Commissioner Of Income Tax v. M/S.gracious Knits

In the High Court of Judicature at MadrasDated: 23.07.2015 CoramThe Honourable Mr.JUSTICE R.SUDHAKARandThe Honourable Ms.JUSTICE K.B.K.VASUKI Tax Case (Appeal) No.512 of 2015 Commissioner of Income TaxNo.63, Race Course Road,Coimbatore..... Appellant/RespondentVs. M/s.Gracious KnitsNo.19/1, Rajivgandhi Nagar,Chandrapuram East,Tirupur - 641 608.... Respondent/Appellant APPEAL under Section 260A of the Income Tax Act against the orderdated 17.10.2014 in I.T.A.No.1360/Mds/2014 on the file of the IncomeTax Appellate Tribunal, Madras 'D' Bench for the assessment year2008-09 against the order passed by the Commissioner of Income Tax(Appeals_-II, Coimbatore, dated 31.3.2014 in IT Appeal No.116/12-13for the assessment year 2008-2009 as against the order passed by theIncome Tax Officer, Ward 1(3) Tirupur in PAN/GIN.No. , orderdated 31.10.2013 for the assessment year 2008-2009. For Appellant : Mr.T.R.Senthil Kumar Standing Counsel for Income TaxJ U D G M E N T(Delivered by R.SUDHAKAR,J.) This Tax Case (Appeal) is filed at the instance of the Revenue asagainst the order of the Income Tax Appellate Tribunal for theassessment year 2008-2009 raising the following substantial questionsof law:"1. Whether in the facts and circumstances of thecase, the Tribunal was right in directing the AssessingOfficer to adopt the State P.W.D. rates on the ground thatthe building is located in interior Tamil Nadu?2. Whether in the facts and circumstances of thecase, the Tribunal was right in holding that the CPWDrates cannot be applied for the building in question whenthe DVO has clearly elaborated on the reasons for adoptingthe CPWD rates which is also in consonance with theBoard's circular dated 13.12.1998 as against the State PWDrates? https://hcservices.ecourts.gov.in/hcservices/ 3. Whether in the facts and circumstances of thecase, the Tribunal was right in directing the AO to adoptState PWD rates whereas with the details given by theassessee, valuation is possible only as per CPWD rates?" 2. The respondent/assessee is carrying on business manufacturinghosiery garments. The assessment in this case relates to theassessment year is 2008-2009. The assessee filed its return ofincome for the said assessment year admitting total income ofRs.7,14,250/-. The case was selected for scrutiny and the AssessingOfficer had completed the assessment. Thereafter, survey underSection 133A was conducted in the business premises of the assesseeon 26.6.2008 and the Managing Partner of the firm admitted thatcertain amount was incurred for the construction of the factorybuilding of the firm, which was accounted in the books of accounts ofthe firm. Thereafter, the assessment was reopened and assessment wasonce again made by the Assessing Officer by making addition ofRs.62,33,232/- being the difference in the value of the buildingaccounted in the books of the accounts of the assessee, which wasdetermined by the District Valuation Officer. Aggrieved by the saidorder of assessment, the assessee filed an appeal before theCommissioner of Income Tax (Appeals), who upheld the order of theAssessing Officer, thereby dismissed the appeal. 3. Aggrieved by the said order of the Commissioner of Income Tax(Appeals), the assessee pursued the matter once again before theTribunal contending that the District Valuation Officer had adoptedthe CPWD rate, but the property is situated in Tamil Nadu. TheTribunal, after hearing both sides, allowed the appeal holding asfollows: 3. Aggrieved by the said order of the Commissioner of Income Tax(Appeals), the assessee pursued the matter once again before theTribunal contending that the District Valuation Officer had adoptedthe CPWD rate, but the property is situated in Tamil Nadu. TheTribunal, after hearing both sides, allowed the appeal holding asfollows: "We have heard rival submissions and carefullyperused the materials available on record. We findmerits in the arguments made by the Ld. A.R. Theconstruction of the building is located in the interiorTamilnadu and the rates specified by the PWD would bemore appropriate than the rates specified by the CPWD.Therefore, the Ld.DVO ought to have considered therates prescribed by the PWD while valuing the buildingconstructed by the assessee. Moreover, in manyinstances various judicial authorities have recommended5% to 7.5% discounting factor in valuing the buildingon account of self-supervision and bulk purchase ofmaterials. In the case of the assessee, there is noreason is stated by the Revenue as to why this benefitshould be denied. The Revenue has also not brought outany materials on record to establish that the assesseehad not supervised the construction of the building byits staff/partners. Considering the facts andcircumstances of the case and the prayer and argumentsof the Ld. Counsel for the assessee which wasrestricted to only these two issue and since the samecould not be satisfactorily controverted by the Ld.Ar.,we are of the considered view that the Ld.DVO/Ld.A.O., https://hcservices.ecourts.gov.in/hcservices/ should have adopted the value specified by the PWDauthorities instead of the value prescribed by theC.P.W.D. Authorities and further grant reduction of7.5% on account of self-supervision and bulk purchaseto the assessee. Therefore, we hereby direct the Ld.Assessing Officer to value the cost of the building asindicated herein above and complete the assessmentaccordingly. We further make it clear that ouraforesaid decision is based on the arguments made bythe Ld.A.R. and the Ld.D.R. at the time of hearing ofthe case before us and no further issues or groundswere raised by either party." 