M/s. Shanti Enterprises, Kakinada V. The ITO, Kakinada

ITA 496/VIZ/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6668 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 13-12-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K C DAS
• Assessee Lawyers: P PRABHAKARA MURTHY
• Keywords: Value adopted by valuation officer
• Section: 131

Judgement Text

ITA NO.496/VIZAG/2016 M/S. SHANTI ENTERPRISES, KAKINADA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM SMC BENCH, VISAKHAPATNAM . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER ./I.T.A.NO.496/VIZAG/2016 ( / ASSESSMENT YEAR: 2012-13) M/S. SHANTI ENTERPRISES KAKINADA ITO, WARD - 2, KAKINADA [PAN NO. AAIFS1210N ] ( / APPELLANT) ( ! / RESPONDENT) / APPELLANT BY : SHRI P. P RABHAKARA MURTHY, AR / RESPONDENT BY : SHRI K.C. DAS , DR / DATE OF HEARING : 28. 7 .2017 / DATE OF PRONOUNCEMENT : 13.09.2017 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE CIT(A)-2, VISAKHAPATNAM DATED 15.09.2016 FOR THE AS SESSMENT YEAR 2012-13. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL: 1. THE ADDITION OF RS 36,63,299/- SUSTAINED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-2, VISAKHAPATNAM, RELYING O N DVO REPORT, IS NOT CORRECT ON FACTS AND IN THE LAW APPLICABLE TO THE F ACTS OF THE APPELLANT'S ITA NO.496/VIZAG/2016 M/S. SHANTI ENTERPRISES, KAKINADA 2 CASE AND HENCE LIABLE TO BE QUASHED. 2. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS)-2, VISAKHAPATNAM, OUGHT TO HAVE ACCEPTED THAT, IN THE FACTS AND CIRCUMSTANCES OF APPELLANT'S CASE, THE VERY REFEREN CE OF COST OF CONSTRUCTION TO DVO, IS NOT CORRECT AND AS SUCH THE VERY ADDITION RELYING ON REPORT THUS OBTAINED IS UN CALLED FOR AND LIABLE TO BE DELETED. 3. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS)-2, I S NOT AT ALL JUSTIFIED IN SUSTAINING ADDITION OF RS 36,63,299/- RELYING ON DVO REPORT BY ADOPTING PLINTH AREA RATES AND COST INDEX METHOD IS SUED BY CPWD APPROVED BY CBDT, WHICH IS MERE OPINION, AS AGAINST COST OF CONSTRUCTION RECORDED IN THE REGULAR BOOKS OF ACCOUNT MAINTAINED SUPPORTED BILLS/VOUCHERS. WITHOUT PREJUDICE TO THE ABOVE CONTENTIONS, IN THE ALTERNATIVE IT IS ALSO CONTENDED THAT, 4. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS)- 2, OUGHT TO HAVE ALLOWED DEDUCTION 15% FROM COST OF CONSTRUCTIO N ARRIVED BY DVO , TOWARDS DIFFERENCE IN RATES, ISSUED BY CPWD APPROVE D BY CBDT AS ADOPTED BY DVO, WHEN COMPARED TO LOCAL RATES IN MOF USSIL AREA LIKE KAKINADA, AS HELD BY VARIOUS BINDING JUDICIAL FORUM S FROM ALL QUARTERS OF THE COUNTRY, WHICH WERE ACCEPTED BY DEPARTMENT ITSE LF. 4.1 IN THE FACTS AND CIRCUMSTANCES OF APPELLANT'S C ASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-2, VISAKHAPATNA