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2012 (7) TMI 645 - AT - Income TaxUnexplained investment - search and seizure alleged that expenses on account of construction are not completely recorded in the books of account - As per the report of the DVO, total construction of the property was estimated higher than as against the cost of construction shown by the assessee Held that - Additions made in the hands of the respective owner companies of the aforesaid projects, as unexplained investment, have been deleted, year by year - Assessing Officer in this case also has not pointed out any specific defect in the books of accounts of the appellant company as well as those of the owner companies which are regularly maintained and audited - any difference between the cost of construction shown by the respective companies as per their books of accounts and as estimated by the DVO, which is otherwise insignificant and is within the acceptable range of error margin, cannot be made the basis either for making any addition u/s 143(3) r.w. Section 153A of the IT Act in the hands of the owner companies, as unexplained investment, or for estimating notional profit in the hands of the appellant contractor company additions deleted
Issues Involved:
1. Deletion of additions made by the Assessing Officer (AO) on account of unexplained investment in construction. 2. Validity of reference to the Departmental Valuation Officer (DVO) under Section 142A of the IT Act. 3. Rejection of books of account by the AO. 4. Consideration of gross profit (GP) on undisclosed receipts of construction. Issue-wise Detailed Analysis: 1. Deletion of Additions on Account of Unexplained Investment in Construction: The appeals by the revenue challenged the deletion of additions made by the AO on account of unexplained investment in the construction of a mall. The AO had based the additions on a valuation report by the DVO, which estimated the cost of construction higher than what was recorded in the books of account. The CIT (A) deleted these additions, relying on the decision of the Delhi High Court in CIT vs. AAR PEE Apartments Pvt. Ltd. and the Supreme Court in Sargam Cinema vs. CIT. The CIT (A) found that the reference to the DVO was not valid as no defects were pointed out in the audited books of account. Moreover, the difference in cost was marginal and within an acceptable error margin. 2. Validity of Reference to the DVO under Section 142A: The CIT (A) held that the reference to the DVO was against the provisions of law as Section 142A does not apply to Section 69C of the IT Act. The AO had made a reference to the DVO without pointing out any specific defects in the books of account. The Tribunal upheld this view, stating that the AO did not have a tenable basis for making a proposal under Section 142A, especially in light of the Supreme Court's judgment in Sargam Cinema and the Delhi High Court's judgment in AAR PEE Apartments Pvt. Ltd. 3. Rejection of Books of Account by the AO: The Tribunal observed that the AO did not explicitly reject the books of account under Section 145(3) of the IT Act. The books were regularly maintained, audited, and supported by vouchers. The AO had not found any specific discrepancies or defects in the books. The Tribunal upheld the CIT (A)'s finding that the books were not rejected and that the AO's presumption of unrecorded expenses was not substantiated. 4. Consideration of Gross Profit on Undisclosed Receipts of Construction: In subsequent appeals (ITA Nos. 2382 to 2387/Del/2011), the AO had calculated gross profit on the difference between the cost of construction shown by the assessee and the estimated value by the DVO. The CIT (A) deleted these additions as well, noting that the main addition in the hands of the payer companies had already been deleted. The Tribunal agreed with the CIT (A), stating that since the primary additions were deleted, there was no basis for assessing any gross profit on those receipts in the hands of the assessee. Conclusion: The Tribunal dismissed all the appeals filed by the revenue, upholding the CIT (A)'s decision to delete the additions made by the AO on account of unexplained investment in construction. The reference to the DVO was deemed invalid, and the books of account were not rejected. Consequently, the additions based on gross profit calculations were also deleted.
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