Rejection of books of accounts is a pre-condition for making a reference to DVO.

1. This is an appeal by the assessee against the order dated 20-12-2018 of CIT(A), Kalaburagi relating to assessment year 2007-08.

2. The assessee is a partnership firm engaged in the business of construction and real estate. The firm filed its return of income for the assessment year 200708 on 29-10-2007 admitting a loss of Rs.27,19,420/-. The return filed was processed u/s 143(1) on 10-01-2009. Consequent to survey u/s 133A conducted in the case of the assessee on 05 -02-2007. the return of income filed was taken up for scrutiny under compulsory category. During the survey and the assessment proceedings, the Assessing Officer noted that the assesee was constructing a multiplex theatre by name Fun Junction Multiplex at Sy No.1/1B, Aland Road. Brahampur. Gulbarga, a commercial complex by name Siddhartha Plaza on Plot No.122. Sy. No.1/1B, Aland Road, Brahampur, Gulbarga and an apartment by name Sai Residency at Plot No.35, 36, 47 & 48, Sy. No.1/1 B, Aland Road. Brahampur, Gulbarga.

3. The AO also noted that the assessee undervalued the cost of construction of the above buildings in its books of accounts. It was also found that the land on which the above buildings were constructed was not disclosed in the balance sheet of the assessee. To ascertain the market value of the land and correct cost of construction of the buildings, the properties were referred to the Valuation Cell of the Department u/s 142A. The valuation reports submitted by the valuation officers indicated difference in cost of construction of the buildings as under: (R upees) Cost of Construction as on 31-03-2007 Difference As per the As per the Fun Junction Multiplex 2,60,75,445 4,36,13,00004, 1,75,37,555 Siddhartha Plaza 35,48.720 96,64,047 61,15,327 Sai Residency 32,32,293 36,67,468 4,35,175

4. The assessee was asked to explain the above discrepancy in the cost of construction of the buildings and in the absence of any explanation, the difference amount was brought to tax as unexplained investment u/s 69. Further, the fair market value of the land on which the above buildings were constructed was ascertained at Rs.95,16,000/- and the same was also brought to tax u/s 69 since the land was not disclosed in the balance sheet of the firm.

5. In addition to the above, a round-sum disallowance of Rs.75,000/- was made to cover up discrepancy in the expenses supported only by self -made vouchers. With these additions, the total income was determined at Rs.3.09,59,635/- vide the order u/s 143(3) passed on 31-12-2009 as per the following computation: (Ru pees) Total income admitted in the return of income (27,19,422) d: 1. Difference in cost of construction — Fun Junction Multiplex 1,75,37,555 2. Difference in cost of construction — Siddhartha Plaza 61,15,327 3. Difference in cost of construction — Sai Residency 4,35,175 4. Value of the land not disclosed in the balance sheet 95,16,000 5. Disallowance of expenditure 75,000 Total Income Assessed 3,09,59,635

6. Aggrieved, the assessee filed appeal before the CIT(Appeals). The CIT(Appeals) dismissed the appeal of the assessee and upheld the additions. The assessee filed further appeal before the ITAT in ITA No.1066/Bang/2013 dated 10.03.2014. It was contended by the assessee before the ITAT that it was not provided with a copy of the DVO's report so that objections could be filed against the valuation. The assessee has also raised questions on the validity of the reference made to valuation cell u/s 142A. The ITAT by its order dated 10.3.2014 set aside the order of the CIT(Appeals) and remanded the assessment for a de novo consideration by the AO with the following remarks.

"13. We are of the view that this appeal can he disposed on the short ground that the report of the DVO has not been furnished to the assessee. We therefore set aside the order of the CIT(Appeals) and remand the assessment for a de novo considerat ion by the Assessing Officer. The AO will furnish a copy of the DVO's report to the assessee and call for his objection. Thereafter, the AO will decide the issue in accordance with law, after affording the assessee opportunity of being heard. The assessee is at liberty to raise all objections regarding the validity of the reference u/s 142A of the Act. All issues are left open."

