2002 (7) TMI 750 - AT - Income Tax

Issues Involved:
1. Deletion of addition made on account of difference in cost of construction.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made on Account of Difference in Cost of Construction:

The Department appealed against the order of the CIT(A), Bhatinda, which deleted an addition of Rs. 82,210 made by the Assessing Officer (AO) due to a difference in the cost of construction. The case revolves around the construction of plinths by the assessee and four family members during the period from 30-3-1995 to 14-4-1995, as per an agreement dated 20-3-1995 with DP&SC.

Facts of the Case:
The assessee declared a total construction cost of Rs. 4,60,714, supported by a registered valuer's report estimating the cost at Rs. 4,59,614. However, the AO referred the matter to the Valuation Cell, which determined the cost at Rs. 8,52,500, resulting in a difference of Rs. 3,91,800. The assessee raised objections to the Valuation Officer's (VO) report and moved an application under section 144A for intervention. The VO defended his valuation, criticizing the registered valuer's report for discrepancies in measurements and alleged attempts to match the declared amount by the assessee.

The AO dismissed the assessee's claim of using different classes of bricks and additional expenditure of Rs. 48,440, deeming the bills and vouchers for third-class bricks as bogus. Consequently, the AO made a proportionate addition of Rs. 82,210.

Contentions Before CIT(A):
The assessee argued that the VO adopted high rates for materials and overestimated the number of bricks required. The assessee used first, second, and third-class bricks, supported by a certificate from the Inspector, Food Supplies, Jalalabad. The VO's valuation of bricks at Rs. 620 per 1000 was contested, with the assessee suggesting an average value of Rs. 450 per 1000. The labour charges were also disputed, with the assessee claiming a maximum rate of Rs. 100 per 1000 bricks, contrary to the VO's Rs. 502 per 1000. Additionally, the assessee highlighted the AO's failure to allow a 10% deduction for self-supervision, a standard practice. The assessee contended that the actual expenditure was Rs. 5,09,154, not Rs. 4,60,174 as determined by the AO. The assessee also claimed that any unexplained investment should be attributed to agricultural income, which is tax-exempt.

CIT(A)'s Conclusions:
The CIT(A) concluded that the assessee used different classes of bricks, as certified by the Inspector, Food & Supplies Department. The AO's labour charges were deemed excessively high, and the prevailing rates were significantly lower. The CIT(A) noted that the AO did not allow the standard 10% rebate for self-supervision. The CIT(A) determined the cost of construction at Rs. 5,09,154, aligning closely with the assessee's declared amount, and deemed the difference of Rs. 10,146 as insignificant. Consequently, the addition of Rs. 82,210 was deleted.

Arguments Before ITAT:
The Department's representative argued that the assessee's objections to the VO's report were general and not legally tenable. The Department reiterated that the bills for third-class bricks were bogus and that the claim of additional expenditure was an afterthought. The assessee's representative supported the CIT(A)'s order, emphasizing the correct appreciation of facts.

ITAT's Findings:
The ITAT upheld the CIT(A)'s order, agreeing that the assessee used different classes of bricks and that the AO's labour charges were excessively high. The ITAT noted the standard practice of allowing a 10% rebate for self-supervision and found the CIT(A)'s valuation reasonable. The ITAT also highlighted that the Department did not controvert the certificate from the Inspector, Food & Supplies Department. The ITAT dismissed the appeal, finding no justification to interfere with the CIT(A)'s order.

Conclusion:
The appeal by the Department was dismissed, and the CIT(A)'s order deleting the addition of Rs. 82,210 was upheld. The ITAT found the CIT(A)'s valuation of the cost of construction reasonable and supported by the facts of the case.

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