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Before: Shri A. Mohan Alankamony & Shri Duvvuru RL Reddy
O R D E R PER BENCH: These four appeals filed by the Revenue are directed against the common order passed by the ld. Commissioner of Income Tax (Appeals) 19, Chennai dated 10.10.2017 relevant to the assessment years 2011-12, 2012- 13, 2013-14 and 2014-15. In the grounds of appeals, the Revenue has challenged that the ld. CIT(A) erred in holding that the total cost of construction at ₹.20,97,78,487/- as against ₹.25,94,59,000/- adopted by the Assessing Officer towards undisclosed investment under section 69B of the Income Tax Act, 1961 [“Act” in short] in the order passed under section 143(3) r.w.s. 153C of the Act in all the above assessment years.
All the appeals filed by the Revenue are delayed by three days, for which, the Revenue has filed petition for condonation of the delay in support of affidavit, to which; the ld. Counsel for the assessee has not raised any serious objection. Consequently, the delay of three days in filing of the appeals stands condoned and the appeals are admitted for adjudication.
Brief facts of the case are that the assessee is a charitable trust set up in October 2009 and has obtained registration both under section12A and 80G of the Act. A search under section132 of the Act had been conducted in the Diamond Group of concerns and individuals based out of Tuticorin in Tamilnadu on 17.12.2013. The partners and directors of the said group of firms and companies had also been subjected to search. These persons were also the trustees of the assessee Trust and have admitted having invested their unaccounted monies in the construction of the buildings of the assessee Trust.
3.1 The assessee Trust had constructed a Polytechnic College in Vembar Village, Thoothukudi - Ramanathapuram ECR road, Tuticorin District of Tamil Nadu. The Polytechnic College premises consisted of administration cum academic block, workshop building, boys hostel, girls hostel, dining block cum physical education room, power room and cafeteria block along with two open roof toilets. The admin-cum-academic block consisted of ground, first and second floors. All other blocks were at the ground floor level only. As per the returns of income filed, the assessee has claimed to have spent an amount of ₹.11,97,78,487/- from Assessment Year 2011-12 to Assessment Year 2015-16. However, the Assessing Officer referred the alleged under- reporting of investment to the District Valuation Officer to determine the cost of construction. Based on the report of the DVO, the Assessing Officer has made additions of ₹.7,05,15,513/- for all the four years.
The assessee carried the matter in appeal before the ld. CIT(A) for all the years. After considering the submissions of the assessee and by following the decisions of the Hon’ble Jurisdictional High Court in the case of TMPN Murugesan v. CIT [35 taxmann.com 208 (Madras)] as well as in the case of CIT v. Raya R. Govindarajan [49 taxmann.com 526], the ld. CIT(A) has held that the rates applicable towards metropolitan city of Chennai, as adopted by the CPWD cannot be made applicable to the construction cost of a polytechnic college property in the rural area of Tuticorin District and accordingly revised the cost of construction. With regard to the additional relief of ₹.2 crores claimed, after considering the submissions of the assessee and based on the declaration admitted before the Hon’ble Settlement Commission, the ld. CIT(A) has granted relief of ₹.2 crores.
Aggrieved, the Revenue is in appeal before the Tribunal. The ld. DR has submitted that the CPWD rates are scientifically arrived at based on the cost of materials, labour, etc., prevalent at that point of time as well as for that particular locality/area and moreover the CPWD rates are far more accurate and reliable than the PWD rates. Thus, the ld. DR pleaded that the order of the ld. CIT(A) should be reversed. On the other hand, the ld. Counsel for the assessee strongly supported the order passed by the ld. CIT(A) and argued that the issue is squarely covered in favour of the assessee by the decision in the case of TMPN Murugesan v. CIT(supra) and various other decisions and prayed for confirming the order passed by the ld. CIT(A).
