2013 (7) TMI 146 - HC - Income Tax

Valuation of Shopping cum residential complex - Addition in construction costs - Difference between CPWD rate and state PWD rate - Held that - construction of the shopping and residential complex is in Coimbatore, which is not a small town, but a Corporation - Assessing Officer partially agreed with the assessee and allowed the valuation at 10% instead of 7.5%, towards supervision charges. The Assessing Officer also accepted the contention that water connection was already existing; apart from that, certain other concessions were given. However, the basis of valuation as regards the cost of construction, nevertheless, was that of the District Valuation Officer, adopting CPWD rates. It is not denied by the Revenue that there is a variation between the CPWD rates and the State PWD rates. Considering the geographical location, the availability of work force and the cost of materials, unless there are similarities in the rates under CPWD and the State PWD, we do not think, we can blindly go by CPWD rates for the purpose of arriving at the cost of construction - Assessing Officer directed to work out ost of construction, to be distributed in assessment years 1997-98 and 1998-99 by taking State PWD rates - Decided in favour of revenue.

Summary

Issues:
1. Application of CPWD rates for valuation of construction cost.
2. Assessment of supervision charges and cost of construction for a shopping-cum-residential complex in Coimbatore.

Analysis:
1. The case involved a dispute regarding the valuation of a shopping-cum-residential complex in Coimbatore for the assessment year 1998-99. The Assessing Officer referred the matter to the District Valuation Officer, who adopted CPWD rates to determine the construction cost, leading to a significant difference from the actual cost incurred by the assessee. The appellate authorities disagreed with the valuation method, emphasizing that the Assessing Officer lacked the power to refer the valuation under certain sections of the Income Tax Act. The Income Tax Appellate Tribunal considered factors like the location of construction in a small town and the absence of certain woodwork and decorative elements, ultimately allowing an addition of Rs. 8 lakhs towards the cost of construction returned by the assessee.

2. The Revenue challenged the Tribunal's decision, arguing that Coimbatore should not be considered a small town and that the Tribunal erred in accepting the assessee's plea without a valid basis. The High Court, upon review, concurred with the Revenue's stance, noting that Coimbatore is a Corporation and not a small town. The Court acknowledged the differences between CPWD and State PWD rates, emphasizing the importance of considering factors like geographical location, workforce availability, and material costs in determining the construction cost. Consequently, the Court set aside the Tribunal's order and remitted the matter back to the Assessing Officer to reevaluate the cost of construction using State PWD rates for the relevant assessment years, ensuring compliance with the law and providing the assessee with a hearing opportunity.

In conclusion, the High Court's judgment addressed the issues of valuation methodology and cost assessment for a construction project in Coimbatore, emphasizing the need for a thorough evaluation based on relevant factors and appropriate rates to determine the accurate cost of construction for tax assessment purposes.