7. Pursuant to the order of the ITAT the AO took up proceedings in compliance with the order of the ITAT. According to the AO, copies of the valuation reports in respect of land and the three buildings were supplied to the assessee. By a letter on 19-06-2014 the assessee was requested to file its objections, if any, within 10 days of receipt of the reports . This letter was duly served on the assessee on 02-07-2014. To this, the assessee filed a letter on 14-07-2014 seeking two weeks' time to file objections citing preoccupation with family affairs as reason. However. no objections were filed by the assessee within the time sought by it. Since there was no response. a show-cause notice along with a notice u/s 142(1) was issued to the assessee on 17-11-2014 proposing to finalise the assessment on the lines of the order ups 143(3) dated 31-12-2009. The case was posted for hearing on 25-11-2014. This letter was duly served through the Notice Server of this office on 07-11-2014. The assessee did not file any objections even to this notice. Instead, a letter was filed on 24-11-2011 stating that a review petition was filed before the ITAT against its order setting aside the assessment. The ass essmen t was r eques ted to be kept in abeyance till disposal of the re view petition by the ITAT.

8. Again, a fresh notice u/s 142(1) was issued to the assessee on 27-02-2015 giving one more opportunity of being heard. The case was posted on 06-03-2015. The assessee did not choose to file its objections even on this occasion and filed a letter on 13-03-2015 reiterating what has been stated in the letter filed on 24.11-2011.

9. Due to change of incumbent, the assessee was given a fresh opportunity to be heard vide letter issued on 07-10-2015. The case was posted for hearing on 26-10-2015. To this, the assessee filed a letter on 27-10-2015 again requesting for adjournment in view of the pending revisi on petition pending before the ITAT. The hearing was adjourned to 18-11-2015 and then to 16-12-2015, 11-01-2016 and 25-01-2016 at the request of the assessee. The assessee went on requesting for adjournment citing the revision petition before the ITAT as reason. Even on 25 -01-2016, an adjournment letter was filed saying that their chartered accountant is bereaved. On being informed that the proceedings will be concluded ex-parte, the assessee finally filed a reply to the show -cause notice through its authorized representative on 25-01-2016.

10. In the letter dated 25-01-2016 the assessee raised objections regarding the validity of making a reference to the DVO u/s 142A of the IT Act, 1961 (Act). It was contended that the buildings that were referred for valuation to the DVO was part of the stock-in trade of the business of the assessee and therefore, the difference between the investments in construction of the building as recorded in the books of account and as estimated by the DVO if any, can only be added as unexplained expenditure u/s 69C of the Act. The assessee pointed out that in sec.142A of the Act there is no reference to the provisions of sec.69C of the Act and therefore, there cannot be a valid reference u/s 142A of the Act to the DVO. In this regard the assessee placed reliance on the decision of the Hon'ble Delhi High Court in the case of CIT Vs Aar Pee apartments Pvt.Ltd.(2009) 227 CTR 495 wherein it was held that since there is no mention of sec.69Cin sec.142A of the Act the AO could not refer the matter regarding the cost of construction of project to DVO under sec.142A of the Act. This argument was rejected by the AO with the following observations;

“ 12. Objections of the assessee are not tenable. The Fun Junction Multiplex was shown as a fixed asset in the balance sheet of the assessee. Even depreciation was also claimed on this asset. This fact was not disputed by the assessee. The Shah Bazar Site was not at all shown in the balance sheet. All the constructions under consideration, including the Fun Junction Multiplex which was classified as fixed asset in the balance sheet of the assessee, were built on this site only. There is nothing on record to show that this was treated as stock -in-trade by the assessee. There is no mention of stock-in-trade in the profit and loss filed by the assessee. The Sidharth Plaza and Sai Residency were shown as just work-in-progress in the balance sheet. They were not classified as closing stock /stock-in-trade. The alleged stock-in-trade in respect of these assets was not shown in the profit and loss account.

