2003 (11) TMI 552 - AT - Income Tax

Summary

Issues:
1. Estimation of cost of construction by the DVO.
2. Competency of Assessing Officer to refer to Valuation Officer.
3. Disallowance of interest paid on borrowed funds.

Estimation of cost of construction by the DVO:
The appeal was filed by the department against the order of the ld. DCIT(A) for the assessment year 1992-93, primarily challenging the estimation made by the DVO regarding the cost of construction. The Assessing Officer had referred the matter to the DVO who estimated the value of the property at a higher amount than what the assessee had shown. The first appellate authority had deleted the addition made by the Assessing Officer based on the DVO's report. The Tribunal referred to a Supreme Court judgment stating that the Assessing Officer cannot call for a report from the Valuation Officer unless under specific sections of the Income-tax Act. The Tribunal upheld the first appellate authority's decision, dismissing the department's grounds as the sole basis for the addition was the DVO's report, which was not desirable as per the Supreme Court's observations.

Competency of Assessing Officer to refer to Valuation Officer:
The Tribunal, in light of the Supreme Court's decision in a specific case, emphasized that the Assessing Officer cannot refer the question of cost of construction to the Valuation Officer unless under specific sections of the Income-tax Act. The Tribunal found that the case in question fell within the ambit of the Supreme Court's ruling, as the addition made by the Assessing Officer was solely based on the DVO's report, which was not considered appropriate. Consequently, the Tribunal upheld the first appellate authority's order, dismissing the department's grievances related to the estimation made by the DVO.

Disallowance of interest paid on borrowed funds:
The third grievance of the department pertained to the disallowance of interest paid on borrowed funds. The Assessing Officer had disallowed the interest claimed by the assessee, but the ld. DCIT(A) had allowed it. Upon review and considering that the borrowed funds were partly used for the construction of the house and partly for business purposes, the Tribunal modified the first appellate authority's order and restricted the addition to a lower amount, providing relief to the assessee. Both parties agreed to the modified amount, resulting in the appeal filed by the department being partly allowed by the Tribunal.

In conclusion, the Tribunal's judgment addressed the issues related to the estimation of cost of construction by the DVO, the competency of the Assessing Officer to refer to the Valuation Officer, and the disallowance of interest paid on borrowed funds, providing detailed analysis and legal reasoning for each issue involved in the appeal.