TMI Blog1987 (12) TMI 331X X X X Extracts X X X X X X X X Extracts X X X X ..... ing is constructed by the assessee firm. Construction of this hostel building is completed during the period relevant to asst. yr. 1981-82. The cost of construction as shown by the assessee firm in books of accounts is ₹ 3,27,728 (excluding value of the land). It is double storeyed hostel building. Looking to the total area constructed and the year of construction it was noticed that the actual cost of construction would be much more than what is shown by the assessee firm in books of accounts. The matter was therefore, referred to the valuation officer Income Department, Rajkot on 12th Sept., 1984 to ascertain the correct cost of construction of this hostel building. The Valuation officer vide his report sent under his No. 2A(B)VOR/84-85/2958, dt. 31st Jan., 1985 has worked out the probable cost of construction of the building at ₹ 6,68,200 (excluding cost of land) as against the declared cost of ₹ 3,27,728, The report of the Valuation Officer is based on prevailing market rate of labour and materials during the period of construction of the building. This shows that the assessee firm has shown cost of construction much less than what it should have been. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction. Moreover, during the course of hearing, we have also filed with the Valuation Officer a letter dt. 30th Jan., 1985 giving details of the cost of construction according to P.W.D. rates. We had also produced before him various type rate of cost of construction of P.W.D. As early as stated the cost of construction of the Hostel building is also substantiated with the purchase bills and vouchers. As against this you have stated in your reply that the cost of construction as proposed by the Valuation Officer is reasonable. You are requested to let us know the items in respect of which variation is in the cost of construction. You are also requested to give us the valuation worked out by the Valuation Officer and in the absence of the working of Valuation, we would not be able to point out the difference in the cost or working. It would be in the interest of justice, you should point out to us the reason for which you do not agree with the valuation report filed by us. If you furnish us the reasons we would try to explain the discrepancy in the valuation, if there be any. In spite of the above if you adopt the valuation on the basis of the valuation report of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Jalvant Vora. It is stated that the Department Valuer has seriously erred in comparing the case of the appellant with that of Shri Ram Building. The Department Valuer was also present at the time of hearing of this appeal and he has also submitted his report objecting therein the valuation report of the appellant's valuer is not at all supported by materials facts. It is objected by the Department Valuer that the height of 380 meters as against normal height of 280 meters for residential construction. It is also objected that the comparable case quoted by the appellant in the case of M/s N.Kunver ji Co. cannot be taken into account because the Gujarat Government might have supplied the building materials like cement and steel etc. to the contractors at concessional rate and therefore, no comparison could be made. It is also objected that there is a wide variation in the quantity of the materials used in the construction as worked out in the estimate and that supplied at the time of hearing. It is also objected that the details of the measurement now furnished have no relevance to the estimation. The Department Valuer has stated that he has followed the instruction No. 365 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us a detailed cost of construction may be worked out giving details of raw materials consumed, cost of labour and other expenses and if there is any discrepancy, the same may be pointed out to us so that we can explain the same. Further, Valuation by our registered Valuer has been made on the basis of the rates approved by the Public Works Department of Gujarat State. The Valuation Officer would have been very much justified in not accepting the Valuation shown by us of the registered Valuer if there was any discrepancy in working out the cost of construction. In absence of the same, the Valuation Officer is not at all justified in working out the cost of the construction on ad-doc basis. After we received a notice from the learned ITO proposing to file objections, we submitted our objections by our letter dt. 8th Feb., 1985 submitted to the ITO vide receipt No. 930094 dt. 3rd Feb., 1985. Reference to our file with the ITO, you would please observe that the learned Valuation Officer has made the valuation on ad-hoc basis ignoring our valuation report submitted to the ITO. The total cost of construction as per our accounts comes to ₹ 2,70,281. The cost of construction wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITO and ₹ 45. per sq. meter disclosed by the assessee in the following manner:' I have considered the submissions made both by the learned counsel as also the Department Valuer and have gone through the valuation reports prepared by the appellant's Valuer as also by the Department Valuer, who was also present at the time of hearing and the matter was discussed in great detail. On perusal of the objections raised by the appellant as also by the Department Valuer, one thing is clear that the construction work, which was carried out in 1979-80, was gone under the personal supervision of the partners. It is submitted that the partners are very much experienced in the construction work because such work was carried out in earlier year and hence the construction work has been done by them departmentally. The material used in the construction of Babyland Hostel appeared to be of ordinary quality and no of superior quality as stated by the Department Valuer. I agree with Appellant's Valuer with regard to the remarks that the margin of profit in the case of construction is about 25 per cent and that much deductions is to be given in the case where the construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jections given by the Department Valuer on the objections raised by the appellant against the valuation are very much in general and no proper inference can be drawn from such report of the Department Valuer. It appears that he has applied the current rate of construction of the building in the year 1979-80. It may also be mentioned that the rate adopted by the Department Valuer is very much excessive and very high. It may be mentioned that the appellant has maintained books of accounts and that the ITO has not found out that materials which have been purchased and used in the construction, have not been disclosed to the department. It is not the case of the ITO that the appellant has suppressed the cost of particular item of building material purchased and used in the construction and moreover the appellant has maintained proper books of accounts and all the vouchers and bills have been kept. There is a decision of the Delhi Bench of TRIBUNAL In that case, similar set of facts came up for consideration and there was a difference as per valuation report of the Department Valuer and as per assessee's Valuer and such difference was of ₹ 53, 000. The Tribunal Delhi, after co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee, the CIT (A) was not justified in not accepting the cost of construction disclosed by it. The revenue in its appeal urges that the order of the CIT (A) on this point should be reversed. 9. The learned counsel for the assessee invited our attention to the relevant portions of the orders of the income tax authorities as well as the assessee's submissions made before them and strongly urged that since the assessee had maintained proper books of accounts regarding the construction of the property in question which was supported by vouchers, bills etc., the income tax authorities were not justified in making the addition in the manner they did. He also highlighted the fact that neither the ITO, nor the CIT (A) has found out any glaring or obvious defects in the books of accounts maintained by the assessee, on the contrary the finding of the CIT (A) on this point, as would appear from the above, is in favour of the assessee. In spite of this position available, both the income tax authorities have ignored the books of accounts of the assessee and have ttempted to make certain additions that too on probability. He also placed before eus copies of the orders of the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uchers, bills etc. In fact, as would appear from the orders of the income tax authorities (reproduced above) that they have simply ignored the books of accounts of the assessee without pin-pointing any glaring or major defects therein. Surely, the addition made by giving blink eye to the material available on record cannot get approval from a judicial body like the Tribunal. In fact, in the aforesaid two orders of the Tribunal, the Tribunal has deleted certain addition made by the income tax authorities on the fact and circumstances which are identical to the one obtaining in the instant case with which we fully concur. In this view of the matter, we are of the opinion that there is no justification of making any addition in the manner made by the ITO or sustained by the CIT (A). We would therefore direct the ITO to accept the assessee's cost of construction at ₹ 3,27,728 and modify the assessment accordingly. In this view of the matter, we delete the addition as sustained by the CIT (A). The ITO is, therefore, directed to modify the assessment accordingly. 11. Before we part with this order, it may be mentioned that the learned counsel for the assessee had not pressed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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