DCIT I, Kanpur V. M/s Indus Technical Education Society, Kanpur

ITA 344/LKW/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3221 (ITAT-LUCKNOW)
• Duration Of Justice: 2 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 27-05-2013
• Assessment Year: misc
• Appeal Filed On: 15-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALOK MITRA
• Keywords: Unexplained investment; Value adopted by valuation officer; Depreciation; Valuation report; Block assessment
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A , LUCKNOW BEFORE SHRI S UNIL KUMAR YADAV , JUDICIAL MEMBER AND SHRI. PRAMOD KUMAR, ACCOUNTANT MEMBER ITA NO S . 296 AND 297/LKW/2011 ASSESSMENT YEAR S : 2006 - 07 AND 2007 - 08 ACIT - 1 KANPUR V. M/S INDUS TECHNICAL EDUCATION SOCIETY A - 1, ROOMA, KANPUR PAN: AAATT4395L (APPELLANT) (RESPONDENT) ITA NO S . 344 AND 411/LKW/2011 ASSESSMENT YEAR S : 2005 - 06 AND 2008 - 09 DCIT - 1 KANPUR V. M/S INDUS TECHNICAL EDUCATION SOCIETY A - 1, ROOMA, KANPUR PAN: AAATT4395 L (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI. ALOK MITRA, D.R. RESPONDENT BY: SHRI. RAKESH GARG, ADVOCATE DATE OF HEARING: 28.05.13 DATE OF PRONOUNCEMENT: 28.06.13 O R D E R PER SUNIL KUMAR YADAV: THESE APPEALS ARE PREFERRED BY THE REVENU E AGAINST THE RESPECTIVE ORDER OF THE LD. CIT(A) ON VARIOUS GROUNDS. 2 . FIRST GROUND IN ALL THESE APPEALS RELATES TO THE DELETION OF ADDITION MADE ON ACCOUNT OF INTEREST PAID ON UNSECURED LOANS TO THE PERSONS SPECIFIED UNDER SECTION 13(3)/40A(2)(B) OF THE INC OME - TAX ACT, 1961 : - 2 - : (HEREINAFTER CALLED IN SHORT THE ACT'). IN THIS REGARD, THE ASSESSING OFFICER HAS DISALLOWED EXCESS INTEREST PAID TO THE PERSONS SPECIFIED UNDER SECTION 40A(2)(B) OF THE ACT. THE FACTS IN ALL THESE APPEALS ARE ALMOST SIMILAR EXCEPT THE DIFFERENCE IN QUANTUM. WE, THEREFORE, PREFER TO REFER THE FACTS ON THIS ISSUE RECORDED IN ITA NO. 296/LKW/2011 FOR ASSESSMENT YEAR 2006 - 07. 2 . 1 IN THIS YEAR, THE ASSESSING OFFICER DISALLOWED A SUM OF ` 22,36,405 OUT OF INTEREST PAID ON UNSECURED LOAN ON THE G ROUND THAT INTEREST HAS BEEN PAID IN THIS YEAR @ 18% PER ANNUM AS AGAINST 12% PER ANNUM IN THE PRECEDING YEAR. THE ASSESSING OFFICER WHILE DISALLOWING THE INTEREST ALSO OBSERVED THAT THE INTEREST ON LOAN TAKEN FROM THE FINANCIAL INSTITUTIONS DURING THE YE AR HAS BEEN PAID @ 12% PER ANNUM . BESIDES, IT WAS ALSO OBSERVED THAT INTEREST IN THE PRO VI SIONAL BALANCE SHEET AND INCOME & EXPENDITURE ACCOUNT HAS BEEN PROVIDED AT 12% WHEREAS IN THE AUDITED ACCOUNTS INTEREST HAS BEEN PROVIDED @ 18% PER ANNUM . 2 . 2 AGAINST TH E DISALLOWANCE, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT INTEREST @ 18% PER ANNUM WAS PAID/PROVIDED TO ALL THE PARTIES/CREDITORS. NO SPECIAL RATE WAS PAID TO THE PARTIES COVERED UNDER SECTION 40A(2)(B) OF THE ACT. T HE INTEREST WAS PAID @ 18% PER ANNUM AT THE PREVAILING MARKET RATE AS APPROVED BY THE MEMBERS OF THE EXECUTIVE COMMITTEE IN ITS MEETING. COPY OF THE MINUTES OF THE MEETING AND THE BALANCE SHEET WERE FILED BEFORE THE LD. CIT(A). IT WAS ALSO CONTENDED THAT DURING THE YEAR NO LOAN WAS TAKEN FROM ANY FINANCIAL INSTITUTION. THEREFORE, QUESTION OF PAYMENT OF INTEREST @ 12% PER ANNUM TO ANY FINANCIAL INSTITUTION DOES NOT ARISE. IT WAS ALSO EXPLAINED TO THE LD. CIT(A) THAT THE SOCIETY WAS FLOATED BY THREE IIT G RADUATES WITH THE MAIN OBJECT OF SETTING UP AN ENGINEERING COLLEGE AT KANPUR, FOR WHICH SUBSTANTIAL FUNDS WERE REQUIRED AND DUE TO