ITO, WARD-2 vs. RAJENDRA AGARWAL,,

The brief facts of the case are that the assessee was engaged in the business of manufacturing and sale of sweets. During the years under consideration the assessee has constructed a shopping complex comprising ground and first floors. The construction was carried out from the year 1995-96 to 1997-98. The assessee declared investment in construction of the shops on ground floor of Rs.60,06,375/- and in respect of 1st floor of Rs.6,43,125/-. During the course of assessment proceedings for the Assessment Year 1997-98 the AO Page No. 2 referred the valuation of the shopping complex to the Department Valuation Officer (DVO). The AO received the report from the DVO wherein the cost of construction was valued at Rs.20,09,600/- as against the cost of construction declared by the assessee at Rs.13,14,700/-. Since this cost of construction spreading from 1993-94 to 1997-98, therefore on the basis of the DVO report and conclusion for the Assessment Year 1997-98 wherein the AO has made an addition on account of unexplained investment in construction of shopping complex, the AO proceeded to reopen the assessments for the Assessment Year 1993-94 to 1996-97 and proposed to make the respective additions on accounts of unexplained investment in the construction of shopping complex on the similar analogy as made in the Assessment Year 1997-98.

The assessee challenged the action of the AO of making the addition on account of unexplained investment before the learned Commissioner of Income-tax (Appeals). The learned Commissioner of Income-tax (Appeals) granted part relief to the assessee and therefore both the assessee as well as the revenue approached this tribunal. This tribunal while dealing with the matter held that the AO has no jurisdiction to refer the valuation of the construction by exercising the power u/s 131 and 133(6) of the Act as the said recourse of reference to DVO is provided u/s 55A of the Act. Thus the Tribunal held that in view of the ratio laid down in the judgment of the Hon’ble Supreme Court in the Case of Smt. Amiya Bala Paul v CIT (2003) 262 ITR 407 the reference to DVO was bad and consequently granted relief to the assessee. Accordingly, the appeals filed by the revenue were dismissed and appeals filed by the assessee were allowed.

The revenue carried the matter before the Hon’ble High Court. The Hon’ble High Court while deciding the appeal filed by the revenue for the Assessment Year 1995-96 vide order dated 13TH March 2007 has held in Para 8 and 9 as under:- “8. Learned counsel for the department argued that after the insertion of Section 142-A of the Income Tax Act with retrospective effect i.e. from 15.11.1972, which was inserted by Finance Act (No.2) of 2004, the valuation report can be considered and thus, the judgment of Hon’ble Apex Court in Amia Bala’s case (supra) is no longer applicable in view of the changed position of law. In Amia Bala’s case (supra), since the judgment was delivered on July 7, 2003 and Section 142A of the Income Tax Act was applicable with retrospective effect w.e.f 15.11.1972, therefore, now the Page No. 3 position of law has been changed due to amendment by incorporation of said Act. Hence, the judgment passed by the Tribunal is hereby set aside. The question framed is accordingly answered in favour of the Department and against the assessee.”

Thereafter the appeal of the revenue for the Assessment Year 1994-95 was also decided in terms of the earlier order dated 13th March 2007 vide order dated 23.03.2007 as under:- “The dispute in the present case relates to Assessment Year 1994-95, learned counsel for the parties agree that the controversy involved in the present appeal is squarely covered by a judgment rendered by Division Bench of this Court decided on 13.03.2007 in of 2005, Commissioner of Income Tax, Dehradun Vs. Rajendra Agarwal, Hardwar and one another. In view of the above agreement, the appeal is also disposed of in terms of the aforesaid judgment and order. The question framed in the appeal is accordingly answered in favour of the assessee and against the Department.

Subsequently on the application of restoration and miscellaneous application filed by the assessee before the Hon’ble High Court against the earlier orders dated 13.03.2007 dated 23.03.2007, the Hon’ble High Court has again taken up the matter and disposed off the same vide the decision dated 25.04.2012 as under:- “4. The learned counsel lastly contended that the matter is a fit case for remand, in as much as, the Tribunal has not gone into the question, whether, the valuation, as was made, was property made, which was one of the grounds taken in the appeal. We think there is some substance in the said contention and, accordingly, we recall the order and, remit back the matter to the Tribunal for the purpose of consideration of other aspects raised in the appeals by the parties, except the one concluded hereby read with the correct pronouncement made in the recalled order pertaining to the scope, ambit, applicability of section 142A of the Act in relation to the case of the assessee.

As regards the applicability of section 142A is concerned the Hon’ble High Court has reiterated its earlier finding and held that when the appeals against the assessment orders were pending before the appellate authorities then the assessment would be treated as incomplete and attain finality only when the appeals are decided. However, the Hon’ble High Court remanded the matter to this Tribunal for adjudication of the question whether the valuation was made properly or not in Para 4 as under:- “4. The learned counsel lastly contended that the matter is a fit case for remand, in asmuch as, the Tribunal has not gone into the question, Page No. 4 whether, the valuation, as was made, was properly made, which was one of the grounds taken in the appeal. We think there is some substance in the said contention and, accordingly, we recall the order and, remit back the matter to the Tribunal for the purpose of consideration of other aspects raised in the appeals by the parties, except the one concluded hereby read with the correct pronouncement made in the recalled order pertaining to the scope, ambit, applicability of Section 142A of the Act in relation to the case of the assessee.”

Thus in view of the order/ decision dated 25.04.2012 these matters were remanded back to the Tribunal. These appeals by both parties have been listed for hearing and adjudication of the issue which has been remanded back by the Hon’ble High Court. At this stage it is relevant to point out that the proceedings before this Tribunal are confined and limited as circumscribed by the remand order of the Hon’ble High Court and therefore the scope of the hearing and proceedings of these appeals is limited only to the question of whether the valuation made by the DVO is proper or not.

