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2018 (8) TMI 1143 - AT - Income TaxReassessment u/s 147 - determination of cost of construction account. - assessee filed objections stating that the cost of construction estimated by the DVO was very high and furnished the valuation report from the independent approved valuer - huge difference between the two valuation reports Held that - The DVO has valued the property on the basis of CPWD rates and CPWD rates include the profit element of the contractor. Therefore, the CPWD rates cannot be applied mutatis mutandis to the constructions made in the local areas. There is a difference between the CPWD rates and state PWD rates. This Tribunal in the case of Padmini Priya Property Developers and Builders (2018 (4) TMI 259 - ITAT VISAKHAPATNAM) has considered similar facts and circumstances and allowed deduction of 15% towards the rate variation for CPWD rates and local rates and further reduction of 10% towards self-supervision from the value estimated by the DVO AO directed to allow the rate difference of 15% and supervision charges to the extent of 10% in cost of construction determined by the DVO and recompute the investments subject to minimum of the cost of construction admitted by the assessee.
Issues Involved:
1. Cost of construction of the building. 2. Addition towards sources of investment. 3. Enhancement of sources for construction. 4. Addition of agricultural income belonging to the wife of the assessee. Detailed Analysis: 1. Cost of Construction of the Building: During the assessment proceedings, the AO found that the assessee had constructed a function hall named M/s Venkanna Babu Function Hall. The assessee failed to produce the books of accounts for the construction, leading the AO to refer the valuation to the Departmental Valuation Cell (DVO). The DVO estimated the cost at ?1,42,25,000/- against the assessee's admitted cost of ?1,11,30,963/-. The assessee submitted an independent valuation report estimating the construction cost at ?60,00,000/-. The AO adopted the DVO's valuation, which the assessee disputed. The Tribunal observed that the DVO's valuation based on CPWD rates included the profit element of contractors, which is not comparable to local rates. Following precedents, the Tribunal allowed a 15% deduction for rate variation and a further 10% deduction for self-supervision. The AO was directed to recompute the investments accordingly. 2. Addition Towards Sources of Investment: The AO disbelieved the sources of ?9,98,491/- in cash and ?3,67,470/- from creditors, adding ?13,65,961/- to the income. The CIT(A) accepted the sources except for ?5,00,000/- from amenities and gifts received after the construction period. The Tribunal found no evidence against the assessee's claim that the ?5,00,000/- was used for construction. The AO was directed to accept this amount as a source. Additionally, the Tribunal accepted ?6,39,074/- from agricultural and business income as sources for construction, as there was no evidence of these funds being used elsewhere. However, the Tribunal rejected the claim for wages payable of ?3,55,200/- due to lack of evidence. 3. Enhancement of Sources for Construction: The CIT(A) enhanced the sources for construction from ?60 lakhs to ?65,71,000/- relating to the OD account with SBI. The assessee did not press this ground during the appeal hearing, leading to its dismissal. 4. Addition of Agricultural Income Belonging to the Wife of the Assessee: The CIT(A) disbelieved the source of agricultural income of ?84,000/- used by the assessee for construction. The assessee did not argue this issue, and the Tribunal upheld the CIT(A)'s order, dismissing the appeal on this ground. Conclusion: The appeal was partly allowed, with the Tribunal directing the AO to accept certain sources of funds for construction and recompute the investments, while dismissing other grounds due to lack of evidence or non-pursuance by the assessee.
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