2017 (2) TMI 166 - AT - Income Tax

Addition made u/s. 69C - estimation the cost of construction of the plant - adoption of report of DVO - Held that - The AO had not rejected the books of account of the assessee and no defect has been pointed out as to how the amount capitalised under building account totaling to ₹ 9.06 crores as on 31.3.12 was not reliable. Para-C of page 8 of PB talks of value of the work for which consultancy was to be paid and the estimated cost is mentioned at ₹ 5 crores. Page 10 and 11 of the PB are bills of the architect. In both the bills the amount mentioned is ₹ 5 crores. Pg-17 and 18 is the letter of the architect dt.13.6.13 wherein it had clarified the position about the value of property.It has been specifically mentioned in that letter that total cost of building upto 31.3.10 was Re.3.67crores.Besides,the assessee had given year-wise break up of expenditure made for construction of building and had capitalised the same. The accounts of the assessee were audited. In our opinion,there was no justification after letter of consultant to take the value of the building at ₹ 8 crores. The assessee had obtained a valuation report from a chartered engineer who is also a registered valuer and same was submitted to the FAA. As per the report of the registered valuer the estimated total cost of investment is ₹ 8.79,36,912/-.Thus there is a minor difference of ₹ 36,106/- in the cost of investment shown by the assessee and cost estimated by the registered valuer. Thus restricting the addition to the figure mentioned in the report of the DVO,cannot be held be justifiable. We hold that order of the FAA cannot be endorsed - Decided in favour of the assessee.

Summary

Issues: Addition made under section 69C of the Income Tax Act based on estimated project cost.

Detailed Analysis:

1. The appellant, a furniture manufacturing company, filed its return of income declaring &8377; 1.17 crores, but the Assessing Officer (AO) determined the income at &8377; 10,37,42,230/-, including an addition of &8377; 28.65 lakhs under section 69C of the Act. The AO believed the appellant concealed expenses based on the architect's fees estimation discrepancy, leading to the addition.

2. The appellant argued before the First Appellate Authority (FAA) that the project cost was &8377; 6.64 crores, not &8377; 8 crores as assumed by the AO. The Architectural Consultancy Agreement (ACA) with Munish & Associates clarified the project cost discrepancy, stating the actual cost was lower. The FAA directed the AO to consider the cost as per the valuation report by the Departmental Valuation Officer (DVO).

3. The Authorized Representative (AR) contended that no mistake was found in the appellant's accounts, and the addition under section 69C was unjustified as it was based on estimates, not actual costs. The AR highlighted discrepancies in the consultant's bill to support the appellant's position.

4. The Tribunal noted that the consultant's bill errors caused the dispute, and the architect acknowledged these mistakes. The Tribunal found no defects in the appellant's accounts and considered the valuation report by a registered valuer, which showed a minor difference in estimated costs. Consequently, the Tribunal ruled in favor of the appellant, allowing the appeal and overturning the addition made under section 69C.

In conclusion, the Tribunal's decision favored the appellant, emphasizing the importance of accurate documentation and valuation reports to determine project costs and avoid unjustified additions under section 69C of the Income Tax Act.