ACIT Vs Chandubhai Raojibhai Patel (ITAT Ahmedabad)
ITAT Ahmedabad Rejects DVO-Based Addition on Market Value; Unexplained Investment Cannot Be Assumed Without Cost Determination
The Ahmedabad Bench of the ITAT dismissed the Revenue’s appeal and upheld the CIT(A)’s deletion of additions made in the hands of the assessee for AY 2012-13. The case arose from reopening of assessment where the Assessing Officer had made (i) an addition of ₹27.05 lakh treating bank deposits as unexplained and (ii) a substantial addition of ₹4.19 crore under section 69 towards alleged unaccounted investment in construction of residential flats.
On the first issue, the Tribunal noted that the impugned bank deposits formed part of the sale consideration of flats, which had already been offered to tax in the return filed in response to section 148. Since the income was already taxed, the ITAT held that no double addition could be made, and the Revenue failed to rebut the factual findings of the CIT(A).
On the second and principal issue, the Tribunal held that the AO erred in relying on the DVO’s report, which merely estimated the fair market value of the flats instead of determining the actual cost of construction. The ITAT emphasized that market value cannot be equated with cost of construction for the purposes of section 69. It was further noted that the DVO failed to apply CPWD/State PWD rates, did not bifurcate material and labour costs, and did not determine per-square-foot construction cost on a scientific basis. Moreover, no fresh construction or investment had taken place during the relevant year.
Accordingly, the ITAT upheld the CIT(A)’s conclusion that addition under section 69 cannot be sustained on the basis of market value alone, and dismissed the Revenue’s appeal in entirety. The Tribunal also held the Revenue’s ground relating to reference to DVO without rejection of books to be academic. The appeal was thus dismissed in full.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
