Commissioner Of Income Tax, Bikaner v. Suresh Dudi D.b.income Tax Appeal

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN ATJODHPUR :: ORDER :: (1) Commissioner of Income Tax, Bikaner Vs. Suresh Dudi D.B.Income Tax Appeal No.13/2010 ::: (2) Commissioner of Income Tax, Bikaner Vs. Suresh Dudi D.B.Income Tax Appeal No.79/2009 ::: (3) Commissioner of Income Tax, Bikaner Vs. Jagdish Dudi D.B.Income Tax Appeal No.74/2009 ::: (4) Commissioner of Income Tax, Bikaner Vs. Rameshwar Lal DudiD.B.Income Tax Appeal No.78/2009 DATE OF ORDER ::::15[th] March 2010 PRESENT HON’BLE THE CHIEF JUSTICE MR.JAGDISH BHALLAHON’BLE MR.JUSTICE DINESH MAHESHWARI Mr.K.K.Bissa for the appellant. .... BY THE COURT: These four appeals, preferred by the Revenue under Section260-A of the Income Tax Act, 1961 (‘the Act’) against the commonorder dated 14.03.2008 as passed by the Income Tax AppellateTribunal, Jodhpur Bench, Jodhpur ('the Tribunal') involving common,similar, and inter-related questions, have been considered together;and are taken up for disposal by this common order. IT Appeal No.13/2010: CIT, Bikaner Vs. Suresh Dudi This appeal relates to the return of income as filed by theassessee Shri Suresh Dudi for the financial year 2003-2004. Briefly put, the relevant aspects of the matter are that theassessee filed the return on 31.08.2004 declaring the income of Rs.17,54,622/- under various heads like salary, interest, businessetc. and further declaring agriculture income of Rs.16,77,175/-. Whileprocessing the return, the Assessing Officer ('the AO') noticed thatthe assessee had debited an amount of Rs.18,55,500/- towardsconstruction of a commercial building at Nagaur; and found that thebuilding was in the joint name of the assessee Shri Suresh Dudi withhis bother, the other assessee Shri Jagdish Dudi (the respondent inIT Appeal No.74/2009). It was also found that the building inquestion had already been constructed and let out to M/s. DunacMotors wherein the said Shri Jagdish Dudi was a partner. Theassessee Shri Suresh Dudi was asked to furnish the details of theconstruction together with sources; and, for want of completedetails, the matter was referred to the Valuation Cell under Section142-A of the Act for estimate on the investment made towardsconstruction of the said building. The concerned Valuation Officer('the DVO') submitted his report putting the estimate on the totalvalue of investment in the building at Rs.1,65,75,000/- out of which,the assessee Shri Suresh Dudi's investment was estimated atRs.44,76,604/- that was bifurcated at Rs.32,88,988/- for the financialyear 2003-2004 and at Rs.11,87,614/- for the financial year 2004-2005. The learned AO did not agree with the explanations andsubmissions made on behalf of the assessee in regard to theinvestment as declared towards building construction; andproceeded to make an addition of Rs.14,33,488/- i.e., the sum overand above the declared investment of Rs.18,55,500/- so as to makeit Rs.32,88,988/- for the financial year 2003-2004. Another aspect relevant for the present appeal has been theagriculture income, which was included for rate purposes. The learned AO noticed that as against the total receipts ofRs.19,51,895/- from agriculture, the assessee had debited only anamount of Rs.2,74,720/- towards expenses, which was about 14% ofthe receipts. The learned AO observed that the normal agricultureexpenses constitute 40% of such agriculture receipts; and, looking tothe period of purchase of the land, the extent of cultivable land andthe crops taken, and the opinion stated by the Assistant Director(Agricultural), Bikaner, the learned AO, while enhancing thecomponent of expenses, estimated the agriculture income of theassessee only at Rs.1,36,078/- as against the declared income ofRs.16,77,175/-. Accordingly, the learned AO proceeded to add thebalance of Rs.15,41,097/- in the assessee's income from othersources. learned AO noticed that as against the total receipts ofRs.19,51,895/- from agriculture, the assessee had debited only anamount of Rs.2,74,720/- towards expenses, which was about 14% ofthe receipts. The learned AO observed that the normal agricultureexpenses constitute 40% of such agriculture receipts; and, looking tothe period of purchase of the land, the extent of cultivable land andthe crops taken, and the opinion stated by the Assistant Director(Agricultural), Bikaner, the learned AO, while enhancing thecomponent of expenses, estimated the agriculture income of theassessee only at Rs.1,36,078/- as against the declared income ofRs.16,77,175/-. Accordingly, the learned AO proceeded to add thebalance of Rs.15,41,097/- in the assessee's income from othersources. Aggrieved by the order so passed by the