THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2(1), , VIJAYAWADA vs. POTLURI RAVI L/R LATE POTLURI BABU RAO, VIJAYAWADA
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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
PER S. BALAKRISHNAN, Accountant Member :
This appeal filed by the Revenue against the order of the Ld.
Commissioner of Income Tax (Appeals), Vijayawada in Appeal No.
30/CIT(A)/VJA/2015-16, DIN: ITBA/APL/M/250/2019-
20/1023529519(1), dated 31/12/2019 arising out of the order
passed U/s. 143(3) of the Income Tax Act, 1961 [the Act] for the
AY 2012-13, dated 31/3/2015.
Brief facts of the case are that the assessee being an
individual filed his return of income for the AY 2012-13 admitting
a loss of Rs. 10,45,529/- on 26/03/2014. The case was selected
for scrutiny and notices U/s. 143(2) dated 30/09/2014 was
issued and served on the assessee. Due to change in the
jurisdiction of the Assessing Officer, further notice U/s. 142(1)
and 143(2) were issued and served on the assessee. In response,
the assessee’s Authorized Representative appeared from time to
time and furnished the information called for. Considering the
submissions made by the Ld. AR, the Ld. AO referred the matter
to the Ld. Departmental Valuation Officer [DVO] U/s. 142A of the
Act for the building construction completed during the year
3 which was leased. The Ld. DVO furnished the Valuation Report
by valuing the property at Rs. 5,52,54,000/-. The Ld. AO
submitted the copy of the report to the assessee inviting his
objections. The assessee raised three objections which were
forwarded to the Valuation Officer for his comments. In the
mean time the assessee also filed the independent Registered
Valuer’s Report estimating the cost of construction at Rs. 298.36
lakhs as against Rs. 322.23 lakhs as claimed by the assessee.
Since the assessee did not maintain the books of accounts, the
Ld. AO did not accept the valuation of the independent Registered
Valuer and therefore adopted the value of the Ld. DVO. The
assessee contested that he had apparently not received the
Annexure-1 to the Valuation Report which was later forwarded to
the assessee along with the notice U/s. 142(1) dated 28/03/2015
with the request to the assessee to furnish his objections by
30/03/2015. The assessee sought one week time to furnish his
comments but the Ld. AO completed the assessment on
31/3/2015, being the time barring date. The Ld. AO thus added
an amount of Rs. 2,30,30,522/- being the difference in valuation
between the Ld. DVO’s report and the amount shown in the books
of account of the assessee. Aggrieved by the additions, the
assessee filed an appeal before the Ld. CIT(A).
Before the Ld. CIT(A), the primary objection of the assessee
was with respect to the addition of Rs. 2,30,30,522/- as
unexplained investment without providing adequate opportunity
to file objections to the Ld. DVO report. The Ld. CIT(A)
considering the written submissions made by the assessee
contending objections in respect of the Ld. DVO’s report,
forwarded the same to the Ld. AO vide letter dated 24/08/2015
with a request to forward the same to the Ld. DVO for obtaining
his comments and furnish a remand report. In response, the Ld.
AO vide letter dated 25/01/2016 furnished the remand report. A
copy of the remand report was then forwarded to the assessee
vide letter dated 9/2/2016 requesting the assessee to furnish the
rejoinder, if any. The assessee furnished the rejoinder before the
Ld. CIT(A) on 11/07/2017. Further, the assessee also furnished
additional written submissions on 20/09/2019 before the Ld.
CIT(A). Considering the submissions made by the assessee, the
Ld. CIT(A) granted relief to the extent of Rs. 2,08,01,415/- and
partly allowed the appeal of the assessee. Being aggrieved by the
order of the Ld. CIT(A), the Revenue is in appeal before us.
Before the Tribunal, originally the Revenue has raised Eight
grounds of appeal and later revised the same which is as follows:
“1. The Ld. CIT(A) is not justified in allowing the appeal without taking into account the facts and merits of the case.
