2014 (4) TMI 154 - AT - Income Tax

Addition made u/s 69C of the Act Reference made to DVO u/s 142A of the Act - Difference between cost of construction and valuation made by the DVO Held that - The assessee has produced the books of account but the AO has not rejected or no defect was pointed out in the books of account regarding cost of construction of the project before reference to the DVO - Without causing any defects in books regularly maintained and without rejecting the books u/s.145, of the Act there is no reason to add any amount on the presumption that the cost/investment in construction is low - thus, without rejecting the books of account regularly maintained, the addition cannot be made only on the basis of the DVO s report - the assessee has supplied requisite information to DVO and also produced before AO which he has seen and verified but has not commented on the genuineness of the bills and not pointed out any defects in the bills and hence not rejected the records maintained and produced by assessee. Reference to valuation cell u/s.142A can be made during the course of assessment and reassessment and not for the purpose for initiating assessment the decision in Umiya Co-operative Housing Society Ltd. v ITO 2005 (3) TMI 382 - ITAT AHMEDABAD-B followed - the provisions of Sec. 142A cannot be read in isolation to Sec.145 - if books of account are found to be correct and complete in all respect and no defect is pointed out and cost of construction of building is recorded, then the addition on account of difference in cost of construction could not be made even if a report is obtained within the meaning of Sec.142A from the DVO - thus, when AO has not rejected the books of account by pointing out any defects reference to the DVO will not be valid thus, DVO s report could not be utilized for framing assessment even if such a report is considered to be obtained u/s.142A - reference to DVO being held as invalid, the assessment/ reassessment framed thereafter would also be invalid. The decision in COMMISSIONER OF INCOME-TAX Versus AAR PEE APARTMENTS P. LTD. 2009 (8) TMI 256 - DELHI HIGH COURT followed - Except the report of DVO, there was nothing on record to suggest that there was any Of the evidence to disbelieve the expenditure shown by the assessee - the Legislature has not included unexplained expenditure stipulated in Sec.69C of the Act for invocation of provisions of Sec.142A of the Act - even the CBDT Circular issued by it, explaining the Finance Bill, 2004, specifically omitted the word expenditure as well as Sec.69 from the ambit of Sec.142A of the Act as inserted in the form as it appears on the statue book - If the intention of the Legislature to include unexplained expenditure as contemplated in Sec.69C of the provision of Sec.142A should have been specifically mentioning the same - the cost of flat being shown by the assessee as current assets not as an investment, it cannot be subject matter of reference u/s. 142A Decided in favour of Assessee.

Issues Involved:
1. Validity of the reference to the District Valuation Officer (DVO) by the Assessing Officer (AO) under Section 142A of the Income-tax Act.
2. Inclusion of administrative and supervisory charges in the cost of construction.
3. Validity of the addition made under Section 69C of the Income-tax Act.
4. Jurisdiction of CIT(A) in interfering with concluded assessments.
5. Admission of additional income by the assessee for day-to-day expenses.

Detailed Analysis:

1. Validity of the Reference to the DVO by the AO under Section 142A:
The primary issue raised by the assessee was that the reference to the DVO by the AO under Section 142A was without jurisdiction. The assessee argued that Section 142A applies only to investments referred to in Sections 69, 69A, and 69B, and not to Section 69C. The Tribunal agreed with the assessee, stating that the AO must have some material to show that the cost of construction shown by the assessee was understated before making a reference to the DVO. The Tribunal emphasized that the AO had not found any defects in the books of account maintained by the assessee, and without rejecting these books, the reference to the DVO was invalid. The Tribunal relied on the decision in CIT vs. Umiya Co-operative Housing Society Ltd., where it was held that a reference under Section 142A can only be made during the pendency of assessment or reassessment proceedings.

2. Inclusion of Administrative and Supervisory Charges:
The assessee contended that the cost determined by the DVO included administrative and supervisory charges, which were not part of the cost submitted by the assessee. The Tribunal did not specifically address this issue separately, as the primary ground of the invalidity of the reference to the DVO was upheld, rendering this issue academic.

3. Validity of the Addition Made under Section 69C:
The assessee argued that the addition made under Section 69C, based on the DVO's report, was illegal since Section 142A does not cover unexplained expenditure under Section 69C. The Tribunal upheld this view, citing the Delhi High Court's decision in AAR PEE Apartments (P) Ltd., which clarified that Section 142A does not extend to unexplained expenditure under Section 69C. The Tribunal concluded that the AO's reference to the DVO and the subsequent addition under Section 69C were invalid.

4. Jurisdiction of CIT(A) in Interfering with Concluded Assessments:
The assessee claimed that the CIT(A) had no jurisdiction to interfere with concluded assessments by referring to the valuation cell. The Tribunal agreed, noting that the AO cannot disturb the concluded assessments of other assessment years by referring the matter to the DVO for valuation of current assets in one assessment year.

5. Admission of Additional Income by the Assessee for Day-to-Day Expenses:
The assessee argued that the CIT(A) failed to appreciate that the additional income admitted by the assessee for day-to-day expenses should be set off against the addition made. The Tribunal did not specifically address this issue separately, as the primary ground of the invalidity of the reference to the DVO was upheld, rendering this issue academic.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the reference to the DVO by the AO under Section 142A was invalid, and consequently, the addition made under Section 69C was unsustainable. The Tribunal emphasized that the AO must have some material to show that the cost of construction shown by the assessee was understated before making a reference to the DVO and that the AO had not found any defects in the books of account maintained by the assessee. The Tribunal also noted that the CIT(A) had no jurisdiction to interfere with concluded assessments by referring to the valuation cell.

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