AO, the assesseeShri Suresh Dudi preferred an appeal that came to be decided by theCommissioner of Income Tax (Appeals)-I, Bikaner ['the CIT(A)’] on14.03.2007. The learned CIT(A) considered the submissions of theassessee against the additions as made in the income on account ofconstruction of building and, after noticing that the report of the DVOwas based on CPWD rates, held, with reference to the decisions ofthis Court, that the local PWD rates ought to have been applied formaking the estimate of the cost of construction. The learned CIT(A)further found that the matter had been of self-supervision ofconstruction as one of the co-owner of the property namely, theabove referred assessee Shri Jagdish Dudi was a qualifiedengineering graduate who had supervised the construction work.The learned CIT(A) observed thatthough the DVO had given thebenefit of self-supervision at 5% of the total cost of construction but then, the approved valuer had given the benefit of 12% of the totalcosts towards self-supervision. The learned CIT(A) yet further foundthat the DVO had made an addition at 3% on account ofarchitect/engineer’s fees that was not added by the approved valuer. The learned CIT(A) did not approve of the approach of thelearned AO particularly when the report of approved valuer was noteven referred nor the assessee was called for examination to verifythe aspect of self-supervision and the aspect related with thearchitect/engineer’s fees. The learned CIT(A) found that the estimatearrived at by the approved valuer on the total cost of constructionhad been Rs.98,75,000/- whereas the assessee and the others haddeclared the total cost of construction at Rs.93,50,873/-; and lookingto the overall circumstances, while agreeing with the arguments onbehalf of the assessee, proceeded to delete the addition ofRs.14,33,488/- as made by the AO on this score. In relation to the agriculture income, the learned CIT(A)observed that about 44 bighas of land was jointly owned by theassessee and his brother; and the assessee's brother had shown24% expenses on agriculture operations whereas the assessee ShriSuresh Dudi had shown the expenses at 14% only. The learnedCIT(A) found it proper to put the expenses on the agricultureoperations at 24% of the total sale proceeds and hence, while takingthe agriculture income at Rs.14,83,440/- as against that declared bythe assessee at Rs.16,77,175/-, partly allowed the appeal. In the appeal preferred by the Revenue against the order sopassed by the CIT(A), the learned Tribunal took note of all the factsof the case; and in relation to the costs of construction, considered itproper to reduce the estimate made by the DVO by 35% while In the appeal preferred by the Revenue against the order sopassed by the CIT(A), the learned Tribunal took note of all the factsof the case; and in relation to the costs of construction, considered itproper to reduce the estimate made by the DVO by 35% while finding it justified: (i) to allow 20% deduction for the purpose ofscaling down the valuation from CPWD rates to PWD rates; (ii) toallow 12% rebate on account of self-supervision charges; and (iii) todelete the addition of 3% as made by the DVO towards engagementof architect or engineer. Thus, while reducing the estimate of theDVO by 35%, the Tribunal put the valuation at Rs.21,37,842/- and,accordingly, modified the order of CIT(A) and made an addition ofRs.2,82,342/- over that estimated by the CIT(A) as per assessee’sfigure i.e., Rs.18,55,500/-. The discussions and the findings by thelearned Tribunal in regard to the estimate on the cost of construction could be usefully reproduced as under:- “4. We have heard the rival submissions and perused therelevant material on record. We find that the AO made a validreference to the DVO u/s 142A, which governs the situation ashas been held by the ld. CIT(A) and there is no cross appeal fromthe side of the assessee. In so far as the arguments made beforethe AO regarding the objections to the DVO are concerned, it isfound that there is a consistent view of this Bench of the Tribunalto the effect that only PWD rates can be considered while valuinga property. The Hon'ble Jurisdictional High Court in the case ofCIT Vs. Prem Kumari Murdia [2006] 204 CTR [Raj.] 343 hasupheld the finding of the Tribunal in which the reduction of 20%from the cost of construction was allowed for the purposes ofscaling down the valuation from CPWD to PWD rates. In ourconsidered opinion, there is a justification for allowing 20%deduction on this count. Next claim made by the assessee is therebate for self supervision charges at 12% cost. We note that thisBench is allowing 10% self supervision rebate in general cases.The ld.A.R. has