2004 (1) TMI 696 - AT - Income Tax

Summary

Issues Involved:
1. Timeliness of the appeals.
2. Addition on account of the difference in the cost of construction based on the DVO's report.
3. Validity of the reference to the DVO without rejecting the assessee's books of account.

Detailed Analysis:

1. Timeliness of the Appeals:
The appeals were noted to be time-barred by 48 days due to the date of payment of short court fees being considered the date of filing. However, since the memorandum of appeals was filed within the statutory time, the delay was condoned, and the appeals were admitted for hearing.

2. Addition on Account of Difference in Cost of Construction:
The primary issue revolved around the addition made by the Assessing Officer (AO) based on the difference between the cost of construction shown by the assessee and the cost determined by the District Valuation Officer (DVO). The AO had added the difference as undisclosed income under Section 69 of the Income Tax Act. The assessee contended that the addition was unsustainable and raised several objections, including:
- Proper maintenance of accounts for construction.
- DVO's failure to consider the details submitted by the assessee.
- The invalidity of the reference to the DVO as it was made prior to the completion of the original assessment.

3. Validity of Reference to DVO Without Rejecting Assessee's Books:
The Tribunal examined whether the AO was justified in making a reference to the DVO without rejecting the books of account maintained by the assessee. The Tribunal noted:
- The assessee maintained regular books of account for the construction, which were duly examined and test-checked by the AO.
- No defects or deficiencies were pointed out in the books during the original assessments or in the subsequent assessments under Section 147.
- The reference to the DVO was not based on any finding that the books were unreliable or defective.

The Tribunal cited various judicial decisions to support its conclusion:
- CIT v. Pratap Singh, Amro Singh, Rajendra Singh & Deepak Kumar [1993] 200 ITR 788 (Raj.): Held that if books are properly maintained and reliable, the valuation report cannot override them.
- CIT v. Hotel Joshi [2000] 242 ITR 478 (Raj.): Emphasized that a reference to the DVO is not justified if books are regularly maintained and supported by vouchers.
- Smt. Uma Devi Jhawar v. ITO [1996] 218 ITR 573 (Cal.): Valuation by the DVO cannot be a basis for addition if books are reliable.
- CIT v. Western Estates [1994] 209 ITR 343 (Cal.): Supported the reliability of properly maintained books over the DVO's valuation.

The Tribunal concluded that the AO was not justified in making the addition based solely on the DVO's report without rejecting the books of account or pointing out any defects. The reference to the DVO under Section 131(1)(d) was deemed illegal and unjustified.

Conclusion:
The Tribunal held that the addition made by the AO on account of the cost of construction was unjustified as it was based solely on the DVO's report without rejecting the books of account maintained by the assessee. Consequently, the addition was deleted for each assessment year, and the appeals filed by the assessee were allowed.