M SHOULD HAVE ALLOWED REBATE TOWARDS SELF SUPER VISION CHARGES @ 10% TO 12.5% AS AGAINST 7.5% ALLOWED BY DVO. 4.2 IN THE LIGHT OF THE ABOVE, THE LEARNED COMMISSIO NER OF INCOME- TAX(APPEALS)-2, OUGHT TO HAVE PROPERLY APPRECIATED, THE APPELLANT'S WORKING OF % OF DIFFERENCE BETWEEN COST ADOPTED BY DVO AND COST AS PER BOOKS OF ACCOUNT, WHICH ARE IN THE RANGE OF 1.24% T O 8.63%, ADOPTING DIFFERENT PARAMETERS LAID DOWN & EVEN AS PER LEARNE D CIT(A) ORDER IT IS ONLY 14.3% AND AS SUCH OUGHT TO HAVE HELD THAT, THE ADDITION IS UNWARRANTED IN APPELLANT'S CASE. 5. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS)- 2, VISAKHAPATNAM OUGHT TO HAVE APPRECIATED AND ACCEPTE D THAT, IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE , THE STATEMENT OF MANAGING PARTNER HAS BECOME REDUNDANT AND HAS NO EV IDENTIARY VALUE. 6. FOR THESE GROUNDS AND ANY OTHER GROUND OR GROUND S THAT MAY BE URGED DURING THE COURSE OF HEARING OF THE APPEAL, T HE APPELLANT HUMBLY PRAYS THE HON'BLE INCOME TAX APPELLATE TRIBUNAL TO ALLOW THE APPEAL OR TO GIVE APPROPRIATE RELIEF AS THE HON'BLE TRIBUNAL MAY DEEM IT FIT, IN THE FACTS AND CIRCUMSTANCES OF APPELLANT'S CASE. ITA NO.496/VIZAG/2016 M/S. SHANTI ENTERPRISES, KAKINADA 3 3. THE ASSESSEE HAS RAISED AS MANY AS GROUNDS. HOW EVER, THE ISSUE FOR CONSIDERATION IS WHETHER THE LD. CIT(A) IS CORR ECT IN CONFIRMING THE ADDITION OF ` 36,16,299/- BY NOT ALLOWING THE DEDUCTION OF 15% F ROM COST OF CONSTRUCTION BY FOLLOWING THE CPWD METHOD A ND 10% ON SELF- SUPERVISION. 4. FACTS ARE IN BRIEF THAT THE ASSESSEE IS A PART NERSHIP FIRM FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2012-13 ON 7.9 .2012 DECLARING TOTAL LOSS OF ` 15,10,503/-. THE CASE OF THE ASSESSEE IS SELECTED FOR SCRUTINY. A SURVEY WAS CONDUCTED ON 13.3.2014. DU RING THE COURSE OF THE SURVEY IT WAS NOTED THAT THE ASSESSEE HAS CONST RUCTED TWO HOSPITALS NAMELY 7 STAR SUPER SPECIALITY HOSPITAL AND SARVANI ENT HOSPITAL. WITH REGARD TO 7 STAR SUPER SPECIALITY HOSPITAL, THE MAN AGING PARTNER IN HIS STATEMENT RECORDED ON 19.8.2014 SUBSEQUENT TO THE S URVEY ADMITTED AN ADDITIONAL AMOUNT OF ` 48 LAKHS FOR THE ASSESSMENT YEAR 2012-13 TOWARDS COST OF CONSTRUCTION OF THE SAID HOSPITAL A S THE ASSESSEE WAS NOT ABLE TO PRODUCE CERTAIN VOUCHERS RELATING TO LABOUR AND MATERIAL SUCH AS SAND, BRICKS, ETC. SUBSEQUENTLY, THE A.O. REFERRED THE PROPERTY FOR VALUATION. THE DVO DETERMINED THE COST OF CONSTRUC TION AT ` 2,56,24,000/- AFTER GIVING ALLOWANCE TOWARDS SELF-S UPERVISION OF ` 15,88,392/-. AGAINST THE SAID VALUE, IT WAS SEEN T HAT THE ASSESSEE ADMITTED COST OF CONSTRUCTION OF ` 2,19,60,712/- IN THE BOOKS OF ITA NO.496/VIZAG/2016 M/S. SHANTI ENTERPRISES, KAKINADA 4 ACCOUNTS. THE