Potluri Ravi and Others L/r Late Potluri Babu Rao, Vijayawada V. The Assistant Commissioner of Income Tax, Circle-2(1), , Vijayawada

CO 31/VIZ/2020

AI Insights

The case involves an appeal by the Revenue against the order of the CIT(A) which had granted partial relief to the assessee, Sri Potluri Ravi and others, concerning the assessment year 2012-13. The primary contention was regarding the addition of Rs. 2,30,30,522/- as unexplained investment in the assessee's books, which was based on a valuation report by the Departmental Valuation Officer (DVO). The assessee contested the valuation and the subsequent additions made by the Assessing Officer. The CIT(A) had reduced the addition after considering the assessee's objections and the DVO's report, which led to the Revenue's appeal to the Tribunal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 128512 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 7 month(s) 15 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-07-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 15-05-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 01-12-2020
• Other Referred Cases: C. Sankara Reddy vs. DCIT, D. Satyanarayana vs. ACIT, DCIT vs. Smt. C.K. Sumathy, D. Satyanarayana vs. ACIT in IT(SS)A No. 1/Vizag/2012
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Valuation report
• Section: 143(3); 142(1); 143(2)

Judgement Text

आयकर अपीलȣयअͬधकरण, ͪवशाखापटणम पीठ, ͪवशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM Įी दुåवूǽ आर एल रेɬडी, ÛयाǓयक सदèय एवं Įी एस बालाकृçणन, लेखा सदèय के सम¢ BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकर अपील सं./ I.T.A. No.120/Viz/2020 (Ǔनधा[रण वष[ / Assessment Year: 2012-13) Asst. Commissioner of Income Tax, Circle-2(1), Vijayawada. Vs. Sri Potluri Ravi, Smt. Potluri Annapurna, 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. C.O. No.31/Viz/2020 (In आयकर अपील सं./ I.T.A. No.120/Viz/2020) (Ǔनधा[रण वष[ / Assessment Year: 2012-13) Sri Potluri Ravi, Smt. Potluri Annapurna, 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. Vs. Asst. Commissioner of Income Tax, Circle-2(1), Vijayawada. (Cross Objector) (Appellant in appeal) अपीलाथȸ कȧ ओर से/ Assessee by : Sri C. Subrahmanyam, AR Ĥ×याथȸ कȧ ओर से / Revenue by : Sri ON Hari Prasada Rao, Sr. AR सुनवाई कȧ तारȣख / Date of Hearing : 16/05/2023 घोषणा कȧ तारȣख/Date of Pronouncement : 17/07/2023 2 O R D E R 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. 2. 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). 4 3. 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. 4. Before the Tribunal, originally the Revenue has raised Eight grounds of appeal and later revised the same which is as follows: 5 “1. The Ld. CIT(A) is not justif ied in allowing the appeal without taking into account the f acts and merits of the case. 2. 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 f rom Annexure-II of valuation repor t though the cost incurred by the lessee towards f lowing was mentioned at Rs. 19,36,118/-, the same amoun t 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 f looring has not been included in the cost of construction estimated by Valuation Officer and theref ore there is no need f or reducing the amount. (iii) It is clear f rom 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 Off icer 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 f or which deduction was allowed by the AO. (iv) There was no totaling mistake or omission by the Valuation Off icer 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 f or which deduction was allowed by the AO. 3. The Ld. CIT (A) is not justif ied 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 f rom clause 10, 11 & 12 of the lease agreement that the said clause does not mention anything about electric f ittings. (ii) The cost of construction included by the Valuation Officer of Rs. 44,36,987/- towards internal electrical 6 fittings are in respect of internal wiring in a complete building bef ore 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 Off icer and the same was reduced f rom the cost of construction. 4. 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 f rom 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. 5. 