2017 (12) TMI 792 - AT - Income Tax

Reference of matter to the Valuation Cell u/s 142A - rejection of books of accounts - Held that - Reference made by the AO u/s 142A of the Act without rejection of the assessee s books of account is invalid. The Additional Grounds are are, accordingly, accepted. This issue was raised by the assessee before the ld. CIT(A) by way of written submissions, as reproduced in the impugned order. However, the ld. CIT(A) has not decided this issue. There is no merit in the Department s contention that the extant section 142A is applicable retrospectively. The section has specifically been made applicable, by the legislature itself, w.e.f. 1.10.2014 and so, it cannot be said to operate retrospectively.

Issues Involved:
1. Justification of CIT (Appeals) in confirming the order of the Assessing Officer (A.O.)
2. Validity of the valuation report of the Registered Valuer.
3. Acceptance of the valuation method used by the A.O.
4. Previous ITAT decision relevance.
5. Appropriateness of the plinth area method for property valuation.
6. Justification of the addition in property valuation.
7. Bifurcation of construction costs over respective assessment years.
8. Legality of the reference to the Valuation Officer under section 142A without rejecting the books of accounts.
9. Material basis for the reference to the Valuation Officer.

Detailed Analysis:

1. Justification of CIT (Appeals) in Confirming the Order of A.O.:
The assessee challenged the CIT (Appeals) for confirming the A.O.'s order, arguing that the valuation of the property was supported by a Registered Valuer's report, which the A.O. did not reject before referring the matter to the Departmental Valuation Officer (DVO). The Tribunal found that the CIT (Appeals) did not adequately address this issue.

2. Validity of the Valuation Report of the Registered Valuer:
The assessee contended that the A.O. unjustifiably ignored the Registered Valuer’s report, which was based on an item-wise method. The Tribunal noted that the A.O. did not reject this report before seeking the DVO's estimation, which was a procedural lapse.

3. Acceptance of the Valuation Method Used by the A.O.:
The A.O. used the plinth area method for property valuation, which the assessee argued was incorrect. The Tribunal observed that the assessee had provided all necessary documents, including approved drawings and structural plans, which the A.O. failed to consider adequately.

4. Previous ITAT Decision Relevance:
The assessee referenced a previous ITAT decision in a similar case (Shri Amol Chand Varshney Sewa Sansthan vs. Additional Commissioner of Income-Tax) to support their argument. The Tribunal acknowledged this precedent, indicating that similar issues had been decided in favor of the assessee.

5. Appropriateness of the Plinth Area Method for Property Valuation:
The Tribunal agreed with the assessee that the use of the plinth area method was inappropriate given the detailed documentation provided. The CIT (Appeals) failed to appreciate this, leading to an incorrect valuation.

6. Justification of the Addition in Property Valuation:
The Tribunal found that the CIT (Appeals) was not justified in confirming the addition of ?78,56,381/- in the property valuation on an estimated basis, as the A.O. did not reject the books of accounts before making the reference to the DVO.

7. Bifurcation of Construction Costs Over Respective Assessment Years:
The assessee argued that the construction costs should be bifurcated over the relevant assessment years (from 6-01-2009 to 31-10-2010). The Tribunal noted that the A.O. did not consider this aspect properly, leading to an erroneous assessment.

8. Legality of the Reference to the Valuation Officer Under Section 142A Without Rejecting the Books of Accounts:
The Tribunal emphasized that the A.O. must reject the books of accounts before making a reference to the Valuation Officer under section 142A. Citing the case of ‘Goodluck Automobile (P) Ltd. vs. ACIT’, it was held that the reference made without rejecting the books of accounts was invalid.

9. Material Basis for the Reference to the Valuation Officer:
The Tribunal found that the A.O. made the reference to the Valuation Officer without any material basis or recording satisfaction that the assessee had made unrecorded investments. This procedural lapse rendered the reference arbitrary and invalid.

Conclusion:
The Tribunal concluded that the A.O.'s reference to the Valuation Officer under section 142A without rejecting the books of accounts was invalid. The CIT (Appeals) erred in confirming the A.O.'s order. Consequently, the Tribunal reversed the impugned order and allowed the appeal in favor of the assessee. The decision was pronounced in the open court on 07/12/2017.

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