2016 (1) TMI 806 - AT - Income Tax

Unexplained investments in building - AO confirmed the additions made on the basis of the DVO report - DVO has allowed 6% margin towards self-supervision and difference between CPWD & State PWD rates - Held that - Find force in the arguments of the assesse that, CPWD rates are prescribed for construction of buildings for the Central Government projects by taking in to account the standard quality of construction with high quality materials. Though these rates are the basis for valuation of cost of construction, suitable margin should be allowed, towards cost of materials and other charges considering the facts and circumstances, being quality of materials used and place of construction. In the instant case, as can be seen from the facts, the building is situated in village and the assesse himself constructed the building under his supervision. As claimed by the assesse, separate rates are prescribed by the state PWD for construction of buildings and which was brought to the notice of valuation officer but DVO ignored the state PWD rates. Therefore, we are of the view that the D.V.O. is not correct in considering the CPWD rates, when the state PWD rate is available for ascertaining the value of building. As the assessee is entitled for 15% deduction towards rate variation between CPWD and State PWD and a further 10% deduction towards self-supervision charges from the value arrived by the DVO applying the CPWD rates. The CIT(A), after considering the facts that the assesse has maintained books of accounts and bills for construction, scaled down the addition to ₹ 7,25,000/-. We do not find any error or infirmity in the order of the CIT(A). Therefore, we inclined to upheld the order of the CIT(A) and reject the ground raised by the revenue. - Decided in favour of assessee.

Issues Involved:
1. Legitimacy of the books of account maintained for construction.
2. Justification of the reference to the District Valuation Officer (DVO) for cost of construction.
3. Appropriateness of the DVO's valuation method and rates.
4. Validity of deductions for rate differences and self-supervision charges.
5. Reasonableness of the relief allowed by the CIT(A).

Issue-wise Detailed Analysis:

1. Legitimacy of the Books of Account Maintained for Construction:
The revenue contended that the CIT(A) erred in not sustaining the addition of Rs. 29,78,850/- since the books of account maintained for construction were not in an orderly form. The Assessing Officer (AO) had initially doubted the genuineness of the books of accounts as they were not produced during the original assessment proceedings. The AO observed discrepancies and noted that the self-made vouchers and cash payments were not verifiable, leading to the rejection of the books of accounts.

2. Justification of the Reference to the District Valuation Officer (DVO) for Cost of Construction:
The AO referred the matter to the DVO for valuation due to the absence of proper books of accounts during the original assessment. However, the ITAT set aside the CIT(A)'s order and directed the AO to re-examine the cost of construction along with the books of accounts maintained by the assessee. The AO, upon re-examination, still relied on the DVO's valuation, ignoring the books of accounts produced later by the assessee.

3. Appropriateness of the DVO's Valuation Method and Rates:
The DVO adopted the CPWD rates for valuation, which the assessee contested, arguing that the building was located in a remote village and constructed using normal materials, making CPWD rates inappropriate. The DVO allowed a 6% margin for self-supervision and rate differences, which the assessee argued was insufficient.

4. Validity of Deductions for Rate Differences and Self-Supervision Charges:
The CIT(A) directed the AO to recalculate the cost of construction by allowing a 15% deduction for the difference between CPWD and State PWD rates and a 10% deduction for self-supervision charges, following the ITAT's decision in the case of Salma A. Mehdi. The ITAT upheld this approach, noting that CPWD rates are generally higher and should be adjusted for local conditions.

5. Reasonableness of the Relief Allowed by the CIT(A):
The CIT(A) scaled down the addition to Rs. 7,25,000/- after considering the books of accounts and bills for construction maintained by the assessee. The ITAT found no error in the CIT(A)'s order, agreeing that the assessee was entitled to the deductions as per the precedent set in the case of Salma A. Mehdi. The ITAT dismissed the revenue's appeal, supporting the CIT(A)'s decision to provide relief based on the adjusted valuation.

Conclusion:
The ITAT concluded that the AO's reliance solely on the DVO's report without considering the books of accounts was unjustified. The ITAT upheld the CIT(A)'s order, which allowed for appropriate deductions for rate differences and self-supervision charges, ultimately dismissing the revenue's appeal. The decision emphasized the need for a balanced approach in valuation, considering local conditions and the quality of materials used.

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