Income Tax Appellate Tribunal - Panji
M/S. Shanti Enterprises,, Kakinada vs The Ito,, Kakinada on 13 September, 2017
ITA No.496/Vizag/2016
M/s. Shanti Enterprises, Kakinada
आयकर अपील य अ धकरण, वशाखापटणम पीठ, वशाखापटणम
IN THE INCOME TAX APPELLATE TRIBUNAL,
VISAKHAPATNAM "SMC" BENCH, VISAKHAPATNAM
ी वी. दग
ु ाराव, या यक सद य
BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER
आयकर अपील सं./I.T.A.No.496/Vizag/2016
( नधारण वष / Assessment Year: 2012-13)
M/s. Shanti Enterprises ITO, Ward-2,
Kakinada Kakinada
[PAN No.AAIFS1210N]
(अपीलाथ / Appellant) ( !याथ / Respondent)
अपीलाथ क ओर से / Appellant by : Shri P. Prabhakara Murthy,
AR
याथ क ओर से / Respondent by : Shri K.C. Das, DR
सुनवाई क तार ख / Date of hearing : 28.7.2017
घोषणा क तार ख / Date of Pronouncement : 13.09.2017
आदे श / O R D E R
PER V. DURGA RAO, Judicial Member:
This appeal filed by the assessee is directed against order of the CIT(A)-2, Visakhapatnam dated 15.09.2016 for the assessment year 2012-13.
2. The assessee has raised following grounds of appeal:
1. The addition of Rs 36,63,299/- sustained by Learned Commissioner of Income Tax (Appeals)-2, Visakhapatnam, relying on DVO report, is not correct on facts and in the law applicable to the facts of the appellant's 1 ITA No.496/Vizag/2016 M/s. Shanti Enterprises, Kakinada 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 reference 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, is 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 issued 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 construction arrived by DVO , towards difference in rates, issued by CPWD approved by CBDT as adopted by DVO, when compared to local rates in mofussil area like Kakinada, as held by various binding judicial forums from all quarters of the country, which were accepted by department itself. 4.1 In the facts and circumstances of appellant's case, the Learned Commissioner of Income Tax (Appeals)-2, Visakhapatnam 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 Commissioner 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% to 8.63%, adopting different parameters laid down & even as per Learned 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 accepted that, in view of the facts and circumstances of the appellant's case, the statement of Managing partner has become redundant and has no evidentiary value.
6. For these grounds and any other ground or grounds that may be urged during the course of hearing of the appeal, the 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."
2 ITA No.496/Vizag/2016
M/s. Shanti Enterprises, Kakinada
3. The assessee has raised as many as grounds. However, the issue for consideration is whether the Ld. CIT(A) is correct in confirming the addition of ` 36,16,299/- by not allowing the deduction of 15% from cost of construction by following the CPWD method and 10% on self- supervision.
4. Facts are in brief that the assessee is a partnership 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. During the course of the survey it was noted that the assessee has constructed two hospitals namely 7 Star Super Speciality Hospital and Sarvani ENT Hospital. With regard to 7 Star Super Speciality Hospital, the Managing Partner in his statement recorded on 19.8.2014 subsequent to the survey admitted an additional amount of ` 48 lakhs for the assessment year 2012-13 towards cost of construction of the said hospital as 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 construction at ` 2,56,24,000/- after giving allowance towards self-supervision of ` 15,88,392/-. Against the said value, it was seen that the assessee admitted cost of construction of ` 2,19,60,712/- in the books of 3 ITA No.496/Vizag/2016 M/s. Shanti Enterprises, Kakinada accounts. The A.O. called the assessee's objection as to why valuation determined by the DVO should not be adopted. In response, the assessee gave a detailed reply vide its letter dated 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-supervision, however there are various judicial decisions allowing 20% towards the rate difference and 12.5% towards self-supervision. If that is considered there will not be any difference. In the assessment order, the A.O. has noted that the assessee categorically admitted voluntarily 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 noted that the valuation officer has opined that the accounts method could not be adopted for determining the cost of construction as the assessee failed to submit details of quantity, labour employed, duration period for which labour employed daily, site visit, etc. The valuation officer also noted that only few purchase bills and vouchers were submitted by the assessee besides details of the measurement of all the items, structural/working drawings of the building to determine the quantities of the items provided in the building would not be submitted by the assessee, hence, the valuation officer adopted the plinth area rate and cost index method. Thus, the 4 ITA No.496/Vizag/2016 M/s. Shanti Enterprises, Kakinada 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. Besides the A.O. has noted that the valuation officer had adopted the rates, 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 would not be eligible for claim of rebate towards self-supervision. Therefore, 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 that 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) after considering the explanation of the assessee so far as adoption of CPWD rates are concerned, he has observed as under:
5 ITA No.496/Vizag/2016
M/s. Shanti Enterprises, Kakinada "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 has 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 these I do not find any merit in the authorized represetative's 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 find 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 the professional pre- occupation of the partners and consequent want of self-supervision. However, it is relevant to note that this rebate is allowed towards probable savings in engaging labour and procuring material directly rather through a contractor. Therefore, I find that the AO is not justified in denying this rebate. Accordingly, the AO is directed to allow 7.5% towards self-supervision of an amount of ` 15,88,392/-."
