2011 (1) TMI 557 - HC - Income Tax

Report of valuation officer u/s section 142A - Mere because certain expenditure incurred by the assessee towards construction of the factory building in respect of which the value has been determined by the DVO has been shown under different heads in the books of account that by itself cannot be a ground to ignore the expenditures incurred by the assessee towards construction of factory building when the DVO was of the opinion that the expenditure incurred towards humidification plant and trenches are also included in the cost of construction estimated by him. - The Tribunal rightly upheld the finding of the CIT(A) for admitting additional evidence under Rule 46A and giving the assessee the benefit as per the revised report - The Tribunal correctly appreciated the material on record for upholding the objections of the assessee under the heads Humidification Plant and Trenches and deleting the additions to that extent. The finding so recorded is a finding of fact and is not shown in any manner to be perverse. Deduction u/s 80HHC - DEPB - Held that - the matter is covered by earlier order of this Court CIT v. M/s F.C.Sondhi and Company (P) Limited (2010 -TMI - 203399 - PUNJAB AND HARYANA HIGH COURT) remanding these issues for fresh decision to the Tribunal - The appeals are disposed of accordingly.

Issues Involved:
1. Admissibility of additional evidence under Rule 46A of the Income Tax Rules, 1962.
2. Validity of the District Valuation Officer's (DVO) revised report.
3. Calculation of investment in 'Humidification Plant' and 'Trenches'.
4. Deduction under Section 80-HHC on the face value of DEPB.
5. Inclusion of DEPB amount in the computation of business profit under Section 28(iiib).
6. Reliance on the decision of the ITAT Special Bench in M/s Topman Exports v. ITO.

Issue-wise Detailed Analysis:

1. Admissibility of Additional Evidence under Rule 46A of the Income Tax Rules, 1962:
The Tribunal upheld the CIT(A)'s decision to admit additional evidence under Rule 46A. The CIT(A) had obtained a revised report from the DVO after considering the objections raised by the assessee. The Tribunal found that all parties were given opportunities to comment on the objections and documents, thus there was no violation of Rule 46A. The Tribunal observed that the AO initially made a reference to the DVO under Section 131(1)(d), which was later converted to a reference under Section 142A. The CIT(A) and Tribunal both found this procedure proper and justified.

2. Validity of the District Valuation Officer's (DVO) Revised Report:
The Tribunal upheld the CIT(A)'s acceptance of the revised DVO report, which reduced the estimated cost of construction considering self-supervision and self-procurement by the assessee. The Tribunal noted that the DVO had provided multiple reports and clarifications, and the final report was comprehensive. The Tribunal found that the CIT(A) was justified in accepting the revised report, which addressed the objections raised by the assessee. The Tribunal also noted that the CIT(A) had ignored certain parts of the DVO's report related to 'Humidification Plant' and 'Trenches' as these were separately booked under different heads in the assessee's accounts.

3. Calculation of Investment in 'Humidification Plant' and 'Trenches':
The Tribunal found that the DVO's revised report, which included expenses for 'Humidification Plant' and 'Trenches' in the total cost of construction, was justified. The CIT(A) had accepted part of these expenses but not the entire amount as determined by the DVO. The Tribunal held that the CIT(A) had no material to reject the DVO's revised estimate and that the expenses should be included in the total cost of construction. The Tribunal concluded that the difference between the declared and estimated costs was nominal and could be ignored, thus no addition for undisclosed investment was warranted.

4. Deduction under Section 80-HHC on the Face Value of DEPB:
The Tribunal's decision to allow deduction under Section 80-HHC on the face value of DEPB was remanded for fresh consideration. The Tribunal had relied on the decision of the ITAT Special Bench in M/s Topman Exports v. ITO, which was later reversed by the Bombay High Court in CIT v. Kalpataru Colours and Chemicals.

5. Inclusion of DEPB Amount in the Computation of Business Profit under Section 28(iiib):
The Tribunal's decision to include the entire DEPB amount in the computation of business profit under Section 28(iiib) was also remanded for fresh consideration. This issue was linked to the reliance on the ITAT Special Bench's decision in M/s Topman Exports v. ITO.

6. Reliance on the Decision of the ITAT Special Bench in M/s Topman Exports v. ITO:
The Tribunal's reliance on the ITAT Special Bench's decision in M/s Topman Exports v. ITO was questioned as this decision was reversed by the Bombay High Court. Consequently, the matter was remanded to the Tribunal for fresh consideration in light of the Bombay High Court's ruling.

Conclusion:
The High Court upheld the Tribunal's findings on the admissibility of additional evidence and the validity of the DVO's revised report. The issues concerning the calculation of investment in 'Humidification Plant' and 'Trenches' were resolved in favor of the assessee. However, the issues related to Section 80-HHC deductions and the inclusion of DEPB amounts in business profit were remanded to the Tribunal for fresh consideration. The appeals were disposed of accordingly.

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