MILESTONE DEWELLERS PVT. LTD.,JAIPUR vs. ITO WARD 6(2), JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No. 565/JPR/2023 fu/kZkj.k o"kZ@Assessment Year : 2017-18 cuke Milestone Dwellers Pvt. Ltd. ITO, Sb-59, UDB Tower, 3rd Floor, Vs. Ward-6(2), Jaipur. Opp. Jaipur Nagar Nigam, Tonk Road, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAFCM 2150 H vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Manish Agarwal (C.A.) jktLo dh vksj ls@ Revenue by : Shri Arvind Kumar (CIT) a lquokbZ dh rkjh[k@ Date of Hearing : 31/10/2023 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 20/12/2023

vkns'k@ ORDER

PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal is filed by the assessee aggrieved from the order of the National Faceless Appeal Centre, Delhi [Here in after referred as (NFAC)] for the assessment year 2017-18 dated 11.07.2023, which in turn arises from the order passed by the AO, passed under Section 143(3) read with section 144B of the Income tax Act, 1961 (in short 'the Act') dated 22.04.2021.

2 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO

grounds: -

“1. On the facts and in the circumstances of the case and in law, Id.CIT(A) has grossly erred in confirming the action of Id.AO in varying with the valuation of cost of inventory (WIP) as declared by assessee in its books of accounts maintained in the regular course of business and fully supported by bills and vouchers without pointing out any specific discrepancy in the documentary evidences furnished by assessee and also without rejecting the cost of inventory as per books and without rejecting books of accounts, thus the action of Id. CIT(A) deserves to be set aside and cost of construction of closing stock (WIP) as declared by assessee deserves to be accepted.

3 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO

is a body of corporate engaged in the business of construction of

multistoried buildings for residential purpose. The assessee has

4 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO filed its return of income on 30.10.2017 declaring total income of

Rs. 0(Nil). The case was selected for Complete Scrutiny under the

E-assessment Scheme, 2019 on the issues of Income from real

estate business and sales turnover/receipts. Accordingly, notice

u/s 143(2) of the I.T. Act 1961 was issued on 23.09.2019 and later,

notices u/s 142(1) were issued on 17.09.2019 & 19.03.2021 along

with questionnaires.

3.1 During the assessment proceedings the assessee submitted

an explanation and documents in support of its claim in the return

of income. The AO has found that during the F.Y 2016-17, the

assessee was engaged in the project of "ORCHID" which is

situated at Opp. Pink Pearl Water Park, Jaipur Ajmer Expressway.

The valuation date / period of the project is 2016-17. On perusal of

details furnished by the assessee, the AO observed that value of

closing stock of WIP was shown at Rs. 43,60,48,021/-, which

included the cost of construction to the tune of Rs. 4,24,67,277.71

incurred during the year.

3.2 The AO during the pendency of the assessment proceeding

made reference to the Departmental Valuation Officer (DVO) for

estimating the value of WIP declared by the assessee as per

5 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO provision of section 142A of the Act. The ld. DVO estimated value

of WIP at Rs. 55,25,59,500/- including Rs. 5,29,43,600/- pertaining

to year under consideration. During the valuation period, the

assessee submitted Architectural drawings, Year-wise break up of

expenditure, copy of work order, various approvals from

authorities, Photographs and land purchase deed before the DVO.

Accordingly, DVO sent letter to assessee vide dated 15.01.2020 &

02.03.2020 and inspected the property on 24.12.2019 with his

team. Measurements/details were taken and recorded in the

presence of representatives of the assessee.

3.3. The AO found the difference in the value of WIP as per the

valuation report and the value recorded in the books amounting to

Rs. 11,65,11,479/- (Rs.55,25,59,500/- Less- Rs. 43,60,48,021/-).

The ld. AO added back the said difference to total income on

account of unexplained investment of stock and accordingly

assessment u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961

completed on 22.04.2021, wherein the addition of

Rs.11,65,11,479/- made on account of unexplained investment of

stock as per provisions contained in section 69B r.w.s. 115BBE.

6 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO

assessee preferred an appeal before the ld. CIT(A)/NFAC.

Apropos to the grounds so raised the relevant finding of the ld.

CIT(A)/NFAC is reiterated here in below:

“4. Decision: I have carefully considered the facts on record, assessment order, written submissions, Paper Book of the appellant and the case laws cited during appellate proceedings. The ground-wise decisions are as under:- 4.1 Ground No.1, 1.2, 1.3, 2 and 3 relates to difference between cost of construction estimated by DVO and cost of WIP as per the Balance Sheet as on 31.03.2017 and addition of Rs.11,65,11,479/- u/s 69B r.w.s.115BBE of the I.T. Act: In these grounds of appeal, the appellant has challenged the action of the AO in making addition of Rs. 11,65,11,479/- u/s 698 of the Act arbitrarily without affording adequate opportunity to the appellant to present its case. The AO without even going through the details and without considering the fact that the addition made of difference of the total cost of construction (of WIP) as estimated by DVO which was incurred by the appellant's company over the time spam of 10 years i.e. from F.Y 2007-08 to F.Y. 2016-17 i.e. Rs. 55,25,59,500/- and the cost declared by the appellant as on 31.03.2017 at Rs. 43,60,48,021/-.The difference between cost of construction estimated by DVO and cost of WIP as on 31.03.2017 as per the Balance Sheet declared by the appellant instead of making the addition between the cost of construction incurred during the year and corresponding cost estimated by DVO. The AO has ignored the cost of Rs. 5,59,35,530/- was claimed as cost of goods sold up to 31.03.2017 (Rs.1,97,19,870/- up to A.Y.2016-17 and Rs. 3,62,15,660/- in A.Y. 2017- 18) was declared in the Balance Sheet which was reduced by the AO for making addition of the difference in cost of construction estimated by DVO and declared by the appellant. The cost Sheet as submitted during the course of assessment proceedings and also before the DVO. The appellant has also cited in its submission that the department has already issued notice u/s 148 of the Act for A.Y, 2013- 14 to A.Y. 2016-17 on 15.04.2021, wherein reason for reopening the assessment for assessment year is solely on the basis of valuation report of DVO and thus if any addition is required to be made in regard to valuation difference of construction cost (of inventory) would be made in respective previous years. Moreover, the reasons for difference in the valuation by valuation officer vis-a-vis appellant were explained in depth in reply to show cause, which were not considered while completing assessment and simply brushed aside without assigning

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any reason whatsoever and thus addition made is completely arbitrary. The appellant explained in its submission that without rejecting the cost of inventory as per books and without rejecting books of accounts, the AO has made addition of Rs.11,65,11,470/- u/s 608 r.w.s.1158BC of the 1.T. Act, is arbitrary. The AO has made addition equivalent to difference between entire cost of construction (of Inventory) which was incurred from beginning Le. F.Y. 2007-08 till 31.03.2017 Le. Rs.55,25,59,500/- and the entire cost declared by appellant till date, totaling to Rs.43,60,48,021/- in the year under consideration whereas the alleged difference, if any pertained to various earlier years. The AO to make alleged addition, if any, in respect of past many years in the current year itself (when it was clearly mentioned in reply to show cause that cost incurred during the year was only Rs. 4,24,67,2771-) in a casual manner is absolutely against the principle of accountancy and against the settled law. The AO has made addition on account of cost pertaining to preceding years, when notices u/s 148 have already been issued for A.Y. 2013-14 to A.Y. 2016-17 on 15.04.2021, Le. even before concluding present assessment proceedings. In this case, during the course of assessment proceedings, the AO made reference to DVO u/s 142A of the Act for estimating the cost of construction (of Inventory) of appellant company of its project "ORCHID situated at opp. Pink Pearl Water Resort, NH-8, Jaipur Ajmer Expressway, Jaipur. During the course of valuation, appellant company before the DVO has provided all the details related to cost recorded in the books of accounts and also file the copies of the bills, site plans etc. As per report of DVO, the Value of WIP stock is estimated at Rs. 55,25,59,500/- of which Rs. 5,29,43,600/- is shown as incurred during F.Y. 2016-17 against the value declared by appellant of Rs.3,92,69,694/- only (as against Rs.4,24,67,277.71). According to assessment order, the appellant has not properly shown the value of WIP in the books of account. The DVO had determined the fair value of the WIP of the property of the appellant by making appropriate adjustments towards materials cost, labour cost and other cost constituted for WIP. The Valuation Officer estimates the WIP with all the facts while determining the cost of construction. In respect of investment made in property, there can be only two methods to find out the correct position-(1) examination of books of account which have been maintained property and (ii) valuation report. In the instant case, the DVO has given ample opportunity of being heard and considered the documents furnished by the appellant The AO has issued to show cause notice as to why not the value of closing stock as ascertained by the DVO and the appellant responded on 28.03.2021 with the objection of Valuation Report. During the course of appellate proceedings, the submissions made by the appellant has been perused and also the facts associated with the assessment order has been dexterously analysed. The argument-wise discussion is as under:-

