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TMI Blog2015 (6) TMI 457X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 40(a)(ia) - Decided against revenue. Unexplained investment in the construction of hospital building - CIT(A) restricted part addition - Held that:- In the present case, the books of accounts reflecting the construction expenses regularly maintained by the assessee were produced for verification before the A.O. and since the same were not rejected by the A.O. by pointing out specific and material defects, we find merit in the contention of the Ld. Counsel for the assessee that reference made by the A.O. to the DVO for estimating the cost of construction itself was invalid and no addition on the basis of such invalid report could be made on account of unexplained investment allegedly made by the assessee in the construction of building. Although, this issue is decided by the Ld. CIT(A) against the assessee and no appeal has been preferred by the assessee before the Tribunal contesting this issue, Rule-27 of the Appellate Tribunal Rules, 1963 allows the assessee as a respondent, though he is not appealed, to support the order appealed on any of the grounds decided against him. Accordingly, relying on the said Rule, we uphold the impugned order of the Ld. CIT(A) restricti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be deducted by the assessee. In this connection, the explanation offered by the assessee that the amount of ₹ 4 lakhs was paid to Mr. R. Srinivas towards reimbursement of construction expenses actually incurred by him while supervising the construction work was not found acceptable by the A.O. He also overlooked the contention raised on behalf of the assessee that the amount in question being in the nature of capital expenditure not charged to P L account, the same could not be disallowed by invoking the provisions of section 40(a)(ia). He Shamshabad, R.R. Dist., accordingly proceeded to make a disallowance under section 40(a)(ia) on account of payment of ₹ 4 lakhs made by the assessee to Mr. R. Srinivas for the failure of the assessee to deduct tax at source from the said payment. 4. The disallowance made by the A.O. by invoking the provisions of section 40(a)(ia) on account of consultancy charges of ₹ 75,800 and construction expenses amounting to ₹ 4 lakhs was challenged by the assessee in the appeal filed before the Ld. CIT(A). During the course of appellate proceedings before the Ld. CIT(A), various submissions were made by the assessee on this i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that both the amounts in question on account of consultancy charges and construction expenses were fully paid by the assessee during the year under consideration and there being no amount payable on these accounts, the Ld. CIT(A), in our opinion, was fully justified to hold that the disallowance under section 40(a)(ia) could not be made by relying on the decision of the Special Bench of this Tribunal at Visakhapatnam in the case of M/s. Merlyn Shipping and Transports vs. ACIT, Range- 1, Visakhapatnam vide ITA No.477/Viz/2008 dt. 29-03-2012. Moreover, as rightly submitted on behalf of the assessee before the authorities below as well as before us, the amount of ₹ 4 lakhs paid towards construction expenses constituted capital expenditure which was not claimed by the assessee as deduction and the same therefore even otherwise could not be disallowed by invoking the provisions of section 40(a)(ia). We Shamshabad, R.R. Dist., therefore find no merit in ground Nos. 2 and 3 raised by the Revenue in this appeal and dismiss the same. 6. In Ground Nos. 4 and 5, the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent allegedly made by the assessee in the construction of hospital building was challenged by the assessee in the appeal filed before the Ld. CIT(A) and after considering the submissions made by the assessee, the remand report submitted by the A.O. and the counter comments offered by the assessee, the Ld. CIT(A) restricted the addition of ₹ 25,38,897 made by the A.O. on this issue to ₹ 3,67,387 for the following reasons given in his impugned order. The Assessing Officer mentioned that the matter of cost of construction was referred to the Valuation Cell and the Valuation Officer fixed the total cost at ₹ 1,34,46,000/-. The A.O. arrived at an addition of ₹ 25,38,893/-. I find that the construction of the building was undertaken in two phases. The first phase of construction ended on 31.03.2005 and an expenditure of ₹ 36,10,000/- was incurred and that during the second phase of construction an amount of ₹ 19,32,313/- was incurred. The A.O. referred to the valuation of the property for the entire period vide his letter dated 11.04.20098. the Valuation Cell fixed the value of the property for both the phases together at ₹ 1,34,45,607/-. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed at 15% as the appellant s husband is an Engineer and was looking after the construction work. The cost would work out to ₹ 22,99,700/-. This is adopted as this is almost nearer to the detailed estimates method. After giving credit to the amount already admitted as the cost at ₹ 19,32,313/-, the addition would work out to ₹ 3,67,387/-. 8. We have heard the arguments of both the sides and also perused the relevant material on record. Besides the specific finding given by the Ld. CIT(A) to restrict the addition of ₹ 25,38,893 made by the A.O. under section 69 on account of unexplained investment allegedly made by the assessee in the construction of building, which have remained un-rebutted or uncontroverted by the learned D.R., we find that a preliminary issue was raised by the assessee before the Ld. CIT(A) by contending that the expenses incurred on construction of hospital building having been duly recorded in the books of account and the said books of account having been not rejected by the A.O., a reference made by the A.O. to the DVO itself was invalid and no addition on the basis of the DVO s report obtained in such invalid reference could ..... X X X X Extracts X X X X X X X X Extracts X X X X
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