Construction cost valuation must reflect local rates and self-supervision deductions rather than CPWD-based estimates.

Addition based on a Departmental Valuation Officer's estimate of construction cost was deleted where the assessee's books capitalised the project cost and the valuation relied on CPWD plinth area rates instead of local rates. The Tribunal accepted that local rates were more appropriate and followed coordinate Bench views allowing a deduction for the gap between CPWD and local material rates, together with self-supervision charges. On the facts, the assessee's working was accepted, including 15% for material-rate difference and 10% for self-supervision, bringing the estimate broadly in line with the books.

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Issues: Whether the addition made on account of difference between the assessee's declared cost of construction and the Departmental Valuation Officer's estimate was sustainable, and whether deductions towards difference in material cost and self-supervision charges were to be allowed.

Analysis: The assessee had capitalised the construction cost in audited books, and the valuation dispute turned on the method adopted by the Departmental Valuation Officer. The valuation relied on CPWD-based plinth area rates, whereas the record showed that local rates were more appropriate for the project. The Tribunal also accepted the consistent view of coordinate Benches that an allowance is warranted for the difference between CPWD rates and local rates, along with a deduction for self-supervision charges. On the facts, the Tribunal accepted the assessee's working that, after granting 15% towards material-rate difference and 10% towards self-supervision, the estimated cost broadly matched the books.

Conclusion: The valuation-based addition was deleted and the assessee was held entitled to deductions of 15% towards material-rate difference and 10% towards self-supervision charges.

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