13. The case law relied upon by the assessee is distinguishable on facts. In that case the AO had doubts about the expenditure incurred on the project. In the case of the assessee the cost of investment was under enquiry. Additions were made u/s 69 and not u/s 69C. As explained above, the Fun Junction Multiplex was shown as a fixed asset in the balance sheet of the assesssee; Shah Bazar site was not at all reflected in the financial statements; Sidharth Plaza and Sai Residency were simply classified as Work-in-progress in the balance sheet and not as stock-in-trade. In fact they were not even shown under the head Current Assets in which the stock-in-trade is normally shown. A perusal of the profit and loss account reveals that the alleged 'expenditure' was not even routed through the profit and loss a ccount. The investment in these assets was directly taken to the balance sheet and shown as work-in-progress. For ready reference. the profit and loss account, balance sheet and Part-A/13 of Annexure to Form 3CD filed by the asscssee are enclosed to this order as Page Nos.12 to 14. It is clear from these statements that the assessee has not debited any expenditure in respect of the alleged stock-in-trade, to the profit and loss account. The investments in work-in-progress are reflected in the balance sheet without routing them through the profit and loss account and hence provisions of Sec.69C arc not applicable to these investments. As such, there is no infirmity in the reference made to DVO for valuation of these assets.

11. Apart from the above objections the other objection of the assessee was that the DVO in estimating the cost of construction adopted CPWD rates which was in incorrect. According to the assessee only local PWD rates ought to have been adopted. The assesse also claimed deduction on account of self supervision. The AO rejected the plea of the assessee for applying local PWD rates and gave deduction at 7.5% of the cost of construction towards self supervision. The addition originally made by the AO was reduced as follows;

23. To sum up, the following additions are made to the returned income: (Rupees) 1. Fun Junction Multiplex Complex: Cost of construction estimated by the DVO 4,36,13,000 Less: Rebate for self-supervision @ 7.5% 32,70,975 Net cost of construction estimated 4,03,42,025 Less: Cost of construction admitted by the assessee 2,60,75,445 Difference in cost of construction brought to tax u/s 69B 1,42,66,580 2. Siddharth Plaza — Commercial Complex Cost of construction estimated by the DVO (Before rebate for sell-supervision) 1,41,05,447 Less: Rebate for self-supervision @ 7.5% 10,57,909 Net cost of construction estimated 1,30,47,538 Cost of construction as on 31-03-2007 — 72.84% 95,03,827 Less: Cost of construction admitted by the assessee 35,48,720 Difference in cost of construction brought to tax u/s 69B 59,55,107 3. Sai Residency — Residential Complex Cost of construction estimated by the DVO (Before rebate for self-supervision) 1,65,35,584 Less: Rebate for self-supervision @ 7.5% 12,40,169 Net cost of construction estimated 1,52,95,415 Cost of construction as on 31-03-2007 — 23.58% 36,06,659 Less: Cost of construction admitted by the assessee 32,32,293 Difference in cost of construction brought to tax u/s 69B 3,74,366 4. Shah Bazar Land Vaue of the land estimated by the DVO 95,16,000 Less: Cost admitted in by the assessee Nil Value of the undisclosed investment brought to tax u/s 69 95,16,000 5. Addition made towards un-vouched Expenditure 75,000

12. The Assessee was aggrieved by the aforesaid order of AO and filed appeal before the CIT(A). Before the CIT(A) similar contentions were raised as were put forth before the AO and all these contentions were rejected by the CIT(A) for the very same reason that were assigned by the AO. One of the objections by the assessee before the CIT(A) was that the assessee maintained books of accounts in which he had recorded the cost of construction of 4 properties in question. He highlighted before the CIT(A) the fact that the AO called for the books of accounts in the course of assessment proceedings and the same were produced by the assessee before the AO. He highlighted the following findings recorded in the order of assessment passed in the first instance u/s 143(3) of the Act. “ They have produced books of accounts, bank statements and vouchers, the books of accounts bank statements and vouchers have been examined along with various details called for and submitted. After examination of books of account, bank statement and vouchers and also after verification of the various details submitted with reference to the return of income filed by the assessee firm. The assessment is completed on the following lines after discussion with the parties present for hearing ” .

13. The assessee placed reliance on the decision of the Hon'ble Supreme Court in the case of Sargam Cinema vs CIT 262 ITR 513 wherein the Hon'ble Supreme Court took the view that any reference by the AO to the DVO regarding the cost of construction without rejecting the books of accounts of the assessee is null and void and any addition made on the basis of such DVO report cannot be sustained.

14. To the aforesaid argument put forth by the assessee before the CIT(A), the CIT(A) gave the following decision;

“ 6.4 Ground no.4 though, this ground the appellant has objected for the application of provisions of section 14A of the Act since there was amendment to that section w.e.f.01-10.2014 to the effect that all the section for reference to the valuation cell is being removed. The appellant contentions are not acceptable because of the fact that the appellant is relying on the amendment made w.e.f.01.10.2014. However, it is not correct5 on the part of the appellant to bring in the amendments made to the provisions of section 142A with effect from a later date. The assessment under consideration is 2007-08. Thus, the amendment to the above provision cannot be made applicable to the year under reference, as the amendment is not with retrospective effect. In the fact and circumstances of the case this ground is untenable and therefore, dismissed ” .

15. Aggrieved by the order of CIT(A), the assessee is in appeal before the Tribunal. We have heard the parties at length. Before we proceed to decide the appeal on merits, we are of the view that it would be appropriate to decide ground no.2 raised by the assessee before us as preliminary issue. Ground no.2 reads as follows;

“ 2. The CIT(A) failed to appreciate that the reference made by the AO to the valuation officer u/s 142 to the Act is not sustainable in la on the facts and circumstances of the case ” . It can be seen from ground no.2 raised by the assessee, it the plea of the Assessee that since reference to the DVO made by the AO was without rejecting the books of accounts maintained by the assessee, the report of the DVO and the consequent addition made to the total income by the AO as unexplained investments in construction cannot be sustained. On this issue ld.counsel for the assessee placed reliance on the decision of the Hon'ble Supreme Court in the case of Sargam Cinema (supra) besides placing reliance on the decision of the Hon'ble Delhi High Court in the case of CIT Vs Ambience Developers and Infrastructures Pvt.Ltd. 210 Taxmann 186(Del.) and the Hon'ble Gujarat High Court in the case of M/s Goodluck Automobiles Pvt.Ltd., Vs ACIT 359 ITR 306(guj.)

16. The ld.DR placed reliance on the order of the CIT(A) on the issue of validity of reference to DVO.

17. We have given careful consideration to the rival submissions in sofar as it relates to ground no.2 raised by the assessee in its appeal. As far as ground no.2 raised by the assessee is concerned, the admitted factual position is that the properties in question were not stock in trade of the business of the assessee. The findings of the AO in the order of assessment dated 31-03-2016 have not been contradicted by the assessee. Therefore, the reference to DVO u/s 142A of the Act has to be tested on the basis of provisions of section 69 to sec.69B of the Act. The first aspect that we notice was the assessee has produced books of accounts before the AO and the AO has not found any defects whatsoever in the books of accounts produced by the assessee. The question is whether the AO can proceed to make a reference to DVO without finding defects in the books of accounts maintained by the assessee wherein the coast of construction has been recorded by the assessee. This aspect has been examined in the case of Sargam Cinema (supra) and the law on this aspect is that Section 142A of the Income-tax Act, 1961 inserted by the Finance Act, 2004, with effect from November 15, 1972 enables the Assessing Officers to make a reference to Valuation Officer for the purpose of making assessment or reassessment under the Act. For quite sometime, the legal basis of a reference to Valuation Officer of the Department to determine cost of construction of buildings was the subject-matter of controversy before various Courts, some courts deciding in favour and some against the revenue, till the issue was decided by the Apex Court in the case of Smt. Amiya Bala Paul v. CIT [2003] 262 ITR 407 (SC). The legal basis of such references under sections 55A, 142(1), 131 and 133(6) was held as infirm in the said judgment. However, the law has been amended by the Finance Act No. 2, 2004 inserting section 142A with effect from November 15, 1972 enabling the Assessing Officers to make reference to Valuation Officer for the purposes of making an assessment or reassessment under the Act.

