THE ITO, WARD - 1, Gudivada V. Sri Kothuru Satish, Mudinepalli

ITA 49/VIZ/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0161 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 01-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M NARAYANA RAO
• Keywords: Unexplained investment; Value adopted by valuation officer; Valuation report
• Section: 143(3)

Judgement Text

ITA NO.49/VIZAG/2013 K. SATISH, MUDINEPALLI 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . . . . , . . . . , $ $ $ $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NO.49/VIZAG/2013 ( / ASSESSMENT YEAR : 2006-07 ) ITO WARD - 1 GUDIVADA VS. K. SATISH MUDINEPALLI [ PAN : AQAPK6384L] ( & & & & / APPELLANT) ( '(& '(& '(& '(& / RESPONDENT ) & ) / APPELLANT BY : SHRI M. NARAYANA RAO, DR '(& ) / RESPONDENT BY : SHRI D.L. NARASIMHA RAO, AR ) - / DATE OF HEARING : 20.1 1.2015 ) - / DATE OF PRONOUNCEMENT : 04.12.2015 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE CIT(A), VIJAYAWADA DATED 15.11.2012 FOR THE ASS ESSMENT YEAR 2006- 07. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. THE ID. CIT(A) ERRED BOTH IN LAW AND IN FACTS OF TH E CASE. 2. THE ID. CIT(A) OUGHT TO HAVE SUSTAINED THE ADDITION OF RS,29,78,850/- MADE FOR ASSESSMENT YEAR 2006-07 SIN CE BOOKS OF ITA NO.49/VIZAG/2013 K. SATISH, MUDINEPALLI 2 ACCOUNT MAINTAINED FOR CONSTRUCTION WERE NOT IN AN ORDERLY FORM. 3. THE ID. CIT(A) ERRED IN HOLDING THAT THE AO WAS NOT JUSTIFIED IN REFERRING THE MATTER OF COST OF CONSTRUCTION TO THE DVO BECAUSE REFERENCE TO VALUATION CELL WAS MADE BY AO AS THE ASSESSEE HAS NOT PRODUCED BOOKS OF ACCOUNT AND CONS TRUCTION ACCOUNT AT THE TIME OF ORIGINAL ASSESSMENT. 4. HAVING ARRIVED AT A CONCLUSIVE FINDING THAT THE SEL F-MADE VOUCHERS AND CASH PAYMENTS REFLECTED IN THE BOOKS A CCOUNT WERE NOT SUSCEPTIBLE FOR VERIFICATION AND UNAUTHENT ICATED AND THAT MANIPULATION OF THE SAME CANNOT ALSO BE OV ER-RULED AND THE WHOLE OF THE COST OF CONSTRUCTION AS SHOWN IN THE BOOKS CANNOT BE ACCEPTED AS TRUE, THE LD.CIT(A) OUG HT TO HAVE SUSTAINED THE ENTIRE ADDITION HOLDING IT AS UNEXPLA INED. 5. THE LD.CIT(A) OUGHT TO HAVE APPRECIATED THAT THE DE CISION OF THE ITAT RENDERED IN THE CASE OF SALMA A.MEHDI COUL D BE DISTINGUISHED AS THE DVO ALREADY MADE CERTAIN ADJUS TMENTS TO THE 'PLINTH AREA RATES WITH REFERENCE TO THE MAR KET CONDITIONS PREVALENT IN THE PLACE OF CONSTRUCTION O F THE COMPLEX, VIZ., MUDIDNEPALI OF KRISHNA DISTRICT, AND HENCE THE RELIEF OF 15% ALLOWED IS NOT JUSTIFIABLE; 6. THE LD.CIT(A) ALSO OUGHT TO HAVE NOTICED THAT THE R ELIEF AT 10% TOWARDS PERSONAL SUPERVISION ALLOWED IN THE CAS E OF SALMA A.MEHDI CAN NOT BE EXTENDED TO THE INSTANT CA SE GOING BY THE FACT THAT THE HUSBAND OF THE ASSESSEE IN THE AFORESAID CASE RELIED UPON HAPPENED TO BE A QUALIFIED ENGINEE R WHICH IS NOT SO IN THE INSTANT CASE AND IN THIS FACTUAL BACK GROUND, THE RELIEF OF 6% ALREADY ALLOWED