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Rajhans Builders v DCIT

Jan 18, 2016


 

FACTS

The legal issue raised is that the cost of construction was referred to the DVO without pendency of any proceedings under the Act. The brief facts of the case are that a search and seizure action in the case of assessee was conducted on 7/3/2006. During the course of search & seizure operation certain incriminating documents belonging to different concerns/companies/individuals of the group was found on the basis of which the assessee group made a disclosure of Rs.8.25 crores. The assessee group has also furnished break up of the disclosure made by it during the course of search and seizure action and the group has disclosed unaccounted income of Rs.1,00,00,000/- in the hands of Rajhans Builders, the assessee. It was the contention of the assessee that the cost of construction was referred to DVO on 31-07-2007, whereas notice u/s.143(2) was issued on 01-08-2007 and subsequently a detailed questionnaire was also issued on 09-08-2007. The Assessing Officer referred various projects to the DVO for valuation, who valued at Rs.5,59,45,013/- as against value shown by the assessee at Rs.3,41,18,908/-, accordingly on the basis of DVO’s report, the AO added Rs.2,18,26,105/- to the declared income of assessee. Aggrieved, the assessee went in appeal.

HELD

Honourable Members found from the facts of the case that certain incriminating documents were 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 A.Y. 2000-01 to A.Y. 2005-06 vide notice 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 issued notice u/s.143(2) on 01-08-2007 and the cost of construction was referred to the DVO for valuation on 31-07-2007. Honourable Members found 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 as 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. Honourable Memebers were of the view, on the basis of evidences produced before them, 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. Honourable Members further found 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 not 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.

Honourable Members further found from the case records that even if a reference u/s. 142A is made by the Assessing Officer on certain consideration such as anything found 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.(3) 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 the considered view of Honourable Members, 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 cannot be made even if a report is obtained within the 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, Honourable Members were of the considered view that in the present case when Assessing Officer has not rejected the books of account by pointing out any defects reference to the DVO’s report 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’s report was being held as invalid, the assessment/reassessment framed thereafter would also be invalid.