2020 (11) TMI 92 - AT - Income Tax

Capital gain computation - Reference to DVO - prescribed percentage of value of asset referred to in Section 55A(b)(i) - Conditions of reference to Valuation Officer as per Rule 111AA - HELD THAT - From a straight reading of the provisions of the Act u/s 55A(b)(i), Rule 111AA, orders of the ITAT, judgments of the Hon ble High Courts and keeping in view the fact that the estimation made by the DVO differs only 8.92% with that of the fair market value, which is less than 15% prescribed by the provisions of the Act and the less than 10% as held by the various judicial forums, we hereby direct that the addition made by the AO be obliterated. Appeal of the assessee is allowed.

Summary

Issues:
- Jurisdiction of Asstt. U/s. 153 A for investment in building
- Validity of reference to DVO for estimation of repair and renovation cost
- Sustainability of valuation made by DVO
- Addition of unexplained expenditure in renovation and repair
- Reliance on DVO report for making additions
- Interpretation of Section 55A(b) and Rule 111AA
- Ignoring differences in valuation based on judicial precedents

Jurisdiction of Asstt. U/s. 153 A for investment in building:
The appeal challenged the reference to the Departmental Valuation Officer (DVO) for estimating the cost of repair and renovation of a building, contending it was illegal and beyond the jurisdiction of the Assistant under Section 153 A. The appellant argued that without any incriminating material found post a search, the issue of investment in the building should not fall under the Assistant's purview. The Tribunal analyzed the circumstances and held that the Assistant's actions were within the scope of Section 153 A, given the investment in the building during the relevant years.

Validity of reference to DVO for estimation of repair and renovation cost:
The appellant disputed the reference to the DVO for estimating repair and renovation costs, claiming it was unwarranted both legally and on merit. The Tribunal examined the necessity of the reference and found it to be justified based on the investment made by the assessee in the building. The DVO's report estimated the investment at a higher value than the books, leading to subsequent additions by the Assistant.

Sustainability of valuation made by DVO:
The DVO's valuation report indicated discrepancies in the value of the building investment as per books and the DVO's estimation. The Tribunal scrutinized the valuation differences and concluded that the DVO's valuation, although slightly higher, was sustainable in law and on merit. This assessment formed the basis for the additions made by the Assistant in the respective assessment years.

Addition of unexplained expenditure in renovation and repair:
The Assistant added the differences in valuation as unexplained expenditure in renovation and repair, leading to additional tax liability for the assessee. The appellant contested this addition, arguing that no unaccounted investments were present. However, the Tribunal upheld the Assistant's decision based on the valuation variances provided by the DVO report.

Reliance on DVO report for making additions:
The Tribunal considered the discrepancies between the DVO's valuation and the declared values by the assessee. Despite the appellant's objections regarding the reliability of the DVO report, the Tribunal upheld the additions made by the Assistant, emphasizing the importance of the valuation report in determining tax liabilities accurately.

Interpretation of Section 55A(b) and Rule 111AA:
The Tribunal referred to Section 55A(b) and Rule 111AA to ascertain the fair market value of the asset for tax purposes. By analyzing the prescribed percentage and amount thresholds, the Tribunal justified its decision to rely on the DVO's valuation report for making additions, aligning with the provisions of the Act and relevant rules.

Ignoring differences in valuation based on judicial precedents:
The Tribunal cited various judicial precedents, including decisions by the ITAT and High Courts, regarding the permissible percentage of difference in valuation reports. By considering these precedents and the specific circumstances of the case, the Tribunal concluded that the differences in valuation fell within acceptable limits, leading to the allowance of the assessee's appeal and the obliteration of the additions made by the Assistant.

In conclusion, the Tribunal's detailed analysis encompassed the legality of the reference to the DVO, sustainability of valuation discrepancies, additions based on unexplained expenditure, reliance on the DVO report, interpretation of relevant legal provisions, and adherence to judicial precedents to arrive at a favorable decision for the assessee.