DVO''s books of accounts was not justified. The Tribunal held and observed as under:

"12.1 Admitted factual position is that the AO had not referred any incriminating evidence which was found during the course of search. Although the Revenue Department had found the existence of a building but there was no evidence that the assessee had in fact incurred expenditure on construction of the said property over and above the amount already declared in the books of accounts. This is not an assessment which was made in the ordinary course of proceedings but admittedly a search under Section 132 was carried therefore it is expected that the addition consequent thereupon should be corroborated with evidence detected at the time of search. As far as the books of accounts of the assessee and the recording of the investment in the construction of the house were concerned, the AO had not found any discrepancy. For this legal proposition, a decision of jurisdictional High Court pronounced in the case of Goodluck Automobiles, 26 Taxman.com 264 has been cited wherein the Court has held that unless the books of accounts are rejected the AO cannot make a reference to the Valuation Officer. An another case law relied upon was Commissioner of Income Tax Vs. Vijaykumar D. Gupta, . Our attention has again been drawn on few case laws which was referred before learned CIT(A), viz. Bajranglal Bansal, 241 ITR 64 (Del.), Ushakant N. Patel Vs. Commissioner of Income Tax, . In the light of these case laws and considering the totality of the facts and circumstances of the case, we are of the considered opinion that learned CIT(A) has not considered the fundamental questions as pointed out by the assessee that there was no material, what to say an incriminating material, in the possession of the Revenue Department, therefore, the entire addition being merely based upon the estimation of DVO was baseless; hence, deserves to be deleted. We hold accordingly. The part addition sustained by learned CIT(A) is hereby deleted."

It is undisputed that the Assessing Officer made a reference to the DVO without rejecting the books of accounts. While retaining part of the additions even the CIT (Appeals) did not come to the conclusion that the Assessing Officer had rejected the books of accounts of the assessee. It was in this background that the Tribunal relied on the decision of the Supreme Court in the case of Commissioner of Income Tax Vs. Vijaykumar D. Gupta, . This Court in the case of Goodluck Automobiles (P) Ltd. Vs. Assistant Commissioner of Income Tax, , in the context of this issue referring to the decision of the Supreme Court in the case of Sargam Cinema (supra) had observed as under:

"12. The facts of the present case may be examined in the light of the statutory scheme discussed hereinabove as well as the decision of the Supreme Court in Sargam Cinema (supra). In this regard, a perusal of the assessment order reveals that the Assessing Officer has categorically recorded a finding to the effect that the accounts are duly audited and complete details are available. From the tenor of the order of the Assessing Officer, it is apparent that he has made the reference to the Valuation Officer merely to seek expert advice regarding the cost of construction. There is nothing in the assessment order to suggest that the Assessing Officer had any doubt regarding the cost of construction or that he was not satisfied regarding the correctness or completeness of the books of account. Before making the reference to the Valuation Officer for ascertaining the fair price of construction, the Assessing Officer does not appear to have ascertained the correctness or otherwise of the cost of construction shown by the assessee in its books of account. Thus, prior to making the reference to the Valuation Officer, the Assessing Officer has not ascertained as to what was the defect in the cost of construction disclosed by the assessee in its returns of income. Moreover, it is apparent that the only reason for making the addition under section 69 of the Act is that there is a difference in the cost of construction as determined by the Valuation Officer and as shown by the assessee. At no stage of the assessment proceedings does the Assessing Officer appear to have mentioned that the books of account are defective or that the cost of construction as shown in the books of account is not the true cost of construction. Thus, while making the reference to the Valuation Officer, the Assessing Officer has not recorded any defect in the books of account nor has he rejected the same. Except for the difference in the estimated cost determined by the Valuation Officer and the actual cost as shown by the assessee, the Assessing Officer has not brought any material on record to establish that the assessee had made any unaccounted investment in the construction of the building in question and that the books of account do not reflect the correct cost of construction. Under the circumstances, there was no occasion for the Assessing Officer to make a reference to the Valuation Officer. As held by the Supreme Court in the case of Sargam Cinema (supra), unless the books of accounts are rejected, the Assessing Officer cannot make a reference to the Valuation Officer. The reference made to the Valuation Officer, not being in consonance with the provisions of law, was, therefore, invalid. Accordingly, the report made by the Valuation Officer pursuant to such an invalid reference could not have been made the basis for addition under section 69 of the Act."

The question involved in the present case is squarely covered by the observations of this Court in the aforesaid decision. In view of above, we are in complete agreement with the view taken by the tribunal and the question raised in these appeals is answered against the department and in favour of the assessee. Accordingly, all these appeals are dismissed."

There is no dispute amongst both the learned counsels that the aforesaid decision will apply in the facts of this case also, as the facts and the question of law raised, are identical and therefore, we are not giving elaborate reasons.

Accordingly, the question, "Whether on facts the Tribunal is right in interpreting Section 69C and cognate provisions for upholding the addition towards cost of construction on the basis of report of the Departmental Valuation Officer?" is answered in favour of the assessee and against the department. The appeals stand allowed accordingly.