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2023 (7) TMI 729 - AT - Income TaxValuation of the property - cost of investment in land - Relevance of valuation report of the DVO - AO computed the total income from construction activities by adopting the method of total income received from Payne Realtors Private Limited as reduced by the amount paid to the unit holders and part of opening stock and part of current year expenses - HELD THAT - Since the Departmental Valuation Officer appointed by the Department to value the cost of investment in the aforesaid land and also the cost of construction incurred by the assessee for completion of project, has estimated the combined value of the cost of land and cost of construction at a value which is higher than that value submitted by the assessee, albeit marginally than the cost estimate given by the assessee, then no addition is called for in the instant set of facts. We observe that that Ld. CIT(Appeals) has noted that the cost of investment in land has been shown by the assessee at Rs. 3.25 crores and same has been valued by the DVO also at Rs. 3.25 crores. In case of cost of investment in building, the cost of construction has been declared by the assessee Rs. 10.79 crores, whereas the Departmental Valuation Officer has estimated the same at Rs. 11.03 crores. Therefore, on comparison of the two, the overall cost shown/claimed by the assessee is lesser than the valuation done by the DVO appointed by the Department. We are of the considered view that Ld. CIT(Appeals) has correctly held that since as per the report prepared by the DVO, the value of cost property is more as compared to the cost estimate given by the assessee, the addition made by the AO is not sustainable.Decided in favour of assessee.
Issues:
The issues involved in the judgment are the rejection of books of account by the Assessing Officer and the computation of total income from construction activities. Rejection of Books of Account: The appellant, a partnership firm engaged in construction and real estate business, filed its return of income for the assessment year 2011-12. The Assessing Officer (AO) rejected the books of accounts, questioning the genuineness of expenses claimed by the appellant. The AO computed the total income from construction activities by adopting a specific method. However, the Commissioner of Income Tax (Appeals) deleted the additions made by the AO, highlighting that the AO's observations were related to expenses incurred in previous years and not the current assessment year. The CIT(A) emphasized that the AO's actions were not factually or legally correct, as they pertained to a different assessment year. The appellant had shown sales and profits in previous assessment years, and the AO's argument that no income was shown from construction work was deemed factually incorrect. The CIT(A) also noted that the appellant's returns had been scrutinized in previous years, and the AO's actions were deemed not legally tenable. The Department's appeal against the additions made by the CIT(A) was dismissed. Computation of Total Income from Construction Activities: The Department's primary contention was that the AO should have been allowed to verify the expenses claimed by the appellant during the current assessment year, even if those expenses were incurred in previous years. The Department argued that since the expenses were claimed in the current year, the AO had the right to examine them. However, the counsel for the appellant pointed out that a Departmental Valuation Officer (DVO) had been appointed to value the cost of construction, and the DVO's estimates slightly exceeded the appellant's declared costs. The CIT(A) correctly deleted the additions made by the AO, considering the DVO's valuation report. The Tribunal agreed that while the AO could examine expenses claimed in the current year, the DVO's valuation report showing slightly higher costs compared to the appellant's estimates justified the deletion of the AO's additions. The Tribunal upheld the CIT(A)'s decision, emphasizing that the DVO's valuation report rendered the AO's additions unsustainable.
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