A.O. CALLED THE ASSESSEES OBJECTION AS TO WHY VALUATION DETERMINED BY THE DVO SHOULD NOT BE ADOPTED. IN RE SPONSE, THE ASSESSEE GAVE A DETAILED REPLY VIDE ITS LETTER DATE D 12.3.2015 WHEREIN IT WAS CONTENDED THAT DISTRICT VALUATION OFFICER I.E. DVO HAS ADOPTED CPWD RATES AND HAS ALLOWED ONLY 7.5% TOWARDS SELF-SUPERV ISION, HOWEVER THERE ARE VARIOUS JUDICIAL DECISIONS ALLOWING 20% T OWARDS THE RATE DIFFERENCE AND 12.5% TOWARDS SELF-SUPERVISION. IF THAT IS CONSIDERED THERE WILL NOT BE ANY DIFFERENCE. IN THE ASSESSMEN T ORDER, THE A.O. HAS NOTED THAT THE ASSESSEE CATEGORICALLY ADMITTED VOLU NTARILY IN HIS STATEMENT U/S 131 OF THE ACT ABOUT ITS INABILITY TO PRODUCE THE BILLS AND VOUCHERS WITH REFERENCE TO CERTAIN EXPENSES SUCH AS LABOUR, MATERIAL SUCH AS SAND, BRICKS, ETC. BESIDES THE A.O. ALSO NO TED THAT THE VALUATION OFFICER HAS OPINED THAT THE ACCOUNTS METHOD COULD N OT BE ADOPTED FOR DETERMINING THE COST OF CONSTRUCTION AS THE ASSESSE E FAILED TO SUBMIT DETAILS OF QUANTITY, LABOUR EMPLOYED, DURATION PERI OD FOR WHICH LABOUR EMPLOYED DAILY, SITE VISIT, ETC. THE VALUATION OFF ICER ALSO NOTED THAT ONLY FEW PURCHASE BILLS AND VOUCHERS WERE SUBMITTED BY T HE ASSESSEE BESIDES DETAILS OF THE MEASUREMENT OF ALL THE ITEMS, STRUCT URAL/WORKING DRAWINGS OF THE BUILDING TO DETERMINE THE QUANTITIES OF THE ITEMS PROVIDED IN THE BUILDING WOULD NOT BE SUBMITTED BY THE ASSESSEE, HE NCE, THE VALUATION OFFICER ADOPTED THE PLINTH AREA RATE AND COST INDEX METHOD. THUS, THE ITA NO.496/VIZAG/2016 M/S. SHANTI ENTERPRISES, KAKINADA 5 A.O. NOTED THAT IT IS VERY MUCH EVIDENT THAT THERE WERE DISCREPANCIES IN THE MAINTENANCE OF VOUCHERS, THEREFORE, THERE IS NO VALID BASIS FOR THE ASSESSEE TO RETRACT FROM THE DISCLOSURE MADE. BESI DES THE A.O. HAS NOTED THAT THE VALUATION OFFICER HAD ADOPTED THE RA TES, WHICH ARE APPROVED BY THE CBDT, HENCE SAME ARE REASONABLE AND ARE TO BE ADOPTED TO DETERMINE THE COST OF CONSTRUCTION. A.O. ALSO NOTED THAT THE ASSESSEE BEING IN MEDICAL PROFESSION WOULD NOT HAVE PERSONALLY SUPERVISED CONSTRUCTION ACTIVITY AND THEREFORE WOUL D NOT BE ELIGIBLE FOR CLAIM OF REBATE TOWARDS SELF-SUPERVISION. THEREFOR E, THE A.O. DETERMINED THE COST OF CONSTRUCTION AT ` 2,74,12,403/- AGAINST THE AMOUNT ADMITTED BY THE ASSESSEE AT ` 2,19,60,712/-. THUS, THE DIFFERENCE OF ` 54,51,619/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. ON APPEAL BEFORE THE CIT(A), IT WAS SUBMITTED TH AT THE A.O. SHOULD HAVE BEEN ALLOWED 15% DEDUCTION BECAUSE THE VALUATION OFFICER ADOPTED THE CPWD RATES AND HE FURTHER RAISED THAT A. O. SHOULD HAVE GIVEN SELF-SUPERVISION REBATE TO THE EXTENT OF 10% TO 12% AND SUBMITTED THAT SAME MAY BE ALLOWED. THE CIT(A) AFT ER CONSIDERING