2003 (9) TMI 290 - AT - Income Tax

Summary

Issues involved:
- Dispute over the cost of construction and addition made by the CIT(A)
- Competency of AO to refer the case to the Valuation Officer for determining the cost of construction

Analysis:

Issue 1: Dispute over the cost of construction and addition made by the CIT(A)
The appeals by the assessees were directed against the order of the CIT(A) relating to the assessment year 1984-85. The common grounds raised in the appeals challenged the CIT(A)'s computation of the difference in the cost of construction and the subsequent addition made to the income of the appellant. The CIT(A) was criticized for errors in computing the cost of construction, upholding additions, and not appreciating the valuation methods used. The assessees also contested the deductions not allowed by the CIT(A) concerning collection expenses, salary to the chowkidar, and legal expenses. The Tribunal found that the AO's reference to the DVO for determining the cost of construction was not justified under the IT Act provisions. The Tribunal held that the AO and CIT(A) were not justified in estimating the cost of construction and making additions based on the DVO's report. Consequently, the Tribunal allowed the appeals partly, emphasizing that the additions made were not justified.

Issue 2: Competency of AO to refer the case to the Valuation Officer
The assessees raised an additional ground of appeal questioning the AO's power to refer the case to the Valuation Officer for determining the cost of construction. The Tribunal admitted this additional ground, citing a Supreme Court decision that allowed raising pure questions of law necessary for assessing the tax liability. The Tribunal noted that the AO's reference to the DVO was not supported by the IT Act provisions, as clarified by the Supreme Court. The Tribunal emphasized that the power to refer to the Valuation Officer under section 55A pertains to capital gains only, and the AO's reliance on the DVO's report was unjustified. The Tribunal concluded that the AO and CIT(A) were not justified in estimating the cost of construction based on the DVO's report and subsequently allowed the appeals partly, dismissing grounds not pressed before them.

In summary, the Tribunal ruled in favor of the assessees, highlighting the lack of justification for the additions made by the AO and CIT(A) based on the DVO's valuation report. The Tribunal emphasized the incorrect application of provisions and valuation methods, leading to the partial allowance of the appeals.