18. Sec.142A inserted by the Finance (No. 2) Act, 2004, w.r.e.f. 15-11-1972 and as amended by the Finance Act, 2010, w.e.f. 1-7-2010, read as under : ‘ 142A. Estimate by Valuation Officer in certain cases.— (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 or fair market value of any property referred to in sub-section (2) of section 56 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. (2) The Valuation Officer to whom a reference is made under sub-section (1) shall, for the purposes of dealing with such reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957). (3) On receipt of the report from the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment: Provided that nothing contained in this section shall apply in respect of an assessment made on or before the 30th day of September, 2004, and where such assessment has become final and conclusive on or before that date, except in cases where a reassessment is required to be made in accordance with the provisions of section 153A. Explanation.—In this section, "Valuation Officer" has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957)."

19. In Circular No.5 of 2005 dated 15.7.2005 issued by the CBDT, the insertion of the aforesaid section has been explained thus:

“ Clarificatory amendments regarding estimates by Valuation Officer in certain cases The existing provisions of section 131 provide that the Assessing Officer shall have the same powers as are vested in a Court under the Code of Civil Procedure, 1908, when trying a suit. One such power which has been provided in clause (d) of sub-section (1) of section 131, is the power to issue commissions. Section 75 of CPC and order XXVI of the Schedule thereto lays down the power of "issuing commission", which inter alia, empowers the Court to make a local investigation and also "to hold a scientific, technical and expert investigation". Using this power, the Assessing Officer has been making a reference to the Valuation Officer for estimating the cost of construction of properties. The scope of power vested in an Assessing Officer under section 131 to make a reference to the Valuation Officer for estimating the cost of construction of properties has been a subject-matter of litigation. A new section 142A has been inserted by the Finance (No. 2) Act, 2004 to specifically provide that an Assessing Officer has the power to make a reference to the Valuation Officer for estimating the value of investment, expenditure, etc. This section has been inserted with retrospective effect from 15th November, 1972 to save the cases where such references have been made in the past and are still pending in litigation at one stage or the other. Sub-section (1) of the new section provides that 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 for the purposes of making any assessment or re-assessment, the Assessing Officer may require the Valuation Officer to make an estimate of the same and report to the Assessing Officer. Sub-section (2) of the new section provides that the Valuation Officer to whom such a reference is made under sub-section (1) shall, for the purpose of dealing with such reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957. Sub-section (3) of the new section provides that on receipt of the report from the Valuation Officer, the Assessing Officer may after giving the assessee an opportunity of being heard, take into account such report in making such assessment or re-assessment. It has been provided in the proviso to the new section that the provisions of the same shall not apply in respect of an assessment made on or before the 30th day of September, 2004 and where such assessment has become final and conclusive on or before that date, except in cases where a reassessment is required to be made in accordance with the provisions of section 153A. This amendment takes effect retrospectively from 15th November, 1972. ”

20. The Finance Act, 2010 inserted the words “ or fair market value of any property referred to in sub-section (2) of section 56 is required to be made ” . This amendment is insignificant as far as the present appeal is concerned.

21. It has been held by the Hon'ble Supreme Court in the case of Sargam Cinemas Vs. CIT 262 ITR 513 (SC) that rejection of books of accounts is a pre-condition for making a reference to DVO. Therefore in cases where this requirement was not satisfied, the addition made on account of unexplained investments in construction was being deleted. It is only with a view to remove such hurdle that Sec.142A of the Act was substituted by inserting a new Sec.142A by the Finance (No.2) Act, 2014, which no longer requires rejection of books of accounts of an Assessee to make a reference to the DVO.