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4.1.1 The appellant contended that the AO can't refer the matter to DVO us 142(2A) without rejecting the books of accounts us 1453) of the Act. In support of this argument, the appellant relied on several cash laws. This issue has been examined and it is seen that section 142(2A) of the Act has been amended w.e.f.01.10.2014, which is as under:- Estimation of value of assets by Valuation Officer. 142A. (1) The Assessing Officer may, for the purposes of assessment or reassessment, make a reference to a Valuation Officer to estimate the value including fair market value, of any asset property or investment and submit a copy of report to him. (2) The Assessing Officer may make a reference to the Valuation Officer und sub section (1) whether or not he is satisfied about the comectness or completeness of the accounts of the assessee. (3) The Valuation Officer, on a reference made under sub-section (1) shat, by the purpose of estimating the value of the asset, property or vestment have at the powers that he has under section 38A of the Wealth tax Act, 1987 (27 of 1987) (4) The Valuation Officer shall, estimate the value of the asset propaga investment after taking into account such evidence as the assesse may proto and any other evidence in his possession gathered after giving an opportunity of being heard to the assessee. (5) The Valuation Officer may estimate the value of the asset proper a investment to the best of his judgment, if the assessee does not co- operate or comply with his directions. (6) The Valuation Officer shall send a copy of the report of the estimate made under sub-section (4) or sub-section (5), as the case may be, to the Assessing Offo and the assessee, within a period of six months from the end of the month in which a reference is made under sub- section (1). (7) The Assessing Officer may, on receipt of the report from the Valuation Officer and after giving the assessee an opportunity of being heard, take into account such report in making the assessment or reassessment. Explanation-In this section, "Valuation Officer" has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957). The above Section 142A(2) clearly states that it is not necessary to reject the correctness or completeness of the accounts of the appellant before making reference to the Valuation Officer u/s 142A(1) of the IT. Act 1961. The AO han elaborately dealt this issue at 1 & 2 of the assessment order and it is also found that the case laws cited by the appellant pertains to either prior period of amendment or relates to

9 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO

search assessments. On this issue, the AO has cited a decision of ITAT, Delhi in the case of Westland Buildtech (P) Ltd. Vs ITO [2016] 76 Taxman.com 142 wherein it is held that the Assessing Officer can't make a reference to Vahation Officer under section 142A without rejecting books of account of assessor a period prior to 1-10-2014 and also after considering the decision of the Hon'ble Supreme Court in the case of Sargam Cinema (Supra). However, the appellant didn't controvert the decision of this court by filing any citation directly on amended section 142(2A) of the Act and made repeatedly citation related to prior period of amendment. Thus, the argument of the appellant on this count is not found to be correct. 4.1.2 The appellant contended that the DVO has applied CPWO rate as against State PWD rates as held by the jurisdictional high court in the case of CIT Vs Hotel Joshi (242 ITR 478) wherein it is held that state PWD rate should be applied for determining the cost of construction in the state of Rajasthan. The appellant had furnished state PWD rate dated 26.04.2011 and CPWD rate dated 01.10.2007 and alsoa valuation report dated 5th July, 2023 made by private valuer claiming that it is as per the state PWD rate. This matter has been examined and it is found that the appellant has not correctly interpreted the decision of the Hon'ble Rajasthan High Court because the Hon'ble Court has not answered the question raised Whether, on the facts and in the circumstances of the case, the Tribunal is justified in not upholding the cost of construction as estimated by the DVO at Rs. 19,89,000 which was based on the scientific CPWD rates as against the PWD rats of the State based on order X-3 which is meant for determining the rent of the building". The Hon'ble Court made it's conclusion at last para, which is as under- 7. In view of the aforesaid, the question whether the valuation made by the Department Valuation Officer as per the CPWD related 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 Statement 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." Thus, the appellant has misplaced the citation and therefore, I am not convinced with the argument of the appellant on this count. 4.1.3 The appellant contended that the DVO has wrongly considered the passenger lift expenses of Rs. 1,52,26,808/- separately because it

10 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO

has to be bear by the contractor on turnkey basis. In support of this, a copy of work order is submitted. Perusal of this work order dated 10.08.2011 shows that this work order relates to civil work/construction and description of the work scope is duly mentioned at serial no. 1. This work order says that all civil work shall be done as per the design specification @Rs. 1,100/- per square feet. Nowhere in this work order said that the work scope will include the installation of passenger lifts. In fact, it is clearly mentioned at 7 of terms & conditions that only RCC works are provided for Lifts & Shafts. Also, the appellant furnished copies of invoices of lift in the name of contractor but didn't demonstrate that this work is covered in the work order for civil construction work. Further, the DVO has valued each & every work separately and the appellant didn't demonstrate that cost of installation of passenger lifts are included more than once in the valuation made by DVO. Thus, the appellant failed to support the contention on this count. 4.1.4 The appellant contended that cost of extra items appearing in Annexure-4 to DVO report are included in composite contract. Perusal of Annexure-4 to DVO report, it is revealed that the DVO has made calculation for cost of development of site, which includes levelling, internal roads & paths, street lightings, server, filter & unfiltered water supply, distribution lines, storm water drains, horticulture operations, cost of borings of tubewell & pump house, etc. whereas the work order relates to civil work of the buildings only. Further, the appellant didn't exactly pin-point about mentioning of these works inclusion in work order. Also, the DOV has valued each & every work separately and the appellant didn't demonstrate that cost of these expenses are included more than once in the valuation made by DVO. Thus, the appellant failed to support the contention on this count. 4.1.5 The appellant contended that the similar addition has already been made in the re-assessment order for AY 2013-14 to 2016-17 resulting into double addition. During the assessment proceedings, the appellant furnished copy of notices u/s 148 of the Act for AY 2013-14 to 2016-17 with submission on 01.11.2022 and also stated in submission dated 08.07.2023 that copy of re-assessment orders for these assessment years are attached but no such attachment is made. Therefore, this contention of the appellant is not duly supported by necessary evidences. The appellant had also objected the addition of entire difference in valuation of project in the present year stating that difference in the valuation by DVO should have been added in the respective previous years instead of the present assessment year. This issue has also been examined and it is seen that the reference of valuation was made during the present year and the DVO has made the valuation as on 31.03.2018 i.e. last financial year ending date from the date of inspection and bifurcated the financial year wise fair cost of construction on the basis of declared cost by the appellant in books of account, weighted cost index, etc. This calculation is duly mentioned at Annexure-I of the DVO report and formula for arriving year-wise fair

