ITAT Bangalore: DVO Valuation Report Alone Insufficient to Trigger Section 69B — Additions on Hostel Construction Deleted

Background and Overview

The Income Tax Appellate Tribunal, Bangalore Bench, recently delivered a noteworthy ruling in the case of A K Kupparaju and Brothers Charitable Foundation Trust Vs ACIT (ITAT Bangalore), disposing of seven appeals filed by the assessee trust against a consolidated order passed by the Commissioner of Income Tax (Appeals)-15, Bengaluru dated 27-Nov-2025. The CIT(A) had partly allowed appeals for Assessment Years 2013-14 and 2014-15 while dismissing the appeals for Assessment Years 2012-13, 2015-16, and 2018-19.

The ruling carries significant implications for charitable trusts and other assessees who face additions under Section 69B of the Income Tax Act, 1961 purely on the strength of Departmental Valuation Officer (DVO) reports, without any corroborating evidence of unaccounted investment being unearthed during search or survey operations.

Facts of the Case

About the Assessee

The assessee is a charitable trust duly registered under Section 12A of the Income Tax Act, 1961. Over a span of multiple assessment years, the trust undertook the construction of Boys' and Girls' Hostels at its campus. For Assessment Year 2012-13, the trust filed its return of income on 1.10.2012 declaring total income at NIL.

Survey and Subsequent Proceedings

A survey operation under Section 133A of the Act was conducted at the trust's campus on 14.12.2019. Thereafter, a notice under Section 148 was issued on 18.3.2019, in response to which the assessee, vide letter dated 23.3.2019, reiterated its original return. During the survey, the Assessing Officer observed that the trust had made substantial capital investment in property and had claimed capital expenditure of Rs. 3,23,86,144 for Assessment Year 2012-13. Since the assessee could not produce all supporting bills and vouchers during assessment proceedings, the AO referred the matter to the DVO under Section 142A for determining the correct cost of construction.

DVO Report and Additions Made

The DVO submitted his report on 27.10.2020. In the report, the DVO acknowledged that complete day-to-day construction accounts were unavailable, and structural, foundational, and service drawings had not been provided by the assessee. Consequently, the DVO resorted to the Plinth Area Rate and Cost Index Method for arriving at the estimated cost of construction.

Against the assessee's declared construction cost of Rs. 3,23,86,144 for Assessment Year 2012-13, the DVO estimated the cost at Rs. 3,27,46,061, resulting in a difference of Rs. 3,59,917. Based solely on this variance, the AO treated the difference as unexplained investment and made an addition under Section 69B of the Act.

Search on Trustees and Section 153C Proceedings

Separately, a search operation under Section 132 was conducted on 17.12.2020 at the office premises of Mr. C A Sundararaju at Atria Institute of Technology. Since Mr. C S Sunder Raju and Mr. K. Nagaraju are trustees of the assessee trust, certain documents found during the search were attributed to the trust. Accordingly, the trust's case was taken up for scrutiny under Section 153C of the Act for Assessment Years 2015-16 to 2018-19.

Year-Wise Addition Chart

For Assessment Years 2012-13 to 2017-18, the assessee declared a total construction cost of Rs. 28,83,34,980, while the DVO's aggregate valuation stood at Rs. 29,15,39,332. The resulting difference of Rs. 32,04,352 was distributed across six assessment years as additions under Section 69B: