2016 (12) TMI 1783 - AT - Income Tax

Rebate of 15% from the cost of construction determined by the valuation officer by following the CPWD rates - variation between the CPWD and State PWD rate - HELD THAT - CIT (A) has adopted the CPWD standard rate as against the rates prescribed by the State PWD for valuation of the cost of construction and taking into consideration various decisions relied upon by the assessee, he allowed the rebate of 15%. We have also gone through the decision of the Coordinate Bench of the Tribunal in the case of Sri Krishna Ventures P Ltd vs. Income Tax Officer 2013 (11) TMI 1366 - ITAT HYDERABAD and find that the Tribunal has analyzed the difference between the CPWD rate and the State PWD rate and has given justification for allowing 15% rebate on account of rate variation between the CPWD and State PWD rate. Assessee is entitled for deduction of 15% on account of rate variation between CPWD and State PWD and 10% towards self supervision. If the aforesaid deductions are allowed, then the cost of construction shown by the assessee would be more than the cost of construction determined by the DVO and there will be no case for addition on account of excess cost of expenditure incurred by the assessee. In aforesaid view of the matter, the additions cannot be sustained, hence we direct for deleting the same. - Decided against revenue

Summary

Issues Involved:

1. Whether the CIT (A) erred in allowing the rebate of 15% from the cost of construction determined by the valuation officer by following the CPWD rates.
2. Whether the CIT (A) ought to have confirmed the additions made by the AO.
3. Whether the CIT (A) ought to have given the opportunity to the AO under Rule 46A to verify the actual facts before deciding to grant a rebate of 15% on the total cost of construction.
4. Whether the cost of construction arrived at by the Departmental Valuation Officer was correct and followed due process and prescribed standards.

Detailed Analysis:

1. Rebate of 15% from Cost of Construction:

The CIT (A) allowed a rebate of 15% from the cost of construction determined by the valuation officer, who followed the CPWD rates. The Tribunal upheld this decision, referencing a previous case (Sri Krishna Ventures P Ltd vs. Income Tax Officer) where the difference between CPWD rates and State PWD rates justified a 15% rebate. The Tribunal noted that the CPWD rates are generally higher and not always reflective of local conditions, thus supporting the CIT (A)’s decision to allow the rebate.

2. Confirmation of Additions by AO:

The Revenue contended that the CIT (A) should have confirmed the additions made by the AO. The AO had added ?32,53,978 to the assessee's income based on a valuation report that estimated the cost of construction at ?6,54,08,103, significantly higher than the ?4,65,00,000 shown by the assessee. The CIT (A) did not confirm the additions, leading to the Revenue's appeal. The Tribunal found no reason to interfere with the CIT (A)'s order, thereby dismissing the Revenue's appeal.

3. Opportunity under Rule 46A:

The Revenue argued that the CIT (A) should have given the AO an opportunity under Rule 46A to verify the actual facts before granting a 15% rebate. The Tribunal did not find merit in this argument, as the CIT (A) had considered various decisions and the difference between CPWD and State PWD rates, which justified the rebate.

4. Cost of Construction by Departmental Valuation Officer:

The AO had relied on the Departmental Valuation Officer's (DVO) report, which estimated the cost of construction at ?6,54,08,103. The DVO had allowed only a 3% deduction for self-supervision, while the assessee claimed 15%. The AO allowed a 7% deduction for self-supervision. The CIT (A) adopted the CPWD rates and allowed a 15% rebate, which the Tribunal upheld. The Tribunal referenced multiple cases where similar deductions were allowed, emphasizing that the DVO should not arbitrarily accept or reject book results and should consider local rates and self-supervision deductions.

Conclusion:

The Tribunal upheld the CIT (A)’s decision to allow a 15% rebate on the cost of construction, dismissed the Revenue’s appeal, and found no reason to interfere with the CIT (A)’s order. The Tribunal emphasized the importance of considering local rates and self-supervision in determining the cost of construction and referenced previous decisions to justify the rebate. The appeal was dismissed, and the order was pronounced in the Open Court on 30th December 2016.