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cost of construction is duly mentioned in last column of the first row. Thus, it can't be said that the DVO has estimated year-wise fair cost of construction on physical inspection basis of the residential project except the present financial year 2016-17. This is the reason of addition on a/c of entire difference in fair cost of construction and cost declared by the appellant in books of accounts. Also there shall not be any difference/impact on the taxation in the present year or in the preceding years on account of fair cost of construction determined by DVO and adopted by the AO because the rate of taxation is same for companies in the present assessment year as well as preceding years. Thus, this argument of the appellant is not correct and I am not convinced with the submission of the appellant on this count. 4.1.6 The appellant contended that the DVO has estimated the architect & Consultant Fees at Rs. 1,05,24,942/- whereas the appellant had declared fee of Rs. 1,18,25,819/-, which includes Rs. 66,29,970/- on a/c of Architect fees. This issue has again been examined and observed that the appellant is comparing the expenditure claimed in the books vis-à-vis DVO report but it is not shown that the DVO has considered this fees twice in the report. In fact, the appellant mis- understood that the DVO has said that this expenditure was not shown in the books. The DVO has independently valued each of the work done in the properties at the prescribed and approved government rate on 31.03.2017 and thereafter, the AO has adopted this valuation for arriving the difference of amount incurred in the development of the residential project. 4.1.7 The appellant in the submission dated 8th July, 2023 stated that excess addition of Rs. 5,59,35,530/- has been made because the appellant had reduced the WIP value by this amount till 31.03.2017. In support of this argument, the appellant relied on Annexure-A of reply dated 01.11.2022, which is a chart showing details of year-wise project cost from FY 2007-08 to 2017-18. Perusal of this annexure, it is seen that the appellant had reduced the WIP by transferring proportionate cost of units sold during FY 2013-14 to 2016-17 to the profit & loss account whereas the DVO has estimated the fair cost of entire residential project including the sold units. Hence, the appellant's submission on this count is prima facie correct. 4.1.8 The appellant submitted that the DVO has not granted rebate for self- supervision. The appellant claimed that the cost declared by the appellant includes the payments to the engineers and supervisors and therefore, the deduction of at least 10% should be allowed for the self- supervision charges. It is soon that the appellant had given the contract of civil work and also shown expenses on a/c of salary to staff at Rs. 1,66,77,367/-, approval & clearance expenses at Rs. 78,24,789/- and professional consultancy fees at Rs. 1,18,25,819/- whereas the DVO has adopted architect & consultancy fees at Rs. 1,05,24,942/- and builder's efforts, approval & legal expenses at Rs. 1,57,87,413/-. This

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shows that the DVO has adopted reasonable cost, which is lower than the expenses claimed by the appellant in books of accounts. Also, the appellant itself has admitted that the cost of project includes payment to engineers and supervisors (refer point no. 7 at page no. 8 of rely dated 31.08.2022. Also, the appellant company didn't furnished any evidence to show that the directors of the company was qualified and devoted time for supervision of work of this project, which reduces the cost of supervisors or engineers. Thus, I don't find any merit in the submission of the appellant that the self- supervision charges should be reduced from the valuation of DVO. 4.1.9 The appellant lastly submitted that the AO has not considered the corresponding increase in the closing value of WIP for addition on a/c of difference of valuation by DVO and value declared in books. Perusal of assessment order reveals that the AO had referred the property for valuation by DVO and found that the appellant didn't fully disclosed the investment on residential project in the books of account and made the addition u/s 698 of the Act. Also, the appellant didn't able to show during the assessment as well as appellate proceedings that these investment were made out of the business income. Since the source of investment in the residential project was not fully disclosed in the books of account, the benefit of the resultant addition can't granted by corresponding increase in stock/WIP. Thus, this argument of the appellant is also rejected. Conclusion: In short, the valuation was referred by AO during the assessment proceedings for F.Y. 2016-17 for value the residential project as on 31.03.2017 u/s 142(2A) of the Act and the DVO has valued the stock at 55,25,59,500/- against the declared value of Rs. 43,60,48,021/-, The DVO has also made special observation at Sl. No. 9 of the report. In this regard, it is an undisputed fact that the opportunity by the DVO was granted dated 18.10.2018 as per the provision of 142A(4) and the DVO along with three other junior engineers made physical inspection on 24.12.2019 in the presence of representatives of the appellant. On receipt of DVO report, the AO had also given a show cause notice on 19.03.2021 asking the appellant to submit on the valuation determined by the DVO. From the DVO report, it is observed that the DVO determined the fair cost of construction at Rs. 55,25,59,500/- at the end of the FY 2018-19 and Rs. 53,55,87,600/- at the end of the FY 2017-18 after considering floor-wise civil work, cost of development of site, club & sports room, compound wall, etc. Further, the DVO has also considered the cost index of plinth area rate. This shows that the DVO has taken care of all the material facts before arriving at the cost of the residential project. Further, the AO adopted the valuation of the DVO in the assessment order as per the provision of section 142A(7) of the I.T. Act. Thus, I am not convinced with the arguments of the appellant except on factual issue about deduction of cost of goods sold to the tune of Rs. 5,59,35,350/- from the valuation of the DVO. In this regard, it is seen that the cost of unit sold to the tune of

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Rs. 5,59,35,350/- have been reduced from the value of WIP shown in the books of accounts whereas the DVO has estimated the cost of entire project and the AO has adopted the valuation of the DVO without considering the deduction for cost of goods sold. Hence, the appellant's submission on this count is prima facie found to be correct. Accordingly, it is directed that the appellant shall furnish all the relevant details along with Annexure-A to E of reply dated 01.11.2022 before the AO at the time of giving appeal effect to this order and the AO shall verify this factual aspect and grant relief to the appellant. Thus, these grounds are partly allowed. 4.2 Ground No.1.1 relates to given two days' notice period after issuing Draft Assessment order (issued on 19.04.2021 and date of hearing fixed on 21.04.2021):In this ground of appeal, during the course of assessment proceedings a draft assessment order was issued on 19.04.2021 to the appellant and date of hearing was fixed on 21.04.2021. The appellant has contended in its submission that both the dates falling during lockdown period and it was neither possible for appellant nor for its counsel to furnish its response at the given time frame of mere 2 days more particularly when the director of the appellant's company and its counsel were suffering from COVID and the same fact was also intimated to the AO. The AO without affording adequate opportunity of being heard is against the principles of natural justice and renders entire proceedings bad in law. The appellant has stated that adequate opportunity has not been granted by the AO during assessment proceedings even though it was intimated to the AO that director of the company and it's counsel were suffering from COVID. However, the appellant didn't furnished any medical prescription or communication before the AO in support of it's contention. This shows that the submission on this count is general in nature. Further, I find from the assessment order that sufficient opportunity of being heard was provided by notices u/s 143(2)/142(1) of the Act and show cause notice dated 19.03.2021 was issued asking to explain why the valuation of DVO should not be adopted and the appellant responded to this show cause notice on 26.03.2021. Thus, I find that a specific show cause notice on the issue was issued and the appellant made submission on this count before the AO and the AO after considering this submission passed the assessment order after following the procedure of issuing draft assessment order before passing the final assessment order. There is no specific period mentioned in the I.T. Act for providing reply to the Draft Assessment Order. Hence, I am convinced that the AO had granted sufficient opportunity of being heard and there in no violation of natural justice. Hence, this ground of appeal is dismissed. 4.3 Ground No.4 relates to invoking the provisions of section115BBE of the Income Tax Act, 1961:

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In this ground of appeal, the appellant has challenged the action of the AO of invoking the provisions of section 115BBE of the Act. The AO has invoked the provisions of section 115BBE of the Act for the purpose of taxing the unexplained stock on account of difference arise due to valuation of WIP of Rs. 11,68,11,479/- u/s 698 of the Act to the returned income of the appellant and thereby taxed such alleged additions @30%. The AO made the addition of difference in valuation of cost of construction (of Inventory) by solely relying on the valuation as done by the DVO without considering the fact that the actual cost of construction and relevant bills and vouchers for each expenditure incurred. In the instant case, the addition is made on a/c of unexplained investment of stock, which is covered u/s 69B of the Act and section 115BBE applies in the case where total income includes income on a/c of unexplained investment of stock u/s 69B of the Act. Thus, the A.O. has correctly applied the difference in the value of WIP as per the valuation report and the value recorded in the books amounting to Rs. 11,65,11,479/- on addition on a/c of unexplained investment of stock. Accordingly. this ground of appeal is dismissed. 4.4 Ground No. 5 relates to initiating penalty proceedings u/s 271AAC of the I.T. Act, 1961:In this ground of appeal, the appellant has challenged the initiation of penalty proceedings u/s 271AAC of the Income Tax Act 1961 but no appeal lies against initiation of penalty proceedings. Thus, this ground of appeal is dismissed. 4.5 Ground No.6 relates to general in nature and hence, doesn't require any adjudication. 5. In the result, the appeal of the appellant is partly allowed.”

CIT(A) and the relief was not considered in full the assessee

prefers the present appeal on the various grounds as reproduced

herein above. The ld. AR appearing on behalf of the assessee has

placed his written submission on record in support of the various

grounds so raised. The written submission is reiterated here in

below:-

15 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO

“Brief facts of the case are that assessee is a private limited company engaged in the construction of multistoried buildings for residential purposes and has carried out construction and development of its maiden project in the name of “Orchid” situated at Opp. Pink Pearl Water Park, Jaipur Ajmer Expressway, Jaipur. The case for the year under consideration was selected for regular scrutiny and during the course of assessment proceedings, details in respect of cost incurred in construction of project “Orchid”right from the Work Orderto bills issued by Contractors, ledger accounts of contractors, bills as well as ledger of material purchased were sought from assessee company which were duly provided (APB 72-95).

