Income Tax Appellate Tribunal - Delhi

Rajesh Tomar Prop., Roorkee vs Assessee on 30 October, 2014

IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : "F" NEW DELHI

BEFORE SHRI H.S. SIDHU, J.M. AND

SHRI J.SUDHAKAR REDDY, A.M.

ITA Nos.212,2390/Del/2010
Assessment Years : 2000-01, 2003-04

Shri Rajesh Tomar Prop. vs. ACIT,

M/s. Hotel Raj Palace & Restaurant Circle
3KM Mile Stone, Haridwar Road, Haridwar
Roorkee
ACJPT8527A
(Appellant) (Respondent)

Assessee by :- Shri P. K. Misra, CA

Department by:-Sh. Shameer Sharma, Sr. DR

ORDER

PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER Both these appeals are filed by the
assessee directed against an identical order of the Commissioner of Income Tax(A) dated
26.11.2009 for the asstt.
Year 2000-01 and asstt. Year 2003-04. The assessee filed the following abridged grounds
of appeal:-
ITA No. 212/Del/2010 Asstt. Year 2000-01 "2. That the learned Commissioner of Income
Tax (Appeals) has erred in sustaining the addition of Rs. 91,987/- on account of loans
and gifts ignoring the fact that these receipts have already been surrendered as they are
appearing in the bank accounts of the assessee.
3(a) That the learned Commissioner of Income Tax (Appeals) has erred in allowing partial
relief to the extent of 15% and sustaining the remaining addition made by the Ld.
Assessing Officer on account of estimated cost of construction based on department
Valuer's Report wherein CPWD rates had been considered instead of PWD rates in ITA
Nos. 212,2390/Del/2010 AYs 2000-1, 2003-04 Shri Rajesh Tomar Prop.vs. ACIT spite of
specific contention of the appellant that the CPWD rates were not applicable to the
property in question as the same is located on the outskirts of the city.
(b) That the learned CIT(Appeals) erred in sustaining addition of Rs. 94,566/-on account
of architect fees in spite of the reiteration of assessee that no architect had been
employed."
ITA No. 2390/Del/2010 Asstt. Year 2003-04 2(a) "That the learned Commissioner of
Income-tax (Appeals) has erred in law and on the facts in making addition of Rs.
12,02,319/- on account of undisclosed investment under section 69 of the Income Tax
Act, 1961 on account of alleged difference between cost estimated by Department
Valuation Officer and one shown by the assessee.
(b) That the Ld. Commissioner of Income-Tax (Appeals) has erred in law and on the facts
in sustaining the action of Ld. AO of commission/ referring the matter of determination
of investment to Valuation Officer at the eleventh hour and he has further erred in
relying upon Valuation Officer's report and making addition based thereupon and also
partly sustaining the Valuation Officer's report without allowing an opportunity to cross
examine the DPV in spite of written request of the appellant before the Ld. AO.
(c) That the learned Commissioner of Income Tax (Appeals) has erred in allowing partial
relief to the extent of 15% and sustaining the remaining addition made by the Ld.
Assessing Officer on account of estimated cost of construction based on Department
Valuer's Report wherein CPWD rates had been considered instead of PWD rates in spite
of specific contention of the appellant that the CPWD rates were not applicable to the
property in question as the same is located on the outskirts of the city.
3. That having regard to the facts and circumstances of the case learned Assessing
Officer has erred in law and on facts in charging interest under section
234B, 234C and 220 (2)."
2. Facts in brief : The assesee is an individual and a proprietor of M/s.
Hotel Raj Palace & Restaurant. A survey u/s 133A of the Act was conducted on the
business premises of the assesee on 21/01/2004. As the assesee was found to have
been invested money in the construction of building, the AO ITA Nos.
212,2390/Del/2010 AYs 2000-1, 2003-04 Shri Rajesh Tomar Prop.vs. ACIT referred the
valuation of the hotel building, to the Departmental Valuation Officer for the purpose of
quantifying the investment. The departmental valuer in his report quantified the
investment of Rs. 31,650/- for the asstt.
Year 2000-01. The departmental valuation Officer estimated the cost of construction as
follows :-
A.Y. Cost of Cost of the Difference
construction construction
determined by disclosed by the
the DVO assesse
2000-01 Rs. 367291/- Rs. 174200/- Rs. 193091/-

2001-02 Rs. 1096633/- Rs. 520115/- RS. 576518/-

2002-03 Rs. 126682/- Rs. 60083/- Rs. 66599/-

2003-04 Rs. 2482594/- Rs. 1177454/- Rs. 1305140/-

Total Rs. 4073200/- Rs. 1931852/- Rs. 2141348/-

3. The AO proposed to tax the difference of the cost of construction determined by the
D.V.O. and cost of construction disclosed by the assessee as an unexplained investment
u/s 69 of the Act. The assessee disputed the same by making various submissions and
made an addition as per the report of the DVO. The assessee carried the matter in
appeal. Before the first appellate authority the assessee contended that he was not
given proper opportunity of being heard by the AO. The assesee further submitted that
the report of the DVO was not given to the assesee.
4. The assessee made a number of contentions before the first appellate authority. The
first appellate authority at para 6.5 for the asstt. Year 2003-
04 held as follows :-
ITA Nos. 212,2390/Del/2010 AYs 2000-1, 2003-04 Shri Rajesh Tomar Prop.vs. ACIT " 6.5
Having regard to the above finding the valuation arrived at by the DVO is revised as
under :-
Value determined on the basis of PA rate for ground floor (floor height 3.50 m), first
floor (floor height 3.30 m), 2nd floor (floor height 3.30 m) : Rs. 36,67,836/- Less : 15% on
account PWD rates : Rs. 5,50,175/-
_________________ Rs. 31,17,661/-
Add : Cost of services & extra items Rs. 3,88,125/-
_________________ Rs. 35,05,786/-
Deduct 10% for self supervision through the father of the Appellant Rs. 3,50,578/-
_________________ Rs. 31,55,208/-
Add: 3% for architects fees Rs. 94,656/-
__________________
Total Rs. 32,49,864/-
___________________

6.6. The above total cost of investment in the property is being allocated year-wise as
under on the basis of ratio of investment actually declared by the appellant.
S.No. F.Y. Investment declared Estimated by the appellant (in year-wise Rs.) Investment
based on the above valuation (in Rs.)
1. 1999-2000 1,74,200/- 2,93,048/-
2. 2000-2001 5,20,115/- 8,74,964/-
3. 2001-2002 60,083/- 1,01,075/-
4. 2002-2003 11,77,454/- 19,80,773/-
19,31,852/- 32,49,860/-

6.7 According to the above allocation of investment towards the cost

of construction of the property, the investment determined for the year under
consideration is arrived at Rs. 19,80,773/- and since the appellant has already declared
investment of Rs. 11,77,454/- as per revised return, the undisclosed investment in such
property for the year under consideration is worked out at (Rs. 19,80,773 - Rs.
11,77,454/-) i.e Rs. 8,03,319/-. Accordingly, the appellant will get relief of (Rs.
13,05,140/- - Rs. 8,03,319/-) i.e. Rs. 5,01,821/- on this account."
ITA Nos. 212,2390/Del/2010 AYs 2000-1, 2003-04 Shri Rajesh Tomar Prop.vs. ACIT For
the assessment year 2000-01 the first appellate authority sustained an addition of Rs.
91,897/- on account of loan and gift allegedly received by the assesee. The assessee is
also aggrieved the same.
5. We have heard Shri P.K. Misra the Ld. Counsel for the assesse and Shri Shameer
Sharma, Ld. Sr. DR on behalf of the revenue. For the asstt.
year 2000-01 there are factually two grounds. The first is against the sustainance of an
addition of Rs. 91,897/- on account of loans and gifts.
Before us the assessee has filed details of gifts received on the occasion of ring
ceremony of son on 2.10.99. The total gifts amount to Rs. 70,412/-. The addition has
been made on the ground that these gifts have not been substantiated. As these are
customary gifts and are a small amounts, we have no reason to disbelief the claim of the
assessee. Thus we accept the contention of the assessee and direct the deletion of
addition of Rs.
70,412/- from Rs. 91,897/- . The difference of Rs. 21485/- is sustained on the ground
that the assessee has not substantiated the same. This brings us to the second issue of
addition made based on DVO's report. The Ld. CIT(A) has granted relief of an amount of
15% on account of difference between PWD and CPWD rates. He further granted
deduction of 10% for self supervision, as the father of the assessee was an Executive
Engineer in PWD and the work was carried on under his guidance. The registered valuer
estimated the cost of construction of Rs. 17,60,600/- as against the cost of construction
estimated by the Departmental Valuation Officer at RS.
36,67,836/- and investment of Rs. 19,31,852/- declared by the assessee.
ITA Nos. 212,2390/Del/2010 AYs 2000-1, 2003-04 Shri Rajesh Tomar Prop.vs. ACIT
6. The contentions of the asseseee of the issue of valuation are as follows :-
A. "That the assessee's father is Executive Engineer in PWD and is in a better position to
reap benefits of economies of scale. Therefore, and aggregate reduction of 30% may be
allowed. The Ld. VO estimated year wise cost of construction just by doubling then
shown by the assessee.
B. That the valuation officer applied rate of CPWD whereas the building is situated in
Uttaranchal earlier UP where UPPWD rates are applicable. The plinth area rate of CPWD
as determined 63% higher than the PWD rates in the case of assesee and 27.50% higher
than PWD by VO in the case of Sachin Hotel, Haridwar, PWD rates as per letter dated
26.2.1997 (which are applicable for 5 years - copy of schedule rates enclosed) are as
under :-
CPWD Rates PWD rates

