M. Ravindran Vs ITO (Supreme Court of India)
The assessee, an individual deriving income from property and rent, filed his return for Assessment Year (AY) 2007-08 declaring total income of Rs.1,10,880. During scrutiny, the Assessing Officer noticed that the assessee’s balance sheet for AY 2008-09 disclosed investment of Rs.17,80,200 in construction of Ravindra Residency/Ravindra Arcade at Villupuram. The assessee subsequently stated that the construction investment related to Financial Year 2006-07, relevant to AY 2007-08, resulting in reopening of the assessment under Sections 147 and 148 of the Income Tax Act, 1961. The assessee produced books of account, bills, vouchers and other documents. The Assessing Officer, however, found discrepancies between the material produced and the construction agreement dated 21.05.2006 with M/s. INDO Designers for Rs.17,80,200, and rejected the books/documents. Thereafter, the District Valuation Officer (DVO) was requested to value the construction. The DVO valued the relevant construction attributable to the assessee at Rs.41,71,518, against the disclosed cost of Rs.17,80,200, resulting in an unexplained investment of Rs.23,91,318, which was added to the assessee’s income.
The Commissioner of Income Tax (Appeals) partly allowed the assessee’s appeal, holding that State PWD rates rather than CPWD rates should be adopted for valuation, but did not find fault with the reference to the DVO. The Tribunal dismissed the assessee’s further appeal. Before the Madras High Court under Section 260A, the assessee principally contended that, in view of Sargam Cinema, Haldwani vs. Commissioner of Income Tax, Haldwani, the Assessing Officer could not refer the matter to the DVO without first rejecting the books of account. The assessee also relied upon Assistant Commissioner of Income Tax, Gujarat vs. Dhariya Construction Company and Commissioner of Income Tax vs. A.L.Homes. The High Court examined the assessment record and found that the Assessing Officer had considered and rejected the books after recording discrepancies concerning the assessee’s inconsistent statements regarding the timing and cost of construction and the construction agreement. The High Court therefore held that the DVO reference was made only after rejection of the books and was not contrary to Sargam Cinema. It distinguished the factual position from the cases relied upon by the assessee and dismissed the Tax Case Appeal.
