2014 (12) TMI 754 - AT - Income Tax

Confirmation of protective assessment Held that - The AO replied that till date they could not find the status of substantive addition and shown ignorance - as the revenue could not point out where the substantive addition made and what happened to the same the appeal was kept pending since 2010 and adjourned 36 times - this appeal cannot be kept pending for ever for the fault of revenue - the protective addition is deleted because the revenue is unable to bring on record what happened to substantive addition - in case revenue is able to show us that substantive addition has been deleted in the hands of Siliguri Prabhupada International Research Society and there is a direction that this addition should be considered in the hands of the assessee then they may get this order recalled as per the provisions of the Act decided in favour of assessee. Addition made on the basis of difference between investment shown by the assessee in the cost of construction of building in its books of account and cost estimated vide DVO s report - Whether reference can be made without rejecting book results or not to DVO for estimating cost of construction particularly when no defects were found in books of account except disallowance of small discrepancies and other preliminary expenses being capital in nature which were added while completing assessment u/s. 143(3) - Held that - Following the decision in ITO Vs. M/s. Sahul India Limited 2011 (8) TMI 1038 - ITAT KOLKATA - there is no whisper about any discrepancy in books of account and there is no rejection of books of account by AO the AO should not have referred the matter to the DVO for estimating cost of construction particularly when the cost of construction is fully described in the books of account. A clear finding to that effect along with materials on which such finding is based has to be made out and given by AO - no assessment under the first proviso to section 145(1) of the Act or under section 145(2) of the Act can be sustained if the AO has not considered and recorded a finding against the assessee as to whether he has been regularly employing a method of accounting or whether his income profits or gains can properly be deduced from his method of accounting if he has been regularly employing a method of accounting or whether the accounts are correct and complete and the AO s decision on these matters is not to be a subjective or arbitrary decision but a judicial decision and cannot be accepted if there is no material to support his findings - the AO referred cost of construction to DVO without rejection of books of account which is not as per established legal propositions thus the addition based on DVO s report estimating cost of construction without rejection of books of account as the books of account were maintained properly by assessee recording the cost of construction is set aside Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of protective assessment in the hands of the assessee.
2. Addition of difference in investment made in the cost of construction as disclosed in books of account and cost of construction as per DVO's report.

Issue-wise Detailed Analysis:

1. Confirmation of Protective Assessment:
The primary issue in ITA No. 1104/Kol/2010 was the confirmation of the protective assessment in the hands of the assessee. The substantive addition was made in the hands of Siliguri Prabhupada International Research Society based on the difference between the investment shown by the assessee in the cost of construction of a building and the cost estimated by the DVO's report, amounting to Rs. 20 lacs.

The Tribunal had repeatedly directed the Revenue to provide the status of the substantive addition in the hands of Siliguri Prabhupada International Research Society. Despite multiple adjournments and clear instructions, the Revenue failed to produce the assessment records or provide the status of the substantive addition. The Tribunal noted the non-cooperative attitude of the Revenue and the failure to comply with the directives. Consequently, the Tribunal decided to delete the protective addition in the hands of the assessee due to the Revenue's inability to provide the necessary information. The Tribunal allowed the appeal of the assessee, stating that if the Revenue could later show that the substantive addition had been deleted in the hands of Siliguri Prabhupada International Research Society and directed to be considered in the hands of the assessee, they might get the order recalled as per the provisions of the Act.

2. Addition of Difference in Investment Made in the Cost of Construction:
In ITA No. 1105/Kol/2010, the issue was the addition of Rs. 15,77,260/- based on the difference between the investment in the cost of construction as disclosed in the books of account and the cost estimated by the DVO's report.

The assessee argued that the AO had not rejected the book results and had referred the matter to the DVO without finding any defects in the books of account. The Tribunal noted that the assessee, a property developer, had provided complete books of account, bills, vouchers, bank statements, and other details during the assessment proceedings, which were verified by the AO. The AO, without rejecting the books of account, referred the cost of construction to the DVO, who estimated a higher cost.

The Tribunal referred to the decision in the case of ITO Vs. M/s. Sahul India Limited, where it was held that the AO cannot refer the cost of construction to the DVO without rejecting the books of account. The Tribunal also cited the Hon'ble Supreme Court's decision in Sargam Cinema Vs. CIT, which held that the assessing authority could not refer the matter to the DVO without rejecting the books of account. Additionally, the Tribunal referred to the Hon'ble Rajasthan High Court's decision in CIT V Pratap Singh Amro Singh Rajendra Singh, which emphasized that the valuation report could only be considered if the books of account were found to be unreliable or not supported by proper vouchers.

Based on these precedents, the Tribunal concluded that the AO's reference to the DVO without rejecting the books of account was not justified. The Tribunal deleted the addition based on the DVO's report, as the books of account were properly maintained by the assessee. Consequently, the appeal of the assessee was allowed, and the addition was deleted.

Conclusion:
Both appeals of the assessee were allowed. The protective addition was deleted due to the Revenue's failure to provide the status of the substantive addition, and the addition based on the DVO's report was deleted as the AO had not rejected the books of account. The Tribunal's decisions were based on established legal principles and precedents from higher courts.