2026:MHC:1023T.C.A.No.201 of 2013

IN THE HIGH COURT OF JUDICATURE AT MADRAS

Reserved on: 04.03.2026Pronounced on:12.03.2026

CORAM

THE HONOURABLE DR JUSTICE G.JAYACHANDRAN

AND

THE HONOURABLE MR.JUSTICE SHAMIM AHMED

T.C.A.No.201 of 2013

M.Ravindran,

29/7, Mariamman Koil Street,

Villupuram.

PAN: AAFPR2113P … Appellant

Vs.

The Income Tax Officer,

Ward I (1),

Villupuram. … Respondent

Prayer: Tax Case Appeal has been filed under Section 260A of the Income Tax

Act, 1961, against the order of the Income Tax Appellate Tribunal, Madras ‘B’

Bench, dated 15.01.2013 in ITA.No.2075/MDS/2012 for the Assessment Year

2007-2008.

For Appellant:Ms.Madhumitha Kesavan and

Mrs.Sudha Kesavan

For Respondent:Mr.S.Sathiyanarayanan,

Senior Standing Counsel

J U D G M E N T

Dr.G.Jayachandran, J.

The Tax Case Appeal is filed by the assessee, being aggrieved by the

order passed by the Income Tax Appellate Tribunal, Madras ‘B’ Bench, in

I.T.A.No.2075/MDS/2012 dated 15.01.2013.

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2. The brief facts leading to the appeal are as below:

The appellant/assessee is an individual assessed to tax on his income

through property and rent for the Assessment Year 2007-2008. He admitting a

total income of Rs.1,10,880/- and filed the income tax returns on 16.05.2007.

The return was processed under Section 143(1) of the Income Tax Act,

converted into scrutiny noticing escapement of income in the form of

investment in the building construction.

3. On scrutiny, it was revealed that for the Assessment Year 2008-2009,

the balance sheet of the assessee disclosed an investment in the building

construction at Ravindra Residency (Ravindra Arcade), Trichy Main Road,

Villupuram, to the tune of Rs.17,80,200/-. Presuming that the investment in the

building construction was made during the Financial Year 2007-2008, relevant

to the Assessment Year 2008-2009. A notice was issued under Section 143(2)

on 29.09.2009.

4. In order to ascertain the actual cost of investment, request was made to

the District Valuation Officer, Chennai, on 17.06.2010. On receipt of his

valuation report, enquiry was proceeded. In the course of enquiry, the assessee

had contended that the investment in the building construction was during the

Financial Year 2006-2007 and it is relevant to the Assessment Year 2007-2008.

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As a result of the said disclosure by the assessee, the assessment for the

Assessment Year 2007-2009 was reopened under Section 147 and a notice was

issued to the assessee.

5. In response to the notice, the Book of accounts, Bills/Vouchers and

other details to substantiate the claims deductions and exemptions etc., was

produced by the assessee. However, rejecting the books of accounts and other

documents being contrary to the construction agreement for Rs.17,80,200/- with

M/s.INDO Designers on 21.05.2006. Thereafter, the District Valuation Officer

was sought for valuation of the building which owned by the individual

appellant as well as the HUF. The District Valuation Officer estimated the value

of the property at Rs.1,27,67,021/-. Since the building was constructed upon the

land owned by both the individual and the HUF, the valuation is in respect of

ground floor and basement portions of the construction. After segregating, the

entitlement of the individual and the HUF, the District Valuation Officer

estimated the value of construction of the building portion of the

individual/appellant at Rs.41,71,518/-. Whereas, in the balance sheet furnished

by the assessee, the costs of construction was shown as Rs.17,80,200/-. Thus,

the difference of Rs.23,91,318/- was found as escaped income.

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6. After considering the materials submitted by the assessee, the

Assessing Officer found an unexplained investment of Rs.23,91,318/- in the

building construction for the Assessment Year 2007-2008, after adding to the

total income of the assessee and fixed a sum of Rs.12,18,652/- as total tax

payable.

7. Being aggrieved by the notice of demand for a sum of Rs.12,18,652/-

issued based on the assessment order, the appellant/assessee filed appeal before

the Commissioner of Income Tax. The Commissioner of Income Tax, partly

allowed the appeal, with the following observations:

“The above submissions of the assessee have been

considered carefully. As stated by the assessee, the

property constructed by the assessee was in rural place.

