2023 (11) TMI 587 - AT - Income Tax

Unrecorded/unaccounted income - Validity of valuation report submitted by the DVO - Period of limitation - valuation difference of hotel building - difference in the cost estimated by the DVO and the cost declared by the assessee - Addition is only the valuation report furnished by the DVO which has been obtained by the Id. AO during the course of search assessment proceeding - since the assessee has not fully disclosed the above-mentioned transactions/receipts in its books of accounts the same were treated as unrecorded/unaccounted and therefore the difference was added to the income of the assessee as undisclosed income to be taxed u/s 115BBE - assessee has submitted that the Ld. CIT(A) has erred in not appreciating the fact that the overall difference in the valuation report for all the years taken together is less than 10% and cannot be taken as a base for making the addition as the valuation report is just an estimate and cannot be taken into consideration for making the addition HELD THAT - Admittedly the sole basis of the addition is only the valuation report furnished by the DVO which has been obtained by the Id. AO during the course of search assessment proceedings. As per the provisions of section 142A (6) of the Act it apparently clear that the valuation report has to be furnished by the Id. DVO within six months from the end of the month in which reference is made by the Id. AO. This issue is now well settled in case of Sargam Cinema 2009 (10) TMI 569 - SC ORDER and in the case of CIT vs. Nirmal Kumar Aggarwal 2018 (10) TMI 2002 - SC ORDER - Admittedly in the present case the valuation report is dated 28.10.2016 which is beyond the prescribed time of 30.09.2016. Hence it is evident that the said valuation report of Id. DVO is barred by limitation and hence cannot be relied upon by either party in the eyes of law. Consequentially in our view no addition per se can be made by the Revenue by placing reliance on an invalid valuation report. Alternative plea that the valuation report considered by the CIT(A) cannot be relied upon as the DVO report which has been made on the basis of CPWD rated instead of PWD rates - Counsel in this regard placed reliance upon the binding judgment of Sunita Mansingha 2017 (4) TMI 303 - SUPREME COURT wherein it has been held that for the purpose of valuating the property the local rate should be applied and not CPWD rates and normally there is difference of about 25% with respect to rate of CPWD and PWD rates. Thus the addition has been made without providing the benefit of rate difference between CPWD and PWD rate. Considering the factual matrix of the case and judicial pronouncements we hold that the order passed by the Ld. CIT(A) is infirm and perverse to the facts on record in confirming the addition based on invalid report of DVO and further without allowing benefit of the difference in the value as per law. Accordingly the addition sustained by the Ld. CIT (A) is bad in Law and as such same is deleted. Assessee appeal allowed.

Summary

Issues Involved:
1. Confirmation of addition made under Section 69A for hotel expenditure.
2. Valuation difference of hotel building.
3. Validity of the valuation report as a basis for addition.
4. Adoption of CPWD rates instead of PWD rates.
5. Consideration of payments made by a third party on behalf of the assessee.
6. Rejection of objections by the assessee in summary manner.

Summary:

Issue 1: Confirmation of Addition under Section 69A
The assessee contested the confirmation of additions made under Section 69A for hotel expenditure by the CIT(A). The AO had added Rs. 21,73,975/- for AY 2014-15 and Rs. 8,98,783/- for AY 2019-20, treating these as undisclosed income.

Issue 2: Valuation Difference of Hotel Building
The CIT(A) confirmed the addition based on the valuation difference between the book value and the DVO's estimate. For AY 2014-15, the book value was Rs. 2,04,55,325/- against the DVO's estimate of Rs. 2,26,29,300/-. For AY 2019-20, the book value was Rs. 62,56,290/- against the DVO's estimate of Rs. 69,21,200/-.

Issue 3: Validity of Valuation Report
The assessee argued that the overall difference in the valuation report for all years taken together is less than 10% and cannot be a base for making the addition. The Tribunal agreed, noting that the DVO report was barred by limitation, as it was not submitted within the six-month period prescribed under Section 142A(6).

Issue 4: Adoption of CPWD Rates Instead of PWD Rates
The assessee contended that the DVO adopted CPWD rates instead of local PWD rates, which are generally lower. The Tribunal upheld this argument, citing the Supreme Court's decision in Sunita Mansingha (393 ITR 121), which mandates the use of local PWD rates for valuation.

Issue 5: Consideration of Payments by Third Party
The payments made by Abdul Majid Sheikh on behalf of the assessee were not considered in the valuation. The Tribunal noted that the AO had failed to establish that these payments were unaccounted for by the assessee, as they were made by a third party.

Issue 6: Rejection of Objections in Summary Manner
The Tribunal found that the CIT(A) had erred in rejecting the assessee's objections in a summary manner, ignoring the binding decision of the Supreme Court in Sunita Mann Singh (393 ITR 121).

Conclusion:
The Tribunal held that the additions based on the invalid DVO report and without considering the difference between CPWD and PWD rates were unsustainable. Consequently, the additions of Rs. 21,73,975/- for AY 2014-15 and Rs. 8,98,783/- for AY 2019-20 were deleted. Both appeals of the assessee were allowed.