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2019 (7) TMI 989 - HC - Income TaxRevision u/s 263 - failure of AO to not referring the matter to the DVO for valuation of construction work - HELD THAT - It was not a case of 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 could be a case of inadequate enquiry so far as not referring the matter to the DVO, however, it was not mandatory for the assessing officer 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. Tribunal further held that even if the Pr. CIT 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 IT Act, then the order of the AO could have been reversed by giving a concluding finding on the issue. Pr. CIT has set aside the impugned order only for the purpose of referring the same to the DVO. It is thus evident that the Pr. CIT was 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. When the AO has taken a broad 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. It is settled position of law that when the AO has taken one of the possible views then the Pr. CIT cannot be permitted to invoke the provisions of Section 263 simply because he does not agree with the view taken by the AO. On examination of the reasoning given by the Tribunal, we do not find that there was any justification for the Pr. CIT to invoke the provisions of Section 263 on the specific plea that the order of the AO was prejudicial to the interest of the revenue. Every loss of the revenue as a consequence of the order of the AO cannot be treated prejudicial to the interest of the revenue. Where two views are possible and the AO has taken one view with which the Pr. CIT did not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the AO was not at all possible in law. - Decided in favour of assessee.
Issues Involved:
1. Validity of the Income Tax Appellate Tribunal's order setting aside the Principal Commissioner of Income Tax's order under Section 263 of the Income Tax Act, 1961. 2. Assessment of the actual cost of construction and valuation of fixed assets. 3. Legality of the Principal Commissioner's invocation of Section 263 of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Validity of the Income Tax Appellate Tribunal's Order: The appeal was filed by the Principal Commissioner of Income Tax, Kota, challenging the ITAT's order dated 20.12.2018, which set aside the Principal Commissioner's order under Section 263 of the Income Tax Act, 1961. The Tribunal had allowed the appeal of the assessee, M/s Om Rudra Priya Holiday Resort Pvt. Ltd., and annulled the Principal Commissioner's order dated 31.01.2018. The Tribunal concluded that the assessing officer had conducted a detailed inquiry and was satisfied with the cost of fixed assets as shown in the balance sheet. The Tribunal held that the project report submitted to the bank was an estimated cost and not the actual cost of construction, which was duly verified by the assessing officer. 2. Assessment of the Actual Cost of Construction and Valuation of Fixed Assets: The core issue revolved around the valuation of fixed assets under the head "Income from Business or Profession." The CIT found discrepancies between the declared investment in fixed assets (?2,20,03,275/-) and the valuation by the bank's surveyor-cum-valuer (?3.52 crore). The CIT argued that the correct course of action would have been to refer the matter to the Departmental Valuation Officer (DVO) under Section 142A of the IT Act. The Tribunal, however, noted that the assessing officer had already conducted inquiries, including issuing a query letter and obtaining a valuation report dated 14.05.2013. The assessing officer was satisfied with the cost of construction and fixed assets recorded in the books of accounts, supported by the registered valuer's report. 3. Legality of the Principal Commissioner's Invocation of Section 263 of the Income Tax Act, 1961: The Tribunal found that the Principal Commissioner invoked Section 263 on the grounds that the order of the assessing officer was prejudicial to the interest of the revenue. However, the Tribunal held that it was not a case of complete lack of inquiry by the assessing officer. The Tribunal emphasized that it was not mandatory for the assessing officer to refer the valuation to the DVO once satisfied with the cost of construction recorded in the books of account. The Principal Commissioner had set aside the order only to refer it to the DVO, indicating uncertainty about the correctness of the cost of construction or fixed assets. The Tribunal concluded that when the assessing officer has taken one of the possible views, the Principal Commissioner cannot invoke Section 263 merely because he disagrees with that view. Conclusion: The Tribunal's reasoning was upheld, finding no justification for the Principal Commissioner to invoke Section 263. The Supreme Court's judgment in Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax was cited, emphasizing that not every loss of revenue due to an order can be deemed prejudicial to the revenue's interests. The appeal was dismissed, affirming that the assessing officer's order was not erroneous or prejudicial to the revenue's interests.
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