2003 (10) TMI 285 - AT - Income Tax

Summary

Issues Involved:
1. Addition made by the AO on account of undisclosed investment in the construction of house property.
2. Validity of the AO's reference to the Departmental Valuation Officer (DVO) under section 131(1)(d) of the IT Act.
3. Justification of the DVO's valuation and the subsequent additions made by the AO.
4. Acceptance of the assessee's claims regarding the cost of construction and related expenses.

Issue-wise Detailed Analysis:

1. Addition made by the AO on account of undisclosed investment in the construction of house property:
The primary controversy involved in the appeals relates to the addition made by the AO due to undisclosed investment in constructing a house property. The assessee had shown a total investment of Rs. 7,37,183 over the assessment years 1988-89 to 1990-91. However, the AO, based on the DVO's report, estimated the total investment at Rs. 11,96,400, leading to additions in the respective assessment years.

2. Validity of the AO's reference to the Departmental Valuation Officer (DVO) under section 131(1)(d) of the IT Act:
The assessee contested the AO's reference to the DVO under section 131(1)(d) of the IT Act. The Tribunal noted that the Hon'ble Supreme Court in the case of Smt. Amiya Bala Paul vs. CIT had laid down that the AO was not competent to call for the report from the Valuation Officer under section 131(1)(d) of the IT Act. Consequently, the report of the DVO was deemed inadmissible.

3. Justification of the DVO's valuation and the subsequent additions made by the AO:
The CIT(A) observed that the AO's additions were solely based on the DVO's report without any independent verification. The CIT(A) noted discrepancies in the AO's approach, such as accepting the assessee's claim of cheaper material procurement due to family connections but not fully accounting for it. Additionally, the DVO's higher estimation of the architect's fee and the cost of marble was not substantiated. The CIT(A) found that the difference between the DVO's valuation and the assessee's disclosed investment was less than 6%, which was considered ignorable.

4. Acceptance of the assessee's claims regarding the cost of construction and related expenses:
The CIT(A) accepted the assessee's claims regarding the cost of construction, including the lower cost of marble and architect's fee, supported by necessary vouchers and certificates. The CIT(A) also accepted the assessee's explanation for additional investments made from withdrawals from M/s Syntho Pharmaceuticals (P) Ltd., which were disclosed in the wealth-tax return. The CIT(A) concluded that the AO's additions were unjustified and deleted them.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, agreeing that the AO had no jurisdiction to call for the DVO's report under section 131(1)(d) and that the DVO's report was inadmissible. The Tribunal also concurred with the CIT(A)'s findings on the merits, noting that the difference between the DVO's valuation and the assessee's disclosed investment was less than 10%, which should be ignored. Consequently, all the appeals of the Department were dismissed.