2012 (8) TMI 734 - AT - Income Tax

Adjustment to valuation determined by DVO under reference made u/s 142A - Revenue contesting grant of deduction @ 15% on account of rate difference between the CPWD rates and the rates existing in Khothagudem and Khammam and also on account of self supervision @ 10% - assessee firm, engaged in the business of running a hotel at Kothagudem, Khammam, constructed six storied hotel building - Held that - There is no dispute in the present case with regard to existence of difference in the CPWD rates adopted by the DVO and the local rates prevailing in Kothagudem/Khammam, hence, assessee is entitled for deduction at the rate of 15%. Percentage of deduction on this account depends on the facts of each case and the steel rate differences. Deduction towards self supervision at the rate of 10% - Revenue contending deduction @ 7.5% - Held that - Considering the size of the town and the asset under consideration( six storeyed hotel building), it is held that assessee was in an advantageous position to bargain the rates to the maximum benefit of the assessee, in which case, higher deduction is justified - Decided against Revenue

Summary

Issues:
1. Grant of deduction on account of rate difference between CPWD rates and local rates.
2. Deduction towards self-supervision.

Analysis:

Issue 1 - Grant of Deduction on Rate Difference:
The case involved an appeal by the Revenue against the CIT(A)'s decision to allow relief to the assessee regarding the cost of construction of a hotel building. The CIT(A) upheld the existence of a rate difference between CPWD rates and local rates, granting deductions at 15% towards rate difference and 10% towards self-supervision. The ITAT, Hyderabad, supported the CIT(A)'s decision, emphasizing that the assessee was entitled to the deduction due to the acknowledged rate difference. The tribunal cited precedents to justify the deduction, noting that the percentage of deduction depends on the specific circumstances of each case and the prevailing rate variances. The ITAT dismissed the Revenue's appeal on this issue.

Issue 2 - Deduction Towards Self-Supervision:
Regarding the deduction towards self-supervision, the Revenue argued for a restriction to 7.5% based on a previous tribunal decision. However, the ITAT upheld the CIT(A)'s decision to allow a 10% deduction, considering the unique circumstances of the case. The ITAT highlighted that the hotel building was constructed under the supervision of all partners of the firm, indicating an advantageous position for negotiating prices. The tribunal compared the case to a similar precedent where a higher deduction was granted, emphasizing the favorable position of the assessee in bargaining for lower construction costs. Ultimately, the ITAT found the CIT(A)'s decision fair and reasonable, leading to the dismissal of the Revenue's grounds in this appeal.

In conclusion, the ITAT upheld the CIT(A)'s decision on both issues, dismissing the Revenue's appeal and affirming the deductions granted to the assessee.