Ld.AOwithout even going through these details and without appreciating the fact that the same constitute “Closing Stock” had made a reference to the District Valuation Officer (DVO) for estimating the cost of construction shown as WIP by the assessee in its final accounts. At this stage it is relevant to state that any change in the value of the closing stock of WIP would be revenue neutral exercise as necessary change in the value of opening stock of WIP has to be allowed in the subsequent year. The DVO has estimated the cost of construction upto 31.03.2018 at Rs. 55,25,59,500/-which includesRs.5,29,43,600/- as cost incurred during the year under appeal(APB 44-71) and the samewas confronted to the assessee (APB 34-36). In reply assessee vide letter dt. 19.03.2021 raised various objections (APB 37-43)which were not considered by Ld. AO and made the addition of the Rs. 11,65,11,479/- u/s 69B as unexplained investment in stock being the difference between the cost of the WIP as estimated by ld. DVO and as declared by the assessee as on the end of the previous year by grossly ignoring that such cost was not incurred fully in the previous year but the construction work was carried out for almost past more than 10 years.

Against such order an appeal was filed before the ld. CIT(A), NFAC who after providing various hearings including Video Conferencing during the course of appellate proceedings, confirmed the action of ld.AO of referring the matter to DVO and further upheld the additions so made. While doing so ld.CIT(A) NFAC though has accepted the contention of the assessee that the cost of goods sold pertaining to the material sold in preceding assessment years to the tune of Rs. 5,59,35,350/- is to be added to the closing WIP shown as at 31.03.2017 however, sent the matter to the file of ld.AO for making verification of the same.

Aggrieved of the order of ld.CIT(A) NFAC, assessee has preferred present appeal before the hon’ble bench.

Since the ld.AO on the direction of ld. CIT(A) NFAC has verified and allowed the deduction of cost of goods sold in preceding years from the

16 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO

total addition made, thus the ground of appeal No. 8 taken against such observations of ld. CIT(A) NFAC is not pressed. The submission on the remaining grounds of appeal taken in appeal memo filed in Form 36 before the hon’ble bench is made as under:

Grounds of Appeal No. 1 to 7: Since all these grounds of appeal related to the action of ld. CIT(A) in confirming the addition made by ld.AO based on the DVO’s report on account of variation in valuation of cost of construction (of Inventory) arbitrarily without considering the submission made and evidence adduced before him, thus the same are canvassed together for sake of convenience.

Brief facts of these grounds of appeal are that during the course of assessment proceedings, ld. AO made reference toDVO u/s 142A of the Act for estimating the cost of construction (of Inventory) of assessee company of its ongoing project “ORCHID” situated at opp. Pink Pearl Water Resort, NH-8, Jaipur Ajmer Expressway, Jaipur. During the course of proceedings before the DVO, assessee companyhas provided all the details related to cost recorded in the books of accounts and also filed the copies of the bills, site plans etc. Thereafter, ld. DVOvide its report (APB 44-71)estimated the total cost of construction for the period from FY 2007-08 to 2017-18 atRs.55,25,59,500/-which includes Rs.5,29,43,600/- as estimated cost for the year under appeal (APB 49). Such report was supplied to the assessee vide notice u/s 142(1) dt. 19.03.2021 (APB 34-37) where the assessee company was asked to furnish explanationas to why not the value of closing stock as ascertained by ld. DVO be adopted as against the value declared by the assessee. In reply,assessee company vide letter dated 26.03.2021 (APB 37-42) strongly objected to the Valuation report of ld. DVO by pointing out that the ld. DVO has failed to consider various Bills and agreements entered by assessee company while estimating the value of WIP. It was further contended that in the said report cost declared by the assessee for year under appeal is taken at Rs. 3,92,69,694/- as against Rs. 4,24,67,277/- as recorded in the books of accounts. Further assessee strongly objected to the application of CPWD rates as against the State PWD rate for estimating the cost of construction. Ld. AO, without considering the objections so taken by the assessee,concluded the proceedings by solely relying upon the ld. DVO report without providing any reason for rejecting claims of assessee company and made the addition of Rs. 11,65,11,479/- being the difference between cost of construction estimated by DVO and the WIP as per books of accounts as on 31.3.2017, out of which as submitted above, ld. CIT(A)NFAC has directed the ld.AO to make verification of claim of the assessee of cost of goods sold in preceding years and not forming part of the WIP as on 31.3.2017 and to allow the same if the contention of the assessee is correct. Following such directions, ld. AO made verification of the facts

17 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO

and allowed the cost of Rs. 5,59,35,350/- and thus the addition originally made at Rs. 11,65,11,479/- is reduced to Rs. 6,05,76,129/- (11,65,11,479 – 5,59,35,350) against which these grounds are taken by the assessee.

In this regard,at the outset, it is submitted that case of assessee companyhas regularly been selected for scrutiny and the assessments were completed for preceding years where major cost was incurred and accepted and no doubts were raised by any of the assessing officer. For the first time in the year under consideration, the ld. AO has doubted the cost incurred during the year and referred the same to DVO for determination of the cost incurred during the year under consideration and not entire cost of project which has been incurred since beginning of the project. It is also relevant to state that the assessment for AY 2014-15 was completed u/s 143(3) where after applying the percentage completion method, cost of construction as declared by assessee was allowed and addition was made towards the profits (APB 96-117).

It is submitted that the cost as declared by the assessee is based on the books of account maintained by the assessee in the regular course of business on day to day basis and fully supported by the respective bills and vouchers. Further the payments for the expenditure incurred towards the construction have been made through payees account cheque. As submitted above, assessee has furnished all the documentary evidences in the shape of Work Order (APB 72-73), Ledger copies of contractors(APB 81-95), bills of materials and ledger copies (APB 72-73) thereof in respect of value of stock declared and also find mention in the valuation report (APB 75-80). The valuation done by the ld. DVO is based on the estimations though made after the physical inspection but still it is the estimation and cannot prevail over the real time expenditure incurred and recorded in the books of accounts by the assessee. One more peculiar fact as submitted above, is that the assessee has appointed one single contractor who constructed the building on turnkey basis which is evident from the copy of agreement submitted before the DVO. Thus there is no occasion for the ld. DVO for making estimation the cost of each individual item separately (APB 72-73). Thus when the cost of construction as declared by the assessee duly supported by respective bills and vouchers which were neither doubted by the ld.AO nor any defects in the same were pointed out by the ld. AO or DVO, cost declared by assessee should be accepted and the action of the ld. CIT(A) NFAC in confirming the addition being the difference between the cost estimated by DVO and as declared by assessee deserves to be deleted.

It is further submitted thatld. AO acted in whims and fancy manner by arbitrarily rejecting objections raised by assessee company with regard

18 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO

to defects in valuation report of ld. DVO. It is submitted that assessee had furnished details related to actual expenses incurred, direct as well as indirect to the DVO.However, the DVO, without giving any reasons as to why the copies of the bills and agreements with various agencies like civil contractor etc. are not acceptable, has estimated the cost of construction. It is a matter of fact that assessee company is a builder whose main activity is of constructing building and then sell it and but the DVO has not allowed any rebate for self-supervision and for self- procurement of material. While doing so, the DVO has ignored the vital fact that assessee is a builder and having its own staff including civil engineers and site supervisors who on day to day basis look after the progress of the project and the cost incurred on the payment of their salary is part of the total construction cost declared by the assessee. Further, directors of the assessee firm are the qualified engineers and one of them having experience of more than 40 years of working with State Government. Besides this one major objection was taken for applying CPWD rates as against state PWD rates. It is relevant to state that hon’ble Supreme Court and Hon’ble Jurisdictional High Court in numerous cases has held that state PWD rate is to applied instead of CPWD rate for estimating the cost of construction as the state PWD rates are fixed after considering the local factors. Normally the difference between the state PWD rates and CPWD rates is ranging between 20-25%. Further the deduction of at least 10% should be allowed for the self supervision charges.