specifically referred to the Tribunal's order in thecase of Ravi Mathur [supra] and contended that 12% rebate washeld to be allowable as the assessee in that case was himself acivil engineer. This fact has not been disputed by the ld.D.R.Since Shri Jagdish, another co-owner, and the assessee in thepresent lot of appeals, is also civil engineer, relying on thejudgment in the case of Ravi Mathur [supra], we hold that 12%rebate on account of self supervision charges is eligible. Further,the DVO has added 3% on account of architect/engineer feeseparately. When the owner is himself an engineer, there is hardlyany need for engaging the services of an architect or engineer.Moreover, there is no such requirement that an architect orengineer must be engaged before making any construction. Manya times construction is made without the assistance of anarchitect or engineer. We, therefore, hold that 3% addition by theDVO to the cost of construction is not justified. To sum up, theassessee is entitled to deduction of 20% on account of conversionfrom CPWD to PWD rates, 12% on account of self supervisioncharges and 3% on account of exclusion of architect/engineerfees. Total of these three items comes to 35%. If this percentageis applied to the estimate of the DVO, remaining valuation comesto Rs.21,37,842/-. As against this figure, the assessee has declared only a sum of Rs.18,85,500/-. Since the reference to theDVO is valid and all the objections raised by the assessee havebeen met and further the assessee has not maintained anyaccounts qua the construction, in our considered opinion, theresultant differential amount of Rs.2,82,342/- [21,37,842/- minus18,55,500/-] merits addition. We, therefore, modify the impugnedorder to this extent and uphold the addition to the tune ofRs.2,82,342/-. This ground is partly allowed.” declared only a sum of Rs.18,85,500/-. Since the reference to theDVO is valid and all the objections raised by the assessee havebeen met and further the assessee has not maintained anyaccounts qua the construction, in our considered opinion, theresultant differential amount of Rs.2,82,342/- [21,37,842/- minus18,55,500/-] merits addition. We, therefore, modify the impugnedorder to this extent and uphold the addition to the tune ofRs.2,82,342/-. This ground is partly allowed.” In relation to the expenses on agriculture operations, thelearned Tribunal noticed the fact that in the succeeding year too, theAO had made an estimate for the agriculture expenses that wasreduced in the first appeal to 29% and the assessee had notdisputed sustenance of the addition made by the CIT(A) in both theorders and, therefore, found it just and proper to put an estimate onthe agriculture expenses at 29% of the total sale proceeds. TheTribunal said,- ''........Now coming to the expenses part, though theassessee had furnished some details of agricultural expensesbefore the AO, which were only to the tune of 14%, the ld. CIT(A)held that 24% expenses were reasonable as these are at par withthe percentage of expenses claimed by the assessee's brotherunder similar circumstances. However, it is further important tonote that in the immediately succeeding year, which would bedealing with infra, the AO again estimated agricultural expenses,which estimate has been reduced in the first appeal to 29%. Theassessee has not disputed the sustenance of addition by theld.CIT(A) in both the years. Looking to the entirety of the factsand circumstances of the present case, we are of the consideredopinion that it would be just and fair if the agricultural expensesare held at 29% of the total sale proceeds. This ground is,therefore, partly allowed.'' Seeking to assail the order so passed by the Tribunal, it issubmitted in this appeal on behalf of the Revenue that the Tribunalhas not examined the matter in its entirety and was not justified inholding that the deduction of 35% was allowable from the valueestimated by the DVO on the cost of construction. It is furthersubmitted that when the AO had made the addition in the agricultureincome on the basis of the letter of Assistant Director of Agriculture whose was an expert opinion in relation to the cultivation of crops;and when the agriculture expenses estimated by AO at 40% to 45%were indeed accepted by the Tribunal in various other cases,modification of such estimate to 29% was not justified. Having given thoughtful consideration to the submissionsmade and having examined the material placed on record, we areclearly of the view that the grounds urged on behalf of the appellantremain totally bereft of substance; and do not make out anysubstantial question of law worth consideration. whose was an expert opinion in relation to the cultivation