2012 (12) TMI 205 - AT - Income Tax

Income from civil contract business - computation of income u/s 44AD - It has also been observed by the AO that since the income was shown by applying the provisions of section 44AD of the Act therefore admittedly the assessee had not maintained the books of accounts. - The AO has finally concluded that for the year under consideration as per DVO the cost of expenditure was at Rs.19, 65, 615/- as against that the assessee had shown Rs.10, 66, 553/- therefore the balance of Rs.8, 99, 062/- was held as unaccounted investment u/s.69 of IT Act. - held that - order of CITA(A) deleting the addition upheld - decided in favor of assessee. Reassessment alleged that assessment is reopened based on DVO report Held that - Return was filed on 25/10/2004 and on the basis of the DVO s report vide a notice u/s.148 dated 20/04/2006 the case was reopened - A case can be reopened if the AO has in his possession a specific information so as to form an opinion that there happened to be an escapement of income - for the years under consideration admittedly the assessee had declared the net income by taking the shelter of section 44AD of IT Act. It is also been gathered that regular books of account have not been maintained by the assessee against assessee

Issues Involved:
1. Deletion of addition of Rs.8,99,062/- on account of undervaluation of cost of construction u/s.69C of the IT Act, 1961.
2. Validity of the cross-objection by the assessee regarding the CIT(A)'s remarks.
3. Tax effect and maintainability of the Revenue's appeal.
4. Merits of the DVO's valuation report and its applicability.
5. Validity of reassessment based on DVO's report.
6. Rejection of books of account and reference under section 142A of the IT Act.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of Rs.8,99,062/-:

The Revenue challenged the CIT(A)'s decision to delete the addition of Rs.8,99,062/- made on account of undervaluation of cost of construction based on the DVO's valuation report. The AO referred the property to the District Valuation Officer (DVO) u/s.142A of the IT Act, who determined the cost of construction at Rs.50,47,804/- against the assessee's declared cost of Rs.28,62,260/-. The AO concluded that the difference of Rs.8,99,062/- represented unaccounted investment u/s.69 of the IT Act. The CIT(A) deleted the addition, noting that the DVO's valuation was based on Delhi CPWD rates, which were not applicable to the property situated in Himatnagar. The CIT(A) also observed that the year-wise cost of construction could not be accurately determined until the project was completed.

2. Validity of the Cross-Objection:

The assessee filed a cross-objection against the CIT(A)'s observation that the AO could make additions when the project was found to be complete or substantially completed. The assessee argued that such a remark was unwarranted. The Tribunal dismissed the cross-objection, noting that no legal or factual aspect was agitated before them.

3. Tax Effect and Maintainability of the Revenue's Appeal:

The assessee argued that the tax effect of the addition was below Rs.3 lacs, making the Revenue's appeal non-maintainable as per CBDT Circular. The Tribunal examined the computation of tax and noted that the total tax payable was Rs.2,96,690/-, which was below the threshold. However, the Tribunal rejected this preliminary objection, stating that the year-wise difference could not be segregated, and the tax effect for one particular year should not be the basis to dismiss the appeal.

4. Merits of the DVO's Valuation Report:

The Tribunal affirmed the CIT(A)'s decision to delete the addition, noting that the DVO's report was based on Delhi CPWD rates, which were not applicable to the property in Himatnagar. The CIT(A) had also considered that the construction work was carried out by a contractor, and the assessee had accounted for the expenditure based on bills raised by the contractor. The Tribunal agreed that the year-wise cost of construction could not be accurately determined until the project was completed.

5. Validity of Reassessment Based on DVO's Report:

For A.Y. 2004-05, the Revenue challenged the CIT(A)'s decision to restrict the addition made u/s.69 of the IT Act. The Tribunal noted that the reassessment was based on the DVO's report, which included the investment made by tenants. The CIT(A) had confirmed 70% of the DVO's estimated value, but the Tribunal found this inconsistent with the earlier view that the DVO had wrongly applied CPWD rates. The Tribunal reversed the part relief granted by the CIT(A) and directed to delete the addition.

6. Rejection of Books of Account and Reference Under Section 142A:

The assessee argued that without rejecting the books of account, a reference could not be made u/s.142A of the IT Act. The Tribunal dismissed this plea, noting that the assessee had declared income u/s.44AD of the IT Act and had not maintained regular books of account. Therefore, there was no question of detecting defects in the books of account by the AO.

Conclusion:

The Tribunal dismissed the Revenue's appeals for A.Ys. 2003-04 and 2004-05 and the cross-objection for A.Y. 2003-04 of the assessee. The appeal of the assessee for A.Y. 2004-05 was allowed.

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