THE EXPLANATION OF THE ASSESSEE SO FAR AS ADOPTION OF C PWD RATES ARE CONCERNED, HE HAS OBSERVED AS UNDER: ITA NO.496/VIZAG/2016 M/S. SHANTI ENTERPRISES, KAKINADA 6 THE AUTHORIZED REPRESENTATIVE RAISED A CONTENTION THAT REBATE SHOULD BE ALLOWED TOWARDS SELF-SUPERVISION AND RATE DIFFERENCE. AS REGARDS RATE DIFFERENCE, IT IS NOTED THAT THE DVO H AS ADOPTED THE RATES APPROVED BY THE CBDT TAKING INTO ACCOUNT COST INDEX OF PARTICULAR TIME AND PLACE. THIS ASPECT WAS DISCUSSED IN DETAIL IN THE DVO REPORT AND THE AO IN HIS ASSESSMENT ORDER AT PAGE 10. IN VIEW OF T HESE I DO NOT FIND ANY MERIT IN THE AUTHORIZED REPRESETATIVES CONTENTION AND THE SAME IS REJECTED. 6. SO FAR AS SELF-SUPERVISION CHARGES ARE CONCERNED , THE LD. CIT(A) HAS HELD AS UNDER: AS REGARDS THE PLEA TOWARDS SELF-SUPERVISION, I FIN D THAT THE DVO HAS ALLOWED REBATE AT 7.5% OF AN AMOUNT OF ` 15,88,392/-. HOWEVER THE AO DID NOT ALLOW SUCH RELIEF TAKING INTO ACCOUNT TH E PROFESSIONAL PRE- OCCUPATION OF THE PARTNERS AND CONSEQUENT WANT OF S ELF-SUPERVISION. HOWEVER, IT IS RELEVANT TO NOTE THAT THIS REBATE IS ALLOWED TOWARDS PROBABLE SAVINGS IN ENGAGING LABOUR AND PROCURING M ATERIAL DIRECTLY RATHER THROUGH A CONTRACTOR. THEREFORE, I FIND THAT THE AO IS NOT JUSTIFIED IN DENYING THIS REBATE. ACCORDINGLY, THE AO IS DIRECT ED TO ALLOW 7.5% TOWARDS SELF-SUPERVISION OF AN AMOUNT OF ` 15,88,392/-. 7. WITH THE ABOVE OBSERVATIONS, LD. CIT(A) HAS PARTL Y ALLOWED THE APPEAL FILED BY THE ASSESSEE. 8. ON BEING AGGRIEVED, ASSESSEE CARRIED MATTER IN A PPEAL BEFORE THE TRIBUNAL. LD. COUNSEL FOR THE ASSESSEE HAS SUBMITT ED THAT THE VALUATION IS MADE BY THE DVO BY FOLLOWING THE CPWD METHOD AND THEREFORE, 15% ALLOWANCE SHOULD BE GIVEN TO THE ASSESSEE. HE FURT HER ARGUED THAT THE LD. CIT(A) HAS ONLY ALLOWED DEDUCTION FOR SELF-SUPE RVISION AT 7.5% AND IT CAN BE ALLOWED UP TO 12%. 9. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORT ED THE ORDER PASSED BY THE AUTHORITIES BELOW. ITA NO.496/VIZAG/2016 M/S. SHANTI ENTERPRISES, KAKINADA 7 10. I HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. THE ISSUE FOR CONSIDERATION BEFORE ME IS THE COST OF CONSTRUC TION OF HOSPITALS. THE ASSESSEE HAS CONSTRUCTED TWO HOSPITALS NAMELY 7 STA R SUPER SPECIALITY HOSPITAL & SARVANI ENT HOSPITAL. THERE WAS A SURVE Y CONDUCTED IN ASSESSEES CASE AND DURING THE COURSE OF SURVEY, TH E MANAGING PARTNER ON 19.8.2014 HAS ADMITTED AN ADDITIONAL AMOUNT OF ` 48 LAKHS ON ACCOUNT OF NON-MAINTENANCE OF VOUCHERS RELATING TO LABOUR, MATERIAL SUCH AS SAND, BRICKS, ETC. HE HAS NOT RETRACTED SU BSEQUENTLY. THE ASSESSING OFFICER HAS REFERRED THE MATTER TO THE DV O FOR DETERMINATION OF COST OF CONSTRUCTION. THE DVO HAS ADOPTED THE R ATES