of crops;and when the agriculture expenses estimated by AO at 40% to 45%were indeed accepted by the Tribunal in various other cases,modification of such estimate to 29% was not justified. Having given thoughtful consideration to the submissionsmade and having examined the material placed on record, we areclearly of the view that the grounds urged on behalf of the appellantremain totally bereft of substance; and do not make out anysubstantial question of law worth consideration. The matter relating to the cost of construction has been dealtwith and examined by the Tribunal from all the relevant angles andso far this appeal by the Revenue is concerned, we are unable tofind any illegality if the Tribunal has allowed reduction of 20% fromthe estimate as made by the DVO for the purpose of scaling downthe valuation from CPWD rates to PWD rates. In this very processof making a fair estimate, allowing of 12% rebate on account of self-supervision charges cannot be said to be arbitrary or whimsical inthe fact situation of this case particularly when the co-owner ShriJagdish Dudi is admittedly a qualified engineer and it has beenfound as a fact that the construction was supervised by him. Deletionof 3% addition as made by the DVO on account ofarchitect/engineer’s fees also appears to be justified particularlywhen the owner himself was an engineer and there was hardly anyneed for engaging the services of any other professional. Theprocess of estimate on the cost of construction as dealt with by theTribunal remains fair, just, and reasonable; and cannot be said to beviolating any statutory mandate. So far the component of agriculture income is concerned, theassessee had claimed agriculture receipts to the tune ofRs.19,51,895/- against which, only an amount of Rs. 2,74,720/- wasdeducted by him towards expenses that worked out to about 14% ofthe receipts. Such percentage of expenditure was considered to beon lower side but while making an estimate, the learned AO put thecomponent of expenses at a whopping 40% of the receipts. Thelearned CIT(A) while dealing with the first appeal, referred to the factthat such expenses had been shown by the assessee's brother at24% and hence, put the same figure towards expenses in relation tothis assessee. The Tribunal, however, noted that for the succeedingyear, such estimate had been put at 29% in the first appeal and, forthe assessee not disputing the findings in the first appeal and for thetotality of facts and circumstances, found it just and proper to put theagriculture expenses at 29% of the sale proceeds. The aspect related with agriculture expenses was, again, amatter of putting a fair and reasonable estimate; and the figure asput by the AO at 40% was also of estimate only. As against 40% astaken by the AO and 24% as taken by the CIT(A), the Tribunal hasput this estimate at 29% after taking all the relevant factors intoaccount including the estimate put in relation to the succeeding year.The estimate as made by the Tribunal remains fair and reasonable;and cannot be said to be fanciful or arbitrary or whimsical or violatingany statutory requirement. Accordingly, and for the foregoing discussion, we are satisfiedthat no substantial question of law is involved in this appeal preferredby the Revenue; and the appeal deserves to be dismissed. IT Appeal No.79/2009: CIT, Bikaner Vs. Suresh Dudi This appeal relates to the same assessee Shri Suresh Dudi inrelation to the return of income for the financial year 2004-2005. The very same aspects relating to the cost of construction ofthe same building and estimate on agriculture expenses areinvolved in this case too; and herein also, the Tribunal has modifiedthe order of CIT(A) while allowing reduction of 35% from the valueestimated by DVO in relation to the cost of construction and whileputting the agriculture expenses at 29% of the total sale proceeds. Accordingly, and for the foregoing discussion, we are satisfiedthat no substantial question of law is involved in this appeal preferredby the Revenue; and the appeal deserves to be dismissed. IT Appeal No.79/2009: CIT, Bikaner Vs. Suresh Dudi This appeal relates to the same assessee Shri Suresh Dudi inrelation to the return of income for the financial year 2004-2005. The very same aspects relating to the cost of construction ofthe same building and estimate on agriculture expenses areinvolved in this case too; and herein also, the Tribunal has modifiedthe order of CIT(A) while allowing reduction of 35% from the valueestimated by DVO in relation to the cost of construction and whileputting the agriculture expenses at 29% of the total sale proceeds. For the very same reasons as foregoing, this appeal is alsorequired to be