BY THE DVO SHOULD HAVE BEEN CONSIDERED TO BE REASONABLE; 7. EVEN OTHERWISE, THE LD. CIT(A) OUGHT TO HAVE NOTICE D THAT THE QUANTIFICATION OF RELIEF OF THE ORDER OF RS.22,53,8 50/- MADE HIM HAD NO BASIS AND HENCE THE SAME IS NOT REASONABLE O R JUSTIFIABLE IN THE FACTS AND CIRCUMSTANCES OF THE C ASES FOR VARIOUS REASONS RECORDED IN THE IMPUGNED ASSESSMENT ORDER FOR THE A.Y.2006-07; 8. FOR THESE REASONS AND OTHER REASONS WHICH MAY BE AD VANCED DURING THE COURSE OF HEARING OF THE APPEAL, IT IS P RAYED THAT THE ADDITION MADE BY THE AO AT RS.29,78,850/- MAY BE SU STAINED. 2. THE BRIEF FACTS OF THE CASE, IS THAT THE ASSESSE E IS AN INDIVIDUAL FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07, DECLARING A ITA NO.49/VIZAG/2013 K. SATISH, MUDINEPALLI 3 TOTAL INCOME OF RS.52,210/- BESIDES AGRICULTURAL IN COME OF RS.1,30,000/-. THE ASSESSING OFFICER, COMPLETED THE ASSESSMENT U/S 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED AS THE AC T) ON 31.12.2008, BY MAKING AN ADDITION OF RS.29,78,850/- TOWARDS UNEXPL AINED INVESTMENT IN COST OF CONSTRUCTION OF COMMERCIAL COMPLEX AT MUDIN EPALLE VILLAGE OF KRISHNA DISTRICT. ON APPEAL, THE LD. CIT(A), ALLOW ED THE APPEAL BY DIRECTING THE A.O. TO RECALCULATE THE DIFFERENCE IN COST OF CONSTRUCTION BY FOLLOWING THE RATIO OF DECISION OF JURISDICTIONAL I TAT IN THE CASE OF SALMA A. MEHDI, WHEREIN THE TRIBUNAL ORDERED DEDUCTION OF 15% TOWARDS DIFFERENCE BETWEEN CPWD AND STATE PWD RATES AND ALSO 10% DEDUCTION TOWARDS SELF-SUPERVISION CHARGES. ON FURTHER APPEA L BY THE DEPARTMENT, THE HONBLE ITAT, SET ASIDE THE ORDER OF THE CIT(A) AND RESTORED THE MATTER BACK TO THE FILE OF THE A.O., WITH A DIRECTI ON TO RE-EXAMINE THE COST OF CONSTRUCTION WITH THE BOOKS OF ACCOUNTS MAI NTAINED BY THE ASSESSEE AND TO FRAME THE ASSESSMENT IN ACCORDANCE WITH LAW. 3. CONSEQUENT TO THE ORDER OF THE ITAT, THE ASSESSI NG OFFICER, ISSUED A LETTER REQUESTING THE ASSESSE TO FURNISH CERTAIN INFORMATION CONNECTED WITH THE COST OF CONSTRUCTION AND ALSO TO PRODUCE T HE BOOKS OF ACCOUNTS RELEVANT TO THE ASSESSMENT YEAR IN WHICH CONSTRUCTI ON TOOK PLACE. IN RESPONSE TO SAID NOTICE, THE ASSESSEE FILED A LETTE R DATED 15.9.2011 AND ITA NO.49/VIZAG/2013 K. SATISH, MUDINEPALLI 4 ALSO PRODUCED BOOKS OF ACCOUNTS, BILLS & VOUCHERS, ETC. THE ASSESSEE SUBMITTED THAT THE CONSTRUCTION WAS COMPLETED IN JU NE, 2005. THE ASSESSEE FURTHER SUBMITTED THAT HE HAS MAINTAINED B OOKS OF ACCOUNTS AND ALSO BILLS & VOUCHERS FOR THE CONSTRUCTION EXPE NSES, THEREFORE, THE A.O. WAS NOT RIGHT IN CONSIDERING THE D.V.O. VALUAT ION, BY IGNORING THE BOOKS OF ACCOUNTS AND BILLS AND VOUCHERS. HOWEVER, THE A.O. DID NOT SATISFY WITH THE EXPLANATIONS FURNISHED BY THE ASSE SSE, HELD THAT THE BOOKS OF ACCOUNTS WERE NOT MAINTAINED IN ORDERLY FO RM AND ALSO NOTED THAT THE ASSESSEE FAILED TO PRODUCE THE BOOKS OF AC COUNTS WITH VOUCHERS AT THE STAGE OF ORIGINAL ASSESSMENT PROCEEDINGS, TH EREFORE DOUBTED THE GENUINENESS OF THE BOOKS OF ACCOUNTS. THE A.O. FUR THER OBSERVED THAT AS PER THE REPORT OF THE EXECUTIVE ENGINEER, VALUAT ION CELL, THE ASSESSEE WAS HOLDING 258 VOUCHERS ONLY, COVERING A COST OF R S.38,83,959/- AS AGAINST THE COST OF RS.43,20,606/- REPORTED IN THE BOOKS OF ACCOUNTS. THEREFORE, THE A.O. REJECTED THE EXPLANATIONS OFFER ED BY THE ASSESSEE AND ADOPTED THE D.V.O. VALUATION OF RS.72.99 LAKHS AND MADE ADDITIONS TOWARDS DIFFERENCE OF RS.29,78,850/- AS UNEXPLAINED INVESTMENTS. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE SUBMITTED THAT HE HAD MAINTAINED BOOKS OF ACCOUNTS AND VOUCHE RS FOR THE ITA NO.49/VIZAG/2013 K. SATISH, MUDINEPALLI 5 CONSTRUCTION EXPENSES, THEREFORE, THE A.O. WAS ERRE D IN MAKING ADDITION OF RS.29,78,850/- BY IGNORING THE BOOKS OF ACCOUNTS BASED ON THE DVO REPORT. THE ASSESSEE FURTHER SUBMITTED THAT THE DV O VALUATION OF RS.72.99 LAKHS IS NOT CORRECT, AS THE DVO HAS CONSI DERED THE CPWD RATES FOR THE PURPOSE OF VALUATION OF BUILDING. TH E ASSESSEE FURTHER SUBMITTED THAT THE BUILDING IS LOCATED IN A REMOTE VILLAGE AND WHICH IS CONSTRUCTED BY USING NORMAL MATERIALS. THEREFORE, CPWD RATES CANNOT BE CONSIDERED AS YARDSTICK FOR THE PURPOSE OF ASCER TAINING THE VALUE OF THE BUILDING. THE ASSESSEE FURTHER SUBMITTED THAT WHILE VALUING THE PROPERTY, THE DVO HAS NOT ALLOWED THE MARGIN TOWARD S RATE DIFFERENCE BETWEEN CPWD & STATE PWD AND ALSO NOT ALLOWED ANY M ARGIN FOR SELF SUPERVISION CHARGES. THE ASSESSEE SUBMITTED THAT T HE ASSESSEE HAS CONSTRUCTED THE BUILDING ON ITS OWN WITH DUE CARE, THEREFORE, THE COST OF THE CONSTRUCTION IS NATURALLY VERY LESS, WHEN COMPA RED TO THE CPWD RATES FIXED FOR THE PURPOSE OF CONSTRUCTION OF BUIL DINGS AND OTHER WORKS SPREAD ACROSS THE COUNTRY. THEREFORE, REQUESTED TO DELETE THE ADDITIONS MADE BY THE A.O. THE CIT(A), AFTER CONSIDERING THE EXPLANATIONS FURNISHED BY THE ASSESSE, HELD THAT THE A.O. WAS ER RED IN NOT ALLOWING THE REQUIRED PERCENTAGE OF MARGIN TOWARDS DIFFERENC E BETWEEN CPWD AND STATE PWD RATES. THE CIT(A), FURTHER OBSERVED THAT SINCE, THE ASSESSEE CONSTRUCTED THE BUILDING ON ITS OWN, THE A .O. SHOULD HAVE ITA NO.49/VIZAG/2013 K. SATISH, MUDINEPALLI 6 ALLOWED THE MARGIN TOWARDS SELF SUPERVISION CHARGES . THEREFORE, MODIFIED THE ASSESSMENT ORDER AND CONFIRMED THE ADD ITION TO THE EXTENT OF RS.7.25 LAKHS AND DELETED THE BALANCE AMOUNT. WH ILE DOING SO, THE CIT(A) RELIED UPON THE JUDGEMENT OF ITAT, HYDERABAD BENCH IN THE CASE OF SALMA A. MEHDI IN ITA NO.697 & 698, WHEREIN THE ITAT ALLOWED THE RELIEF OF 15% TOWARDS VARIATION IN CPWD RATE AND FU RTHER RELIEF OF 10% FOR SELF-SUPERVISION CHARGES. AGGRIEVED BY THE CIT( A) ORDER, THE REVENUE IS IN APPEAL BEFORE US. 5. THE D.R. SUBMITTED THAT THE A.O. HAS CONSIDERED THE VALUATION REPORT GIVEN BY THE DVO AND MADE THE ADDITIONS. TH EREFORE, THE CIT(A) WAS NOT CORRECT IN DIRECTING THE