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Income Tax Appellate Tribunal, BANGALORE BENCHES “B”, BANGALORE
Before: Shri N.V.Vasudevan, VP & Shri B.R.Baskaran, AM
Per B.R.Baskaran, AM :
The appeal filed by the assessee is directed against the order dated 31.08.2017 passed by Ld CIT(A), Hubli and it relates to the assessment year 2013-14. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the addition of Rs.13.77 lakhs relating to difference in cost of construction.
The facts relating to the issue are discussed in brief. The assessee is an individual deriving rental income. The assessee has constructed a shopping complex in Hubli. The cost of construction of building was shown by the assessee at Rs.115.59 lakhs. The revenue carried out a Survey Operation
. Shri Kashinath K.Khode. u/s 133A of the Act in the hands of the assessee on 28-08- 2014 and consequent thereto, the return of income filed by the assessee was taken up for Scrutiny. During the course of assessment proceedings, in order to verify the cost of construction of shopping complex, the AO referred the matter to the DVO, who determined the cost of construction at Rs.129.36 lakhs. Before the AO, the assessee furnished a copy of valuation report obtained from an approved valuer, who had estimated the cost of construction at Rs.111.18 lakhs. Accordingly, the assessee objected to the value determined by the DVO. After considering the objections of the assessee, the AO proceeded to adopt the cost of construction as per Valuation report of DVO at Rs.129.36 lakhs. Since the value reported by the DVO was less than that determined by the DVO, the assessing officer assessed the difference amount of Rs.13.77 lakhs as income of the assessee. The Ld CIT(A) also confirmed the same and hence the assessee has filed this appeal before us.
The Ld A.R submitted that the DVO has adopted the Central PWD rates in order to determine the cost of construction. He submitted that the State PWD rates should have been adopted by him as per the following decisions:- (a) The ITO vs. Smt. Anasuya K Naik (ITA No.58/Bang/2009 dated 16-10-09 (b) B.N.Kalaksha Shanbhag (ITA No.858/Bang/1994) (c) Salma Mehdi (ITA No.697-698/Hyd/93 dated 26.6.1994)
. Shri Kashinath K.Khode. The Ld A.R submitted that there is difference between CPWD rates and State PWD rates. Hence the AO should allow deduction for the said difference, when the DVO determines the cost of construction by adopting CPWD rates. He submitted that the Tribunal, in the case of Salma Mehdi (supra), has granted a deduction of 15% towards the difference between the CPWD rates and State PWD rates. The Tribunal has also granted deduction of 10% towards self supervision. The Ld A.R further submitted that the Delhi bench of Tribunal in the case of ACIT vs. Tarun Rastogi (ITA No.28/Del/2012 dated 14-01-2015) has taken note of the decision rendered by Hon’ble Rajasthan High Court in the case of CIT vs. Smt. Prem Kumari Murdia (2006)(296 ITR 508), wherein the Hon’ble High Court has upheld the decision of Tribunal to allow deduction of 20% for the difference between CPWD rates and State PWD rates. It has also taken note of the decision rendered by Hon’ble Jammu and Kashmir High Court in the case of Honest Group of Hotels P Ltd vs. CIT (2002)(177 CTR (J&K) 232), wherein it was held that there is always bound to some difference in the actual cost of construction and as estimated by the valuer or DVO and hence 10% deduction should be allowed on this score.
The Ld A.R submitted that the difference between the actual cost of construction and that estimated by DVO, in the instant case, works out to around 12%. Accordingly, the Ld A.R submitted that this difference should be ignored in view of the principles discussed in the above said cases.
The Ld D.R, on the contrary, submitted that the assessee was subjected to survey operations, wherein he has surrendered income of Rs.60.00 lakhs. He further submitted that the impugned addition came to be made as a consequence of survey operations. He submitted that the registered valuer had adopted 1992 rates, where as the DVO has adopted the latest rates. He further submitted that the various case laws relied upon by the assessee have been rendered on the basis of facts prevailing in those cases and hence the assessee cannot take support of the same.
In the rejoinder, the Ld A.R submitted that the assessee has constructed the shopping complex in Hubli under self supervision. He submitted that CPWD rates cannot be applied to places like Hubli. He submitted that the DVO has given deduction for self supervision @ 8% only, even though he himself admits that the profit element included in plinth area rates is 15%.
We have heard rival contentions and perused the record. From the contentions of the Ld A.R, we notice that the assessee is seeking deductions from the value determined by the DVO towards the difference in CPWD rates and State PWD rates. We notice that the co-ordinate bench of Tribunal has held in the case of Smt. Anasuya K Naik (supra) that State PWD rates should be adopted for the purpose of valuation. If the valuation has done by adopting CPWD rates, then the Tribunal has held that a deduction of 15%/20% may be . Shri Kashinath K.Khode. allowed towards the difference between CPWD rates and State PWD rates. The Ld D.R contended that the Registered valuer has adopted 1992 rates and hence his report should be ignored. Here, we are not considering the registered valuer’s report. We are examining the deduction claimed by the assessee towards the difference in CPWD and State PWD rates.
The Ld A.R submitted that the difference between the value determined by the DVO by adopting CPWD rates and the actual cost of construction disclosed by the assessee was around 12% only. In the case of Salma Mehdi (supra), a deduction of 15% was allowed and in the case of Smt. Prem Kumari Murdia (supra), a deduction of 20% was allowed towards the difference between CPWD rates and State PWD rates. Hence the difference computed in the instant case @ around 12% is less than the deduction permitted in the above said cases. Accordingly we are of the view that the difference of around 12% should be deducted from the value determined by the DVO towards the difference between CPWD rates and State PWD rates, in which case, the impugned addition made by the AO is liable to be deleted. Accordingly, we find merit in the prayer of the assessee.
In view of the foregoing discussions, we set aside the order passed by Ld CIT(A) and direct the AO to delete the impugned addition of Rs.13.77 lakhs relating to difference in cost of construction.
. Shri Kashinath K.Khode. 10. In the result, the appeal of the assessee is allowed.