The ACIT, Circle-1(1), Visakhapatnam V. Sri K Ramakrishna Rao, Visakhapatnam

ITA 385/VIZ/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0680 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 27-04-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 10-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S S GOPINATH
• Assessee Lawyers: C V S MURTHY
• Keywords: Value adopted by valuation officer; Valuation report

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SRI B.R. BASKARAN, ACCOUNTANT MEMBER I.T.A. NO.385/VIZAG/2009 ASSESSMENT YEAR : 2006-07 ACIT, CIRCLE-1(1) VISAKHAPATNAM VS. K. RAMA KRISHNA RAO (HUF) VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO.AABHK 7351 R APPELLANT BY : SHRI G.S.S. GOPINATH, DR RESPONDENT BY : SHRI C.V.S. MURTHY, CA O R D E R PER SHRI B.R. BASKARAN, ACCOUNTANT MEMBER : THE APPEAL FILED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 15.4.2009 PASSED BY LD CIT(A), VISAKHAPATNAM AND IT RELATES T O THE ASSESSMENT YEAR 2006- 07. 2. THE REVENUE IS ASSAILING THE DECISION OF LD CIT(A) ON THE FOLLOWING TWO ISSUES. A) WHETHER LD CIT(A) IS CORRECT IN ALLOWING INDEX ED COST OF IMPROVEMENT ON THE 5 TH FLOOR OF THE COMPLEX. B) WHETHER LD CIT(A) IS JUSTIFIED IN ALLOWING 50% OF ADMINISTRATIVE EXPENSES THOUGH IT IS NOT RELATABLE TO THE YEAR UND ER CONSIDERATION. 3. THE FACTS RELATING TO THE ISSUES ARE STATED IN BRIEF. THE ASSESSEE HAD CONSTRUCTED A COMPLEX NAMED ADITYA COMPLEX. DURI NG THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SOLD FIFTH FLOOR OF THE COMPLEX AND CLAIMED DEDUCTION FOR INDEXED COST OF CONSTRUCTION AS UNDER : FINANCIAL YEAR COST INCURRED INDEXED COST 1993-94 9,43,674 19,22,156 1997-98 45,000 67,568 1998-99 18,24,026 25,82,992 1999-2K 79,683 1,01,806 2002-03 1,26,418 1,40,559 2 THE DVO, IN HIS VALUATION REPORT DATED 14.9.2000, H AD MENTIONED THAT THE CONSTRUCTION UPTO 4 TH FLOOR WAS COMPLETED BY 31.3.1998. ACCORDINGLY THE AO ALLOWED DEDUCTION TOWARDS INDEXED COST OF CONSTRUCT ION SHOWN FOR THE FINANCIAL YEAR 1998-99 AND THERE AFTER. THUS THE AO DID NOT ALLOW DEDUCTION OF RS.19,22,156/- CLAIMED TO HAVE BEEN INCURRED DURING THE FINANCIAL YEAR 1993-94 AND RS.67,568/- IN FINANCIAL YEAR 1997-98. THE AO ALSO DISALLOWED A SUM OF RS.62,060/- INCURRED TOWARDS LEGAL EXPENSES ON THE GROUND THAT IT IS RELATABLE TO EARLIER YEARS. 4. IN THE APPEAL PREFERRED BEFORE LD CIT(A), TH E FIRST APPELLATE AUTHORITY ALLOWED THE CLAIM OF THE ASSESSEE WITH REGARD TO TH E COST OF CONSTRUCTION WITH THE FOLLOWING OBSERVATIONS: 5.3 I HAVE CAREFULLY EXAMINED THE ISSUE. AS PER THE SA LE DEED DATED 23.2.2006, THE FIFTH FLOOR OF THE APPELL ANTS BUILDING WAS SOLD FOR RS.44,38,500/-. THE TOTAL EXTENT OF C ONSTRUCTED AREA SOLD IN THE FIFTH FLOOR IS 5517 SFT. THE BASIC ISS UE IN THIS CONTEXT IS WHETHER THE ENTIRE CONSTRUCTED AREA WHICH WAS SOLD, WAS CONSTRUCTED FROM THE FINANCIAL YEAR 1998-99 ONWARDS ? THE DVO, VIDE REPORT DATED 14.9.2000 HAD DETERMINED THE COST OF CONSTRUCTION OF THE SAID BUILDING. IN THE SAID REP ORT, THE DESCRIPTION OF THE BUILDING INTERALIA INDICATES THA T THE 5 TH FLOOR STRUCTURE WITH FLOOR HEIGHT OF 3.2 MTS WAS CONSTRUC TED PRIOR TO MARCH, 1998 OF THE AREA OF 81 SQ.MTRS. AND THE BALA NCE CONSTRUCTION OF 324.3 SQ.MTR WAS CONSTRUCTED