Tribunal allows appeal, deletes additions based on invalid DVO report, confirms Rs. 50,00,000 addition for building cost.

The Tribunal allowed ITA No.71/Bang/2022 and ITA No.72/Bang/2022, deleting additions based on the DVO report due to an invalid reference without rejecting the books of account. ITA No.73/Bang/2022 was dismissed, confirming the addition of Rs. 50,00,000 based on the MD's admission of potential discrepancies in the building's cost.

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Issues Involved:
1. Justification of the addition of Rs. 27,48,608/- as unexplained investment in the construction of a hospital building based on the DVO's valuation report.
2. Legality of referring the matter to the DVO without rejecting the assessee's books of account.
3. Validity of the addition of Rs. 50,00,000/- based on the statement recorded from the Managing Director during the survey.

Issue-Wise Detailed Analysis:

1. Addition of Rs. 27,48,608/- as Unexplained Investment:
The CIT(A) sustained the addition of Rs. 27,48,608/- as unexplained investment in the hospital building construction, relying on the DVO's valuation report dated 27/11/2014. The assessee argued that proper books of accounts, bills, and vouchers were maintained and filed with various authorities, and the addition based on the DVO's report without rejecting these books was unlawful. The assessee also contended that the DVO did not provide an opportunity to file objections, violating natural justice principles. Furthermore, the DVO's adoption of the plinth area rates method was challenged as untenable since the appellant had maintained detailed bills and vouchers.

2. Legality of Referring to the DVO Without Rejecting Books of Account:
The Tribunal examined whether the A.O.'s reference to the DVO without rejecting the books of account was lawful. The reference was made on 18.11.2013, and the books were not rejected. Judicial precedents, including the Hon'ble Supreme Court's judgment in Sargam Cinema v. CIT (328 ITR 513 (SC)), establish that rejecting the books of account is a precondition for referring to the DVO. The Tribunal cited the Bangalore Bench's decision in M/s. Shetty Constructions v. ACIT (ITA No.286/Bang/2019), which upheld that references made before 01.10.2014 without rejecting the books are invalid. Consequently, the Tribunal held that the reference to the DVO was illegal, and the additions based on the DVO report were deleted.

3. Addition of Rs. 50,00,000/- Based on MD's Statement:
For the assessment year 2013-2014, the addition of Rs. 50,00,000/- was based on the MD's statement during the survey, where he admitted potential differences in the building's value and offered additional income to account for these discrepancies. Although the MD later reviewed this declaration, the Tribunal noted that the DVO's report indicated a significant difference in the building's cost, reinforcing the MD's initial admission. The Tribunal confirmed the addition of Rs. 50,00,000/- based on the MD's statements, as the rejection of the DVO's report on preliminary grounds did not negate the possibility of discrepancies in the recorded costs.

Conclusion:
- ITA No.71/Bang/2022 and ITA No.72/Bang/2022 were allowed, deleting the additions based on the DVO report due to the invalid reference without rejecting the books of account.
- ITA No.73/Bang/2022 was dismissed, confirming the addition of Rs. 50,00,000/- based on the MD's admission of potential discrepancies in the building's cost.

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