Ld AR of the assessee stated that the assessee has not maintained any books of account either for the business or for construction of shops therefore the action of the AO in applying section 69B of the Act is not correct. In support of this contention he has referred to the order of the learned Commissioner of Income-tax (Appeals) in the case of one Mehta Associates. The ld AR then submitted that the assessee has declared the cost of construction by taking into account PWD rates as well as the rate agreed between the assessee and the contractor who has constructed the shops. He has referred to the agreement for construction of shops entered between the assessee and contractor wherein the rate of construction has been agreed at Rs.165/ sq ft. The ld AR has submitted that the assessee also filed the report of the registered valuer in support of its claim of cost of construction. He has pointed out that the DVO has applied the CPWD rates and also taken into account the constructed area more than what was actually constructed as per the site plan agreed between the parties, therefore the difference between the actual cost of construction and the value estimated by the DVO is because of the CPWD rates adopted by the DVO and further the DVO has not taken into consideration the correct area of construction. He has submitted that the registered valuer has given the correct value on the basis of the PWD rates correct area of construction. He has relied upon the decision dated 26.03.2004 of this tribunal in the case of M/s Hardwar Page No. 5 Land & Financers Vs. ITO, Ward, Hardwar, in &4540/Del/2003 and submitted that for the purpose of computation of valuation of property PWD rates should be adopted as against CPWD rates when the property is situated in the PWD jurisdiction. He has also referred to the DVO valuation and submitted that the DVO computed the same by applying the CPWD rates. Since the assessee has not appointed an architect for the construction work and supervise the work by himself therefore the self supervision charges ought to have been allowed at the rate of 10%. The ld AR has also referred the various payment details whereby the assessee made the payment to the contractor and further the details of the payment made by the contractor for purchase of the material and other expenditure incurred by the contractor. Thus he has submitted that when the assessee has furnished all the details then the actual cost of construction should have been taken into consideration and not the estimate cost of construction. The ld AR relied upon the judgment of Hon’ble Allahabad High Court in the case of CIT Vs. Raj Kumar reported in 82 ITR 436 and submitted that the Hon’ble High Court has accepted the cost of construction at UP-PWD rates and not CPWD rates. He has also relied on the decision of the Hon’ble Rajasthan High Court by in the case of CIT Vs. Hotel Joshi 242 ITR 478 and submitted that a similar view was taken by the Hon’ble Rajasthan High Court by accepting the estimation of the cost of construction by the registered valuation based on PWD rated as against CPWD rates adopted by the DVO. Thus the ld AR has submitted that DVO without examining the actual cost of item wise has merely adopted the CPWD rates and also computed the value by taking incorrect area of construction which is excess then the actual constructed area. The registered the valuer has computed the valuation on the basis of the correct area as well as UP-PWD rates.

On the other hand the ld DR relied upon the orders of the AO and submitted that DVO has given the report by taking into consideration the type of construction and the rates prescribed by the CPWD therefore no fault can be found with the valuation computed by the DVO.

I have considered the rival submission as well as relevant material on record, the cost of construction admitted by the assessee is of Rs.13,14,700/- and the same is spreading to various years whereas the DVO has estimated the cost of construction of the shopping complex of Rs.20,09,600/-. Therefore, the total Page No. 6 difference between the cost declared by the assessee and estimated by the DVO is Rs.6,94,900/-. The AO made the addition of Rs.2,72,690/- for the Assessment Year 1997-98, Rs.15,218/- for the Assessment Year 1996-97, Rs.68329/- in Assessment Year 1995-96, Rs.10,352/- for the Assessment Year 1994-95. There is another addition for the Assessment Year 1993-94, however the said dispute is not before the Tribunal. Though the assessee has placed reliance on the registered valuer’s report wherein the value of construction of the shops has been computed at Rs.6,05,860/- for the grounds floor and Rs.6,52,700/- for the 1st Floor. The registered valuer has adopted the UP-PWD rates for the purpose of the computation of the cost of construction. There is no dispute that when the property exists under the jurisdiction of the UP-PWD then it is appropriate to adopt the rates provided by the UP-PWD. An identical issue came before the Hon’ble High Court in the case of CIT Vs. Raj Kumar (supra) wherein the dispute between the department and the assessee was regarding adoption of the CPWD rates or PWD rates for the purpose of estimating the cost of construction. The Hon’ble High Court upheld the findings of the tribunal while deciding the issue that the cost of construction estimated by the registered valuer computed as per UPPWD rate were justified. Even otherwise the cost of construction depends on the quality of construction, the purpose of structure to be used as well as the other factors such as availability of labour and wages prevailing in particular area/market. A similar view was taken by the Hon’ble High Court in the case of CIT Vs. Hotel Joshi (supra) P483 of 131 paper as under:- “7. In view of the aforesaid, the question whether the valuation made by the Departmental Valuation Officer as per the CPWD rates prescribed in the Board’s Instruction No. 1671 or the valuation made by the Registered Valuer as per the rates provided by the Public Works Department of the State Government should be accepted, does not arise. The Tribunal has arrived at the conclusion that the cost based on itemwise basis is the proper method to work-out the cost. Thus, the question of law sought to be referred does not arise from the order of the Tribunal. Thus, in our opinion, the cost of construction that has been arrived at by the Tribunal, in the instant case, is wholly based on relevant considerations and appraisal of material on record. In our opinion, no statable question of law arises from the order of the Tribunal.”