Rejection of books of account enables referral to District Valuation Officer; valuation adjusted using State PWD rates upheld.

The article addresses two tax-assessment issues: (i) whether an Assessing Officer may refer construction valuation to the District Valuation Officer after recording contradictions in the assessee's books and rejecting them for purposes of forming a belief, and (ii) whether valuation should use State PWD rates instead of CPWD rates. It holds that recorded inconsistencies and express non-reliance on books justified rejection for forming belief and a valid DVO referral; and that the appellate direction to adopt State PWD rates for valuation was properly applied, sustaining the additions against the assessee.

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Issues: (i) Whether the Assessing Officer could validly refer valuation of construction to the District Valuation Officer without first rejecting the assessee's books of account; (ii) Whether the valuation adopted should be based on State PWD rates rather than CPWD rates.

Issue (i): Whether referral to the District Valuation Officer was permissible in the facts of the case.

Analysis: The issue required examination of whether the Assessing Officer recorded sufficient contradiction or rejection of the books of account before seeking the DVO's opinion, and whether the material on record justified forming a belief to reopen assessment and seek valuation. The facts show initial return disclosures, subsequent inconsistent disclosure in the balance sheet, inquiries, and express findings in the assessment order that the books and documents exhibited discrepancies and were not relied upon. The Assessing Officer then sought the DVO's valuation after recording those inconsistencies. Precedents on the point were considered to determine the procedural precondition for seeking DVO's opinion.

Conclusion: The Assessing Officer validly rejected the books of account on record and therefore the referral to the District Valuation Officer was permissible; this conclusion is against the assessee and in favour of the Revenue.

Issue (ii): Whether the cost of construction ascertained by the DVO should be determined by adopting State PWD rates instead of CPWD rates.

Analysis: The Commissioner of Income Tax (Appeals) examined the method of valuation used by the DVO and directed that State PWD rates be applied in place of CPWD rates. The Tribunal reviewed the records, the CIT(A)'s direction, and the parties' submissions regarding applicable valuation rates and found no reason to interfere with the CIT(A)'s modification of the DVO's valuation method.

Conclusion: The assessment stands on the valuation adjusted in accordance with State PWD rates as directed by the Commissioner of Income Tax (Appeals); this determination is against the assessee and in favour of the Revenue.

Final Conclusion: On the questions presented, the impugned assessments and the appellate authority's decision were upheld; the Tax Case Appeal is dismissed and the additions determined as escaped income remain sustained.

Ratio Decidendi: Where the assessing officer records and relies on specific inconsistencies in the books of account and documentary disclosures, the officer may reject the books for the limited purpose of forming a belief and validly refer valuation to the District Valuation Officer; valuation methodology is to be applied in accordance with appropriate public works department rates as directed by the appellate authority.

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