2020 (9) TMI 1011 - AT - Income Tax

Addition u/s 43CA - differential amount over and above the declared sale consideration - determination of Fair market value of commercial plot - determination of Fair market value of commercial plot - HELD THAT - Assessee didn t raise any objections before the DVO where he shared the preliminary estimate with the assessee for reasons best known to it and has raised its objections for the first time before the AO on receipt of the DVO report and the secondly the AO has proceeded to follow the report the DVO. We therefore donot find any infirmity in the action of the DVO as the assessee failed to raise any objections before him. We also donot find any infirmity in the action of the AO in following the report of the DVO. Once the AO has referred the matter to the DVO for his expert opinion and the latter has submitted his report the AO is duty bound to follow the said report and doesn t have any discretion in that regard. AO cannot entertain any objections so raised by the assessee against the valuation so determined by the DVO. Therefore we are unable to accede to the contention so advanced on behalf of the assessee that the AO is not always obligated to follow the report of DVO and has to apply his own independent mind to the facts and circumstances persistent to the sale transaction. We have also gone through the decisions relied upon by the ld A/R at the Bar and find that none of the decisions support the contention so advanced on behalf of the assessee. In the result the ground of appeal is dismissed. Addition u/s 14A - HELD THAT - Disallowance u/s 14A r/w Rule 8D is restricted to the extent of dividend income claimed exempt by the assessee and the remaining addition is hereby directed to be deleted. The ground is thus partly allowed.

Summary

Issues:
1. Addition u/s 43CA of Rs. 7,84,600
2. Disallowance of Rs. 2,98,890 u/s 14A

Analysis:

Issue 1: Addition u/s 43CA of Rs. 7,84,600
The appeal challenged the AO's addition of Rs. 7,84,600 under section 43CA concerning the sale of a piece of land. The assessee sold the land for Rs. 9,00,000, lower than the DLC value of Rs. 16,84,600. The registered valuation officer valued the land at Rs. 8,76,000, considering various factors. The DVO valued the land at DLC value, leading to the AO adding Rs. 7,84,600 to the assessee's income. The Tribunal noted that the assessee did not raise objections before the DVO, and the AO followed the DVO's report. The Tribunal held that the AO must adhere to the DVO's report once referred, dismissing the appeal citing the failure to raise objections before the DVO and the AO's duty to follow the DVO's valuation.

Issue 2: Disallowance of Rs. 2,98,890 u/s 14A
The AO disallowed Rs. 2,98,890 u/s 14A concerning the assessee's investments of Rs. 2,77,63,530, despite earning only Rs. 5,635 as exempt income. The Tribunal, following legal precedents, restricted the disallowance to the exempt income of Rs. 5,635. Citing various decisions, the Tribunal directed the deletion of the excess disallowance. Therefore, the appeal was partly allowed, and the disallowance was restricted to the extent of the exempt income earned by the assessee.

In conclusion, the Tribunal upheld the addition u/s 43CA, emphasizing the AO's obligation to follow the DVO's report and partially allowed the appeal regarding the disallowance u/s 14A, limiting it to the amount of exempt income.