2023 (9) TMI 1038 - AT - Income Tax

Addition u/s 69 - difference between estimated value of construction adopted by D.V.O. being declared by the assessee - A.O. made addition based on the cost of construction as determine by the DVO held to be fair market value of construction done in the respective Assessment Years - Whether CIT (A) has erred in law and on facts while taking into consideration the valuation report of D.V.O. which is erroneous and arbitrary as the rate of construction adopted by the D.V.O. is on higher side and based on estimate and assumption? - HELD THAT - Report of the DVO is also not in accordance with the minimum rate of construction as adopted and published by the Govt. of NCT of Delhi through Special Inspector General (Registration) vide notification dated 22.09.2014 in the said notification issued by the Governor of Delhi, the minimum rate of construction was stipulated at Rs. 11,160/- per sq. meter and Rs. 1,036/- per sq. meters for construction of residential unit falls under 'D' category of Delhi. Considering the fact that the A.O. has not assigned any reason to reject the valuation report submitted by the assessee and apart from the same the A.O. has not even provided opportunity to the assessee to cross examine the DVO and not considered the objection filed by the assessee on the Report of the DVO, further considering the fact that as on 22/09/2014, the cost of construction as per Stamp Duty Rules being Rs. 11,160/- per square meter which has been considered by the Government Valuer while giving the Valuation Report which was supported by the Notification published by the Government of NCT Delhi, in our opinion, the authorities have committed error in accepting the Report of the DVO and rejecting the Valuation Report of Government Approved Valuer submitted by the assessee. A.O. should have summoned the DVO for cross examination to ascertain the basis of the rates or to ascertain the contradictions in the rate adopted by the DVO and the Stamp Duty Rules in the absence of the same, the A.O. committed error in relying on the said report of the DVO and making addition which not only erroneous but also the same is against natural justice.

Issues Involved:
1. Validity of the addition made under Section 69 of the Income Tax Act based on the difference between the estimated value of construction by DVO and the value declared by the assessee.
2. Legitimacy of the DVO's valuation report and its assumptions.
3. Consideration of the minimum unit rate of construction as per the Delhi Stamp "Prevention of under valuation of instrument" rules.
4. Impact of the sale of unfurnished floors to different vendees on the valuation.
5. Nature of construction activities and their reflection in the DVO's report.
6. Relevance of Annexure A-1 in the DVO's valuation.
7. Provision of information and evidence by the DVO to the assessee.
8. Option of method of valuation provided to the assessee.
9. Allowance of cost of construction claimed by the assessee from her husband.

Summary:

Issue 1: Addition under Section 69
The assessee challenged the addition made by the Assessing Officer (AO) based on the difference between the estimated value of construction by the District Valuation Officer (DVO) and the value declared by the assessee. The AO made additions for the Assessment Years 2015-16, 2016-17, and 2017-18 based on the DVO's valuation, which was significantly higher than the amounts declared by the assessee.

Issue 2: Legitimacy of DVO's Valuation Report
The assessee contended that the DVO's valuation was erroneous and arbitrary, based on higher rates and assumptions. The DVO's report did not align with the valuation made by a registered government valuer and the minimum rates of construction as per the Delhi Stamp "Prevention of under valuation of instrument" rules.

Issue 3: Minimum Unit Rate of Construction
The assessee argued that the DVO's valuation ignored the minimum unit rate of construction stipulated in the notification dated 22.09.2014 issued by the Government of NCT of Delhi. The minimum rate was Rs. 11,160/- per sq. meter, which the DVO did not consider.

Issue 4: Sale of Unfurnished Floors
The assessee had sold unfurnished floors to different vendees before the DVO's visit for valuation. The DVO's report did not account for the fact that the vendees furnished their respective floors out of their own funds, leading to an erroneous and arbitrary valuation.

Issue 5: Nature of Construction Activities
The DVO's report did not indicate the nature of construction activities undertaken by the assessee during the relevant financial years. This omission was highlighted by the assessee as a significant flaw in the valuation.

Issue 6: Relevance of Annexure A-1
The DVO's valuation was based on Annexure A-1, which detailed the materials and fittings to be used in construction. However, due to a dispute between the assessee and the builder, this annexure was never executed. Relying on this annexure for valuation was deemed improper and unjustified by the assessee.

Issue 7: Provision of Information and Evidence
The DVO did not provide the assessee with the information gathered during the valuation process. The valuation report lacked evidence and legitimate material regarding the nature of construction activities, which fluctuated across different financial years.

Issue 8: Option of Method of Valuation
The DVO did not offer the assessee any option for choosing a method of valuation, which was another point of contention.

Issue 9: Allowance of Cost of Construction
The CIT(A) did not allow the cost of construction claimed by the assessee, which included amounts received from her husband. The assessee provided documentary evidence for these amounts, but they were not accepted.

Judgment:
The Tribunal found merit in the assessee's grounds of appeal. It held that the AO erred in rejecting the valuation report submitted by the assessee without assigning any reason and without providing an opportunity for cross-examination of the DVO. The Tribunal noted that the DVO's valuation did not consider the minimum rate of construction as per the Delhi Stamp rules and that the AO failed to address the contradictions in the rates. Consequently, the Tribunal allowed the appeals and deleted the additions made against the assessee for the Assessment Years 2015-16, 2016-17, and 2017-18.

Conclusion:
The appeals filed by the assessee were allowed, and the additions made by the AO based on the DVO's valuation were deleted. The Tribunal emphasized the need for a fair and just valuation process, considering the minimum rates of construction and providing the assessee with an opportunity to cross-examine the DVO.

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