1997 (5) TMI 105 - AT - Income Tax

Summary

Issues Involved:
1. Justification of Assessing Officer's reference to the Departmental Valuation Officer (DVO) for ascertaining the cost of construction.
2. Validity of addition made by the Assessing Officer based on the DVO's report u/s 69 of the Income-tax Act, 1961.

Summary:

Issue 1: Justification of Assessing Officer's Reference to DVO
The appeal concerns the addition of Rs.1,37,400 made by the Assessing Officer for unexplained investment in the construction of a hotel complex "M/s. Shanti Complex" u/s 69 of the Act. The assessee did not maintain proper books of account, leading the Assessing Officer to refer the cost of construction to the Departmental Valuation Cell. The Valuation Officer estimated the cost at Rs.12,08,000, significantly higher than the Rs.5,06,000 estimated by the assessee's Registered Valuer. The CIT(A) provided partial relief, reducing the total investment by about Rs.2,50,000. The Tribunal had to determine whether the reference to the DVO was justified.

The Third Member agreed with the Accountant Member that the reference to the DVO was justified. The Assessing Officer, not being an expert in construction, was within his rights to seek an expert opinion from the DVO. The Tribunal referenced the Rajasthan High Court's decision in CIT v. Pratapsingh Amrosingh Rajindra Singh and Deepak Kumar, which supported the use of a valuation report when proper books of account are not maintained.

Issue 2: Validity of Addition Based on DVO's Report u/s 69
The assessee argued that the cost for the second floor retained by the CIT(A) was still excessive and reiterated objections to the DVO's valuation. The CIT(A) allowed some relief but the assessee sought further reduction. The Department contended that excessive relief had been granted.

The Third Member found that the Assessing Officer had not adequately considered the Registered Valuer's report submitted by the assessee. The Assessing Officer's reliance solely on the DVO's report, without proper consideration of the assessee's objections and the Registered Valuer's report, was deemed inappropriate. The Third Member agreed with the Judicial Member that there was no cogent or tangible material to justify the addition made by the Assessing Officer based on the DVO's report.

Conclusion:
The Third Member concluded that while the reference to the DVO was justified, the addition made based on the DVO's report was not valid. The matter was referred back to the regular Bench for disposal according to the majority opinion, resulting in the assessee's appeal being partly allowed and the departmental appeal dismissed.