Case Law Details
Punjab & Haryana High Court held In the case of CIT vs. M/s Freedom Board & Paper Mills that it is not open to the AO to refer the case to DVO without rejecting books of accounts on the basis of rejection of the books of account on some legal or justified basis. So Reopening based on DVO report not justified if books of accounts were not rejected first on the basis of some legal and jusitifed reasoning.
Facts of the Case
During assessment for the year 2007-08, it was noticed that the assessee had been raising construction of the factory building from the year 2003-04 to the year 2008-09. The matter was referred to the valuation cell (DVO) by the AO and on account of the difference of Rs. 4,12,136/- in the construction of the factory building, notice under Section 148 was issued on 23.03.2011, by coming to the conclusion that the income had escaped assessment. In the appeal filed by the assessee before the CIT, the plea taken was that the complete set of account books and the vouchers had been produced and no discrepancy was pointed out in the same. The CIT however reject the appeal.
Contention of the Assessee
The learned counsel for the assessee supported the reasoning given by the Tribunal and submitted that the assessee was maintaining books of account and in the absence of any rejection, the matter could not have been referred to the DVO and it was a settled principle..
Contention of the Revenue
The ld counsel of the revenue referred the judgment of the Andhra Pradesh High Court in Bharathi Cement Corporation (P) Ltd. Vs. Commissioner of Income Tax & others [2013] 356 ITR 74 to submit that the judgment of the Apex Court in the case of Sargam Cinema Vs. Commissioner of Income Tax 2010 (328) ITR 513) had been considered in the order of the Tribunal and not applied in favour of the assessee.
Held by CIT (A)
The CIT (A) dismissed the appeal on the ground that the matter had been referred to the DVO, who, after hearing the registered valuer of the appellant, had granted the benefit of Rs. 6,37,755/- towards the construction of the existing boundary walls, gate, watchman etc. Accordingly, it was held that sufficient opportunities had been given to the assessee and the AO was well within her jurisdiction to make the additions and there was vast variation between the cost of construction valued, by the DVO and in the books of account of the assessee.
By the determination of the value, there was implied and underlined rejection of the books of account under Section 145(3) of the Act, which were suffering from various discrepancies and variations, as available on the assessment records.
Held by ITAT
ITAT set aside the re-assessment proceedings, on the ground that without rejecting the books of account of the assessee and by making reference to only the report of the DVO, the action of the Assessing Authority to make the addition was not justified and thus, allowed the appeals of the assessee. ITAT refer the judgment of the Apex Court in the case of Sargam Cinema Vs. Commissioner of Income Tax 2010 (328) ITR 513.
Held by High Court
In the case of Commissioner of Income Tax Vs Chohan Resorts [2013] 359 ITR 394, in similar circumstances, held that where books of account in respect of cost of construction are maintained, reference to the DVO can only be made on the basis of rejection of the books of account on some legal or justified basis. The same views were followed in the case of Nirpal Singh Vs. Commissioner of Income Tax [2013] 359 ITR 398.
Also in Dr. Raghuvendra Singh Vs. Commissioner of Income Tax (2014) 267 CTR (P&H) 376, the provisions of Section 142A of the Act were taken into consideration, including the circular No.5 of 2005, issued by the Central Board of Direct Taxes, to come to a similar conclusion that without rejecting the books of account, the matter should not be referred to the DVO. However, an exception was carved out in that case that since it was a case of search and seizure and disclosure of concealed income was made by way of surrender, in the said circumstances, the cost of construction shown in the books of account were rightly inferred to be incorrect.
So, in the present case, the proceedings have been sought to be opened by way of re-assessment, during the subsequent assessment proceedings, without following the prescribed procedure of rejecting the books of account which had been maintained by the assessee, is not correct.
Accordingly, appeal of the revenue dismissed.
