Rejection of Books of Account is a precondition for making reference to DVO: ITAT holds DVO report illegal [Read Order]

The Income Tax Appellate Tribunal (ITAT), Bangalore held that, the report of the District Valuation Officer (DVO) was illegal on the ground that rejection of books of account is a precondition for making reference to DVO.

The assessee, M/s. Puttur City Hospital Pvt.Ltd is a private limited company and had set up a new hospital. A survey u/s 133A was conducted on the premises of the assessee and during the course of survey proceedings, a copy of the valuation report was found and impounded, wherein the investment in the said hospital building was at Rs.5,13,84,900. However, as per the balance sheet of the assessee for the year ending, the investment in the building is shown at Rs.3,18,25,554.

The MD admitted that there may be some differences in the value of the building and to account for any such differences and any other differences in the account, he offered an additional income of Rs.50 lakh in the hands of the assessee for the assessment year 2012-2013. However, in the sworn statement recorded u/s 131(1) and the MD reviewed his declaration and offered an additional income of Rs.50 lakh for the assessment year 2013-2014 instead of the assessment year 2012- 2013, as admitted earlier during the course of the survey.

 Considering the difference in the value of the building found between the valuation report and the balance sheet and the admission of additional income by the MD, the matter was referred to the Departmental Valuation Cell. The District Valuation Officer had furnished his report, on which the cost of construction was valued at Rs.6,21,68,000. Hence, the difference in the investment of Rs.1,59,94,431 was added by the Assessing Officer (AO) after reducing the offer of MD of Rs.50 lakh. Aggrieved by the order of assessment, the assessee filed appeals before the first appellate authority. The Commissioner of Income Tax (CIT) confirmed the view of AO.

Chandra Poojari, Accountant Member, and George George K, Judicial Member observed that “rejection of books of accounts is a pre-condition for making a reference to DVO. Therefore, in cases where this requirement was not satisfied, the addition made on account of unexplained investments in construction was being deleted.”

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M/s.Puttur City Hospital Pvt.Ltd. vs The Income Tax Officer , 2022 TAXSCAN (ITAT) 801 , Sri.V.Srinivasan , Sri.Narayana K.R