2010 (7) TMI 786 - HC - Income Tax

Whether Tribunal was right in law in upholding the order of the first appellate authority deleting the addition made as income from undisclosed sources on account of difference between the cost of construction declared by the assessee and that estimated by the DVO - Departmental Valuation Officer (in short the DVO ) estimated the cost of construction at Rs. 8,89,540. The assessee also got the services of a registered valuer who estimated the cost at Rs.4,56,900 but the Assessing Officer adopted the valuation made by the DVO - Revenue submitted that even incomplete construction had the valuation and, therefore, the Tribunal was not justified in holding that in case of incomplete construction, the reference to the DVO was premature Held that - According to sub-section (3), the Assessing Officer on receipt of report from the Valuation Officer may take the same into consideration while making assessment or reassessment after providing an opportunity of being heard to the assessee. However, a proviso has been added, according to which this section shall not apply in respect of an assessment made on or before September 30, 2004, where such assessment has become final and conclusive on or before that date except in cases where a reassessment is required to be made in accordance with the provisions of section 153A. Section 142A of the Act is not attracted to the facts of the present addition sought to be made on the basis of report of the DVO cannot legally be done. decision against the Revenue and in favour of the assessee.

Summary

Issues:
1. Whether the Tribunal was right in upholding the deletion of income from undisclosed sources due to a difference in construction cost estimates?
2. Whether the Tribunal was right in upholding the deletion of interest disallowance for machinery not put to use?

Analysis:

Issue 1:
The case involved a dispute over the addition of income due to a variance in the cost of construction estimates by the Departmental Valuation Officer (DVO) and a registered valuer. The Commissioner of Income-tax (Appeals) deleted the addition, stating that the DVO's valuation was premature as the construction was incomplete. The Tribunal upheld this decision, emphasizing that the Assessing Officer was unjustified in referring the case to the DVO since the building was still under construction. The Revenue argued that incomplete construction still warranted valuation, citing section 142A of the Income-tax Act, but the assessee contended that the reference to the DVO was invalid as there was no specific provision for it during that assessment year. The Court held that section 142A did not apply to the case, and the reference to the DVO was unjustified, following the decision in Smt. Amiya Bala Paul v. CIT. Consequently, the addition based on the DVO's report was deemed unlawful.

Issue 2:
Regarding the deletion of interest disallowance for machinery not utilized during the relevant year, the Revenue conceded that a Supreme Court judgment favored the assessee. As a result, the Court ruled in favor of the assessee on this issue as well.

In conclusion, the Court ruled against the Revenue on both issues, upholding the Tribunal's decisions to delete the additions based on the invalid reference to the DVO and the interest disallowance.