Valuation of property – Reference to DVO – Section 142A – A. Y. 1991-92 – AO not rejecting books of account – Reference to DVO and addition on account of differential amount as unexplained investment is not sustainable –

CIT vs. Lakshmi Constructions; 369 ITR 271 (T&AP):

For the A. Y. 1991-92, the assessee firm had disclosed a sum of Rs. 23,75,000/- towards the cost of construction of a building. The Assessing Officer, without rejecting the assessee’s books of account, referred the matter to the DVO and as per the report of the DVO treated the difference as unexplained investment. The CIT(A) and the Tribunal deleted the addition holding that reference to the DVO could not have been made, unless the Assessing Officer rejected or doubted the veracity of the books of account of the assessee. On appeal by the Revenue, the Telangana and Andhra Pradesh High Court held as under:

“i) It is only when the Assessing Officer did not take the contents of the books of account, on their face value, that he could have resorted to an independent valuation. The Tribunal maintained the distinction and held that even before ordering the valuation of any property by independent valuer in respect of an assessee, who has maintained the books of account, the Assessing Officer must, as a first step, express his lack of confidence in the books of account. That not having been done, the very reference to the Valuation Officer could not be sustained in law.

ii) Though section 142A of the Income-tax Act, 1961 was amended in the year 2004 with retrospective effect from 1972, the exercise undertaken by the Assessing Officer could not be sustained on the touchstone of that provision.”