RELUCTANCE OF THE FINANCIAL INSTITUTIONS IN PRO VIDING TERM LOAN TO THE SOCIETY, T HE MANAGEMENT : - 3 - : COMMITTEE HAS DECIDED TO FINAN CE THE PROJECT PARTLY FROM THEIR OWN SOURCES AND PARTLY FROM OUTSIDE SOURCES. INTER E ST DURING THE YEAR UNDER APPEAL WAS PAID BY THE SOCIETY ON THE BORROWED FUNDS @ 18% PER ANNUM AT THE PREVAILING MARKET RATE IN ACCORDANCE WITH THE RISING COST OF FUNDS BEC AUSE THE RATE OF INTEREST ON PERSONAL LOANS OF VARIOUS BANKS WAS BETWEEN THE RANGE OF 18% TO 24% PER ANNUM DURING THAT PERIOD. BESIDES, HE HAS ALSO PLACED RELIANCE UPON VARIOUS JUDGMENTS. 2 . 3 THE LD. CIT(A) RE - EXAMINED THE ISSUE IN THE LIGHT OF ASSESSEES CON TENTIONS AND BEING CONVINCED WITH THE SAME, THE LD. CIT(A) DELETED THE ADDITION AFTER HAVING CONCLUDED THAT PAYMENT OF INTEREST @ 18% PER ANNUM IS REASONABLE, MARKET RELATED AND NOT EXTRAORDINARY AND THEREFORE NO DISALLOWANCE UNDER SECTION 40A(2)(B) OF THE ACT IS CALLED FOR. ACCORDINGLY THE ADDITION WAS DELETED. 2 . 4 NOW THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND HAS PLACED HEAVY RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER WHEREAS THE LD. COUNSEL FOR THE ASSESSEE BESIDES PLACING RELIANCE UPON THE ORD ER OF THE LD. CIT(A) HAS CONTENDED THAT DURING THE RELEVANT ASSESSMENT YEAR EVEN LOAN @ 12% PER ANNUM WAS NOT AVAILABLE FROM THE FINANCIAL INSTITUTIONS . MOREOVER , WHILE OBTAINING LOAN FROM THE FINANCIAL INSTITUTIONS THE ASSESSEE IS REQUIRED TO FURNISH GUA RANTEES OR SURETIES BESIDES COMPLETING VARIOUS FORMALITIES. THE ASSESSEE HAS PAID LOAN INTEREST @ 18% PER ANNUM TO ALL THE PARTIES/CREDITORS . T HEREFORE, IT IS NOT CORRECT TO SAY THAT HIGHER RATE OF INTEREST WAS PAID TO THE PARTIES SPECIFIED UNDER SECTION 40A(2)(B) OF THE ACT. 2 . 5 HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER AUTHORITIES AND FROM A CAREFUL PERUSAL OF RECORD IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT UNDISPUTEDLY SUBSTANTIAL LOAN WAS BORROWED BY THE ASSESSEE FROM THE PARTIES SPECIF IED UNDER SECTION 40A(2)(B) OF THE ACT BESIDES OTHER CREDITORS. BUT INTEREST WAS PAID AT THE SAME RATE I.E. @ 18% PER ANNUM TO BOTH THE : - 4 - : TYPES OF CREDITORS. UNDISPUTEDLY IN THE IMPUGNED ASSESSMENT YEAR INTEREST PAID WAS INCREASED FROM 12% TO 18% PER ANNUM ON THE BASIS OF THE RESOLUTION PASSED BY THE MEMBERS OF THE EXECUTIVE COMMITTEE OF THE ASSESSEE - SOCIETY . BUT THIS RATE OF INTEREST WAS INCREASED FOR BOTH THE TYPES OF CREDITORS, THEREFORE, IT CANNOT BE SAID THAT EXCESS RATE OF INTEREST WAS PAID TO THE PE RSONS SPECIFIED UNDER SECTION 40A(2)(B) OF THE ACT. NOTHING IS PLACED ON RECORD TO ESTABLISH THAT THE ASSESSEE HAS PAID LESSER RATE OF INTEREST TO THE FINANCIAL INSTITUTIONS. MOREOVER, NO LOAN WAS BORROWED FROM THE FINANCIAL INSTITUTION S IN THE IMPUGNED ASSESSMENT YEAR. IN THE LIGHT OF THESE FACTS, WE ARE OF THE CONSIDERED VIEW THAT SINCE THE ASSESSEE HAS PAID INTEREST @ 18% PER ANNUM TO ALL TYPES OF ITS CREDITORS, DISALLOWANCE OF EXCESS PAYMENT OF INTEREST ON THE GROUND THAT HIGHER RATE OF INTEREST WAS PAID TO THE PERSONS SPECIFIED UNDER SECTION 40A(2)(B) OF THE ACT CANNOT BE SUSTAINED. WE ACCORDINGLY CONFIRM THE ORDER OF THE LD. CIT(A) WHO HAS RIGHTLY DELETED THE ADDITIONS AFTER HAVING OBSERVED THAT THE PAYMENT OF INTEREST @ 18% PER ANNUM IS REASONABLE , MARKET RELATED AND NOT EXTRAORDINARY AND THEREFORE NO DISALLOWANCE IS CALLED FOR. ACCORDINGLY, THE ORDER OF THE LD. CIT(A) ON THIS ISSUE IS CONFIRMED. 