During the course of appellate proceedings ld.CIT(A) NFAC has allowed the video conferencing and has directed the assessee to file the comparison between the CPWD and state PWD rates. In compliance, assessee has obtained a report from an approved valuer who estimated the cost of construction at Rs. 41,63,27,589/- (APB 21- 227) which is close to the cost declared by the assessee. Further CPWD rates (APB 231-273)and state PWD rates (APB 274-281) were also submitted. Besides this as directed by ld.CIT(A) NFAC, a certificate of approved valuer regarding comparison between CPWD rates and state PWD rates was also filed (APB 228-230) however, ld.CIT(A) NFAC without appreciating the same has summarily rejected the same by observing in para 4.1.2 at page 23 of the order that the state PWD rates are meant for determining the rent of building. In this regard attention of the hon’ble bench is invited to the State PWD rates at paper book page 275 where it is categorically mentioned that “these rules are meant for use by the PWD, Rajasthan” thus these rates are though can be used for determining the rent but is taken from the PWD, Rajasthan and therefore cannot be ignored by making such a vague remark.

Regarding the contention of the assessee that state PWD rates to be applied instead of CPWD rates, ld. CIT(A) NFAC, has rejected the submission of the assessee where the reliance is placed on the

19 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO

decision of hon’ble Rajasthan high court in the case of Hotel Joshi (242 ITR 478) by observing that the said case was wrongly interpreted. In that case hon’ble ITAT has held that though state PWD rates should be given preference over the CPWD rates but since the assessee is having item-wise cost thus the same should be taken as basis for valuation which observations were upheld by hon’ble court. In our case also, each individual item-wise details were available with the assessee which stood filed before the ld. DVO.Therefore the ratio laid down in the case of Hotel Joshi rather support the case of the assessee.

For application of state PWD rates instead of CPWD rates and further deduction for self supervision, reliance is placed on the following judicial pronouncements where it is held that a deduction of at least 20% should be given to reach the state PWD rates from the valuation done on the basis of CPWD rates.

393 ITR 121 (SC) CIT Vs. Sunita Mansingha 3. However, in view of the finding recorded by the Tribunal that the local Public Works Department rates are to be applied and adopted in place of Central Public Works Department rates, we do not find any good ground to interfere in the impugned judgment on this issue on merits. The appeal fails and is dismissed.

296 ITR 508 (Raj) CIT Vs. Smt. PremKumariMurdia 2. In the case of the respondent-assessee, the AO had made additions as income from undisclosed sources for asstt. yr. 1995- 96, on the basis of difference in the cost declared by the assessee and cost determined by DVO on CPWD rates. On appeal, the CIT(A) has held that in the facts of the case, the appropriate rate to be taken into consideration would have been PWD rates. Keeping in view the aforesaid, a deduction of 20 per cent was allowed from the cost of construction estimated by the Valuation Officer in order to arrive at a reasonable estimate of cost of construction for the relevant assessment year and sustained the balance of addition on that basis. On further appeal, the Tribunal by order under appeal has upheld the order of the CIT(A) by following a Bench decision of this Court in CIT v. Dinesh Talwar , the facts of which case were almost the similar.

20 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO

Ravi Mathur& Others Vs. ACIT 22 Tax World 245 (ITAT, Jaipur Bench) Whether cost of construction should be determined on local PWD rates ? – Held yes. Further held that CPWD valuation should be scaled down by 20%. Also held that in facts of the case, 12% self supervision allowance would be justifiable.

188 Taxman 39 CIT Vs. Aar Pee Apartments (P) Ltd. (Delhi) Assessment – Estimate by valuation officer in certain cases – Assessment year 1998-99 – Whether powers under section 142A extend to estimating amount of unexplained expenditure referred to in section 69C – Held, no – Whether, therefore, Assessing Officer was not justified in exercising powers under section 142A for purpose of getting himself satisfied about cost of construction claimed by assessee as revenue expenditure – Held, yes. Soma Block Prints Pvt. Ltd. Vs. ITO ITA No. 528/JP/2019 (ITAT, Jaipur bench) 14. We have heard the rival contentions and perused the material available on record. Regarding adoption of PWD rates as against CPWD rates, we agree with the contention advanced by the ld AR that where the factory building is situated within the jurisdiction of state PWD, State PWD rates should be applied for estimation of cost of constructionof the factory building and not CPWD rates. The same is the consistent position taken by this Bench and other Jaipur Benches following the decision of Hon'ble Supreme Court in the case of CIT Vs. SunitaMansingha (supra). Further, it is noted that the assessee during the course of assessment proceedings has raised similar objections regarding adoption of CPWD rates and submitted a report of registered valuer M/s V.G. Architects and Engineers dated 28.11.2015 who have estimated the cost of construction by applying PWD rates at Rs.1,10,53,509/- as against Rs 2,09,16,010/- determined by the DVO. Therefore, we direct the AO to adopt the value of Rs.1,10,53,509/- as determined by the registered valuer as relevant for the year under consideration.

Sandeep LoombaVs. ACIT 26 TW 288

In view of above, it is submitted that if the deduction of 20% on account of difference between CPWD rates and State PWD rates and further deduction for self-supervision is given out of the cost estimated by DVO at Rs. 55,25,59,500/-, the resultant value of cost of construction would be less than the cost declared by the assessee in its books of accounts. Therefore, considering these decisions, it is submitted that noaddition is called for in the instant case of assessee.

21 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO

Without prejudice to above, it is also submitted that the DVO without assigning any reasons has reduced the cost declared by the assessee in Annexure-1, to compute the weighted cost index which is also an arbitrary act. Assessee has declared total cost of RS. 4,24,67,277.71 as incurred during the year under appeal (APB 43) as against which the DVO has taken the cost at Rs. 3,92,69,694/- for which no reason is stated (APB 49). It is also relevant to state that by taking same cost, the cost of goods sold during the year was claimed at Rs. 3,62,15,660.71 which is not disputed by the ld.AO (APB 43). Thus the ld.CIT(A) has grossly erred in confirming the action of ld. AO in makingadjustments in the value of the cost of construction declared by the assessee which is duly supported by the respective bills and vouchers.

In view of above facts it is submitted that ld. AO made the addition of difference in valuation of cost of construction (of Inventory) by solely relying on the valuation as done by the DVO without considering the fact that the actual cost of construction as declared by the assessee being supported by the relevant bills and vouchers for each expenditure incurred thus addition made without bringing any contrary evidences on records is against the law and deserves to be deleted.

Without prejudice to above, it is further submitted that addition of Rs. 11,65,11,479/- was made being the difference between the total cost of construction estimated by DVO and the total cost declared by the assessee. It is once again reiterated that while making the addition, the ld. AO has made an error of making addition of difference between the total cost of construction estimated by DVO and as declared by assessee in the year under appeal though the construction work was spread over for 10 years and carried on from F.Y. 2007-08 till 2018-19 and therefore the addition of the alleged entire difference in the cost of construction, spread over 10 years, being done in one year is totally unjustified and deserves to be deleted.

This contention of the assessee was rejected by ld.CIT(A) NFAC by observing that the AO has made the reference to DVO for determining the cost of construction as on 31.3.2018 and the DVO also made the valuation as on 31.3.2018 thus the entire difference should be added in this year only. Ld. CIT(A) further observed that since the rate of tax was same in all these years thus it will make no difference.

In this regard kind attention of the hon’ble bench is invited to the fact that the assessments for AY 2013-14 to 2016-17 were re-opened u/s 148 and the assessments stood completed by making addition of the amount of difference between the cost of construction estimated by DVO and as declared by assessee for respective assessment year, copy of the said order were also submitted to the ld. CIT(A) NFAC who

22 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO

ignored the same thus such action of ld.CIT(A) resulted into double taxation of an income.

