Commissioner of Income Tax vs Aar Pee Apartments P. Ltd.

A.K. Sikri, J.—Admit.

The following two substantial questions of law arise for consideration:

(a) Whether the Income Tax Appellate Tribunal was correct in law in deleting the addition of Rs. 19,69,881 made by the Assessing Officer and adopting the figure of cost of construction of Yusuf Sarai Project at Rs. 19,99,559 as against Rs. 39,69,440 declared by the asses-see ?

(b) Whether the Income Tax Appellate Tribunal was correct in law in holding that the reference made by the Assessing Officer to the DVO for determining the cost of construction was not justified even after insertion of Section 142A by the Finance (No. 2) Act, 2004, with retrospective effect from November 15, 1972 ?

Learned Counsel for the parties are ready to argue. Accordingly, we heard the arguments.

The assessee is a construction company. It had taken up three projects in the earlier years to the assessment year in question, i.e., 1998-99. These these projects are as Yusuf Sarai Project, Jaina Tower II and Jaina Tower III. The assessee is adopting the completion of project method of accounting during the assessment year in question, the assessee completed the Yusuf Sarai Project and declared some profits of the project. The cost of construction of the project was shown as Rs. 39,69,440. The Assessing Officer referred the matter to the Departmental Valuation Officer (DVO) to determine the cost of construction whose report showed the cost at Rs. 19,99,559. On the basis of the DVO report, the said cost of construction was adopted. In these circumstances, the Assessing Officer made accepting the low cost of construction than what was shown by the assessee and making an addition of Rs. 19,69,881.

The Commissioner of Income Tax (Appeals) confirmed the action of the Assessing Officer. However, the Income Tax Appellate Tribunal reversed the aforesaid decision on the ground that it was not permissible for the Assessing Officer to refer the matter to the DVO for obtaining the cost of construction. The Tribunal held that even if the insertion of Section 142A by the Finance (No. 2) Act, 2004, was with retrospective effect is from November 15, 1972, this course of action was not open to the Assessing Officer as the said provision does not deal with the unexplained expenditure u/s 69C of the Act.

Before we advert to the interpretation to the aforesaid provision, we deem it proper to reproduce the following discussions detailed in the order of the Income Tax Appellate Tribunal on this aspect:

The next point to be determined is whether the Assessing Officer is justified in referring to the DVO for computing the cost of construction claimed as revenue expenditure. Prior to the insertion of Section 142A by the Finance (No. 2) Act, 2004, with retrospective effect from November 15, 1972, the reference to the DVO in assessment proceedings other than as permissible u/s 55A was held to be invalid as held by the hon''ble Supreme Court in the case of Amiya Bala Paul Vs. Commissioner of Income Tax, Shillong, Section 142A was inserted with retrospective effect from November 15, 1972, however, even u/s 142A, a reference can be made for assessment or reassessment where an estimate of value of any investment referred to in Section 69 or 69B or the value of any bullion, jewellery or other valuable article referred in Section 69A or Section 69B is required to be made. The Assessing Officer may require the Valuation Officer to make an estimate of such value and report u/s 142A(1), for the purpose of making an assessment under the Act, where an estimate of the value of any investment referred to in Section 69A or Section 69B or the value of any bullion, jewellery or other valuable article referred to in Section 69A or 69B is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him. Thus, the power available u/s 142(1) is requiring the Valuation Officer to value any investment or bullion, jewellery or other valuable article referred to in Section 69, 69A or 69B of the Act. These powers do not extend to estimate the amount of unexplained expenditure referred to in Section 69C of the Act. Admittedly, in the present case the expenditure on construction are claimed and allowed as revenue expenditure and cannot be considered as an investment or bullion, jewellery, etc., referred to in Section 69, 69A or 69B, of the Act. We accordingly hold that the reference to the DVO is not in accordance with the provisions of Section 142A. Hence, the decision of hon''ble Supreme Court in the case of Amiya Bala Paul Vs. Commissioner of Income Tax, Shillong, will still apply to hold that no addition can be made merely relying upon the value arrived at by the DVO. In view of the above discussion, the addition of Rs. 19,69,881 is directed to be deleted.

We are in agreement with the aforesaid interpretation given by the Tribunal to Section 142A of the Income Tax Act. Our discussion on this aspect proceeds as under:

Section 142A is to the following effect:

142A. For the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in Section 69 or Section 69B or the value of any bullion, jewellery or other valuable article referred to in Section 69A or Section 69B is required to be made'' the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him.

It is clear from the reading of Sub-section (1) of this provision that it enables the Assessing Officer to get the valuation done from the Valuation Officer in certain specific types of cases. These would be the cases wherein an estimate of the value of any investment referred to in Section 69 or 69B or the value of any bullion, jewellery or other valuable article referred to in Section 69A or 69B is required. There is no mention about Section 69C of the Act. As is clear from the above, Section 69A deals with unexplained money. Section 69B likewise relates to the amount of investment, etc., not fully disclosed the books of account. On the other hand, the provision relates to unexplained expenditure in Section 69C.

In the present case, the Assessing Officer had doubts about the expenditure incurred on the project. As pointed out above, the assessee had shown the expenditure on the Yusuf Sarai Project as Rs. 39,69,440. Since the Assessing Officer had doubted this expenditure, he referred the matter to the DVO for the purpose of determining the cost of construction of the said project. However, as pointed out above, for the purpose of getting himself satisfied about the purported unexplained expenditure u/s 69C powers u/s 142A could not be invoked.

Learned Counsel for Revenue submitted that such a power could be traced to Section 69B of the Act which relates to amount of investment, etc., not fully disclosed in the books of account.

Her submission was that the "expenditure" incurred should be considered as coming within the expression "investment".

We cannot agree with this submission of learned Counsel for the Revenue. If investments could include within its fold the expenditure as well which is incurred by a businessman during the course of his business, there was no necessity of having a separate provision u/s 69C of the Act which deals with unexplained "expenditure" and reads as under:

69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory,. the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year.

The scope and ambit of Section 69B and 69C are altogether different. The connotation to the investment appearing in Section 69B has to be in the context of investments made in some property or any other type of investment and it could not be the business expenditure. The word "investment" contained in Section 69B deals with investment in bullion, jewellery or other valuable article, etc. If the contention of learned Counsel for the Revenue is accepted and the expression is given a wider meaning as sought to be made out, the provisions of Section 69C shall be rendered otiose.

The learned Counsel for the Revenue, however, took another plea to buttress her submission. She submitted that having regard to the circumstances under which Section 142A was inserted by the Finance (No. 2) Act, 2004, it be deemed that the intention of the Legislature was to include even those un-explained expenditure stipulated in Section 69C. No doubt the need behind inserting Section 142A was to empower the Assessing Officer to make a reference to the Valuation Officer as there were no such specific power and the existing provision contained in Section 131 was inadequate. However, even this Statement of Objects and Reasons clearly confined, and limited the reference "to hold a scientific, technical and expert investigation, etc." Learned Counsel for the assessee has drawn our attention to the Central Board of Direct Taxes circular issued by it explaining the Finance (No. 2) Bill, 2004, which specifically omits the word "expenditure" as well as Section 69C. It is on this basis that Section 142A was inserted in the form as it appears on the statute book now. If the intention was to include unexplained expenditure as contemplated in Section 69C of the Act as well this provision should have been specifically mentioned in Section 142A of the Act.

From the reading of Sub-section (1) of Section 142A, it is clear that the Legislature referred to the provisions of Section 69, 69A and 69B but specifically excluded Section 69C. The principle of causus omissus becomes applicable in a situation like this. What is not included by the Legislature and rather specifically excluded, cannot be incorporated by the court through the process of interpretation. The only remedy is to amend the provisions. It is not the function of the court to legislate or to plug the loopholes in the law.

In the present case, except the report of the DVO on which the Assessing Officer relied upon, there was nothing on record to suggest that there was any other evidence to disbelieve the expenditure shown by the assessee. In fact during the course of arguments, learned Counsel for the asses-see produced the assessment order which clearly demonstrates that the expenditure shown by the assessee from the time, when it was an ongoing project, was examined and accepted by the Assessing Officer.

In these circumstances, we answer the question formulated above in favour of the assessee and against the Revenue. As a consequence, this appeal is dismissed being devoid of any merits.