2000 (3) TMI 180 - AT - Income Tax

Summary

Issues Involved:
1. Legality of the addition of Rs. 9,98,000 as unexplained investment in the construction of self-occupied residential property.
2. Jurisdiction and authority of the Assessing Officer (AO) to complete the block assessment.
3. Validity of the reference made by the Deputy Director of Income-tax (Investigation) (DDIT) to the Valuation Cell.
4. Determination of the cost of construction and the objections raised by the assessee.

Summary:

1. Legality of the Addition of Rs. 9,98,000:
The assessee contested the addition of Rs. 9,98,000 as unexplained investment in the construction of residential property. The AO made this addition based on a valuation report which estimated the cost of construction at Rs. 21,63,727, significantly higher than the declared cost of Rs. 9,46,920. The AO allowed a 10% deduction for self-supervision, reducing the cost to Rs. 19.48 lakhs and added the difference of Rs. 9.98 lakhs as undisclosed income. The Tribunal partially accepted the assessee's objections, allowing an additional 10% deduction for rate variation, reducing the cost of construction to Rs. 17,31,600.

2. Jurisdiction and Authority of the AO:
The Tribunal upheld the AO's jurisdiction to determine the undisclosed income for the block period based on evidence found during the search. The Tribunal noted that the provisions of Chapter XIV-B of the Income-tax Act, 1961, which deals with search assessments, allow the AO to compute the undisclosed income based on evidence gathered during the search, including statements recorded u/s 132(4).

3. Validity of the Reference to the Valuation Cell:
The Tribunal rejected the assessee's contention that the DDIT had no authority to refer the property to the Valuation Cell. It was held that the DDIT, as the authorized officer, had the power u/s 132(2) and 131(1A) to requisition the services of the Valuation Officer. The Tribunal also noted that the reference was necessary to ascertain the correct cost of construction, which had a direct bearing on the determination of undisclosed income.

4. Determination of the Cost of Construction:
The Tribunal found that the AO had considered the objections raised by the assessee regarding the valuation report and had allowed a 10% deduction for self-supervision. The Tribunal further allowed an additional 10% deduction for rate variation, reducing the cost of construction to Rs. 17,31,600. The Tribunal held that the AO was justified in relying on the valuation report to determine the undisclosed income, as the assessee had not maintained complete details of the cost of construction.

Conclusion:
The appeal was partly allowed, with the Tribunal reducing the cost of construction from Rs. 21,63,727 to Rs. 17,31,600, resulting in a partial relief to the assessee. The Tribunal upheld the AO's jurisdiction and the validity of the reference to the Valuation Cell, while allowing additional deductions for rate variation and self-supervision.