2023 (3) TMI 1235 - AT - Income Tax

Addition u/s 69 - unexplained investment - Addition being the difference between the cost of construction arrived at by the DVO and the cost of construction declared by the assessee - assessee failed to substantiate the source of such income for investment in the hospital building - Applicability of the amended provision of section 115BBE - HELD THAT - We find merit in the argument of assessee that the construction of the building started in financial year 2009-10 (May-2009) and completed in financial year 2016-17(August,2016) and therefore, the difference between the cost of construction as per the DVO and the Valuer s report should be spread over between financial year 2009-10 to financial year 2016-17 i.e. A.Y 2010-11 to A.Y 2017-18 proportionately. We, therefore, direct the AO to spread over the difference between the cost of construction arrived at by the DVO and the cost of construction arrived at after considering our observations in the subsequent paragraphs over the period from August, 2010-11 to A.Y 2017-18. A perusal of the report of the DVO shows that he has allowed only 10% towards reduction in cost of material purchased by the assessee. Since the assessee is a reputed doctor, it is quite possible that he has purchased the material from sources known to him and is expected to get some further discount. Considering the totality of the facts of the case, we direct the AO to consider the discount for the material purchased by the assessee at 20% as against 10% allowed by the DVO. Similarly, the cost of self-supervision charges has been allowed by the DVO at 5% only whereas the Coordinate Benches of the Tribunal are allowing such self-supervision charges varying from 12.5% to 15%. We direct the AO to allow self-supervision charges at 12.5% as against 5% allowed by the DVO. AO is directed to recompute the cost of construction after reducing the discount for purchase of material at 20%, allowing self-supervision charges at 12.5% and whatever value is arrived by the AO, the same shall be deducted from the value arrived at by the DVO and the difference so arrived at shall be spread over A.Y 2009-10 to A.Y 2017-18 and the AO shall calculate the income of the assessee on the basis of such spread over. Applicability of provisions of section 115BBE - Since the addition has been made u/s 69 of the I.T. Act, therefore, the learned CIT (A) is fully justified in upholding the order of the Assessing Officer on this issue. Therefore, the additions so made after the calculations shall be taxed u/s 115BBE for A.Y 2017-18. Grounds raised by the assessee are accordingly partly allowed in the terms indicated above.

Summary

Issues Involved:
1. Addition of unexplained investment under Section 69 of the IT Act.
2. Valuation discrepancies between DVO and assessee's valuer.
3. Applicability of amended provisions of Section 115BBE.

Summary:

1. Addition of Unexplained Investment:
The assessee, a partnership firm running a hospital, was subject to a survey under Section 133A, leading to a revised income declaration. The Assessing Officer (AO) referred the valuation of the hospital building to the Departmental Valuation Officer (DVO), who valued it at Rs. 1,76,55,000/-. The assessee's valuer estimated the cost at Rs. 1,10,45,797/-. The AO added the difference of Rs. 66,09,203/- as unexplained investment under Section 69, which was upheld by the CIT (A).

2. Valuation Discrepancies:
The assessee argued that the DVO's valuation was faulty, citing discounts on materials due to the managing partner's reputation, differences in construction quality, and phased construction from 2010-2016. The CIT (A) rejected these arguments, noting the lack of documentary evidence for discounts and the specialized nature of hospital construction. The Tribunal found merit in spreading the difference over the construction period (2009-2016) and directed the AO to recompute the cost considering a 20% discount on materials and 12.5% self-supervision charges.

3. Applicability of Section 115BBE:
The assessee challenged the application of the amended Section 115BBE, arguing it should apply from the date of Presidential assent (15.12.2016). The CIT (A) held that the amendment applied from AY 2017-18. The Tribunal upheld this view, confirming that additions under Section 69 should be taxed at 60% under Section 115BBE for AY 2017-18.

Conclusion:
The Tribunal partly allowed the appeal, directing the AO to spread the valuation difference over the construction period and recompute the cost with adjusted discounts and self-supervision charges. The applicability of Section 115BBE was upheld for AY 2017-18.