2005 (7) TMI 327 - AT - Income Tax

Tribunal Rejects Department Appeal, Invalidates AO's DVO Reference, Upholds Deletion of Rs. 1,43,094 Unexplained Investment.

The Tribunal ruled in favor of the assessee, deeming the reference to the DVO by the AO invalid and the subsequent addition of Rs. 1,43,094 as unexplained ... Unexplained Investments - construction of flats - addition made on the basis of valuation report of a technical expert namely valuation office - difference of opinion between the Members of the Bench - Third Member Order - Judicial Member - HELD THAT:- Since the Assessing Officer merely made the above addition of Rs. 1,43,094 based on the DVO's report, which, in view of the above decision could not be relied upon, we hold that there is no material on record to sustain the addition made by the Assessing Officer. Moreover, we observe that the ld. CIT(A) has considered the cost of investment in the property in question, in the light of the DVO's report and has found that the difference in the cost declared by the assessee and the cost estimated based on DVO's report is less than 10 per cent after considering the objection of the assessee and as such the same is to be ignored. The ld. D.R. has not brought any material even to dispute the above finding of the ld. CIT(A). Thus, we uphold the order of the ld. CIT(A) in deleting the said addition of Rs. 1,43,098 made by the Assessing Officer. We agree with the ld. AR of the assessee that if the Assessing Officer has made the addition which is not based on sufficient material, the said addition could not be sustained and it would not be prudent for the Tribunal to direct the income-tax authorities to make an inquiry in a particular manner, as the Tribunal is an appellate authority and is required to decide the issue on the basis of the material before it. Therefore, we reject the ground of appeal taken by the Department by confirming the deletion made by the ld. CIT(A) - In the result, the appeal filed by the Department is dismissed. Accountant Member - It is evident that for making assessment, the Assessing Officer is vested with widest power to obtain material for making assessment. If the Assessing Officer relied on such material which was not admissible in law then that would not vitiate the proceedings as this will amount to only irregular exercise of jurisdiction. It is a settled law that under such circumstances the proceedings have to be corrected from the stage at which irregularities have been committed. Respectfully following the decision of the Hon'ble Supreme Court in case of Kapurchand Shrimal v. CIT [1981 (8) TMI 2 - SUPREME COURT], I direct the matter to be restored back to the file of the Assessing Officer for fresh examination of the case of investment in building without taking into consideration the D.V.O.'s report. In the result, the appeal is allowed for statistical purposes. Third Member - Admittedly, no defect has been pointed out in the books of account and cost of construction returned by the assessee was found duly supported by relevant vouchers and documentary evidence. Apart from it, the assessee has also filed report of the Registered Valuer who has also given cost of construction which is approximately same as returned by the assessee-company. It is to be noted that report of the Registered Valuer is also an important piece of evidence and in this connection I may refer the decision of ITAT, Patna Bench in the case of Shanti Complex v. ITO [1997 (5) TMI 105 - ITAT PATNA] in which the importance of Registered Valuer was also discussed and it was opined that report of an expert only acts as an opinion before a judicial or quasi-judicial authority to whom it is submitted. That report is open to judicial scrutiny by higher judicial forum and in case there are two experts' opinion before the judicial forum, it cannot be said that DVO's report carries more weight or DVO is superior to other. Both are statutory creations and expected to perform functions provided by the relevant statute. The Assessing Officer has to consider the report of the Registered Valuer also effectively and arrive at his own conclusion. In this case in hand, the report of the Registered Valuer has been ignored by the Assessing Officer on flimsy ground and that was not the correct way to appreciate the same. In view of this also, the entries in the books of account duly get support from the report of the Valuer also. In such circumstances, no fruitful purpose would have been served in remanding the matter back to the file of the Assessing Officer. The cumulative result of the findings of the above, the view taken by the ld. Judicial Member is just and addition was liable to be deleted without remanding the matter back to the file of the Assessing Officer. Accordingly, I am in agreement with the view taken by the ld. Judicial Member. The Hon'ble Vice President, Shri Phool Singh sitting as Third Member, by his opinion dated 6th July, 2005, has concurred with the view of the ld. Judicial Member, who has deleted the addition made by the Assessing Officer in the construction of the flats on the basis of the DVO's report. Therefore, in accordance with the majority view, the issue stands decided in favour of the assessee. Accordingly, the appeal filed by the Department is dismissed. Issues Involved:1. Validity of reference to the District Valuation Officer (DVO) by the Assessing Officer (AO).2. Justification of the addition of Rs. 1,43,094 as unexplained investment based on the DVO's report.3. Whether the matter should be restored to the AO for fresh verification of the cost of construction.Detailed Analysis:1. Validity of Reference to the DVO:The primary issue was whether the AO was justified in referring the matter to the DVO for estimating the cost of construction. The assessee argued that the AO had no authority to make such a reference, citing the Supreme Court decision in *Smt. Amiya Bala Paul v. CIT [2003] 262 ITR 407*, which held that references to the DVO, other than for the purposes specified in sections 55A and 269L, were illegal. The Tribunal agreed with the assessee, noting that the AO had not pointed out any defects in the books of account and had relied solely on the DVO's report. The Tribunal concluded that the reference to the DVO was invalid, and any report obtained from such a reference could not be relied upon for making additions.2. Justification of the Addition Based on the DVO's Report:The AO had added Rs. 1,43,094 to the assessee's income as unexplained investment based on the DVO's report. The CIT(A) deleted this addition, stating that the difference between the cost declared by the assessee and the cost estimated by the DVO was within 10% and should be ignored. The Tribunal upheld this view, emphasizing that the AO had not provided any reasons for rejecting the cost declared by the assessee or the Registered Valuer's report. The Tribunal noted that the Supreme Court and the Jurisdictional High Court had ruled that the AO could not refer the matter to the DVO for estimating the cost of construction for assessment purposes. Consequently, the addition based solely on the DVO's report could not be sustained.3. Restoration of the Matter to the AO:There was a difference of opinion among the members of the Tribunal regarding whether the matter should be sent back to the AO for fresh verification of the cost of construction. The Judicial Member argued against restoration, citing the principle that the Tribunal should not order further inquiry to sustain an addition if there was no sufficient material to support it. The Judicial Member relied on the decision in *Raj Kumar Jain v. Asstt. CIT [1994] 208 ITR (AT) 22*, which held that if additions are not supported by evidence, the Tribunal should delete the additions rather than ordering further inquiry.On the other hand, the Accountant Member believed that the matter should be remanded to the AO for fresh examination, arguing that the AO's reliance on the DVO's report was an irregular exercise of jurisdiction that needed to be corrected. The Accountant Member cited various judicial precedents to support the view that the AO has the widest powers to obtain material for making assessments and that the Tribunal could remand the matter for proper assessment in accordance with the law.Third Member Opinion:The Third Member, Vice President Phool Singh, sided with the Judicial Member, emphasizing that the Tribunal's role is to decide appeals based on the material before it and not to conduct further investigations. The Third Member noted that the assessee's books of account were properly maintained and audited, with no defects pointed out by the AO. The Third Member concluded that there was no justification for remanding the matter to the AO, as the addition based on the DVO's report was not sustainable.Final Decision:In accordance with the majority view, the Tribunal decided in favor of the assessee, confirming the deletion of the addition made by the AO based on the DVO's report. The appeal filed by the Department was dismissed.