IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH "A" Before SHRI BHAVNESH S AINI, JUDICI AL MEMBER And SHRI A N P AHUJ A, ACCOUNTANT MEMBER ITA no.3289/Ahd/2009 (Assessment Year:-2006-07) Asst. Commissioner of V/s M/s Rajhans Construction Income-tax, Central Circle- Pvt. Ltd., B-210-211, Yash 2, Surat Plaza, Opp. Dhanmal Mill Compound, Varachha Road, Surat PAN: AACCR 8828 A [Appellant] [Respondent] Revenue by :- Shri S K Meena,. DR Assessee by:- Shri Hardik Vora, AR O R D E R
A N Pahuja: This appeal by the Revenue against an order dated 16-09-2009 of the ld. CIT(Appeals)-II, Ahmedabad, for the Assessment Year 2006-07, raises the following grounds:-
"[i] The Ld.CIT(A) has erred in law and on facts and circumstances of the case in deleting the addition of Rs.50,00,000/- made on account of unexplained investment in cost of construction of building u/s 69B of the Act.
[ii] The Ld.CIT(A) has erred in law and on facts and circumstances of the case in deleting the addition on account unexplained investment in the construction of the building on the basis of the valuation report of the DVO, on reference under section 142A of the Act.
[iii] The Ld.CIT(A) has erred in law and on facts and circumstances of the case in deleting the addition on the ground that no documentary evidence was found in respect of unaccounted expenditure, ignoring that the addition was not based on evidence found during survey, but on account of difference in the cost shown by the assessee and the cost estimated by DVO to whom references was made by the A.O. as the assessee had under invoiced the input bills.
[iv] The Ld.CIT(A) has erred in law and on facts and circumstances of the case in deleting the addition on the ground that no documentary 2 ITA no.3289/Ahd/2009 evidence was found in respect of unaccounted expenditure, ignoring that assessee has made disclosure of unaccounted income of Rs. 75 lacs during survey, as the assessee himself has admitted to have suppressed income from construction of various project and bunglows.
[v] The Ld.CIT(A) has erred in law and on facts and circumstances of the case in deleting the addition on the ground that books of accounts were not rejected nor any defects were pointed out by the A.O. ignoring that the A.O. has made addition after rejecting the books under the provisions of section 145 of the Act as the books are not reliable.
[vi] The Ld.CIT(A) has erred in law and on facts and circumstances of the case in deleting the addition on the ground that the reference was made before the assessment proceedings commenced, ignoring that since there was survey action u/s 133A of the Act, in the business premises of the assessee and admission of unaccounted income by the assessee for the suppression of investment in the construction, the case falls under compulsory scrutiny as per Board's guide line and hence, the time as to when the reference to DVO was to be made was only a choice of the AO.
[vii] The Ld.CIT(A) has erred in law and on facts and circumstances of the case in not appreciating the ratio laid down in the judgement of the Hon'ble Rajasthan High Court in the case of Amar Kumari Surana Vs. CIT (226 ITR 344), wherein the Hon'ble High court has held that if the assessee is not able to point out any mistake in the estimate of the valuation officer, the only reasonable inference that can be drawn is that the assessee has shown less amount in the account books and sale deed than the actual consideration.
[viii] The Ld.CIT(A) has erred in law and on facts and circumstances of the case in ignoring the decision of Hon'ble Allahabad High Court in the case CIT vs. Meerut Cement Co. Pvt. Ltd (2006) 150 Taxman 7 (All.) wherein, in case of doubt the Hon'ble High Court held that the A.O. can refer the matter to valuation cell for determination of cost of construction and rely upon such report as an evidence.
[ix] On the facts and circumstances of the case and in law, it is prayed that the order of the CIT (A) be set aside and that of the Assessing Officer may be restored."
