2017 (5) TMI 194 - AT - Income Tax

Addition of undisclosed investment in construction of house on the basis of report of the Departmental Valuer - validity of matter refereed to the D.V.O. - Held that - The assessee has disclosed expenditure incurred in the construction of the house in various years starting from F.Y. 2007-08 to 2012-13. The assessee also submitted a valuation report with regard to the construction work done in the F.Y. 2007-08 and work done up to 2010 and on that basis the valuer has valued at ₹ 15,07,744/- for A.Y. 2007-08 and ₹ 2,82,655/- up to 2010. The survey team who visited assessee s premises in the month of Feb, 2008 have accepted the investment in home at ₹ 15,00,000/- and the same was also accepted by assessee and disclosed in return of income. Thus, the valuation by DVO for F.Y. 2007-08 was excessive with regard to the assessee s claim that the State PWD rate should have been adopted in place of CPWD rate or appropriate deduction should have been given out of CPWD rates as held in various cases by ITAT. ITAT in various cases have allowed reduction up to 20% from the CPWD rates. As also find merit in the plea of AR that 10% deduction should be allowed for self supervision. It is a justified claim. Thus the valuation done by the DVO by adopting the CPWD rate instead of State PWD rates and not allowing 10% for self supervision is held as excessive. Further the period of construction adopted by the DVO was also not justified in view of various documentary evidences filed by the assessee. Thus hold that the valuation report submitted by the assessee reflects the true affairs on the issue of period of construction and the cost of construction, therefore, direct to delete the addition made on the basis of DVO s report, which is defective on many counts. - Decided in favour of assessee

Summary

Issues:
Confirmation of addition on account of alleged undisclosed investment in construction of house.

Analysis:
The appeal was filed by the assessee against the order of the ld. CIT(A)-I, Jaipur for the A.Y. 2008-09. The sole issue was the confirmation of the addition of ?15,69,673/- on account of alleged undisclosed investment in the construction of a house based on the report of the Departmental Valuer. The assessee, running a retail shop, had not submitted income tax returns from 2004-05 onwards. A survey revealed investment in house construction and stock, allegedly funded by income from 2003-04 to 2007-08. The assessee admitted income for various assessment years. The Valuation Officer valued the house at ?35.64 lacs, adding ?15,69,673/- after reducing the disclosed amount. The CIT(A) rejected the assessee's contentions, leading to the appeal.

The assessee contended that expenses incurred on house construction were disclosed in the balance sheet and objections to the Assessing Officer, totaling ?21,23,500/- from 2007-08 to 2013-14. The assessee got the house valued in 2007-08 and 2010-11 by a registered valuer. The Valuation Officer's report ignored the assessee's construction period submissions and adopted CPWD rates, allowing only 7.5% deduction for self-supervision. The assessee cited legal precedents for using State PWD rates, higher deductions, and proper cost allocation.

The Tribunal found the Valuation Officer's valuation excessive, agreeing with the assessee's claim for State PWD rates or appropriate deductions from CPWD rates. It noted the ITAT's precedent for up to 20% reduction from CPWD rates and allowed a 10% deduction for self-supervision, considering it a justified claim. The Tribunal held the DVO's valuation defective due to using CPWD rates, not allowing self-supervision deduction, and unjustified construction period adoption. Consequently, the addition based on the DVO's report was deleted, affirming the assessee's appeal.

In conclusion, the Tribunal allowed the assessee's appeal, pronouncing the order on 25/04/2017.