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2014 (1) TMI 493 - HC - Income TaxValuation of property - Held that - Following Sargam Cinema Versus. Commissioner of Income-tax 2009 (10) TMI 569 - Supreme Court of India - Without there being rejection of the valuation of the property constructed as shown in the books of account, the reference under section 142A of the Act was not justified - The difference in the valuation which has been claimed by the revenue as per the valuation report of the DVO amounting to Rs. 2,35,933/- on estimate basis cannot be said to be unexplained investment - Decided against Revenue.
Issues:
1. Interpretation of provisions under Income Tax Act, 1961 regarding valuation of construction costs. 2. Validity of reference to Departmental Valuation Officer without rejection of books of account. 3. Application of Section 142A of the Income Tax Act, 1961. 4. Assessment of unexplained investment in construction of house building. Issue 1: Interpretation of provisions under Income Tax Act, 1961 regarding valuation of construction costs: The appeal by the revenue under section 260A of the Income Tax Act, 1961 challenged the Tribunal's decision to allow the assessee's appeal regarding the valuation of construction costs. The Tribunal held that the departmental authorities lacked the power to refer the matter to the Departmental Valuation Officer (DVO) for valuation of construction costs, leading to the deletion of an addition of Rs. 2,35,933. The revenue contended that the Tribunal did not decide the issue on merits and should have considered the provisions of Section 142A of the Act post the amendment by Finance Act, 2004. However, the High Court found no merit in the appeal, citing precedents like Sargam Cinema's case and CIT v. Chohan Resorts, emphasizing the necessity of rejecting the valuation in the books of account before making a reference to the DVO. Issue 2: Validity of reference to Departmental Valuation Officer without rejection of books of account: The High Court highlighted the requirement, as per legal precedents, for the rejection of the valuation of the property in the books of account before a reference to the DVO can be justified. The Court referenced the Sargam Cinema case, where it was established that without rejection of the books of account, the reference to the DVO was invalid. In the present case, the Tribunal found that the books were never rejected, leading to the conclusion that the reliance on the DVO's report was misconceived. This aspect was crucial in determining the validity of the reference and subsequent addition of construction costs. Issue 3: Application of Section 142A of the Income Tax Act, 1961: The appellant argued for the application of Section 142A of the Income Tax Act, 1961, following the amendment by Finance Act, 2004. The contention was that the matter should be remanded to the Tribunal for adjudication in light of this section. However, the High Court, after considering legal arguments and precedents, found that the provisions of Section 142A were not applicable in this case, as the fundamental requirement of rejecting the valuation in the books of account was not met. Issue 4: Assessment of unexplained investment in construction of house building: The dispute revolved around the addition of Rs. 2,35,933 as unexplained investment in the construction of a house building. The Tribunal had allowed the appeal of the assessee, leading to the revenue's appeal before the High Court. The Court, after analyzing legal principles and judgments, concluded that the addition on an estimate basis could not be sustained, especially when the reference to the DVO was deemed invalid due to the absence of rejection of the valuation in the books of account. Therefore, the Court dismissed the appeal by the revenue, upholding the Tribunal's decision in favor of the assessee.
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