2017 (1) TMI 849 - HC - Income Tax

Rejection of books - reference to DVO - whether the A.O. could have made a reference under Section 142A of the Act? - Held that - This issue is no longer res integra as it has been settled by the Apex Court. The only circumstances under which a matter can be referred to the DVO is when the books of account of the assessee have been rejected. The facts in the present case are otherwise. The law as settled by the Apex Court in the case of Sargam Cinema Vs. CIT (2009 (10) TMI 569 - Supreme Court of India ) covers the matter squarely wherein held that matter could not refer to the Departmental Valuation Officer without the books of account being rejected.- Decided in favour of the assessee

Summary

Issues:
1. Whether the Tribunal's order to sustain the reference to the Valuation Officer under Section 142A is contrary to established legal principles?
2. Whether the addition under Section 69B based solely on the valuation officer's report is in accordance with the law?

Analysis:
1. The appeal was filed against the Tribunal's order for the assessment year 2008-09. The main contention was whether the reference to the Valuation Officer under Section 142A was valid. The Commissioner of Income Tax (Appeals) noted that the books of account were not rejected under Section 145(3) before the reference was made. The JCIT justified the reference by pointing out the AO's notings that the assessee failed to justify the investment in the property. The Tribunal, after considering the arguments, found that the assessee did not maintain detailed construction accounts, leading to an implicit rejection of the books of account. However, the High Court referred to established legal precedents, including the Sargam Cinema case, to conclude that a reference to the Valuation Officer can only be made if the books of account have been rejected. As the account books were not rejected in this case, the Tribunal's decision was deemed contrary to the law, and the appeal was allowed in favor of the assessee.

2. The second issue revolved around the addition under Section 69B based solely on the valuation officer's report. The Tribunal upheld the addition, emphasizing the lack of detailed construction expenditure accounts maintained by the assessee. However, the High Court reiterated that the law requires more than just a valuation officer's report for such additions. Citing the Gujarat High Court's decision in CIT v. Berry Plastics Pvt. Ltd., the High Court emphasized the necessity of additional material to support such additions. As no other material was presented besides the valuation officer's report, the Tribunal's decision to sustain the addition under Section 69B was found to be contrary to legal principles. Consequently, the appeal was allowed in favor of the assessee.

In conclusion, the High Court's judgment clarified the legal requirements for making references to Valuation Officers and additions under Section 69B, emphasizing the need for proper justification and adherence to established legal principles.