2016 (3) TMI 86 - AT - Income Tax

Reference to DVO - Additions towards difference between the cost of construction estimated by the DVO and cost of construction declared by the assessee - Held that - In the present case on hand, the assessee claimed that she has used materials from dismantled building and also constructed the building on her self supervision. It is an undisputed fact that the DVO has applied the plinth area rate and cost index method, whereas the registered valuer has adopted detailed estimation method with plinth area rate prevailing in the market at that point of time. The DVO did not appear to have taken into consideration the local rates that actually existed during the period of construction. It is a common knowledge that CPWD rates are far higher than the local rates. Keeping in view of the fact that CPWD rates are always higher than the local rates, the CIT(A) would appear to have allowed 10% deduction towards cost of materials and supervision charges. Therefore, considering the facts and circumstances of the case, we are of the opinion that the assessee is eligible for 15% deduction towards rate difference and a further 10% deduction towards self supervision charges. Taking into consideration of the facts that the CPWD rates of New Delhi are always higher than the local rates we are of the opinion that the assessee is entitled for 15% deduction towards difference between CPWD rates and local rates and further 10% deduction towards self supervision charges. Therefore, we direct the A.O. to determine the cost of construction of building by taking average of the two plinth areas arrived by the DVO and claimed by the assessee and allow 15% & 10% respectively towards rate difference and self supervision charges. - Decided partly in favour of assessee

Issues Involved:
1. Legality of the initiation of proceedings under Section 147 of the Income Tax Act.
2. Accuracy and reasonableness of the valuation made by the District Valuation Officer (DVO).
3. Justification for the discount rate allowed by the Commissioner of Income Tax (Appeals) (CIT(A)).
4. Consideration of the registered valuer's report versus the DVO's report.
5. Deduction towards rate difference and self-supervision charges.

Detailed Analysis:

1. Legality of the initiation of proceedings under Section 147 of the Income Tax Act:
The assessee contended that the initiation of proceedings under Section 147 of the Income Tax Act was not in accordance with the law. The CIT(A) upheld the initiation of proceedings, stating that it was in accordance with the law. However, the assessee argued that the assessment completed by the Assessing Officer (AO) was void ab initio as the initiation of proceedings was flawed.

2. Accuracy and reasonableness of the valuation made by the District Valuation Officer (DVO):
The DVO estimated the cost of construction of the residential house at Rs. 68,30,949, with Rs. 51,17,042 attributed to the assessment year in question. The assessee claimed that the DVO's valuation was abnormally high and that the actual construction cost was Rs. 21,12,437. The DVO's valuation was based on the plinth area and cost index method, while the assessee's registered valuer used a detailed estimate method, arriving at a valuation of Rs. 29,80,582. The CIT(A) found the DVO's valuation to be fair and reasonable but allowed a 10% deduction for self-supervision and use of materials from a dismantled property.

3. Justification for the discount rate allowed by the Commissioner of Income Tax (Appeals) (CIT(A)):
The CIT(A) allowed only a 10% deduction for self-supervision and material cost difference, while the assessee sought a total discount of 25%. The assessee argued that the CIT(A) failed to consider the higher rate adopted by the DVO and the excess area taken into account. The Tribunal found that the CIT(A) should have allowed a 15% deduction for rate differences and a further 10% for self-supervision, totaling 25%.

4. Consideration of the registered valuer's report versus the DVO's report:
The Tribunal noted that the AO summarily rejected the registered valuer's report without giving reasons or conducting further investigation. The registered valuer's report was detailed and based on item-wise estimates, whereas the DVO's report relied on the plinth area and cost index method. The Tribunal directed the AO to take the average of the plinth areas determined by the DVO and the registered valuer for the valuation of the building.

5. Deduction towards rate difference and self-supervision charges:
The Tribunal agreed with the assessee's contention that the DVO did not allow any deduction for self-supervision charges and rate differences between CPWD rates and local rates. The Tribunal cited previous judgments, emphasizing that CPWD rates are generally higher than local rates and that deductions should be allowed for self-supervision. The Tribunal directed the AO to allow a 15% deduction for rate differences and a 10% deduction for self-supervision charges.

Conclusion:
The Tribunal partly allowed the assessee's appeal, directing the AO to take the average of the plinth areas determined by the DVO and the registered valuer and to allow deductions of 15% for rate differences and 10% for self-supervision charges. The Tribunal emphasized that the method of valuation most beneficial to the assessee should be adopted and that the AO should not summarily reject the registered valuer's report without valid reasons.

← Previous Next →