IT: Unless there are similarities in rates of CPWD and State PWD, it is not proper to adopt CPWD rates for arriving at cost of construction
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[2013] 35 taxmann.com 179 (Madras)
HIGH COURT OF MADRAS
Commissioner of Income-tax, Coimbatore
v.
K. Jayakumar*
MRS.CHITRA VENKATARAMAN AND MS. K.B.K. VASUKI, JJ.
TAX CASE (APPEAL) NO. 185 OF 2010†
JUNE 4, 2013
Section 69 of the Income-tax Act, 1961 - Unexplained investments [Immovable properties] - Assessment year 1998-99 - Assessee constructed a shopping cum residential complex - Assessing Officer on basis of valuation done by DVO, adopted CPWD rates and completed assessment, thereby making addition - Whether on considering geographical location, availability of work force and cost of materials, it is not proper to blindly go by CPWD rates for purpose of arriving at cost of construction unless there are similarities in rates of CPWD and State PWD - Held, yes - Whether, where DVO adopted CPWD rates for arriving at cost of construction of assessee's property and there was a substantial difference between CPWD rates and State PWD rates, matter was to be remitted back to Assessing Officer for working out cost of construction by taking State PWD rates - Held, yes [Para 4] [Matter remanded]
FACTS
| ■ | The assessee constructed a shopping cum residential complex in Coimbatore and claimed cost of construction to be Rs. 96 lakhs. However, the Assessing Officer referred the matter to the District Valuation Officer (DVO) under section 133(6) who by adopting CPWD rates arrived at the probable cost of construction at Rs. 1.40 crores, thus indicating a difference of Rs. 44 lakhs. | |
| ■ | The assessee objected to the Valuation done by the DVO. He also claimed raise of 20 per cent on account of own supervision, but the Assessing Officer adopted allowance of 10 per cent as against 7.5 per cent arrived at by the DVO. | |
| ■ | Aggrieved by the order of assessment, the assessee filed appeal before the Commissioner (Appeals). The Commissioner (Appeals) held that the Assessing Officer had no power to refer the valuation of assessee's property to the DVO under section 133(6) and also pointed out that there was a substantial difference between CPWD rate and State PWD rate. | |
| ■ | On revenue's appeal, the Tribunal held that since construction was done in a small town, CPWD rates could not have been applied. He, further accepting the plea of assessee directed the Assessing Officer to make an addition of Rs. 8 lakhs towards cost of construction. | |
| ■ | On further appeal by the revenue, it contended that the plea of the assessee accepted by the Tribunal, was without any basis. |
HELD
| ■ | The contention of the Revenue that the order of the Tribunal is totally without any basis is agreeable. As rightly pointed out by the revenue, the construction of the shopping and residential complex is not in a small town, but a Corporation. A reading of the order of assessment shows that the Income Tax Officer had not agreed with the Valuation Officer's report as it is, particularly when he noted that the assessee himself had undertaken the supervision. | |
| ■ | Thus, the Assessing Officer partially agreed with the assessee and allowed the valuation at 10% instead of 7.5%, towards supervision charges. However, the basis of valuation as regards the cost of construction, nevertheless, was that of the District Valuation Officer, adopting CPWD rates. It is not denied by the Revenue that there is a variation between the CPWD rates and the State PWD rates. Considering the geographical location, the availability of work force and the cost of materials, unless there are similarities in the rates under CPWD and the State PWD, it is not proper to blindly go by CPWD rates for the purpose of arriving at the cost of construction. | |
| ■ | In the circumstances, while setting aside the order of the Tribunal, the matter is remitted back to the Assessing Officer for working out the cost of construction, to be distributed in assessment years 1997-98 and 1998-99 by taking State PWD rates and for passing orders in accordance with law, after giving the assessee an opportunity of hearing. [Para 4] |
N.V. Balaji for the Appellant.
