2020 (2) TMI 790 - AT - Income Tax

Reference to DVO under s.142A invalid where books not rejected; DVO-based additions unsustainable but unvouched-expense additions upheld

ITAT, Bangalore held the reference to the DVO under s.142A invalid because books were not rejected, relying on SC precedent; therefore additions based ... Validity of making a reference to the DVO u/s 142A - unexplained expenditure u/s 69C - Non rejection of books of accounts - HELD THAT:- Reference to DVO in the present case is invalid because as held by the Hon’ble Supreme Court in the case of Sargam Cinemas Vs. CIT [2009 (10) TMI 569 - SC ORDER] rejection of books of accounts is a pre-condition for making a reference to DVO and there was admittedly no such rejection of books of accounts. It is clear from the aforesaid exposition of law on the issue that the reference to DVO in the present case is illegal and any addition made on the basis of such report cannot be sustained. Unvouched expenditure - HELD THAT:- contentions are general in nature and are without any particular reference and therefore, are not acceptable. Considering the facts and circumstances of the case we are of the view the addition sustained by the CIT(A) deserves to be upheld. - Decided against assessee. Issues Involved:1. Validity of reference to the Departmental Valuation Officer (DVO) under Section 142A of the Income Tax Act.2. Addition of unexplained investment under Section 69 of the Income Tax Act.3. Disallowance of unvouched expenditure.Detailed Analysis:1. Validity of Reference to the DVO under Section 142AThe primary issue was whether the Assessing Officer (AO) could make a reference to the DVO without rejecting the books of accounts maintained by the assessee. The assessee argued that the reference to the DVO was invalid as the AO did not find any defects in the books of accounts. The assessee cited the Supreme Court’s decision in Sargam Cinema vs. CIT 262 ITR 513, which held that rejection of books of accounts is a pre-condition for making a reference to the DVO.The Tribunal noted that the properties in question were not stock-in-trade but were classified as fixed assets or work-in-progress in the balance sheet. The AO had not rejected the books of accounts, and as per the Supreme Court’s ruling in Sargam Cinema, such a reference to the DVO without rejecting the books of accounts was invalid. Consequently, the Tribunal held that the addition made by the AO based on the DVO’s report could not be sustained.2. Addition of Unexplained Investment under Section 69The AO added the difference between the cost of construction recorded in the assessee’s books and the DVO’s estimated cost as unexplained investment under Section 69. The AO also included the fair market value of the land, which was not disclosed in the balance sheet, as unexplained investment.The Tribunal found that the reference to the DVO was invalid, and therefore, any addition based on such a report could not be sustained. The Tribunal emphasized that the AO must reject the books of accounts before making a reference to the DVO, which was not done in this case. Hence, the additions made under Section 69 were deleted.3. Disallowance of Unvouched ExpenditureThe AO disallowed a sum of Rs. 75,000 out of the expenses debited in the Profit & Loss account due to the absence of supporting vouchers. The assessee contended that the AO did not point out any specific item of expenditure to be disallowed and that fringe benefit tax had been paid on the expenses.The Tribunal upheld the disallowance, noting that the assessee’s contentions were general and lacked specific references. The Tribunal found no reason to interfere with the AO’s decision on this matter.Conclusion:The appeal was partly allowed. The Tribunal invalidated the reference to the DVO and deleted the additions made under Section 69 based on the DVO’s report. However, the disallowance of Rs. 75,000 for unvouched expenditure was upheld. The order was pronounced in the open court on 12th February 2020.