2017 (11) TMI 201 - HC - Income Tax

Reference to DVO - cost of construction referred to the District Valuation Officer for estimation without first rejecting the books of accounts maintained by the respondent-assessee - Held that - The question of whether cost of construction can be referred to the District Valuation Officer for estimation without first rejecting the books of accounts maintained by the respondent-assessee has been answered in favour of the assessee by the Supreme Court in Sargam Cinema vs. Commissioner of Income Tax (2009 (10) TMI 569 - Supreme Court of India ). In the present case, a categorical finding is recorded by the Tribunal that the books were never rejected. In the circumstances, reliance placed on the report of the DVO was misconceived. - Decided in favour of assessee.

Summary

Issues:
1. Addition made by the Assessing Officer to the income declared by the respondent-assessee for the Assessment Year 2009-10.
2. Reference to the District Valuation Officer for estimation of the cost of construction without rejecting the books of accounts maintained by the respondent-assessee.
3. Whether the cost of additional construction or improvements made by purchasers can be added to the income of the respondent-assessee.

Analysis:
1. The appeal was filed by the Revenue against the order of the Income Tax Appellate Tribunal, which had dismissed the appeal filed by the Revenue against an order deleting certain additions made by the Assessing Officer to the income declared by the respondent-assessee for the Assessment Year 2009-10. The Tribunal found that the Assessing Officer had added an amount to the income of the respondent-assessee based on a discrepancy in the cost of construction estimated by the District Valuation Officer and the books of accounts maintained by the assessee. However, the Commissioner of Income Tax (Appeals) allowed the appeal and deleted the addition, citing that the reference to the District Valuation Officer was not valid without rejecting the books of accounts.

2. The issue of whether the cost of construction can be referred to the District Valuation Officer for estimation without rejecting the books of accounts was analyzed. The Commissioner of Income Tax (Appeals) and the Tribunal both held that the Assessing Officer could not refer the valuation of the cost of construction to the District Valuation Officer without rejecting the books of accounts maintained by the respondent-assessee. This decision was supported by the Supreme Court judgment in Sargam Cinema vs. Commissioner of Income Tax, which emphasized the importance of rejecting the books of accounts before referring the matter to the Departmental Valuation Officer.

3. Another significant issue was whether the cost of additional construction or improvements made by purchasers could be added to the income of the respondent-assessee. The Tribunal found that the cost of improvements made by purchasers should only be considered as income in the hands of the purchasers, not the respondent-assessee. This factual finding was upheld, and it was concluded that there was no substantial question of law involved in this aspect, as per the judgment of the Supreme Court in Sargam Cinema.

In conclusion, the High Court dismissed the Tax Case Appeal, citing that the issues raised were covered by the precedent set by the Supreme Court in Sargam Cinema. The judgment highlighted the importance of rejecting books of accounts before referring valuation matters and clarified the treatment of additional construction costs in the income assessment process.