APPROVED BY CBDT BY TAKING INTO ACCOUNT COST INDEXATION OF TIME AND PLACE AND DETERMINED THE COST OF CONSTRUCTION AT ` 2,56,24,000/- AFTER GIVING ALLOWANCE TOWARDS SELF-SUPERVISION OF ` 15,88,392/-. THE A.O. HAS CALLED THE ASSESSEES OBJECTIONS AS TO WHY VALUATION DETER MINED BY DVO SHOULD NOT BE ADOPTED. IN RESPONSE TO THAT, THE ASSESSEE HAS SUBMITTED BEFORE THE A.O. THAT THE DVO HAS FOLLOWED THE CPWD RATES A ND HAS ALSO ALLOWED ONLY 7.5% TOWARDS THE SELF-SUPERVISION AND SUBMITTED THAT 20% SHOULD BE ALLOWED ON ACCOUNT OF FOLLOWING THE CPWD RATES AND 12.5% SHOULD BE ALLOWED FOR SELF-SUPERVISION. THE A.O. A FTER CONSIDERING EXPLANATION GIVEN BY THE ASSESSEE, HE HAS ADOPTED T HE COST OF ITA NO.496/VIZAG/2016 M/S. SHANTI ENTERPRISES, KAKINADA 8 CONSTRUCTION ESTIMATED BY THE DVO, EVEN WITHOUT GIV ING ALLOWANCE TOWARDS SELF-SUPERVISION OF ` 15,88,392/-. ON APPEAL, THE LD. CIT(A) HAS CONFIRMED THE ORDER OF THE A.O. IN RESPECT OF R ATE ADOPTED BY THE A.O. BY OBSERVING THAT THE DVO HAS ADOPTED THE RATE S APPROVED BY CPDT TAKING INTO ACCOUNT COST OF INDEX OF PARTICULA R TIME AND PLACE. I HAVE GONE THROUGH THE DVO REPORT AND ALSO THE ASSES SMENT ORDER AND I FOUND THAT THE DVO BY CONSIDERING THE TIME AND PLAC E OF CONSTRUCTION AND ALSO RATES APPROVED BY THE CBDT, COST OF CONSTR UCTION IS ESTIMATED. I FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). 11. SO FAR AS SELF-SUPERVISION IS CONCERNED, THE DV O HAS GRANTED 7.5%. HOWEVER, A.O. HAS NOT ACCEPTED THE ALLOWANCE GIVEN BY THE DVO. ON APPEAL, LD. CIT(A) ALLOWED THE REBATE AT 7 .5% BY OBSERVING THAT THIS REBATE IS ALLOWED TOWARDS PROBABLE SAVING S IN ENGAGING LABOUR AND PROCURING MATERIAL DIRECTLY RATHER TO A CONTRAC TOR. A.O. IS DIRECTED TO ALLOW 7.5% TOWARDS SELF-SUPERVISION FOR AN AMOUN T OF ` 15,88,392/-. I FIND THAT THE LD. CIT(A) HAS REASONABLY ALLOWED S ELF-SUPERVISION AT 7.5% TO THE ASSESSEE AND ALSO FIND THAT NO FURTHER ALLOWANCE IS REQUIRED ON ACCOUNT OF SELF-SUPERVISION. BY TAKING INTO CON SIDERATION THE FACTS AND CIRCUMSTANCES OF THE CASE, I FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). THUS, THIS APPEAL FILED BY THE ASS ESSEE IS DISMISSED. ITA NO.496/VIZAG/2016 M/S. SHANTI ENTERPRISES, KAKINADA 9 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 13 TH SEPT17. SD/- ( . ) (V. DURGA RAO) /JUDICIAL MEMBER # /VISAKHAPATNAM: ' /DATED : 13.09.2017 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT M/S. SHANTI ENTERPRISES, D.NO.21 -1-28/2, JAWAHAR STREET, KAKINADA-533 001, EAST GODAVARI DISTRICT. 2. / THE RESPONDENT THE ITO, WARD-2, KAKINADA 3. + / THE PRINCIPAL CIT-2, VISAKHAPATNAM 4. + ( ) / THE CIT (A)-2, VISAKHAPATNAM 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM