2015 (5) TMI 1186 - AT - Income Tax

Reference of matter to DVO u/s.142A - AO has not rejected the books of account by pin pointing any defects in the books of account - HELD THAT - In this case the assessee maintained books of accounts and duly furnished before the AO and he has not appreciated the same and only on presumption that cost of construction was very low, he referred the matter to DVO without properly rejecting the books of accounts maintained by the assessee. Reference to DVO u/s.142A(3) could be made when books of accounts are rejected by pinpointing defect therein. In other words, if the books of accounts are found to be correct and complete in all respect and no defect is pointed out therein and the cost of construction of building is recorded therein, addition referred u/s.142A (2) is not appropriate. Accordingly, we are of the considered view that in the present case when the AO has not rejected the books of account by pin pointing any defects in the books of account reference to the DVO is not valid and, therefore, DVO s report could not be utilized for framing assessment even if such a report is considered to be obtained u/s.142A of the Act. Since reference to DVO being held as invalid, the assessment thereafter based on that DVO report also be invalid. - Decided in favour of assessee.

Issues Involved:
1. Legality of the CIT(A)'s direction to adopt State PWD rates over CPWD rates for estimating the cost of construction.
2. Justification of the Assessing Officer's rejection of the books of accounts.
3. Validity of the reference to the District Valuation Officer (DVO) for cost of construction estimation.
4. Appropriateness of the cost of construction addition based on the DVO's report.

Detailed Analysis:

1. Legality of the CIT(A)'s Direction to Adopt State PWD Rates Over CPWD Rates:
The assessee contested the CIT(A)'s directive to the Assessing Officer to adopt State PWD rates instead of CPWD rates for estimating the cost of construction. The CIT(A) relied on the jurisdictional High Court's judgment in CIT vs. Shri. Raya R. Govindarajan to justify the adoption of CPWD rates. However, the assessee argued that the skeletal structure provided to the tenant, with substantial interior work done by the tenant, warranted the use of State PWD rates, which are more appropriate for the nature of the construction.

2. Justification of the Assessing Officer's Rejection of the Books of Accounts:
The Assessing Officer rejected the books of accounts on the grounds that they were prepared only at the time of assessment and supported by self-made vouchers. The assessee maintained that the rejection was unjustified without pinpointing specific defects in the books. The Tribunal noted that the Assessing Officer did not find any specific defects in the books and rejected them based on the presumption that the cost of construction was low.

3. Validity of the Reference to the DVO for Cost of Construction Estimation:
The Tribunal emphasized that under Section 142A(1) of the Income Tax Act, the Assessing Officer can refer the matter to the DVO only after rejecting the books of accounts. The Tribunal found that the Assessing Officer referred the matter to the DVO without properly rejecting the books of accounts, which were produced by the assessee. The Tribunal cited judicial precedents, including DCIT vs. Satish Cold Storage and Sargam Cinema vs. CIT, to support the view that the reference to the DVO without rejecting the books of accounts is invalid.

4. Appropriateness of the Cost of Construction Addition Based on the DVO's Report:
The Assessing Officer made an addition of Rs. 89,63,245/- towards the cost of construction based on the DVO's report, which estimated the cost at Rs. 5,70,06,100/-. The assessee objected to the DVO's report, arguing that the cost of construction was understated and that the DVO adopted CPWD rates instead of State PWD rates. The Tribunal noted that the DVO's report could not be utilized for framing the assessment since the reference to the DVO was invalid. The Tribunal concluded that the addition based on the DVO's report was not justified.

Conclusion:
The Tribunal allowed the assessee's appeal, concluding that the reference to the DVO was invalid as the Assessing Officer did not properly reject the books of accounts. Consequently, the DVO's report could not be used for assessment, and the addition towards the cost of construction was not justified. The Tribunal emphasized the importance of following proper procedures and substantiating claims with specific defects before rejecting books of accounts and making references to valuation officers.

← Previous Next →