2. Facts, in brief, as per relevant orders are that return declaring income of Rs.82,94,966/- filed on 31-12-2006 by the assessee, engaged in building construction, was selected for scrutiny with the 3 ITA no.3289/Ahd/2009 service of notice u/s 143(2) of the Income-tax Act, 1961 [hereinafter referred to as the "Act"] issued on 17.9.2007.During the course of assessment proceedings, the Assessing Officer ['AO' in short] noticed that the assessee constructed property at 'Himgiri Bunglows' and 'Milano Heights, located near Rajhans Prme Cinema, Surat and shown cost of construction at Rs.5,56,20,255/-. However, the AO, on the basis of seized documents and books of accounts, issued a notice to the assessee to show cause as to why books of account be not rejected invoking the provisions of section 145 of the Act and addition of Rs.50,00,000/- be made on the basis of the report of the District Valuation Officer [DVO] received vide letter No.2(16)/DVO/07-08/663, dated 31-12-2008. After considering the reply of the assessee, the AO rejected the books of account invokin g the provisions of section 145 of the Act, relying, inter alia, on the defects pointed out by the DVO in his report. Consequently, an addition of Rs.10 lacs towards undervaluation in construction of 'Himgiri Bunglows' and Rs.40,00,000/- in 'Milano Heights' was made in view of the following reasons given in the assessment order:-
"1. The claim of the assessee that the cost of construction in case of assessee all materials have been purchased and supplied to the labour contractor by the assessee itself and hence, the cost of construction should be lower as compared to contract labour method is mere unverifiable, unfounded assertion. The claim regarding giving labour contract and procuring all the materials on its own and thereby eliminating extra cost on material is unverifiable and not acceptable. There is no evidence in regards to such claim and the claim is rejected.
2. The contention that purchase of all construction items in huge quantity i.e. bulk purchase have been effected at a lower and well- bargained economical rates has resulted in lower cost of construction is devoid of evidences. Hence, the claim is rejected.
3. Similarly, the argument that since most of the construction items have been purchased on cash discount basis, that also results into reduction in the cost of various materials, is unsubstantiated and liable to rejection.
4 ITA no.3289/Ahd/2009
4. Also the claim that the total construction activities are monitored and supervised by the skilled employees retained for the project which, has resulted into the effective use of all the materials and minimized the wastage, is unverifiable and is liable to rejection.
5. The assessee has claimed that the Valuation Report has been prepared for the completed project status up to the-date of physical verification of the project i.e. for the completed project while the cost incurred after 31.03.2006 i.e. during the financial year 2006-07 on various items of construction which is Rs.4,03,05,086-, as per books of account, has not been taken into consideration, is not acceptable The assessee's contention is not acceptable because valuation has been based on the documents pertaining to materials and other cost incurred by the assessee and not solely on the basis of on-the-spot verification and not mere-opinion of the D.V.O. the Ld. D.V.O. has also taken the cost information from the assessee for the entire A.Y. i.e. spanning over the period from April 2005 till March 2006. Thus, the issue of entire period of construction and that of elapsement of time rendering the Valuation report inconsistent is not tenable.
6. The assessee has claimed that the rates adopted in Interim Valuation Report for the entire various finishing items, flooring items, sanitary items, hardware items, doors & window items, kitchen items, steel railing items and other common facility and amenity items are baseless, very high and unreasonable as against the rates. Such a claim is-unacceptable. The D.V.O. has furnished comparable and standard rates adopted as basis for valuation. In fact the assessee has failed to co-operate with the D.V.O. in the valuation proceedings, forcing recourse to best judgment by the D.V.O. The assessee has been at fault as regards to valuation proceedings.
7. In the instant case, the D.V.O's Report has been duly called for u/section 142A of the Income Tax Act, 1961 and the DVO has submitted the report based upon physical inspection of the premises and comparable cases and rates, hence the same is use as a supplementary basis for assessment.
The claim that provision of Section 69B are deeming provision and law is settled that the onus on Revenue to prove beyond any doubt that there has been unexplained investment. Merely on the basis of excessive valuation by the DVO, it cannot be said that these onus is discharged. The assessee's contention is incorrect because D.V.O.'s report has-been based on tangible evidences of cost and expenses incurred in the property. Excess investment over book value clearly attracts provision of section 69B of the Act."
5 ITA no.3289/Ahd/2009 2.1 In the light of findings of the DVO, an addition of Rs.50,00,000/-
was made u/s 69B of the Act.
