9911796707
TMI Blog2013 (11) TMI 1366X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of this assessment. Briefly the facts as emanates from the material on record are, the assessee is a private limited company incorporated on 22-9- 2000. The assessee commenced its business of construction of flats. For the impugned assessment year, the assessee filed its return of income on 16-3-2005 declaring 'nil' income appending a note that the assessee company has not yet commenced any commercial activities during the relevant previous year and is still in the construction stage, hence no profit and loss a/c is prepared. The return of income filed by the assessee was initially processed u/s 143(1) of the Act. Subsequently, a survey u/s 133A of the Act was conducted in the business premises of the assessee on 12-9-2005. Pursuant to the survey in assessee's case was converted to scrutiny assessment. In course of scrutiny assessment proceedings, the Assessing Officer issued notice u/s 142(1) calling upon the assessee to furnish the following information:- i) Stage of construction of the building as on 31 st March of the financial years relevant for the assessment years 2001- 02, 2002-03, 2003-04 and 2004-05 of residential premises being constructed at MCH No.1-8-373 to 380 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh, Hyderabad and while comparing has objected that the valuation officer has not allowed 10% rebate for personal supervision which if would have been taken into account the rate will work out to Rs.422/- per sft which is applicable to the assessee. e) The Registered Valuer has cited a paper advertisement in respect of a property built by M/s Modi Properties and Investments Private Limited to show that the cost of construction in case of the said property works out to Rs.420/- per sft. 3. The Assessing Officer dealt with the objections raised by the assessee by observing in the following manner:- (A) The Assessing Officer observed that the Account Method had been adopted in order to verify the correctness of the accounts maintained by the appellant, which it had submitted in the form of an abstract, indicating quantities and expenditure on various items during the period of construction. Accordingly, such method was required to be followed by the VO to check the correctness of the quantities indicated by the appellant by adopting standard coefficients of their consumption in the building. (B) The Assessing Officer opined that the method adopted by the VO required using coeffici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, he felt that cost of a flat or house depends onspecifications whereas no specification had been attached to the paper advertisement so as to compare the two. " 4. The Assessing Officer rejecting the objection of the assessee on the aforesaid basis held that the rate of 420/- to 422/- per sft estimated by the registered valuer is not based on strong foundations and instances cited by him are not at all comparable to the property under consideration. The Assessing Officer held that the cost estimated by the valuation officer of the IT Department by accounts method is the most appropriate being supported with court judgments and based on coefficients of CBRI,an Institute of Central Government. On such conclusion, the Assessing Officer adopted the cost of construction at Rs.7,48,58,300/- up to 31-3-2005 as per the valuation report of the valuation cell. The difference in cost of construction determined by DVO in the valuation report and the cost of construction disclosed by the assessee was worked out to Rs.89,09,116/- and treated as unexplained investment made by the assessee towards construction of the building during the assessment year 2001-02 to 2005-06 and the said excess in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer by observing that the assessee had not maintained any measurement book in respect of construction done in absence of which it is difficult to ascertain whether consumption of raw materials shown by the assessee in its books of accounts was correct and proper. With regard to the assessee's contention that the DVO relied upon the same set of books of accounts while adopting the accounts method the CIT (A) observed that if an assessee undertakes 10,000 of sft and maintains very meticulous records/ books of accounts in respect of part of it only, the books of accounts so maintained cannot be correct. The CIT (A) further observed that the rejection of books of accounts by the Assessing Officer was vindicated by the cost of construction determined by the DVO resulting in difference of Rs.89,01,116/-. 7. So far as the assessee's contention with regard to merit of addition and the cost of construction determined by the DVO, the CIT (A) held that the DVO has scrutinised the books of accounts and vouchers maintained by the assessee to find out the quantity accounted for the material and labour and to ascertain whether the recorded quantities and commensurate with the req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the books of accounts. The learned AR contended before us that the assessee has maintained regular books of accounts along with supporting vouchers for all the materials purchased and used in the construction work. No apparent defect or deficiency was found in the books of accounts. The Assessing Officer has rejected the books of accounts only because of non maintenance of measurement book. The learned AR submitted that as per Rule 6F of Income-tax Rules, measurement book is not a books of account required to be maintained. The learned AR submitted that the cost of the construction of the project was