2014 (2) TMI 176 - HC - Income Tax

Valuation of building - Reference made to DVO - Whether the Revenue was justified in referring the matter to the DVO for assessing the value of land and the cost of construction of building of Chohan Resorts Held that - Revenue was unable to justify that when the books of account in respect of cost of construction have been maintained by the assessee and the same were not rejected, how the matter could be referred to the DVO for assessing the value - Wherever the books of account are maintained with respect to the cost of construction, the matter can be referred to the DVO after the books of account are rejected by the Revenue on some legal or justified basis - In the absence of the same, the reference to the DVO cannot be upheld there was no substance in the appeal Decided against Revenue.

Summary

Issues:
Delay in refiling the appeal condoned; Justification of referring the matter to the DVO for assessing the value of land and cost of construction.

Analysis:
1. Delay in refiling the appeal condoned:
The judgment begins by stating that the delay in refiling the appeal has been condoned. This procedural aspect is addressed at the outset to ensure that the appeal can proceed despite the delay in its filing.

2. Justification of referring the matter to the DVO for assessing the value of land and cost of construction:
The main issue in this case revolves around whether the Revenue was justified in referring the matter to the Departmental Valuation Officer (DVO) for assessing the value of land and the cost of construction of a building. The Tribunal held that the Assessing Officer was not justified in referring the matter to the DVO without rejecting the books of account maintained by the assessee. The Tribunal relied on the decision of the Supreme Court in the case of Sargam Cinema v. CIT, where it was held that reference to the DVO without rejecting the books of account was not tenable. The Tribunal emphasized that if the books of account are maintained regarding the cost of construction and not rejected by the Revenue, there is no basis for referring the matter to the DVO.

3. The facts of the case reveal that the Assessing Officer found discrepancies in the declared cost of construction by the assessee and the estimate provided by the Income-tax Inspector and subsequently the DVO. The Assessing Officer added the difference to the total income of the assessee under section 69B of the Income-tax Act, 1961. However, the Tribunal overturned this addition, stating that without rejecting the books of account, the reference to the DVO was unjustified.

4. The judgment highlights the importance of maintaining and not rejecting the books of account by the Revenue before referring the matter to the DVO for valuation purposes. It underscores the legal principle that without a valid reason for rejecting the books of account, the reliance on the DVO's report for making additions to the income of the assessee is not permissible under the law.

5. The judgment concludes by affirming the Tribunal's decision and dismissing the appeal by the Revenue. It states that in the absence of the rejection of the books of account, there is no legal basis for referring the matter to the DVO for valuation. Consequently, the Tribunal's decision to delete the addition made by the Assessing Officer and direct acceptance of the returned income by the assessee is upheld.

In summary, the judgment addresses the issue of justifiability of referring the matter to the DVO without rejecting the books of account and emphasizes the legal requirement for such rejection before seeking external valuation.