2012 (7) TMI 687 - AT - Income Tax

Unexplained investment - Difference in cost of construction between the value of Departmental Valuation Officer and Assessee s cost of construction - held that - in the instant case Assessing Officer observed that the books of accounts of the assessee for cost of construction of the building is not reliable on the grounds that many items of expenses are not supported by bills or vouchers and there are also no proper bills for purchase of materials. On the above facts, we agree with the Departmental Representative that books of accounts of the assessee in respect of cost of construction of building were rejected by the Assessing Officer. However, we find that such a rejection was not made after pointing out any specific defect in the books of accounts of the assessee and was rejected merely on the basis of generalized statement. The rejection of books of account by the Assessing Officer is untenable and cannot be sustained. - Decided in favor of assessee.

Summary

Issues Involved:
1. Whether the Commissioner of Income Tax (Appeals) erred in deleting the addition made towards the proportionate difference in the cost of construction between the value of the Departmental Valuation Officer (DVO) and the Assessee's cost of construction during the relevant Assessment Years.

Detailed Analysis:

Issue 1: Deletion of Addition Towards Proportionate Difference in Cost of Construction

Facts of the Case:
- The assessee, a doctor by profession, constructed a nursing home and a medical store. The cost of construction was reported as Rs. 95,25,169/- as per the return of income for the Assessment Year 2007-08.
- The Assessing Officer (AO) referred the matter to the DVO, who initially valued the cost at Rs. 1,09,88,000/- and later revised it to Rs. 1,18,08,700/-.
- The AO assessed the difference in the cost of construction on a pro-rata basis under the head "unexplained investment" for various Assessment Years.

Contentions and Findings:
- The Assessee contended that the AO did not point out any material defects in the accounts and argued that State PWD rates should be considered instead of CPWD rates, along with a higher rebate for self-supervision and direct purchase of materials.
- The Commissioner of Income Tax (Appeals) deleted the additions, observing that the AO did not find any material defects in the accounts and that the objections raised by the assessee were valid.

Observations of the Commissioner of Income Tax (Appeals):
- The total cost of construction as per the assessee's books was Rs. 1,06,70,600/- as on 31.03.2008.
- The DVO's upward revision of the estimated cost was due to a typing error in the original report.
- The objections raised by the assessee included the application of CPWD rates instead of State PWD rates, insufficient rebate for self-supervision, and discrepancies in the cost of materials and charges for plans and drawings.
- The Commissioner found that the maximum rebate should be 7.5% instead of the 6% considered by the DVO, and that the cost of vitrified tiles and charges for plans and drawings were overestimated by the DVO.
- The Commissioner concluded that the difference between the cost of construction in the books and the DVO's estimate would be negligible after considering these factors.

Tribunal's Analysis:
- The Tribunal agreed with the Departmental Representative that the AO had rejected the books of accounts based on a generalized statement without pointing out specific defects.
- The Tribunal found that the Commissioner of Income Tax (Appeals) had perused the books and found them to be properly maintained with original bills and vouchers supporting most of the expenses.
- The Tribunal held that the rejection of books by the AO was untenable and that the reference to the DVO was not justified.
- The Tribunal also noted that the issue of adopting CPWD rates was covered by the decision of the Jurisdictional High Court, which held that State PWD rates should be adopted for properties situated in mofussil areas.

Conclusion:
- The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals), confirming that the construction cost recorded in the books should not be disbelieved merely because the DVO's estimate was higher.
- The Tribunal dismissed the appeals of the Revenue, stating that the evidence in the form of regular accounts is more reliable than an expert's estimate, especially when the books are properly maintained and supported by vouchers.

Final Judgment:
- The appeals of the Revenue were dismissed, and the order of the Commissioner of Income Tax (Appeals) was confirmed.

Order Pronounced:
- The order was pronounced on Friday, the 25th May, 2012, at Chennai.