subjected to scrutiny by the department in the block assessment proceedings consequent to search and seizure operation conducted u/s 132 in the case of a group concern and the cost of construction declared by the assessee as on 31-3-2003 supported by a registered valuer's report was accepted in the block assessment, hence no further addition on account of cost of construction can be made u/s 69B of the Act. The learned AR submitted that even the DVO while estimating the cost of construction has adopted the accounts method by observing that the assessee has maintained regular books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said that the rejection of books of accounts was not valid. So far as the contention of the learned AR that the department in the block assessment proceedings, has accepted the cost of construction disclosed in the books of accounts, it is seen from the material on record that the block assessment proceedings was initiated in the case of Srikrishna Jewellers, a partnership firm and four of its partners. In connection with the aforesaid proceedings, a query was made by the Assessing Officer with regard to the activity of M/s Srikrishna Ventures Limited. However, in the block assessment order passed in the case of Srikrishna Jewellers, there is no reference to the construction activity of the assessee. No material has been brought to our notice that the block assessment proceeding in case of the assessee was made accepting the cost of construction disclosed in the books of accounts. In this view of the matter, the rejection of books of accounts by the Assessing Officer is upheld. However, so far as legality of addition of Rs.13,99,255/- is concerned, the same shall be dealt with by us later in the other grounds raised before us. 11. Ground Nos. 6 and 7 are with regard to claim for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e DVO while considering the quantity of materials like steel, cement, bricks, stone, sand etc., has not gone by the books of accounts but has arrived at the cost on the basis of standard coefficient as per the hand book of CBRI, Roorkie. Similarly, in para 5.8 of the valuation report though the DVO himself has observed that the assessee is in the business over a period of 30 years and has constructed over an area of 10 lakhs sft as a builder and the present property has also been developed under the direct supervision of the assessee but while considering the deductions towards self supervision the DVO has not allowed such deduction by observing that deduction towards self supervision is not required since accounts method has been followed. Such prevarications stand by the DVO is not acceptable. If the FVO has found the books of account to be correctly maintained and has followed the accounts method by relying upon them, then he should not have deviated from books of accounts and resorted to estimation by applying coefficient in case of certain specific items like steel, sand, bricks etc. 15. The DVO cannot accept and reject the book results according to his sweet will and conveni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson concerned to follow the State PWD rates while estimating the cost of construction of building in different area. However, the facts remains that the PWD rates are for the purpose of determining fair market rent of a property, whenever the State PWD awards a contract for construction of a particular property, very specific parameters are sent in the contract for the purpose of each individual project and, hence, it is not correct to say that the State PWD rates are the proper basis to arrive at the cost of construction. The applicability of CPWD rate with local indexing came up before the Tribunal in the case of Smt. Salma A. Mehdi, in ITA Nos. 697 & 698/Hyd/93 for asst. years 1985-86 and 1986-87 wherein the Tribunal vide paras 10 of this order held that in arriving at proper cost of construction, it would be justified if a discount of 15% is given for higher CPWD rate and further rate of 10% for personal supervision is allowed. The said paragraph-10 reads as under:- "The DVO estimated the cost of construction following the plinth area method of valuation. He applied the basic plinth area rates approved by the CEDT. .He applied the plinth area of New Delhi as fixed in 1976 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, say here that the property in case of Smt. Salma A. Mehdi, was of about 3000 sq.ft., which is a very small area, as compared to 1,22.985 sq. ft., area in the present' case. It is an admitted fact that when a larger area is being constructed, there will be cost economy in many ways for bulk purchases and a better bargaining power and the discount which is given in case of smaller area may not be sufficient. Looking to the facts and circumstances of the case and a very huge area constructed in this appeal, we are of the opinion that a further discount at 5% would be reasonable in estimating the cost of construction. We direct accordingly." 16. Considering the totality of facts and the circumstances in the light of the decisions of the Income-tax Appellate Tribunal referred to above, we are of the view that the assessee is entitled for deduction of 15% on account of rate variation between CPWD and State PWD and 10% towards self supervision. If the aforesaid deductions are allowed, then the cost of construction shown by the assessee at Rs.6,59,57,184/- would be more than the cost of construction determined by the DVO and there will be no case for addition on account of excess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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