Income Tax Appellate Tribunal - Chennai
Dr.R.Anburajan, Tirunelveli vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
' D' Bench Chennai
BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER
AND
SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER
.....
ITA No.2014 to 2017/Mds./2011
Assessment years:2003-04 to 2007-08
Income Tax Officer, Dr.R.Anburajan,
Ward 1(1), Tirunelveli. Prop. Peace Health
Vs. Centre,
No.48H/5,New Bus Stand
Road,Palayamkottai,
Tirunelveli.
PAN ABDPA 2605 H
(Appellant) (Respondent)
Department by : Shri Anirdudh Rai,
C.I.T. D.R.
K.E.B.Rengarajan,
Jr.Standing Counsel
Assessee by : Shri G.Baskar,
Advocate
Date of Hearing : 22 .05.12
Date of Pronouncement : 25.05.12
ORDER
PER N.S.SAINI, ACCOUNTANT MEMBER:
These are the appeals filed by the Assessee against the consolidated order of the Commissioner of Income Tax(Appeals)-II(i/c), Madurai dated 12.09.2011.
2 ITA. 2014 to 2017 /Mds/11 Dr.R Anburajan
2. The Revenue has taken the following common grounds of appeal.
1. The order of the learned Commissioner of Income Tax(A) is contrary to law and facts of the case.
2. The learned Commissioner of Income Tax(A) has erred in holding that regular accounts is certainly more reliable than an estimate by an expert though the assessee has failed to produce supportive vouchers before the Assessing Officer for verification.
3. The Commissioner of Income Tax(Appeals) ought to have seen the reasons stated by the Assessing Officer that the assessee does not have proper accounts for construction, many items of expenses are not supported by bills or vouchers and no proper bills for purchase of materials. Further, the assessee has not adduced any credible evidence to prove that the cost of construction accounted for in the books of accounts is the real cost of construction.
4. For these and such other grounds that may be adduced at the time of hearing, it is prayed that the order of the Commissioner of Income Tax(Appeals) may be set aside to that extent and that the order of Assessing Officer may be restored.
3. The only issue involved in the appeal is that the learned Commissioner of Income Tax(A) erred in deleting the addition made towards proportionate difference in cost of construction between the value of Departmental Valuation Officer and 3 ITA. 2014 to 2017 /Mds/11 Dr.R Anburajan Assessee's cost of construction during the relevant Assessment Years.
3.1. The brief acts of the case are that the assessee is a Doctor by profession. The assessee constructed a nursing home namely 'Peace Health Centre" and a medical store at Tirunelveli . The cost of construction of the building was during the period 2001-02 to 2007-08. The cost of construction as at 31.03.2007 as per the return of income for Assessment Year 2007-08 was `95,25,169/-. Assessing Officer referred the matter to the Valuation Officer, who valued the same on 25.03.2009 and valued the cost at `1,09,88,000/- in the first report and `1,18,08,700/- in the modified report. Assessing Officer assessed the difference in cost of construction on pro-rata basis under the head unexplained investment for various Assessment Years. Details are as follows:
A.Y Date of Returned Assessed Admitted Estimated Difference filing of income income cost cost of in cost of return Of construction construction construction as per DVO (B) -(A) (A) (B) 2003- 24.3.04 2,03,656 12,84,456 45,08,281 55,89,081 10,80,800 04 2004- 21.12.04 (-)75,243 3,69,670 25,62,964 31,77,400 6,14,436 05 2006- 26.02.07 3,65,898 8,14,390 17,64,567 21,87,598 4,23,031 07 2007- 14.11.07 4,24,841 3,96,406 2,19,405 2,72,004 52,599 08
4. Being aggrieved against the order of the Assessing Officer, the assessee filed an appeal before the Commissioner 4 ITA. 2014 to 2017 /Mds/11 Dr.R Anburajan of Income Tax(A). The Assessee contended that Assessing Officer had not pointed out any material defects in the accounts maintained by the assessee. It was further submission that CPWD rates were adopted for valuation by DVO whereas assessee claimed that state PWD rates should be taken into consideration for valuation of the building. Assessee questioned the rate of rebate at 6% allowed toward self supervision and direct purchase of building materials. The Commissioner of Income Tax(A) deleted the additions by observing as under:-
"6. Only issue to be decided in all the appeals is the addition made towards proportionate difference in cost of construction between the value of Departmental Valuation Officer and Assessee's cost of construction during the relevant Assessment Years.
As per books of accounts of assessee, total cost of construction of Hospital was `1,06,70,600/- as on 31.03.2008. Assessing Officer had not pointed out any material defects in the accounts maintained by the appellant.
6.1. Departmental Valuation Officer (DVO) in his report dated 30.6.09 arrived at estimated cost of construction of Hospital at `1,09,88,000/-. However, the estimated cost was revised to `1,18,08,700/- vide modified report dated 18.08.09. The upward revision of estimated cost of construction in the modified report was said to be on account of typing error in the original report.
5 ITA. 2014 to 2017 /Mds/11 Dr.R Anburajan 6.2. Assessee objected to the estimated cost of construction as per the valuation report during the course of assessment proceedings for the following reasons:
a) Application of CPWD plinth area rates instead of State PWD rates.
b) Rebate of self supervision and direct purchase was allowed only at 6% at total cost.
c) The cost of vetrified flooring tiles was actually `825/-
per sq. mt (supported by purchase bills) instead of `1,140/- per.sq.mt. adopted by DVO.
d) DVO estimated charges for preparation of plans/drawings/plan approval etc at 3% of total cost whereas amount actually incurred was much less. 6.3. Overruling these objections, Assessing Officer considered the difference in the construction of hospital on pro-rata basis to arrive at assessable income for relevant Assessment Years. In respect of income tax valuation, the valuer is a mere expert to guide Assessing Officer. When the objections were raised by assessee, Assessing Officer should have referred the matter to DVO for his comments. Assessing Officer had not done so.
6.4. It has been considered in ITO Vs. Smt. Santhosh Khanna 20 Taxman 15(Jp)(ITAT), where the state PWD rates had been the basis of the valuation of the registered valuer, the substitution of the same with reference to the rates prescribed by the Central PWD, which was the basis of valuation made by the Valuation cell was not warranted. It was accepted that for property situated in 6 ITA. 2014 to 2017 /Mds/11 Dr.R Anburajan Rajasthan, the local PWD rates should have greater relevance and that such a view has already been taken by the Jaipur Bench in some other cases.
A similar view was taken by the Tribunal in Sheikhar Chand Jain and Sons Vs. IAC (1999) 45 Taxman 82(tax Mag), where it was held that the valuation cell was not justified in rejecting the registered valuer's report based upon local PWD rates merely because the Central PWD rtes were higher, since the local PWD rates are also fixed by a Govt. department, which could not be disregarded without adequate materials. When there is a difference between the CPWD and State PWD rates, only the latter will have greater credibility, unless it could be shown that the facts warrant a different inference.
6.5 Maximum rebate which can be allowed while estimating value of the investment in construction is 7.5% if CPWD plinth area rate is adopted (p.82 to 84 of guidelines for valuation of immovable properties, 2009, published by Dte. of Income Tax). However, DVO had considered only 6% rebate towards self supervision and direct purchase of materials. Maximum rebate @ 7.5% on total cost of `1,16,89,433/- (as per DVO's figure) works out to `8,76,707/- as against DVO's rebate @ 6% of `7,01,366/-. The difference worked out to `1,75,341/- (`8,76,707 - `7,01,366).
The claim of assessee regarding cost of vetrified tiles seems to be correct.
7 ITA. 2014 to 2017 /Mds/11 Dr.R Anburajan 6.6. DVO in his report in assessee's case had estimated charges for preparation of plans, structural drawings, approval from local bodies etc. @ 3% of total cost at `2,33,780/- and considered architect fee at `1,55,964/-.
Valuation authorities themselves had added payment towards plans, structural drawings, approval from local bodies etc. @ 1% of total cost in certain other cases. Similarly, architect fee payment was added @ 1% of total cost in such cases.
If 1% of total cost is considered for payment towards plans, structural drawings, approval from local bodies etc. and for architect fee each, then there would be substantial reduction in the estimate of DVO.
If State PWD rates are adopted instead of Central PWD rates, then there would be further substantial reduction in the estimate of DVO.
Ultimately, the difference between the cost of construction accounted for in the books of accounts of assessee and the estimate of DVO after taking into account the above factors would be very negligible. 6.7 During the course of appellate proceedings, assessee produced books of accounts pertaining to cost of construction of hospital a well as original vouchers/bills/invoices in this regard. I have perused them. In my view, assessee had maintained proper original bills/vouchers in respect of most of the expenses recorded in the construction account for relevant Assessment Years. Assessing Officer had not found out 8 ITA. 2014 to 2017 /Mds/11 Dr.R Anburajan any controvertible materials to show that the cost was definitely higher than declared. Assessing Officer did not point out any deficiency in the accounts of assessee. She did not reject the books of accounts of assessee.