Determined by VO as per schedule

1. Plinth area rate 6159.00 3760.00

Of Ground Floor
2. Plinth area rate 6341.00 3600.00
of First Floor
3. Plinth Area rate 6341.00 3760.00
Of First Floor

All govt. buildings are constructed on the basis of UPPWD schedule rates and also
private works by the contractors keeping in view UPPWD schedule rates. Ld. VO should
have made local enquiries in this regard before estimating the cost of building. Hence he
is not justified to apply CPWD rates in the case of [CIT vs. Rajkumar 1990 -
182 - ITR 426 (Alld.) ] and CIT vs. Hotel Joshi - 2000-199 (Raj.) Mayur Talkies vs. ITO,
Meerut of Delhi Bench. The Hon'ble High Court held that if the building is situated in the
state, rates of that state PWD should be applied for and not CPWD schedule rates.
Hence the application of CPWD schedule rates is not correct. The Ld. VO worked out
value as per 92 CPWD schedule rates which is wrong whereas CPWD schedule rates of
2002 were available and copy of the same was submitted before AO. The Ld. VO worked
out the value as per rates and index prescribed in the manual but he did not applied his
mind that the parameters provided are on all India basis without taking into account the
local conditions. It is very obvious that the cost of construction in a village situated 3 Km,
stone from Roorkee is to be bound much less than what it will be in a big metros like
Delhi and Mumbai. Hence the cost estimated by Ld. VO is not correct. The assessee fixed
valuation report of the Registered Valuer Shri Rakesh Sangal who estimated the cost
at ITA Nos. 212,2390/Del/2010 AYs 2000-1, 2003-04 Shri Rajesh Tomar Prop.vs. ACIT
15,80,100.00. The Ld. AO was requested during the course of asstt. Proceedings to cross
examine the VO but no opportunity was provided to the assesee. The second valuation
report of Shri Rakesh Mohan Gupta Registered Valuer of Saharanpur is also submitted
before your goodself who estimated the cost of building at Rs. 17,60,600.00. The
assessee could not submit the second valuation report before AO as no reasonable
opportunity of being heard was given to him.
Besides the above facts government works are done by the contractors whether it is
CPWD or PWD which includes profit of contractor that is 10-15%, 4% TDS of local taxes,
2.24% IT TDS, 2.5% royalty and other govt. misc. expenses are to be borne by the
contractor and even though the contracts are taken by the contractor 20% below the
schedule rates which results that case of assessee no contractor has been engaged nor
ST, IT, royalty and other misc. expenses have been incurred by the assessee. The Ld. VO
has not considered these facts while estimating the cost of building. Hence the
estimation of building cost by the Ld. VO is not correct.
C. That Ld. VO has allowed to 2.5% for self supervision done through the father of the
assesee who is XEN, PWD UA. In this connection it is submitted that Ld. VO has himself
admitted that the supervision has been carried out by the father of the assesee and no
one has been employed. Ld. VO should have allowed 10% towards supervision charges
keeping in view the judgment of Smt. Promila Grover Vs. CIT-25-TTJ-186 which has also
the referred in the case of Shri Ram Prakash Halwai before the Hon'ble ITAT New Delhi
who also allowed 10% supervision charges. Hence the assessee may also be allowed 10%
rebate towards self supervision charges instead of 2.5% (copy enclosed for ready
reference) - (Annexure-3) D. That ld. VO added 3% for architects fee. In this connection it
is submitted that the assessee has not engaged any architect (an affidavit is enclosed) -
(Annexure -4). Besides the above facts it is also submitted that the Ld. VO has himself
stated in the report that submitted that the Ld. VO has himself stated in the report that
supervision has been carried out by the father of the assesee who is XEN PWD and on
the other hand is adding 3% or architect fee whereas building is plain and no
architectural work has been carried out in the building nor Ld. VO has stated in the
report. Hence the addition of 3% is not justified.
E. VO has taken 12.5% for internal electrification whereas as per UPPWD schedule rates
charges are 9% (copy enclosed) in the case of M/s. Sachin Hotel it has been taken at 7%
by Hon'ble CIT(Appeals) Dehradun. Ld. VO has not given any basis for adding 12.5% for