2 . 6 IN ASSESSMENT YEAR 2008 - 09, THE ASSESSING OFFICER MADE DISALLOWANCE OF EXCESS PAYMENT OF INTEREST ON T HE GROUND THAT HIGHER RATE OF INTEREST @ 21% PER ANNUM WAS PAID BY THE ASSESSEE TO THE PERSONS SPECIFIED UNDER SECTION 40A(2)(B) OF THE ACT. THE LD. CIT(A) RESTRICTED THE DISALLOWANCE OF INTEREST TO 18% PER ANNUM AND DIRECTED THE ASSESSING OFFICER ACCORDI NGLY. THEREFORE, IN THE LIGHT OF FOREGOING DISCUSSIONS, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 2 . 7 IN ASSESSMENT YEAR 2005 - 06 INTEREST WAS PAID @ 12% PER ANNUM WHICH WAS ALSO CONSIDERED TO BE AT HIGHER SIDE BY THE ASSESSIN G OFFICER WHILE MAKING DISALLOWANCE OF EXCESS PAYMENT OF INTEREST PAID. THE LD. CIT(A) DELETED THE ADDITIONS FINDING NO MERIT IN THE ADDITION. IN THE LIGHT OF : - 5 - : OUR OBSERVATIONS IN THE FOREGOING PARAS, NO DISALLOWANCE CAN BE MADE FOR INTEREST PAID @ 12% PE R AN NUM ON UNSECURED LOAN AVAILED F R O M THE MEMBERS AND THEIR RELATIVES. THEREFORE, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 2 . 8 IN ASSESSMENT YEAR 2007 - 08, THE LD. CIT(A) DELETED THE ADDITION MADE IN THIS REGARD FOLLOWING HI S ORDER FOR ASSESSMENT YEAR 2006 - 07. SINCE WE HAVE CONFIRMED THE ORDER OF THE LD. CIT(A) FOR ASSESSMENT YEAR 2006 - 07, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LD. CIT(A) FOR ASSESSMENT YEAR 2007 - 08. 3 . GROUND NO.2 IN APPEALS NO.296, 297 AND 411/LKW/ 2011 RELATES TO THE DISALLOWANCE OF DEPRECIATION CLAIMED BY THE ASSESSEE. 3 . 1 THE FACTS IN BRIEF IN THIS REGARD ARE THAT THE A SSESSEE CLAIMED DEPRECIATION @ 6 0 % ON BOOK PURCHASED FOR COLLEGE LIBRARY, BUT THE ASSESSING OFFICER ALLOWED DEPRECIATION ONLY @ 15% BY HOLDING THAT THE BOOKS ARE PLANT AND MACHINERY AND THE ASSESSEE IS RUNNING AN EDUCATIONAL INSTITUTION AND IS NOT ENGAGED IN THE BUSINESS OF LENDING LIBRARY. THUS, HE DISALLOWED A SUM OF ` 4,74,805 OUT OF TOTAL DEPRECIATION AMOUNTING TO ` 6,33,073 CLAIMED O N BOOKS IN ASSESSMENT YEAR 2006 - 07. 3 . 2 THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT TO IMPART HIGHER EDUCATION THE ASSESSEE IS MAINTAINING A LIBRARY OF INTERNATIONAL STANDARD FOR ENGINEERING STUDENTS AND LIBRARY CHARGES ARE COLLECTED FROM THE STUDENT S FOR US E OF LIBRARY. DURING ASSESSMENT YEAR 2006 - 07 THE ASSESSEE RECEIVED A SUM OF ` 1,17,700 AS LIBRARY CHARGES AND A SUM OF ` 12,033 AS LIBRARY FINE FROM THE STUDENTS. SINCE THE ASSESSEE IS RUNNING A LIBRARY FOR LENDING THE BOO KS ON CHARGES, IT IS ELIGIBLE FOR DEPRECIATION @ 100% AS PER PARA 9(II) OF THE SCHEDULE OF DEPRECIATION OF THE INCOME - TAX RULES. IT WAS FURTHER CONTENDED THAT DUE TO FAST CHANGING TECHNOLOGY AROUND THE GLOBE, THE REFERENCE BOOKS ALSO : - 6 - : BECOME OBSOLETE IN A SHORT SPAN. BECAUSE OF FREQUENT CHANGES IN THE SYLLABUS AND TECHNOLOGY, THE BOOKS PURCHASED BY THE COLLEGE FOR LIBRARY AND USED AS REFERENCE BOOKS BY THE STUDENTS OF ENGINEERING BECOME OBSOLETE SHORTLY. FINDING FORCE IN THE CONTENTIONS OF THE ASSESSEE, T HE LD. CIT(A) ALLOWED DEPRECIATION @ 100% AS PER PARA 9(II) OF THE SCHEDULE OF DEPRECIATION OF THE INCOME - TAX RULES. 3 . 3 AGGRIEVED, THE REVENUE IS BEFORE US AND HAS PLACED RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER WHEREAS THE LD. COUNSEL FOR THE ASSESSE E BESIDES PLACING RELIANCE UPON THE ORDER OF THE LD. CIT(A) HAS REITERATED THE ARGUMENTS AS RAISED BEFORE THE LD. CIT(A). 3 . 4 HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE ORDERS OF THE LOWER AUTHORITIES, WE FIND THAT THERE IS FORCE IN THE CONTENTIONS OF THE ASSESSEE THAT DUE TO FAST CHANGING TECHNOLOGY AROUND THE GLOBE, THE REFERENCE BOOKS ALSO BECOME OBSOLETE IN A SHORT SPAN. MOREOVER, IT IS ALSO OBVIOUS FROM RECORD THAT THE BOOKS WERE GIVEN TO THE STUDENT S FOR WHICH LIBRARY CHARGES WERE COLLECTED BY THE ASSESSEE - SOCIETY. THEREFORE, AS PER PARA 9(II) OF THE SCHEDULE OF DEPRECIATION OF THE INCOME - TAX RULES DEPRECIATION IS TO BE ALLOWED @ 100%. WE, THEREFORE, FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN THIS REGARD AND WE ACCORDINGLY CONFIRM THE SAME. 3 . 5 SIMILAR IS THE POSITION IN OTHER APPEALS ALSO ON THIS ISSUE. WE ACCORDINGLY CONFIRM THE ORDERS OF THE LD. CIT(A) ON THIS ISSUE IN THOSE APPEALS ALSO. 4 . GROUND NO.3 IN ALL THE APPEALS RELATES TO THE DELETI ON OF ADDITION MADE ON ACCOUNT OF UNEXPLAINED INVESTMENT IN CONSTRUCTION OF BUILDING BY CONSIDERING THE REPORT OF THE DEPARTMENTAL VALUATION OFFICER (DVO). 4 . 1 IN THIS REGARD, IT IS NOTICED THAT SUBSEQUENT TO SURVEY UNDER SECTION 133A OF THE ACT CONDUCTED AT T HE PREMISES OF THE ASSESSEE - SOCIETY, : - 7 - : REFERENCE UNDER SECTION 142A OF THE ACT WAS MADE TO THE DVO FOR ESTIMATING THE VALUE OF COLLEGE BUILDING OF THE ASSESSEE - SOCIETY AND VIDE DVOS REPORT DATED 14.12.2008 THE COST OF CONSTRUCTION WAS ESTIMATED AT ` 10,85,06 ,500 AS AGAINST ` 9,09,38,437 DECLARED BY THE ASSESSEE BEFORE THE DVO. THIS INVESTMENT IN THE PROPERTY WAS SPREAD OVER A PERIOD OF SIX YEARS I.E. FROM FINANCIAL YEAR 2003 - 04 TO 2008 - 09. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER CO NSIDERED THE OBJECTIONS FILED BY THE ASSESSEE AND REDUCED THE ESTIMATED COST OF CONSTRUCTION AT ` 17,66,366. ACCORDINGLY THE REVISED ESTIMATED COST ADOPTED BY THE ASSESSING OFFICER WAS OF ` 10,67,40,134. AS PER ASSESSMENT ORDER YEAR - WISE INVESTMENT S IN CON STRUCTION OF BUILDING AS DECLARED BY THE ASSESSEE AND AS PER REVISED ESTIMATED COST OF CONSTRUCTION ADOPTED BY THE ASSESSING OFFICER ARE AS UNDER: - F.Y. INVESTMENT DECLARED BY THE ASSESSES BEFORE THE DVO ESTIMATED COST OF CONSTRUCTION 2003 - 04 35,41,78 9.00 41,58,060.00 2004 - 05 1,68,47,689,00 1,97,79,187.00 2005 - 06 1,13,83,351.00 1,33,64,051.00 2006 - 07 1,71,55,225.00 2,01,40,234.00 2007 - 08 2,18,79,944.00 2,56,87,054.00 2008 - 09 2,01,30,439.00 2,36,11,548.00 TOTAL 9,09,38,437.00 10 ,67,40,134.00 4 . 2 ACCORDINGLY, THE ASSESSING OFFICER ADDED THE DIFFERENCE IN INVESTMENT DECLARED BY THE ASSESSEE AND ESTIMATED BY THE ASSESSING OFFICER IN DIFFERENT ASSESSMENT YEARS. 4 . 3 BEFORE THE LD. CIT(A), THE ASSESSEE HAS FILED WRITTEN SUBMISSIONS POINTING OUT VARIOUS DEFECTS IN THE VALUATION REPORT AND THE ESTIMATION : - 8 - : MADE BY THE ASSESSING OFFICER. FOR THE SAKE OF REFERENCE, WE EXTRACT THE SAME AS UNDER: - LD. A.O. FAILED TO CONSIDER THE VALUATION REPORT OF APPROVED REGISTERED VALUER AND IN DISPOSING HIS O BJECTIONS/OBSERVATIONS. REGISTERED VALUER HAS ONLY MENTIONED /HIGHLIGHTED THOSE ISSUES WHICH ARE NOT CONSIDERED / WRONGLY CONSIDERED BY THE DVO. OBJECTIONS OF THE ASSESSEE WHICH REMAINED UNDISPOSED BY THE DVO / ASSESSING OFFICER ARE AS UNDER. A.) DVO HAS AD OPTED VARIOUS PLINTH AREA RATES FOR DIFFERENT FLOORS OF THE BUILDING. THESE RATES ARE NOT GIVEN IN C.P.W.D. SCHEDULE OF RATES. DVO IS REQUESTED TO GIVE THE DETAILED WORKING OF RATE ADOPTED BY HIM. B.) DVO HAS ADOPTED C.P.W.D RATES. THE WORK IS BEING DONE I N U.P. AS SUCH HE SHOULD ADOPT P.W.D RATES. THIS HAS BEEN HELD BY HON'BLE HIGH COURT AND ALSO BY VARIOUS APPELLATE COMMISSIONERS. THE U.P.P.W.D RATES ARE 6% CHEAPER THAN C.P.W.D RATES. C.) TOTAL AREA OF GROUND FLOOR TAKEN BY DVO AS 3544.23M 2 IS NOT CORRECT ACTUAL AREA OF GROUND FLOOR IS 34 74.84 M 2 D.) IN THE ENTIRE BUILDING CONSIDERABLE AREA IS IN THE SHAPE OF BIG HALF. FOR HALL TYPE CONSTRUCTION, VALUATION CELL IS ALLOWING 35% DEDUCTION IN PLINTH AREA RATE FOR NOT PROVIDING INTERNAL WALLS, JOINERY WORK AN D FITTING ETC. AS SUCH IN THIS CASE ALSO 35% DEDUCTION IN RATE SHOULD BE ALLOWED W H EREEVER HALLS HAVE BEEN PROVIDED. TOTAL FLOOR WISE AREA OF HALLS IS GIVEN BELOW: - AREA OF HALLS : - 9 - : GROUND FLOOR - 1431.26M 2 FIRST FLOOR - 1300.17M 2 SECOND FLOOR - 1090.80M 2 CAN TEEN PORTION GROUND FLOOR - 153.71M 2 FIRST FLOOR - 263.56M 2 E.) THE DVO HAS ADOPTED PLINTH AREA RATES APPLICABLE FOR 6 STOREY RCC FRAME STRUCTURE. THE BUILDING UNDER CONSIDERATION IS ONLY 3 STOREY. THERE IS A PROVISION OF I NCREASING IN PLINTH AREA RATE @ RS.50.00 PER M 2 PER FLOOR ABOVE SIX STOREY. AS SUCH SIMILARLY THE PLINTH AREA RATES SHOULD BE REDUCED ALSO FOR THREE STORE. AS SUCH CONSIDERING THE COST INDEX, THE REDUCTION IN PLINTH AREA RATES SHALL BE @RS. 150.00 X2.20 = RS.330.OO/M 2 . F.) DVO HAS TAKEN THE RATE OF RS.392.00/M 2 FOR PROVIDING KOTA FLOORING WHICH IS VERY EXCESSIVE. KOTA STONE IS AVAILABLE IN THE MARKET @ RS.220.00 PER M 2 . COST OF FIXING THE KOTA STONE MAY BE TAKEN EQUAL TO COST OF ALLOWABLE FLOORING. AS SUCH NET ADDITION FOR PROVIDING KOTA FLOORING SHOULD BE DONE @RS .220.00 PER M 2 . G.) DVO HAS ALLOWED THE DEDUCTION FOR SELF SUPERVISION @7.5% WHERE AS THIS DEDUCTION SHOULD BE 10%. H.) DVO HAS ADDED RS.500000.00 FOR GUARD ROOM & COLUMN & HORTICULTURE WORK. THIS IS VERY EXCESSIVE. IT SHOULD NOT BE MORE THAN RS.250000.00 AFTER GIVING EFFECT OF ALL THESE OBJECTIONS, THERE WILL NOT BE ANY DIFFERENCE BETWEEN THE TWO VALUES. NO ADDITION ON THE BASIS OF : - 10 - : VALUATION REPORT OF DVO WHICH IS NOT SPECIFIC AND NOT BASED ON FAC TS SHOULD BE MADE. THERE ARE NUMBER OF CASE LAWS IN SUPPORT OF ASSESSEE'S - VERSION. SOME CASE LAWS ARE MENTIONED BELOW: - NO ADDITION WHERE COST OF CONSTRUCTION OF THE PROPERTY IS DULY REFLECTED IN THE BOOKS OF ACCOUNTS AND NO INCREMENATING MATERIAL OR DOCU MENT WAS FOUND DURING THE COURSE OF SEARCH. IN THE CASE OF DR. SURYA MANI DIWEDI VS. ACIT (2010) 132 TTJ (LUK.) 240, HON'BLE IT AT, LUCKNOW BENCH BY FOLLOWING THE CASE OF CIT VS. MEERUT CEMENT COMPANY PVT. LTD. (2006) 202 CTR (ALL.), HELD THAT ADDITION CANN OT BE MADE TOWARDS UNDISCLOSED INVESTMENT IN CONSTRUCTION ON THE BASIS OF REPORT OF THE DVO, WHEN BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED WHEREIN EVERY EXPENDITURE RELATING TO THE CONSTRUCTION IS RECORDED AND THOSE BOOKS OF ACCOUNTS HAVE NOT BEEN REJECTED B Y THE A. O. IN THE CASE OF ACIT VS. DR. MRS. SHARDA ADLAKHA (2005) 95 TTJ 643 (AMRITSAR), IT WAS HELD BY THE HON'BLE IT AT THAT WHERE THE COST OF CONSTRUCTION OF THE PROPERTY IS DULY REFLECTED IN THE BOOKS OF ACCOUNT AND WAS SHOWN IN THE BALANCE SHEET PRIOR TO THE DATE OF SEARCH AND THE SAME WAS ALREADY ON THE INCOME TAX RECORDS OF THE DEPARTMENT AND NO INCRIMINATING MATERIAL OR DOCUMENT WAS FOUND DURING THE COURSE OF SEARCH WHICH COULD SHOW THAT THE ASSESSEE HAD UTILIZED PART OF THE UNDISCLOSED INCOME IN TH E CONSTRUCTION OF THE SAID PROPERTY, NO ADDITION COULD BE MADE IN BLOCK ASSESSMENT ON THAT ACCOUNT. IN THE CASE OF CIT VS MEERUT CEMENT CO.