2011 (7) TMI 1401 - AT - Income Tax

Summary

Issues Involved:
1. Validity of notice issued u/s 148.
2. Addition towards unexplained cost of construction.
3. Credit for sale proceeds of salvaged materials.
4. Disallowance of interest on loan for construction.
5. Allowance of depreciation for additions made.

Summary:

1. Validity of Notice Issued u/s 148:
The assessee contended that the notice issued u/s 148 was invalid and the reassessment proceedings were void ab-initio. However, during the hearing, the assessee opted not to press this ground. Consequently, the Tribunal rejected this ground as not pressed.

2. Addition Towards Unexplained Cost of Construction:
The main issue revolved around the addition made by the assessing officer towards unexplained investment in the cost of construction. During a survey operation, discrepancies were found between the valuation report by a registered valuer and the figures in the assessee's books. The assessing officer referred the matter to the DVO without first rejecting the books of accounts, which is a condition precedent. The Tribunal, referencing the Supreme Court judgment in Sargam Cinema Vs. CIT, held that such a reference without rejecting the books of accounts is invalid. Consequently, the additions based on the DVO's report were deleted.

3. Credit for Sale Proceeds of Salvaged Materials:
The assessee argued that the assessing officer did not give credit for the sale proceeds of salvaged timber and bricks from the demolition of the old house. This issue was not separately adjudicated as the main ground regarding the unexplained cost of construction was resolved in favor of the assessee.

4. Disallowance of Interest on Loan for Construction:
The assessee also contested the disallowance of interest on the loan availed for construction. However, this ground was not pressed during the hearing and was dismissed by the Tribunal as not pressed.

5. Allowance of Depreciation for Additions Made:
The assessee raised an alternative ground for the allowance of depreciation if the addition made on account of unexplained construction was sustained. Since the Tribunal deleted the additions, this ground became redundant.

Conclusion:
The Tribunal concluded that the reference to the DVO without rejecting the books of accounts was invalid, and any addition based on such a valuation report is not sustainable. The order of the CIT(A) was set aside, and the additions were deleted. The appeals of the assessee were partly allowed.