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TMI Blog2017 (11) TMI 1705X X X X Extracts X X X X X X X X Extracts X X X X ..... g the directions to examine the issue in the hands of Directions which were issued properly under the facts of the case?" 3. The facts of the case are that the assessee is a private limited company and was incorporated on 7.8.2003, as per the Certificate of Incorporation. There was no business activity of the assessee company during the year under consideration. The return of income was filed on 30.10.2004 declaring total income at Rs. NIL. The AO has noted in para 3 of the assessment order that the company had declared a share capital of Rs. 1,03,50,000/- and unsecured loans of Rs. 30,30,263/- in the balance sheet. The company had also declared the fixed assets of Rs. 1,13,58,159/- which included land and building amounting to Rs. 26,05,248/- and Rs. 85,91,261/- respectively. 4. Counsel for the appellant has taken us to the order of the AO wherein it has been observed as under:- "4. In this case, the case was also referred to the Valuation Officer on 27.2.2006 u/s 142A for valuation of property. The property was valued by the D.V.O. The valuation report dated 15.12.2006 was received with the following comments of the DVO: "Having considered the evidence produced by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en a technical expert is consulted. In the absence of both the directors of the company, it is not possible to approach or appoint or consult any technical person to furnish objections/comments to the valuation report." The reply of the assessee has been considered and not acceptable, as neither the assessee nor his authorized representative could furnish any satisfactory reply or submission in support of his claim for valuation of construction of building and value of land. Therefore, the difference in the cost of construction of building, and valuation of land of Rs. 98,87,076/- and Rs. 17,502/-, respectively, as per DVO's report during the year under consideration, is added to the income of the assessee treating it as unexplained investment. 5. Taking into account the construction which was carried out, it was treated as unexplained investment, therefore, addition was made to the tune of Rs. 99,04,578/- and also issued notice u/s 27(1)(c) of the Income Tax Act, 1961. 6. The assessee preferred an appeal before CIT(A) where CIT(A) has held as under:- "3. I have carefully considered the facts of the case and submissions of ld. AR. On perusal of the records, I find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced its business. Therefore, I find merit in the argument of the ld. AR that since the business of the company had not been started during the year under consideration, the company was not having any income/source for making any unexplained investment for the purchase of land or construction of the building. I also find substance in the further agreement of the ld. AR that, therefore, if any addition was to be made, on account of the difference in the value of the land and building, the same could have been made only in the hands of the Directors and not in the hands of the appellant company. I find that this view is directly supported by the decision of Hon'ble Supreme Court in the case of CIT vs. Smt. P.K. Noor Jahan (supra) relied upon by the ld. AR accordingly, it is held that the AO was not justified in making the impugned addition, as unexplained investment, in the hands of the appellant company. However, it is pertinent to mention here that the AO is free to examine the possibility of the addition of aforementioned unexplained investment, on account of difference in the value of the land and building as per the report of DVO and as shown in the books of account by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed persons to furnish necessary explanation on behalf of the company in that regard. However, the AO did not find the reply acceptable and the difference in the cost of construction of building and valuation of land of Rs. 98,87,076/- and Rs. 17,502/-, respectively, was added to the income of the assessee, treating the same as its unexplained investment. 4. We have heard the rival contentions and perused the facts of the case. It has been argued by the ld. Counsel for the assessee that the assessee is maintaining the complete records of construction expenses incurred for construction of the building. The said submission has also been made before the ld. CIT(A) as appearing at page 6 in his order. No defect has been pointed out in the same by any of the authorities below. Therefore, in such circumstances and facts of the case, there appears to be no reason to refer the matter to the DVO and especially when the assessee is not having any income during the year and has not started the business during the impugned year. Therefore, in such circumstances and facts of the case, the AO was not justified in referring the matter to the DVO and was further not justified in making any ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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