It is further submitted that in case valuation of WIP as per ld. DVO report is to be considered than it would be considered as Closing WIP of assessee company as on 31.03.2017 and would constitute Opening Stock for the subsequent year and therefore enhancement in Valuation would eventually be a Revenue Neutral exercise. In fact, no useful purpose would be served by under valuing stock in the year as assessee would be able to claim cost to that extent only in the year when Units in Project are sold and Revenue is generated. In this regard, reliance is placed on decision of Hon’ble Apex Court in the case of CIT vs Alfa Laval (India) Ltd. (2007) reported in 295 ITR 451 (SC), wherein it is held as under: “…..that the duly certified auditor's report placed before the Assessing Officer clearly justified valuation of obsolete items at 10 per cent of cost. There was no dispute that the assessee is entitled to value the closing stock at market value or art cost whichever is lower. It was also not in dispute that the value of the closing stock had been taken as the value of the opening stock in the subsequent year. Moreover, it was also not disputed that the obsolete items were in fact sold in the subsequent year at a price less than 10 per cent of the cost. In the absence of any basis for valuing the obsolete items at 50 per cent of the cost, the Tribunal could not have upheld the findings of the Assessing Officer.

State Bank of Travancore Vs. CIT 158 ITR 102 (SC) There can be no dispute with regard to the principle that if the stock in trade remained unserved or unsold, the mere book appreciation in value thereof cannot be brought to tax.

Chainrup Sampatram Vs CIT [1953] 24 ITR 481 (SC) Though loss due to a fall in price below cost is allowed even if such loss has not been actually realized, no question of charging the appreciated value of closing stock as ‘notional profits’ can arise. It is a misconception to think that any profit ‘arises out of the valuation of closing stock’ and the situs of its arising or accrual is where the valuation is made.

Kamalam Handlooms (P) Ltd.vs ACIT Banglore ITAT (ITA No. 1034 & 1056/Bang/ 2014) In this case, Hon’ble members confirmed the order passed by ld.CIT(A), who had deleted the addition on account of undervaluation stock by relying upon decision of Hon’ble SC in the case of Behari Investment (2008) 299 ITR 1 (SC) which holds that Closing Stock is correctly valued and undervaluation if any, will be tax neutral.

23 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO

In the circumstances it is submitted that the cost of construction declared by the assessee should be considered as correct more particularly when the same was accepted in earlier years by the department itself in the orders passed u/s 143(3), thus the principle of consistency has to be followed.

This contention was rejected by ld. CIT(A) NFAC by holding that the same was made out of undisclosed source without bringing on record any such source on record.

In view of the facts as narrated above, following relief is prayed before the hon’blebench : 1. The cost of construction declared by the assessee is duly recorded in the books of accounts maintained in the regular course and supported by the relevant bills and vouchers thus actual cost incurred should be given priority over estimation and estimation should be done only for the items for which no specific cost was provided ;

Grounds of Appeal No. 9:

24 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO

In this ground of appeal the assessee has challenged the action of the ld. CIT(A) NFAC in confirming the application of provisions of section 115BBE of the Act, for determining the tax payable by the Appellant on the arbitrary.

Brief facts leading to this ground of appeal are that ld. AO has invoked the provisions of section 115BBE of the Act for the purpose of taxing the unexplained stock on account of difference due to valuation of WIP of Rs.11,68,11,479/-u/s 69B of the Act to the returned income of the appellant, and thereby taxed such alleged additions @ 30%.

At the outset it is submitted that invocation of the provisions of section 115BBE in the appellant’s case is bad in law, and therefore the ld. AO’s observation is this regard needs to be ignored. “Tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D. 115BBE. [(1) Where the total income of an assessee,— (a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or (b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a),

the income-tax payable shall be the aggregate of— (i) the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent; and (i) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).] (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) [and clause (b)] of sub-section (1).”

It is relevant to state that from the plain reading of section 115BBE, it is evident that the provisions of this section are applicable only to incomes referred to in section 68, 69, 69A, 69B, 69C or 69D. The presumed income itself fails to fall under the relevant sections as prescribed by the Act (i.e. section 68, 69, 69A, 69B, 69C or 69D), It is reiterated that ld. AO made the addition of difference in valuation of cost of construction (of Inventory) by solely relying on the valuation as done by the DVO without considering the fact that the actual cost of construction as declared by the assessee being supported by the relevant bills and vouchers for each expenditure incurred. Since assessee already supported its claim with documentary evidences

25 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO which were neither refuted by ld. AO nor any evidence were brought on record which proof otherwise. Thus there is no question of investment in stock of being unexplained investment u/s 69B of the Act and therefore consequently the action of ld. AO in applying provisions of section115BBE is totally misplaced and deserve to be deleted.”

5.1 The ld. AR of the assessee to drive home to the contentions

so raised has also relied upon the following decisions:-

• CIT vs. Sunita Mansingha 393 ITR 121 (SC) • CIT vs. Alfa Laval (India) Ltd. (2007) 295 ITR 451 (SC). • CIT vs. Smt. Prem Kumari Murdia 296 ITR 508 (Raj. H.C.). • Ravi Mathur & Others vs. ACIT 22 Tax World 245 ( Jaipur Trib.) • Soma Block Prints Pvt. Ltd. vs. ITO in ITA No. 528/JP/2019 dated5.06.2021.

5.2 The ld. AR of the assessee submitted that the DVO has

adopted the CPWD rates instead of PWD rates. To drive home to

this contention the ld. AR of the assessee relied upon the decision

of the jurisdictional high court decision in the case of Hotel Joshi [

242 ITR 478 ] he also relied upon the decision of the apex court in

the case of CIT Vs. Sunita Mansingha [ 393 ITR 121] and various

others as cited in the written submission. The ld. AR of the

assessee also submitted that the addition is made ignoring the

itemwise cost supported by bills and vouchers and merely the

valuation done by the DVO is adopted is against the various

decision relied upon. He also submitted that the plea taken for

26 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO considering the appropriate deduction for self-supervision is not

considered. He also submitted that the ld. AO made the addition in

the year under appeal though the construction work spread over 10

years and caried on from financial year 2007-08 till 2018-19 and

thus the addition of the alleged difference in one year is totally

unjustified. He further submitted that the assessment for A.Y. 2013-

14 to 2016-17 were re-opened u/s. 148 and the assessment stood

completed by making the addition of the amount of difference

between the cost of constructed estimated by the DVO and as

declared by the assessee for the respective assessment year and

to that extent it is double addition and this aspect of the matter is

ignored by the ld. CIT(A). The ld. AR also argued that the if the

difference if any exists after taking the deduction of self supervision

and PWD rates the same be considered as closing WIP of the

assessee for year wise and the same be considered as the

opening stock for the subsequent year. To support this view he

relied upon the finding of the apex court in the case of Alfa Laval (I)

Ltd., [ 295 ITR 451 ]. The ld. AR of the assessee thus prayed to

consider all these aspect of the case while considering the various

grounds raised by the assessee.

27 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO supported the written subalso argued that the action of the lower

authority.

and submitted that the ld. CIT(A) has already based on the facts

and submission of the assessee granted the relief to the assessee.

As regards the rate of applying the PWD rate he supported the

finding recorded by the ld. CIT(A) in para 4.1.2 and submitted that

the issue is also dealt with by the ld. CIT(A). As regards the other

contention of the assessee for self supervision and other charges

the assessee is not placed on record any proof in this regard and

therefore, he supported the finding of the ld. CIT(A) on these

aspects of the matter. As regards the reduction of the addition to

the extent of the stock already sold, relief has already been granted

to the assessee.

placed on record and gone through the judicial precedent cited by

both the parties to drive home to their respective contentions. All

the grounds raised are interconnected and are related to the cost of

the project of the assessee named “Orchid”. Thus, the issue raised

for consideration is whether based on the facts and circumstances

28 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO of the case the rates for estimation of the cost be considered as

declared by the CPWD or PWD? Whether the assessee is eligible

to have any deduction for self-supervision of the project? These

aspects of the matter will have a bearing on the other grounds

raised. Thus, we are deciding these two issues first.

7.1 The fact as emerges from the records is that the case of the

assessee selected for complete scrutiny under the E-assessment

Scheme, 2019 on the issue of 1) Income from Real estate business

and 2) Sales turnover/ receipts. As the assessee has carried out

construction and development activity of its project named “Orchid”,

which is a project for multistoried building for residential purpose.

The ld. AO based on the provision of sub section (2) of

Section142A of the Act which was substituted vide Finance Act

(No.2) 2014 w.e.f. 01.10.2014 referred the matter to the DVO to

estimate cost of investment in construction project of the assessee.

