No Addition for upto 10 percent difference in DVOs report and investment shown by the assessee-ITAT

No Addition for upto 10 percent difference in DVOs report and the amount of investment shown by the assessee which is liable to be ignored – ITAT

ABCAUS Case Law Citation:
ABCAUS 1277 (2017) (06) ITAT

The Grievance:
The appellant assessee was aggrieved by the order passed by the Commissioner of Income Tax  (Appeals) [CIT(A)] confirming the order of the Assesseing Officer (‘AO’) of addition made on the basis of report of Departmental Valuation Officer (‘DVO’).

Assessment Year : 2008-09
Date/Month of Pronouncement: June, 2017

Important Case Laws Cited/relied upon:
Honest Group of Hotel (P) Ltd. vs. CIT

Brief Facts of the Case:
The assessee filed return of income declaring income of Rs. 1,03,890/-. Subsequently a survey u/s 133A of the Income Tax Act, 1961 (‘the Act’) was carried out at the business premises of the assessee and certain documents were impounded which revealed that the assessee, along with his wife had purchased a land on which a hotel was constructed. As a result, the case of the assessee was reopened by issue of notice u/s 148.

The Assessing Officer referred the matter of determination of the value of construction of this hotel/banquet to the DVO. As per the DVO’s report, the assessee spent a sum of Rs. 5,15,578/-on construction of this hotel during the year under consideration. The Assessing Officer made an addition of Rs.5,15,578/-.

The CIT(A) confirmed the addition in the first appeal. The assessee being aggrieved against this addition was in second appeal before the ITAT.

Observations made by the Tribunal:
It was observed that the AO had made an addition of Rs.5,15,578/- on the basis of the report of DVO which indicated that the assessee has spent this much amount on construction of hotel/banquet during the year. The assessee had himself declared an investment of Rs. 4,92,380/- in the relevant assessment year.

It was noted that the total investment spreading over five years declared by the assessee, as mentioned in the Valuation Report, stood at Rs. 3,65,47,888/- as against the estimate made by the DVO for a total sum of Rs. 3,97,48,433/- and the AO had accepted the genuineness of investment made in the construction.

The Tribunal opined that there was no reason for sustaining any addition in the year under consideration as the DVO in his report had recorded that the assessee has declared investment of Rs. 4.92 lac against his estimate of cost of construction at Rs. 5.15 lac for the year, which was less than 10%.

The ITAT placed reliance on the judgment of the Hon’ble J&K High Court in which it was held that difference upto 10% in the DVO report and the amount shown by the assessee is liable to be ignored.

It was seen that the overall difference between the investment declared by the assessee at Rs. 3.65 crore and as estimated by the DVO at Rs. 3.97 crore was less than 10% of the DVO’s estimate. As such, no addition is called for.

Held:
The addition was ordered to be deleted.