2014 (8) TMI 57 - HC - Income Tax

Addition on the basis on CPWD or PWD valuation - Exercise of discretion u/s 69B Held that - In the absence of basic records with regard to the extent of materials, the materials purchased and consumed and the accounts thereby incomplete, the AO referred the valuation to the Valuation Officer the DVO adopted CPWD rates, which were the rates prevalent in Delhi and other cities for working out the cost of construction of the building and the assessee s claim was rejected - when the details regarding the cost of construction at PWD rates for Virudhunagar District is applicable, there is no reason for the Valuation Officer to adopt the rate, which is prevalent at distant places and metropolitan cities like Delhi - the authorities below committed serious error, thus, the matter remitted back to the AO to apply the PWD rates at Virudhunagar District in the year 1998-99 with regard to the cost of construction of the assessee s house, so as to ultimately find out what could be the deemed income u/s 69B for the purpose of assessment Decided in favour of assessee.

Summary

Issues:
1. Discrepancy in valuation methods - CPWD vs. PWD rates
2. Application of Section 69B discretion in making additions

Issue 1: Discrepancy in Valuation Methods - CPWD vs. PWD Rates:
The case involved a dispute over the valuation of construction by the assessee, where the Valuation Officer used CPWD rates instead of PWD rates. The assessee contended that CPWD rates were not applicable to their location in Virudhunagar and Ramanadhapuram Districts. The Commissioner of Income Tax (Appeals) acknowledged the difference and reduced the valuation by 20% to arrive at a probable cost. However, the Income Tax Appellate Tribunal upheld the Commissioner's decision. The High Court found that the Valuation Officer's use of CPWD rates was erroneous as they were not suitable for locations like Virudhunagar. The Court remanded the matter back to the Assessing Officer to apply PWD rates for accurate valuation.

Issue 2: Application of Section 69B Discretion in Making Additions:
The Assessing Officer had made an addition to the income of the assessee based on the valuation discrepancy. The assessee argued that there was no need to refer the property to the Valuation Officer and that the accounts should have been accepted without additional valuation. However, the High Court ruled that due to the lack of supporting materials and incomplete accounts, the referral to the Valuation Officer was justified. The Court remanded the matter back to the Assessing Officer to reevaluate the deemed income under Section 69B based on the correct valuation method using PWD rates.

In conclusion, the High Court set aside the previous decisions, emphasizing the importance of using appropriate valuation rates for accurate assessment. The judgment highlighted the necessity of proper valuation methods in determining deemed income under Section 69B and directed the Assessing Officer to reevaluate the case based on PWD rates specific to the location in question.