A.O. TO MAKE AN AD HOC ADDITION OF RS.7.25 LAKHS WITHOUT ANY BASIS. THE D.R. FURTHER SUBMITTED THAT THE DVO HAS ALLOWED 6% DISCOUNT TOWARDS SELF-SUPERVISIO N CHARGES, WHILE VALUING THE PROPERTY FOR THE DIFFERENCE IN RATES BE TWEEN CPWD & STATE PWD RATES. THE D.R. FURTHER SUBMITTED THAT SINCE, T HE DVO WAS ALREADY ALLOWED 6% REBATE TOWARDS SELF SUPERVISION AND OTHE R CHARGES, THE A.O. HAS RIGHTLY TAKEN THE DVO VALUE FOR THE PURPOSE OF DETERMINING THE DIFFERENCE BETWEEN COST OF CONSTRUCTION REPORTED BY THE ASSESSEE AND THE COST OF CONSTRUCTION VALUED BY THE DVO, THEREFO RE, REQUESTED TO UPHOLD THE ORDER OF THE A.O. ITA NO.49/VIZAG/2013 K. SATISH, MUDINEPALLI 7 6. ON THE OTHER HAND, THE A.R. OF THE ASSESSE, STRO NGLY SUPPORTED THE ORDER OF THE CIT(A). THE A.R. FURTHER SUBMITTED TH AT THE CIT(A) WAS RIGHTLY MODIFIED THE ORDER AND ALLOWED THE RELIEF B Y CONSIDERING THE JUDGEMENT OF ITAT, HYDERABAD BENCH IN THE CASE OF S ALMA A. MEHDI (SUPRA), WHEREIN THE ITAT, ALLOWED 15% MARGIN TOWAR DS RATE DIFFERENCE BETWEEN CPWD & PWD AND ALSO A FURTHER 10% REBATE TO WARDS SELF SUPERVISION CHARGES. THEREFORE, REQUESTED TO UPHOL D THE ORDER OF THE CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIALS AVAILABLE ON RECORD. THE FACTUAL MATRIX OF THE CAS E, IS THAT THE A.O. MADE ADDITIONS TOWARDS UNEXPLAINED INVESTMENTS IN B UILDING. WHILE DOING SO, THE A.O. HAS REFERRED THE MATTER TO THE D ISTRICT VALUATION OFFICER AND OBTAINED THE REPORT FROM DVO AND MADE THE ADDIT IONS TOWARDS DIFFERENCE BETWEEN VALUE DETERMINED BY THE DVO AND AMOUNT REPORTED BY THE ASSESSE. THE ASSESSE CHALLENGED THE MATTER B EFORE CIT(A), BUT COULD NOT SUCCEED. THE ASSESSE CARRIED THE MATTER T O THE ITAT. THE ITAT, SET ASIDE THE ORDER PASSED BY CIT(A) AND REMI T THE MATTER BACK TO THE FILE OF A.O. BY OBSERVING THAT THE A.O. HAS REF ERRED TO D.V.O. FOR VALUATION, WITHOUT REJECTING THE BOOKS OF ACCOUNTS WHICH IS NOT PERMITTED IN LAW. THE ITAT, FURTHER OBSERVED THAT THE APPELLA NT WAS NOT GIVEN ITA NO.49/VIZAG/2013 K. SATISH, MUDINEPALLI 8 PROPER OPPORTUNITY OF HEARING AND THUS, DENIED THE ASSESSEE AN OPPORTUNITY TO PUT FORTH HIS ARGUMENTS. WITH THESE OBSERVATIONS, THE ITAT SET ASIDE THE ASSESSMENT TO THE FILE OF THE A. O. WITH A DIRECTION TO RE-EXAMINE THE COST OF CONSTRUCTION ALONG WITH BOOK S OF ACCOUNTS MAINTAINED BY THE ASSESSEE. CONSEQUENT TO ITAT DIRE CTIONS, THE A.O. HAS TAKEN UP THE CASE FOR RE-EXAMINATION. HOWEVER, THE A.O. IGNORED THE BOOKS OF ACCOUNTS FURNISHED BY THE ASSESSE AND CONFIRMED THE ADDITIONS MADE ON THE BASIS OF THE DVO REPORT. WHIL E DOING SO THE A.O. HELD THAT THE ASSESSE, DID NOT PRODUCED BOOKS OF AC COUNTS AT THE TIME OF ORIGINAL ASSESSMENT, THEREFORE THE BOOKS PRODUCED N OW WERE FABRICATED AND HENCE CANNOT BE ACCEPTED. 