DVO valuation report barred by limitation under section 142A(6) leads to deletion of unrecorded income additions

M/s Golden Tulip Hospitality Pvt. Ltd. Versus ACIT, Central Circle Srinagar

M/s Golden Tulip Hospitality Pvt. Ltd. Versus ACIT, Central Circle Srinagar - TMI Issues Involved:
1. Confirmation of addition made under Section 69A for hotel expenditure.
2. Valuation difference of hotel building.
3. Validity of the valuation report as a basis for addition.
4. Adoption of CPWD rates instead of PWD rates.
5. Consideration of payments made by a third party on behalf of the assessee.
6. Rejection of objections by the assessee in summary manner.

Summary:

Issue 1: Confirmation of Addition under Section 69A
The assessee contested the confirmation of additions made under Section 69A for hotel expenditure by the CIT(A). The AO had added Rs. 21,73,975/- for AY 2014-15 and Rs. 8,98,783/- for AY 2019-20, treating these as undisclosed income.

Issue 2: Valuation Difference of Hotel Building
The CIT(A) confirmed the addition based on the valuation difference between the book value and the DVO's estimate. For AY 2014-15, the book value was Rs. 2,04,55,325/- against the DVO's estimate of Rs. 2,26,29,300/-. For AY 2019-20, the book value was Rs. 62,56,290/- against the DVO's estimate of Rs. 69,21,200/-.

Issue 3: Validity of Valuation Report
The assessee argued that the overall difference in the valuation report for all years taken together is less than 10% and cannot be a base for making the addition. The Tribunal agreed, noting that the DVO report was barred by limitation, as it was not submitted within the six-month period prescribed under Section 142A(6).

Issue 4: Adoption of CPWD Rates Instead of PWD Rates
The assessee contended that the DVO adopted CPWD rates instead of local PWD rates, which are generally lower. The Tribunal upheld this argument, citing the Supreme Court's decision in Sunita Mansingha (393 ITR 121), which mandates the use of local PWD rates for valuation.

Issue 5: Consideration of Payments by Third Party
The payments made by Abdul Majid Sheikh on behalf of the assessee were not considered in the valuation. The Tribunal noted that the AO had failed to establish that these payments were unaccounted for by the assessee, as they were made by a third party.

Issue 6: Rejection of Objections in Summary Manner
The Tribunal found that the CIT(A) had erred in rejecting the assessee's objections in a summary manner, ignoring the binding decision of the Supreme Court in Sunita Mann Singh (393 ITR 121).

Conclusion:
The Tribunal held that the additions based on the invalid DVO report and without considering the difference between CPWD and PWD rates were unsustainable. Consequently, the additions of Rs. 21,73,975/- for AY 2014-15 and Rs. 8,98,783/- for AY 2019-20 were deleted. Both appeals of the assessee were allowed.