2010 (7) TMI 1054 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition as unexplained investment based on DVO's valuation report.
2. Validity of the books of account maintained by the assessee.
3. Justification for reliance on DVO's report without pointing out defects in the books of account.

Summary:

Issue 1: Deletion of addition as unexplained investment based on DVO's valuation report

The Revenue challenged the deletion of Rs. 1,43,094 as unexplained investment in the construction of flats, which was based on the valuation report of the DVO. The assessee disclosed the total cost of construction at Rs. 3,66,07,977, while the DVO estimated it at Rs. 4,70,40,000. The AO added the difference of Rs. 1,43,094 to the assessee's income.

Issue 2: Validity of the books of account maintained by the assessee

The CIT(A) held that if proper books of account are maintained and supported by vouchers, and no defects are pointed out, the figures shown therein must be followed. The CIT(A) cited various judicial precedents, including the Hon'ble Rajasthan High Court in CIT v. Pratapsingh Amrosingh Rajendra Singh [1993] 200 ITR 788 (Raj.), which emphasized that valuation reports can only be considered when books of account are unreliable or unsupported by proper vouchers.

Issue 3: Justification for reliance on DVO's report without pointing out defects in the books of account

The CIT(A) found that the AO was not justified in seeking the DVO's assistance without pointing out defects in the audited books of account. The CIT(A) noted that the DVO's report included various additions and deductions, such as 2% for builder's efforts and 6.25% for self-supervision, which were contested by the assessee. The CIT(A) concluded that the difference between the DVO's estimated cost and the assessee's disclosed cost was within 10%, which could be ignored.

Conclusion:

The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO should have verified the books and vouchers maintained by the assessee and pointed out specific defects. The Tribunal cited several judicial precedents, including CIT v. Meerut Cement Co. (P.) Ltd. [2006] 202 CTR (All.) 506 and K.K. Seshaiyer v. CIT [2001] 166 CTR (Mad.) 527, which held that the AO cannot rely solely on the DVO's report if the books of account are properly maintained and audited. The Tribunal dismissed the Revenue's appeals for all assessment years involved, concluding that no addition was warranted based on the DVO's report.