2018 (12) TMI 1666 - AT - Income Tax

Revision u/s 263 - valuation and investment made in the fixed assets - as per Commissioner order passed by the AO is erroneous and prejudicial to the interest of the revenue as the AO failed to conduct the proper enquiry on the valuation of the cost of construction and for not referring the matter to the Departmental Valuation Officer - HELD THAT - In the case in hand, admittedly, it is not a complete lack of enquiry on the part of the AO rather the AO has conducted a detailed enquiry on this issue and called for all the relevant records from the bank for the purpose of examining the cost of construction of the hotel building. It may be a case of inadequate enquiry so far as not referring the matter to the DVO. However, it is not mandatory for the AO to refer the valuation to the DVO once the AO was satisfied with the cost of construction and cost of fixed assets as recorded in the books of account. Further, even if the Pr. Commissioner found that the decision of the AO accepting the cost of construction/cost of fixed assets is contrary to the facts or otherwise not permissible as per the provisions of the Act, then the order of the AO could have been reversed by giving a concluding finding on the issue. Pr. Commissioner has set aside the impugned order only for the purpose of referring the same to the DVO. Therefore, the Pr. CIT was also not sure about the correctness of the cost of construction or cost of fixed assets either shown in the project report or recorded in the books of account. Accordingly, in the facts and circumstances of the case when it is not a case of lack of enquiry but the AO has taken a view by accepting the cost of fixed assets as recorded in the books of account which were also supported by the valuation report, then the order of the AO cannot be held to be erroneous on the ground of lack of enquiry. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the revision order under section 263 of the IT Act.
2. Validity of the valuation of fixed assets declared by the assessee.
3. Adequacy of the AO's enquiry and verification of the cost of construction.

Issue-wise Detailed Analysis:

1. Legality of the Revision Order under Section 263:
The assessee challenged the revision order dated 31st January 2018, issued by the Principal CIT under section 263 of the IT Act, arguing that it was illegal and bad in law. The Principal CIT considered the assessment order erroneous and prejudicial to the interest of the revenue due to the discrepancy in the valuation of fixed assets. The Tribunal concluded that the order of the AO cannot be held to be erroneous on the ground of lack of enquiry since the AO had conducted a detailed enquiry and had taken a possible view supported by evidence. Therefore, the Tribunal set aside the revision order passed under section 263.

2. Validity of the Valuation of Fixed Assets:
The Principal CIT held that the AO erred by accepting the value of fixed assets declared by the assessee without proper consideration. The AO had accepted the cost of construction recorded in the books of account at ?1,81,49,072/-, supported by a registered valuer's report, against the bank's survey value of ?3.52 crores. The Tribunal noted that the project report submitted to the bank was an estimated cost for obtaining a loan and not the actual cost of construction. The Tribunal emphasized that the actual cost of acquisition must be recorded in the books, which the AO had verified. Thus, the Tribunal found no fault in the valuation of fixed assets as recorded by the assessee.

3. Adequacy of the AO's Enquiry and Verification of the Cost of Construction:
The Principal CIT criticized the AO for not conducting a proper enquiry and for not referring the matter to the Departmental Valuation Officer (DVO). The Tribunal observed that the AO had issued a query letter, called for relevant documents from the bank, and examined the valuation report during the assessment proceedings. The Tribunal acknowledged that while it might be a case of inadequate enquiry, it was not a complete lack of enquiry. The AO's decision not to refer the matter to the DVO was deemed acceptable since the AO was satisfied with the cost of construction recorded in the books. The Tribunal reiterated that if the AO has taken one of the possible views, the Principal CIT cannot invoke section 263 merely because he disagrees with the AO's view.

Conclusion:
The Tribunal concluded that the AO had conducted a detailed enquiry and had taken a possible view supported by evidence. The revision order under section 263 was set aside, and the appeal of the assessee was allowed. The order was pronounced in the open court on 20/12/2018.