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2019 (8) TMI 847 - AT - Income TaxUnexplained cost of construction in the building - AO proposing to adopt the cost of construction of building at ₹ 1.70 crores as valued by the DVO- valuation based on rates of construction of CPWD - HELD THAT:- The AO instead of verifying the facts from the books of accounts and vouchers, summarily rejected the contention of the assessee which is incorrect and unjustified. AO ought to have decided the year wise cost of construction after verifying the books of accounts and the details instead of finding easy way of estimating the cost of construction on the basis of original cost of construction declared by the assessee. DVO calls for information from the assessee to determine the cost of construction and estimates the cost of construction of the building. The value determined by the DVO with regard to cost of construction of the building has evidentiary value and the AO should not disturb the valuation without having valid reason. The AO is obliged to consider the explanation and the evidences placed before him to arrive at the finding with regard to the accounted expenditure on construction of the building. When the evidences are available, the AO is not permitted to reject the submission of the assessee merely on the premise that the assessee had already intimated the cost of construction to the DVO. In the instant case though initially the assessee has intimated the DVO that she had incurred the cost of construction till the date of inspection at ₹ 111.10 lakhs, subsequently reexamined the facts and found that the actual expenditure incurred was ₹ 136.06 lakhs but not ₹ 110.10 lakhs and submitted the same before the AO with relevant evidences and the books of accounts. The AO without causing any inquiry rejected the contention of the assessee which is incorrect and unreasonable. Therefore, we hold that there is no reason for rejecting year-wise cost of construction declared by the assessee aggregating to ₹ 136.06 lakhs and accordingly we direct the AO to accept the cost of construction declared by the assessee at ₹ 136.06 lacs for arriving the unexplained investment in place of ₹ 111.10 lakhs adopted by the AO. AO increased the cost of construction without taking account of a total cost of construction declared by the assessee in the F.Y.2015-16 and 2016-17 - We find no reason to increase the cost of construction for the F.Y.2011-12 relevant to the A.Y.2012-13. It is also unjustified to estimate the cost of construction when the assessee has maintained the books of accounts without verifying the same and giving valid reasoning. Further after giving rebate for rate difference and discount for self supervision, the cost of construction of the building worked out to less than the revised cost of construction declared by the assessee. Since we have already directed the AO to adopt the revised cost of construction in the earlier paragraphs, we find no reason to uphold the order of the Ld.CIT(A), accordingly we set aside the order of the Ld.CIT(A) and delete the addition made by the AO. Thus, the appeal of the assessee is allowed for the A.Y.2012-13. Deduction u/s 54F - residential unit has already come into existence before the transfer of capital asset - two floor constructed prior to sale and other two after the sale - no bar in commencement of construction prior to sale - HELD THAT:- The assessment order passed by the AO for the A.Y.2012-13 and the allocation of cost of construction for various assessment years establishes that the assessee had completed the building after transfer of the capital assets and incurred the cost to the extent of ₹ 101.14 lakhs during the F.Y.2013-14 to 2016-17 as per the page No.8 of the assessment order of A.Y.2012-13. Having determined the cost of construction and assessed the unexplained investment if any, for the F.Y.2013-14 to 2016-17, the AO is not permitted to take different stands for the purpose of assessment and for the purpose of deduction u/s 54F which shows the inconsistent approach of the department and it is against the justice. In view of the fact that the AO himself determined the cost of construction incurred for the A.Y.2013-14 to 2016-17 in the assessment order of A.Y.2012-13, we are under the considered opinion that the residential unit was constructed after transfer of capital asset and we do not find any merit to uphold the order of the Ld.CIT(A) and the same is set aside and direct the AO to allow deduction u/s 54F. As decided in SRI BOLLINA SRIHARI RAO AND VICE-VERSA [2017 (4) TMI 117 - ITAT VISAKHAPATNAM] assessee would be entitled for deduction u/s 54F even though the amount is invested in construction prior to the transfer of original asset.
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