2013 (12) TMI 784 - HC - Income Tax

Unexplained investment in property - reference to valuation officer - Held that - the assessing authority could not have referred the matter to the Departmental Valuation Officer (DVO) without the books of account being rejected. - Following the decision in Sargam Cinema vs. CIT; 2009 (10) TMI 569 - Supreme Court of India , decided in favor of assessee.

Summary

Issues:
Appeals filed by Department under Section 260A of Income Tax Act against ITAT judgment for block period ending on 14.05.1998.

Analysis:
The appeals were filed by the Department against the ITAT judgment on the substantial question of law regarding the addition of Rs.8,65,566 made by the AO on account of unexplained investment in a property, ignoring the effect of Section 142-A inserted by Finance Act (No.2), 2004. The case involved a search under Section 132(1)(A) revealing investment in a property in Kanpur. The AO made additions based on the DVO report, which was partly upheld by the first appellate authority but deleted by the Tribunal.

The Department argued that the additions were valid citing precedents like Sunder Carpet Industries case and Unit Construction Co. Ltd. case. They also suggested referring the matter to a Larger Bench. On the other hand, the assessee justified the impugned order, relying on the CIT vs. Vinod Danchand Ghodawat case, emphasizing that the additions were below prescribed limits.

The Court noted that the valuation by the DVO was based on estimation, which is a question of fact as per various precedents. It was observed that the AO did not reject the books of account before referring the matter to the DVO, as highlighted in the Sargam Cinema case by the Supreme Court. Consequently, the Court found no basis for the addition and ruled in favor of the assessee, dismissing the appeals filed by the Department.

In conclusion, the Court dismissed both appeals by the Department, emphasizing that there was no valid reason for the addition made by the AO, as the valuation by the DVO was not justified in the absence of rejected books of account. The ruling favored the assessee based on the facts and legal precedents cited during the proceedings.