The Ld. CIT(A) is erred in granting relief of Rs. 19,36,118/- on the ground that there is totaling mistake that occurred in arriving at the cost incurred by the assessee at Rs. 1,30,03,206/- as (i) It is evident from Annexure-II of valuation report though the cost incurred by the lessee towards flowing was mentioned at Rs. 19,36,118/-, the same amount was not included in the cost of construction estimated at Rs. 682.60 lakhs by valuation officer but only an amount of Rs. 8,58,893/- was included. (ii) The amount of Rs. 19,36,118/- incurred by lessee towards flooring has not been included in the cost of construction estimated by Valuation Officer and therefore there is no need for reducing the amount. (iii) It is clear from para 6 of the valuation report that the cost of construction estimates includes an amount of Rs. 1,30,06,000/- towards cost of interiors & Special electrical works only incurred by lessee. (iv) There was no totaling mistake or omission by the Valuation Officer in arriving at cost incurred by the assessee and only an amount of Rs. 1,30,06,626/- was included in the cost of construction estimated for which deduction was allowed by the AO. (iv) There was no totaling mistake or omission by the Valuation Officer in arriving at cost incurred by the lessee and only an amount of Rs. 1,30,06,626/- was included in the cost of construction estimated for which deduction was allowed by the AO.
The Ld. CIT (A) is not justified in holding that the lessee has incurred the entire expenditure of Rs. 66,13,127/- towards electrical installations and directed to reduce the balance cost of Rs. 42,12,602/- (Rs. 66,13,127 – Rs. 24,00,525/-) incurred by lessee from estimated cost of construction as (i) It is clear from clause 10, 11 & 12 of the lease agreement that the said clause does not mention anything about electric fittings. (ii) The cost of construction included by the Valuation Officer of Rs. 44,36,987/- towards internal electrical
fittings are in respect of internal wiring in a complete building before giving on lease. (iii) The lessee has done extra lighting system in ceiling, the cost of which was estimated at Rs. 24,00,525/- by the Valuation Officer and the same was reduced from the cost of construction.
The Ld. CIT(A) ought to have consider that the Valuation Officer has arrived the reasonable cost of construction based on weighted average cost Index 120 which has been derived from the approved cost indices prevailing during the period of construction of Vijayawada and thus erred in allowing 15% deduction towards variation in the CPWD rates and the local rates.
The Ld. CIT(A) erred in allowing 15% deduction towards variation in the CPWD rates and the local rates as the case laws relied on by the assessee is not relevant since the case law pertains to construction that was carried out in the moffusil area whereas the present construction is in the centre of City.
The Ld. CIT (A) failed to consider the fact that the assessee did not furnish ledger account along with bills & Vouchers before the Valuation Officer and the work is executed through contract and hence the assessee is not eligible for rebate towards self supervision.
The Ld. CIT(A) is erred in allowing 10% deduction towards self-supervisions as the work is executed through contract which was clearly mentioned in the Valuation report.
Any other grounds that may be urged at the time of hearing.”
Grounds No. 1 & 8 are general in nature and need no
adjudication.
7 6. With respect to Ground No.2, the Ld. DR argued that the Ld.
CIT(A) has granted relief of Rs. 19,36,116/- citing there is a
mistake in totaling in Annexure-II of the Valuation Report. The
Ld. DR further submitted that in the Valuation Report of the Ld.
DVO an amount of Rs. 8,58,893/- only was included by the Ld.
DVO in arriving at the total cost of construction to the assessee.
The Ld. DR therefore pleaded that the relief granted by the Ld.
CIT(A) be restricted to Rs. 8,58,893/-only. Per contra, the Ld. AR
relied on the order of the Ld. CIT (A).
We have heard both the sides and perused the material
available on record as well as the orders of the Ld. Revenue
Authorities. We find from Annexure-I to the Valuation Report of
the Ld. DVO vide Report No. 1: 02: 1470 in Item No.3 being the
addition for cost of superior items provided in the building in
place of items provided as per specifications of Plinth Area Rates
(PAR) has included Rs. 8,58,893/- towards cost of flooring.
However, in Annexure-II, while valuing the flooring charges
incurred by the lessee M/s. Kalyan Jewellers the Ld. DVO valued
at Rs. 19,36,116/-. As per clause 11 and 12 of the lease
agreement entered on 12th March 2011, the lessee has to do the
interiors and exterior installations including the decorations
8 which shall not be claimed with the lessor. We therefore find that
the Ld. CIT(A) has erred in adopting the valuation of Rs.
19,36,116/- incurred by the lessee and reducing it from the cost
of construction of the assessee instead of Rs. 8,58,893/- incurred
by the assessee as per Annexure-I of the Ld. DVO report. We
therefore direct the Ld. AO to adopt Rs. 8,58,853/- as cost of
flooring which needs to be reduced from the cost of construction
of the assessee. Thus, this Ground raised by the Revenue is
partly allowed.