8. THE A.O. MADE THE ADDITIONS SOLELY ON THE BASIS OF THE DVO REPORT AND IGNORED THE BOOKS OF ACCOUNTS PRODUCED BY THE A SSESSEE. WE HAVE EXAMINED THE DVO REPORT, WHEREIN THE DVO HAS ALLOWE D 6% MARGIN TOWARDS SELF-SUPERVISION AND DIFFERENCE BETWEEN CPW D & STATE PWD RATES. THE ASSESSEE CONTENTION IS THAT THE BUILDIN G IS LOCATED IN A VILLAGE, THEREFORE, IT CANNOT BE VALUED BY TAKING I NTO ACCOUNT THE CPWD RATES. THE ASSESSEE FURTHER CONTENDED THAT HE HIMS ELF CONSTRUCTED THE BUILDING AND THE QUALITY OF MATERIALS USED FOR CONS TRUCTION IS ALSO VERY LOW, WHEREBY HE HAD SAVED GOOD AMOUNT OF MONEY, THE REFORE, THE VALUE ITA NO.49/VIZAG/2013 K. SATISH, MUDINEPALLI 9 ADOPTED BY THE ASSESSEE SHOULD BE TAKEN INTO ACCOUN T, INSTEAD OF DVO REPORT. AS STATED BY THE AO, THERE IS A DISCREPANC Y IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. THEREFORE, TH E A.O. REFERRED THE MATTER TO THE VALUATION OFFICER FOR ASCERTAINING TH E CORRECT VALUE OF THE COST OF CONSTRUCTION. THE DVO HAS VALUED THE BUILD ING BY TAKING INTO ACCOUNT CPWD RATES AND DETERMINED THE VALUE AT RS.72 .99 LAKHS. WE HAVE EXAMINED THE DVO REPORT AND FIND THAT THE DVO HAS ALLOWED 6% TOWARDS SELF SUPERVISION CHARGES. THE ASSESSEES C ONTENTION IS THAT AT LEAST 15% TOWARDS RATE DIFFERENCE AND 10% TOWARDS S ELF SUPERVISION CHARGES SHOULD HAVE BEEN ALLOWED BY THE A.O. WHILE DETERMINING THE VALUE OF THE BUILDING. WE FIND FORCE IN THE ARGUMEN TS OF THE ASSESSE THAT, CPWD RATES ARE PRESCRIBED FOR CONSTRUCTION OF BUILDINGS FOR THE CENTRAL GOVERNMENT PROJECTS BY TAKING IN TO ACCOUNT THE STANDARD QUALITY OF CONSTRUCTION WITH HIGH QUALITY MATERIALS. THOUGH THESE RATES ARE THE BASIS FOR VALUATION OF COST OF CONSTRUCTION, SUITAB LE MARGIN SHOULD BE ALLOWED, TOWARDS COST OF MATERIALS AND OTHER CHARGE S CONSIDERING THE FACTS AND CIRCUMSTANCES, BEING QUALITY OF MATERIALS USED AND PLACE OF CONSTRUCTION. IN THE INSTANT CASE, AS CAN BE SEEN F ROM THE FACTS, THE BUILDING IS SITUATED IN VILLAGE AND THE ASSESSE HIM SELF CONSTRUCTED THE BUILDING UNDER HIS SUPERVISION. AS CLAIMED BY THE A SSESSE, SEPARATE RATES ARE PRESCRIBED BY THE STATE PWD FOR CONSTRUCTION OF BUILDINGS AND WHICH ITA NO.49/VIZAG/2013 K. SATISH, MUDINEPALLI 10 WAS BROUGHT TO THE NOTICE OF VALUATION OFFICER BUT DVO IGNORED THE STATE PWD RATES. THEREFORE, WE ARE OF THE VIEW THAT THE D. V.O. IS NOT CORRECT IN CONSIDERING THE CPWD RATES, WHEN THE STATE PWD RA TE IS AVAILABLE FOR ASCERTAINING THE VALUE OF BUILDING. 9. THE ASSESSE RELIED UPON THE JUDGEMENT OF COORDIN ATE BENCH OF THIS TRIBUNAL IN THE CASE OF SALMA A. MEHDI IN ITA NO.69 7 & 698/HYD/1995. WE HAVE EXAMINED THE CASE LAWS RELIED UPON BY THE AS SESSE, IN THE LIGHT OF THE FACTS OF THE PRESENT CASE. THE COORDINATE B ENCH OF THIS TRIBUNAL, IN THE ABOVE MENTIONED CASE, WHILE DEALING WITH SIM ILAR ISSUE HELD AS UNDER: THE DVO ESTIMATED THE COST OF CONSTRUCTION FOLLOWING THE PLINTH AREA METHOD OF VALUATION. HE APPLIED THE BASIC PLINTH AREA RATES APPROVED BY THE CEDT. . HE APPLIED THE PLINTH AREA OF NEW DELHI AS