7.2 The ld. DVO determined the fair value of the WIP of the

property of the assessee by making appropriate adjustments

towards the material cost, labour cost and other costs which form

part of WIP. The ld. AO also noted that the assessee furnished all

the details to the departmental valuation officer who has after

29 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO considering the submission and the inspection of the site of the

assessee determined the valuation and estimated the cost of

construction. The departmental valuation officer has also given

sufficient time and an opportunity of being heard. Based on the

details the valuation was done. Hence, the grievance of the

assessee was not considered by the ld. AO. He further noted that

the points raised by the assessee is to be considered by the

valuation officer and so far as the value determined by the DVO is

binding in nature to the ld. AO as per provision of section 142A of

the Act and therefore, ld.AO has not considered the contention

raised by the assessee.

7.3 As per the report of valuation, WIP stock is estimated at Rs.

55,25,59,500/- of which Rs. 5,29,43,600/- is shown as incurred

during the financial year 2016-17 but the assessee shown the

value of WIP in the balance sheet at Rs. 43,60,48,021/- which

included the cost of construction of Rs. 4,24,67,277.71 incurred

and recorded in the books of accounts of the assessee company

for the year under consideration. Based on these set of facts, the

ld. AO stated that that the assessee has not properly shown the

value of WIP in the books of account. Therefore, the difference in

the value of WIP as per the valuation report and the value recorded

30 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO in the books of accounts amounting to Rs. 11,65,11,479/- [

55,25,59,500/- (DVO value ) less Rs. 43,60,48,021/- (amount

recorded in the books) ] added to the income of the assessee as

unexplained investment of stock as per provision of section 69B

r.w.s. 115BBE.

7.4 The assessee challenged the action of the assessing officer

making addition of Rs. 11,65,11,479/- [ 55,25,59,500/- (DVO value

) less Rs. 43,60,48,021/- (amount recorded in the books) ]. The ld.

CIT(A) considering the factual aspect of the matter and considered

that the cost of unit sold to the tune of Rs. 5,59,35,350/- have been

reduced from the value of WIP shown in the books of account

whereas the DVO has estimated the cost of entire project. The ld.

AO adopted the DVO valuation without considering the deduction

for cost of goods sold. Therefore, to that extent the assessee got

relief from the ld. CIT(A) and for the balance amount sustained. In

respect of the addition sustained the assessee submitted that the

ld. CIT(A) has not considered the plea of the assessee that the

DVO has taken the CPWD rates instead of the plea of the

assessee to take the PWD rates.

31 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO 7.5 The bench noted that the assessee during the course of

proceedings before the DVO, provided all the details related to cost

recorded in the books of accounts and also filed the copies of the

bills, site plans etc. Thereafter, ld. DVO vide its report (APB 44-71)

estimated the total cost of construction for the period from FY

2007-08 to 2017-18 at Rs.55,25,59,500/-which includes

Rs.5,29,43,600/- as estimated cost for the year under appeal (APB

49). Such report was supplied to the assessee vide notice u/s

142(1) dt. 19.03.2021 (APB 34-37) where the assessee company

was asked to furnish explanation as to why not the value of closing

stock as ascertained by ld. DVO be adopted as against the value

declared by the assessee. In reply, assessee company vide letter

dated 26.03.2021 (APB 37-42) strongly objected to the Valuation

report of ld. DVO by pointing out that the ld. DVO has failed to

consider various Bills and agreements entered by assessee

company while estimating the value of WIP. It was further

contended that in the said report cost declared by the assessee for

year under appeal is taken at Rs. 3,92,69,694/- as against Rs.

4,24,67,277/- as recorded in the books of accounts. Further

assessee strongly objected to the application of CPWD rates as

against the State PWD rate for estimating the cost of construction.

32 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO Ld. AO, without considering the objections so taken by the

assessee, concluded the proceedings by solely relying upon the ld.

DVO report without providing any reasons for rejecting claims of

assessee company for taking the PWD rates and deduction for

self-supervision and made the addition of Rs. 11,65,11,479/- being

the difference between cost of construction estimated by DVO and

the WIP as per books of accounts as on 31.3.2017, out of which as

submitted above, ld. CIT(A)NFAC has directed the ld.AO to make

verification of claim of the assessee of cost of goods sold in

preceding years and not forming part of the WIP as on 31.3.2017

and to allow the same if the contention of the assessee is correct.

Following such directions, ld. AO made verification of the facts and

allowed the cost of Rs. 5,59,35,350/- and thus the addition

originally made at Rs. 11,65,11,479/- is reduced to Rs.

6,05,76,129/- (11,65,11,479 – 5,59,35,350) against which these

grounds are taken by the assessee by grossly ignoring that such

cost was not incurred fully in the previous year but the construction

work was carried out for almost past more than 10 years. In the

first appeal the assessee was given the various hearings including

Video Conferencing during the course of appellate proceedings,

confirmed the action of ld.AO of referring the matter to DVO and

33 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO further upheld the additions so made. While doing so ld.CIT(A)

NFAC though has accepted the contention of the assessee that the

cost of goods sold pertaining to the material sold in preceding

assessment years to the tune of Rs. 5,59,35,350/- is not required to

be added but send the matter to the file of ld.AO for making

verification of the same who has considered that aspect of the

matter.

7.6 Now the issue remains for the balance amount sustained to

the tune of Rs. 6,05,76,129/- (11,65,11,479 – 5,59,35,350) against

that addition the contention of the ld. AR of the assessee that the

DVO has taken the CPWD rates whereas considering the legal

judicial precedent of the jurisdictional high court the PWD rates is

required to be considered and the deduction of self supervision is

not considered by the DVO. If these aspect of the matter is

considering even the addition sustained to the tune of Rs.

6,05,76,129/- (11,65,11,479 – 5,59,35,350) will reduce

substantially. On these two aspect of the matter the bench noted

that case of assessee company has regularly been selected for

scrutiny and the assessments were completed for preceding years

where major cost was incurred and accepted and no doubts were

raised by any of the assessing officer. For the first time in the year

34 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO under consideration, the ld. AO has doubted the cost incurred

during the year and referred the same to DVO for determination of

the cost incurred during the year under consideration and not entire

cost of project which has been incurred since beginning of the

project. It is also relevant to state that the assessment for AY 2014-

15 was completed u/s 143(3) where after applying the percentage

completion method, cost of construction as declared by assessee

was allowed and addition was made towards the profits (APB 96-

117). It is also submitted that the cost as declared by the assessee

is based on the books of account maintained by the assessee in

the regular course of business on day to day basis and fully

supported by the respective bills and vouchers. Further the

payments for the expenditure incurred towards the construction

have been made through payees account cheque. As submitted

above, assessee has furnished all the documentary evidences in

the shape of Work Order (APB 72-73), Ledger copies of

contractors(APB 81-95), bills of materials and ledger copies (APB

72-73) thereof in respect of value of stock declared and also find

mention in the valuation report (APB 75-80). The valuation done by

the ld. DVO is based on the estimations though made after the

physical inspection but still it is the estimation and cannot prevail

35 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO over the real time expenditure incurred and recorded in the books

of accounts by the assessee. One more peculiar fact as submitted

above, is that the assessee has appointed one single contractor

who constructed the building on turnkey basis which is evident from

the copy of agreement submitted before the DVO. Thus there is no

occasion for the ld. DVO for making estimation the cost of each

individual item separately (APB 72-73). Thus when the cost of

construction as declared by the assessee duly supported by

respective bills and vouchers which were neither doubted by the

ld.AO nor any defects in the same were pointed out by the ld. AO

or DVO. The bench further noted that assessee company is a

builder whose main activity is of constructing building and then sell

it and but the DVO has not allowed any rebate for self-supervision

and for self-procurement of material. While doing so, the DVO has

ignored the vital fact that assessee is a builder and having its own

staff including civil engineers and site supervisors who on day to

day basis look after the progress of the project and the cost

incurred on the payment of their salary is part of the total

construction cost declared by the assessee. Further, directors of

the assessee firm are the qualified engineers and one of them

having experience of more than 40 years of working with State

36 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO Government. Besides this one major objection was taken for

applying CPWD rates as against state PWD rates. It is relevant to

state that hon’ble Supreme Court and Hon’ble Jurisdictional High

Court in numerous cases [ as relied upon in the written submission

] has held that state PWD rate is to applied instead of CPWD rate

for estimating the cost of construction as the state PWD rates are

fixed after considering the local factors. Normally the difference

between the state PWD rates and CPWD rates is ranging between

20-25%. Further the deduction of for the self supervision charges is

also required to be considered which is ranging between 10-15 %.

