S.Jayaraman, Madurai V. ACIT, Madurai

CO 110/CHNY/2017

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3538 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 01-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 18-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS S VIJAYA PRABHA
• Assessee Lawyers: T VASUDEVAN
• Keywords: Unexplained investment; Valuation report

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: CHENNAI . , ! , $ % BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER ./ ITA NO.1073/CHNY/2017 $! ! /ASSESSMENT YEAR: 2011-12 THE ASST. COMMISSIONER OF INCOME- TAX, NON-CORPORATE CIRCLE-2, MADURAI. VS. SHRI S. JAYARAMAN, 2-A, PANTHADI 7 TH STREET, MADURAI-625 001. [PAN: ADOPJ 9651 R ] ( ' /APPELLANT) ( ()' /RESPONDENT) CO NO. 110/CHNY /20 17 $! ! /ASSESSMENT YEAR: 2011-12 SHRI S. JAYARAMAN, 2-A, PANTHADI 7 TH STREET, MADURAI-625 001. VS. THE ASST. COMMISSIONER OF- INCOME TAX, NON-CORPORATE CIRCLE-2, MADURAI. [PAN: ADOPJ 9651 R ] ( ' /APPELLANT) ( ()' /RESPONDENT) DEPARTMENT BY : MRS.S.VIJAYAPRABHA, JCIT ASSESSEE BY : MR.T.VASUDEVAN, ADV. 3 /DATE OF HEARING : 01.03.2018 3 /DATE OF PRONOUNCEMENT : 01.03.2018 ITA NO.1073/CHNY/2017 & CO NO.110/CHNY/2017 :- 2 -: / O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER : ITA NO.1073/CHNY/2017 IS AN APPEAL FILED BY THE RE VENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S)-2, MADURAI, IN ITA NO.0039/2014-15 DATED 17.01.2017 FOR THE AY 2011-12 AND CO NO.110/CHNY/2017 IS A CROSS-OBJECTION FILED BY THE ASSESSEE IN ITA NO.1073/CHNY/2017 FOR THE AY 2011-12. 2. MRS.S.VIJAYAPRABHA, JCIT, REPRESENTED ON BEHALF OF THE REVENUE AND MR.T.VASUDEVAN, ADV., REPRESENTED ON BEHALF OF THE ASSESSEE. 3. IT WAS SUBMITTED BY THE LD.DR THAT THE ASSESSEE HAD CONSTRUCTED A HOTEL BUILDING AT MADURAI. IN THE COURSE OF THE AS SESSMENT FOR THE AY 2011-12, THE AO HAD OBTAINED THE VALUATION REPORT F ROM THE DEPARTMENTAL VALUATION OFFICER (IN SHORT DVO) IN RESPECT OF THE COST OF CONSTRUCTION OF THE SAID PROPERTY. THE DVOS REPOR T MENTIONED THE COST OF CONSTRUCTION AT RS.4,79,14,694/-. ON PRO-RATA BASIS , THE AO DETERMINED THE COST OF CONSTRUCTION TILL 31 ST MARCH, 2011 AT RS.3,87,00,329/-. THE COST OF CONSTRUCTION OF THE BUILDING ADMITTED IN TH E BALANCE SHEET OF THE ASSESSEE AS ON 31.03.2011 WAS RS.2,38,21,371/- ONLY AND THE DIFFERENCE OF RS.1,48,78,959/- WAS TREATED AS UNEXPLAINED INVE STMENT BY THE ASSESSEE IN THE CONSTRUCTION OF THE HOTEL BUILDING. IT WAS A SUBMISSION THAT ON APPEAL, THE LD.CIT(A) HAD REDUCED THE DIFFE RENCE TO ITA NO.1073/CHNY/2017 & CO NO.110/CHNY/2017 :- 3 -: RS.49,96,697/- BY HOLDING THAT PWD RATES ARE TO BE APPLIED AND NOT CPWD RATES. IT WAS A SUBMISSION THAT MADURAI WAS TREATE D AS COMPARABLE TO METRO CITY AND CPWD RATES WERE LIABLE TO BE APPLIED . IT WAS A SUBMISSION THAT THE ORDER OF THE LD.CIT(A) WAS LIABLE TO BE RE VERSED. 4. IN REPLY, THE LD.AR SUBMITTED THAT THE DVO, AT T HE OUTSET, WRONGLY VALUED THE PROPERTY BY APPLYING THE CPWD RATES. IT WAS A FURTHER SUBMISSION THAT THE COST OF CONSTRUCTION WAS CLEARL Y RECORDED IN THE BOOKS OF THE ASSESSEE AND BOOKS OF ACCOUNTS OF THE ASSESS EE HAD NOT BEEN REJECTED AND CONSEQUENTLY, IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SARGAM CINEMAS REPORTED IN 328 ITR 513 (SC), NO ADDITION CAN BE MADE. IT WAS A FURTHER SUBMISSION THAT MADURAI WAS NOT COVERED BY THE CPWD RATES IN SO FAR AS IT WAS NOT A METRO CITY. IT WAS A SUBMISSION THAT IN THE CROSS OBJECTION, THE ASSESSE E HAS CHALLENGED THE ADDITIONS SUSTAINED BY THE LD.CIT(A). IT WAS A PRA YER THAT THE ADDITIONS ON ACCOUNT OF THE UNEXPLAINED INVESTMENT WAS LIABLE TO BE DELETED IN ITS ENTIRETY. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. 6. A PERUSAL OF THE VALUATION REPORT HAS FOUND AT P AGE NO.1 OF THE PAPER BOOK SHOWS THAT IN PARA NO.3.5 OF THE VALUATI ON REPORT, THE PERIOD OF CONSTRUCTION HAS BEEN RECORDED BY THE DVO IS OCT OBER, 2007 TO JANUARY, 2012. THE DVO HAS DONE THE VALUATION AS O N 19.03.2014. THUS, ITA NO.1073/CHNY/2017 & CO NO.110/CHNY/2017 :- 4 -: THE VALUATION HAS DONE BY THE DVO IS IN RESPECT OF THE HOTEL BUILDING AFTER COMPLETION. THE DVO HAS NOT GIVEN ANY YEAR WISE BR EAKUP OF THE POSSIBLE COST OF CONSTRUCTION. FROM THE ABOVE FACT, IT BECO MES CLEAR THAT THE CONSTRUCTION STARTED DURING THE AY 2008-09 AND WAS COMPLETED IN THE AY 2013-14 I.E. OVER A PERIOD OF FIVE YEARS. A PERUSA L OF THE DETAILS FILED BY THE ASSESSEE BEFORE THE DVO SHOWS THAT THE ASSESSEE HAS ADMITTED A TOTAL COST OF CONSTRUCTION OF RS.4,33,41,667/-. THE SAME IS FOUND IN PROFORMA WHICH HAS BEING SUBMITTED TO THE DVO. THE ASSESSEE HAS ALSO ENCLOSED THE DELIVERY BILLS FOR THE MATERIALS AND LABOUR AND THE SUPPORTING VOUCHERS. THE BREAK-UP OF YEAR WISE EXPENDITURE IN CURRED IS ALSO SUBMITTED. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE AO FOR THE PURPOSE OF DETERMINING THE COST OF CONSTRUCTION HAS DONE A PRO-RATA REDUCTION I.E. HE HAS TAKEN THE VALUATION OF THE DV O AS APPLICABLE FOR 52 MONTHS AND FOR THE YEAR ENDING 31.03.2011, HE DETER MINED THE COST FOR 42 MONTHS. THUS, FOR THE AY 2011-12, THE AO DETERM INED THE ALLEGED UNEXPLAINED INVESTMENT RIGHT FROM THE AY 2008-09 TO 2011-12 AND ASSESSED THE ENTIRE AMOUNT DURING THE AY 2011-12 W HICH ITSELF IS NOT PERMISSIBLE. FURTHER, A PERUSAL OF THE BALANCE SHE ET OF THE ASSESSEE AS ON 31.03.2011 SHOWS THAT THE FIXED ASSETS HAS SHOWN BY THE ASSESSEE IS RS.3,61,59,736/- WHEREAS THE AO HAS TAKEN ONLY THE PORTION IN RESPECT OF THE BUILDING AT RS.2,38,21,371/-. A PERUSAL OF THE DVOS REPORT SHOWS THAT IN PARA NO.3.6 IN THE SPECIFICATIONS, HE HAS C ONSIDERED THE FACT THAT THE BUILDING IS AIR-CONDITIONED AND THE LIFT IS ALS O AVAILABLE. IF THE FIGURE OF RS.3,61,59,736/- IS CONSIDERED, ADMITTEDLY, THERE W OULD BE A DIFFERENCE OF ITA NO.1073/CHNY/2017 & CO NO.110/CHNY/2017 :- 5 -: ONLY RS.25.00 LAKHS WHICH FELL WITHIN THE MARGIN OF ERROR IN RESPECT OF THE ESTIMATES @10%. FURTHER, A PERUSAL OF THE ORDER OF THE ASSESSING AUTHORITY ALSO CLEARLY SHOWS THAT THE AO HAS NOT RE JECTED THE ASSESSEES BOOKS OF ACCOUNTS OR HIS ACCOUNTS IN RESPECT OF THE COST OF CONSTRUCTION. A PERUSAL OF THE DVOS REPORT SHOWS IN PARA NO.4.1.1 METHOD OF ACCOUNTING, THE DVO MENTIONS THAT THERE IS AN ABSENCE OF DETAIL ED WORKING DRAWING, BILL OF QUANTITIES, VOUCHERS FOR THE BUILDING MATER IAL REQUIRED FOR WORK INCLUDING THE LABOUR PAYMENTS. BUT, A PERUSAL OF T HE PROFORMA REQUIRED FOR THE VALUATION SHOWS THAT THE SAME HAD ALSO BEEN SUBMITTED BEFORE THE DVO. A PERUSAL OF THE ORDER OF THE LD.CIT(A) SHOWS THAT THE LD.CIT(A) HAS ACCEPTED THE CONTENTION THAT PWD RATES WERE TO BE APPLIED IN PLACE OF THE CPWD RATES IN VIEW OF THE DECISION