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TMI Blog2013 (11) TMI 1366X X X X Extracts X X X X X X X X Extracts X X X X ..... rmining that rate of 10% for personal supervision was given only because, the assessee in that case himself was an engineer. 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 cost of expenditure incurred by the assessee– Decided in favor of Assessee. - ITA Nos. 781 to 785/Hyd/2009 - - - Dated:- 8-2-2013 - Shri Chandra Poojari And Shri Saktijit Dey,JJ. For the Appellant : Sri K. C. Devdas For the Respondent : Smt. Vidisha Kalra ORDER Per Saktijit Dey, Judicial Member:- These are bunch of eight appeals filed by the assessee being aggrieved against separate orders of CIT (A)-IV, Hyderabad. First set of five appeals viz., ITA Nos. 781 to 785/Hyd/2009 are quantum appeals pertaining to the assessment years 2001-02 to 2005-06 and second set of three appeals viz., ITA Nos. 1207 to 1209/Hyd/2012 are against penalty imposed u/s 271 (1)(c ) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion made. On the aforesaid basis, the Assessing Officer came to a conclusion that the books of accounts maintained cannot be relied upon to arrive at a conclusion of the quantum of the material consumed and the cost incurred thereon. Accordingly the Assessing Officer rejected the books of accounts and for determining the investment made by the assessee in construction of flats referred the matter to the Departmental Valuation Officer (DVO) for estimating the cost of construction as on 31-3-2005. The DVO furnished his valuation report to the Assessing Officer estimating the cost of construction by adopting accounts method at Rs.7,48,58,300/- as against Rs.6,59,57,184/- declared by the assessee as on 31-3-2005. The valuation made by the Valuation Officer excluding the cost of the land payment made for lift and works executed after 31-3-2005. The Assessing Officer forwarded a copy of the valuation report to the assessee seeking its objections. The assessee in its reply objected to the valuation made by the Valuation Officer by raising the following issues. a) the accounts method which the valuation officer has adopted is not a recognised method and this method is also not suggested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing wrong in the method adopted as coefficients used were those provided in the hand book of Central Building Research Institute, Roorkie. On the basis of these coefflclents, blatant defects and incorrectness in the accounts was established in respect of steel, cement, bricks, sand and aggregate. (C) The Assessing Officer further felt that loading and unloading charges and carriage and transportation charges indicated by the registered valuer had been indicated in the expenditure shown. (D) He noted that as compared to the Zambagh property as compared by the registered valuer, the residential complex at Begumpet of the appellant was constructed during the period 2001 to 2005 Le almost after three years later to the completion of the former. Accordingly, he felt that a minimum increase of 5% per year towards material and labour was reasonable. Accordingly, the reasonable cost of the property even in view of the example taken by the reqistered valuer, after adding an increase of 15% would be Rs. 422X 15 = Rs. 485 per sq.ft.Considering the plinth area of 15945 sq.meters, including 50 /0 of the stilt floor parking area of 2413.54 sq.mt which is open on an the four sides, the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supported with vouchers. It was further submitted that even the DVO has relied upon the books of accounts while making valuation of the property by adopting the accounts method. Hence, the rejection of books of accounts by the Assessing Officer is bereft of merit. The assessee contended that the Assessing Officer having not pointed out any instance of inflation of expenditure or any other deficiency in the books of accounts, there was no necessity in rejecting the books of accounts. It was further submitted that when the books of accounts are maintained properly with regard to cost of construction, no reference can be made to the DVO for valuation of the property. So far as merit of the addition is concerned on the basis of the cost of construction determined by the DVO, the assessee contended that the DVO has estimated the cost of construction by adopting two different methods partly by coefficient method and partly plinth area method adopting the CBDT approved rates. It was contended that the valuation officer also has not taken into account the loading and unloading charges, carriage and transport charges. The assessee further contended that though an objection was raised before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er regarding discrepancy found in respect of cement, steel etc. The CIT (A) held that since the valuation report of the DVO is based on the calculation of the quantities of various types of materials wherein necessary rates have been applied as per the books of accounts of the assessee itself. The Assessing Officer could not have discarded the same in absence of adequate rebuttal by the assessee. The CIT (A) further observed that even plinth area method is based on the basis of quantities of various material required for the construction of the building and their market value at the relevant time. The CIT (A) held that the contention of the assessee that the DVO had adopted two different methods is therefore is not correct. With regard to assessee's contention of rate variation between CPWD and State PWD, the CIT (A) observed that the valuation done by the DVO is more precise and accurate as he has worked out the quantities on the basis of standard coefficients of CBRI whereas exact rates as reflected from the vouchers of the assessee have been adopted to arrive at the cost of such material. The CIT (A) further observed that the assessee has not been able to explain the short fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rying on legal medical, engineering, architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession shall keep and maintain such books of accounts which may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act. Sub-section (2) of section 44AA provides that a person carrying on business or profession shall keep and maintain such books of accounts and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act. Rule 6F of IT Rules lays down what are the books of accounts and documents to be maintained u/s 44AA(3) of the Act in case of persons carrying on specified professions only. Therefore, the learned AR's contention that the assessee is required to maintain the books of accounts as prescribed under Rule 6F is not acceptable. It is evident from the order of the lower authorities that the books of accounts were rejected as it was found to be very difficult to ascertain the consumption of various raw material as shown in the books of accounts in absence of a measurement book. Though the learned AR has c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n V/s. Inspecting ACIT (32 TTJ 570) and a decision of Income-tax Appellate Tribunal Hyderabad Bench in case of G. Pulla Reddy V/s. ACIT (ITA Nos. 65 to 71/Hyd/2003 dated 29-10- 2004. The learned AR submitted that though the DVO in the valuation report has specifically mentioned that the property was developed under the direct supervision of the assessee, he nevertheless has not allowed any deduction towards self supervision. The learned AR submitted that this aspect has not all been considered by the revenue authorities. 13. The learned Departmental Representative, on the other hand, submitted that the DVO having estimated the cost of construction by applying the accounts method, no further deduction towards self supervision is to be allowed. So far the benefit towards rate variance between CPWD and State PWD is concerned, the learned Departmental Representative submitted that the DVO having taken the cost of materials as disclosed by the assessee there was no need to allow further benefit towards rate variance. 14. We have heard the rival submissions on the issue and also perused the material on record. We have also applied our mind to the decisions cited before us. Though the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f certain materials consumed in the construction of the building on the basis of standard coefficient as provided in the hand book of CBRI, Standard Books/ Valuation Journal whereas the assessee has estimated cost of construction as per the State PWD rates. Therefore, while estimating the cost of construction, CPWD rate cannot be uniformly applied by totally ignoring the State PWD rates. The Income-tax Appellate Tribunal, Delhi Bench in case of Shekhar Chand Jain V/s. IAC (supra) has held that when rate notified by a local authority is available then that rate should be given more credence than an authority like CPWD. The Income-tax Appellate Tribunal, Hyderabad Bench in the case of Sri G. Pulla Reddy V/s. JCIT (supra) while considering a similar issue of applicability of State PWD rates and deduction for self supervision charges has observed in the following manner:- "Plinth area rate as prescribed by CBDT of curse contain provisions for cost indexing and adjustment of location variation to arrive at cost of construction of a particular location. But the facts remains that such valuation rests CPWD rates fixed on uniform basis. As observed in the case of ITO vs. Tek Chan, 52 ITD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of construction estimated by the DVO in order to compensate the higher estimate on account of the adoption of higher rate of CPWD of New Delhi. Further, the valuation officer did not allow any deduction towards personal supervision. The first appellate authority allowed 10% reduction on account of savings by personal supervision appears to be quite reasonable. If we deduct 10% towards personal supervision and 15% on account of the higher rate adopted by the valuation officer, the estimate of cost of construction determined by the valuation officer comes down to Rs.5,16,750/-. Even if we take average of cost of construction of Rs.68900 determined by the DVO on the basis of plinth area method works out to Rs.5,22,000/-. In that view of the matter, the cost of construction of Rs.5,16,750/- arrived at by us after giving 15% reduction for higher CPWD rates and 10% deduction for personal supervision, appears to be quite reasonable. It can be rounded to Rs.5,16,000/- 24. We are in respectful agreement with the aforesaid order of the Tribunal and hold that CIT(A) was justified in upholding plinth area basis for determining cost of construction over the CPWD rates and further red ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed and the additions made are directed to be deleted. 19. In view of our decision in ground Nos. 10 and 11 mentioned above, the other grounds raised in all these appeals have become academic and not required to be adjudicated upon, hence they are dismissed as such. ITA No.785/Hyd/09 asst. year 2005-06. 20. Ground No.1 to 5 are identical with ground Nos. 1 to 5 of ITA No.784/Hyd/09 pertaining to the assessment year 2004-05. In view of our decision taken in ITA No.784/Hyd/09, we uphold the rejection of book of accounts. 21. Ground Nos. 6 and 7 are identical with ground Nos. 6 and 7 of ITA No.784/Hyd/09. In view of our decision taken in ITA No.784/Hyd/2009, these grounds are accordingly allowed and addition made is deleted. 22. Ground No.8 having become academic, is dismissed as such. ITA Nos. 1207 to 1209/Hyd/2012 asst. years 2001-02 to 2003-04. 23. In these appeals, the assessee has challenged the imposition of penalty u/s 271(1) (c) of the Act. The penalty u/s 271(1)(c ) was imposed on the basis of additions made in the assessment order passed for the respective assessment years on account of difference between the cost of construction shown by the assessee and c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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