Income Tax Appellate Tribunal - Bangalore
S.M. Azeez Sons , Channapatna vs Assessee on 31 January, 2011
IN THE INCOME-TAX APPELLATE TRIBUNAL
BANGALORE BENCH 'A', BANGALORE
BEFORE SHRI N.BARATHVAJA SANKAR, VICE PRESIDENT
AND
SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
I.T.A. No.221(Bang.)/2011
(Assessment Year : 2007-2008)
S.M.Azeez & Sons,
No.1580/A, Azeez Sons Complex,
Sathanoor Road, Shah Rice Mil Circle,
Channapatna. Appellant
Vs
The Income-tax Officer,
Ward-3
Mandya. Respondent
Appellant by : Shri H.N.Khincha, CA
Respondent by : Smt. Jacinta Zimik Vashai, Addl.CIT
ORDER
PER SMT P. MADHAVI DEVI, JM ;
This appeal by the assessee is directed against the order of the CIT(A), Mysore dated 31-01-2011for the assessment year 2007-08.
2. The assessee has raised as many as seven grounds of appeal challenging the reliability of the valuation report of the district valuation officer and also the addition made by the AO of Rs.26,82,673/- as unexplained investment by relying upon 2 ITA.No.221(B)/11 the report of the district valuation officer. The ground of appeal no.4 relating to reliability of valuation report of the district valuation officer is dismissed as not pressed, as the learned counsel for the assessee conceded at the time of hearing that the assessee is not interested in pressing this ground of appeal.
3. As regards the other grounds of appeal, the brief facts of the case are that the assessee is a partnership firm which filed its return of income for the assessment year 2007-08 declaring total income of Rs.38,850/-. There was a survey u/s 133A of the Act on 23-03-2007 and during the course of survey, it was found that the assessee has constructed a shopping complex at Channapatna, which had been completed during the year 31-03-2007. During the assessment proceedings u/s 143(3) of the Act, various details relating to construction of the shopping complex was called for and it was observed from the balance sheet enclosed to the return of income that the assessee has declared a sum of Rs.80,00,723/- as investment in the construction of a commercial complex and a sum of Rs.4,56,166/- as interest 3 ITA.No.221(B)/11 paid to KSFC. The AO thereafter, referred the matter to the departmental valuation officer to ascertain the correct cost of construction of the commercial complex. The departmental valuation officer vide his report dated 05-12-2008 estimated the cost of construction at Rs.99,52,000/- which does not include
i) the value of land, 2) furniture and fittings, 3) interest on borrowed capital, if any, and 4) works reportedly done later till the date of valuation. On 03-12-2008, the assessee filed a revised return declaring a total income of Rs.38,850/, which is the same, as in the original return of income filed disclosing the additional capital of the partners and the assessee has also enclosed the same set of statements to the revised return of income, as has been enclosed to the original return. The assessee's objections regarding the value estimated by the departmental valuation officer was called for. The managing partner of the assessee firm stated that the valuation shown by the departmental valuation officer is on the higher side and he filed a copy of the estimate of the cost of construction made by the KSFC for sanction of loan and also ledger extracts of 4 ITA.No.221(B)/11 the firm to show the source of funds for construction of the commercial complex. According to this letter the building cost was at Rs.72,69,327/- and the cost of construction of a house was Rs.7,31,389/- which is totaled at Rs.80,00,723/-. The AO however, was not convinced with the assessee's submissions and held that the cost of construction of the commercial complex shown by the assessee at Rs.72,69,327/- was not supported by any documentary proof and the cost as determined by the departmental valuation officer at Rs.99,52,414/- is accurate, reasonable and based on correct method of valuation. He thus, added the difference of Rs.26,82,673/- to the income declared by the assessee as 'unexplained investments'.
4. Aggrieved, the assessee preferred an appeal before the CIT(A) who confirmed the order of AO and the assessee is in second appeal before us.
5. The learned counsel for the assessee Shri H.N. Khincha while reiterating the submissions made by the assessee before the authorities below submitted that the cost of construction valued by the departmental valuation officer was excessive because, he adopted the CPWD prices, while the building constructed was at 5 ITA.No.221(B)/11 Channapatna, a small town in Karnataka where the prices to be adopted are as per the State PWD rates. For this preposition, he relied upon the following decisions,
1. CIT Vs Smt Prem Kumari Murdia (2008) 296 ITR 508(Raj.) High Court of Rajasthan, wherein the Hon'ble High Court held that to uphold the finding of CIT(A) that appropriate rate to be taken into consideration would have been PWD rates and not the CPWD rates.
2. Shri S. Bangarappa Vs DCIT reported 155 Taxman 84(Bang.), wherein it has been held that it is well settled principle that local rates must be preferred to CPWD rates while evaluating the cost of construction because the CPWD rates are generally higher and based on rates prevailing in Delhi and in a small place like Shimoga, the cost of construction will be much lower than the CPWD rates, approved by the Board.
3. Shri H.K.Abdul Jabbar Vs DCIT in ITA No.1213(B)/2008
4. Late S.Koti Rao Vs ITO in ITA NO.503(B)2001 and
5. ITO Vs B.N.Venkatasubbaiah in ITA No.61(B)/1998 & 816 & 817(B)/1998, wherein the above principle has been reiterated.
6. The learned DR however, strongly objected to the arguments of the learned counsel for the assessee and submitted that the departmental valuation officer has given a fair opportunity 6 ITA.No.221(B)/11 of hearing to the assessee and thereafter, only has valued the cost of construction and therefore, the assessee is now precluded from taking this ground before the Tribunal at this stage.
7. Having heard both the parties and having considered the rival contentions, we find that the dispute is with regard to estimation of the cost of construction of the commercial complex building at Channapatna which is a small town in the State of Karnataka. It is alleged that the departmental valuation officer has valued the cost of construction of the building at the CPWD rates, while the assessee seeks to value the cost of construction as per State PWD rates. Though, the assessee has not raised this issue before the authorities below, he is always at liberty to raise an issue before the higher authorities, as long as the facts are already on record, as held by the Hon'ble Apex Court in the case of NTPC. The question before us is whether the State PWD rates or CPWD rates are to be applied for valuing the cost of construction ? All the material facts are already on record. In such a case, we are inclined to follow the decisions relied upon by the learned counsel for the assessee and hold that in a small town like Channapatna the cost of construction is to be estimated by adopting State PWD rates and not CPWD rates. In view of the same, we set aside the order of the CIT(A) and remit the issue to the file of the AO to value the cost of 7 ITA.No.221(B)/11 construction of the commercial complex, as per State PWD rates prevailing at the relevant point of time.
8. In the result, the assessee's appeal is allowed for statistical purposes.
Order pronounced in the open court on the
Sd/- Sd/-
(N. BARATHVAJA SANKAR) (SMT. P. MADHAVI DEVI)
VICE PRESIDENT JUDICIAL MEMBER
Place: Bangalore
Dated: 30-06-2011.
am*
Copy to :
1. The Assessee
2. The Revenue
3. CIT(A)
4. CIT
5. DR
6. GF(B'lore)
By Order
AR, ITAT, BANGALORE