OF THE JURIS DICTIONAL HIGH COURT IN THE CASE OF SHRI RAYA R. GOVINDARAJAN. CONSEQUENTL Y, THE LD.CIT(A) HAD GRANTED THE ASSESSEE THE BENEFIT OF REDUCTION @25%. THIS FINDING HAS BEEN CHALLENGED BY THE REVENUE. ADMITTEDLY, AS PER THE REVENUE, MADURAI IS COMPARABLE TO A METRO CITY. IT IS NOT T HE CASE OF THE REVENUE, MADURAI IS A METRO CITY. WHAT IS TO BE LOOKED INTO IS, AS TO WHETHER THE CPWD RATES ARE APPLICABLE TO A PLACE LIKE MADURAI A ND WHETHER THE COST OF CONSTRUCTION AS DETERMINED UNDER THE CPWD RATES CAN BE APPLIED TO NON- METRO CITIES? THE HONBLE JURISDICTIONAL HIGH COUR T IN THE CASE OF SHRI RAYA R. GOVINDARAJAN HAS HELD THAT WHEN DETAILS REG ARDING THE COST OF CONSTRUCTION AT PWD RATES FOR SPECIFIC DISTRICTS AR E APPLICABLE, THERE IS NO REASON FOR THE VALUATION OFFICER TO ADOPT THE RATE WHICH IS PREVALENT TO DISTANT PLACES AND METROPOLITAN CITIES. FOR THIS P URPOSE, THE HONBLE HIGH ITA NO.1073/CHNY/2017 & CO NO.110/CHNY/2017 :- 6 -: COURT HAD RELIED UPON THE DECISION IN THE CASE OF T .M.P.N. MURUGASEN REPORTED IN 217 TAXMANN 40. ADMITTEDLY, FOR MADURA I, PWD RATES ARE SPECIFICALLY AVAILABLE AND THEREFORE, MADURAI CANNO T BE COMPARED TO A METROPOLITAN CITY FOR THE PURPOSE OF APPLYING PWD R ATES. ADMITTEDLY, THE LD.CIT(A) IS ALSO NOT A VALUATION OFFICER COMPETENT FOR DOING VALUATION BY APPLYING PWD RATES. CONSEQUENTLY, MODIFYING THE CP WD RATES VALUATION HAS DONE BY THE DVO BY REDUCING THE SAME BY 25% ON THE PRESUMPTION THAT IT WOULD MEET THE PWD RATES IS ERRONEOUS. THE ONLY OPTION AVAILABLE TO THE LD.CIT(A) WAS TO DELETE THE ADDITION MADE AS THE PWD RATES HAVE NOT BEEN APPLIED. THIS BEING SO, WE ARE OF THE VIE W THAT THE ORDER OF THE LD.CIT(A) IS ERRONEOUS IN SO FAR AS HE HAS ESTIMAT ED THE PWD RATES BY REDUCING THE VALUATION DONE BY THE DVO BY APPLYING CPWD RATES BY 25% AS MADURAI IS NOT LIABLE TO BE CONSIDERED AS METROP OLITAN CITY FOR THE PURPOSE OF APPLYING THE CPWD RATES FOR DETERMINING THE COST OF CONSTRUCTION. THE DIFFERENCE IN THE COST OF CONSTRU CTION AS DETERMINED BY THE AO BASED ON THE DVOS RATES APPLYING CPWD RATES WOULD ALSO BE BAD AND CONSEQUENTLY, THE ADDITION STANDS DELETED. THE ADDITION IS DELETED FOR OTHER REASONS ALSO BEING 1. THE ENTIRE ADDITION HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR IN RESPECT OF THE DIFFERENCE OF COST OF CONSTRUCTIO N, IF ANY, OVER A PERIOD OF FOUR ASSESSMENT YEARS PRECEDING TO THE RE LEVANT ASSESSMENT YEAR, WHICH IS ALSO NOT PERMISSIBLE, FUR THER 2. AS THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE AND MORE SPECIFICALLY ACCOUNTS IN RESPECT OF THE COST OF CON STRUCTION ITA NO.1073/CHNY/2017 & CO NO.110/CHNY/2017 :- 7 -: MAINTAINED BY THE ASSESSEE HAVING NOT BEEN REJECTED , THE ESTIMATION OF THE SAME IS ALSO NOT PERMISSIBLE IN V IEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SARGAM CINEMAS REFERRED TO SUPRA. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I N ITA NO.1073/CHNY/2017 IS DISMISSED AND THE CROSS-OBJECT ION FILED BY THE ASSESSEE IN CO NO.110/CHNY/2017 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 01, 20 18, AT CHENNAI. SD/- SD/- ( . ) ( ABRAHAM P.GEORGE ) /ACCOUNTANT MEMBER ( ! ) (GEORGE MATHAN) $ /JUDICIAL MEMBER /CHENNAI, 8 /DATED: MARCH 01, 2018. TLN 3 ($9: ;: /COPY TO: 1. ' /APPELLANT 4. < /CIT 2. ()' /RESPONDENT 5. : ($$ /DR 3. < ( ) /CIT(A) 6. ! /GF