3. On appeal, the learned CIT(A) deleted the addition in the following terms:-
"2.1 During the appellate proceedings, the appellant has made the following submissions:
(i) The Ld. ACIT has invoked the provisions of Sec. 145 and rejected the books of accounts -only on the receipt of the Interim Valuation Report of DVO estimating an adhoc amount of Rs.50,00,000/- as understatement of cost of construction of the project. Provisions of Section 142A have been misinterpreted and misused by the Department. The provision of section 142A is attracted where the assessee is found to have made investment outside the books of accounts or where any such investment mad by him is not fully disclosed in the books of accounts. The condition precedent for making the reference by invoking the provisions of section 142A thus is that there should be something on record to show that the assessee in first place has made such investment outside the books or the investment so made by him is not fully disclosed in the books of accounts and once this condition is satisfied, the quantum of such investment made can be ascertained by AO by making a reference U/S. 142A in order to make the addition U/S. 69 or Sec. 69B. There cannot be any reference U/S. 142A where there is no process of assessment which is initiated after filing of return of income or issuance of notice. The provisions of Section 142A clearly show that the invocation of sec. 142A is a process after the opening of assessment or reopening of the assessment. Further it is mentioned in this section that "where an estimate of the value of any investment referred to in Sec. 69 ..... is required to be made .,..." this also shows that a reference to the DVO can be made-only when a requirement is felt by the Assessing Officer for making such reference. Requirement would arise or could be felt only when there is some material with the AO to show that whatever amount the assessee has shown is not correct or not reliable. The use of the word "require" is not superfluous but signifies a definite meaning whereby some preliminary formation of mind by the AO is necessary which requires him to make a reference to DVO U/S.
142A. In other words, it is only during the course of pendency of the assessment or reassessment that the AO can frame his mind to refer the property to DVO. Such mind can be framed if there is a basis to think that the assessee may have understated the cost of construction or whatever is declared by him in this regard is not 6 ITA no.3289/Ahd/2009 believable. Therefore, it is quite apparent that reference to the valuation cell U/S. 142A can be made during the course of the assessment or reassessment and not for the purpose for initiating the assessment or reassessment. The contention of the appellant gets support from the following authorities.
(A) ITO,V(1), Lucknow V. Vijeta Educational Society  118 ITD 382 (LUCK) (B) ITO V. Rajeshwar Nath Gupta HUF ITA No. 4295/Del/2005 & C. O. No. 375 /Del/2007 ITAT Delhi Bench 'F' ; New Delhi In the present case -
1) the Ld. ACIT has not mentioned anywhere in the A.O. that he had certain incriminating documents found and seized during the course of the Search at the premises of the assessee as no search was carried out in the case of assessee.
2) The Ld. ACIT has made reference to the DVO on 31.07.2007 while issued the notice U/S. 143(2) on 01.08.2007. Thus, the reference was made before the assessment proceedings actually commenced.
3) A perusal of the order, however, shows that there was no reference whatsoever made by the AO to any material/evidence/information on the basis of which it could be said that the said cost of
construction shown by the assessee was understated and that anything above what was disclosed by the assessee. Thus, the condition precedent for making reference to the DVO by invoking the provisions of Sec. 142A was not satisfied in the present case.
4) Moreover, on perusal of the AO, it is found that nowhere the LD. ACIT has mentioned that what are the mistakes and unreliability has been found out by Ld. ACIT in the books of accounts of the assessee. Thus, the Ld. ACIT has not pointed out any defects in the books as far as related to the cost of construction of the project.
(ii) All the books, records, bills, vouchers etc. have been produced before the DVO also on his personal visit to the site of the projects "Himgiri Bungalows" and "Milano Heights". Thus, the contention of the Ld. ACIT that the appellant had failed to co-operate with the DVO in valuation proceedings is not correct. On the contrary, the appellant has produced all the details which have been called for by the DVO.
(iii) The Ld. ACIT himself stated that the DVO's report is an interim report that means the same is not a final and conclusive report. Moreover, the DVO has simply estimated that there may be an 7 ITA no.3289/Ahd/2009 under valuation of cost of construction in the books of accounts to the tune of Rs. 40 lacs for the project "Milano heights and Rs. 10 Lacs for the project "Himgiri Bungalows". Thus, where is the comparable case and rates? Even the DVO has not produced any base on which he arrived at the figures of Rs. 40 lacs or Rs. 10 lacs. Thus, this is purely estimation and guess work.
(iv) Even the copy of the so called report has also not been made available to the appellant to raise any objection on the same. The report of DVO which is incomplete and interim has been received by the LD. ACIT on 31.12.2008, he issued the Show Cause to the appellant for rejection of the books and making addition on the basis of the interim report on 31.12.2008, asked the appellant to make the comments on the same on 31.12.2008. he passed the A.O. on 31.12.2008 after obtaining the permission from CIT at Ahmedabad on the same day i.e. on 31.12.2008.
(v) The addition made on the count that the appellant had shown lower amount of cost of construction, would ultimately resulted into squaring off the whole addition since on one side the addition Is made and on the other side the deduction is to be allowed as a business expenditure. Thus, the whole exercise would result into NIL. (Comm of- IT. Vs. Star Builders (2007)294 ITR P. 338 (Guj. H.C.), Ruby Builders V. ITO 63 TTJ 202(Ahd.), ITO V. Jagdish Chandra Virmani (2007) 106 TTJ (Delhi) 287 )
(vi) In view of the above narrated facts and legal position, it is crystal clear that the addition made on the basis of the DVO's report is totally baseless )p) and hence Your honour is humbly requested to delete the addition of Rs.50,00,000/- and give fair justice to the appellant.
2.2 I have considered the facts and the submissions. I agree with the appellant's view. No incriminating documents were found and seized during the course of search. Reference was made before the assessment proceedings commenced, books of accounts were not rejected neither any defects were pointed out. The appellant has maintained all the books of accounts and vouchers. The DVO has simply estimated the difference and reported that there may be under valuation of cost of construction in the books of accounts to the extent of 50,00,0007- without giving any basis and detailed working. In view of these facts, it is held that of the AO is not justified in making the addition merely on the basis of valuation of DVO's report in which the DVO has estimated the valuation without any basis. Accordingly, the addition is deleted."
4. The Revenue is now in appeal before us against the aforesaid findings of the learned CIT(A). The ld. DR supported the findings of 8 ITA no.3289/Ahd/2009 the AO and contended that the assessee did not file any evidence even before the DVO or before the AO and that the learned CIT(A) was not justified in deleting the addition.. On the other hand, the ld. AR on behalf of the assessee submitted that in this case reference to DVO was made vide letter dated 31-7-2007 while notice u/s 143(2) of the Act was issued on 01-08-2007. W hile relying upon the decision dated 04-06-2010 in the case of M/s Rajhans Builders in ITA No.3172 & 3288/Ahd/2009 for AY 2006-07, the learned AR contended that on identical facts similar addition was deleted in the said case. Accordingly, it was pleaded that the issue being covered, no interference is warranted in the findings of the learned CIT(A).
5. W e have heard both the parties and gone through the facts of the case as also the aforesaid decision dated 04-06-2010 of the ITAT Ahmedabad Bench-A in the case of M/s Rajhans Builders in ITA No.3172 & 3288/Ahd/2009 for AY 2006-07. W e find that on identical facts and circumstances, vide their order dated 04-06-2010 in the aforesaid case, deleted a similar addition in the following terms:-
"10. We have heard the rival contentions and gone through the facts and circumstances of the case. First of all, we have to go through the provision of Sec. 142A of the Act to consider the issue in hand. The relevant provision sub-section-1 of Sec.142A reads as under:-
Estimate by Valuation Officer in certain cases.
142A (1) 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.
We find from the facts of the case that certain incriminating documents found and seized during the course of search on 07-03-2006 on the group cases, i.e. one of the partner of this assessee-firm was covered under search. Subsequently, notice U/S.153C of the Act was issued for and from assessment years 2000-01 to assessment years 2005-06 vide notice 9 ITA no.3289/Ahd/2009 dated 01-08-2007. It is to be noted that no search was conducted in the case of the firm. The Assessing Officer in the present assessment year i.e. 2006-07 notice u/s. 143(2) was issued on 01-08-2007 and the cost of construction was referred to the DVO for valuation on 31-07-2007. We find that the assessee is engaged in the business of construction projects and the group has undertaken a number of projects under the name of M/s. Rajhans Builders. Perusal of the assessment order shows that there is no reference to any material/evidence/information on the basis of which it could be said that the cost of construction was shown by assessee was understated or anything above what was disclosed by assessee in the books of account. It is a clear cut case that the assessee has produced the books of account but the Assessing Officer has not rejected or no defect was pointed out in the books of account regarding cost of construction of the project. We further find from the case records that even before verifying the books of account regularly maintained and without pointing out any defects in the books the cost of construction was referred to DVO. We are of the view, on the basis of evidences produced before us, that the assessee has regularly maintained books of account and various records along with supporting evidences of various raw materials like cement, steel, bricks, sand, wood, labour cost, sanitary wares etc. but the AO has not found out any defect in the books/records/bills etc. and has not rejected books of account. Without causing any defects in books regularly maintained and without rejecting the books u/s.145, of the Act there is no reason to add any amount on the presumption that the cost/investment in construction is low. Thus, without rejecting the books of account regularly maintained, the addition cannot be made only on the basis of the DVO's report. We further find that the assessee has supplied the X-erox copies of bills of these items mentioning the rate to DVO and all these bills were also produced before DCIT which he has seen and verified but has no commented on the genuineness of these bills and not pointed out any defects in these bills and hence not rejected the records maintained and produced by assessee.
11. In view of the above facts and circumstances, the provision of Sec.142A of the Act, we are of the view that no proceedings were pending at the time of reference made to the DVO regarding ascertainment of cost of construction of the project. We find from the starting words of the section that for the purpose of making an assessment or reassessment under this Act, once the process of assessment is initiated, the word 'making' should be presumed to be associated with both 'assessment' or 'reassessment', the reference u/s. 142A of the Act can be made. When there is process of assessment, which is initiated after filing of the return of income or issuance of notice u/s. 142(1) and similarly, the process of reassessment could be initiated only after issuance of notice u/s. 148(1) after duly fulfilling the formalities mentioned therein, the reference u/s.142A of the Act can be made. It clearly shows that the invoking of Sec. 142A is a process after the initiation of the assessment proceedings. Further, it is mentioned in this Sec. that 'where estimate of the value of any 10 ITA no.3289/Ahd/2009 investment referred to in Sec. 69 is required to be made. This also shows that a reference to DVO u/s. 142A can be made only when a requirement is felt by the AO for making such reference. Requirement would arise or could be felt only when here is some material with the AO to show that whatever estimate assessee has shown is not correct or not reliable. The use of word 'require' is not superfluous but signifies a definite meaning whereby some preliminary formation of mind by the AO is necessary which requires him to make a reference to the DVO us 1422A. It can only be during the course of pendency of assessment or reassessment that the AO frame his mind to refer the property to valuation cell of the Department. Such mind can be framed if there is a basis to think that the assessee may have understated the cost of construction or whatever is declared by him in this regard is not believable. Therefore, it is quite apparent that reference to valuation cell U/S.142A can be made during the course of assessment and reassessment and not for the purpose for initiating reassessment. This view is clearly supported by the decision of Ahmedabad Bench in the case of Umiya Co-operative Housing Society Ld. v ITO (2005) 94 TTJ 392 (Ahd), wherein it is held as under:-
"7. From the above, it is evident that s. 142A empowers the AO to require the valuation officer for making the estimate of the value of any asset provided the AO, required the same for the purpose of making the assessment or reassessment. He above provision does not empower the AO to refer the matter to the DVO for gathering information for reopening of assessment. Making the reassessment and reopening of assessment are two different things.
8. When the process of reopening of assessment ends and the assessment is validly reopened thereafter the process of making reassessment starts. Therefore even after the insertion of s. 142A, the AO should have reason to believe that any income chargeable to tax has escaped assessment as provided under s. 147 and thereafter only the notice for reassessment can be issued under s. 148. Even after the insertion of S.142A, there is no amendment in the language of s. 147. Therefore, the condition prescribed under s. 147 for reopening of assessment still exits. The Hon'ble Gauhati High Court in the case o/Bhola Nath Majumdar and the Tribunal, Jodhpur Bench, in the case of Vijay Kumar (supra) have taken the view that the valuation report is only an opinion of the valuer and an opinion of a third party cannot be a reason to believe of the ITO. The Hon'ble Bombay High Court in the case of Jamnadas Madhavji & Co. (supra) has held that the AO cannot issue summons under s. 131 for the purpose of making investigation for reopening of the assessment."