dismissed. IT Appeal No.74/2009: CIT, Bikaner Vs. Jagdish Dudi This appeal relates to the other assessee Shri Jagdish Dudifor the return of income as filed for the financial year 2003-2004. Thevery same aspects relating to the cost of construction of the samebuilding and estimate on agriculture expenses are involved in thiscase too. The facts relating to this assessee Shri Jagdish Dudi, asbeing the co-owner of the building in question and being theengineering graduate and self-supervisor of the construction, havealready been discussed hereinbefore. In relation to this assesseetoo, for the same reasons as considered in detail qua the otherassessee Shri Suresh Dudi, the Tribunal allowed 35% reduction onthe cost of construction of the same building as estimated by theDVO and put the agriculture expenses at 29%. For the very same reasons as foregoing, this appeal is alsodevoid of substance and is required to be dismissed. IT Appeal No.78/2009: CIT, Bikaner Vs. Rameshwar Lal Dudi This appeal relates to another assessee Shri Rameshwar LalDudi in relation to the return of income as filed for the financial year2003-2004. The very same aspect relating to the estimate onagriculture expenses, as discussed above, is involved in the presentmatter too but coupled with two other aspects, as discussed infra. This assessee had shown himself to be the authorised dealerof petroleum products of Indian Oil Corporation and had filed thereturn for the financial year 2003-2004 declaring the income ofRs.7,08,373/- and further the agriculture income of Rs.6,53,273/-.This assessee claimed deduction in respect of different vehicles assaid to have been used for business purpose. After considering theassessee's reply, the learned AO though allowed the expenses anddepreciation in respect of some of the vehicles but not the amount ofRs.8,66,772/- in respect of four vehicles viz., Tata Siera, Icon,Safari, and Scorpio. The learned CIT(A) found that the AO hadwithout any reason presumed that the said vehicles were used forthe purposes other than business. The learned CIT(A) though heldthat the vehicles had been in use for business but observed that atthe same time personal user of the vehicles could not be denied;and, therefore, disallowed 1/5[th] part of the expenses, depreciationand HP Charges as claimed in relation to these vehicles andrestricted the addition to Rs.1,73,354/- as against Rs.8,66,772/- asmade by the AO. This assessee had further suggested an amount ofRs.2,10,887/- having been paid towards interest to the specifiedpersons but the AO found it to be a rather on the higher side and,with reference to the bank rate of interest, allowed such interest in relation to the specified persons only @ 13.2%. The learned AOthus, made an addition of Rs.25,301/- on this count. However, thisaddition came to be deleted by the CIT(A) with reference to theaccount confirmations filed by the assessee. In the appeal preferred by the Revenue in this matter, theTribunal, again, put the agriculture expenses at 29% for the reasonsas discussed in Suresh Dudi's case (supra). This assessee had further suggested an amount ofRs.2,10,887/- having been paid towards interest to the specifiedpersons but the AO found it to be a rather on the higher side and,with reference to the bank rate of interest, allowed such interest in relation to the specified persons only @ 13.2%. The learned AOthus, made an addition of Rs.25,301/- on this count. However, thisaddition came to be deleted by the CIT(A) with reference to theaccount confirmations filed by the assessee. In the appeal preferred by the Revenue in this matter, theTribunal, again, put the agriculture expenses at 29% for the reasonsas discussed in Suresh Dudi's case (supra). In relation to the vehicles, the Tribunal found the AO havingproceeded absolutely without any basis and the CIT(A) having rightlyappreciated the facts. The Tribunal proceeded to reject the grounds urged by the Revenue with the following observations:- “30.After considering the rival submissions and perusing therelevant material on record, we find that the AO has givenabsolutely no basis for coming to the conclusion that the aforereferred four vehicles were not used for the purpose of businessand there was no need for the assessee to use these vehicles.We are unable to uphold the view taken by the AO on the simpleground that a businessman knows his interest best. If a particularexpenditure is claimed to have been incurred for businessinterest, the AO cannot substitute his opinion that there was nonecessity for incurring this expenditure. As expenditure has notbeen held by the AO to be ingenuine and incurred for non-business purpose, in our considered opinion the