The Jabalpur Bench of Income Tax Appellate Tribunal (ITAT) held that the Assessing Officer is not empowered to refer matters to Departmental Valuation Officer (DVO) without rejecting books of accounts.
The CIT(A) for a consideration of and a decision on the merits of the case after allowing a reasonable opportunity to the assessee, Prince Rai to present his case before him. In fact, in this context, two observations are apposite. The principal addition, in this case, is on account of a valuation difference (of a storage Godown) based on the report by the Departmental Valuation Officer (DVO) to whom reference was made by the AO during assessment proceedings. ‘Valuation’ being a technical matter, while the AO is not a technical person, the statute provides for a reference by him to the DVO where he seeks to verify the veracity of the assessee’s claim with regard to the cost of acquisition/construction of an asset incurred during the relevant previous year (section 142A). The law accordingly obliges an appellate authority (including the Tribunal) to hear the DVO in adjudicating an appeal agitating an addition based on his valuation report. This has not been observed by the CIT(A), which procedure he shall accordingly comply within the set-aside proceedings, dilating on and issuing specific findings qua each item of valuation being contested by the assessee before him.
The assessee has in his second paper-book (PB-II) enclosed the decision in Sargam Cinema v. CIT whereby the Apex Court upheld the Tribunal’s order setting aside an addition based on a valuation report by the DVO as the reference to him by the AO was without rejecting the assessee’s books of account, invalidating the reference so that the same could not be relied upon.
The coram of Accountant Member, Sanjay Arora observed that in case of an addition under section 69A, as in the instant case, on the other hand, the statute itself accords credence to the assessee’s accounts to the extent of the cost debited therein. It is the excess cost, i.e., with reference to the cost debited in the assessee’s accounts, and for which (additional cost) the Revenue has evidence (as in the form of the physical inspection and valuation report of the relevant asset) in its possession, which is to be explained as to its source. Where, then, is the question of rejection (non-acceptance) of the assessee’s accounts, which rather form a part of his explanation, and are being in fact received and accepted in evidence, i.e., to the extent of the cost reflected therein. Why, in a particular case, as in section 69, no part of the cost is reflected in accounts, as, for example, where the asset is a personal asset and, thus, does not find mention and reflection in the accounts of the assessee’s business. That is to say, the cost met by the assessee, or otherwise proved to have been incurred, or even not incurred by the assessee, as in the case of gift, inheritance, etc., and irrespective of its reflection in his accounts, where maintained, forms part of the assessee’s explanation, and it is only the balance, excess cost, which is unexplained with any evidence, for which the rule of evidence (Sections 69/69A) deems it to be his income for the relevant year.
“Where, then, one may ask, is the question, i.e., for invocation of this rule of evidence, of the rejection of the books of account of the assessee’s business, which may not even be maintained or even not bear the said cost, and which (rejection) is for the purpose of properly deducing the business income, which is not a concomitant of the said invocation and may even be independent of it? Why, the business itself may not have commenced, as in the case of Warehouse business in the instant case. The question begs an answer before the decision in Sargam Cinema (supra) holding a reference without rejection of accounts as bad, could be relied upon,” the ITAT ruled.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.
