2016 (7) TMI 931 - HC - Income Tax

Reference to DVO - non recording of defect in books of account - Held that - Assessing Officer did not find any glaring discrepancy in the books of accounts and the Assessing Officer who had passed the block order had not made any adverse comments on the expenditure so incurred. Thus, when the Assessing Officer recorded a finding that the accounts are duly audited and complete details are available and when the Assessing Officer has not rejected the books of account, he cannot make a reference to the Valuation Officer. See Goodluck Automobiles (P.) Ltd. vs. Assistant Commissioner of Income tax 2012 (9) TMI 157 - Gujarat High Court - Decided in favour of assessee.

Summary

Issues:
1. Valuation of business asset by Departmental Valuation Officer (DVO).
2. Addition made on account of unexplained investment in construction cost as allowable business expenditure.

Analysis:
1. The case involved a dispute regarding the valuation of construction cost of a building by the Departmental Valuation Officer (DVO) as compared to the amount shown by the assessee in their books of accounts. The Assessing Officer treated the differential amount as unaccounted investment in construction, adding it to the total income of the assessee. On appeal, the CIT (Appeals) deleted the addition. Subsequently, the ITAT partly allowed the appeal by confirming the action of the Assessing Officer in referring the matter to the DVO for valuation. The Tribunal also granted a partial deduction of the addition made on account of alleged unexplained investment in construction cost.

2. The appellant raised substantial questions of law challenging the ITAT's decision. The appellant contended that the Assessing Officer had not found any defects in the books of accounts, and therefore, the reference to the DVO was unwarranted. The appellant relied on previous court decisions to support their argument, emphasizing that in cases where no defects were found in the books of accounts, references to the DVO were deemed invalid. The court, after considering the arguments and the precedents cited, ruled in favor of the assessee. The court held that since no glaring discrepancies were found in the books of accounts and the Assessing Officer had not rejected them, making a reference to the Valuation Officer was not justified. Consequently, the court quashed and set aside the impugned judgment and order passed by the ITAT, allowing the Tax Appeal in favor of the assessee.