2018 (12) TMI 643 - HC - Income Tax

Fixing the cost of construction - reliance on the Departmental Valuation Officer's report - Held that - Valuers report as well as the cost mentioned in the agreement entered into between the assessee and the contractor and ultimately after granting rebate for self supervision and procurement of materials at 5%, estimated the cost of construction at ₹ 55,99,821/-, as against the cost admitted by the assessee at ₹ 38,00,000/-. The Tribunal without assigning any reasons has fixed the cost of construction at ₹ 20,00,000/- by stating that it would be fair and reasonable to determine the value at that rate. The Tribunal failed to consider the correctness of the order passed by CIT(A) but faulted the AO. Tribunal ought to have assigned reasons as to why it was of the opinion that ₹ 70,00,000/- should be fixed as the construction of the hotel building. It is not sufficient to just state that it would be fair and reasonable. Why such value is fair and reasonable should be disclosed and it should be manifest on the face of the order. Faced with this situation, we may have to remand the matter for fresh consideration before the Tribunal. Appeals filed by the assessee are partly allowed and the cost of construction fixed by the CIT(A) is rounded off and fixed at ₹ 60,00,000/- and the Substantial Question of Law is left open

Summary

Issues:
1. Interpretation of the Departmental Valuation Officer's report.
2. Determination of the cost of construction for assessment purposes.

Interpretation of the Departmental Valuation Officer's report:
The appeal raised a substantial question of law regarding the Appellate Tribunal's reliance on the Departmental Valuation Officer's report, overlooking previous court decisions. The Tribunal had fixed the cost of construction at ?70,00,000, deviating from the assessee's admitted cost of ?38,00,000. The Tribunal's decision was criticized for lacking reasoning and not justifying the increased cost. The High Court noted that the Tribunal should have provided detailed reasons for its valuation decision, rather than simply stating it was fair and reasonable. Despite considering a remand for fresh consideration, the High Court decided against it due to the lengthy assessment process and the potential unfairness to the assessee. Consequently, the High Court partly allowed the appeals, rounding off the cost of construction to ?60,00,000, and left the substantial question of law open for future consideration.

Determination of the cost of construction for assessment purposes:
The Assessing Officer initially fixed the cost of construction at ?89,64,700, leading to an appeal by the assessee to the Commissioner of Income-tax (Appeals) (CITA). The CITA revised the cost to ?55,99,821, considering various factors such as the valuer's report and the agreement between the assessee and the contractor. The Tribunal, however, disregarded the CITA's detailed assessment and unreasonably fixed the cost at ?70,00,000 without adequate explanation. The High Court found fault with the Tribunal's decision-making process, emphasizing the need for transparent and reasoned judgments in such matters. Despite acknowledging the potential need for a remand, the High Court decided to conclude the matter by adjusting the cost of construction to ?60,00,000, providing some relief to the assessee while maintaining fairness in the assessment process.