internal electrification nor any evidence has been placed on record.
F. Ld. VO has taken 3% for external services connections. In this connection, it is
submitted that these charges are only applicable if the building is in deep. In the case of
assesee building is situated on road ITA Nos. 212,2390/Del/2010 AYs 2000-1, 2003-04
Shri Rajesh Tomar Prop.vs. ACIT and line is going from there itself and hence the
addition of 3% on this account is not justified as the asessee has not paid any connection
service charges to the department. This may be got verified before making the addition.
G. That Ld. VO has taken 15% for sanitation work. In this connection it is submitted that
the building is situated in UA and 6% sanitation charges are applicable under UPAWD
rates (copy enclosed). VO has not placed any documentary evidence on record which
should proved that the rates are 15% (copy of PWD schedule enclosed) Annexure-5)
Since the Hotel Building was completed in Dec. 2002 and no dispute is on this point. The
assessee should have been given depreciation on the building of the hotel as per
provision of the Act which has not been allowed by Ld. AO. Likewise, the depreciation on
furniture and fixture is to be given to the assesee.
That the material, labour and transportation cost in big cities is more costlier than the
small cities. However, Hon'ble CIT(ppeals) DDN in the case of Sachin Hotel allowed 12%
deduction in this account whereas in the case of assesee the building is situated in a
village 3 Km. stone from Rorkee. The material cost, labour, transportation is much less
than the Haridwar. The assessee may be allowed 15% deduction in this account.
H. Ld. VO in para 7.3 of the report stated that the building has been provided with some
richer specifications. In this connection it is submitted that the building has not been
provided with any richer specification. The building consist of iron chaukata, chip
mosaic, and doors of plywood which are much cheaper than shishum teak and sall
wood. VO has not considered this fact while estimating the cost of building. The marble
stone has not been used in the flooring of the building.
I. Ld. VO has separately estimated the cost of M.S. Raililng of angle and fabric jail, flat
brick floor, collapsible gate, aluminum door, glazed tiles, RCC projection with mosaic
floor. In this connection it is submitted that the Ld. VO should either have deducted the
cost of these items from plinth area cost or otherwise the cost of these items is already
included in the plinth area or should have reduced the rate of plinth area accordingly of
these openings.
J The Ld. VO has stated in the report that the approved valuer has taken plinth area
rates on lower side which is wrong and unjust. The approved valuer has taken the plinth
area rates on the basis of 1997 UPPWD schedule (copy enclosed) which are duly
approved by the competent authority whereas Ld. VO has taken 92 rates with index
cost. Hence the report of approved valuer is more authenticated.
ITA Nos. 212,2390/Del/2010 AYs 2000-1, 2003-04 Shri Rajesh Tomar Prop.vs. ACIT That
Ld. VO has taken Rs. 3,88,125/- as investment on extra items the reply is as under :-
1. PORCH AT G.F.WITH R.C.C. PILLAR :-
He has taken Rs. 55440.00 as investment considering 18 sq.m. @ 3080.00 per sq. m. in
this connection it is submitted that the same is calculated in cu.m and not in sq.m.
2. M.S.GATE :-
He has taken cost at Rs. 4955.00 @ 1101.00 of 4.5 sq.m. in this connection it is
submitted that the same is calculated in weight and not in sq.m.
3. BOUNDARY WALL OF HALF BRICK MESONARY OF 1.10M. HEIGHT :-
That total investment is taken Rs. 22,707.00 @ 783.00 per sq.m of 29 m in this
connection it is submitted that the same is calculated in cu.m. and not in sq.m.
4. CEMENT CONCRETE FLOORING:-
He has taken cost at Rs. 3565.00 @115 sq.m. of 31 sq.m. in this connection it is
submitted that the same is calculated in cu.m. and not in sq.m.
5. M.S. RAILING OF ANGLE & FABRIC JALLI 1.00 m. HEIGHT :-
He has taken cost at Rs.. 7884.00 @ 438.00 of 18 sq.m. in this connection it is submitted
that the same is calculated in weight and not in sq.m.
6. FLAT BRICK FLOORING:-
He has taken cost at Rs. 9936.00 @ 144 sq.m. of 69 sq.m. in this connection it is
submitted that the same is calculated in cu.m. and not in sq.m.
7. COLLASIBLE GATE :-