AFTER MARCH, 1998. THIS CONCLUSIVELY PROVES THAT PRIOR TO MARCH, 1998, 81 SQ.MTRS./ OF THE FIFTH FLOOR WAS ALREADY CONSTRUCTED. IN FACT, IN ANNMEXURE-II TO THE VALUATION REPORT WHEREIN THE PERIOD OF CONST RUCTION IS MENTIONED AS APRIL, 1993 TO MARCH, 1998, THE DVO HA S ESTIMATED THE COST OF CONSTRUCTION OF 5 TH FLOOR OF 81 SQ.MTR AT RS.2,73,051/-. SIMILARLY, IN ANNEXURE-III TO THE VALUATION REPORT WHEREIN THE PERIOD OF CONSTRUCTION IS MENTIONED AS APRIL, 1998 TO JUNE, 1999, THE BALANCE CONSTRUCTION OF 5 TH FLOOR OF 324.3 SQ.MTR HAS BEEN VALUED AT RS.12,38,826/- BY THE DVO. ALL THESE FAC TS CLEARLY PROVE THAT PART OF THE 5 TH FLOOR WAS CONSTRUCTED PRIOR TO MARCH, 1998. FURTHER IT IS NOTED THAT BY THE FINANCIAL YEAR 1997 -98 THE APPELLANT HAS COMPLETED CONSTRUCTION OF THE BUILDING FROM THE CELLAR TO THE FOURTH FLOOR AND PART OF THE 5 TH FLOOR. THE ENTIRE EXPENDITURE THAT WAS INCURRED TILL THEN WAS APPORTIONED TO VARIOUS F LOORS. THE CONSTRUCTION EXPENDITURE ALSO INCLUDED CERTAIN EXPE NDITURES LIKE LAYING THE FOUNDATION AND CONSTRUCTION OF CELLAR FL OOR WHICH IS COMMON FOR ALL FLOORS. THEREFORE, PART OF SUCH EXP ENDITURE WAS ALSO APPORTIONED TO THE 5 TH FLOOR WHICH WAS IN A SEMI FINISHED CONDITION. UNDER THESE FACTS AND CIRCUMSTANCES, IT IS CONCLUDED THAT THE ASSESSING OFFICER IS NOT CORRECT IN EXCLUD ING THE INDEXED COST OF CONSTRUCTION OF THE FINANCIAL YEARS 1993-94 AND 1997-98 FOR 3 DETERMINING THE COST OF IMPROVEMENT. THE SAME SHOU LD BE TAKEN INTO CONSIDERATION AND THE INDEXED COST OF IMPROVEM ENT FOR THE 5 TH FLOOR SHOULD BE TAKEN AT RS.48,15,081/- AS CLAIMED BY THE APPELLANT. WITH REGARD TO THE CLAIM OF LEGAL EXPENSES, THE LD CIT(A) DIRECTED THE AO TO ALLOW A DEDUCTION OF 50% OF THE EXPENSES CLAIMED . AGGRIEVED BY THE ORDER PASSED BY LD CIT(A), THE REVENUE HAS FILED TH IS APPEAL BEFORE US. 5. THE LD DR HEAVILY RELIED UPON THE REPORT OF THE DVO, WHEREIN IT IS MENTIONED THAT THE CONSTRUCTION OF 5 TH FLOOR WAS COMMENCED AFTER MARCH 1998 (PARA 3.5 OF THE DVO REPORT). ACCORDING TO LD DR, THE ASSESSEE HIMSELF HAS STATED THIS FACT TO THE DVO AND HENCE F ULLY RELIANCE SHOULD BE GIVEN TO THE DVO REPORT ON THIS ASPECT. ACCORDINGL Y LD DR CONTENDED THAT THE ORDER OF THE AO SHOULD BE RESTORED. 6. ON THE CONTRARY, LD AR INVITED OUR ATTENTION TO ANNEXURE II OF THE DVOS REPORT, WHEREIN THE DVO HAD CONFIRMED THE EXI STENCE OF A BUILDING WITH AN EXTENT OF 81 SQ. MT ON THE FIFTH FLOOR AND THE COST OF CONSTRUCTION OF THE SAME FOR THE PERIOD FROM APRIL 93 TO MARCH 1998 WAS ESTIMATED AT RS.2,73,051/-. LD AR ALSO INVITED OUR ATTENTION TO THE COPY OF REGISTERED VALUERS REPORT DATED 15.10.1995, WHEREIN THE REGIS TERED VALUER HAS STATED THE FACT OF EXISTENCE OF BUILDING AT THE FIF TH FLOOR TO THE EXTENT OF 104.50 SQ. MT. LD AR ALSO SUBMITTED THAT THE ASSES SEE, IN HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 1998-99, HAD ACCOUNT ED FOR THE COST OF CONSTRUCTION FLOOR WISE AND THE COST AS ON 31.3.199 8, PERTAINING TO FIFTH FLOOR, WAS SHOWN AT RS.9,43,674/- . 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. THE DISPUTE IS WHETHER THE ASSESSEE HAD CO NSTRUCTED ANY PORTION OF THE BUILDING IN FIFTH FLOOR PRIOR TO 31.3.1998. ACCORDING TO THE AO, THE ENTIRE CONSTRUCTION OF THE FIFTH FLOOR WAS COMMENCE D AFTER 31.3.1998, WHERE AS, ACCORDING TO THE ASSESSEE, A PORTION OF T HE BUILDING HAD BEEN CONSTRUCTED PRIOR TO 31.3.1998, I.E. MAINLY IN THE FINANCIAL YEAR 1993-94. HOWEVER, THE FACT REMAINS THAT THE DVO HIMSELF HAS NOTED THAT THERE WAS SOME CONSTRUCTION TO THE EXTENT OF 81 SQ. MT. IN TH E FIFTH FLOOR. SIMILARLY, THE REGISTERED VALUER HAS ALSO NOTED IN HIS REPORT DATED 15.10.1995 THAT 4 THERE WAS SOME CONSTRUCTION TO THE EXTENT OF 104.50 SQ. MTS IN THE FIFTH FLOOR. THUS THE EXISTENCE OF SOME CONSTRUCTION IN THE FIFTH FLOOR PRIOR TO 31.3.1998 CANNOT BE RULED OUT. HOWEVER THE ISSUE O F COST OF CONSTRUCTION INCURRED BY THE ASSESSEE WAS NOT VERIFIED BY THE AO SINCE HE WAS UNDER THE IMPRESSION THAT THE CONSTRUCTION IN THE FIFTH F LOOR WAS CARRIED OUT ONLY AFTER 31.3.1998. THE ASSESSEE HAS CLAIMED THAT A S UM OF RS.9,43,674/- DURING THE FINANCIAL YEAR 1993-94 FOR CARRYING OUT SOME CONSTRUCTION IN THE FIFTH FLOOR. ACCORDING TO THE ASSESSEE, THE SA ID COST INCLUDES THE PROPORTIONATE COST PERTAINING TO THE CELLAR PORTION WHICH IS ATTRIBUTABLE TO THE FIFTH FLOOR. IN THE PAPER BOOK FILED BY THE AS SESSEE, ONLY THE STATEMENTS PERTAINING TO THE FINANCIAL YEAR 1997-98 AND SUBSEQUENT YEARS ARE AVAILABLE. THE STATEMENTS OF ACCOUNT PERTAININ G TO THE FINANCIAL YEAR 1993-94 HAVE NOT BEEN COMPILED IN THE PAPER BOOK. THE REGISTERED VALUER HAD ESTIMATED THE COST OF CONSTRUCTION CARRI ED IN THE FIFTH FLOOR AT RS.3,83,601/- AND THE DVO HAS ESTIMATED THE COST OF SAID CONSTRUCTION AT RS.2,73,051/-. AS STATED EARLIER, THE CLAIM OF CO ST OF CONSTRUCTION PERTAINING TO THE FIFTH FLOOR AND ALSO THE PERIOD O F CONSTRUCTION HAVE NOT BEEN VERIFIED BY THE AO. HENCE, IN OUR VIEW, THE L D CIT(A) IS NOT CORRECT IN DIRECTING THE AO TO ACCEPT THE COST OF CONSTRUCT ION AS DISCLOSED BY THE ASSESSEE WITHOUT MAKING ANY SUCH VERIFICATION. ACC ORDINGLY WE REVERSE THE ORDER OF THE LD CIT(A) ON THIS ISSUE AND RESTOR E THE MATTER BACK TO THE FILE OF AO FOR FRESH CONSIDERATION IN ACCORDANC E WITH LAW AFTER SATISFYING HIMSELF WITH REGARD TO THE COST OF CONST RUCTION AND PERIOD OF CONSTRUCTION CARRIED OUT IN THE FIFTH FLOOR PRIOR T O 31.3.1998. 8. WITH REGARD TO THE CLAIM OF LEGAL EXPENSES, THE LD CIT(A) CONSIDERED THE ARGUMENT OF THE ASSESSEE THAT THE BU SINESS IS AN ONGOING PROCESS AND THE CIVIL SUITS INITIATED EARLIER SHOUL D BE CONSIDERED AS HAVING BEEN INCURRED IN CONNECTION WITH THE BUSINESS AND A CCEPTED THE CONTENTION OF THE ASSESSEE WITH REGARD TO THE MERIT OF THE CLAIM. HOWEVER, HE RESTRICTED THE CLAIM OF EXPENDITURE TO 50% AS, ACCORDING TO HIS OPINION, THE ENTIRE EXPENDITURE CANNOT BE RELAT ABLE TO THE BUSINESS OF THE ASSESSEE. WE ARE OF THE VIEW THAT THE LD CIT(A ) HAS ADJUDICATED THIS 5 ISSUE ON PROPER REASONING AND HENCE WE DO NOT FIND ANY REASON TO INTERFERE WITH HIS DECISION. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 24 TH JUNE, 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE : 24-06-2010. A COPY OF THIS ORDER IS FORWARDED TO : 01 THE ACIT, CIRCLE-1(1), VISAKHAPATNAM 02 SRI K. RAMAKRISHNA RAO (HUF), 5 TH FLOOR, ADITYA COMPLEX, RAJENDRANAGAR, VISAKHAPATNAM 03 THE CIT (A), VISAKHAPATNAM 04 THE CIT, VISAKHAPATNAM 05 THE DR, ITAT, VISAKHAPAATNAM 06 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH