1997 (2) TMI 162 - AT - Income Tax

Assessing Officer Assessment Year Reference To Valuation Officer Registered Valuer Unexplained Investments Valuer s Report

Summary

Issues Involved:
1. Justification of adding Rs. 3,51,877 under "Income from other sources" based on the valuation officer's report.
2. Validity of referring the matter to the valuation officer without pointing out defects in the assessee's books of account.

Issue-wise Detailed Analysis:

1. Justification of Adding Rs. 3,51,877 under "Income from Other Sources":

The primary issue revolves around the addition of Rs. 3,51,877 to the assessee's income under the head "Income from other sources." The assessee-firm, involved in constructing a market complex under an agreement with Burdwan Municipality, reported construction expenditure of Rs. 3,04,570 for the assessment year 1991-92. However, the District Valuation Officer (DVO) estimated the investment at Rs. 6,56,457, leading to a discrepancy of Rs. 3,51,887. The Assessing Officer (AO) treated this difference as unexplained investment.

The assessee contended that the construction was supervised by the municipality's engineers and adhered to the P.W.D. rate schedule. The firm argued that it only had the right to recover the actual cost of construction, not more, and thus had no incentive to underreport expenses. The assessee also maintained proper books of account, and without pointing out specific defects, the AO's reliance on the DVO's report was unjustified.

The Commissioner (Appeals) upheld the AO's decision, noting the significant discrepancy between the registered valuer's report and the DVO's estimate. Both the registered valuer and the DVO acknowledged the absence of detailed vouchers for building materials and labor payments. Consequently, the AO's reference to the valuation cell was deemed justified.

2. Validity of Referring the Matter to the Valuation Officer:

The assessee challenged the legality of the AO's reference to the valuation officer, arguing that the AO did not identify any defects in the books of account. The books were regularly maintained, and all expenditures were properly recorded. The AO never specifically requested vouchers or identified any unvouched expenses. The assessee cited several judicial precedents to support the argument that without pointing out defects in the books, the AO could not justify the addition based on the DVO's report.

The Tribunal found substantial merit in the assessee's contentions. The records revealed that the AO did not reject the books of account or identify any defects before referring the matter to the valuation officer. The Tribunal noted that the AO's observation about the absence of vouchers was made only to justify the addition based on the DVO's report. The Tribunal emphasized that the AO must examine the evidence produced by the assessee and point out specific flaws before relying on an external valuation report.

The Tribunal cited several judicial precedents, including the cases of CIT v. Pratapsingh Amrosingh Rajendra Singh and Deepak Kumar and Sri Har Sarup Cold Storage & General Mills v. ITO, which established that the AO must first verify the books and vouchers and identify defects before referring the matter to the valuation officer.

Conclusion:

The Tribunal concluded that the AO's reference to the valuation officer was invalid as it was made without identifying defects in the assessee's books of account. The addition of Rs. 3,51,877 based on the DVO's report was unjustified. Consequently, the Tribunal directed the AO to delete the addition, allowing the appeal filed by the assessee.