TMI Blog2018 (8) TMI 1143X X X X Extracts X X X X X X X X Extracts X X X X ..... ompute the investments subject to minimum of the cost of construction admitted by the assessee. - I.T.A.No.450/Viz/2016 - - - Dated:- 31-7-2018 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER For The Appellant : Shri G.V.N.Hari, AR For The Respondent : Shri K.C.Das, DR ORDER PER D.S. SUNDER SINGH, Accountant Member: This appeal is filed by the assessee against the order of the Commissioner of Income Tax(Appeals) [CIT(A)]-2, Guntur vide ITA No.93/14-15 dated 24.08.2016 for the assessment year 2011-12. 2. Brief facts of the case are that the assessee is engaged in the business of construction of individual houses. A survey u/s 133A of the act was conducted in the business premises of the assessee on 06.12.2012 and found that the assessee has constructed a function hall by name M/s Venkanna Babu Function Hall and started running it in his proprietary capacity. He has also started a firm in the name and style of M/s Padmini Priya Properties and Developers. The assessee has stopped filing the return of income, hence the Assessing Officer (AO) has conducted a survey and subsequently issued notice u/s 147 and in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. The assessee referred the valuation of property to the approved valuer who in turn has estimated the building at ₹ 60,00,000/-, and on reference to the departmental valuation cell, the DVO has valued the cost of construction at ₹ 1,42,25,000/-. This difference clearly shows that the DVO has valued the property at very exorbitant rates and not comparable with local rates. The Ld.AR further argued that the assesse is an experienced builder who is having long experience in construction activities. The rates quoted for cost of construction by the DVO are CPWD rates and the same are not comparable to the local rates. They are very exorbitant and it includes profit element of the contractors, therefore requested to allow the rate difference @ 15% in cost of construction. Further, the Ld.AR argued that the assessee is experienced builder who is having vast experience in the construction activities, therefore requested to allow the rebate of 10% towards self supervision and relied on the decision of this Tribunal in the case of Padmini Priya Property Developers and Builders, Kakinada in ITA.No.493/vizag/2016 dated 04/04/2018. 8. We have heard both the parties and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are far higher 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 fact that the CPWD rates of New Delhi are always higher than the local rates, we feel 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 appears to be quite reasonable. If we deduct 10% towards personal supervision and 15% on account of the higher rate adopted by the valuation officer, the estimate of cost of construction determined by the valuation officer comes down to ₹ 5,16,7501/-. Even if we take average of cost of construction of ₹ 68900 determined by the DVO on the basis of plinth area method works out to ₹ 5,22,000/-. In that view of the matter, the cost of construction of ₹ 5,16,750/- arr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 76 and approved by the Government of India by duly enhancing the basic rate of similar structures with appropriate cost index as applicable to the locality during the period of construction. The Valuation did not appear to have taken into consideration the local rates that actually existed during the period for construction. It is common knowledge CPWD rates of New Delhi are far higher 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 fact that the CPWD rates of New Delhi are always higher than the local rates, we feel 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 appears to be quite reasonable. If we deduct 10% towards personal supervision and 15% on account of the higher rate ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to ₹ 7,25,000/-. We do not find any error or infirmity in the order of the CIT(A). Therefore, we inclined to upheld the order of the CIT(A) and reject the ground raised by the revenue. Similar view was taken by this tribunal in the case of Padmini Priya Property Developers. Since the facts of the assessee s case are identical, respectfully following the view taken by the Coordinate Bench, we direct the AO to allow the rate difference of 15% and supervision charges to the extent of 10% in cost of construction determined by the DVO and recompute the investments subject to minimum of the cost of construction admitted by the assessee. Accordingly, the order of the assessee on this ground is allowed. 9. Ground No.3 is related to the addition towards sources of investment amounting to ₹ 9,98,491/- and ₹ 3,67,470/-. The assessee has admitted the cost of construction at ₹ 1,11,30,963/- and explained the sources as under : The sources for investment in the Venkanna Babu Function Hall; as shown in the Fixed Assets as under : Sl. No. Source of Investment Amount 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 Out of the above, the cash expenditure of ₹ 9,98,491 was met. As per the tabulation, the income from other sources was ₹ 5,00,000/- representing the amenities of rent from function hall of ₹ 2.00 lakhs and gifts from relatives and friends on the occasion of opening of function hall of ₹ 3 lakhs. The Ld.CIT(A) accepted the receipt of gifts and the amenities but did not accept the same as source, since the amenities and gifts of ₹ 5.00 lakhs were received in the subsequent year. The Ld.CIT(A) was of the view that the sources cannot be applied for cost of construction as they were earned only after completion of construction. 11. During the appeal hearing, the Ld.AR argued that the assessee has offered the amenities from rent of ₹ 2.00 lakhs and gifts received from relatives of ₹ 3.00 lakhs in the subsequent year as income. This fact was not disputed by the Ld.CIT(A). Though technically the function hall was completed during the impugned assessment year, there were certain pending works which were undertaken by the assessee immediately after the end of the assessment year and the amounts were spent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income and business income were not used in the construction of function hall but applied for any other purpose or applied in the business of the assessee. The AO simply rejected the assessee s claim of cash of ₹ 9,98,491/- without bringing any evidence on record. During the appeal hearing the Ld.DR did not controvert the submissions of the assessee. Since the AO failed to bring on record any evidence for application of the cash for any other purposes other than the function hall, representing the agricultural income and business income, there is no reason to suspect the source of ₹ 6,39,074/- for construction of function hall. Accordingly, we hold that the assessee explained the sources to the extent of ₹ 6,39,074/- and direct the AO to accept the source. 16. As per the cash flow statement, there was wages payable outstanding to the extent of ₹ 3,55,200/- which the assessee has requested to accept the same as source, however, the assessee failed to produce any evidence with names and addresses of the labourers to whom the wages are payable and the date of payment. Therefore, the assessee s contention to accept the labour wages payable as source is withou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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