2022 (5) TMI 1154 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on Section 69 addition, rules Section 142A not applicable.

The Dy. CIT Central Circle-2 Kanpur Versus M/s Nisha Narendra Construction (P) Ltd. And M/s Nisha Narendra Construction (P) Ltd. Versus The Dy. CIT Central Circle-2 Kanpur

The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO under Section 69, based on the valuation report. It was held that the ... Addition u/s 69 based on the valuation report - CIT- A deleted the addition on ground that without pointing out any defects in the books of account, the Assessing Officer could not have made a reference to the DVO under section 142A - HELD THAT:- Obviously, ‘Sargam Cinema’ [2009 (10) TMI 569 - SC ORDER] is applicable to the case of the assessee and the amendment brought in concerning the provisions of section 142A of the I.T. Act have no adverse effect inasmuch as the amended section has expressly been made applicable w.e.f. 1.10.2014. To reiterate, undisputedly, the year under consideration is Assessment Year 2013-14, due to which fact, the amended provisions, in absence of express direction to the contrary, cannot be made applicable to the year under consideration. To make it further clear, it would be appropriate to add that the present provisions of section 142A(2) provide that the Assessing Officer may make reference to the Valuation Officer under subsection (1) of section 142A whether or not he is satisfied about the correctness or completeness of the accounts of the assessee. Evidently, there was no analogous provision in the section prior to the amendment. In such facts and circumstances, the ld. CIT(A) has correctly held that the Assessing Officer was not justified in referring the matter to the DVO and adopting the valuation suggested by the DVO and making addition on the basis thereof. CIT(A) has correctly relied on ‘CIT vs. Shivakami Company Pvt. Ltd.’ [2009 (10) TMI 569 - SC ORDER] ‘ K.P. Varghese vs. CIT’ [1981 (9) TMI 1 - SUPREME COURT] - The Hon’ble Supreme Court has long since settled the law that unless there is evidence of excess consideration having been paid in the transaction of immovable property, no higher price can be taken in the computation of income. Department has failed to show as to how the decisions in ‘Vijay Kumar Talwar vs. CIT’ [2010 (12) TMI 2 - SUPREME COURT] and ‘Sudarshan Silk Sarees vs. CIT’ [2008 (4) TMI 5 - SUPREME COURT] sought to be relied on by the Department, stand violated. - Decided against revenue. Issues Involved:1. Deletion of addition under Section 69 based on valuation report.2. Applicability of amended Section 142A.3. Validity of reference to District Valuation Officer (DVO).4. Consistency in the method of accounting.5. Relevance of Supreme Court decisions.Detailed Analysis:1. Deletion of Addition under Section 69 Based on Valuation Report:The Department contended that the CIT(A) erred in deleting the addition of Rs. 1,60,19,636/- made by the Assessing Officer (AO) under Section 69 of the Income Tax Act, based on the valuation report. The AO had made this addition without pointing out any defects in the books of accounts. The CIT(A) deleted the addition, observing that the AO had not found any fault with the value disclosed by the assessee.2. Applicability of Amended Section 142A:The Department argued that the CIT(A) failed to appreciate that Section 142A had been completely amended w.e.f. 01/10/2014, allowing the AO to make a reference to the DVO whether or not he was satisfied about the correctness or completeness of the accounts. However, the CIT(A) held that the amended provisions of Section 142A were not applicable to the assessment year 2013-14, and thus, the AO’s reference to the DVO was not justified.3. Validity of Reference to District Valuation Officer (DVO):The Department maintained that the CIT(A) erred in deleting the addition, as the AO had made the reference to the DVO without pointing out any defects in the value disclosed. The CIT(A) noted that the AO could not have made a valid reference to the DVO without rejecting the books of accounts. The CIT(A) relied on the Supreme Court decision in ‘Sargam Cinema vs. CIT’, which held that no reference could be made to the DVO if the books of accounts were not rejected.4. Consistency in the Method of Accounting:The assessee consistently followed the method of accounting of valuation of closing stock at purchase cost, which was lower than the market value. The CIT(A) observed that the AO did not find any defect in this method and did not reject the books of accounts. The CIT(A) held that the valuation given by the DVO could not be substituted for that disclosed by the assessee in its books of accounts.5. Relevance of Supreme Court Decisions:The CIT(A) relied on the decisions in ‘CIT vs. Shivakami Company Pvt. Ltd.’ and ‘K.P. Varghese vs. CIT’, which established that unless there is evidence of excess consideration paid in the transaction of immovable property, no higher price can be taken in the computation of income. The Department failed to show how the decisions in ‘Vijay Kumar Talwar vs. CIT’ and ‘Sudarshan Silk Sarees vs. CIT’ were violated.Conclusion:The Tribunal upheld the CIT(A)’s decision to delete the addition made by the AO under Section 69, based on the valuation report. It was held that the amended provisions of Section 142A were not applicable for the assessment year 2013-14, and the AO could not make a valid reference to the DVO without rejecting the books of accounts. The Tribunal dismissed the Department’s appeal and the assessee’s cross-objection as withdrawn.Order Pronounced:The order was pronounced in the open Court on 18/05/2022.