2022 (3) TMI 1530 - AT - Income Tax

Addition on the basis of Departmental Valuation Officer s DVO - difference between the value shown by the assessee in the books of account and value estimated by the DVO of the property Spanish Garden - HELD THAT - Once the assessee is maintaining regular books of account and in the course of its business the assessee has recorded the transactions in its books of account then without finding/pointing out any defect in the books of account and without holding that the books of account are rejected then the AO cannot proceed to make addition on the basis of DVO s report. In the case of Sargam Cinema 2009 (10) TMI 569 - SC ORDER has held that the assessing authority could not refer the matter to the DVO in a case where there was no categorical finding recorded by the Tribunal then the books of account were never rejected. Appeal of assessee allowed.

Summary

Issues:
1. Addition based on Departmental Valuation Officer's report for property valuation discrepancies.

Analysis:
In this case, the assessee filed separate appeals against two orders of the CIT[A] pertaining to Assessment Years 2006-07 and 2007-08. The primary issue in both appeals was the addition made by the Assessing Officer based on the Departmental Valuation Officer's report, which highlighted a variance between the value declared by the assessee in the books of account and the value estimated by the DVO for the property Spanish Garden.

During the scrutiny assessment, it was observed that the assessee owned Spanish Garden in Guwahati and had declared the cost of construction/investment in the property. Subsequently, the DVO's report indicated a variance in the property's valuation compared to the assessee's declaration, leading to additions of Rs. 1,66,439 in 2006-07 and Rs. 37,61,578 in 2007-08 by the Assessing Officer.

The assessee contested these additions before the CIT(A) without success. The assessee argued that since the investments were properly recorded in the books of account, the Assessing Officer should not have referred the matter to the DVO or made any additions without rejecting the books. Reference was made to the Supreme Court's decision in the case of Sargam Cinema 328 ITR 513 to support this argument.

After careful consideration, the ITAT found that the sole basis for the additions was the variance between the investment recorded in the books and the DVO's valuation. The ITAT held that without rejecting the books of account or identifying any defects, the Assessing Officer could not solely rely on the DVO's report to make additions. Citing the Supreme Court's decision in the Sargam Cinema case, where it was established that the matter cannot be referred to the DVO if the books were not rejected, the ITAT allowed both appeals as the books of account were not rejected in this case.

Therefore, in line with the Supreme Court's precedent and considering the absence of book rejection, the ITAT allowed the appeals of the assessee, setting aside the additions made by the Assessing Officer based on the DVO's report for the discrepancies in property valuation.

In conclusion, the ITAT ruled in favor of the assessee, emphasizing the importance of maintaining regular books of account and the necessity of rejecting books before making additions based on external valuation reports.