We have heard both sides, perused the materials available on record and gone through the orders of authorities below. Admittedly, the assessee Trust constructed a Polytechnic College in Vembar Village, Thoothukudi - Ramanathapuram ECR road, Tuticorin District of Tamil Nadu and it is not disputed that the construction has been taken place in mofussil area. Thus, we are of the considered opinion that if the building is constructed in a mofussil area then, the State PWD rates have to be applied for valuation of cost of construction. By relying on the judgement in the case of TMPN Murugesan v. CIT(supra), the Hon’ble Jurisdictional High Court in the case of CIT v. Raya R. Govindarajan (supra) has considered similar issue and held as under: “A perusal of the order of the AO shows that the AO was of the view that the State P. W. D rates should not be accepted, since the Central P.W.D. had scientifically arrived at the rates. This finding of the AO is not supported by any Departmental Notification or circular that only CPWD rates should be accepted. In the instant case, construction was in the temple city of Kumbakonam, which is not a Metropolitan town. Nevertheless, the State P.W.D was authorized to give valuation for all constructions in the State of Tamil Nadu. Admittedly, the assessee's property, which is a subject matter of consideration, is in the State of Tamil Nadu. There cannot be a different yardstick adopted for valuation within the State. This will result in incongruous results, as one Officer would take the rates fixed by the CPWD and another Officer would take the rates fixed by State PWD. Therefore, it is evident that in a case of this nature, the Department should give credence to the valuation of the State P.W.D. in relation to the value of construction either on the side of the assessee or on the side of the Department. Since there is no specific notification or circular indicating that CPWD rate alone should be adopted in arriving at the cost of construction, the Tribunal was justified in adopting the valuation of the State P.W.D. rates for the purpose of determining the cost of construction. T.M.P.N. Murugesan vs. Commissioner of Income-tax, 217 Taxmann 40, relied on.”
7. By following the above judgements of the Hon’ble Jurisdictional High Court, the ld. CIT(A) has revised the cost of construction. The ld. DR could not controvert the above decisions of the Hon’ble Jurisdictional High Court. Thus, we find no infirmity in the order passed by the ld. CIT(A) on this issue and accordingly, the ground raised by the Revenue stands dismissed for all the assessment years.
With regard to the grant of relief of ₹.2 crores, before the ld. CIT(A), the assessee has claimed additional amount of ₹.2 crores which was offered before the Hon’ble Settlement Commission by the group. It was submitted before the ld. CIT(A) that the Assessing Officer has allowed the credit claimed by the assessee group firms to the extent of ₹.7 crores for construction of polytechnic college. The credit claimed by the partners towards investment in polytechnic college has not been considered. After considering the details of sources and application of additional income offered before the Hon’ble Settlement Commission by M/s. Diamond Sea Foods Group, the ld. CIT(A) has observed that the assessee group have claimed to have invested a total of ₹.4 crores towards construction of polytechnic college as well as Grand Plaza. What the assessee sought for before the ld. CIT(A) was an application of 2 crores out of the said admission before the Hon’ble Settlement Commission towards the unaccounted cost of construction of the polytechnic college. However, the ld. CIT(A) has observed from the order of the Hon’ble Settlement Commission that it has given allowance for ₹.7 crores of amount invested in the college property but has not specifically given allowance for ₹.2 crores as claimed by the assessee. Since the Assessing Officer has already allowed an application of ₹.7 crores based on the same declaration by the assessee group, which was allowed by the Hon’ble Settlement Commission, the ld. CIT(A) has given relief of ₹.2 crores towards the cost of construction. However, the ld. CIT(A) has not obtained any opinion of the Assessing Officer before granting the relief. Accordingly, we remit the issue back to the file of the Assessing Officer to verify and decide the issue in accordance with law after allowing an opportunity of being heard to the assessee. Thus, the ground raised by the Revenue is allowed for statistical purposes for all the assessment years under consideration.
In the result, all the appeals filed by the Revenue are partly allowed for statistical purposes. Order pronounced on the 12th October, 2018 at Chennai.