2002 (11) TMI 243 - AT - Income Tax

Summary

Issues Involved:
1. Legality of reference to District Valuation Officer (DVO) for cost estimation.
2. Confirmation of cost of construction of the cold storage building.
3. Additions under Section 68 regarding unexplained cash credits and share application money.
4. Deduction for self-supervision rate.

Detailed Analysis:

1. Legality of Reference to DVO for Cost Estimation:
The assessee challenged the CIT(A)'s decision, arguing that the reference to the DVO under Section 131(1)(d) of the IT Act was not justified without rejecting the books of account. The AO had referred the matter to the DVO as the assessee did not provide a technical expert report or details to substantiate the declared cost of construction. The DVO estimated a higher cost, leading to an addition under Section 69 of the IT Act. The CIT(A) upheld the AO's action, stating that Section 131(1) empowers the AO to seek technical opinion for valuation purposes. However, the Tribunal found that the AO did not point out any defects in the books of account or invoke Section 145, making the reference to the DVO and subsequent addition unjustified. The Tribunal cited various precedents supporting the view that without rejecting the books of account, reliance on the DVO's report is not warranted.

2. Confirmation of Cost of Construction of the Cold Storage Building:
The assessee's appeal also included specific additions to the cost of construction, such as costs for glass wool insulation, steel, architect fees, contingency, cost index increase, and self-supervision deduction. Given the Tribunal's decision on the primary issue, these specific additions were not separately considered.

3. Additions Under Section 68 Regarding Unexplained Cash Credits and Share Application Money:
The AO made additions for various deposits and share capital, totaling Rs. 10,65,000, due to non-production of certain depositors for cross-examination. The CIT(A) upheld these additions, noting that the creditors failed to prove their capacity to advance the amounts. The Tribunal, however, found that an amount of Rs. 1,00,000 was credited in the previous year, not the year under consideration, thus it could not be added for the current assessment year. Furthermore, the Tribunal referenced the Supreme Court decision in CIT vs. Steller Investment Ltd., stating that any share application money received by the company cannot be regarded as undisclosed income of the company, even if the subscribers are not genuine. Consequently, the Tribunal deleted the addition of Rs. 10,65,000.

4. Deduction for Self-Supervision Rate:
The Revenue appealed against the CIT(A)'s direction to allow a 10% deduction for self-supervision instead of the 7.5% allowed by the Departmental valuer. The Tribunal, in view of its decision on the primary issues, found no merit in the Revenue's appeal and dismissed it.

Conclusion:
The Tribunal partly allowed the assessee's appeal, deleting the additions made based on the DVO's report and under Section 68. The Revenue's appeal was dismissed. The Tribunal emphasized the necessity of rejecting the books of account before making any reference to a DVO and upheld the principle that share application money cannot be treated as undisclosed income of the company.