Assessing Officer can not refer the matter to the Valuation officer u/s 142A to estimate the unexplained expenditure u/s 69C

Summary of Judgment

Commissioner of Income-tax, Delhi-XVII vs. Aar Pee Apartments (P.) Ltd,August 28, 2009 (HC Delhi)  

 Questions

(a) Whether ITAT was correct in law in deleting the addition of  Rs. 19,68,881 made by 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 assessee ?

  (b)  Whether ITAT was correct in law in holding that the reference made by the Assessing Officer to the DVO for determining cost of construction was not justified even after insertion of section 142A by the Finance Act, 2004 with retrospective effect from 15-11-1972?

Facts

The assessee is a Construction Company. It had taken up three projects in the earlier years than the assessment year in question i.e., 1998-99. These three projects are as Yusuf Sarai Project, Jaina Tower II and Jaina Tower III. The assessee is adopting completion of project method of accounting the assessment year in question, the assessee completed Yusuf Sarai Project and declare some profits of this project. Cost of construction of this project was shown as Rs. 39,69,440. The Assessing Officer referred the matter to Departmental Valuation Officer (DVO) to determine the cost of construction whose report showed the cost at Rs. 19,99,559. On the basis of this DVO report the said cost of construction was adopted. In these circumstances the Assessing Officer made accepting low cost of construction than what was shown by the assessee and making addition of  Rs. 7,50,811.

CIT appeal confirmed the action of Assessing Officer. However, ITAT reversed the aforesaid decision on the ground that it was not permissible for the Assessing Officer to refer the matter to DVO for obtaining the cost of construction. The Tribunal held that even if insertion of section 142A by Finance (No. 2) Act, 2004 was with retrospective effect i.e., from 15-11-1972, this course of action was not open to the Assessing Officer as the said provision does not deal with the unexplained expenditure under section 69C of the Act.

 Held

From the reading of sub-section (1) of section 142A, it is clear that the Legislature referred to the provisions of sections 69, 69A and 69B but specifically excluded section 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.

In the present case except the report of 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 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, 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.

Editor