The DVO in his valuation report adopted the CPWD rates

while arriving at the estimated cost of construction at

Rs.41,71,518/-. The Honourable High Court of Madras in

the case of CIT Vs. Smt.V.Gajalakshmi (2011)(11

Taxmann.com 173)(Mad) held that State PWD rates are to

be applied. Similar decisions were also rendered by

Rajasthan High Court in the case of CIT Vs. Dinesh

Talwar (265 ITR 344) (Raj). wherein it was held that State

PWD rates are to be adopted while valuing the property.

Reliance is further placed on the decisions of Delhi High

Court in the case of CIT Vs. Bajrang Lal Bhansal (12

Taxmann.com 88)(Del), Chennai Bench of ITAT in the case

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of ITA.No.262/Mds/2006 dated 30.11.2006 and

2271/Mds/2006 dated 16.11.2007.

In view of the above decisions, the Assessing

Officer is not justified in adopting the cost of construction

at Rs,41,71,518/-, based on the DVO’s report which was

based on the CPWD rates. Therefore, the Assessing

Officer is required to adopt the state PWD rates for the

purpose of valuation while determining the unaccounted

investment in construction of property.

Therefore, the Assessing Officer is directed to

estimate the cost of construction of the building by

adopting the State PWD rates as against the CPWD rates

adopted by the DVO in his valuation report.”

8. Aggrieved by the order of the Commissioner of Income Tax, dated

23.07.2012, the assessee preferred an appeal before the Income Tax Appellate

Tribunal on the following grounds:

“1. The Commissioner of Income Tax Appeals has

erred in not considering the appellants grounds that the

Assessing officer has no right to refer the matter to the

DVO when the construction has been carried out by

entering in to an agreement with a builder.

2. The Commissioner of Income Tax Appeals has

failed to appreciate that the Assessing officer has neither

rejected the books nor questioned the genuineness of the

written agreement by making any, enquiry with the party

to the contract.

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3. The Commissioner of Income Tax Appeals has

not considered the difference in area of construction as per

the valuation report and the contract agreement

4. For the foregoing grounds and for the grounds

that may be raised at the time of hearing the appellant

humbly prays that the entire addition may be deleted and

thus render justice.”

9. After hearing both sides and scrutinizing the records, the Tribunal dismissed

the appeal preferred by the assessee and confirmed the order of the Commissioner of

Income Tax (Appeals)-XII. Aggrieved by the same, the present appeal has been filed

before this Court invoking Section 260A of Income Tax Act, 1961.

10. At the time of admission, the following substantial question of law was

framed by this Court for consideration:

“1. Whether on the facts and circumstances of the

case, the Appellate Tribunal was right in not following the

decision of the Supreme Court in the case of SARGAM

CINEMA Vs. CIT reported in 328 ITR 513 that without

rejecting the book of accounts the assessing officer cannot

refer the matter to the District Valuation Officer?

2. Whether on the facts and circumstances of the

case, the Appellate Tribunal was right in dismissing the

appeal on the appellant by not appreciating the fact that

the Commissioner of Income Tax (Appeals) has not

adjudicated the ground no.4 which was specifically raised

before the Commissioner of Income Tax (Appeals)?”

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11. The Learned Counsel appearing for the appellant assessee submitted

that the Tribunal had grossly erred in holding the appeal in favour of the

Department, ignoring the dictum laid down by the Hon’ble Supreme Court in

Sargam Cinema, Haldwani vs. Commissioner of Income Tax, Haldwani

reported in (2010) 15 SCC 546(1).

12. The prime contention of the appellant is that before referring to the

District Valuation Officer, the Assessing Officer and the Appellate Authorities

ought to have first rejected the books of accounts submitted by the assessee.

Without rejecting the books of accounts, the opinion of the Departmental

Valuation Officer cannot be resorted to.

13. To buttress the above submission, in addition to the judgment of the

Hon’ble Supreme Court in Sargam Cinema, Haldwani vs. Commissioner of

Income Tax, Haldwani reported in (2010) 15 SCC 546(1), relied upon the

judgment of the Hon’ble Supreme Court in Assistant Commissioner of Income

Tax, Gujarat vs. Dhariya Construction Company reported in (2010) 15 SCC

251 as well as the judgment of the Division Bench of this Court in

Commissioner of Income Tax vs. A.L.Homes reported in (2018) 401 ITR 285.

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14. For better appreciation of the arguments placed by the Learned

Counsel for the appellant, the judgments referred and relied by the Learned

Counsel for the appellant is extracted below.

(i) Sargam Cinema, Haldwani vs. Commissioner of Income Tax,

Haldwani reported in (2010) 15 SCC 546(1), wherein it was held that:

“1. Delay condoned. Leave granted. By consent,

matter is taken up for final hearing.

2. In the present case, we find that the Tribunal

decided the matter rightly in favour of the assessee

inasmuch as the Tribunal came to the conclusion that the

assessing authority (AO) could not have referred the

matter to the Departmental Valuation Officer (DVO)

without books of accounts being rejected. In the present

case, a categorical finding is recorded by the Tribunal that

the books were never rejected. This aspect has not been

considered by the High Court. In the circumstances,

reliance placed on the report of the DVO was

misconceived.

3. For the above reasons, the impugned judgment of

the High Court is set aside and the order passed by the

Tribunal stands restored to the file. Accordingly, the

assessee succeeds.

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4. The civil appeal is allowed. No order as to

costs.”

(ii) Assistant Commissioner of Income Tax, Gujarat vs. Dhariya

Construction Company, reported in (2010) 15 SCC 251, wherein it was held

that:

“1. Having examined the record, we find that in this

case, the Department sought reopening of the assessment

based on the opinion given by the District Valuation

Officer (DVO).

2. Opinion of the DVO per se is not an information

for the purposes of reopening assessment under Section

147 of the Income Tax Act, 1961. The AO has to apply his

mind to the information, if any, collected and must form a

belief thereon.

3. In the circumstances, there is no merit in the civil

appeal. The Department was not entitled to reopen the

assessment.

4. The civil appeal is, accordingly, dismissed. No

order as to costs.”

(iii) Commissioner of Income Tax vs. A.L.Homes, reported in (2018) 401

ITR 285, wherein it was held that:

“10. The question of whether cost of construction

can be referred to the District Valuation Officer for

estimation without first rejecting the books of account

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maintained by the respondent-assessee has been answered

in favour of the assessee by the Supreme Court in Sargam

Cinema v. CIT reported in (2010) 328 ITR 513 (SC).

…..

12. However, the judgment of the Supreme Court in

Sargam Cinema (supra) clearly lays down the law. The

judgment in Sargam Cinema (supra) may be short, as

argued. However, the binding value of a judgment as a

precedent does not depend on its length. The Supreme

Court clearly held that "the Tribunal decided the matter

rightly in favour of the assessee inasmuch as the Tribunal

came to the conclusion that the assessing authority could

not have referred the matter to the Departmental Valuation

Officer (DVO) without the books of account being

rejected. In the present case, a categorical finding is

recorded by the Tribunal that the books were never

rejected. This aspect has not been considered by the High

Court. In the circumstances, reliance placed on the report

of the DVO was misconceived". The judgment of the High

Court was set aside on that ground.”

15. In the three judgments cited above, the points emphasis is that the

Assessing Officer cannot refer the matter to the District Valuation Officer

without rejecting the books of accounts. Taking advantage of the fact that the

Assessing Officer has not expressly stated in the assessment order that the

books of accounts were rejected, argument is placed by the Learned Counsel for

the appellant as if the Tribunal has failed to follow the dictum laid down in

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Sargam Cinema case cited supra.

16. The two judgments of the Hon’ble Supreme Court cited above, in

short only speak about the dictum but not the facts. The judgment of this Court

in Commissioner of Income Tax vs. A.L.Homes, provides us sufficient facts to

understand the dictum to be followed in case of relying on the opinion of the

District Valuation Officer.

17. While examining the assessment order in the present case, we find

that the Assessing Officer has restored to District Valuation Officer only after

inconsistent plea taken by the assessee, regarding the investment made on the

building construction and the costs of investment while filing the returns by the

assessee on 16.05.2007 for the Assessment Year 2007-2008, he had declared a

total income of Rs.1,10,880/-, only. After converting the case into scrutiny case

and issuance of notice under Section 148 read with Section 147, noticing

escapement of income in the form of investment in the building construction,

balance sheet for the Assessment Year 2008-2009, the assessee had disclosed

the investment of Rs.17,80,200/-. Based on the inconsistency in the books of

accounts and recording the same, the Assessing Officer has proceeded further

sought for the District Valuation Officer’s report on 27.09.2010 splitting up the

income of individual and his HUF. District Valuation Officer has valued the

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property at Rs.1,27,67,021/- by splitting the shares of the individual/assessee

and the HUF. The value of the construction been ascertained as Rs.41,71,518/-,

out of which the earlier disclosure of Rs.17,80,200/- was deducted and the

escaped income fixed as Rs.23,91,318/-. It is not the case of proceeding with

the opinion of the District Valuation Officer without rejecting the books of

accounts. The discussion in the assessment order would clearly show that the

books of accounts produced by the assessee been rejected and only thereafter,

the opinion of the District Valuation Officer been sought for. In express term,

the assessment order deals about the books of account produced by the assessee

been considered and rejected pointing out the discrepancies. When no other

document produced before the Assessing Officer, we hold whatever is pleaded

in the appeal, appears to be an afterthought to impress on the Court that Books

of Accounts not rejected before seeking District Valuation Officer report.

18. The Commissioner of Income Tax who heard the First Appeal, had

not noticed any violation of procedure on the part of the Assessing Officer

resorting to the District Valuation Officer’s opinion. According to the

Commissioner the valuation ought to have been based on the State Public Works

Department rates and not based on the Central Public Works Department rates.

In other words, the Commissioner of Income Tax (Appeal) faulted the method

of valuation by the District Valuation Officer but not the procedure seeking

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T.C.A.No.201 of 2013

valuation by District Valuation Officer.

19. Further, on appeal to the Tribunal, after due consideration to the

grounds of appeal, the Tribunal had dismissed the appeal preferred by the

assessee with the following observations:

“8. We have heard both parties and also gone

through the order of the Assessing Officer as well as

CIT(A) and short paper book filed by the assessee. The

facts are not In dispute. Since the Assessing Officer had

referred the matter to DVO to ascertain the cost of

construction of the building, who later on estimated it by

following CPWD rates which in turn have been modified

by the CIT(A) to the extent that the Assessing Officer has

been directed to adopt the State PWD rates. The

contention of the assessee is that the Assessing Officer has

wrongly made reference to the DVO and his arguments in

this regard have been considered by the CIT(A). After

considering the arguments in detail, we are of the view

that in the paper book, the assessee has not enclosed his

ground of appeal raised before the CIT(A). In the absence

of Form 35 which was filed before the CIT(A) containing

assessee’s grievances, we are unable to accept assessee’s

submissions. Similarly, even in arguments raised before

the CIT(A), the assessee’s contention was that the DVO

had wrongly relied upon the CPWD rates so as to

determine the cost of construction instead of State PWD

rates. The said plea of the assessee stands accepted.

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Therefore, we are of the view that the assessee has failed

to support its contention by way of any material on record

its submissions that the said plea was raised before

CIT(A). Even if it is presumed that the assessee has raised

the plea before the CIT(A), still it does not help the cause

of the assessee as the Assessing Officer has no other

option except to refer the matter to DVO so as to ascertain

the cost of construction. Hence the plea of the assessee

that the Assessing Officer could not have referred the

matter to DVO does not warrant acceptance. Therefore, in

the instant case, we see no reason to interfere with the well

reasoned findings of the CIT(A).”

20. On applying the dictum laid down by the Hon’ble Supreme Court in

Sargam Cinema, Haldwani vs. Commissioner of Income Tax, Haldwani,

which has held that, without rejecting the books of accounts presented by the

Assessee, the Department should not restored to the opinion of District

Valuation Officer. We find in the facts of the case in hand the Assessing Officer

has in fact considered whatever books of accounts produced by the assessee and

rejected it, recording the apparent contradictions in the returns filed by the

assessee and the building contract agreement. Only thereafter, the Assessing

Officer has resorted to get the opinion of the District Valuation Officer.

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21. In view of the above discussion, we hold that, based on the facts and

circumstances, it is incorrect to plead that the Assessing Officer has failed to

reject the books of accounts produced by the assessee before resorting to get the

District Valuation Officer’s report. The records and evidence clearly establishes

that the books of accounts produced by the assessee were considered and

rejected. Only thereafter, the Assessing Officer has resorted to get the District

Valuation Officer’s report splitting the value of the building between the

individual and HUF. Based on the District Valuation Officer report, substantial

portion of investment been suppressed and that portion of income been deemed

to be escaped income of the assessee.

22. As a result, we hold that the Tax Appeal deserves to be dismissed.

Accordingly, the Tax Case Appeal is dismissed. There shall be no order as to

costs.

(G.JAYACHANDRAN, J.) (SHAMIM AHMED, J.)

12-03-2026

Internet :Yes.

Neutral Citation:Yes.

Index :Yes/No.

To,

The Income Tax Officer,

Ward 1 (1),

Villupuram.

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Dr.G.JAYACHANDRAN, J.

AND

SHAMIM AHMED, J.

bsm

Pre-delivery Judgment made in

T.C.A.No.201 of 2013

12.03.2026

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