JUDGMENT
Mrs. Chitra Venkataraman, J. - In spite of service of notice on the assessee on 24.02.2010, there is no appearance on behalf of the assessee. Hence, after hearing the Revenue and going through the records, the present order is passed in this Tax Case Appeal relating to the assessment year 1998-99. The Revenue has filed this Tax Case Appeal raising the following substantial questions of law:
| "(i) | Whether in the facts and circumstances of the case, the Tribunal was right in directing the Assessing Officer to restrict the addition to Rs. 8 lacs as offered by the assessee? | |
| (ii) | Whether in the facts and circumstances of the case, the Tribunal was right in holding that the CPWD rates cannot be applied to the commercial cum residential complex constructed at Coimbatore on the ground that Coimbatore is a small town? " |
2. It is seen from the facts herein that the assessee had constructed a shopping-cum-residential complex at 405, Rangai Gounder Street, Coimbatore, and the construction was completed in the previous year relevant to the assessment year 1998-99. The cost of construction was Rs. 96,22,000/-. The Assessing Officer, however, referred the matter to the District Valuation Officer under Section 133(6) of the Income Tax Act. He adopted the CPWD rates to arrive at the probable cost of construction at Rs. 1,40,37,000/-, thus indicating a difference of Rs. 44,15,000/-. The assessee objected to the valuation done by the District Valuation Officer. After considering the objections, as against the claim of 20% for own supervision and purchase of material, the Assessing Officer adopted an allowance of 10% as against 7.5% arrived at by the District Valuation Officer. Aggrieved by the order of assessment, the assessee went on appeal before the Commissioner of Income Tax (Appeals). The first appellate authority held that the Assessing Officer has no power to refer the valuation to the District Valuation Officer under Section 133(6) and under Section 142(2) or under Section 131 of the Income Tax Act, for valuing the appellant's property, by following the decisions of the Apex Court reported in Smt. Amiya Bala Paul v. CIT [2003] 262 ITR 407/130 Taxman 511. He nevertheless pointed out that there is a substantial difference between CPWD rate and State PWD rate. The Revenue went on appeal before the Income Tax Appellate Tribunal, wherein, it pointed out that the construction was done in a small town and hence, CPWD rates could not have been applied. It further pointed out that the construction was with reference to the shopping-cum-residential complex and that no wood work like provision of almirahs, doors and windows were required and that no decorative work were required. Since the assessee was an experienced hand in the construction line, a reduction was to be given on account of builder's profit. In the circumstances, the Tribunal accepted the plea of the assessee for an addition of Rs. 8 lakhs towards cost of construction returned by it. Thus, the Assessing Officer was directed to make an addition of a sum of Rs. 8 lakhs to be distributed in the assessment years 1997-98 and 1998-99. Aggrieved by this, the present appeal has been filed by the revenue, relating to the assessment year 1998-99.
3. Learned Standing Counsel appearing for the Revenue pointed out that while there could be a substantial difference in the rates between CPWD and the State PWD, yet, the Tribunal committed a serious error in accepting the plea of the assessee by adding a sum of Rs.8 lakhs without any basis. In the circumstances, he pleaded for setting aside the order of the Tribunal. He further pointed out that the construction is made in a big city, namely, Coimbatore, and that it is not a small city, as had been stated in the order.
4. We have perused the orders passed by the authorities below. We agree with the contention of the learned Standing Counsel appearing for the Revenue that the order of the Tribunal is totally without any basis. As rightly pointed out by the learned Standing Counsel, the construction of the shopping and residential complex is in Coimbatore, which is not a small town, but a Corporation. A reading of the order of assessment shows that the Income Tax Officer had not agreed with the Valuation Officer's report as it is, particularly when he noted that the assessee himself had undertaken the supervision. Thus, the Assessing Officer partially agreed with the assessee and allowed the valuation at 10% instead of 7.5%, towards supervision charges. The Assessing Officer also accepted the contention that water connection was already existing; apart from that, certain other concessions were given. However, the basis of valuation as regards the cost of construction, nevertheless, was that of the District Valuation Officer, adopting CPWD rates. It is not denied by the Revenue that there is a variation between the CPWD rates and the State PWD rates. Considering the geographical location, the availability of work force and the cost of materials, unless there are similarities in the rates under CPWD and the State PWD, we do not think, we can blindly go by CPWD rates for the purpose of arriving at the cost of construction. In the circumstances, while setting aside the order of the Tribunal, we remit back the matter to the Assessing Officer for working out the cost of construction, to be distributed in assessment years 1997-98 and 1998-99 by taking State PWD rates and for passing orders in accordance with law, after giving the assessee an opportunity of hearing.
The Tax Case Appeal stands disposed of accordingly. No costs.
ESHA*Matter remanded.
†Arising out of order of ITAT in ITA No. 1887/Mds/03, dated 27-1-2006
Regards
Prarthana Jalan
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