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2021 (6) TMI 543 - AT - Income TaxUndisclosed investment in construction of factory building on the basis of report of DVO - Adoption of PWD rates as against CPWD rates - HELD THAT - We agree with the contention advanced by the ld AR that where the factory building is situated within the jurisdiction of state PWD State PWD rates should be applied for estimation of cost of construction of the factory building and not CPWD rates. The same is the consistent position taken by this Bench and other Jaipur Benches following the decision of Hon ble Supreme Court in the case of CIT Vs. Sunita Mansingha 2017 (4) TMI 303 - SUPREME COURT . The assessee during the course of assessment proceedings has raised similar objections regarding adoption of CPWD rates and submitted a report of registered valuer M/s V.G. Architects and Engineers dated 28.11.2015 who have estimated the cost of construction by applying PWD rates at 1, 10, 53, 509/- as against 2, 09, 16, 010/- determined by the DVO.Therefore we direct the AO to adopt the value of 1, 10, 53, 509/- as determined by the registered valuer as relevant for the year under consideration. We are not inclined to interfere with the report of the registered valuer as regard various adjustments made by him to the plinth area rate where the ld AR has contended that the adjustments should be made as per report of the DVO for the reason that firstly no such contentions have been raised before the lower authorities and the same have been raised for the first time before us no reason has been specified as to why such contentions should be accepted at this stage and more importantly as to how the adjustments so made is not in accordance with accepted valuation methodology as relevant in the facts of the present case. We find that registered valuer is an expert in the field of valuation as is the case with DVO and unless there is some fundamental flaw in their valuation methodology adopted by them as we have noted above in terms of PWD rates vis- -vis CPWD rates we need to be cautious enough in disturbing such valuation and that too without confronting and providing an opportunity to them to rebut such alternate basis for adjustment. Thirdly the assessee has itself appointed the registered valuer who has given an independent opinion on the valuation of the property and therefore the assessee cannot plead now that he will follow the report of registered valuer in part and like to follow the report of the DVO in part and thus seek to have best of both worlds which suits its interest. The report of the registered valuer has to be considered in its entirety and therefore we direct the AO to follow the report of the registered valuer who has estimated the cost of construction by applying PWD rates at 1, 10, 53, 509/- and determine proportionate value of investment as relevant for the year under consideration as the construction has been spread over two years and to this limited extent the matter is remanded to the file of AO. In the result the ground of appeal is partly allowed. Disallowance u/s 14A read with Rule 8B - HELD THAT - We find that it is a case of mixed funds where the assessee s own funds by way of cash profits are sufficient to make the investment. Besides the assessee holds shares in SBBJ and the investment in SBBJ shares have been made in earlier years and not in the year under consideration. During the year under consideration the assessee has earned dividend income of 13, 775/- which has been claimed exempt and at the same time it has been contended that no expenditure has been incurred in relation to earning of such dividend income and thus no disallowance is called for. Where there is no actual expenditure incurred by the assessee by way of interest and other expenses during the year under consideration no disallowance could be made under section 14A - even the findings of the ld CIT(A) restricting the disallowance to the extent of dividend income is not justified and in any case disallowance cannot swallow the entire dividend income even as per the decisions cited by the ld CIT(A) in his order. In view of the same addition so sustained is hereby directed to be deleted and the ground of appeal is allowed.
Issues Involved:
1. Validity of reference to the Departmental Valuation Officer (DVO) under Section 142A of the Income Tax Act. 2. Addition of ?52,12,917 on account of alleged undisclosed investment in the construction of a factory building. 3. Disallowance of ?13,775 under Section 14A read with Rule 8D. Issue-wise Detailed Analysis: 1. Validity of Reference to DVO under Section 142A: - The assessee argued that the reference to the DVO was invalid as the assessee had already provided complete details of construction expenses, and no defects were found in the books of accounts. - The Assessing Officer (AO) made the reference to the DVO on the grounds that the assessee did not furnish a valuation report and complete bills and vouchers for verification. - The AO cited Section 142A(2) which allows reference to the DVO irrespective of the correctness or completeness of the accounts. - The assessee did not press this ground during the appeal, and it was dismissed as not pressed. 2. Addition of ?52,12,917 on Account of Alleged Undisclosed Investment: - The AO added ?52,12,917 to the assessee's income based on the DVO's report, which estimated the construction cost significantly higher than what was declared by the assessee. - The DVO used CPWD rates for valuation, which the assessee contested, arguing that local PWD rates should be applied as per the Supreme Court and jurisdictional High Court rulings. - The assessee provided a report from a registered valuer using PWD rates, estimating the construction cost at ?1,10,53,509. - The Tribunal agreed with the assessee that PWD rates should be applied and directed the AO to adopt the value determined by the registered valuer. - The Tribunal did not interfere with the adjustments made by the registered valuer to the plinth area rate, as no such contentions were raised before the lower authorities. - The matter was remanded to the AO to determine the proportionate value of investment relevant for the year under consideration. 3. Disallowance of ?13,775 Under Section 14A read with Rule 8D: - The AO observed that the assessee had investments that could yield exempt income and claimed interest expenses, leading to a disallowance under Section 14A. - The CIT(A) restricted the disallowance to the extent of the exempt income earned, which was ?13,775. - The assessee argued that the investments were made from its own funds and no expenditure was incurred to earn the exempt income. - The Tribunal noted that the assessee's own funds were sufficient to cover the investments and no actual expenditure was incurred in relation to the exempt income. - The Tribunal held that no disallowance could be made under Section 14A in such circumstances and directed the deletion of the addition sustained by the CIT(A). Conclusion: - The appeal was partly allowed. The Tribunal directed the AO to adopt the value determined by the registered valuer using PWD rates and deleted the disallowance under Section 14A.
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