6.8 In ITO V.J K K Textile Processing Mills (1990) 38 ITD 178 (Special Bench) it was held that where the Assessing Officer has not established that the assessee has spent anything more than what is recorded in the books for the construction of the building nor was there any material on record suggestive of such expenditure having been incurred, no addition could be made.
In ITO v Meghiji Jadav & co (1986) 18 ITD 170(Ahd.)(TM) it was held that construction costs as in the books could not be disbelieved merely because the value of constructed property was estimated at a higher amount.
In Sheikhar Chand Jain and Sons Vs. IAC (1999) 45 Taxman 82(tax Mag),(Del.) it was pointed out that valuation report without reference to books of accounts would be bad in law.
Where the assessee has maintained proper books of accounts in respect of the investment made in the construction of house property, no defects are pointed out in such books, the expenses are fully supported by vouchers and full details are also mentioned in respect of each item in the books, simply because a valuation report has been obtained which gives valuation at a higher amount, the books cannot be said to be unreliable and no 9 ITA. 2014 to 2017 /Mds/11 Dr.R Anburajan addition on the basis of such higher valuation can be made [C.I.T v Pratapsingh Amrosingh Rajendra Singh and Deepak Kumar (1993) 200 ITR 788 (Raj.) 6.9 Hon'ble ITAT Amritsar Bench in its order dt.09.03.2007 in the case of Dr.Ramesh Kumar Anand vs. ITO ( IT Appeal No.56(ASR) of 2001) held as follows:
"Where valuation officer estimated cost of property in question by applying CPWD rates instead of local PWD rates, which rates should have been applied, cost estimated being excessive, relief at 15% of the cost estimated by the valuation officer was to be given and since after that difference in cost worked out to just about 10%, no addition on account of unexplained investment was to be made.
7. Construction cost recorded in the books of accounts need not be disbelieved merely because the value of the constructed property was estimated at higher amount by the DVO. Evidence in the form of regular accounts is certainly more reliable then an estimate by an expert. Where books are maintained for cost of construction, the question of resort to expert valuation should also arise only when the books were found to be unreliable. In assessee's case, cost of construction is duly supported by proper vouchers/bills etc. In such circumstances, I am not inclined to agree with Assessing Officer's stand to make additions only on the basis of estimate obtained from DVO. Consequently additions 10 ITA. 2014 to 2017 /Mds/11 Dr.R Anburajan made for various Assessment Years towards difference in cost of construction as unexplained investments, are directed to be deleted."
5. Departmental Representative submitted that the Assessing Officer in Assessment Year 2007-08 has mentioned that the assessee has not maintained proper accounts for cost of construction. Many items of expenses are not supported by bills or vouchers. There are also no proper bills for purchase of materials. The assessee has not adduced any credible evidence of materials to prove that the cost of construction accounted for in the books of accounts is the real cost of construction. He ,therefore, referred the matter to the DVO for estimating the cost of construction. He submitted that from the above quoted reasons it can be inferred that the Assessing Officer has rejected the books of accounts of the assessee before referring the matter to the DVO. He further referred to the DVO's report wherein the DVO at para No.4.1.1. of his report dated 30.06.09 has observed that the accounts method of valuation can be adopted only if proper books of accounts are maintained by the owner duly supported with vouchers. Scrutiny of the accounts and vouchers are required to find out if the quantity accounted for the materials and laborers are commensurate with the requirements of the building. This method could not be adopted in the absence of detailed working drawings and bill of quantities. He thus submitted that DVO has also opined that no proper book of accounts was maintained by the assessee for cost of construction of the building. Hence, he 11 ITA. 2014 to 2017 /Mds/11 Dr.R Anburajan justified the action of the Assessing Officer in referring the matter to the DVO. As regards CPWD rates adopted by making valuation of the building, it was the submission that most of the buildings of the Government are constructed by the CPWD peoples such as BSNL buildings, Income-tax buildings, Post office buildings etc. and it cannot be said that the Government is paying higher rate for construction of the building and that the same is not the actual cost of the building.
