1999 (11) TMI 56 - HC - Income Tax

Summary

Issues involved:
The issues involved in this case include the determination of the cost of construction of a hotel building, the validity of referring the valuation to the District Valuation Officer, and the interpretation of Section 55A of the Income Tax Act.

Cost of Construction:
The respondent-assessee constructed a hotel building and maintained regular books of account for construction expenses, except for some unsupported expenses. Various valuations were provided by different parties, including the Department Valuation Officer and registered valuers. The Assessing Officer (AO) made an addition to the cost of construction based on the DVO's estimate, which was challenged by the assessee in appeals. The CIT(A) accepted the cost worked out by the registered valuer based on itemwise basis at the rates of the State PWD. The Tribunal upheld the registered valuer's valuation, considering the books of account and the rates of the Rajasthan PWD.

Referral to Valuation Officer:
The AO referred the valuation of the building to the District Valuation Officer under Section 55A of the Income Tax Act. The Court noted that the AO's discretion to refer to the DVO is limited to specific circumstances outlined in the Act. The AO must have a valid reason, supported by material on record, to refer the valuation to the DVO. If the assessee maintains regular books of account and produces vouchers, the AO should accept those for assessing the value of the assets unless there are strong reasons to disagree.

Interpretation of Section 55A:
Section 55A allows the AO to refer the valuation of a capital asset to a Valuation Officer in certain situations. The Court emphasized that the AO must have a valid basis for such a referral, especially when the assessee maintains regular books of account. The valuation by the DVO or registered valuer should be considered based on the specific circumstances of the case, and the AO must assess the value of assets on the material before him.

Conclusion:
The Court dismissed the reference application, stating that the cost of construction determined by the Tribunal was based on relevant considerations and appraisal of material on record. It was concluded that no statable question of law arose from the Tribunal's order, and the reference application was therefore dismissed.