2015 (3) TMI 406 - HC - Income Tax

Determination of the cost of construction - whether Tribunal was right in holding that the CPWD rates cannot be applied to the commercial-cum-residential complex constructed at Coimbatore on the ground that Coimbatore is a small town? - Tribunal directing the Assessing Officer to restrict the addition to ₹ 8 Lakhs as offered by the assessee - Held that - It is evident that in a case of this nature, the Department should give credence to the valuation of the State P.W.D. in relation to the value of construction either on the side of the assessee or on the side of the Department. Since we find that there is no specific notification or circular indicating that CPWD rate alone should be adopted in arriving at the cost of construction, the Tribunal is justified in adopting the valuation of the State P.W.D. rates for the purpose of determining the cost of construction. Tribunal was justified in partly allowing the appeal filed by the Revenue. - Decided against revenue.

Summary

Issues:
1. Tribunal's direction to restrict the addition to the amount offered by the assessee.
2. Tribunal's decision on the applicability of CPWD rates for construction in a small town.

Analysis:
1. The case involved an appeal by the Revenue against the Tribunal's decision to restrict the addition to the amount offered by the assessee. The assessee had constructed a shopping-cum-residential complex, declaring the cost at Rs. 96,22,000, while the Assessing Officer determined it at Rs. 1,34,04,992 based on a DVO report, resulting in an addition of Rs. 37,82,992. The CIT (Appeals) allowed the appeal, citing a Supreme Court decision that disallowed referring the cost estimation to the DVO. The Tribunal accepted the assessee's offer to add only Rs. 8 lakhs due to Coimbatore being considered a smaller town. The High Court, referring to a similar case, upheld the Tribunal's decision, emphasizing the importance of using State P.W.D. rates for construction valuation in absence of specific directives on CPWD rates. The appeal was dismissed, favoring the assessee.

2. The second issue revolved around the Tribunal's ruling on the applicability of CPWD rates for a commercial-cum-residential complex in Coimbatore, deemed a small town. The High Court, following precedent, highlighted the necessity of considering State P.W.D. rates for construction valuation in the absence of explicit guidelines favoring CPWD rates. The judgment emphasized the importance of using relevant local rates for assessing construction costs, as demonstrated in a previous case. The Tribunal's decision to accept the assessee's offer of Rs. 8 lakhs was upheld, affirming the applicability of State P.W.D. rates over CPWD rates for construction valuation in smaller towns like Coimbatore. The appeal by the Revenue was dismissed, with no costs awarded in the case.