6. On the other hand, Authorised Representative of the assessee submitted that the books account of the assessee were not rejected by the Assessing Officer and therefore, Assessing Officer could not have proceeded to estimate the cost of construction of the building by making a reference to the DVO. The Authorised Representative of the assessee relied on the decision of the Chennai 'B' Bench of the Tribunal in the case of C.I.T. Vs. Smt. C.K.Sumathy reported in [2010] 6 ITR (Trib) 193 (Chennai) where it was held that the PWD rates are applicable in the case of value of the property situated in a mofussil area. 15 per cent deduction apart from the deduction towards self-supervision should be given for matching the cost of construction estimated on the basis of CPWD rates with the PWD rates. He submitted that if 15% reduction is given in the cost of construction, then the cost of construction shown by its books of accounts compares favorably with that of the DVO's.
12 ITA. 2014 to 2017 /Mds/11 Dr.R Anburajan
7. After considering the rival submissions and perusing the orders of the lower authorities and materials available on record, we find that in the instant case Assessing Officer observed that the books of accounts of the assessee for cost of construction of the building is not reliable on the grounds that many items of expenses are not supported by bills or vouchers and there are also no proper bills for purchase of materials. On the above facts, we agree with the Departmental Representative that books of accounts of the assessee in respect of cost of construction of building were rejected by the Assessing Officer. However, we find that such a rejection was not made after pointing out any specific defect in the books of accounts of the assessee and was rejected merely on the basis of generalized statement. We find that the Commissioner of Income Tax(Appeals) has categorically recorded finding that on perusing of books of accounts and original bills and vouchers, he found that assessee had maintained proper original bills/vouchers in respect of most of the expenses recorded in the construction account for relevant Assessment Years. The Departmental Representative could not bring any material before us to controvert the above finding of the Commissioner of Income Tax(Appeals). In absence of any specific defect brought by the Assessing Officer in respect of cost of construction of building in the books of account of the assessee and in view of the above finding of the Commissioner of Income Tax(Appeals), in our considered opinion the rejection of books of account by the Assessing Officer is untenable and cannot be sustained. Consequently, the reference to the DVO by the Assessing Officer was not 13 ITA. 2014 to 2017 /Mds/11 Dr.R Anburajan justified. In respect of adopting CPWD rates for valuation of building, we find that the issue is squarely covered by the decision of Hon'ble Jurisdictional High Court in the case of C.I.T. Vs. Smt. V.Gajalakshmi [2011] 331 ITR 216 wherein it was held that the Tribunal in its order had found that adoption of the rate by the Assessing Officer based on State PWD rates at `3079/- per sq. mtr. was justified. We also find that the Third Member of the Tribunal in the case of M.Selvaraj Vs. ITO (2002) 258 ITR (AT) page 82 (Chennai) has held as under:
"Coming to the assessee's plea that the State P.W.D rates should have been adopted, I am of the opinion that this issue is squarely covered by the decision of the A-Bench of this Tribunal in the case of M.S.Ponraj (I.T.A Nos.1656 & 1657 of 1996) referred to earlier, a copy of which is placed on record, in favour of the assessee and against the Revenue, more so because the Revenue has not brought any decision to my knowledge taking a contrary view. I am therefore, of the opinion that If at all the cost of construction is to be determined it should have been by adopting the State P.W.D.Rates and not by adopting the C.P.W.D rates. The valuation report based on the CPWD rates was therefore, not be relied upon.
8. Still further, the Chennai 'B' Bench of the Tribunal in the case of ACIT vs. M/s.T.N.Nandagopal & Sons in ITA Nos.177 to 179/Mds./2011 in Assessment Years 2002-03 to 2004-05, order dated 21.06.2011, and Chennai 'C' Bench of the Tribunal in the case of M.Amutha Vs. ACIT in ITA No.961/Mds./2010 in Assessment Years 2006-07, order dated 16.06.2011 has also held accordingly."
14 ITA. 2014 to 2017 /Mds/11 Dr.R Anburajan Therefore, we do not find any force in the argument of the Departmental Representative. In absence of any other specific defect being pointed out in the order of the Commissioner of Income Tax(Appeals), we do not find any good and justifiable reason to interfere with the order of the Commissioner of Income Tax(A) and therefore, the appeals of the Revenue are dismissed and the order of the Commissioner of Income Tax(Appeals) is confirmed.
8. In the result, the appeals of Revenue are dismissed.
Order pronounced on Friday, the 25th May, 2012 at Chennai.
Sd/- Sd/-
(CHALLA NAGENDRA PRASAD ) (N.S.SAINI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Chennai,
Dated the 25th May, 2012.
K S Sundaram
Copy to: Assessee/AO/CIT (A)/CIT/D.R./Guard file 15 ITA. 2014 to 2017 /Mds/11 Dr.R Anburajan