12. This decision of the Tribunal has been confirmed by the Hon'ble jurisdictional High Court in the case of CIT v. Umiya Co-operative Housing Society Ltd. in Tax Appeals No.1496 to 1498 of 2005 dated 12-07-2006, wherein it is held as under:-
11 ITA no.3289/Ahd/2009 "The short controversy involved in these appeals whether the Assessing Officer can refer any matter for valuation of the property of an assessee though assessment and / or reassessment proceedings are not pending. The Tribunal is of the view that when the assessment proceedings are not pending the Assessing Officer has no jurisdiction and is not empowered to refer any property for valuation to the Valuation Officer. The Tribunal has discussed this issue as under:
a-S8 When the process of reopening of assessment ends and the assessment is validly reopened thereafter, the process of making reassessment starts. Therefore, even after the insertion of section 142A, the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment as provided u/s. 147 and thereafter only the notice for reassessment can be issued u/s. 148. Even after the insertion of section 142A there is no amendment in the language of section 147. Therefore, the condition prescribed u/s. 147 for reopening of assessment still exists. The Hon'ble Gauhati High Court in the case of Bhola Nath Majumdar and the ITAT Jodhpur Bench in the case of Vijay Kumar (supra) have taken the view that the valuation report is only an opinion of the valuer and an opinion of a third party cannot be a reason to believe of the ITO. The Hon'ble Bombay High Court in the case of Jamnadas Madhavji and Co.(supra) have held that the Assessing Officer cannot issue summons u/s. 131 for the purpose of making investigation for reopening of the assessment.
9. In view of the above, we are of the opinion that the issue of notices u/s. 148 in all three years under consideration was not in accordance with law. We, therefore quash the notices issued u/s. 148 and consequently the assessments completed in pursuance to notices u/s. 148 are also quashed. Since the assessment itself has been quashed, the grounds raised by both the parties with regard to the merits of the additions for undisclosed investments in the house property need no adjudication at this stage because once the assessment is cancelled, the addition does not survived.
Mr. Bhatt has mainly emphasized on Section 142A of the Act. He submits that the Assessing Officer at any time can make reference to the Valuation Officer for valuing the property for the purpose of assessment or reassessment, where the value of any investment referred to in Section 69 or Section 69B or Sections 69A & 69B is required to be made. Whether any income can be taxed by deeming the value of investment not disclosed, are issues where such types of questions arise while some proceedings are pending for assessment. In absence of such proceedings, the Assessing Officer cannot refer any property for valuation to Valuation Officer.
In opening part of Section 142A the words used are for the purposes of making an assessment or reassessment under the Act. The intent of the legislation is that the matter can be referred to the Valuation Officer only when the proceedings of assessment or reassessment are pending before the Assessing Officer. When no 12 ITA no.3289/Ahd/2009 such proceedings are pending, the Assessing Officer has no jurisdiction to refer any property for assessment.
When the notice u/s. 148 has been issued, and addition has been made by adopting the value estimated by the Valuation Officer, and when we fond that the Assessing Officer is not empowered to refer any property for valuation in a case where no assessment proceedings or reassessment proceedings of the assesses is pending before him, we see no justification to make any addition in such cases."
Even the Hon'ble Apex Court has also dismissed the SLP of the Revenue in this case and affirmed the judgment of Hon'ble High Court in SLP No. CC 187 of 2007 dated 07-03-2007. As the issue in these appeals of the present assessee before us is exactly identical, what was before the Hon'ble High Court in the case of Umiya Cooperative Housing Society Ltd.(supra), respectfully following the same, we are of the considered opinion that the reference u/s.142A of the Act can be made only when the proceedings under this Act is pending and not otherwise. Accordingly, this legal issue, we decide in favour of the assessee and against the Revenue.
13. We further find from the case records that even if a reference u/s. 142A is made by the Assessing Officer on certain consideration such as anything fund during the course of search u/s. 132 of the Act or on the basis of a tax evasion petition or a reference is required to be made during the course of other proceedings or a report of the DVO is available to the AO before making an assessment or reassessment then same can be utilized only in accordance with sub-Sec.(S) of Sec. 142A i.e., the assessee has to be given an opportunity of being heard before such a report is utilized and in accordance with Sec.145 where books of account are required to be rejected by pointing out some apparent defects. In our considered view the provisions of Sec. 142A cannot be read in isolation to Sec.145. In other words, if books of account are found to be correct and complete in all respect and no defect is pointed out therein and cost of construction of building is recorded therein, then the addition on account of difference in cost of construction could not be made even if a report is obtained within he meaning of Sec.142A from the DVO. It is because the use of the report of the DVO obtained U/S.142A is not mandatory but is discretionary as the word used is 'may' therein. Accordingly, we are of the considered view hat in the present case when AO has not rejected the books of account by pointing out any defects reference to the DVO will not be valid and, therefore, DVO's report could not be utilized for framing assessment even if such a report is considered to be obtained U/S.142A.
