Commissioner Of Income Taxtrichy v. Shri Raya R.govindarajan46, J.p.koil West Street,Kumbakonam - 612 001

In the High Court of Judicature at Madras Dated: 22.07.2014 Coram The Honourable Mr.JUSTICE R.SUDHAKARandThe Honourable Mr.JUSTICE G.M.AKBAR ALI Tax Case (Appeal) No.255 of 2014 Commissioner of Income TaxTrichy .... Appellant/Appllant Vs. Shri Raya R.Govindarajan46, J.P.Koil West Street,Kumbakonam - 612 001. .... Respondent/Respondent APPEAL under Section 260A of the Income Tax Act against theorder dated 23.3.2012 in I.T.A.No.184/Mds/2011 on the file of theIncome Tax Appellate Tribunal, Madras 'C' Bench for the assessmentyear 2007-08 against the Order dated 10.11.2010 in ITA.No.184/2009-2010 on thefile of the Commissioner of Income Tax(Appeals) Trichy for theAssessment Year-2007-2008 against P.A.No./GIR.No.AABPR 4957Q dated23.12.2009 on the file of the Deputy Commissioner of Income Tax,Circle p-I(i/c) Kumbakonam. For Appellant : Mr.J.Narayanaswamy 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 Revenueas against the order of the Income Tax Appellate Tribunal for theassessment year 2007-2008. 2. The respondent/assessee is carrying on Hotel business in thename and style of 'Hotel Rayas'. The assessment year in this case is2007-2008. It is the case of the assessee that construction of hotelhttps://hcservices.ecourts.gov.in/hcservices/ was started during April, 2006 and completed in March, 2007. Theassessee filed return of income for the assessment year 2007-08electronically on 13.10.2007 admitting a total income ofRs.9,12,613/-. The said return was processed under Section 143(1) ofthe Income Tax Act and was taken up for scrutiny and notice underSection 143(2) of the Income Tax Act was issued on 10.3.2008. Theassessee was called upon to give details of the cost of constructionand the source of income for the said construction vide Department'sletter dated 06.11.2009. In response to the same, the assesseeproduced the bills, vouchers, documents and records and admittedinitially a sum of Rs.1,05,80,000/- towards cost of construction,whereas, the Department valuer, valued the cost of the constructionat Rs.2,13,60,000/-. Thereafter, it appears, that the assessee hadstated that the actual cost of construction upto 31.3.2007 wasRs.1,52,16,465/- and not Rs.1,05,80,000/-. In effect, the assesseehad admitted a sum of Rs.1,07,80,041/- as cost of construction upto31.3.2006. The assessee had given the working of the cost ofconstruction on various heads by relying upon certain materials. TheValuation Cell of the Department, however, did not accept suchworking and proceeded to value the property at Rs.2,13,60,000/-. 3. The contention of the assessee before the Assessing Officerwas that if the rate fixed by the State P.W.D. was adopted by theValuation Cell, then there is not much of a difference between thecost admitted by the assessee and the cost determined by theValuation Cell. The assessee also contended that the Valuation Cellhas adopted the rates fixed by the Central P.W.D to arrive at ahigher figure of Rs.2,13,60,000/- towards the cost of construction.According to the assessee, this may not be appropriate and correct. 4. The Assessing Authority, however, declined to accept thevaluation as propounded by the assessee based on the rates fixed bythe State P.W.D and proceeded to determine the cost of constructionas per the Valuation Cell, which is based on the rates fixed by theCentral P.W.D. According to the Assessing Officer, the method ofvaluation is scientifically arrived by the Central P.W.D. The netresult of the Assessing Officer's finding as above results as follows: Hence a sum of Rs.59,51,090/- was treated as unaccounted investmentin the cost of construction under Section 69 of the Income Tax Actfor the assessment year 2007-08 and accordingly, the tax payable byhttps://hcservices.ecourts.gov.in/hcservices/ 4. The Assessing Authority, however, declined to accept thevaluation as propounded by the assessee based on the rates fixed bythe State P.W.D and proceeded to determine the cost of constructionas per the Valuation Cell, which is based on the rates fixed by theCentral P.W.D. According to the Assessing Officer, the method ofvaluation is scientifically arrived by the Central P.W.D. The netresult of the Assessing Officer's finding as above results as follows: Hence a sum of Rs.59,51,090/- was treated as unaccounted investmentin the cost of construction under Section 69 of the Income Tax Actfor the assessment year 2007-08 and accordingly, the tax payable byhttps://hcservices.ecourts.gov.in/hcservices/ the assessee was determined at Rs.26,64,612/-. Penalty proceedingswas to be initiated separately in terms of Section 271(1)(c) of theIncome Tax Act. 5. Aggrieved by the order of the Assessing Officer, the assesseehas preferred an appeal before the Commissioner of Income Tax(Appeals), who by order dated 10.11.2010, relying upon the decisionof this Court in the case of CIT V. V.T.Rajendran reported in 288 ITR312 as well as the earlier orders of the Tribunal, accepted thecontentions of the assessee. The Commissioner of Income Tax(Appeals), while allowing the appeal filed by the assessee, held asfollows: "I find force in the contention of the authorizedrepresentative. The Assessing Officer had not pointed outany defect in the construction cost recoded in the books ofaccount before making a reference to