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2014 (11) TMI 949 - HC - Income TaxAddition made is deleted by Tribunal Rejection of books of accounts by AO Reference made to DVO for valuation - Held that - The Tribunal rightly relied upon Sargam Cinema Versus. Commissioner of Income-tax 2009 (10) TMI 569 - Supreme Court of India - AO could not have referred the matter to the DVO without rejecting the books of account in Dr. Raghuvendra Singh Versus Commissioner of Income Tax, Central Circle, Ludhiana 2014 (1) TMI 491 - PUNJAB AND HARYANA HIGH COURT - the AO has not applied his mind as to the correctness or completeness of the accounts of the assessee and no dissatisfaction has been recorded by the AO - Nothing has been brought on record as regards to the conditions laid down in section 145(3) of the Act - no reference could have been made by the AO and reference made by the AO is not legal and assessment so framed on valuation report is bad in law - the difference in cost of construction declared by the assessee or as valued by the Valuation officer will be correct amount of investments made by the assessee - no defect has been pointed out by any of the authorities below with regard to the investments made by the assessee and therefore, no addition is required to be made u/s 69 - the benefit of valuation of raw structure existing at the site had not been allowed by the DVO as such no substantial question of law arises for consideration Decided against revenue.
Issues:
1. Interpretation of Section 260A of the Income Tax Act, 1961 for assessment year 2008-09. 2. Validity of referring the matter to the Departmental Valuation Officer (DVO) without rejecting books of account. 3. Assessment based on DVO's valuation report versus approved valuer's report. 4. Application of Section 142A of the Act in determining the cost of construction of the hotel building. 5. Relevance of the decision in Bharathi Cement Corporation P. Limited v. Commissioner of Income Tax and others, (2013) 356 ITR 74. Analysis: 1. The judgment addresses the interpretation of Section 260A of the Income Tax Act, 1961 for the assessment year 2008-09. The issue revolves around the correctness of the decision by the Income Tax Appellate Tribunal (ITAT) in deleting an addition based on the Supreme Court's ruling in Sargam Cinema vs. CIT, (2010) 328 ITR 513 (SC). The Tribunal allowed the appeal, emphasizing that the Assessing Officer (AO) could not have referred the matter to the DVO without rejecting the books of account, leading to the current appeal by the revenue. 2. The validity of referring the matter to the DVO without rejecting the books of account is examined. The AO had referred the case to the DVO for determining the actual cost of construction of a hotel building without rejecting the books of account. The Tribunal found this action to be improper, citing the Supreme Court's decision in Sargam Cinema's case. The revenue argued that rejection of books of account was not a prerequisite for making such a reference, relying on the judgment in Bharathi Cement Corporation P. Limited v. CIT. However, the Court dismissed the appeal, upholding the Tribunal's decision. 3. The assessment based on the DVO's valuation report versus the approved valuer's report is scrutinized. The Tribunal accepted the approved valuer's report, leading to the deletion of an addition made by the AO based on the DVO's valuation. Discrepancies in valuation methods, including CPWD rates and construction class, were highlighted. The Court upheld the Tribunal's decision, finding no illegality or perversity in the findings. 4. The application of Section 142A of the Act in determining the cost of construction of the hotel building is analyzed. The Court referred to a previous judgment to outline the circumstances under which the AO can refer a matter to the DVO. It emphasized the importance of rejecting books of account before such a reference, ensuring fairness and adherence to public policy. The Tribunal's decision aligning with these principles was upheld. 5. The relevance of the judgment in Bharathi Cement Corporation P. Limited v. CIT and others is discussed. The Court distinguishes the facts of that case from the present matter, concluding that no advantage can be derived by the revenue from that judgment. Consequently, no substantial question of law was found, leading to the dismissal of the appeals.
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