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Issues involved: Valuation of construction cost for a hotel building during a search and seizure operation, addition of undisclosed income based on estimated cost, jurisdiction of AO to make additions in block assessment.
Summary: The appeal before the Appellate Tribunal ITAT Pune involved the valuation of a hotel building construction cost during a search and seizure operation, where the AO added undisclosed income based on an estimated cost difference. The assessee, a private limited company, contested the addition of Rs. 10,78,537 to the undisclosed income, arguing that the valuation was made without any material or evidence linking it to undisclosed income. The AO had referred the case to the District Valuation Officer (DVO) under s. 55A(b)(II) of the IT Act, 1961, and based the addition on the DVO's report. The counsel for the assessee contended that the valuation was unrelated to the search operation and no evidence indicated undisclosed income used in construction. They cited legal precedents to support their argument that additions cannot be made solely on estimated construction costs. The Departmental Representative supported the AO's decision, emphasizing the jurisdiction to assume undisclosed investments based on discrepancies in recorded investments. After considering the submissions, the Tribunal found that the addition did not fall within Chapter XIV-B as all construction expenditures were recorded in the books of accounts. The AO's reliance on the DVO's report, which was based on estimates, was deemed insufficient to treat the addition as undisclosed income. Therefore, the Tribunal allowed the appeal, deleting the addition of Rs. 10,78,537. In conclusion, the Tribunal ruled in favor of the assessee on the preliminary ground, declining to delve into the merits of the DVO's report. The addition of undisclosed income was deemed unjustified, and the appeal was allowed, resulting in the deletion of the added amount.
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