2015 (7) TMI 52 - HC - Income Tax

Calculation of cost of ongoing construction of Panchwati Plaza - Whether ITAT was correct in not relying on the Valuation Report in spite of the fact that the Valuation arrived was not challenged by the assessee? - Held that - The Engineer, who has given the valuation report, is simply nothing, but, whimsical approach of the said Engineer and he knows only multiplication. In the whole valuation report there is nothing, but, multiplication of some amount with the floor area, whether it is basement area or ground floor area etc. In fact, the valuer should have estimated the quantity of sand, cement, the work put by the labourers in hours, the cost of supervision etc. Nothing is mentioned about sand, cement, rod, cost of the labourers etc. More we read this valuation report more absurd appears to be and therefore, rightly Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal has decided the matter in favour of the respondent and no reliance was placed upon the said so called valuation report. If this type of attitude of the department is allowed then for every building any type of report can be given by the such valuer. In fact this valuer should never be appointed as a valuer. He do not know ABC of the valuation at all. There ought to be a Cost Accountant along with efficient Engineer. Hence, both the Authorities below viz. CIT and ITAT has rightly quashed and set aside the order passed by the Assessing Officer and the addition of the income of ₹ 68 lakhs has been quashed and set aside. - Decided against revenue.

Summary

Issues:
1. Interpretation of the Income Tax Act, 1961 regarding reliance on judgments post the insertion of Section 142A.
2. Assessment of valuation report in income tax proceedings.
3. Consideration of provisions empowering authorized officers during searches.
4. Evaluation of the order passed by the Income Tax Appellate Tribunal.

Analysis:
1. The appeal raised questions on the ITAT's reliance on a judgment post the insertion of Section 142A of the Income Tax Act, 1961. The court found no substantial question of law, dismissing the appeal after considering the facts and circumstances of the case.

2. The Assessing Officer determined a higher value for a building named Panchwati Plaza in Ranchi during a search and seizure operation. The respondent disputed this valuation, which was based on a report challenged as absurd and baseless. The court noted discrepancies in the valuation methodology used by the department's valuer and upheld the decisions of the lower authorities in favor of the respondent, quashing the addition of Rs. 68 lakhs to the income.

3. The ITAT was criticized for not considering the provision of Clause (v) of Sub Section (1) of Section 132, which empowers authorized officers to inventory stock during searches. However, this issue did not affect the final decision as the valuation report's flaws were the primary focus of the case.

4. The court highlighted the lack of scientific methodology in the valuation report, emphasizing the need for accurate estimation of construction costs. The valuer's approach was deemed whimsical and lacking essential details like material quantities and labor costs. The court supported the decisions of the lower authorities in rejecting the flawed valuation report and dismissed the appeal, affirming the quashing of the additional income addition.

In conclusion, the judgment focused on the flawed valuation report in an income tax assessment, highlighting the importance of accurate and detailed valuation methodologies in such proceedings. The court upheld the decisions of the lower authorities, emphasizing the need for reliable and comprehensive valuation practices in tax matters.