The bench noted from the order of the ld. CIT(A) NFAC has

allowed the video conferencing and has directed the assessee to

file the comparison between the CPWD and state PWD rates. In

compliance, assessee has obtained a report from an approved

valuer who estimated the cost of construction at Rs. 41,63,27,589/-

(APB 21-227) which is close to the cost declared by the assessee.

Further CPWD rates (APB 231-273)and state PWD rates (APB

274-281) were also submitted. Besides this as directed by

ld.CIT(A) NFAC, a certificate of approved valuer regarding

comparison between CPWD rates and state PWD rates was also

filed (APB 228-230) however, ld.CIT(A) NFAC without appreciating

37 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO the same has summarily rejected the same by observing in para

4.1.2 at page 23 of the order that the state PWD rates are meant

for determining the rent of building. In this regard the ld. AR of the

assessee drawn our attention to the State PWD rates at paper

book page 275 where it is categorically mentioned that “these rules

are meant for use by the PWD, Rajasthan” thus these rates are

though can be used for determining the rent but is taken from the

PWD, Rajasthan and therefore cannot be ignored summarily.

Regarding the contention of the assessee that state PWD rates to

be applied instead of CPWD rates, ld. CIT(A) NFAC, has rejected

the submission of the assessee where the reliance is placed on

the decision of hon’ble Rajasthan High court in the case of Hotel

Joshi (242 ITR 478) by observing that the said case was wrongly

interpreted. In that case hon’ble ITAT has held that though state

PWD rates should be given preference over the CPWD rates but

since the assessee is having item-wise cost thus the same should

be taken as basis for valuation which observations were upheld by

hon’ble court. The bench hence considering the fact of the case

relied and the fact of this case that the assessee submitted each

individual item-wise details which was submitted filed before the ld.

DVO/AO. Therefore the ratio laid down in the case of Hotel Joshi

38 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO

rather support the facts of the assessee’s case. For application of

state PWD rates instead of CPWD rates and further deduction for

self supervision, reliance is placed on the following judicial

pronouncements where it is held that a deduction of at least 20%

should be given to reach the state PWD rates from the valuation

done on the basis of CPWD rates.

393 ITR 121 (SC) CIT Vs. Sunita Mansingha 3. However, in view of the finding recorded by the Tribunal that the local Public Works Department rates are to be applied and adopted in place of Central Public Works Department rates, we do not find any good ground to interfere in the impugned judgment on this issue on merits. The appeal fails and is dismissed. 296 ITR 508 (Raj) CIT Vs. Smt. PremKumariMurdia 2. In the case of the respondent-assessee, the AO had made additions as income from undisclosed sources for asstt. yr. 1995- 96, on the basis of difference in the cost declared by the assessee and cost determined by DVO on CPWD rates. On appeal, the CIT(A) has held that in the facts of the case, the appropriate rate to be taken into consideration would have been PWD rates. Keeping in view the aforesaid, a deduction of 20 per cent was allowed from the cost of construction estimated by the Valuation Officer in order to arrive at a reasonable estimate of cost of construction for the relevant assessment year and sustained the balance of addition on that basis. On further appeal, the Tribunal by order under appeal has upheld the order of the CIT(A) by following a Bench decision of this Court in CIT v. Dinesh Talwar , the facts of which case were almost the similar. 3. We are also of the opinion that what shall be taken to be cost of construction of a property constructed is essentially a question of fact and not the question of law. Moreover, the matter is squarely governed by the Bench decision of this Court and does not give rise to any substantial question of law. 4. Hence, in view of the aforesaid, the appeal is dismissed, as in our opinion, no substantial question of law arises for consideration in this appeal.

39 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO

Ravi Mathur& Others Vs. ACIT 22 Tax World 245 (ITAT, Jaipur Bench) Whether cost of construction should be determined on local PWD rates ? – Held yes. Further held that CPWD valuation should be scaled down by 20%. Also held that in facts of the case, 12% self supervision allowance would be justifiable. 188 Taxman 39 CIT Vs. Aar Pee Apartments (P) Ltd. (Delhi) Assessment – Estimate by valuation officer in certain cases – Assessment year 1998-99 – Whether powers under section 142A extend to estimating amount of unexplained expenditure referred to in section 69C – Held, no – Whether, therefore, Assessing Officer was not justified in exercising powers under section 142A for purpose of getting himself satisfied about cost of construction claimed by assessee as revenue expenditure – Held, yes. Soma Block Prints Pvt. Ltd. Vs. ITO ITA No. 528/JP/2019 (ITAT, Jaipur bench) 14. We have heard the rival contentions and perused the material available on record. Regarding adoption of PWD rates as against CPWD rates, we agree with the contention advanced by the ld AR that where the factory building is situated within the jurisdiction of state PWD, State PWD rates should be applied for estimation of cost of constructionof the factory building and not CPWD rates. The same is the consistent position taken by this Bench and other Jaipur Benches following the decision of Hon'ble Supreme Court in the case of CIT Vs. SunitaMansingha (supra). Further, it is noted that the assessee during the course of assessment proceedings has raised similar objections regarding adoption of CPWD rates and submitted a report of registered valuer M/s V.G. Architects and Engineers dated 28.11.2015 who have estimated the cost of construction by applying PWD rates at Rs.1,10,53,509/- as against Rs 2,09,16,010/- determined by the DVO. Therefore, we direct the AO to adopt the value of Rs.1,10,53,509/- as determined by the registered valuer as relevant for the year under consideration. Sandeep LoombaVs. ACIT 26 TW 288

Respectfully following the judicial precedent of the jurisdictional

high court and other case law cited we are of the considered view

that the deduction of 20% on account of difference between CPWD

rates and State PWD rates and further deduction for self-

40 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO supervision is required to be given out of the cost estimated by

DVO. The ld. AR of the assessee submitted at bar that the

resultant value of cost of construction would be less than the cost

declared by the assessee in its books of accounts. Therefore,

considering these decisions, the bench direct the ld. AO to allow

the deduction of 20 % for PWD rate instead of CPWD rate taken

by the ld. AO and 10 % self supervision charges also be

considered as the assessee demonstrated that the director and

employee were directly involved and their salaries were also

considered as part of the project.

7.7 As regards the contention of the assessee that while making

the addition, the ld. AO has made an error of making addition of

difference between the total cost of construction estimated by DVO

and as declared by assessee in the year under appeal though the

construction work was spread over for 10 years and carried on

from F.Y. 2007-08 till 2018-19 and therefore the addition of the

alleged entire difference in the cost of construction, spread over 10

years, being done in one year is totally unjustified. Therefore, after

considering the above deduction if the difference if any persist we

direct the ld. AO that the difference be spread proportionally to the

41 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO difference with that of the cost of construction incurred as our

attention was invited to the fact that the assessments for AY 2013-

14 to 2016-17 were re-opened u/s 148 and the assessments stood

completed by making addition of the amount of difference between

the cost of construction estimated by DVO and as declared by

assessee for respective assessment year, copy of the said order

were also submitted to the ld. CIT(A) NFAC who ignored the same

thus such action of ld.CIT(A) resulted into double taxation of an

income thus this difference if any is to be made is to be spread for

the years involved as directed herein above. While doing so the

valuation of WIP as per ld. DVO report is to be considered after

giving deduction of PWD rates and self supervision than it would

be considered as Closing WIP of assessee company as on

31.03.2017 and would constitute Opening Stock. Based on these

observation the ground no. 1 to 8 considered as allowed and

ground no. 9 is consequential in nature and ground no. 10 being

general in nature does not require any adjudication upon by us.

In the result, appeal of the assessee is allowed.

Order pronounced in the open Court on 20/12/2023.

42 ITA No. 565/JPR/2023 Milestone Dewellers Pvt. Ltd. vs. ITO Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judcial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 20/12/2023 *Ganesh Kumar, PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Milestone Dwellers Pvt. Ltd., Jaipur. 1. izR;FkhZ@ The Respondent- ITO, ward-6(2), Jaipur. 2. vk;dj vk;qDr@ CIT 3. 4. vk;dj vk;qDr@ CIT(A) विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 5. 6. xkMZ QkbZy@ Guard File { ITA No. 565/JPR/2023} vkns'kkuqlkj@ By order

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