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2018 (9) TMI 952 - AT - Income TaxComputation of work-in-progress - non rejection of books of accounts - whether where the books of account of the assessee were audited and the said audited books of account have not been rejected, can the addition or disallowance be made in the hands of assessee, on the basis of any reference made to the DVO - Held that - Applying the said ratio laid down by the Hon ble Supreme Court in Sargam Cinema Vs. CIT (2009 (10) TMI 569 - SUPREME COURT OF INDIA) to the facts of the present case, we hold that where the Assessing Officer has failed to reject the books of account of assessee, then no reference could be made to the DVO for verifying the cost incurred for the project The Mall . The assessee in any case had debited the said expenditure to the head Work-in-progress , which has to be set off against the income in later years. There is no merit in the order of Assessing Officer in disallowing the said expenditure as not allowable. CIT(A) has erred in directing the Assessing Officer to verify the genuineness of expenditure once again in the year in which the impugned expenditure was set off against income recognized, if any. Such an action is not warranted, since it is based on the report of the DVO, for which reference was made without rejecting books of account. Accordingly, we reverse the finding of CIT(A). The grounds of appeal raised by the assessee are thus, allowed.
Issues Involved:
1. Reduction in work-in-progress based on conjectures and surmise. 2. Reliance on the report of the Government Valuer commissioned under section 131(1)(d). 3. Non-acceptance of book results of civil construction value without noticeable defects. 4. Consideration of regular books of accounts and statutory audit under section 44AB. Detailed Analysis: 1. Reduction in Work-in-Progress Based on Conjectures and Surmise: The assessee challenged the reduction in work-in-progress recorded on the basis of conjectures and surmise. The CIT(A) and the Assessing Officer (AO) had questioned the genuineness of the expenses claimed by the assessee for the project 'The Mall,' which were shown as work-in-progress. The AO disallowed ?26,26,900/- as bogus expenses, stating that no civil construction work was carried out during the relevant period. However, the CIT(A) held that while the AO was justified in doubting the genuineness of the expenditure, it was incorrect to treat the expenditure as taxable income for the year. Instead, the CIT(A) suggested reducing the expenditure from the closing work-in-progress. 2. Reliance on the Report of the Government Valuer Commissioned Under Section 131(1)(d): The assessee argued against the reliance on the Government Valuer's report, which was unlawfully commissioned under section 131(1)(d) by the ADI Investigation. The Valuer's report indicated that no work was executed during the period from 2009-10 to 2010-11, but expenses of ?13.17 crores were spent on material and direct expenses. The assessee contended that the expenses were supported by audited books of account, and no addition should be made solely based on the Valuer's report. The Tribunal noted that the Hon'ble Supreme Court in Sargam Cinema Vs. CIT held that no reference could be made to the DVO for assessing the cost of construction if the books of account were not rejected. 3. Non-Acceptance of Book Results of Civil Construction Value Without Noticeable Defects: The assessee maintained that the book results of the value of civil construction were supported by bills and vouchers, subjected to close scrutiny and audit by Chartered Accountants. The AO had not pointed out any noticeable defects in the books of account. The Tribunal emphasized that the AO had not rejected the books of account, and hence, no addition was warranted based on the DVO's report. The Tribunal cited the Pune Bench's decision in Dr. Shivaji Ramchandra Kolekar Vs. ITO, which held that without rejecting the books of account, the AO could not make additions based on the DVO's report. 4. Consideration of Regular Books of Accounts and Statutory Audit Under Section 44AB: The assessee argued that regular books of accounts were maintained, and statutory audit under section 44AB was conducted by Chartered Accountants, who did not make any adverse remarks. The Tribunal agreed with the assessee, noting that the AO and CIT(A) had not rejected the audited books of account. Therefore, the addition based on the DVO's report was not justified. The Tribunal held that the CIT(A) erred in directing the AO to verify the genuineness of expenditure in the year it was set off against income, as this action was based on an improper reference to the DVO. Conclusion: The Tribunal allowed the appeal of the assessee, reversing the findings of the CIT(A) and holding that no addition or disallowance could be made based on the DVO's report without rejecting the books of account. The expenses shown as work-in-progress were to be set off against the income in later years, and no further verification was warranted. Order Pronounced: The appeal of the assessee was allowed on 10th September 2018.
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