With respect to Ground No.3 regarding the deletion of
addition of Rs. 42,12,602/- by the Ld. CIT(A), the Ld. DR
submitted that the cost of electrical fittings is with respect to
internal wiring and hence it should not be allowed. The Ld. DR
further submitted that as per the Ld. DVO report the lessee has
incurred Rs. 24,00,525/- as detailed in Annexure-II and the Ld.
DVO has estimated the cost of internal electrical installations at
Rs. 66,13,127/- out of which Rs. 24,00,525/- was incurred by
the lessee and therefore the Ld. AO has rightly allowed the same.
The Ld. DR therefore pleaded that the deletion of addition made
by the Ld. CIT(A) to the extent of Rs. 42,12,602/- be deleted.
9 Per contra, the Ld. AR submitted that the lessee M/s.
Kalyan Jewellers has furnished a letter to the Ld. DVO that it has
incurred a cost of Rs. 66,13,127/- towards electrical fittings.
The Ld. AR argued that the Ld. DVO considered only the cost to
the extent of Rs. 24,00,525/- as cost of electrical fittings
incurred by the lessee. The Ld. AR also referred to the clause No.
10 & 11 of the Lease Agreement that except the cost of the civil
works such as strong room, toilets and brick work for wall and
also arrange to provide 15KVA power, water connection and
provide water storage tank, the lessee has to bear the cost of
interiors. Further, the Ld. AR submitted that the electrical
installations are to be borne by the lessee as per the lease
agreement. The Ld. AR further submitted that the lessee has also
confirmed the same vide letter dated 6/3/2015 submitted to the
Ld. DVO that the lessee has incurred a cost of Rs. 66,13,127/-.
He therefore pleaded that the order of the Ld. CIT(A) be upheld on
this ground.
We have heard both the sides and perused the material
available on record and the orders of the Ld. Revenue
Authorities. Admittedly the lessee M/s. Kalyan Jewellers has
furnished a letter dated 6/3/2015 to the Ld. DVO that it has
10 incurred a cost of Rs. 66,13,127/- towards electrical fittings.
Further, on perusal of the lease agreement, we find that the
lessee was not claiming cost of interiors and exteriors from the
lessor. Further, from Clause-11and 12 of the Lease Agreement
we find that the lessor shall bear only the cost of Civil Structure
side walls whereas the interiors and exterior installations are to
be done by lessee at their own cost. Further, the Ld. Revenue
Authorities have also not disputed the cost incurred by the lessee
towards electrical installations. Considering these facts as stated
above, we find that the Ld. CIT(A) has rightly directed the Ld. AO
to deduct Rs. 42,12,602/- [Rs. 66,13,127 – Rs. 24,00,525] from
the cost of construction of the assessee. We therefore find no
infirmity in the order of the Ld. CIT(A) on this ground and hence
this ground raised by the Revenue is dismissed.
With respect to Grounds No. 4, 5, & 6 regarding the
deduction of 15% towards variation in the CPWD rates and the
local rates, the Ld. DR relied on the order of the Ld. AO. Per
contra, the Ld. AR relied on the decision of the Coordinate Bench
in ITA No. 573/Viz/2019 (AY 2014-15), dated 15/06/2022 in the
case of M/s. Hillocks Hotels Pvt Ltd and pleaded that the same
may be applied in the case of the assessee.
We have heard both the sides and perused the material
available on record as well as the orders of the Ld. Revenue
Authorities. The Ld. DVO in his valuation report has not
considered the PAR [Plinth Area Rates] as per the State PWD of
the Andhra Pradesh Government. The Ld. DVO has estimated the
cost of construction on the Plinth Area Rate 2007 approved by
the CBDT and weighted average Cost Index 120 as has been
derived from the approved cost indices prevailing during the
period of construction at Vijayawada. The Ld. DVO also stated in
his report that no Cost Index was given for PAR. The
jurisdictional Bench of the ITAT, Visakhapatnam has allowed the
rebate of 15% towards the difference between the CPWD rates
and State PWD rates in many cases including the case cited by
the Ld. AR ie., in the case of M/s. Hillocks Hotels Pvt (supra).
