Income Tax Appellate Tribunal - Hyderabad
Income-Tax Officer vs V. Chidambareswara Rao on 30 October, 1985
Equivalent citations: [1986]15ITD471(HYD)
ORDER
T. Venkatappa, Judicial Member
1. The assessee had shown the cost of construction of the house at Rs. 32,000. The approved valuer had estimated the cost at Rs. 36,800. In the original assessment the ITO estimated the same at Rs. 39,134 and made an addition of Rs. 7,134. This order was set aside by the Commissioner under Section 263 of the Income-tax Act, 1961 ('the Act') with a direction to do it afresh after properly enquiring into the cost of construction. Thereafter the ITO referred the matter to the valuation cell. The Valuation Officer valued the cost of construction at Rs. 37,900. The ITO again referred the matter to the valuation cell on the ground that the sale deed, municipal sanction plan, etc., were not noticed by the valuation cell. Thereafter the Valuation Officer in his second report valued the cost of construction at Rs. 53,000. The ITO did not accept even this report. He resorted to his own estimate and determined the cost of construction at Rs. 90,111. Thus, he made an addition of Rs. 58,111 under 'other sources'. In this assessment he also added Rs. 7,801 towards income from property which was standing in the name of the assessee's wife Smt. V. Bharathi. Against this fresh assessment order dated 16-3-1984 the assessee appealed to the Commissioner (Appeals).
2. It was urged before the Commissioner (Appeals) that the Commissioner had set aside the assessment only for making proper enquires with regard to the cost of construction of the house property and in making fresh assessment in accordance with the above Idirections the ITO cannot make the addition of Rs. 7,801 towards income from property standing in the name of the assessee's wife. It was further submitted that the cost of construction as shown by the assessee was quite reasonable and no addition was warranted. The Commissioner (Appeals) accepted both the submissions of the assessee. He held that the Commissioner had set aside the assessment with a direction to make it afresh after necessary enquiries with regard to the cost of construction of the house. The ITO cannot go beyond the above directions. Hence, the addition of Rs. 7,801 is not justified. Coming to the cost of construction, he held that the ground floor was only renovated but not reconstructed. The ITO is not justified in deviating from what the approved valuer and the departmental valuation cell in the first instance estimated the cost of construction. Even if the second report is to be accepted the ground floor should be valued at 50 per cent of the cost of construction as only roof has been put. Further a higher percentage towards personal supervision has to be allowed. If that is done, the valuation would be similar to the value adopted by the ITO in the first assessment order. Thus, he deleted the addition of Rs. 58,111. Against the same the revenue has preferred this appeal.
3. The learned departmental representative strongly urged that once the assessment is set aside, the ITO is at liberty to make a fresh assessment and in doing so, he can make any addition which was not considered in the first assessment order. In support of this contention, reliance has been placed on the decisions in J.K. Cotton Spg. & Wvg. Mills Co. Ltd. v. CIT [1963] 47 ITR 906 (All.) and CIT v. Seth Manicklal Fomra [1975] 99 ITR 470 (Mad.). With regard to the cost of construction he strongly urged that the ITO has given very valid reasons for estimating the cost of construction at Rs. 90,111 and that should be accepted. The Commissioner (Appeals) was wrong in deleting the addition of Rs. 58,111.
4. The learned counsel for the assessee strongly urged that the Commissioner had set aside the assessment with a direction to make proper enquiries with regard to the cost of construction. The ITO will have to follow those directions and cannot travel beyond the above directions. Hence, he had no jurisdiction to make the addition of Rs. 7,801. In support of this contention he placed reliance on two decisions in Pulipati Subbarao & Co. v. AAC [1959] 35 ITR 673 (AP) and CIT v. Bandaru Sanyasi Raju [1981] 127 ITR 453 (AP). Coming to the cost of construction he submitted that the ground floor was already existing and only tiled roof was replaced by R.C.C. roof. Hence, the cost of it can be taken only at 50 per cent. Higher deduction of 15 per cent for personal supervision has to be allowed. If that is done, the value shown by the assessee is quite reasonable. Thus, he supported the order of the Commissioner (Appeals).
5. We have considered the rival submissions. The Commissioner in his order dated 26-4-1983 made under Section 263 had set aside the assessment with a direction to make it afresh after necessary enquiries with regard to the cost of construction. It is only with regard to that limited purpose the assessment was set aside. The ITO will have to follow the above directions and complete the fresh assessment. In the fresh assessment he cannot take up an item in respect of which neither the Commissioner gave any directions nor it was considered in the original assessment. The jurisdiction of the ITO is confined only to the directions of the Commissioner while making the fresh assessment and he cannot travel beyond those directions. In Pulipati Subbarao & Co.'s case (supra) the AAC had set aside the assessment and directed the ITO to receive duplicate applications for registration and to deal with them according to law. Thereafter, the ITO issued notice to the assessee to produce the books of account. Against that the assessee filed a writ petition for restraining the ITO from making a de novo assessment. On those facts the Andhra Pradesh High Court held that in view of the specific directions by the AAC to receive a duplicate of the application for registration and dispose of it according to law, it was not open to the ITO to conduct a fresh enquiry and proceed to make a fresh assessment. It was observed as under:
. . . What all he directed the Income-tax Officer to do was to receive a duplicate copy of the application and to dispose it of in accordance with aw. The order of the Appellate Assistant Commissioner being specific, it is not open to the Income-tax Officer to conduct a fresh enquiry and proceed to make a fresh assessment without reference to the previous assessment inasmuch as he was not directed to do so and there being no other provision in the Act empowering him to do so, I am satisfied that the notice issued by the second respondent, calling upon the petitioner to submit himself to a fresh assessment is without jurisdiction. The learned counsel for the department has not been able to place before me any authority which would warrant the action sought to be taken against the petitioner by the second respondent.
Pursuant to the order passed by the Appellate Assistant Commissioner it is open to the Income-tax Officer to consider the one and the only question referred to him, viz., whether the firm's application for registration should be allowed. There is no other question before the Income-tax Officer and he would certainly be transgressing the limits set down by law if he were to embark upon a fresh enquiry as to the quantum of the income or the loss incurred by the petitioner.
As there is a clear and patent want of jurisdiction on the part of the second respondent to make a de novo assessment on the petitioner, a writ of prohibition shall be issued directing the second respondent not to make a de novo assessment. . .
This decision was followed by a Division Bench of the Andhra Pradesh High Court in Bandaru Sanyasi Raju's case (Supra). It was held therein that the AAC disposing of an appeal under Section 251(1)(a) of the Act is within his jurisdiction to allow the appeal partly and partly remand the appeal with certain directions and the ITO is bound to complete the assessment in accordance with the directions given therein. In this case, the Andhra Pradesh High Court did not agree with the view expressed by the Madras High Court in Seth Manicklal Fomrd's case (supra) and the decision of the Allahabad High Court in J.K. Cotton Spg. & Wvg. Mills Co. Ltd.'s case (supra). The ratio laid down therein squarely applies to the instant case as in the instant case the Commissioner had set aside the assessment for a limited purpose and in those cases also the AAC had set aside the assessment for a limited purpose. We respectfully follow the above decisions of the Andhra Pradesh High Court in preference to the decisions relied on by the revenue.
6. Thus, in our view, the ITO was bound to make the fresh assessment in accordance with the directions given by the Commissioner in his order made under Section 263 in respect of the cost of construction of the house only. He had no jurisdiction to make the addition of Rs. 7,801 towards the income from house property standing in the name of the assessee's wife as that issue did not figure in the order of the Commissioner made under that section. Thus, the Commissioner (Appeals) was justified in deleting the addition of Rs. 7,801 on the ground that the ITO had no jurisdiction to make that addition.
7. We will now deal with the cost of construction of the building. The ground floor was only renovated. The tiled roof was removed and the R.C.C. roof was put after raising the walls by 2 ft. This is very clear from the approved valuer's report. Even the first report of 'the Valuation Officer states that after purchase the tiled portion of the old building was dismantled and a new construction was started. In the second report there is nothing but the estimate by floor-wise. When the assessee purchased the old building in the sale deed description of the old building has been clearly given. In view of the above facts, the ITO was wrong in presuming that the entire ground floor was demolished and new construction of ground floor was completed. Since the ground floor was existing and only the tiled roof was replaced by R.C.C. roof after raising the walls by 2 ft., the Commissioner (Appeals) was justified in holding that it should be valued at 50 per cent of the cost of construction. He was also justified in holding that a higher percentage towards personal supervision and execution of the construction work of the building should be allowed as against 7.5 per cent allowed. Further, the ITO having referred the matter to the valuation cell he was bound to follow the report of the valuation cell. The ITO was wrong in making his own estimate ignoring the reports of the valuation cell. The Valuation Officer of the valuation cell being an expert in valuing the cost of construction, the ITO should accept his report. In our view, the ITO was wrong in ignoring those reports and making his own estimate. In the first valuation report the cost of construction has been estimated at Rs. 37,900. In the second report of the Valuation Officer of the valuation cell the cost of construction has been estimated at Rs. 53,000. In this report the ground floor as well as the first floor has been valued at the same rate. We have already pointed out that so far as the ground floor is concerned, the tiled roof was replaced by R.C.C. roof after raising the walls by 2 ft. Hence, only 50 per cent of the cost of construction should be adopted. The plinth area of the ground floor and the first floor is 68.50 sq. metres each. The Valuation Officer in the second report has adopted the rate of Rs. 349 per sq. metre. Applying that rate for the ground floor of 68.50 sq. metres, the cost will work out to Rs. 23,906. 50 per cent of it would be Rs. 11,953. Thus, roughly about Rs. 12,000 deduction is to be allowed to the assessee in respect of the ground floor as the Valuation Officer had estimated the cost of construction of the ground floor as well as the first floor at the same rate. If that is deducted from Rs. 53,000 the balance will be Rs. 41,000. The Valuation Officer has allowed 7.5 per cent towards personal supervision. It would be reasonable to allow 12.5 per cent as that is the profit estimated in the case of contractor. By allowing the same, the assessee gets additional relief of Rs. 2,000. After deducting that the cost comes to Rs. 39,000. In the original assessment order, the ITO had estimated the cost of construction at Rs. 39,134 and made an addition of Rs. 7,134 as income from other sources since the assessee had shown the cost of construction at Rs. 32,000. Hence, it would be reasonable to adopt that figure in the fresh assessment order also. The Commissioner (Appeals) has deleted the addition of Rs. 58,111 which means the cost of construction shown by the assessee at Rs. 32,000 is accepted it would be reasonable to take the figure determined in the original assessment at Rs. 39,134 as cost of construction and thereby make an addition of Rs. 7,134 as income from other sources. Thus, we direct the ITO to adopt the cost of construction at Rs. 39,134 and make an addition of Rs. 7,134 as income from other sources as against Rs. 58,111 made by him. To that extent, we modify the order of the Commissioner (Appeals).
8. In the result, the appeal is partly allowed.