2023 (9) TMI 1308 - AT - Income Tax

Revenue appeal partly allowed in valuation dispute; CIT(A) grants relief, Tribunal upholds some decisions. (A)

Asst. Commissioner of Income Tax, Circle-2 (1), Vijayawada Versus Sri Potluri Ravi, Smt. Potluri Annapurna, Ms. Potluri Madhavi & Smt. Surya Vijaya Maruthi (L/Rs of Late Potluri Babu Rao), Vijayawada And (Vice-Versa)

The Revenue's appeal was partly allowed in a case involving the addition of Rs. 2,30,30,522 as unexplained investment, totaling mistake in the Valuation ... Unexplained investment - Valuation Report of the Ld. DVO relied at arriving at the total cost of construction to the assessee - CIT(A) has granted relief citing there is a mistake in totaling in Annexure-II of the Valuation Report - HELD THAT:- We find from Annexure-I to the Valuation Report of the Ld. DVO vide Report No. 1: 02: 1470 in Item No.3 being the addition for cost of superior items provided in the building in place of items provided as per specifications of Plinth Area Rates (PAR) has included Rs. 8,58,893/- towards cost of flooring. Annexure-II, while valuing the flooring charges incurred by the lessee DVO valued at Rs. 19,36,116/-. As per clause 11 and 12 of the lease agreement entered on 12th March 2011, the lessee has to do the interiors and exterior installations including the decorations which shall not be claimed with the lessor. We therefore find that the Ld. CIT(A) has erred in adopting the valuation of Rs. 19,36,116/- incurred by the lessee and reducing it from the cost of construction of the assessee instead of Rs. 8,58,893/- incurred by the assessee as per Annexure-I of the Ld. DVO report. We therefore direct the Ld. AO to adopt Rs. 8,58,853/- as cost of flooring which needs to be reduced from the cost of construction of the assessee. Thus, this Ground raised by the Revenue is partly allowed. Expenditure towards electrical installations - CIT(A) directed to reduce the balance cost incurred by lessee from estimated cost of construction as lease agreement that the said clause does not mention anything about electric fittings - HELD THAT:- As on perusal of the lease agreement, we find that the lessee was not claiming cost of interiors and exteriors from the lessor. Further, from Clause-11 and 12 of the Lease Agreement we find that the lessor shall bear only the cost of Civil Structure side walls whereas the interiors and exterior installations are to be done by lessee at their own cost. Revenue Authorities have also not disputed the cost incurred by the lessee towards electrical installations. CIT(A) has rightly directed the Ld. AO to deduct entire expenditure towards electrical installations from the cost of construction of the assessee. We therefore find no infirmity in the order of the Ld. CIT(A) on this ground and hence this ground raised by the Revenue is dismissed. Deduction of 15% towards variation in the CPWD rates and the local rates - HELD THAT:- DVO in his valuation report has not considered the PAR [Plinth Area Rates] as per the State PWD of the Andhra Pradesh Government. DVO has estimated the cost of construction on the Plinth Area Rate 2007 approved by the CBDT and weighted average Cost Index 120 as has been derived from the approved cost indices prevailing during the period of construction at Vijayawada. DVO also stated in his report that no Cost Index was given for PAR. The jurisdictional Bench of the ITAT, Visakhapatnam has allowed the rebate of 15% towards the difference between the CPWD rates and State PWD rates in many cases including the case cited by the Ld. AR ie., in the case of M/s. Hillocks Hotels Pvt [2022 (6) TMI 946 - ITAT VISAKHAPATNAM] Consistently following the various decisions of the jurisdictional Bench of ITAT, CIT(A) has rightly directed the Ld. AO to adopt 15% towards variation between the CPWD rates and State PWD rates. Deduction of 10% towards self-supervision - HELD THAT:- The jurisdictional Bench of the ITAT, Visakhapatnam has allowed self supervision charges at 10% in many cases including the case cited by the Ld. AR ie., in the case of M/s. Hillocks Hotels Pvt [2022 (6) TMI 946 - ITAT VISAKHAPATNAM] Consistently following the decisions of the jurisdictional Bench of ITAT, the Ld. CIT(A) has rightly directed the Ld. AO to adopt 10% . Issues Involved:1. Addition of Rs. 2,30,30,522/- as unexplained investment.2. Totaling mistake in the Valuation Report.3. Deduction of cost for electrical installations.4. Deduction towards variation in CPWD and local rates.5. Deduction towards self-supervision.Summary:1. Addition of Rs. 2,30,30,522/- as unexplained investment:The assessee filed a return of income for AY 2012-13 admitting a loss of Rs. 10,45,529/-. The case was selected for scrutiny, and the AO referred the matter to the DVO for valuation of building construction. The DVO valued the property at Rs. 5,52,54,000/-, leading to an addition of Rs. 2,30,30,522/- as unexplained investment. The assessee contended that adequate opportunity to file objections to the DVO report was not provided. The CIT(A) granted relief of Rs. 2,08,01,415/- and partly allowed the appeal of the assessee. The Revenue appealed against this decision.2. Totaling mistake in the Valuation Report:The Revenue argued that the CIT(A) erred in granting relief of Rs. 19,36,116/- due to a totaling mistake in the Valuation Report. The Tribunal found that the CIT(A) erred in adopting the valuation of Rs. 19,36,116/- instead of Rs. 8,58,893/- as per the DVO report. The AO was directed to adopt Rs. 8,58,893/- as the cost of flooring, partly allowing this ground raised by the Revenue.3. Deduction of cost for electrical installations:The Revenue contended that the CIT(A) wrongly deleted the addition of Rs. 42,12,602/- for electrical fittings. The Tribunal found that the lessee had incurred Rs. 66,13,127/- towards electrical fittings, as confirmed by a letter to the DVO. The CIT(A) correctly directed the AO to deduct Rs. 42,12,602/- from the cost of construction. This ground raised by the Revenue was dismissed.4. Deduction towards variation in CPWD and local rates:The CIT(A) allowed a 15% deduction towards variation between CPWD rates and local rates. The Tribunal upheld this decision, citing consistent rulings by the jurisdictional Bench of ITAT, including the case of M/s. Hillocks Hotels Pvt Ltd. This ground raised by the Revenue was dismissed.5. Deduction towards self-supervision:The CIT(A) allowed a 10% deduction for self-supervision. The Tribunal upheld this decision, following consistent rulings by the jurisdictional Bench of ITAT, including the case of M/s. Hillocks Hotels Pvt Ltd. This ground raised by the Revenue was dismissed.Conclusion:The appeal of the Revenue was partly allowed, and the cross-objection raised by the assessee was dismissed as not pressed. The judgment was pronounced in the open Court on 17th July 2023.