the Valuation Cell andon this point alone, respectfully following the decisionsof the Jurisdictional High Court and Tribunal relied on bythe appellant, the addition deserves to be deleted. Thelearned representative has gone a step ahead and hadeffectively countered the cost estimation by reworking theestimate and proving that there are deficiencies in thereport as to the adoption of period of construction;inclusion of items separately accounted and adoption ofCPWD Rates instead of State PWD Rates which has resulted inhuge difference. However if the above said deficienciesare cured and the cost reworked, the difference onestimation is less than 5%. Hence appellant is otherwisealso entitled to succeed on merits. I, therefore, holdthat the cost declared by the appellant should be acceptedin place of the cost determined by the Valuation Cell." 6. Aggrieved against the order of the Commissioner of Income Tax(Appeals), the Revenue has preferred an appeal before the Income TaxAppellate Tribunal. The Tribunal accepted the case of the assesseethat the valuation should be based on the rates fixed by the StateP.W.D. and after taking into consideration the materials placed,partly allowed the appeal holding that the difference between thecost of construction admitted by the assessee at Rs.1,52,16,465/- andthe cost of construction as per the rates fixed by the State P.W.D.at Rs.1,58,60,068/- would amount to undisclosed investment underSection 69 of the Income Tax Act and hence a sum of Rs.6,43,603/- wasdetermined as undisclosed investment. 7. Aggrieved by the order of the Income Tax Appellate Tribunal,the Revenue has preferred the present Tax Case (Appeal). 8. Heard Mr.J.Narayanaswamy, learned Standing Counsel appearingfor the appellant at length and perused the materials placed beforethis Court. We have also perused the decisions of this Courtreported in (2011) 331 Taxmann 216 (Madras) (Commissioner of Income-https://hcservices.ecourts.gov.in/hcservices/ Tax V. Smt. V. Gajalakshmi); (2007) 288 ITR 312 (Commissioner ofIncome-Tax V. V.T.Rajendran) and 217 Taxmann 40 T.M.P.N.Murugesan-vs- Commissioner of Income-tax. 9. The issue involved in this Appeal is "in a case of disputewhere the assessee's valuation was not accepted, whether the ratesfixed by the State P.W.D. or the Central P.W.D. should be adopted?" 7. Aggrieved by the order of the Income Tax Appellate Tribunal,the Revenue has preferred the present Tax Case (Appeal). 8. Heard Mr.J.Narayanaswamy, learned Standing Counsel appearingfor the appellant at length and perused the materials placed beforethis Court. We have also perused the decisions of this Courtreported in (2011) 331 Taxmann 216 (Madras) (Commissioner of Income-https://hcservices.ecourts.gov.in/hcservices/ Tax V. Smt. V. Gajalakshmi); (2007) 288 ITR 312 (Commissioner ofIncome-Tax V. V.T.Rajendran) and 217 Taxmann 40 T.M.P.N.Murugesan-vs- Commissioner of Income-tax. 9. The issue involved in this Appeal is "in a case of disputewhere the assessee's valuation was not accepted, whether the ratesfixed by the State P.W.D. or the Central P.W.D. should be adopted?" 10. Since we are considering on this short campus, we are notinclined to issue notice to the respondent/assessee. 11. A perusal of the order of the Assessing Officer shows thatthe Assessing Officer was of the view that the State P.W.D ratesshould not be accepted, since the Central P.W.D. has scientificallyarrived at the rates. This finding of the Assessing Officer is notsupported by any Departmental Notification or circular that only CPWDrates should be accepted. We have also noticed that in the instantcase, construction is in the temple city of Kumbakonam, which is nota Metropolitan town. Nevertheless, the State P.W.D was authorised togive valuation for all constructions in the State of Tamil Nadu.Admittedly, the assessee's property, which is a subject matter ofconsideration, is in the State of Tamil Nadu. There cannot be adifferent yardstick adopted for valuation within the State. Thiswill result in incongruous results, as one Officer is taking therates fixed by the CPWD and another Officer is taking the rates fixedby State PWD. 12. In the case of T.M.P.N.Murugesan -vs- Commissioner ofIncome-tax reported in 217 Taxmann 40, this Court, while consideringthe similar 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 is https://hcservices.ecourts.gov.in/hcservices/ applicable, 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. " https://hcservices.ecourts.gov.in/hcservices/ applicable, 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. " 13. Therefore, it is evident that in a case of this nature, theDepartment should give credence to the valuation of the State P.W.D.in relation to the value of construction either on the side of theassessee or on the side of the Department. Since we find that thereis no specific notification or circular indicating that CPWD ratealone should be adopted in arriving at the cost of construction, theTribunal is justified in adopting the valuation of the State P.W.D.rates for the purpose of determining the cost of construction. slTo 1. The Income Tax Appellate Tribunal, Madras 'C' Bench.2. The Commissioner of Income Tax (Appeals), Tiruchirapalli.3. The Deputy Commissioner of Income Tax, Circle -I, Kumbakonam.4. The Secretary, Central Board of Direct Taxes, New Delhi https://hcservices.ecourts.gov.in/hcservices/