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2012 (11) TMI 464 - AT - Income TaxUnexplained investment in the factory building - case referred to DVO - Held that - A.O. did not reject the books of account regularly maintained by the assessee by invoking section 145(3). The assessee raised the ground before the CIT(A) that reference under section 142A to the D.V.O. is without jurisdiction as the A.O. did not reject the books of account. The CIT (A) rejected the assessee s contention with general observation without pointing out serious infirmity in the books of account maintained by the assessee. The CIT (A) on general presumption stated that the cost of construction recorded in the books of account is not supported by bills and vouchers without pointing out any specific instances. The CIT(A) has failed to point out any material in support of his finding that the books of account maintained by the assessee is liable to be rejected under auction 145(3). No convincing reasons why the CIT(A) has estimated cost of construction only on the basis of D.V.O. s. report when the A.O. made reference to D.V.O. without rejecting books of account regularly maintained by the assessee - order of the CIT(A) is set aside by deleting the addition sustained by the CIT(A) - in favour of assessee.
Issues:
1. Estimation of construction cost of factory building. 2. Validity of reference to Valuation Officer under section 142A of the Act. 3. Rejection of books of account by Assessing Officer. Issue 1: Estimation of construction cost of factory building: The appeal concerned the estimation of the cost of construction of a factory building by the assessee for the Assessment Year 2004-05. The Assessing Officer (A.O.) initially made an addition of Rs. 4,65,348/- for unexplained investment in construction, based on a valuation by the Departmental Valuation Officer (DVO) at Rs. 17,19,900/-. The assessee challenged this before the CIT(A), who, after considering revised reports from the DVO and a registered valuer, limited the addition to Rs. 2,87,488/-. The CIT(A) estimated the construction cost at Rs. 16,17,040/-, higher than the amount declared by the assessee. The CIT(A) found discrepancies in the assessee's records and noted the absence of complete documentation to ascertain the actual investment made in construction. Issue 2: Validity of reference to Valuation Officer under section 142A of the Act: The Tribunal examined the legality of the reference made by the A.O. to the DVO under section 142A of the Act without rejecting the books of account maintained by the assessee. The Tribunal referred to relevant legal provisions and judicial precedents to determine the circumstances under which such references are permissible. It highlighted the requirement for the A.O. to reject the books of account before making a reference to the Valuation Officer. The Tribunal analyzed the implications of the A.O.'s actions in this case and concluded that the reference to the DVO without rejecting the books of account was without jurisdiction. The Tribunal also considered various estimations of the construction cost and found discrepancies in the valuation reports, leading to the deletion of the addition sustained by the CIT(A). Issue 3: Rejection of books of account by Assessing Officer: The Tribunal delved into the provisions of section 145 of the Act regarding the computation of income based on the accounting system employed by the assessee. It referred to judicial decisions emphasizing that the A.O. can refer the matter to the Valuation Officer only if there are serious infirmities in the books of account. The Tribunal scrutinized the CIT(A)'s decision to estimate the construction cost primarily based on the DVO's report, despite the absence of a rejection of the books of account by the A.O. The Tribunal found that the CIT(A) failed to provide substantial evidence to support the rejection of the books of account. Consequently, the Tribunal set aside the CIT(A)'s order and allowed the appeal of the assessee. In conclusion, the Tribunal's judgment addressed the issues of construction cost estimation, validity of reference to the Valuation Officer, and rejection of books of account. It emphasized the importance of following legal procedures and ensuring proper documentation in assessing unexplained investments. The decision highlighted the necessity for the A.O. to reject books of account before making references to Valuation Officers and underscored the significance of evidence-based assessments in tax matters.
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