2015 (10) TMI 382 - AT - Income Tax

Tribunal Upholds CIT(A)'s Decisions on Interest, Income, and Construction Cost

Income Tax Officer Versus M/s. Sri Sai Constructions

Income Tax Officer Versus M/s. Sri Sai Constructions - TMI Issues Involved:- Disallowance of interest and estimation of income for A.Y. 2010-2011- Deletion of addition made by the A.O. towards cost of constructionAnalysis:Issue 1: Disallowance of interest and estimation of income for A.Y. 2010-2011:The assessee, a partnership firm engaged in construction, was aggrieved by the disallowance of interest and estimation of income for the assessment year 2010-2011. The Assessing Officer (A.O.) estimated income at 20% on the advances received, leading to additional demands. However, the Ld. CIT(A)-VI, Hyderabad, independently reviewed the case and directed the A.O. to adopt 8% on the advances as per the assessee's computation. The Ld. CIT(A) also allowed the claimed salary deduction but disallowed interest on partner's capital due to insufficient explanation regarding the capital brought in by the partners. The Revenue was dissatisfied with the deletion of the addition made as unexplained investment, while the assessee was unhappy with the non-allowance of interest. The Ld. CIT(A)'s decision to adopt State PWD rates and his rejection of the 20% income estimation were upheld, concluding that the Revenue's contentions were unfounded.Issue 2: Deletion of addition made by the A.O. towards cost of construction:The A.O. had referred the cost of construction to a valuation cell, resulting in an estimation of unaccounted investment in the construction of apartments. The A.O. considered 1/3rd of the total construction cost for each year as unexplained investment. However, the Ld. CIT(A)-V, Hyderabad, disagreed with this approach. He re-determined the valuation based on identified mistakes in the valuation report, arriving at a cost of construction that aligned with the aggregate amount declared by the assessee over three years. The Ld. CIT(A) found discrepancies in the valuation report and concluded that the A.O.'s addition towards unexplained investment was unwarranted. The Revenue challenged the deletion of this addition for the assessment year 2009-2010, but the Tribunal upheld the Ld. CIT(A)'s decision, emphasizing that the valuation was reasonable and in line with the declared income.In summary, the Tribunal dismissed both Revenue and assessee appeals for the assessment year 2010-2011, affirming the Ld. CIT(A)'s decisions on the issues of interest disallowance, income estimation, and deletion of the A.O.'s addition towards cost of construction. The Tribunal found the Ld. CIT(A)'s reasoning sound and supported by the facts and legal provisions, thereby upholding the orders in question.