TMI Blog2022 (3) TMI 771X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. Unexplained investment in building including interest on borrowings - assessee shown total cost of building in its books of account less as against the assessee's valuer's report - HELD THAT:- Valuation report submitted by the assessee is by the assessee's own valuer which cannot be the basis for addition without the AO referring the matter to the DVO for valuation. For this purpose, he relied on various case laws which are kept on record. In the present case, if we consider the difference between the books of account of the assessee and the valuation report including interest cost, difference is very huge at ₹ 1,09,71,118. The AO ought to have referred the matter to the DVO for valuation which he failed to do so. Being so, without referring the matter to the DVO, the AO cannot consider the difference between the entries made by the assessee and its registered valuer to make the addition. The valuation report relied on by the AO for making the addition is not the valuation report which is contemplated u/s. 142A of the Act. To make addition on account of difference in cost of construction, AO is duty bound to reject the books of accounts and refer the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of construction was based on the structure completed on 25.03.2003 and that of the cost accounted in the books were based on the accounting entries passed by it. 6. The Ld. CIT(A) erred in confirming the order of the assessing officer and failed to appreciate the fact that bills for ₹ 1.03 crores were received by the appellant subsequent to 31.03.2003, pertaining to the construction work carried out prior to 31.03.2003, and that the company has accounted for it as the cost of construction in the subsequent year, the details of which have been submitted by the appellant. 7. Without prejudice, the additions/disallowances as confirmed by the Ld. CIT(A) and interest levied are excessive, arbitrary and unreasonable and ought to be deleted in toto. 8. For these and other grounds that may be urged at the time of hearing of the appeal, the appellant prays that the appeal may be allowed. 2. Ground Nos. 1 to 4 are with regard to disallowance of ₹ 28,18,226 on the reason that these are relating to previous year expenses. The Ld. AR submitted that on earlier occasion the assessee came in appeal before this Tribunal and vide order dated 11.7.2008 in ITA No. 302/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of which it is provided for and therefore becomes a regular feature which information has been received at the head office at the close of financial year. Similar is the case of a short provision when a claim is made subsequently due to many factors especially on account of salary, etc which mayor may not be provided for to pay to temporary staff. We find force in the submission of the learned counsel that these expenses are incurred to be allowed under section 37(1) and not because of the assessee having failed to incorporate the same under the mercantile system of accounting. It is an extension of the provision short made or not made for want of information. The Assessing Officer has not disputed the expenses to be disallowed for non-business purpose or duplicate payment and therefore it cannot be said that the assessee was not maintaining mercantile system of accounting for consideration under the provision of section 145 for rejecting the book results. The learned CIT(A) relied on the decision of Gujarat High court in the case of Saurashtra Cement Chemical Industries Vs. CIT reported in 213 ITR 523 was on the fact of non-disclosure of expenses which in the case of assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion whether assessee has incurred any expenses for the previous year, is required to be taken into consideration while passing the order of assessment. This aspect of the matter has not been considered by the authorities below. The Assessing Officer has to consider the same in accordance with law and pass an order on merits after providing an opportunity to the assessee to explain the expenditure incurred by him for the previous assessing year. Therefore, we are of the opinion that for answering the question of law framed herein, the matter requires to be reconsidered by the Assessing Officer afresh as stated supra. In the circumstances, the appeal is allowed. The order passed by the Assessing Officer which has been affirmed by the Commissioner of Income Tax(Appeals), Bangalore and further modified by the Income Tax Appellate Tribunal are set aside. The matter is remanded to the Assessing Officer for fresh consideration in accordance with law. 4. On the other hand, the Ld. DR relied on the authorities below. 5. We have heard both the parties and perused the material on record. Admittedly on earlier occasion the Tribunal decided the issue in favour of the assessee as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 8,48,712 ₹ 9,66,566 Building at Chitradurga(APP) ₹ 24,00,000 ₹ 26,08,410 Total ₹ 8,64,28,421 ₹ 8,82,47,753 7. The cost shown in depreciation schedule also includes ₹ 91,51,796/- of interest on loan capitalized. The AO in the original assessment u/s. 143(3) brought to tax the differential amount of ₹ 18,13,332/- apart from the said amt of ₹ 91,51,796/- which was included in the cost admitted in depreciation schedule. In other words, but for the inclusion of the said interest, the cost shown in the depreciation schedule would have come down further i.e. differential amount would have increased further to this extent. The CIT(A) has confirmed the addition. On appeal, the ITAT decided against revenue. The ITAT held that, the difference in valuation of ₹ 18,19,332/- and interest of ₹ 91,51,796/- were embedded in the cost of construction, about which no finding has been given by the AO as well as the CIT(A). The ITAT also held that, the AO, without reject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of bills in annexure-1 2 but actually they are not enclosed to the submission. A few case laws were relied on by the assessee. 10. The CIT(Appeals) found that the assessee has not contested the cost estimated by the approved valuer who has valued the cost at ₹ 8,82,47,753/-. The cost shown in the depreciation schedule is only ₹ 8,64,28,421/-. The difference comes to ₹ 18,19,322/-. In fact, there is a shed constructed at Varur, cost of which is not shown in the depreciation schedule at all. Cost of the shed is estimated by the approved valuer at ₹ 10,78,327/-. The cost of ₹ 8,64,28,421/- also includes ₹ 91,51,796/- of interest capitalized. In other words the actual cost of construction of the properties is only ₹ 7,40,27,913/-. This leaves a difference of ₹ 91,51,796/- and ₹ 18,19,322/- which is nothing but the unexplained investment in construction of the properties. Because, the difference in construction cost has arisen from the books of the assessee only, there was no scope for the AO to have rejected the books. The ITAT has decided that there is nothing wrong in the assessee having capitalized the interest paid on loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 7,40,27,913. Thus, there was a total difference of ₹ 1,09,71,118. 15. Now the contention of the Ld. AR is that the valuation report submitted by the assessee is by the assessee's own valuer which cannot be the basis for addition without the AO referring the matter to the DVO for valuation. For this purpose, he relied on various case laws which are kept on record. In the present case, if we consider the difference between the books of account of the assessee and the valuation report including interest cost, difference is very huge at ₹ 1,09,71,118. The AO ought to have referred the matter to the DVO for valuation which he failed to do so. Being so, without referring the matter to the DVO, the AO cannot consider the difference between the entries made by the assessee and its registered valuer to make the addition. The valuation report relied on by the AO for making the addition is not the valuation report which is contemplated u/s. 142A of the Act. To make addition on account of difference in cost of construction, AO is duty bound to reject the books of accounts and refer the matter to the DVO as prescribed u/s. 142A of the Act, which the AO failed to do so. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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