2014 (4) TMI 896 - HC - Income Tax

High Court rules on unexplained investment in house property under Income Tax Act

Commissioner of Income Tax-II Versus Vijaykumar D. Gupta

The High Court addressed the addition of unexplained investment in house property under section 69B of the Income Tax Act, 1961, based on the DVO's ... Partial Deletion made u/s 69B of the Act – Unexplained investment in house property – Reliance placed upon DVO’s report – Held that:- Following Goodluck Automobiles Pvt. Ltd. v. Assistant Commissioner of Income tax [2012 (9) TMI 157 - Gujarat High Court] - There is nothing in the assessment order to suggest that the AO had any doubt regarding the cost of construction or that he was not satisfied regarding the correctness or completeness of the books of account - the only reason for making the addition u/s 69 of the Act is that there is a difference in the cost of construction as determined by the Valuation Officer and as shown by the assessee - At no stage of the assessment proceedings does the AO appear to have mentioned that the books of account are defective or that the cost of construction as shown in the books of account is not the true cost of construction - unless the books of accounts are rejected, the AO cannot make a reference to the Valuation Officer - The reference made to the Valuation Officer, not being in consonance with the provisions of law was invalid - the report made by the Valuation Officer pursuant to such an invalid reference could not have been made the basis for addition u/s 69 of the Act – no substantial question of law arises for consideration - Decided against Revenue. Issues:1. Addition of unexplained investment in house property under section 69B of the Income Tax Act, 1961.2. Validity of reference to the Valuation Officer without rejecting the books of accounts.Analysis:1. The High Court addressed the issue of the addition of Rs.3,34,271 as unexplained investment in house property under section 69B of the Income Tax Act, 1961. The Assessing Officer had made this addition based on the DVO's report. The CIT (Appeals) partially retained the additions, leading to cross-appeals by both the assessee and the Revenue. The Tribunal allowed the assessee's appeal and rejected the Revenue's appeal, resulting in two appeals on the same matter. The Court examined the assessment order and previous decisions to determine the validity of the addition.2. The Court also discussed the validity of the reference made to the Valuation Officer without rejecting the books of accounts. In a similar case involving the same assessee, separate orders were passed, dismissing the appeals. The Court referred to the decision of the Supreme Court in the case of Sargam Cinema and analyzed the statutory scheme along with the assessment order. It was noted that the Assessing Officer had not rejected the books of accounts or found any defects before referring to the Valuation Officer. The Court emphasized that unless the books of accounts are rejected, a reference to the Valuation Officer is invalid. The decision of the High Court in a previous case was followed, and it was concluded that no substantial question of law arose, leading to the dismissal of the Tax Appeals.Overall, the High Court's judgment focused on the proper application of the provisions of the Income Tax Act, the necessity of rejecting books of accounts before referring to the Valuation Officer, and the importance of following established legal principles in making additions based on expert reports.