ld.CIT(A) rightlyappreciated the facts in coming to the conclusion that 20% ofthese expenses was rightly disallowable on account of personaluse. This ground is not accepted.” The Tribunal also found baseless the addition in relation to the interest paid on deposits and found the CIT(A) justified in deleting this addition with the following observations:- “Moreover, interest @ 15% on deposits from relatives cannot bestraightway held to be excessive compared with bank interestassumed reasonably by the AO at 13.2%. Obvious reason is thatmany formalities have to be fulfilled before taking loans fromfinancial institutions like furnishing securities, etc., whereasnothing of this sort is required when loan is obtained from therelatives. When facts are considered in entirety, we find that theld.CIT(A) has rightly come to the conclusion in deleting thisaddition.” In relation to this appeal, apart from the submissions as made in assailing the Tribunal’s estimate on agriculture expenses at 29%,it is submitted that the Tribunal was not justified in upholding the findings of CIT(A) (i) on disallowance of depreciation and expenseson maintenance of luxury vehicles, particularly when the assesseecould not prove that these vehicles were used for business purpose;and (ii) on interest paid to the family members referable to Section40(A) 2(b) of the Act, particularly when interest paid to the sundrycreditors was much on the lower side. Having considered the submissions made and having perusedthe record, we are clearly of the view that the findings andconclusions as reached by the CIT(A) and as affirmed by theTribunal in relation to the vehicles and rate of interest cannot beconsidered to be contrary to any legal requirement; and the baselessadditions as made by the AO have rightly been modified in relationto the vehicles and have rightly been deleted in relation to theinterest paid. Having considered the submissions made and having perusedthe record, we are clearly of the view that the findings andconclusions as reached by the CIT(A) and as affirmed by theTribunal in relation to the vehicles and rate of interest cannot beconsidered to be contrary to any legal requirement; and the baselessadditions as made by the AO have rightly been modified in relationto the vehicles and have rightly been deleted in relation to theinterest paid. In relation to the vehicles, we find nothing of error or illegalityin the Tribunal’s observations particularly when there was no reasonor basis for the AO to come to the conclusion that the aforesaid fourvehicles were not at all used for business purpose. The Tribunal yetmaintained the order passed by the CIT(A) whereby 20% of theclaimed expenses were disallowed on account of likely personal useof vehicles. Taking an overall view of the matter, this ground doesnot lead to any substantial question of law worth consideration. On the issue related with interest, the submissions as madewith reference to Section 40A (2) (b) of the Act are entirelybaseless. Merely for there being the specified persons referable tothe aforesaid provision, it cannot be said that the rate of interest asstated by the assessee is always required to be reduced. TheTribunal has noted the submissions of the assessee that the interest was paid to the depositors at the rates ranging between 9% to 15%.In the given fact situation, there was no justification with the AO forreducing the rate of interest in relation to the specified persons at13.2% and making an addition of Rs.25,301/-. The CIT(A) has rightlydeleted such an addition and the Tribunal has rightly affirmed hisviews. In any case, this ground does not make out any substantialquestion of law worth consideration by this Court. Another aspect related with this matter had been of theagriculture income wherein, again, the AO proceeded to put anestimate on the expenses on the higher side that was reduced by theCIT(A) at 24% and that was altered by the Tribunal to 29% in accordwith the findings in other cases, as referred hereinabove. For thereasons already mentioned in relation to the other appeals (supra),challenge in this regard also remains baseless and the estimate putby the Tribunal at 29% cannot be said to be arbitrary or violating anystatutory requirement. In view of what has been discussed above, this appeal is alsodevoid of merits and does not involve any substantial question oflaw. Conclusions: As a result of the discussion aforesaid, we are clearly of theview that no substantial question of law is involved in these fourappeals filed against the common order dated 14.03.2008; and theappeals do not merit admission. The appeals fail and are, accordingly, dismissed summarily. (DINESH MAHESHWARI).J. (JAGDISH BHALLA), CJ. MK