2012 (7) TMI 486 - AT - Income Tax

Valuation - consideration of self supervision factor which lead to less value - Addition made on account of unexplained investment in cost of construction of building u/s.69B - CIT(A) deleted the addition and allowed a deduction of 10% for construction under owner s own supervision - Held that - The assessee has shown cost of construction in balance sheet at Rs. 97,76,773/- whereas cost estimated by the valuer at Rs. 1,15,55,424/-. The difference is remained Rs. 17,76,412/-. There is own supervision in construction of bungalow which reduces the cost of construction. This benefit was allowed by the various ITATs near about 10% of the estimated cost of construction. The appellant also made expenditure after 31.03.2007. The A.O. has not brought on record any incriminating evidence found during the course of search and seizure operation for construction of bungalow. Thus considered view that the valuation made by the D.V.O. is an estimate and has variation in cost estimation. The appellant has explained the difference before the CIT(A), therefore, no reason to interfere in the order of CIT(A)as DVO has not considered self supervision factor - in favour of assessee. Rejecting the application for rectification u/s 154 and charging interest u/s 234B and 234C - Held that - The interest u/s.234B and 234C was charged originally in the assessment order passed u/s 143(3) and in the order giving effect to the order of the CIT(A), the interest was reduced accordingly thus it is therefore, clear that there was no mistake apparent from the record in the order giving effect to the order of the CIT(A) and the AO has rightly rejected the rectification application u/s.154 against which the appeal under consideration is filed. - As the assessee has not raised any ground of appeal against charging of interest u/s. 2234B & 234C in the order passed u/s.143(3), thus through the rectification application, the appellant wants to raise the ground against the charging of interest by quoting wrong facts in the rectification application which cannot be accepted As no fault of the assessee in adjusting the cash against the advance tax even after written request had been made by the assessee, direction to the A.O. to give the credit of Rs. 23 lac as advance tax and charge interest after assuming advance tax paid Rs. 23 lac u/s 234B and 234C as per law

Issues Involved:
1. Deletion of addition on account of unexplained investment in the cost of construction of the building under Section 69B of the Income Tax Act.
2. Deduction for construction under the owner's supervision.
3. Consideration of the difference in valuation due to the delay in the DVO's valuation.
4. Deletion of addition based on the DVO's valuation report.
5. Ignoring documentary evidence for unaccounted expenditure.
6. Application of the judgment in Amar Kumari Surana vs. CIT.
7. Application of the judgment in CIT vs. Meerut Cement Co. Pvt. Ltd.
8. Charging of interest under Sections 234B and 234C.

Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Investment in Cost of Construction:
The Revenue challenged the deletion of additions made by the Assessing Officer (AO) for unexplained investment in the construction of a building. The AO had estimated the cost of construction based on the District Valuation Officer's (DVO) report, which showed a difference between the cost declared by the assessee and the estimated cost. The Commissioner of Income-Tax (Appeals) [CIT(A)] deleted the additions, stating that the difference was negligible after considering self-supervision and subsequent expenditures.

2. Deduction for Construction Under Owner's Supervision:
The CIT(A) allowed a 10% deduction for construction under the owner's supervision, referencing the ITAT Jaipur Bench decision in ITO vs. Prakash Chand Surana. The Revenue contended that the assessee had shown architect fees and used labor contractors, thus not qualifying for the deduction. However, the Tribunal upheld the CIT(A)'s decision, noting that self-supervision reduces construction costs and is a recognized practice.

3. Consideration of the Difference in Valuation Due to Delay:
The CIT(A) noted that the DVO's valuation was conducted after a significant lapse of time and that the assessee had incurred further construction expenses after the valuation date. This delay and additional expenditure justified ignoring the minor difference in valuation, a stance the Tribunal agreed with.

4. Deletion of Addition Based on DVO's Valuation Report:
The CIT(A) deleted the addition based on the DVO's valuation report, which the AO had used to frame the assessment. The Tribunal upheld this deletion, emphasizing that the DVO's valuation is an estimate and that the AO did not present any incriminating evidence found during the search and seizure operations.

5. Ignoring Documentary Evidence for Unaccounted Expenditure:
The Revenue argued that the CIT(A) ignored the lack of documentary evidence for unaccounted expenditure. However, the Tribunal found that the AO's addition was based on valuation differences rather than concrete evidence of unaccounted expenditures, supporting the CIT(A)'s deletion of the addition.

6. Application of the Judgment in Amar Kumari Surana vs. CIT:
The Revenue cited the judgment in Amar Kumari Surana vs. CIT, arguing that the assessee could not point out mistakes in the DVO's estimate, implying underreporting of construction costs. The Tribunal, however, found that the CIT(A) had appropriately considered the facts and circumstances, including self-supervision and delayed valuation, rendering the addition unjustified.

7. Application of the Judgment in CIT vs. Meerut Cement Co. Pvt. Ltd.:
The Revenue referenced CIT vs. Meerut Cement Co. Pvt. Ltd., where the AO can rely on the DVO's report in case of doubt. The Tribunal noted that while the DVO's report is valuable, it is still an estimate and should be considered alongside other factors, such as self-supervision and additional expenditures, which justified the CIT(A)'s decision.

8. Charging of Interest Under Sections 234B and 234C:
The assessee contested the charging of interest under Sections 234B and 234C, arguing that a request to adjust seized cash against advance tax was made but not honored. The Tribunal referenced similar cases where such adjustments were allowed and directed the AO to treat the seized cash as advance tax, thereby reducing the interest charged.

Conclusion:
The Tribunal upheld the CIT(A)'s deletion of additions based on the DVO's valuation, recognizing the legitimacy of self-supervision deductions and the impact of delayed valuations. It also directed the AO to adjust seized cash against advance tax, reducing the interest charged under Sections 234B and 234C. The appeals by the Revenue were dismissed, and the cross-objections and appeal by the assessee were allowed.

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