He has taken cost at Rs. 15475.00 @ 1629.00 of 9.50 sq.m. in this connection it is
submitted that the same is calculated in weight and not in sq.m.
8. ALLUMINIUM DOOR WITH GLAZING:-
He has taken cost at Rs. 22220.00 @ 2222.00 of 10 sq.m. in this connection it is
submitted that the market rate is not more than 100.00 of per sq.f.
9. GLAZED TILES :-
He has taken cost at Rs. 5670.00 @ 378.00 of 15 sq.m. in this connection it is submitted
that the same is calculated in cu.m. and not in sq.m.
10. R.C.C. PROJECTION WITH MOSAIC FLOORING & RAILING :-
He has taken cost at Rs. 68064.00 @ 1418.00 of 48 sq.m. in this connection it is
submitted that the market rate is not more than 710.00 of per cu.m. and not in sq.m.
11. DECORATEIVE (MARAL) TYPE PLASTER WITH COLOURED PIGMENT :-
HE has taken cost at Rs. 13500.00 @ 500.00 of 27 sq.m. in this connection it is submitted
that the market rate is not more than 199.00 of 27 sq.m.
ITA Nos. 212,2390/Del/2010 AYs 2000-1, 2003-04 Shri Rajesh Tomar Prop.vs. ACIT
12. ADD FOR PROVIDING MOSAIC FLOORING INSTEAD OF PROVISION IN PAR:-
He has taken cost at Rs. 26312.00 @ 104.00 of 253 sq.m in this connection it is
submitted that the market rate is not more than 60.00 per sq.m.
13. STAIR CASE FROM 2ND FLOOR TO 3RD FLOOR :-
He has taken cost at Rs. 82433.00 @ 6341.00 of 13 sq.m. in this connection it is
submitted that the stair case area is always included in the plinth area. The rate is
calculated in cu.m. and not in sq.m.
14. EARTH FILLING :-
He has taken cost at Rs. 26751.00 @ 111.00 of 241 cu.m. in this connection it is
submitted that no earth filling has been done.
15. BRICK WORK IN FOUNDATION:-
He has taken cost at Rs. 18213.00 @ 1401.00 of 13 cu.m. in this connection it is
submitted that the building is based on pile foundation and hence no brick work in
foundation is carried out. I. That the building is situated on the main road itself,
therefore, a cartage of material is cheaper as all the construction material and labour is
frequently available in Roorkee market. This will further reduce the cost of building. In
the case of M/s. Sachin Hotel, Haridwar Hon'ble CIT Dehradun after considering all these
facts allowed the appeal of the assessee.
II. It is also submitted that the Ld. VO has taken the cost of 1st and 2nd floor more than
10% of the ground floor whereas the cost of 1st floor is always less than the ground floor
and of second floor is equal to ground floor as per PWD rate.
It is, therefore, submitted that the report of the Ld. VO is above 63% than the PWD
rates, sanitation and electrification rates are also not at par with the PWD rates,
deduction of self supervision @ 10% be allowed and charges of architect fees be
reduced as no architect was appointed."
7. On a careful consideration of these contentions we direct as follows :-
a) Keeping in view the facts and circumstances of the case we direct that the cost of
service extra items and amount estimated at 3% architects fee be deleted from the
estimated cost of investment.
Further rebate of 15% on the total investment estimated by the Departmental Valuation
Officer is to be given for the reason that plinth area rates have been adopted for
valuation by the Departmental ITA Nos. 212,2390/Del/2010 AYs 2000-1, 2003-04 Shri
Rajesh Tomar Prop.vs. ACIT Valuation Officer and it has been decided in various orders
of the Tribunals that there would be a variation of 15% in the value when plinth area
rates are applied as compared to detailed valuation on the basis of quantities. Thus we
grant further reduction of 15% of the cost estimated by DVO.
8. We further direct deduction of 10% in the cost of construction for the various factors
pointed out by the assessee in the contentions reproduced above. The relief is granted
accordingly. Thus ground No. 3(a) for the asstt.
year 2000-01 and ground No. 2 for the asstt. year 2003-04 are allowed in part. Ground
No. 3(b) for the asttt. year 2000-01 is allowed. Ground No. 3 for the asstt. year 2003-04
is consequential in nature.
In the result both the appeals of the assessee are allowed in part.
Order pronounced in the Open Court on 30th October, 2014.
sd/- sd/-

(H.S. SIDHU) (J. SUDHAKAR REDDY)

JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 30th October, 2014

*veena
Copy of the Order forwarded to:
1.Appellant;
2.Respondent;
3.CIT;
4.CIT(A);
5.DR;
6.Guard File
By Order

Asst. Registrar