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 moff usil area whereas the present construction is in the centre of City. 6. The Ld. CIT (A) f ailed to consider the f act that the assessee did not f urnish ledger account along with bills & Vouchers bef ore the Valuation Officer and the work is executed through contract and hence the assessee is not eligible f or rebate towards self supervision. 7. 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. 8. Any other grounds that may be urged at the time of hearing.” 5. 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). 7. 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 12 th 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. 8. 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. 9. 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. 10. 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. 11 11. 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 th at a deduction of 15% may be al l o wed for the v ari ation between the CPWD rates and the l ocal 12 rates as the l ocal rates are l o wer co mpared to the rates adopte d by CPWD for estimation of the cost of construction. In support of this contention, the L/R of the assessee pl aced rel iance on the decision of the Hon’bl e ITAT, Bang al ore in the case of C. Sank ar a Reddy vs. DCIT an d decision of the Hon’ble ITAT, Vis akh ap atn am in the case of D. Satyan arayan a vs. ACIT. The contention of the L/R of the assessee is found to be acceptabl e as the s ame is supported by the decision of the Hon’ble ITAT, Chennai in the case of DCIT vs. Smt. C.K. Sumath y (2011) 44 SOT 65 and the decision of the Hon’bl e ITAT, Vis akh apatn am in the case of D. Satyan arayan a vs. ACIT in IT(SS)A No. 1/Vizag/2012. It is therefore hel d that the assessee is entitl ed to de duction of 15% to wards v ari ation in the CPWD rates an d the local rates. The AO is directe d acco rdingl y.” 12. 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. 13. 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). 14. 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. 13 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 al so pointed out by the L/R of the assessee th at the buil ding was constructe d by the assessee using own l abour an d no contract was given to an yone for construction. It was accordingl y contended th at the observation of the DVO th at rebate for sel f-supervision cannot be all owe d is erroneous an d self-supervision rebate of 10% is require d to be al l owe d to arrive at the correct cost of construction of the buil ding. In support of this contention, the L/R of the assessee pl aced rel iance on the decision of the Hon’bl e Bangal ore in the case of C. Sank ara Reddy vs. DCIT and decision of the Hon’ble ITAT, Vis akh ap atn am in the case of D. Satyan arayan a vs. ACIT. The contention of the L/R of the assessee is found to be acceptabl e as the s ame is supported by the decision of Hon’ble Punjab & Haryan a High Court in the case of CIT vs. Om Overse as (2011) 16 taxmann.com 184, wherein it was hel d that de duction for sel f supervision shoul d be all owe d at 10%. This contention of L/R of the assessee is al so supported by the decision of the Hon’bl e ITAT, Vis akhap atn am in the case of D. Satyan arayan a vs. ACIT in IT( SS)A No.1/Vizag/2012. It is therefore hel d th at the assessee is entitl ed to rebate of 10% to wards sel f-supervision. The Ld. AO is directed acco rdingl y. Ground No.1 of appe al is therefore partl y al l o wed.” 15. 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. 16. In the result, appeal of the Revenue is partly allowed. 17. 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 17 th July, 2023. Sd/- Sd/- (दुåवूǽ आर.एल रेɬडी) (एस बालाकृçणन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) ÛयाǓयकसदèय/JUDICIAL MEMBER लेखा सदèय/ACCOUNTANT MEMBER Dated : 17.07.2023 OKK - SPS आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the order forwarded to:- 1. Ǔनधा[ǐरती/ The Assessee – Sri Potluri Ravi, Smt. Potluri Annapurna, 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. 2. राजèव/The Revenue – ACIT, Circle-2(1), Ground Floor, CR Buildings, MG Road, Vijayawada, Andhra Pradesh – 520002. 3. The Principal Commissioner of Income Tax, Vijayawada. 4. आयकर आयुÈत (अपील)/ The Commissioner of Income Tax 5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण, ͪवशाखापटणम/ DR, ITAT, Visakhapatnam 6. गाड[ फ़ाईल / Guard file आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam