2013 (12) TMI 729 - HC - Income Tax

Unaccounted investment in property - Held that - Following Sargam Cinema vs. CIT 2009 (10) TMI 569 - Supreme Court of India - Where the books of accounts have not been rejected by the AO, reference to DVO is not justified - The Tribunal has observed in its impugned order that the AO has not pointed out any material defect/ discrepancy in the books of account maintained by the assessee - The books of account were not rejected before referring the matter to the DVO - Decided against Revenue.

Summary

Issues:
Appeals filed by the Department under Section 260A of the Income Tax Act, 1961 against the consolidated judgment and order dated 14.07.2010 passed by the Income Tax Appellate Tribunal, Lucknow in I.T.A. Nos. 563(Alld)/2000 & 151-152/Luc/2003 for the assessment years 1995-96, 1996-97, and 1997-98 respectively.

Analysis:

1. Investment in Construction of Property:
The case involves an assessee company engaged in constructing and selling buildings in Lucknow. The Assessing Officer (AO) raised concerns about the investment made in a property at Khurram Nagar. The matter was referred to the Departmental Valuation Officer (DVO) who provided a report on the investment. The AO made additions based on the DVO report, which were later deleted by the first appellate authority and upheld by the Tribunal. The Department, unsatisfied, filed appeals under Section 260A.

2. Justifiability of DVO Report:
The Department justified the addition based on the DVO report citing precedents like Sunder Carpet Industries vs. ITO and Unit Construction Co. Ltd. vs. JCIT. The counsel argued that the addition was valid and referred to specific cases to support their stance. On the other hand, the counsel for the assessee supported the impugned order and requested the dismissal of the Department's appeals.

3. Evaluation of Property by DVO:
The DVO's valuation of the property was a crucial aspect of the case. Various cases were cited to establish that estimation by the DVO is a question of fact. The Tribunal noted that the AO did not identify any defects in the assessee's books of account before involving the DVO. This lack of rejection of the books of account before referring the matter to the DVO was a significant point of contention.

4. Precedent and Supreme Court Ruling:
The Tribunal's decision was supported by a Supreme Court ruling in Sargam Cinema vs. CIT, emphasizing that the AO cannot refer a matter to the DVO without rejecting the books of account. In this case, the Tribunal found that the books were not rejected, rendering reliance on the DVO report misconceived. The High Court had not considered this aspect, leading to the dismissal of the Department's appeals at the admission stage.

5. Final Decision:
After considering the facts and circumstances, the High Court upheld the impugned order passed by the Tribunal, dismissing all appeals filed by the Department. The decision was based on the lack of rejection of books of account before involving the DVO, in line with the principles established in relevant case laws and the Supreme Court ruling.

This detailed analysis outlines the key issues, arguments presented by both parties, evaluation of the DVO's report, reliance on legal precedents, and the final decision of the High Court based on the Supreme Court ruling and the specific circumstances of the case.