22. By the Finance (No.2) Act, 2014 substituted the existing Sec.142A by inserting a new Sec. 142A of the Act with effect from 1.10.2014, which reads thus: “ Estimation of value of assets by Valuation Officer. 142A. (1) The Assessing Officer may, for the purposes of assessment or reassessment, make a reference to a Valuation Officer to estimate the value, including fair market value, of any asset, property or investment and submit a copy of report to him. (2) The Assessing Officer may make a reference to the Valuation Officer under sub-section (1) whether or not he is satisfied about the correctness or completeness of the accounts of the assessee. (3) The Valuation Officer, on a reference made under sub-section (1), shall, for the purpose of estimating the value of the asset, property or investment, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957). (4) The Valuation Officer shall, estimate the value of the asset, property or investment after taking into account such evidence as the assessee may produce and any other evidence in his possession gathered, after giving an opportunity of being heard to the assessee. (5) The Valuation Officer may estimate the value of the asset, property or investment to the best of his judgment, if the assessee does not co-operate or comply with his directions. (6) The Valuation Officer shall send a copy of the report of the estimate made under sub-section (4) or sub-section (5), as the case may be, to the Assessing Officer and the assessee, within a period of six months from the end of the month in which a reference is made under sub-section (1). (7) The Assessing Officer may, on receipt of the report from the Valuation Officer, and after giving the assessee an opportunity of being heard, take into account such report in making the assessment or reassessment. Explanation.—In this section, "Valuation Officer" has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957). ”

23. In Circular No.1 of 2015 dated 21.1.2015 issued by the CBDT, the reasons for substitution of new Sec.142A in place of the earlier Sec.142A of the Act has been explained thus:

“ 43. Estimate of value of assets by Valuation Officer and time limit for completion of assessments where reference made

43.1 The provisions contained in section 142A of the Income-tax Act, before its amendment by the Act, provided that the Assessing Officer may, for the purpose of making an assessment or reassessment, require the Valuation Officer to make an estimate of the value of any investment, any bullion, jewellery or fair market value of any property. On receipt of the report of the Valuation Officer, the Assessing Officer may after giving the assessee an opportunity of being heard take into account such report for the purposes of assessment or reassessment.

43.2 Section 142A of the Income-tax Act does not envisage rejection of books of account as a pre-condition for reference to the Valuation Officer for estimation of the value of any investment or property. Further, the said section 142A does not provide for any time limit for furnishing of the report by the Valuation Officer.

43.3 Accordingly, section 142A has been substituted so as to provide that the Assessing Officer may, for the purposes of assessment or reassessment, require the assistance of a Valuation Officer to estimate the value, including fair market value, of any asset, property or investment and submit the report to him. The Assessing Officer may make a reference to the Valuation Officer whether or not he is satisfied about the correctness or completeness of the accounts of the assessee. The Valuation Officer, shall, for the purpose of estimating the value of the asset, property or investment, have all the powers of section 38A of the Wealth-tax Act, 1957. The Valuation Officer is required to estimate the value of the asset, property or investment after taking into account the evidence produced by the assessee and any other evidence in his possession or gathered, after giving an opportunity of being heard to the assessee.If the assessee does not co-operate or comply with the directions of the Valuation Officer he may, estimate the value of the asset, property or investment to the best of his judgment.

43.4 It has also been provided that the Valuation Officer shall send a copy of his estimate to the Assessing Officer and the assessee within a period of six months from the end of the month in which the reference is made. On receipt of the report from the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making the assessment or reassessment.

43.5 Sections 153 and 153B of the Income-tax Act have also been amended to provide that the time period beginning with the date on which the reference is made to the Valuation Officer and ending with the date on which his report is received by the Assessing Officer shall be excluded from the time limit provided under the aforesaid section for completion of assessment or reassessment.

