Unexplained investment in house construction cannot be added merely on valuation report without recorded satisfaction and proper basis of valuation.

An addition under section 69 for unexplained investment in house construction cannot rest only on a Departmental Valuation Officer's report. The Assessing Officer must first record reasoned satisfaction, based on material on record, that the assessee's disclosed construction cost is incorrect; where the books of account are not rejected, an expert valuation opinion alone cannot displace them. The analysis also states that, if valuation is undertaken in the circumstances described, State PWD rates are the proper basis rather than CPWD rates. The note records that the valuation-based additions were deleted and that a dissenting view would have upheld the reference to the valuation officer and the additions.

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Issues: Whether the addition under section 69 of the Income-tax Act, 1961 could be sustained on the basis of the Departmental Valuation Officer's report and whether the valuation should have been made on State PWD rates rather than CPWD rates.

Analysis: The determining view held that the Assessing Officer could not rely on the valuation report to make an addition under section 69 without first reaching a reasoned and judicial satisfaction that the cost of construction disclosed by the assessee was not correct. It was further held that the assessee's books of account, not having been rejected, could not be displaced merely by an expert valuation opinion, and that if valuation were to be undertaken, the proper basis was the State PWD rates rather than CPWD rates in the circumstances of the case.

Conclusion: The addition under section 69 was not sustainable and the assessee succeeded.

Final Conclusion: The referred question was answered against the Revenue, the valuation-based additions were deleted, and the assessee's appeals were allowed.

Ratio Decidendi: An addition for unexplained investment in house construction cannot be sustained merely on a valuation report unless the Assessing Officer first records a reasoned satisfaction, on the basis of material on record, that the disclosed cost is incorrect.

Dissenting Opinion: One Member held that reference to the valuation officer was valid, the DVO's report could be relied upon, and the additions under section 69 were justified.

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