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2016 (1) TMI 806 - ITAT VISAKHAPATNAM

2016 (1) TMI 806 - ITAT VISAKHAPATNAM - TMI - Unexplained investments in building - AO confirmed the additions made on the basis of the DVO report - DVO has allowed 6% margin towards self-supervision and difference between CPWD & State PWD rates - Held that:- Find force in the arguments 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 th .....

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dings and which 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 rate is available for ascertaining the value of building.

As the assessee is entitled for 15% deduction towards rate variation between CPWD and State PWD and a further 10% deduction towards self-supervision charges from the value arrived by the DVO applying the CPWD rates. The .....

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Respondent : Shri D L Narasimha Rao, AR ORDER Per G. Manjunatha, Accountant Member This appeal filed by the revenue is directed against the order of the CIT(A), Vijayawada dated 15.11.2012 for the assessment year 2006- 07. The revenue has raised the following grounds: 1. The Id. CIT(A) erred both in law and in facts of the case. 2. The Id. CIT(A) ought to have sustained the addition of Rs,29,78,850/- made for assessment year 2006-07 since books of account maintained for construction were not in .....

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n of the same cannot also be over-ruled and the whole of the cost of construction as shown in the books cannot be accepted as true, the Ld.CIT(A) ought to have sustained the entire addition holding it as unexplained. 5. The Ld.CIT(A) ought to have appreciated that the decision of the ITAT rendered in the case of Salma A.Mehdi could be distinguished as the DVO already made certain adjustments to the 'plinth area rates with reference to the market conditions prevalent in the place of construct .....

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y allowed by the DVO should have been considered to be reasonable; 7. Even otherwise, the Ld. CIT(A) ought to have noticed that the quantification of relief of the order of ₹ 22,53,850/- made him had no basis and hence the same is not reasonable or justifiable in the facts and circumstances of the cases 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 advanced during the course of hearing of the appeal, i .....

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towards unexplained investment in cost of construction of commercial complex at Mudinepalle village of Krishna district. On appeal, the Ld. CIT(A), allowed the appeal by directing the A.O. to recalculate the difference in cost of construction by following the ratio of decision of jurisdictional ITAT 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 a .....

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of accounts relevant to the assessment year in which construction took place. In response to said notice, the assessee filed a letter dated 15.9.2011 and also produced books of accounts, bills & vouchers, etc. The assessee submitted that the construction was completed in June, 2005. The assessee further submitted that he has maintained books of accounts and also bills & vouchers for the construction expenses, therefore, the A.O. was not right in considering the D.V.O. valuation, by ignor .....

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was holding 258 vouchers only, covering a cost of ₹ 38,83,959/- as against the cost of ₹ 43,20,606/- reported in the books of accounts. Therefore, the A.O. rejected the explanations offered by the assessee and adopted the D.V.O. valuation of ₹ 72.99 lakhs and made additions towards difference of ₹ 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 assessee submitted that .....

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g normal materials. Therefore, CPWD rates cannot be considered as yardstick for the purpose of ascertaining the value of the building. The assessee further submitted that while valuing the property, the DVO has not allowed the margin towards rate difference between CPWD & State PWD and also not allowed any margin for self supervision charges. The assessee submitted that the assessee has constructed the building on its own with due care, therefore, the cost of the construction is naturally ve .....

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t towards self-supervision charges, while valuing the property for the difference in rates between CPWD & State PWD rates. The D.R. further submitted that since, the DVO was already allowed 6% rebate towards self supervision and other 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, therefore, requested to uphold the order of the A.O. 6. On the .....

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parties and perused the materials available on record. The factual matrix of the case, is that the A.O. made additions towards unexplained investments in building. While doing so, the A.O. has referred the matter to the district valuation officer and obtained the report from DVO and made the additions towards difference between value determined by the DVO and amount reported by the assesse. The assesse challenged the matter before CIT(A), but could not succeed. The assesse carried the matter to .....

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on to re-examine the cost of construction along with books of accounts maintained by the assessee. Consequent to ITAT directions, 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. While doing so the A.O. held that the assesse, did not produced books of accounts at the time of original assessment, therefore the books produced now were fabricated and hence cann .....

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ing and the quality of materials used for construction is also very low, whereby he had saved good amount of money, therefore, the value adopted by the assessee should be taken into account, instead of DVO report. As stated by the AO, there is a discrepancy in the books of accounts maintained by the assessee. Therefore, the A.O. referred the matter to the valuation officer for ascertaining the correct value of the cost of construction. The DVO has valued the building by taking into account CPWD .....

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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, suitable margin should be allowed, towards cost of materials and other charges considering the facts and circumstances, being quality of materials used and place of construction. In the instant case, as can be seen from the facts, the building is situated in village and the assesse himself constructed the building under his supervision. .....

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Hyd/1995. We have examined the case laws relied upon by the assesse, in the light of the facts of the present case. The coordinate bench of this Tribunal, in the above mentioned case, while dealing with similar 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 1976 and approved by the Government of India by duly enha .....

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ng into consideration the fact 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 overall 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 higher rate of CPWD of New Delhi. Further, the valuation officer did not allow any deduction towards personal supervision. The first appellate authority allowed 10% reduction on account of savi .....

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377; 5,16,750/- arrived at by us after giving 15% reduction for higher CPWD rates and 10% deduction for personal supervision, appears to be quite reasonable. It can be rounded to ₹ 5,16,000/-." 10. In yet another case, the ITAT Hyderabad bench in the case of G. Pulla Reddy Vs. JCIT, while considering the similar 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 contain prov .....

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. The availability of cost for construction material, the availability of labour and wages to be paid to them and other like factors do affect the cost of construction and, therefore, it was quite logical for the person concerned to follow the State PWD rates while estimating the cost of construction of building in different area. However, the facts remains that the PWD rates are for the purpose of determining fair market rent of a property, whenever the State PWD awards a contract for construct .....

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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 applied the basic plinth area rates approved by the CEDT. . He applied the plinth area of New Delhi as fixed in 1976 and approved by the Government of India by duly enhancing the basic rate of simila .....

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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 overall 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 higher rate of CPWD of New Delhi. Further, the valuation officer did not allow any deduction towards personal supervision. The first appellate authority allowed 10% reduction on account of savings by personal supervision ap .....

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us after giving 15% reduction for higher CPWD rates and 10% deduction for personal supervision, appears to be quite reasonable. It can be rounded to ₹ 5,16,000/-. 24. We are in respectful agreement with the aforesaid order of the Tribunal and hold that CIT(A) was justified in upholding plinth area basis for determining cost of construction over the CPWD rates and further reduction of 10%0 on account of persona! supervision. We do not find force in department's submission that the objec .....

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