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Facts
During a search, significant cash investment in a shopping plaza construction was noted. The AO alleged a difference between declared investment and actual investment, referring the property to DVO for valuation. The DVO's valuation was higher than the assessee's declared investment.
Held
The Tribunal held that the AO could not refer the matter to DVO without rejecting the assessee's books of accounts. It also considered the arguments for concessions in CPWD rates and self-supervision.
Key Issues
Whether reference to DVO for valuation of investment is permissible without rejecting assessee's books of accounts, and whether concessions for construction rates and self-supervision are allowable.
Sections Cited
143(3), 69B, 132
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Income Tax Appellate Tribunal, “B” BENCH, CHANDIGARH
Before: HON’BLE SHRI RAJPAL YADAV & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid cross-appeals for Assessment Year (AY) 2019-20 arises out of an order of learned Commissioner of Income Tax (Appeals)-5, Ludhiana [CIT(A)] dated 29-12-2023 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 31-03-2022. The sole subject matter of the cross-appeals is addition made by Ld. AO u/s 69B for Rs.254.23 Lacs. The Ld. AR advanced arguments and relied on various case laws, the copies of which have been placed on record. Having heard rival submissions and upon perusal of case records, the appeals are disposed-off as under. The assessee being resident corporate assessee is stated to be engaged in real estate. Assessment Proceedings 2.1 Pursuant to search action in the case of Kewal Krishan Chhabra Group of cases u/s 132 on 28-11-2018, the case of the assessee was taken up for scrutiny. During search, certain documents was found which reflected huge investment by the assessee in cash in construction of a Shopping Plaza at Ludhiana. The assessee declaredinvestment in its books for Rs.18.11. Crores during AYs 2017- 18 to 2019-20. The Ld. AO alleged there was huge difference in the investment value shown in the books vis-à-vis actual investment made in construction of the project. Accordingly, the propertywas referred to Ld. DVO for valuation thereof. The Ld. DVO valued the same at Rs.27.31 Crores for three years and Ld. AO accordingly, proceeded to add the differential in the hands of the assessee. 2.2 The assessee refuted the allegation of Ld. AO on the ground that DVO valuation was only an estimated value. No material for found for alleged higher investment by the assessee. The assessee also stated that the valuation officer applied CPWD rates insteadof PWD rates Since the property was situated at Ludhiana, local rates of construction were to be considered and applied. The CPWD rates were much higher than PWD rates. The assessee also stated that DVO did not allow the benefit of self-supervision which was normally allowed at minimum rate of 10% to 15% and benefit thereof was to be given to the assessee. 2.3 However, Ld. AO rejected the aforesaid submissions except for allowing rebate of 10% for self-supervision. Finally, the impugned additions were computed for all the three years as under: - AY Cost Declared by Cost estimated by Difference 10% Benefit of the Assessee (A) Valuation Cell (B) (C=B-A) Self Supervision 2017-18 6,73,75,202 10,16,06,600 3,42,31,398 34,23,139 2018-19 5,81,49,284 8,76,93,000 2,95,44,016 29,54,401 2019-20 5,55,99,303 8,38,47,700 2,82,48,397 28,24,839 Total 18,11,23,789 27,31,47,600 9,20,23,811 92,02,379 Accordingly, impugned addition of Rs.254.23 Lacs was made u/s 69B for this year. Aggrieved, the assessee preferred further appeal against the same. Appellate Proceedings 3. The Ld. CIT(A) rejected the legal submissions of the assessee but concurred that the benefit of 10% was to be granted on the gross valuation made by Ld. DVO and not on the differential value. Further, the assessee demanded 25% rebate for difference in CPWD rates and PWD rates which was rejected by Ld. CIT(A) on the ground that the same was not fully supported by documentary evidences. Reference was made to the decision of Hon’ble Apex Court in the case of CIT vs. Sunita Mansingha (80 Taxmann.com 258) to hold that local PWD rates were to be applied and therefore, further rebate of 15% was allowed to the assessee. Accordingly, the impugned addition was re- computed as under: - Particulars Amount (In Rs.) Value Adopted by DVO 8,38,47,700 Value as Declared by the Assessee -5,55,99,303 15% reduction in value as per the decision of Hon’ble -1,25,77,155/- Supreme Court in the case of Sunita Mansingha Benefit of Self supervision @10% of DVO Valuation -83,84,770 Balance Difference 72,86,472 The impugned addition as made by Ld. AO was thus restricted to the extent of Rs.72.86 Lacs. The aforesaid adjudication has led to cross- appeals before us. The assessee seeks further concession in the matter of valuation whereas the revenue seeks restoration of addition as made by Ld. AO. Our findings and Adjudication 4. From the facts, it clearly emerges that the assessee’s case was take up for scrutiny on the basis of search action on the other group. It was alleged that the assessee made higher investment in cash in construction of a Shopping Plaza at Ludhiana. However, there is no concrete material as found during the course of search which has been referred to by Ld. AO in the assessment order to support the said allegation. The whole basis of impugned addition is DVO valuation which is always subjective valuation. There is no finding that the assessee actually made cash investment in the construction of the aforesaid property.
Proceeding further, it could be seen that for this year, the assessee has made investment of Rs.555.99 Lacs whereas Ld. DVO has arrived at valuation of Rs.838.47 Lacs. The Ld. AO has concurred that benefit of self-supervision was to be allowed to the extent of 10%. However, the said benefit has been allowed on the differential amount only. In our considered opinion, Ld. CIT(A) has correctly set right the same since the benefit has to be allowed on gross valuation and not on the differential amount. The adjudication of Ld. CIT(A), to that extent, could not be faulted with.
The Ld. AR has urged that the books of the assessee have not been rejected and therefore, no such reference could have been made to DVO to make impugned addition in the hands of the assessee. We find that the assessee is engaged in real estate and the said investment form part of assessee’s books of accounts. The proposition as urged by Ld. AR has been laid down by Hon’ble Supreme Court in the case of Sargam Cinema vs. CIT (197 Taxman 203) holding that AO could not refer any matter to DVO without rejecting assessee’s books of accounts. This decision has subsequently been followed by jurisdictional High Court in various decisions viz. Chouhan Resorts (33 Taxmann.com 644); Nirpal Singh vs. CIT (41 Taxmann.com23); Freedom Board & Paper Mills (57 Taxmann.com 383). Further, the Hon’ble Court in Rajesh Mahajan (50 Taxmann.com 206) confirmed the finding of Tribunal that CPWD rates were 30% higher than the market value and 15% allowance was provided for self-supervision. The Ld. AR, in its written submissions, have amply demonstrated that if the concession of self-supervision as well as concession for differential in CPWD rates and PWD rates is allowed to the assessee, nothing would remain to be added as unexplained investment. In the background of all these facts and respectfully following the binding judicial precedents, we delete the impugned addition in toto. The assessee succeeds in its appeal. The revenue’s appeal stands dismissed. 7. stand allowed. stands dismissed. Order pronounced on 22-04-2025..