4. Aggrieved by the above-said order of the Tribunal, the Revenueis before this Court raising the above-mentioned substantialquestions of law. 5. Heard the learned Standing Counsel appearing for the appellantand perused the materials placed before this Court. 6. In an identical circumstance, this Court, while deciding theissue that "in a case of dispute where the assessee's valuation wasnot accepted, whether the rates fixed by the State P.W.D. or theCentral P.W.D. should be adopted?", this Court following the decisionin the case of T.M.P.N.Murugesan -vs- Commissioner of Income-taxreported in 217 Taxmann 40, held as follows:"13. Therefore, it is evident that in a case of thisnature, the Department should give credence to thevaluation of the State P.W.D. in relation to the value ofconstruction either on the side of the assessee or on theside of the Department. Since we find that there is nospecific notification or circular indicating that CPWDrate alone should be adopted in arriving at the cost ofconstruction, the Tribunal is justified in adopting thevaluation of the State P.W.D. rates for the purpose ofdetermining the cost of construction. " 7. A perusal of the order of the Commissioner of Income Tax(Appeals) shows that the Commissioner of Income Tax (Appeals) was ofthe view that the State P.W.D rates should not be accepted, since theDistrict Valuation Officer is expert in the subject. This finding ofthe Commissioner of Income Tax (Appeals) is not supported by anyDepartmental Notification or circular that only CPWD rates should beaccepted. We have also noticed that in the instant case,construction is in Tirupur, which is not a Metropolitan town.Nevertheless, the State P.W.D was authorised to give valuation forall constructions in the State of Tamil Nadu. Admittedly, theassessee's property, which is a subject matter of consideration, isin the State of Tamil Nadu. There cannot be a different yardstickadopted for valuation within the State. This will result inincongruous results, as one Officer is taking the rates fixed by theCPWD and another Officer is taking the rates fixed by State PWD. https://hcservices.ecourts.gov.in/hcservices/ 8. In the case of T.M.P.N.Murugesan -vs- Commissioner of Income-tax reported in 217 Taxmann 40, this Court, while considering thesimilar issue whether the rates fixed by the CPWD alone could betaken into consideration towards arriving at a cost of construction,held as follows: "7. It is seen from the narration of the facts thatevidently, except for the bare accounts maintained, thereare no materials in the form of vouchers, to cross checkthe quantum of materials used in the construction. In theabsence of basic records with regard to the extent ofmaterials, the materials purchased and consumed and theaccounts thereby incomplete, the Assessing Officerreferred the valuation to the Valuation Officer. As isevident from the reading of assessment order, theDepartmental Valuation Officer adopted CPWD rates, whichwere the rates prevalent in Delhi and other cities forworking out the cost of construction of the building andthe assessee's claim was rejected. 8. We do no find any justifiable ground to adopt therate prevailing in cities like Delhi for the purpose ofworking out the cost of construction of house atVirudhunagar. When the details regarding the cost ofconstruction at PWD rates for Virudhunagar District isapplicable, there is no reason for the Valuation Officerto adopt the rate, which is prevalent at distant placesand metropolitan cities like Delhi. Hence, on goingthrough the Valuation report, we find that the authoritiesbelow committed serious error, hence, we feel that theproper course herein is to remit the matter back to theAssessing Officer to apply the PWD rates at VirudhunagarDistrict in the year 1998-99 with regard to the cost ofconstruction of the assessee's house, so as to ultimatelyfind out what could be the deemed income under Section 69Bfor the purpose of assessment. " 9. In the light of the above, following the decision of thisCourt dated 22.07.2014 in T.C.(A)No.255 of 2015 and the decision inthe case of T.M.P.N.Murugesan -vs- Commissioner of Income-taxreported in 217 Taxmann 40, we do not find any reason to interferewith the order of the Tribunal. Accordingly, the Tax Case (Appeal)stands dismissed. No costs. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar To 1. The Income Tax Appellate Tribunal, Madras 'D' Bench. Madras 'D' Bench. 2. The Commissioner of Income Tax (Appeals)-II, Coimbatore. 3. The Income Tax Officer, Ward I (3), Tirupur. 4. The Commissioner of Income Tax, No.63, Race Course Road, Coimbatore. Coimbatore. + 1 cc to Mr.T.r. Sentilkumar, Advocate SR.37693 T.C.(A) No.512 of 2015 PUR(CO)Eu 08.09.15