43.6 Applicability: - These amendments take effect from 1st October, 2014. ”

24. It can be seen from the aforesaid history of Sec.142A, that the original provisions were introduced for the purpose of enabling to specifically provide that an Assessing Officer has the power to make a reference to the Valuation Officer for estimating the value of investment, expenditure, etc. The power was given to make a reference to the Valuation Officer purpose for the purposes of making an assessment or reassessment under this Act, (i) where an estimate of the value of any investment referred to in section 69 or section 69B or (ii) the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B or (iii) fair market value of any property referred to in sub-section (2) of section 56 is required to be made. Because the law was retrospective in its operation, the legislature wanted to safeguard concluded assessments being reopened and therefore by proviso to Sec.142A(3) of the Act, it was Provided that nothing contained in section 142A shall apply in respect of an assessment made on or before the 30th day of September, 2004, and where such assessment has become final and conclusive on or before that date. The requirement that finding that the books of accounts maintained by the Assessee is not correct and the value estimated by the AO varies substantially from what is recorded in the books of accounts is required to be satisfied before making a reference to DVO. It has been held by the Hon'ble Supreme Court in the case of Sargam Cinemas Vs. CIT 262 ITR 513 (SC) that rejection of books of accounts is a pre-condition for making a reference to DVO. Therefore in cases where this requirement was not satisfied, the addition made on account of unexplained investments in construction was being deleted. It is only with a view to remove such hurdle that Sec.142A of the Act was substituted by inserting a new Sec.142A by the Finance (No.2) Act, 2014, which no longer requires rejection of books of accounts of an Assessee to make a reference to the DVO. When the new Sec.142A was inserted by the Finance (No.2) Act, 2014, the proviso to Sec.142A(3) did not exist as it no longer served any purpose. The legislature was conscious of the fact that the substitution of Sec.142A by the Finance (No.2) Act, 2014 was made only for the purpose of overruling the legal position as interpreted by various High Courts and Supreme Court in the case of Sargam Cinemas (supra). The legislature did not make the law retrospective in operation nor were pending proceedings saved as was done when Sec.142A was inserted by the Finance (No.2) Act, 2004 w.r.e.f. from 15.11.1972. It cannot also be said that Sec.142A as inserted by the Finance Act, 2014 has retrospective effect. Therefore, We are of the view that the reference to DVO in the present case is invalid because as held by the Hon'ble Supreme Court in the case of Sargam Cinemas Vs. CIT 262 ITR 513 (SC) rejection of books of accounts is a pre-condition for making a reference to DVO and there was admittedly no such rejection of books of accounts.

25. It is clear from the aforesaid exposition of law on the issue that the reference to DVO in the present case is illegal and any addition made on the basis of such report cannot be sustained. The addition made by the AO is therefore, liable to be deleted on the short ground. In view of the conclusion on ground no.2 we do not wish to go into other grounds of appeal and the additional grounds of appeal before us.

26. The only other surviving grounds the grievance of the assessee projected in ground no.12 raised before the Tribunal which relates to adhoc disallowance of a sum of Rs.75,000/- in respect of unvouched expenditure. The AO disallowed a sum of Rs.75,000/-out of the expenses debited in P&L account. The assessee did not produce vouchers in respect of expenses given in the P&L account. The AO therefore, disallowed a sum of Rs.75,000/- out of the expenses debited in P&L account. The submission of the ld.Counsel for the assessee was that the AO has not pointed out any specific item of expenditure which are to be disallowed and that wherever fringe benefit tax is payable on expenses the same has been paid by the assessee.

27. We have considered the rival submission and we are of the view that these contentions are general in nature and are without any particular reference and therefore, are not acceptable. Considering the facts and circumstances of the case we are of the view the addition sustained by the CIT(A) deserves to be upheld. Consequently, ground no.12 raised by the assessee is dismissed.

28. In the result, the appeal is partly allowed.

Order pronounced in the open court on 12 February, 2020.

Sd/-

(A.K.GARODIA) (N.V.VASUDEVAN)

ACCOUNTANT MEMBER VICE PRESIDENT