(P) LTD.(2006) 202 CTR : - 11 - : 506(ALL) IT WAS HELD THAT WHERE THE REPORT OF DVO SUFFERS FROM MATERIAL DEFECTS AND THAT THE R EVENUE HAS NOT POINTED OUT A SINGLE INSTANCE OF UNRECORDED EXPENDITURE ADDITION U/S 69B MADE ONLY ON THE BASIS OF DVO'S REPORT COULD NOT BE SUSTAINED. IN THE CASE OF DY. CIT VS. ROHTAS PROJECTS LTD.(2006) 282 ITR(AT) 42, LKO, THERE WAS DIFFERENCE OF OPINIO N BETWEEN THE MEMBERS OF THE BENCH AND QUESTION WAS REFERRED TO THE THIRD MEMBER FOR HIS OPINION. HON'BLE VICE PRESIDENT (THIRD MEMBER) HELD THAT THE ASSESSEE WAS MAINTAINING THE BOOKS OF ACCOUNTS IN ACCORDANCE WITH THE PROVISIONS OF COMPANIES ACT, 1956, W HICH WERE DULY AUDITED. THE AO HAD NOT POINTED OUT ANY DEFECTS IN THE BOOKS OF ACCOUNTS WHICH WERE DULY SUPPORTED WITH VOUCHERS ETC. THE REVENUE HAD ALSO NOT BROUGHT ANYTHING ON RECORD TO SHOW THAT THE BOOKS OF ACCOUNTS FOLLOWED BY THE ASSESSEE ARE SUFFERI NG ANY DEFECT. THE DEPARTMENT THEREFORE COULD NOT BE GIVEN A FRESHENING IN THE ABSENCE OF ANY MATERIAL BROUGHT ON RECORD BY THE DEPARTMENTAL AUTHORITIES. IN THE CASE OF CIT VS. ASHOK KHETRAPAL (2007) 294 ITR 143 (DELHI) IT WAS HELD BY DISMISSING THE APPEA L OF THE DEPARTMENT, THAT NO INCRIMINATING MATERIAL WHATSOEVER WAS FOUND DURING THE COURSE OF SEARCH THAT MIGHT SHOW THAT THE ASSESSEE HAD MADE MORE INVESTMENT IN THE PROPERTIES THAN HIS DECLARED VALUE. IN THE ABSENCE OF ANY ADVERSE MATERIAL FOUND DURING T HE SEARCH, TREATING THE INVESTMENT AS UNDISCLOSED COULD NOT MAKE ADDITION. IN THE CASE OF CIT VS. MANOJ JAIN (2007) 2006 ITR 285 (DELHI) IT WAS HELD THAT IN THE ABSENCE OF ANY EVIDENCE OF CONCEALMENT : - 12 - : OF INCOME DISCOVERED IN SEARCH OPERATIONS, ADDITION BASE D ON ESTIMATE OF VALUE OF PROPERTY IS NOT JUSTIFIED. IN THE CASE OF CIT VS. RAVI KANT JAIN (2001) 250 ITR 141 (DELHI) IT WAS HELD THAT ASSESSMENT OF BLOCK PERIOD COULD ONLY BE DONE ON THE BASIS OF EVIDENCE FOUND AS A RESULT OF SEARCH. FURTHER MORE IN FOLLO WING CASES THE VARIOUS HON'BLE ITAT BENCH TOOK THE SIMILAR VIEW BY HOLDING THAT NO ADDITION CAN BE MADE ON THE BASIS OF V ALUATION REPORT SPECIALLY WHEN NO INCRIMINATING DOCUMENTS INDICATING UNEXPLAINED INVESTMENT IN THE COST OF CONSTRUCTION WAS FOUND DURIN G THE COURSE OF SEARCH. OM PRAKASH SHARMA VS. DCIT (2004) 83 TTJ 246 (JAIPUR) DCIT VS. RAJ KUMAR AGRAWAL (2006) 102 TTJ 991 (JODHPUR) NO ADDITION WHERE DIFFERENCE UPTO 15% BETWEEN THE VALUE ESTIMATED BY THE DVO AND COST ACTUALLY INCURRED BY THE ASSESSEE O N CONSTRUCTION OF THE PROPERTY. AS REGARDS DIFFERENCE BETWEEN THE COST ACTUALLY INCURRED BY THE APPELLANT AND THE VALUE ESTIMATED BY THE D. V. O. THERE ARE SEVERAL CASE LAWS WHERE DIFFERENCE UPTO 15% BETWEEN THE TWO VALUES HAS BEEN DELETED BY THE HON'BLE COURTS. IN THE CASE OF SIMLA SINGH VS CIT(2009) 222 CTR 404 (PATNA) IT WAS HELD THAT IF THE DIFFERENCE BETWEEN THE COST OF CONSTRUCTION ESTIMATED BY THE DEPARTMENTAL VALUER & COST DISCLOSED BY THE ASSESSES IS LESS THAN 15%, THE SAME WILL BE IGNORED. IN THE CASE OF ASHISH AGRAWAL & OTHERS VS. DCIT, CENTRAL CIRCLE - 11, K ANPUR, THE HON'BLE ITAT LUCKNOW BENCH HELD THAT VARIATION UPTO 10% SHOULD BE CONSIDERED NORMAL BUT THEN THE : - 13 - : 10% LIMIT IS NOT A SACROSANCT BENCH MARK WHICH HAS TO BE FOLLOWED UNIFORMLY IN ALL CA SES. IN THE PRESENT CASE, CONSIDERING THE FACTS I DON'T SEE MUCH DIFFERENCE BETWEEN 10% AND 12.50% WHEN THE ESTIMATION MADE BY THE D. V. O. IS MERELY AN EXPRESSION OF HIS