FIXED IN 19 76 AND APPROVED BY THE GOVERNMENT OF INDIA BY DULY ENHANCI NG THE BASIC RATE OF SIMILAR STRUCTURES WITH APPROPRIATE C OST INDEX AS APPLICABLE TO THE LOCALITY DURING THE PERIOD OF CON STRUCTION. THE VALUATION DID NOT APPEAR TO HAVE TAKEN INTO CONSIDE RATION THE LOCAL RATES THAT ACTUALLY EXISTED DURING THE PERIOD FOR C ONSTRUCTION. IT IS COMMON KNOWLEDGE CPWD RATES OF NEW DELHI ARE FAR HI GHER THAN LOCAL RATES. KEEPING THAT FACTOR IN VIEW THE FIRST APPELLATE AUTHORITY WOULD APPEAR TO HAVE ALLOWED SOME AD HOC DEDUCTION IN THE COST OF BASIC CONSTRUCTION. TAKING INTO CONSIDERATION THE F ACT THAT THE CPWD RATES OF NEW DELHI ARE ALWAYS HIGHER THAN THE LOCAL RATES, WE FELL THAT IT WOULD BE JUST AND REASONABLE TO GIVE AN OVE RALL REDUCTION OF 15% ON THE COST OF CONSTRUCTION ESTIMATED BY THE DVO IN ORDER TO COMPENSATE THE HIGHER ESTIMATE ON ACCOUNT OF THE ADOPTION OF H IGHER RATE OF CPWD OF NEW DELHI. FURTHER, THE VALUATION OFFICER D ID NOT ALLOW ANY DEDUCTION TOWARDS PERSONAL SUPERVISION. THE FIRST A PPELLATE AUTHORITY ALLOWED 10% REDUCTION ON ACCOUNT OF SAVINGS BY PERSONAL SUPERVI SION APPEARS TO BE QUITE REASONABLE. IF WE DEDUCT 10% TO WARDS PERSONAL SUPERVISION AND 15% ON ACCOUNT OF THE HIGHER RATE A DOPTED BY THE VALUATION OFFICER, THE ESTIMATE OF COST OF CONSTRUC TION DETERMINED BY THE ITA NO.49/VIZAG/2013 K. SATISH, MUDINEPALLI 11 VALUATION OFFICER COMES DOWN TO RS.5,16,7501/-. EVE N IF WE TAKE AVERAGE OF COST OF CONSTRUCTION OF RS.68900 DETERMI NED BY THE DVO ON THE BASIS OF PLINTH AREA METHOD WORKS OUT TO RS.5,22,000/-. IN THAT VIEW OF THE MATTER, THE COST OF CONSTRUCTIO N OF RS.5,16,750/- ARRIVED AT BY US AFTER GIVING 15% REDUCTION FOR HIG HER CPWD RATES AND 10% DEDUCTION FOR PERSONAL SUPERVISION, APPEARS TO BE QUITE REASONABLE. IT CAN BE ROUNDED TO RS.5,16,000/-. 10. IN YET ANOTHER CASE, THE ITAT HYDERABAD BENCH I N THE CASE OF G. PULLA REDDY VS. JCIT, WHILE CONSIDERING THE SIMI LAR ISSUE OF APPLICABILITY OF STATE PWD RATES AND DEDUCTION FOR SELF SUPERVISION CHARGES, HAS OBSERVED AS UNDER: PLINTH AREA RATE AS PRESCRIBED BY CBDT OF CURSE CO NTAIN PROVISIONS FOR COST INDEXING AND ADJUSTMENT OF LOCATION VARIAT ION TO ARRIVE AT COST OF CONSTRUCTION OF A PARTICULAR LOCATION. B UT THE FACTS REMAINS THAT SUCH VALUATION RESTS CPWD RATES FIXED ON UNIFORM BASIS. AS OBSERVED IN THE CASE OF ITO VS. TEK CHAN, 52 LTD 1995 BY THE JAIPUR BENCH THAT CPWD RATES ARE GENERAL IN THEIR NATURE AND PURPOSE IN VIEW OF THE WIDE AREA OF THEIR APPLI CABILITY, THE STATE PWD RATES TAKE INTO ACCOUNT THE SPECIAL CONDI TIONS IN A PARTICULAR AREA IN THE TERRITORIES OF THE STATE. TH E AVAILABILITY OF COST FOR CONSTRUCTION MATERIAL, THE AVAILABILITY OF LABOUR AND WAGES TO BE PAID TO THEM AND OTHER LIKE FACTORS DO AFFECT TH E COST OF CONSTRUCTION AND, THEREFORE, IT WAS QUITE LOGICAL F OR THE PERSON CONCERNED TO FOLLOW THE STATE PWD RATES WHILE ESTIM ATING THE COST OF CONSTRUCTION OF BUILDING IN DIFFERENT AREA. HOWE VER, THE FACTS REMAINS THAT THE PWD RATES ARE FOR THE PURPOSE OF D ETERMINING FAIR MARKET RENT OF A PROPERTY, WHENEVER THE STATE PWD AWARDS A CONTRACT FOR CONSTRUCTION OF A PARTICULAR PROPERT Y, VERY SPECIFIC PARAMETERS ARE SENT IN THE CONTRACT FOR TH E PURPOSE OF EACH INDIVIDUAL PROJECT AND, HENCE, IT IS NOT CORRE CT TO SAY THAT THE STATE PWD RATES ARE THE PROPER BASIS TO ARRIVE AT T HE COST OF CONSTRUCTION. THE APPLICABILITY OF CPWD RATE WITH L OCAL INDEXING CAME UP BEFORE THE TRIBUNAL IN THE CASE OF SMT. SAL MA A. MEHDI, IN ITA NOS. 697 & 698/HYD/93 FOR ASST. YEARS 1985-8 6 AND 1986-87 WHEREIN THE TRIBUNAL VIDE PARAS 10 OF THIS ORDER HELD THAT IN ARRIVING AT PROPER COST OF CONSTRUCTION, IT WOULD BE JUSTIFIED IF A DISCOUNT OF 15% IS GIVEN FOR HIGHER CPWD RATE AND FURTHER RATE OF 100/0 FOR PERSONAL SUPERVISION IS ALLOWED. THE SAID PARAGRAPH-10 READS AS UNDER:- THE DVO ESTIMATED THE COST OF CONSTRUCTION FOLLOWING THE PLINTH AREA METHOD OF VALUATION. HE ITA NO.49/VIZAG/2013 K. SATISH, MUDINEPALLI 12 APPLIED THE BASIC PLINTH AREA RATES APPROVED BY THE CEDT. . HE APPLIED THE PLINTH AREA OF NEW DELHI AS FIXED IN 19 76 AND APPROVED BY THE GOVERNMENT OF INDIA BY DULY ENHANCI NG THE BASIC RATE OF SIMILAR STRUCTURES WITH APPROPRIATE C OST INDEX AS APPLICABLE TO THE LOCALITY DURING THE PERIOD OF CON STRUCTION. THE VALUATION DID NOT APPEAR TO HAVE TAKEN INTO CONSIDE RATION THE LOCAL RATES THAT ACTUALLY EXISTED DURING THE PERIOD FOR C ONSTRUCTION. IT IS COMMON KNOWLEDGE CPWD RATES OF NEW DELHI ARE FAR HI GHER THAN LOCAL RATES. KEEPING THAT FACTOR IN VIEW THE FIRST APPELLATE AUTHORITY WOULD APPEAR TO HAVE ALLOWED SOME AD HOC DEDUCTION IN THE COST OF BASIC CONSTRUCTION. TAKING INTO CONSIDERATION THE F ACT THAT THE CPWD RATES OF NEW DELHI ARE ALWAYS HIGHER THAN THE LOCAL RATES, WE FELL THAT IT WOULD BE JUST AND REASONABLE TO GIVE AN OVE RALL REDUCTION OF 15% ON THE COST OF CONSTRUCTION ESTIMATED BY THE DVO IN ORDER TO COMPENSATE THE HIGHER ESTIMATE ON ACCOUNT OF THE ADOPTION OF H IGHER RATE OF CPWD OF NEW DELHI. FURTHER, THE VALUATION OFFICER D ID NOT ALLOW ANY DEDUCTION TOWARDS PERSONAL SUPERVISION. THE FIRST A PPELLATE AUTHORITY ALLOWED 10% REDUCTION ON ACCOUNT OF SAVINGS BY PERSONAL SUPERVI SION APPEARS TO BE QUITE REASONABLE. IF WE DEDUCT 10% TO WARDS PERSONAL SUPERVISION AND 15% ON ACCOUNT OF THE HIGHER RATE A DOPTED BY THE VALUATION OFFICER, THE ESTIMATE OF COST OF CONSTRUC TION DETERMINED BY THE VALUATION OFFICER COMES DOWN TO RS.5,16,7501/-. EVE N IF WE TAKE AVERAGE OF COST OF CONSTRUCTION OF RS.68900 DETERMI NED BY THE DVO ON THE BASIS OF PLINTH AREA METHOD WORKS OUT TO RS.5,22,000/-. IN THAT VIEW OF THE MATTER, THE COST OF CONSTRUCTIO N OF RS.5,16,750/- ARRIVED AT BY US AFTER GIVING 15% REDUCTION FOR HIG HER CPWD RATES AND 10% DEDUCTION FOR PERSONAL SUPERVISION, APPEARS TO BE QUITE REASONABLE. IT CAN BE ROUNDED TO RS.5,16,000/-. 24. WE ARE IN RESPECTFUL AGREEMENT WITH THE AFORESA ID ORDER OF THE TRIBUNAL AND HOLD THAT CIT(A) WAS JUSTIFIED IN UPHOLDING PLINTH AREA BASIS FOR DETERMINING COST OF CONSTRUCT ION OVER THE CPWD RATES AND FURTHER REDUCTION OF 10% 0 ON ACCOUNT OF PERSONA! SUPERVISION. WE DO NOT FIND FORCE IN DEPARTMENT'S S UBMISSION THAT THE OBJECT OF DETERMINING THAT RATE OF 10% FOR PERS ONAL SUPERVISION WAS GIVEN ONLY BECAUSE, THE ASSESSEE IN THAT CASE H IMSELF WAS AN ENGINEER. THAT MAY BE A FACT WHEN A BUT PROPERTY BE ING CONSTRUCTED, EVERY PERSON TAKES CARE AND SUPERVISES THE PROPERTY PERSONALLY, AND THE RATE ALLOWED BY THE TRIBUNAL BY 10/O WOULD BE APPLICABLE IN ALL SUCH CASES. WE MAY, HOWEVER, SAY HERE THAT THE PROPERTY IN CASE OF SMT. SALMA A. MEHDI, WAS OF ABO UT 3000 SQ.FT., WHICH IS A VERY SMALL AREA, AS COMPARED TO 1,22.985 SQ. FT., AREA IN THE PRESENT' CASE. IT IS AN ADMITTED FACT THAT WHEN A L ARGER AREA IS BEING CONSTRUCTED, THERE WILL BE COST ECONOMY IN MANY WAY S FOR BULK PURCHASES AND A BETTER BARGAINING POWER AND THE DIS COUNT WHICH IS GIVEN IN CASE OF SMALLER AREA MAY NOT BE SUFFICIENT . LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND A VERY HUGE AREA CONSTRUCTED IN THIS ITA NO.49/VIZAG/2013 K. SATISH, MUDINEPALLI 13 APPEAL, WE ARE OF THE OPINION THAT A FURTHER DISCOU NT AT 5% WOULD BE REASONABLE IN ESTIMATING THE COST OF CONSTRUCTION. WE DIRECT ACCORDINGLY. 11. CONSIDERING FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO RESPECTFULLY FOLLOWING THE COORDINATE BENCH DECISIO N, WE ARE OF THE OPINION, THAT THE ASSESSEE IS ENTITLED FOR 15% DEDU CTION TOWARDS RATE VARIATION BETWEEN CPWD AND STATE PWD AND A FURTHER 1 0% DEDUCTION TOWARDS SELF-SUPERVISION CHARGES FROM THE VALUE ARR IVED BY THE DVO APPLYING THE CPWD RATES. THE CIT(A), AFTER CONSIDE RING THE FACTS THAT THE ASSESSE HAS MAINTAINED BOOKS OF ACCOUNTS AND BI LLS FOR CONSTRUCTION, SCALED DOWN THE ADDITION TO RS.7,25,000/-. WE DO NO T FIND ANY ERROR OR INFIRMITY IN THE ORDER OF THE CIT(A). THEREFORE, W E INCLINED TO UPHELD THE ORDER OF THE CIT(A) AND REJECT THE GROUND RAISED BY THE REVENUE. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED . THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 4 TH DEC15 SD/- SD/- ( . ) ( . . . . ) ( (( ( V. DURGA RAO ) )) ) ( G. MANJUNATHA) / // / JUDICIAL MEMBER / // / ACCOUNTANT MEMBER /VISAKHAPATNAM: 3 / DATED : 4.12.2015 VG/SPS ) ' 4 / COPY OF THE ORDER FORWARDED TO :- 1. & / THE APPELLANT THE ITO WARD-1, GUDIVADA 2. '(& / THE RESPONDENT SRI KOTHURU SATISH, PROP: JAYALAKSHMI AUTO FINANCER S, 3/112, MAIN ROAD, MUDINEPALLI ITA NO.49/VIZAG/2013 K. SATISH, MUDINEPALLI 14 3. 5 / THE CIT, VIJAYAWADA 4. 5 () / THE CIT (A), VIJAYAWADA 5. ' , , / // / DR, ITAT, VISAKHAPATNAM 6 . . . . / GUARD FILE / BY ORDER // TRUE COPY // 9: ( SR.PRIVATE SECRETARY ) , / // / ITAT, VISAKHAPATNAM