2009 (7) TMI 1297 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the reference made by the AO to the DVO for valuation of land.
2. Recasting of the P&L account by the AO.
3. Deletion of addition on account of unrealized rent.
4. Determination of long-term capital gain/loss.

Summary:

Issue 1: Validity of the Reference to the DVO
The Department challenged the CIT(A)'s decision that the reference made by the AO to the DVO for valuation of land was "bad in law and therefore, liable to be quashed." The Tribunal upheld the CIT(A)'s decision, stating that "the AO had no power under the law to refer the valuation of the capital asset to the DVO when the valuation made by the registered valuer is higher than the fair market value of the asset." The Tribunal referenced s. 55A of the IT Act, noting that the AO can only make such a reference if the value claimed by the assessee is less than its fair market value. The Tribunal cited several cases, including *Hiaben Jayantilal Shah v. ITO & Anr.*, to support this interpretation.

Issue 2: Recasting of the P&L Account
The AO recast the P&L account of the assessee based on the DVO's report, arriving at a net profit of Rs. 6,09,025. The CIT(A) rejected this recasting, and the Tribunal upheld this rejection, stating that "the net profit by recasting the trading cum P&L a/c at Rs. 6,09,025 cannot be substituted by the loss disclosed at Rs. 9,92,600 in the trading results arrived at in the audited accounts furnished by the assessee."

Issue 3: Deletion of Addition on Account of Unrealized Rent
The AO added Rs. 27,000 to the total income of the assessee for unrealized rent, arguing that the assessee follows the mercantile method of accounting. The CIT(A) deleted this addition, citing that some land was under forceful occupation, preventing rent realization. The Tribunal reversed the CIT(A)'s decision, stating, "the assessee has not brought any material on record that there was any dispute between the assessee and the tenant and the rent had not accrued to the assessee." Thus, the AO's addition of Rs. 27,000 was justified.

Issue 4: Determination of Long-Term Capital Gain/Loss
The AO determined a long-term capital gain of Rs. 18,79,866, while the CIT(A) concluded a long-term capital loss of Rs. 1,69,533. The Tribunal upheld the CIT(A)'s decision, rejecting the AO's determination based on the DVO's report, which was deemed invalid.

Conclusion:
The Tribunal allowed the appeal of the Revenue in part, specifically reversing the CIT(A)'s deletion of the Rs. 27,000 addition for unrealized rent, while upholding the CIT(A)'s decisions on the other issues.