OPINION. THERE IS NO REASON TO DISBELIEVE THE ASSESSEE'S VERSION HENCE THE ADDITION I S DELETED WHICH IS MERELY BASED ON OPINION AND NOT ON FACTS. SIMILAR VIEW WAS TAKEN BY THE HON'BLE CIT (APPEALS) - LL, KANPUR IN VARIOUS CASES, SOME OF THEM ARE MENTIONED BELOW: - RAM KRISHAN TRIPATHI VS. ITO (ORDER DTD. 24/10/1991) SMT. VIMLA DEVI VS. ITO (O RDER DTD. 15/01/2002) MADAN LAL VS. ITO (ORDER DTD. 10/07/2002) SMT. RAMA GUPTA VS A CIT (ORDER DTD 18/03/2008) IT IS FURTHER SUBMITTED THAT IN THE CASE OF I.T.O. VS SANTOSH KUMAR DALMIA 208 ITR 337 (CA L ), IT WAS HELD THAT VALUATION IS A MATTER OF OPINION AND VALUATION DIFFERS FROM VALUER TO VALUER AND PROPERTY TO PROPERTY, DEPENDING ON FACTS AND CIRCUMSTANCES OF EACH CASE. THE VALUER'S REPORT IS A STATISTICAL HYPOTHESIS THAT LEAVES WIDE ROOM FOR ERROR ON EITHER SIDE. IN THE LIGHT OF ABOVE FACTS, ADDITION O F RS. 19,80,700/ - MADE BY THE LD. A.O. MAY KINDLY BE DELETED. 4 . 4 FINDING FORCE IN THE CONTENTIONS OF THE ASSESSEE, THE LD. CIT(A) DELETED THE ADDITIONS. THE RELEVANT OBSERVATIONS OF THE LD. CIT(A) ARE EXTRACTED HEREUNDER FOR ASSESSMENT YEAR 2006 - 07: - 6.1 ON PERUSAL OF THE DVO REPORT & THE REGISTERED VALUER'S REPORT IT IS SEEN THAT THE DVO HAS ADOPTED THE SAME RATE OF CONSTRUCTION FOR THE HALLS AS HE HAS TAKEN FOR THE OTHER : - 14 - : PORTIONS. IT IS A COMMERCIAL KNOWN FACT AND DUE COGNIZANCE OF THE SAME CAN BE TAKEN U/S. 1 14 OF THE EVIDENCE ACT THAT THE COST OF CONSTRUCTION OF HA LLS WOULD BE LESSER BECAUSE OF ABSENCE OF PARTITION WALLS AND OTHER FITTINGS IN THE HALLS AS COMPARED TO NORMAL ROOM TYPE OF CONSTRUCTION. THE REGISTERED VALUER HAD GIVEN A DEDUCTION @ 35%, WH ICH IN MY OPINION IS HIGHLY EXCESSIVE SINCE APART FROM ABSENCE OF PARTITION WALLS AND SOME MINOR FITTING DIFFERENCE, COST OF CONSTRUCTION WOULD NOT BE SO LARGE AS TO MERIT A DEDUCTION @ 35%. I AM OF THE CONSIDERED VIEW THAT THE DVO SHOULD HAVE ALLOWED A DEDUCTION @ 15% ON TOTAL HALL AREA (WHICH IS 3822 SQ. MT.). THIS DEDUCTION WOULD COME TO RS.38.50 LAKHS (3822 X 6725 (AVG. RATE) X 15%). 6.1.2 THE NEXT SUBSTANTIAL OBJECTION IS TO THE VALUATION ADOPTED BY THE A.O WITH RESPECT TO THE RATE ADOPTED FOR KOTA S TONE, WHICH IS @ 392 / - BY THE DVO WHEREAS THE REGISTERED VALUER HAS ADOPTED THE RATE @ 220/ - . I AM OF THE CONSIDERED VIEW THAT RATE @ 300/ - TO 310/ - PER SQ. MT. WOULD BE REASONABLE AND WOULD MEET THE END OF JUSTICE IN THIS REGARD. ACCORDINGLY, T HE COST OF CONSTRUCTION ON ACCOUNT OF KOTA STONE IS REDUCED BY RS. 5.00 LAKHS. 6.1.3 THE NEXT CONTENTIOUS ISSUE IS DIFFERENCE BETWEEN THE CPWD RATE AND THE PWD RATE WITH REGARD TO THE COST OF CONSTRUCTION. IT IS AN ADMITTED FACT THAT THE DVO ADOPTS CPWD R ATE FOR THE PURPOSE OF VALUATION. IT IS COMMERCIAL REALITY THAT THERE WOULD BE.SOME DIFFERENCE IN THE RATE OF CONSTRUCTION ADOPTED BY THE CPWD AND THAT BY THE UPPWD. THE REGISTERED VALUER HAD ADOPTED THE DIFFERENCE BETWEEN THESE 2 : - 15 - : RATES @ 6%, WHICH IN MY OPINION IS EXCESSIVE. IN MY CONSISTED VIEW, THE RATE DIFFERENCE BETWEEN THE 2 WOULD NOT BE MORE THAN 2 - 2 %. ACCORDINGLY, I ALLOW A REDUCTION OF RS.20 LAKHS FROM THE DVO'S VALUATION ON THIS ACCOUNT. TO SUMMARISE: THE VALUATION AS PER TH E A.O RS.10,67,40,134 / - LESS: (I) ON A/C OF KOTA STONE 5,00,000 / - (II) ON A/C OF CONSTRUCTION OF HALL 38,50,000 / - (III) ON A/C OF DIFFERENCE IN RATES 20,00,000/ - RS. 63.50.000/ - NET VA LUATION R S. 10,03,90,134/ - (A) AS PER THE DETAILS GIVEN