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TMI Blog2006 (3) TMI 673X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year 2001-02. As the issues involved in all these appeals are common, the appeals are heard together and disposed of by way of this common order for the sake of convenience. 2. Facts of the case have been given in detail in the order of the CIT(A) dated 10-12-2004 from paragraph 2 to paragraph 3( a ) at pages 2 to 4. In the earlier round of proceedings, the CIT(A), vide her order dated 19-2-2003 in the case of the AOP and its members for the assessment years 1999-2000 and 2000-01, arrived at cost of construction of the said property at Rs. 30.75 lakhs. She decided that the entire difference in cost of construction of Rs. 3.3 lakhs should be taxed in the assessment year 2000-01 only and in view of this decision, she had given a further direction that no addition should be made in any other year on this ground. This decision of the CIT(A) dated 19-2-2003 was accepted by the assessee. The Revenue, however, filed appeals against this order before the Income-tax Appellate Tribunal, Hyderabad, in I.T.A. Nos. 816 to 829/Hyd./2003. Hyderabad Bench B (SMC) of the Tribunal, vide order dated 8-9-2004, dismissed the appeals of the revenue on the ground that the revenue effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, at pages 6 to 21 of his order. He upheld the action of the Assessing Officer in making addition of unexplained investment in accordance with the provisions of section 69 of the Income-tax Act, 1961, in the assessment years 1998-99 and 2001-02 in the hands of the AOP and all the members of the AOP. 4. The learned counsel for the assessee reiterated the contentions raised by him before the first appellate authority. The crux of his argument is that in the impugned order, the CIT(A)-VI, Hyderabad, was wrong in stating that he was not in agreement with the findings of his predecessor, i.e. , CIT(A), Guntur, Camp at Hyderabad, order dated 19-2-2003. He vehemently contended that the CIT(A), Guntur, had considered each and every fact of the case in detail and after applying the decision of the Hyderabad Bench of the Tribunal in the case of Asstt. CIT v. Vinod Kumar Agarwal [2002] 257 ITR (AT) 65, and after comparing the rates adopted in the valuation report with the rates adopted by the very same Valuation Cell in certain other cases in respect of buildings constructed during the period 1999-2000 and which are situated in the heart of the city of Hyderabad, had come to a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt State PWD rates for arriving at the cost of construction. (2)The earlier CIT(A), who granted relief, had no basis for holding that indexed rates adopted by CPWD were higher. (3)The CIT(A), Guntur, who had granted relief had given decision without taking into consideration the fact that the Valuation Officer had based his report on the inspection carried out by him when the building was still under construction and it cannot be said that the CPWD had wrongly estimated the cost of polished granite flooring when Varun Motors carried out the work of laying granite after that date. (4)There was no evidence before the first appellate authority in the earlier round of appeal, to show that the assessee used polished marble stone or polished Tandur stone. (5)The observations of the CIT(A), Guntur, are general in nature and do not point out any defect in the valuation report of the CPWD. (6)Even for the sake of argument, the item-wise relief allowed by the CIT(A), Guntur, is accepted, the assessee would be entitled to relief of Rs. 14,09,833 only out of the value worked out by the Valuation Officer and accordingly the CIT(A) should have adopted the cost of construction at Rs. 44 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income-tax. In this instruction on the issue of finality of findings of fact by the first appellate authority, the CBDT referred to Instruction No. 1493 (F. No. 279/189/82-ITS), dated 18-11-1982. In the case of Asstt. CIT v. Justice Motilal B. Naik [2004] 91 ITD 384 , Hyderabad Bench A of the Tribunal observed as follows : "Therefore, as prescribed in the instruction, the order of the Commissioner of Income-tax (Appeals) should have been strictly adhered to and followed but not questioned. Our view that the CBDT s instruction has got binding effect on the Department is also strengthened by the decision of the jurisdictional High Court not only in the case of CIT v. T.V. Ramanaiah Sons [1986] 157 ITR 300 (A.P.) but also by the decision of the Apex Court in the case of CCE v. Usha Martin Industries Ltd. [1977] 7 SCC 47. The relevant portion of the Supreme Court s decision is worthwhile to be extracted as hereunder : 21. Through a catena of decisions this Court has pronounced that the Revenue cannot be permitted to take a stand contrary to the instructions issued by the Board. It is a different matter that an assessee can contest the validity or legality of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first appellate authority also cannot do. 8. On a careful consideration of both the appellate orders, we are of the considered opinion that the order of the CIT(A), Guntur, dated 19-2-2003 has to be sustained for the reason that the CIT(A) had gone in a lot more analytical manner and had relied on comparable rates adopted by the Valuation Cell itself for the building construction during the period 1998-2000 under the name and style of "Centre Point", situated at Begumpet in the heart of the city. On this comparative data and on applying the propositions laid down by the Hyderabad Bench of the Tribunal, she had come to a conclusion that the cost of construction could reasonably be estimated at Rs. 30.75 lakhs as against the disclosed investment of Rs. 27.45 lakhs. After arriving at such a conclusion, the CIT(A) held as follows : "7 ( iii ) While the various figures have to be reconciled, it is not possible to arrive at the cost as a mathematical deduction. I am therefore not strictly beginning with the figure of the Cell and scaling it down. Considering all the factors highlighted by the counsel and also the flaws in his calculation, and the comparable cases, I am adopting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty. This is not true. It is common knowledge that State PWD also executed a number of housing projects and has its own mechanism of prescribing detailed rates for construction of such buildings. In fact, both the CPWD and the State PWD draw up detailed estimates for the purpose of tendering. CPWD finds fault with rates prescribed by State PWD as well as detailed estimate rates on the ground that specifications were not given. Courts and the Tribunal have consistently held that wherever State PWD rates have been published by the State Government, those