2016 (2) TMI 1139 - AT - Income Tax

Reference of matter to DVO - non rejection of books of accounts - unaccounted investment - Held that - As rightly contended by the ld. Counsel for the assessee, when the assessee is maintaining books of account, the Assessing Officer cannot refer the matter to the DVO without rejecting the books of account maintained by the assessee. It is also not in dispute that the assessee has sold the flats and majority of the purchasers of the flat occupied the same. Therefore, the improvement made by the respective purchasers of the flat has to be considered only in the hands of the respective purchasers and not in the hands of the assessee. As observed by the CIT(A), when the purchasers of the flats engaged the contractors to make improvement in the flats, this Tribunal is of the considered opinion that no addition can be made in the hands of the present assessee. In view of the above, this Tribunal do not find any reason to interfere with the order of the CIT(A). - Decided against revenue

Summary

Issues: Assessment of construction cost for tax purposes based on valuation report, rejection of books of account, applicability of CPWD rates, consideration of improvements made by purchasers of flats.

Analysis:

1. Assessment of Construction Cost: The appeal pertains to the assessment of the construction cost for a flat built by the assessee. The Assessing Officer referred the matter to the District Valuation Officer (DVO) to estimate the cost of construction. The DVO estimated the cost at a higher value than what was reflected in the assessee's books of account, leading to an addition in the assessment. The CIT(A) subsequently deleted this addition made by the Assessing Officer.

2. Rejection of Books of Account: The Departmental Representative argued that the Assessing Officer did not reject the books of account maintained by the assessee before estimating the construction cost. It was contended that without rejecting the books of account, the cost of construction cannot be estimated. The Tribunal agreed with this contention, emphasizing that when the assessee maintains proper books of account, the Assessing Officer cannot refer the matter to the DVO without valid reasons for rejecting the books.

3. Applicability of CPWD Rates: The DVO estimated the cost of construction by adopting CPWD rates, which was objected to by the assessee's counsel. The counsel argued that State PWD rates would be more appropriate for estimating the cost of construction. The Tribunal did not delve deeply into this issue but focused on the rejection of books of account and the consideration of improvements made by purchasers.

4. Consideration of Improvements by Purchasers: The counsel for the assessee contended that any additional construction or improvement made in the building should be added only in the hands of the purchasers of the flats and not in the hands of the assessee. The Tribunal agreed with this argument, stating that when purchasers engaged contractors to make improvements in the flats, no addition could be made in the hands of the assessee. The Tribunal upheld the decision of the CIT(A) to delete the addition made by the Assessing Officer based on this reasoning.

In conclusion, the Tribunal dismissed the appeal of the Revenue, confirming the decision of the CIT(A) to delete the addition made by the Assessing Officer in the assessment of the construction cost. The judgment highlighted the importance of maintaining proper books of account, the rejection of books before estimation, and the distinction between improvements made by purchasers and the responsibility of the assessee in such cases.