IN 'YEAR WISE INVESTMENT DECLARED BY THE ASSESSEE' (ANNX. IV A OF THE DVO'S REPORT), THE TOTAL INVESTMENT DECLARED BY THE ASSESSEE. RS. 9,09,38,437 / - (B) 6.1.4 SINCE THE DIFFERENCE BETWEEN THE ESTIMATED COST OF CONSTRUCTION AND THE O VERALL INVESTMENT DECLARED BY THE ASSESSEE IS LESS THAN 10%, THERE WILL BE NO ADDITION ON ACCOUNT OF UNDISCLOSED INVESTMENT ON THIS CO UNT. REFERENCE IN THIS REGARD IS MADE TO THE FOLLOWING DECISIONS: BIMLA SINGH V/S C1T [222 CTR 404 (PATNA)] ASHISH AGARWAL V/S DCIT, CENTRAL - 11, KANPUR (LUCKNOW BENCH) 6.1.5. THE ADDITION IS, THEREFORE, DELETED. 4 . 5 AGGRIEVED, THE REVENUE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND PLACED HEAVY RELIANCE UPON THE ORDER OF THE LD. CIT(A). : - 16 - : 4 . 6 THE LD. COUNSEL FOR THE ASSESSEE DUR ING THE COURSE OF HEARING HAS INVITED OUR ATTENTION TO THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF SARGAM CINEMA VS. CIT [2010] 328 ITR 513 (SC) IN WHICH THE HON'BLE APEX COURT HAS HELD THAT WITHOUT REJECTING THE BOOKS OF ACCOUNT, REFERENCE TO TH E DVO CANNOT BE MADE. THE LD. COUNSEL FOR THE ASSESSEE FURTHER INVITED OUR ATTENTION TO THE ORDER OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE ASSESSEES BOOKS OF ACCOUNT ARE PROPERLY AUDITED AND NO DEFECT HAS BEEN POINTED OUT THEREIN. THERE IS NO SPECIFIC FINDING OF THE ASSESSING OFFICER FOR REJECTION OF THE BOOKS OF ACCOUNT. THEREFORE, REFERENCE TO THE DVO WAS MADE WITHOUT REJECTING THE BOOKS OF ACCOUNT. THUS, THE REFEREN CE TO THE DVO WAS NOT SUSTAINABLE IN THE EYES OF LAW AS PER THE AFORESAID JUDGMENT OF THE HON'BLE APEX COURT AND ESTIMATION MADE ON THE BASIS OF THE DVOS REPORT DESERVES TO BE DELETED. 4 . 7 HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS, WE F IND THAT THOUGH THE ASSESSING OFFICER HAS MADE A REFERENCE FOR ESTIMATION OF THE COST OF CONSTRUCTION OF THE COLLEGE BUILDING TO THE DVO, BUT THERE IS NO WHISPER IN THE ENTIRE ASSESSMENT ORDER WITH REGARD TO THE REJECTION OF THE BOOKS OF ACCOUNT. UNDISPUT EDLY THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE DULY AUDITED AND THE ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC DEFECT THEREIN. HE HAS SIMPLY MADE REFERENCE TO THE DVO FOR ESTIMATION OF THE COST OF CONSTRUCTION OF THE COLLEGE BUILDING. IN VIEW OF T HE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF SARGAM CINEMA VS. CIT (SUPRA), IF REFERENCE TO THE DVO IS MADE WITHOUT REJECTION OF THE BOOKS OF ACCOUNT THE VALUATION REPORT IS NOT SUSTAINABLE IN THE EYES OF LAW. THEREFORE, ON THE BASIS OF THE SAME T HE ESTIMATION MADE BY THE ASSESSING OFFICER IS ALSO NOT SUSTAINABLE. ACCORDINGLY ON THIS SCORE ALONE THE ADDITION MADE ON THE BASIS OF DVOS REPORT IS NOT SUSTAINABLE. BESIDES, WE HAVE ALSO EXAMINED THE ISSUE ON MERIT AND FIND THAT THE LD. CIT(A) HAS PRO PERLY : - 17 - : EXAMINED THE ISSUE WHILE DELETING THE ADDITIONS. FINDING NO MERIT IN THE CONTENTION OF THE REVENUE, WE REJECT THIS GROUND AND UPHOLD THE ORDER OF THE LD. CIT(A). 4 . 8 SIMILAR IS THE POSITION WITH REGARD TO OTHER APPEALS ALSO ON THIS ISSUE. ACCORDINGLY, WE REJECT THE GROUND RAISED BY THE REVENUE ON THIS ISSUE IN OTHER APPEALS ALSO. 5 . IN THE RESULT, THE APPEALS OF THE REVENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.6.2013. SD/ - SD/ - [PRAMOD KUMAR] [ S UNIL KUMAR Y ADAV ] ACCOUNTANT MEMBE R JUDICIAL MEMBER DATED: 28.6.2013 JJ: 2006 COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT 5 . DR ASSISTANT REGISTRAR