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2018 (4) TMI 259 - AT - Income TaxApplicability of State PWD rates and deduction for self supervision charges - rate difference in CPWD & State PWD rates - undisclosed investment - Held that - The assessee is engaged in the construction of residential apartments and is having enough knowledge of construction and is capable of reducing the cost of construction by procuring the materials at reasonable cost and avoid the wastage. While arriving the cost of construction both the DVO and the A.O. did not consider these issues. Similarly, there is a rate difference in CPWD & State PWD rates. The CPWD gives the construction of its works to the private contractors and the private contractors include their profit margin in CPWD works. We direct the A.O. to allow the rate difference of 15% and self supervision charges to the extent of 10% from the cost of construction determined by the DVO and recompute the undisclosed investment year wise. Accordingly the appeal of the assessee on this ground is partly allowed.
Issues Involved:
1. Validity of notice issued under Section 148. 2. Justification of additions made towards unexplained investment in cost of construction. 3. Entitlement to rebate towards self-supervision and rate difference. Issue-Wise Detailed Analysis: 1. Validity of Notice Issued Under Section 148: The appellant contended that the notice issued under Section 148 was not in accordance with the law and should be quashed, rendering the entire reassessment proceedings void ab initio. However, this ground was not pressed during the appeal hearing and was subsequently dismissed as not pressed. 2. Justification of Additions Made Towards Unexplained Investment in Cost of Construction: The Assessing Officer (A.O.) reopened the assessment under Section 147 after a survey revealed that the assessee had not produced the books of accounts for the construction of a residential complex. The A.O. referred the cost of construction to the Departmental Valuation Cell (DVO), which valued the property at ?172.10 lakhs. The A.O. observed that 93.25% of the construction was completed by the end of the financial year 2011-12, leading to a proportionate cost of ?1,00,48,325/- for the assessment year 2012-13. The difference of ?50,06,106/- was treated as unexplained investment and added back to the returned income. The Commissioner of Income Tax (Appeals) [CIT(A)] directed the A.O. to assess the undisclosed investment year-wise from the assessment year 2009-10 to 2012-13 but did not allow rebates for self-supervision and rate difference. The appellant disputed the cost of construction and requested rebates, which were not granted by the CIT(A). 3. Entitlement to Rebate Towards Self-Supervision and Rate Difference: The primary issue adjudicated was the entitlement to a 15% rebate towards the difference in CPWD rates and local rates, and a 10% rebate for self-supervision. The appellant argued that due to their experience in construction, they procured materials at lower costs and minimized wastage, thus reducing the cost of construction. The appellant cited the decision of the Tribunal in similar cases, which allowed such rebates. The Tribunal noted that both the DVO and the A.O. did not consider these factors. It was observed that CPWD rates include contractor's profit margins, which differ from the actual cost incurred by the appellant. The Tribunal cited previous judgments where a 15% reduction for higher CPWD rates and a 10% deduction for self-supervision were deemed reasonable. Consequently, the Tribunal directed the A.O. to allow these deductions and recompute the undisclosed investment year-wise. Conclusion: The appeal was partly allowed, with the Tribunal directing the A.O. to allow a 15% rebate for rate differences and a 10% rebate for self-supervision from the cost of construction determined by the DVO. The reassessment proceedings and the proportionate cost of construction were upheld, but the appellant's request for rebates was granted based on established precedents. Final Pronouncement: The appeal filed by the assessee was partly allowed, and the order was pronounced in the open court on April 4th, 2018.
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