High Court Of Punjab & Haryana
CIT vs. Harchand Palace
Section 69, 260A
Asst. Year 1987-88, 1988-89
N.K. Sud & J.S. Narang, JJ.
IT Appeal Nos. 23 & 24 of 2004
23rd February, 2004
Counsel Appeared :
Dr. N.L. Sharda, for the Appellant
JUDGMENT
N. K. Sud, J. :
The Revenue has filed these two appeals under s. 260A of the Income-tax Act, 1961 (for short “the Act”), against the order of the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar (for short “the Tribunal”), dt. 19th Sept., 2003, whereby its appeals against the order of the Commissioner of Income-tax (Appeals) [for short “the CIT(A)”], dt. 10th Feb., 1999, for the asst. yrs. 1987-88 and 1988-89, have been dismissed.
2. During the course of proceedings relating to the asst. yrs. 1989-90 and 1990-91, the AO referred the matter of valuation of the cinema building owned by the assessee to the DVO. The DVO, vide his report dt. 2nd April, 1992, estimated the cost of construction at Rs. 42,26,000 as against the sum of Rs. 24,40,000 debited in the books of account of the assessee. Since the construction had been effected from September, 1986 to April, 1990, the cost of construction was bifurcated year-wise as under : 1991-92 10,000 17,267 7,267
The report of the DVO was confronted to the assessee during the course of assessment proceedings relating to the asst. yrs. 1989-90 and 1990-91. The assessee submitted its objections to this report and also filed the valuation report of an approved registered valuer in support of the investment as per books. The AO referred the objections of the assessee along with the report of its approved registered valuer to the DVO for his comments. The DVO did not respond to the objections of the assessee nor did he comment on the report of the approved registered valuer. The AO, however, allowed deductions for self-supervision at 10 per cent and builder’s efforts at 1.5 per cent from the cost of construction estimated by the DVO and consequently made additions of Rs. 4,92,428 and Rs. 2,74,033 on account of unexplained investment in the construction in the asst. yrs. 1989-90 and 1990-91, respectively. The assessee preferred appeals for the asst. yrs. 1989-90 and 1990-91 before the CIT(A), who after considering the submissions of the assessee, deleted the additions. He observed that the report of the approved registered valuer furnished by the assessee was based on detailed calculations of each item and was more comprehensive and scientific as compared to the report of the DVO, who had neither appeared before him personally nor had offered any comments on the various objections raised by the assessee. The CIT(A) also held that even otherwise the AO could not make any addition under s. 69 of the Act on account of unexplained investment in the construction of cinema without first rejecting the books of account maintained by the assessee.
1. The Revenue preferred appeals before the Tribunal for the two assessment years, viz., asst. yrs. 1989-90 and 1990-91, which were dismissed vide orders dt. 31st Jan., 2003. The Tribunal upheld the findings of the CIT(A) that the report of the approved registered valuer, which was based on detailed measurements and in which the cost of construction was estimated at the scheduled rates of the PWD, was more scientific and reliable. Accordingly, it was held that without pointing out any discrepancy in the said report, no addition could be made. The Tribunal also upheld the additional reason for deleting the addition that unless and until the books of account were rejected, no addition on account of unexplained cost of construction could have been made.
2. In this factual backdrop, the AO also initiated proceedings under s. 147 of the Act for assessing the unexplained investment as per the DVO’s report for the asst. yrs. 1987-88 and 1988-89 to which the present appeals relate. For this purpose, notices under s. 148 of the Act for the two assessment years were issued on 22nd Aug., 1996. In response to these notices, the assessee filed returns of income declaring “nil” income as it had no business during those two years. The AO once again relied on the report of the DVO. He, however, allowed some deductions and determined the cost of construction as under : Rs. He bifurcated the cost of construction year-wise as under : On the basis of the above, he determined unexplained investment in the construction of the cinema building for the asst. yr. 1987-88 at Rs. 4,26,714 (11,31,714 – 7,05,000) and Rs. 2,58,163 (6,60,163 – 4,02,000) for the asst. yr. 1988-89. Since there was no other income, the assessment was framed vide a common order dt. 6th Aug., 1998, at the aforesaid figures.
1. The assessee preferred appeals before the CIT(A) which were allowed by a common order dt. 10th Feb., 1999. The CIT(A) observed that although in the relevant two assessment years no books of account had been maintained, yet in view of his findings in the asst. yrs. 1989-90 and 1990-91, that the report of the registered valuer filed by the assessee being comprehensive and scientific was preferable to the report of the DVO, no addition was called for in the asst. yrs. 198788 and 1988-89.
2. The Revenue preferred appeals against the aforesaid order of the CIT(A) which have been dismissed by the Tribunal on 19th Sept., 2003. Hence, these appeals.
3. We have heard counsel for the appellant and perused the order of the Tribunal, and are satisfied that no substantial question of law arises out of the order of the Tribunal. The CIT(A) and the Tribunal in their orders in the asst. yrs. 1989-90 and 1990-91, after appraising the evidence on record, have given detailed reasons for rejecting the estimate of cost of construction made by the AO and for accepting the report of the registered valuer. In the impugned order also, the Tribunal has relied on its earlier findings. These findings are pure findings of fact and suffer from no legal or factual infirmity warranting interference by this Court. Similar view was taken by this Court in CIT vs. Trilok Chand Karta (2004) 265 ITR 286 (P&H).
4. The matter can be viewed from another angle also. The foundation for initiation of proceedings under s. 147 of the Act as also the additions made by the AO on account of unexplained investment is the report of the DVO. It is now settled law that no reference can be made by the AO to the VO for estimating the cost of construction of house property under the Act. For this purpose, we may refer to the observations of the Supreme Court in Smt. Amiya Bala Paul vs. CIT (2003) 182 CTR (SC) 489 : (2003) 262 ITR 407 (SC), wherein it has been held as under : “From this it is clear that whenever reference to a Valuation Officer appointed under the WT Act is permissible under the IT Act, it has been statutorily so provided. Apart from the aforesaid, the Valuation Officer is appointed under the WT Act and can discharge functions within the statutory limits under which he is appointed. It is not open to a Valuation Officer to act in his capacity as Valuation Officer otherwise than in discharge of his statutory functions. He cannot be called upon nor would he have the jurisdiction to give a report to the AO under the IT Act except when a reference is made under and in terms of s. 55A or to a competent authority under s. 269L. We are, therefore, of the view that the High Court incorrectly answered the question referred to it in the affirmative. The Tribunal had not erred in holding that the AO cannot refer the matter to the Valuation Officer for estimating the cost of construction of the house property.”
9. In view of the above, it is evident that the report of the DVO in the present case is without jurisdiction. Once this report is excluded from consideration, the very foundation for initiation of proceedings under s. 147 of the Act and for making additions on account of unexplained investment disappears. There is no other material on record to support the estimate of the AO. Thus, viewed from any angle, we find no merit in these appeals which are dismissed in limine.
[Citation : 269 ITR 251]
