2006 (2) TMI 508 - AT - Income Tax

Capital gains - Exemption of, in case of investment in residential house, Undisclosed investments

Summary

Issues:
1. Valuation of construction cost for a building in Chennai
2. Addition of undisclosed investment under section 69B
3. Relief under section 54F of the Act

Valuation of Construction Cost:
The Assessing Officer estimated the cost of construction of a building at Rs. 41,10,000, significantly higher than the assessee's estimate of Rs. 12,50,000. The Valuation Officer's report detailed the cost of construction for godowns and residential flats separately. The assessee explained that the valuation report did not consider factors like self-supervision and material purchase discounts. Despite being asked, the assessee failed to produce books of account and other materials. The CIT(A) considered new material presented by the assessee and reduced the addition to Rs. 19,55,000, following an average method for cost estimation. The Tribunal upheld the CIT(A)'s decision, emphasizing that in the absence of maintained books of account, the CIT(A)'s estimate was justified.

Addition of Undisclosed Investment under Section 69B:
The Assessing Officer added Rs. 28.60 lakhs as undisclosed investment under section 69B due to discrepancies in the valuation of construction cost. The CIT(A) reduced this addition to Rs. 19,55,000 after considering new material presented by the assessee. The Tribunal supported the CIT(A)'s decision, noting that the assessee's reliance on the registered valuer's report and objections raised against the Valuation Officer's report justified the reduction in the addition.

Relief under Section 54F of the Act:
The Assessing Officer denied relief under section 54F, claiming the assessee constructed more than one house simultaneously and had sold gold jewelry before constructing the house. However, the CIT(A) granted relief, stating that the assessee had no residential house when constructing the building, and both flats were built simultaneously. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee reinvested Long Term Capital Gain in the house property within the required timeframe, meeting the conditions of section 54F. The presence of two flats in the building did not disqualify the assessee from the relief provided under the law.

In conclusion, the Tribunal dismissed the appeal, supporting the CIT(A)'s decisions on the valuation of construction cost, addition of undisclosed investment, and relief under section 54F of the Act. The judgments were based on the adequacy of explanations provided, the consideration of new material, and adherence to legal provisions governing the valuation and tax relief aspects of the case.