High Court Of Madras
CIT vs. V.T. Rajendran
Sections 147, 148
Asst. Year 1996-97, 1997-98, 1998-99
P.D. Dinakaran & P.P.S. Janarthana Raja, JJ.
Tax Cases (Appeal) Nos. 1256 to 1258 of 2006 and TCMP Nos.1642 & 1643 of 2006
10th July, 2006
Counsel Appeared :
T. Ravikumar, for the Appellant
JUDGMENT
P.D. Dinakaran, J. :
The above tax case appeals are directed against the common order of the Tribunal in ITA Nos. 1286, 1287 and 1288/Mad/2004 dt. 28th Oct., 2005, for the asst. yrs. 1996-97, 1997-98 and 1998-99, respectively.
The brief facts are that the assessee constructed a Kalyana Mandapam known as “TRG Kalyana Mandapam”. The cost of the construction falls within the asst. yrs. 1996-97 to 1999-2000. The total investment declared by the assessee for the above assessment years was Rs. 90,17,190. The AO, of course, before completing the scrutiny assessment for the said assessment years, referred the matter to the DVO. But, however, before receiving the valuation report, he completed the assessment. Thereafter, the DVO estimated the cost of construction at Rs. 1,23,46,000. After allowing certain deductions from the estimate made by the Valuation Officer, the AO reduced the cost of construction at Rs. 1,08,51,700. Accordingly, based on the above difference in the cost of the construction of the Kalyana Mandapam, the AO reopened the assessment for the said assessment years under s. 143(3) r/w s. 147 of the IT Act on the ground that he had reason to believe that there was escaped assessment due to the failure of the assessee to declare the investment made by him in the construction of the Kalyana Mandapam. Hence, a notice was issued under s. 148 of the Act and thereafter, the AO also assessed the value to the effect that there is difference in the cost of construction as shown in the respective assessment orders, viz., for the asst. yr. 1996-97 at Rs. 3,02,258, for the asst. yr. 1997-98 at Rs. 4,23,162 and for the asst. yr. 1998-99 at Rs. 4,23,162.
Even before scrutiny, the assessee was given a notice and required to furnish the books of account and vouchers maintained for the construction of the Kalyana Mandapam. Since the assessee could not produce the same, the AO came to the conclusion that there is substantial difference in the cost of construction as per the Departmental valuation report and accordingly, held the difference as an unexplained investment and added the same under s. 69 of the IT Act by the respective assessment orders dt. 27th March, 2002.
Aggrieved by the said assessment orders, the assessee preferred appeals before the CIT(A), who dismissed the appeals, by order dt. 12th March, 2004, aggrieved by which, the assessee again preferred appeals before the Tribunal. The Tribunal, by a common order dt. 28th Oct., 2005, allowed the appeals and hence, the present appeals by the Revenue raising the following substantial questions of law :
“1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the reopening of the assessment under s. 147 of the IT Act on the basis of the valuation report is not proper ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the addition on account of cost of construction as per the report of the Valuation Officer is not proper in spite of the fact that there is a vast difference in cost of construction disclosed and the cost determined by the Valuation Officer ?”
Even at the outset, we may say that we do not see any merit in either of the above questions raised in view of the settled proposition of law. A Single Judge of the Rajasthan High Court, in Tara Chand Mundhra vs. Union of India (2000) 163 CTR (Raj) 631 : (2000) 245 ITR 187 (Raj), has held that once the books of account were held to be reliable, as in the instant case where the AO already accepted vide in his assessment orders, the value of the construction of the Kalyana Mandapam as disclosed by the assessee, the valuation report could not be made the basis for reopening the assessment and therefore, the only ground available for the Department for reopening the assessment was the report of the official valuer for issuing notice under s. 148 which is bad and without foundation and therefore, liable to be quashed. A Division Bench of the Bombay High Court, in CIT vs. Vinod Danchand Ghodawat (2000) 163 CTR (Bom) 432 : (2001) 247 ITR 448 (Bom) where during the search, it was found that the assessee had constructed a bungalow and had incurred an expense of Rs. 4.16 lakhs for the same and the AO, thereafter, referred the matter to the Departmental Valuer, who valued the property at Rs. 6.66 lakhs and the difference between the said valuation was added as an undisclosed income, it was held that no addition could be made on the basis of the report of the Departmental Valuer, which was obtained subsequent to the order of the regular assessment.
In CIT vs. Darshan Singh (2005) 194 CTR (P&H) 242 : (2005) 272 ITR 650 (P&H), the Punjab & Haryana High Court has held that reopening of assessment on the basis of the report of the Valuation Officer determining the cost of construction at a figure higher than what was disclosed by the assessee is not justified.
In view of the above settled proposition of law, we do not find any force in the contention of the Revenue for raising the first question of law.
In view of our above conclusion with regard to the first question of law, we also do not find any force in the second question of law. That apart, we do not hesitate to hold that the report of the DVO cannot be a basis because the valuation cannot be an arithmetical appreciation of the materials used for the construction nor the expenses incurred by the assessee in that regard, as variations are bound to be there, as fairly conceded by learned counsel appearing for the Revenue that there is variation in the value of the construction between the Central PWD rates and the State PWD rates themselves.
Hence, finding no merit in these appeals, the same are dismissed. Consequently, connected TCMPs are also dismissed.
[Citation : 288 ITR 312]