Consistently following the various decisions of the jurisdictional
Bench of ITAT, the Ld. CIT(A) has rightly directed the Ld. AO to
adopt 15% towards variation between the CPWD rates and State
PWD rates as stated in para 45, page 45 of his order which is
reproduced below:
“45. In the second category of objections raised by the L/R of the assessee, it was contended that a deduction of 15% may be allowed for the variation between the CPWD rates and the local
12 rates as the local rates are lower compared to the rates adopted by CPWD for estimation of the cost of construction. In support of this contention, the L/R of the assessee placed reliance on the decision of the Hon’ble ITAT, Bangalore in the case of C. Sankara Reddy vs. DCIT and decision of the Hon’ble ITAT, Visakhapatnam in the case of D. Satyanarayana vs. ACIT. The contention of the L/R of the assessee is found to be acceptable as the same is supported by the decision of the Hon’ble ITAT, Chennai in the case of DCIT vs. Smt. C.K. Sumathy (2011) 44 SOT 65 and the decision of the Hon’ble ITAT, Visakhapatnam in the case of D. Satyanarayana vs. ACIT in IT(SS)A No. 1/Vizag/2012. It is therefore held that the assessee is entitled to deduction of 15% towards variation in the CPWD rates and the local rates. The AO is directed accordingly.”
Based on the principles of consistency we find no infirmity
in the order of the Ld. CIT(A) on this ground and hence, these
grounds raised by the Revenue are dismissed.
With respect to Ground No. 7 regarding the deduction of
10% towards self-supervision, the Ld. DR relied on the order of
the Ld. AO. Per contra, the Ld. AR relied on the decision of the
jurisdictional Bench in ITA No. 573/Viz/2019 (AY 2014-15),
dated 15/06/2022 in the case of M/s. Hillocks Hotels Pvt Ltd
(supra).
We have heard both the sides and perused the material
available on record and the orders of the Ld. Revenue
Authorities. The jurisdictional Bench of the ITAT, Visakhapatnam
has allowed self supervision charges at 10% in many cases
including the case cited by the Ld. AR ie., in the case of M/s.
Hillocks Hotels Pvt (supra). Consistently following the decisions
of the jurisdictional Bench of ITAT, the Ld. CIT(A) has rightly
directed the Ld. AO to adopt 10% as stated in para 46, page 45
after discussing the issue at length and held as under:
“46. It was also pointed out by the L/R of the assessee that the building was constructed by the assessee using own labour and no contract was given to anyone for construction. It was accordingly contended that the observation of the DVO that rebate for self-supervision cannot be allowed is erroneous and self-supervision rebate of 10% is required to be allowed to arrive at the correct cost of construction of the building. In support of this contention, the L/R of the assessee placed reliance on the decision of the Hon’ble Bangalore in the case of C. Sankara Reddy vs. DCIT and decision of the Hon’ble ITAT, Visakhapatnam in the case of D. Satyanarayana vs. ACIT. The contention of the L/R of the assessee is found to be acceptable as the same is supported by the decision of Hon’ble Punjab & Haryana High Court in the case of CIT vs. Om Overseas (2011) 16 taxmann.com 184, wherein it was held that deduction for self supervision should be allowed at 10%. This contention of L/R of the assessee is also supported by the decision of the Hon’ble ITAT, Visakhapatnam in the case of D. Satyanarayana vs. ACIT in IT(SS)A No.1/Vizag/2012. It is therefore held that the assessee is entitled to rebate of 10% towards self-supervision. The Ld. AO is directed accordingly. Ground No.1 of appeal is therefore partly allowed.”
Based on the principles of consistency we find no infirmity
in the order of the Ld. CIT(A) on this ground and hence, these
grounds raised by the Revenue are dismissed.
In the result, appeal of the Revenue is partly allowed.
With respect Cross Objection raised by the assessee, at the
time of hearing, the Ld. AR submitted that the assessee’s Cross
14 Objection is not pressed. Therefore, the CO raised by the assessee is dismissed as not pressed.
Pronounced in the open Court on the 17th July, 2023.
Sd/- Sd/- (दु�वू� आर.एल रे�डी) (एस बालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER Dated : 17.07.2023 OKK - SPS
आदेश क� ��त�ल�प अ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee – Sri Potluri Ravi, Smt. Potluri Annapurna, 1. Ms. Potluri Madhavi & Smt. Surya Vijaya Maruthi (L/Rs of Late Potluri Babu Rao), D.No. 29-23-27, Tadepallivari Street, Suryaraopet, Vijayawada, Andhra Pradesh – 520002. राज�व/The Revenue – ACIT, Circle-2(1), Ground Floor, CR 2. Buildings, MG Road, Vijayawada, Andhra Pradesh – 520002. 3. The Principal Commissioner of Income Tax, Vijayawada. आयकर आयु�त (अपील)/ The Commissioner of Income Tax 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, �वशाखापटणम/ DR, ITAT, 5. Visakhapatnam गाड� फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER
Sr. Private Secretary ITAT, Visakhapatnam
