2014 (11) TMI 557 - HC - Income Tax

Liability to pay tax DVO s valuation accepted and difference in the cost of construction to be set off against expenditure incurred for the construction Whether the Tribunal were correct in holding that the difference in the investment in construction of the building as declared by the assessee and worked out by the Valuation Officer cannot be treated as the income of the assessee u/s 69, 69B/69C of the Act as the building should be treated as stock in trade - Held that - As the AO invoked Section 142-A of the Act and got DVO appointed for the purpose of valuation, no such power is conferred u/s 69C to such AO - Section 69C is not attracted to this case - The proviso to Section 69C is confined to Section 69C only - No such proviso is found in Section 69C and therefore, the proviso to Section 69C cannot be read as proviso to Section 69B - In terms of Section 69B, the excess amount may be deemed to be the income of the assessee for such financial year - when the excess amount is in the nature of the investment on building and the building is sold to prospective purchaser, that investment is in the nature of expenditure that unexplained income has to be set off against the expenditure and the net tax could be nil and that the Appellate Authorities dismissed both the appeals and held that it is strictly in accordance with law the order of the Tribunal is upheld Decided against revenue.

Summary

Issues Involved:
1. Valuation of construction cost for tax assessment.
2. Application of Section 142-A of the Income Tax Act.
3. Treatment of difference in valuation as income under Sections 69, 69B, and 69C.
4. Allowance of deduction under Section 37(1) of the Act.
5. Interpretation of proviso to Section 69C and its applicability to Section 69B.
6. Power of Assessing Officer under different sections for valuation and taxation.

Issue 1: Valuation of Construction Cost for Tax Assessment:
The case involved a property developer who filed a return of income for a specific assessment year, declaring a total income. The Assessing Officer referred the matter to the DVO for valuation of the building, leading to a variance in the cost of construction as determined by the approved valuer and the DVO. The difference in valuation was a key point of contention in determining the tax liability.

Issue 2: Application of Section 142-A of the Income Tax Act:
The Assessing Officer invoked Section 142-A of the Income Tax Act to refer the valuation matter to the DVO. This section empowers the authorities to assess the correct income of the taxpayer by seeking additional information or valuations.

Issue 3: Treatment of Difference in Valuation as Income under Sections 69, 69B, and 69C:
The Assessing Officer concluded that the difference in the cost of construction should be added to the income of the assessee as suppressed investment. However, the Appellate Authorities and the Tribunal held that such investment in a flat being stock-in-trade should not be considered as income of the assessee, leading to a dismissal of the appeal.

Issue 4: Allowance of Deduction under Section 37(1) of the Act:
The Commissioner of Income Tax (Appeals) directed the Assessing Officer to allow the deduction under Section 37(1) of the Act equal to the amount of addition made, thereby impacting the income tax liability of the assessee.

Issue 5: Interpretation of Proviso to Section 69C and its Applicability to Section 69B:
The substantial questions of law raised for consideration included the correct interpretation of the proviso to Section 69C and its application to Section 69B. The Revenue contended that the unexplained expenditure deemed as income should not be allowed as a deduction under any head of income, while the assessee argued against this interpretation.

Issue 6: Power of Assessing Officer under Different Sections for Valuation and Taxation:
The judgment clarified that the power conferred to the Assessing Officer under Section 142-A for valuation purposes did not extend to Section 69C. It emphasized the distinction between the sections concerning the treatment of excess amounts and the applicability of relevant provisions for taxation.

In conclusion, the High Court upheld the findings of the Appellate Authorities and dismissed the appeal, ruling in favor of the assessee based on the interpretation of relevant sections and provisions under the Income Tax Act.