Since reference to DVO being held as invalid, the assessment/reassessment framed thereafter would also be invalid. Even otherwise, the issue of unexplained expenditure u/s.69C of the Act is not covered under the powers of Sec.142A of the Act and this issue is squarely covered in favour of the assessee and against the Revenue by 13 ITA no.3289/Ahd/2009 the decision of Hon'ble Delhi High Court in the case of AAR PEE Apartments (P) Ltd. (supra). The Hon'ble Delhi High Court held as under:-
"6. Before we advert to the interpretation to the aforesaid provision we deem it proper to reproduce the following discussions detained in the order of Tribunal on this aspect:-
"The next point to be determined is whether the AO is justified in referring to the DVO for computing cost of construction claimed as revenue expenditure. Prior to insertion of Sec. 142A by Finance (No.2) Act, 2004 with retrospective effect from 15th Nov. 1972, the reference to DVO in assessment proceedings other than as permissible under s. 55A was held to be invalid as held by Hon'ble Supreme Court in the case off Smt. Amiya Bala Paul vs. CIT (2003) 182 CTR (SC) 489 : (2003) 262 ITR 407 (SC). Sec. 142A, was inserted with retrospective effect from 15th Nov., 1972, however, even under s. 142A, a reference can be made for assessment or reassessment where an estimate of value of any investment referred to in s. 69 or s. 69B or the value of any bullion, jewellery or other valuable articles referred in s. 69A or 69B is required to be made. The AO may require the Valuation Officer to make an estimate of such value and report under s. 142A(1), for the purpose of making as assessment under Act, where an estimate of the value of any investment referred to in s. 69A or s. 69B or the value of any bullion, jewellery or other valuable article referred to in s. 69A or S.69B is required to be made, the AO may require the Valuation Officer to make an estimate of such value and report the same to him. Thus the power available under s. 142(1) is requiring the Valuation Officer to value any investment or bullion, jewellery or other valuable article referred in s.69, s 69A or s.69B of the Act,. These powers do not extend to estimate the amount of unexplained expenditure referred in s. 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 in s. 69, s. 69A or S.69B, of the Act. We accordingly hold that the reference to DVO is not in accordance with the provisions of s. 142A. Hence the decision of Hon'ble Supreme Court in the case of Smt. Amiya Bala Paul (supra) will still apply to hold that no addition can be made merely relying upon the value arrived at by DVO. In view of the above discussion, addition of Rs.19,69,881 is directed to be deleted."
7. We are in agreement with the aforesaid interpretation given by the Tribunal to Sec. 142(A) of the Act. Our discussion on this aspect proceeds as under:
8. Sec. 142(A) is to the following effect:-
"142A. For the purposes of making an assessment of reassessment under this Act, where an estimate of the value of any investment referred to in s 69 or s. 69B or the value of any bullion, jewellery or other valuable article referred to in s. 69A or s. 69B is required to be made, the AO may require 14 ITA no.3289/Ahd/2009 the Valuation Officer to make an estimate of such value and report the same to him."
9. It is clear from the reading of sub-s.(1) of this provision that it enables the AO 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 s. 69 or s. 69B or the value of any bullion, jewellery or other valuable articles referred to in s. 69A or 69B is required. There is no mention about s. 69C of the Act. As is clear from the above, s 69A deals with unexplained money. Sec. 69B likewise relates to the amount of investment etc. not fully disclosed in books of accounts. On the other hand, the provision relates to unexplained expenditure is in s. 69C.
10. In the present case the AO had doubts about the expenditure incurred on the project. As pointed out above the assessee had shown the expenditure on the Yusuf Saral project as Rs.39,69,440. Since AO had doubted this expenditure, he referred the matter to DVO for the purpose of determining the cost of construction of said project. However, as pointed out above, for the purpose of getting himself satisfied about the purported unexplained expenditure under s. 69C powers under s. 1142A could not be invoked.
