2016 (9) TMI 798 - AT - Income Tax

Unexplained investment in immovable property - addition u/s 69 - reference made by the Assessing Officer to the DVO - Held that - Assessing Officer has noted that assessee has not maintained complete books of accounts as regard to the construction account of the subjected properties. So I do not have any other option other than taking view of expert of this field. So estimate made by assessee is here by rejected in absence of any documentary bills /vouchers which clearly spells out that the Assessing Officer is not satisfied with that part of the books maintained by the assessee in respect to the construction account of the subjected property whereas in our considered opinion this partial satisfaction does not fulfill the condition precedent laid down in section 145(3) of the Act and so the aforesaid reason given by the AO cannot satisfy the requirement of law to reject the books of account of the assessee. AO before referring the matter to DVO for valuation of the investment in the property should have rejected the books of account of the assessee that too after satisfying the conditions precedent as envisaged under section 145(3) of the Act and without doing so as found by us vitiates the reference made by the Assessing Officer to the DVO. In the case of Sargam Cinema vs. CIT (2009 (10) TMI 569 - Supreme Court of India ) wherein held that the reference made to the Valuation Officer under section 142A of the Act without rejecting the books of account for ascertaining the cost of investment is invalid and bad in law. Therefore we are of the view that the Assessing Officer was not justified to make reference to the DVO for ascertaining the cost of investment without rejecting the books of account of the assessee. Moreover this is a search case and it is an undisputed fact that no incriminating material was found and seized from the premises of the assessee. - Decided in favour of assessee.

Summary

Issues:
1. Addition of unexplained investment in immovable property under section 69 of the Income-tax Act, 1961.
2. Rejection of books of account by the Assessing Officer.
3. Reference to the Valuation Officer without rejecting books of account.
4. Validity of additions made in a search case.
5. Applicability of legal precedents in similar cases.

Analysis:
1. The main issue in this case was the addition of unexplained investment in immovable property under section 69 of the Income-tax Act, 1961. The Revenue appealed against the deletion of the addition by the ld. CIT(A). The Assessing Officer had referred the matter to the DVO for estimating the cost of investment as the assessee failed to provide supportive bills and vouchers for the construction of properties. The DVO's estimation led to a substantial addition to the assessee's income, which was contested in the appeal.

2. Another crucial issue was the rejection of books of account by the Assessing Officer. The AO rejected the books based on the lack of supporting evidence for the construction costs provided by the assessee. However, the Tribunal found that the rejection was not in accordance with the statutory requirements under section 145(3) of the Act. The AO should have satisfied the conditions precedent before rejecting the books, which was not done in this case.

3. The Tribunal also highlighted the issue of referring the matter to the Valuation Officer without rejecting the books of account. The AO's failure to reject the books before seeking valuation from the DVO was deemed invalid and against the law. Citing the Supreme Court's decision in Sargam Cinema vs. CIT, the Tribunal emphasized the importance of following proper procedures before making such references.

4. The validity of the additions made in a search case was also discussed. The Tribunal noted that no incriminating material was found or seized during the search, which raised questions about the justification for the additions. Citing the decision in CIT vs. Kabul Chawla, the Tribunal emphasized that additions cannot be made in non-abated/non-pending cases without any incriminating material found during the search.

5. Lastly, the Tribunal considered the applicability of legal precedents in similar cases. By analyzing various decisions, the Tribunal affirmed the order of the ld. CIT(A) and dismissed the Revenue's appeal. The Tribunal found no infirmity in the CIT(A)'s decision and confirmed the deletion of the addition of unexplained investment in immovable property.

In conclusion, the Tribunal upheld the CIT(A)'s decision, emphasizing the importance of following proper procedures, satisfying statutory requirements, and considering the presence of incriminating material in search cases before making additions to income.