rates are more relevant than those of CPWD and there is nothing wrong in applying those particular rates of State PWD in estimating the cost of construction of a particular building in that particular State. If any authority is required in this regard, we refer to the decision of the Tribunal in the case of Vinod Kumar Agarwal ( supra ). Hyderabad Bench of the Tribunal in the case of Smt. Salma A. Mehdi [IT Appeal Nos. 687 and 688 (Hyd.) of 1993], had laid down the proposition that State PWD rates take into account the special conditions in a particular area or the territories of the State, whereas CPWD rates are general in na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tire floor at Rs. 4,653 per sq. mtr. Where the hall type construction is there, the valuation cell has adopted Rs. 2,360 per sq. mtr. Therefore, the cost would have been estimated as under : ( a )For 117 sq. mtrs. @ Rs. 4,653 i.e. , Rs. 5,44,401 ( b )Balance 117 sq. mtrs. @ Rs. 2,360 i.e. , Rs. 2,76,120. The aggregate of the above works out to Rs. 8,20,521 as against which the valuation cell adopted Rs. 10,89,826. Therefore, the difference is to be reduced. Rs. 2,69,305 The valuation cell adopted stilt and cellar floors at Rs. 6,39,750 taking the cost of construction at Rs. 3,393. As there is no construction of rooms, partition walls, toilets, etc. is available, the valuation cell would have taken only 50 per cent of the normal rate. The reduction on this account comes to Rs. 3,19,875. Rs. 3,19,875 The valuation cell estimated the cost of electrical fittings, etc. for the stilt, ground the Mezzanine floors at Rs. 2,28,405. For all other areas, the valu-ation cell adopted the cost of construction to be Type-IV quarter. Having adopted the rate treating it as Type-IV quarter, the valuation cell should n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing orders in support of the propositions stated above : Chennai Bench of the Tribunal in the case of K. Damodaraswamy Naidu v. Asstt. CIT [1996] 59 ITD 510 , held as follows : "The main contention on behalf of the assessee is that for the purpose of estimating the valuation of the properties the Valuation Officer ought to have followed the State PWD rates instead of Central PWD rates. In support of this contention the assessee has submitted a comparative chart showing the State PWD rates, which was adopted in the proceedings by the Superintending Engineer, PWD, Coimbatore for the purpose of taking accommodation on lease for Government Officers. According to the department those rates are not the exact PWD rates because those rates were followed for the purpose of fixation of rent for taking accommodation on lease. On the other hand a chart showing the State PWD rate was also filed on behalf of the revenue. We find from the said chart that the difference between the State PWD rate and the Central PWD rate is not so much as that of the chart, which was supplied on behalf of the assessee. It is true that generally the Central PWD rates are being followed for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing the judgments of this Tribunal. If so, he would have himself given 15 per cent overall rebate due to rate variations among different places, as held by this Tribunal in the case of Salma A. Mehdi ( supra ). This attitude is enormously increasing the infructuous work of the department and the Tribunal and also causing unnecessary harassment and anxiety to the taxpayers. We should seriously consider awarding costs on the officers of the Valuation Cell in all such cases in future wherein the propositions laid down by the various Courts and Tribunals of this country are not followed. In all such cases, where properties have been referred to valuation, the following propositions of law can be stated to have been laid down by various High Courts and Tribunals. (1)Reference should be made to the Valuation Cell only after proper application of mind by the officer concerned. Courts have held that reference cannot be made without rejecting books of account maintained by the assessee, which gives details of the construction expenditure. It is a settled proposition that evidence in the form of regular books is certainly more reliable than an estimate by an expert. This necessarily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detailed investigation. (refer 49 TTJ 530 ). (6)It is obligatory on the part of the Valuation Officer to furnish to the assessee, in the interest of natural justice, his working of the cost of index and the rates adopted by him for various material considered in working out the cost index." 11. Thus, applying these propositions to the facts of this case and for all the reasons stated in this order and specifically on the ground that no addition is possible for the impugned assessment years 1998-99 and 2001-02, especially when the addition in question on account of undisclosed investment has been directed to be made only in the assessment year 2000-01 by the CIT(A), Guntur, Camp at Hyderabad, and as she had already quantified the quantum of undisclosed income, and her order has attained finality as the Tribunal enforced the CBDT instructions and held that the Revenue cannot challenge that order, and as on facts we agree with the order of the CIT(A), Guntur, we allow all the appeals of the assessees. 12. Coming to the appeals filed by the department in the case of the AOP, we have necessarily to dismiss the same. Firstly, there is no tax effect as the total income determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in the construction of the building is also known. It can be seen that the entire investment in the construction has gone from the individual joint owners. Therefore, sections 69, 69A and 69B are clearly applicable in the case of the persons who have invested the amount. In these sections, the reference made is to the person making an investment in the property. In the case of the assessee, the investment was made by the individual joint owners and, therefore, section 69 or any other provision has application to the individual joint owners and not to AOP as no investment was made by the AOP. Therefore, the provisions of section 69 have no application at all in the assessment of the AOP. If at all it is to be applied, it can at best be applied only in the assessment of the individual joint owners. Further, section 69 or any other provision pre-supposes that there is an income for the assessee making an investment. The Hon ble Supreme Court in the case of CIT v. P.K. Noorjehan [1999] 237 ITR 570, held that it is not enough to find out that there was investment not explained and it has to be examined whether such assessee could have earned any income which was not disclosed to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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