11. Learned Counsel for Revenue submitted that such a power could be traced to s. 69B of the Act which relates to amount of investment etc. not fully disclosed in the books of accounts.
12. Her submission was that the "expenditure" incurred should be considered as coming within the expression 'investment'.
13. We cannot agree with this submission of learned counsel for Revenue. If investments could include within its fold he expenditure as well which is incurred by a businessman during the course of his business, there was no necessity of having a separate provision under s. 69C of the Act which deals width 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 he AO 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."
14. The scope and ambit of ss. 69B and 69C are altogether different. The connotation to the investment appearing in s. 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 s. 69B deals with investment in bullion, jewellery or other valuable articles, etc. if the 15 ITA no.3289/Ahd/2009 contention of learned counsel for Revenue is accepted and the expression is given wider meaning as sought to be made out, the provisions of s. 69C shall be rendered otiose.
15. The learned counsel for Revenue however took another plea to buttress her submission. She submitted that having regard to the circumstances under which s. 142A was inserted by the Finance Act, 2004, it be deemed that the intention of legislature was to include even those un-explained expenditure stipulated in s. 69C. No doubt the need behind inserting s. 142A was to empower the AO to make a reference to the Valuation Officer as there was no such specific powers and existing provision contained in s. 131 were inadequate. However, even this statement of object and reason 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 CBDT circular issued by it explaining the Finance Bill, 2004 which specifically omits the word 'expenditure' as well as s. 69C. It is on this basis that the s. 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 s. 69C of the Act as well this provision should have been specifically mentioned in s. 142A of the Act.
16. From the reading of sub-s.(1) of s. 142A, it is clear that the legislature referred to the provisions of ss. 69, 69A and 69B but specifically excluded 69C. The principle of casus 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.
17. In the present case except the report of DVO on which the AO 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 assessee produced the assessment order which clearly demonstrates that the expenditure shown by the assessee from the time, when it was an on-going project, w4as examined and accepted by, the AO "
14. In view of the above facts and the judgment of Hon'ble Delhi High Court in the case of AAR PEE Apartments Pvt. Ltd. (supra) we are of the considered view that the Legislature has not included unexplained expenditure stipulated in Sec.69C of the Act for invocation of provisions of Sec.142A of the Act. We further find that even the CBDT Circular issued by it, explaining the Finance Bill, 2004, specifically omitted the word 'expenditure' as well as Sec.69 from the ambit of Sec.142A of the Act as inserted in the form as it appears on the statue book. If the intention of the Legislature to include unexplained expenditure as contemplated in Sec.69C of the Act, the provision of sec. 142A should have been 16 ITA no.3289/Ahd/2009 specifically mentioning the same. Accordingly, we decide this issue in favour of the assessee and against the Revenue."
6. Indisputably, the facts and circumstances in the instant case year under consideration are similar to the facts and circumstances in the aforesaid decision. In the light of view taken in the aforesaid decision, especially when the learned DR has not placed any material before us, controverting the findings of the learned CIT(A), so as to enable us to take a different view in the matter nor any contrary decision was brought to our notice, we have no alternative but to uphold his findings . Consequently, ground nos.(i) to (viii) in the appeal are dismissed.
7. Ground no.(ix) being mere prayer nor any submissions having been made before us on this ground, does not require any separate adjudication and is, therefore, dismissed.
8. In the result, the Revenue's appeal is dismissed.
Order pronounced in the court today on 29-07-2011 Sd/- Sd/- (BHAVNESH S AINI) (A N P AHUJ A) JUDICI AL MEMBER ACCOUNTANT MEMBER Dated : 29-07-2011 Copy of the order forwarded to:
1. M/s Rajhans Construction Pvt. Ltd., B-210-211, Yash Plaza, Opp. Dhanmal Mill Compound, Varachha Road, Surat
2. Asst. Commissioner of Income-tax, Central Circle-2, Surat
3. CIT concerned
4. CIT(A)-II, Ahmedabad
5. DR, ITAT, Ahmedabad Bench-, Ahmedabad
6. Guard File BY ORDER Deputy Registrar Assistant Registrar ITAT, AHMEDABAD