7. With the above observations, Ld. CIT(A) has partly allowed the appeal filed by the assessee.
8. On being aggrieved, assessee carried matter in appeal before the Tribunal. Ld. Counsel for the assessee has submitted that the valuation is made by the DVO by following the CPWD method and therefore, 15% allowance should be given to the assessee. He further argued that the Ld. CIT(A) has only allowed deduction for self-supervision at 7.5% and it can be allowed up to 12%.
9. On the other hand, the Ld. D.R. strongly supported the order passed by the authorities below.
6 ITA No.496/Vizag/2016
M/s. Shanti Enterprises, Kakinada
10. I have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The issue for consideration before me is the cost of construction of hospitals. The assessee has constructed two hospitals namely 7 Star Super Speciality Hospital & Sarvani ENT Hospital. There was a survey conducted in assessee's case and during the course of survey, the 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 subsequently. The assessing officer has referred the matter to the DVO for determination of cost of construction. The DVO has adopted the rates 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 assessee's objections as to why valuation determined 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 and 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. after considering explanation given by the assessee, he has adopted the cost of 7 ITA No.496/Vizag/2016 M/s. Shanti Enterprises, Kakinada construction estimated by the DVO, even without giving 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 rate adopted by the A.O. by observing that the DVO has adopted the rates approved by CPDT taking into account cost of index of particular time and place. I have gone through the DVO report and also the assessment order and I found that the DVO by considering the time and place of construction and also rates approved by the CBDT, cost of construction is estimated. I find no infirmity in the order passed by the Ld. CIT(A).
11. So far as self-supervision is concerned, the DVO 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 savings in engaging labour and procuring material directly rather to a contractor. A.O. is directed to allow 7.5% towards self-supervision for an amount of ` 15,88,392/-. I find that the Ld. CIT(A) has reasonably allowed self-supervision at 7.5% to the assessee and also find that no further allowance is required on account of self-supervision. By taking into consideration 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 assessee is dismissed. 8 ITA No.496/Vizag/2016
M/s. Shanti Enterprises, Kakinada
12. In the result, the appeal filed by the assessee is dismissed. The above order was pronounced in the open court on 13th Sept'17.
Sd/-
(वी. दग ु ाराव) (V. DURGA RAO) या यक सद य/JUDICIAL MEMBER #वशाखापटणम /Visakhapatnam:
'दनांक /Dated : 13.09.2017 VG/SPS आदे श क त)ल#प अ*े#षत/Copy of the order forwarded to:-
1. अपीलाथ / The Appellant - M/s. Shanti Enterprises, D.No.21-1-28/2, Jawahar Street, Kakinada-533 001, East Godavari District.
2. याथ / The Respondent - The ITO, Ward-2, Kakinada
3. आयकर आयु+त / The Principal CIT-2, Visakhapatnam
4. आयकर आय+ ु त (अपील) / The CIT (A)-2, Visakhapatnam
5. #वभागीय त न.ध, आय कर अपील य अ.धकरण, #वशाखापटणम / DR, ITAT, Visakhapatnam
6. गाड फ़ाईल / Guard file आदे शानुसार / BY ORDER // True Copy // Sr. Private Secretary ITAT, VISAKHAPATNAM 9