1. These appeals preferred by the revenue against a common order of the learned Commissioner (Appeals)-II, Dehradun dated 15-1-2004 for assessment years 1993-94, 1994-95, 1995-96, 1996-97 and 1998-99, involve a common issue and the same therefore, are being disposed of by this single consolidated order.
2. The relevant facts of the case giving rise to these appeals are as follows: The assessee is an individual who is engaged in the business of construction of apartments and sale thereof. During the years under consideration as well as the intervening year relevant to assessment year 1997-98, shopping complex known as Shrishti Complex was constructed by the assessee. During the course of assessment proceedings for assessment year 1997-98, the said complex constructed by the assessee was referred by the assessing officer to the valuation cell for the purpose of valuation of cost of construction. The Valuation Officer vide his report dated 20-5-2000 determined the value of said construction at Rs. 32,52,000 as against Rs, 17,41,148 shown by the assessee. The year wise break-up of the valuation so made by the DVO vis-a-vis the construction cost shown to have been incurred by the assessee for the five years under consideration was worked out by the assessing officer as follows Cost of construction as determined by the DVO Cost of construction as shown by the assessee Difference Treating the aforesaid difference in the cost of construction as escapement of assessees income from the assessments for the relevant years, the assessing officer initiated reassessment proceedings by issuing notices under Section 148 of the Income Tax Act for the said years. In response to the said notices, a reply was filed by the assessee in writing stating therein that the returns filed by him originally might be treated as the returns filed in compliance to the notices issued under Section 148 of the Act. During the course of reassessment proceedings, the value of cost of construction determined by the Valuation Officer was strongly challenged by the assessee on the ground that the same was done by applying the CPWD rates, instead of State PWD rates. It was also pointed out by the assessee that the said valuation ought to have been done by applying itemwise rates, instead of plinth area rates adopted by the valuation officer. It was further submitted that the expenditure incurred by the assessee on construction of complex was his business expenditure and the same being of revenue nature, he was entitled for deduction in respect of the same under Section 37 of the Act even to the extent it was to be treated as unexplained. This submission made by the assessee however, was not found acceptable by the assessing officer and rejecting the same, he proceeded to add the amount of difference in the cost of construction to the total income of the assessee treating the same as unexplained in the assessments completed under Section 148/143(3) for all the five years under consideration.
3. Aggrieved by the aforesaid assessments made by the assessing officer, the assessee preferred appeals before the learned Commissioner (Appeals) and the additions made on account of difference in cost of construction were challenged by him, by raising following contentions before the learned Commissioner (Appeals): In the valuation report of DVO, the CPWD rates were adopted whereas the appellant was entitled to the application of UP PWD rates in view of Allahabad High Court judgment in the case of CIT v. Rajkumar (1990) which stood followed by Tribunal, Delhi in the case of Sunderji Promoter Devpura v. Income Tax Officer.
As per the working of valuation at UP PWD rates strictly on the same specification as considered by the DVO, the investment in the construction stood worked out at Rs. 20,65,878 against the actual amount diverted and shown at Rs. 17,41,141. It is noteworthy that even this report was based on plinth area rates while the report submitted by the appellant before the assessing officer was worked out on the basis of PWD rates.
Reliance is placed on the judgment of Rajasthan High Court in the case of CIT v. Hotel Joshi (1999) 157 CTR (Raj) 369 wherein it was held that item based PWD rates was a proper method of valuing the construction cost.
Reliance is further placed on the appellate order of Commissioner (Appeals)-I, Dehradun in the appellants case for the assessment year 1997-98 wherein it was held that difference added towards the cost would be covered under Section 69C and since this construction was relating to business stock, appellant was entitled to get deduction under Section 37 and the net effect would be zero. Thus, the net effect of the entire exercise of addition would be zero.
The department itself has allowed the appellants claim for various deductions on account of self-supervision, bulk purchases and also UP PWD rates totalling to 31 per cent in the assessment years 1999-2000 and 2000-01 and after reducing the valuation by 31 per cent, the addition of resultant difference, if any, was acceptable to the appellant to buy peace of mind and to end lftigation." 4. The aforesaid submissions made by the assessee before him were found acceptable by the learned Commissioner (Appeals) and he proceeded to delete the additions made by the assessing officer on account of difference in cost of construction for the following reasons given in paragraph No. 3.3 of his impugned order: I have carefully considered the facts and submissions and find substance in the arguments of the learned authorised representative.
In view of the various judicial pronouncements relied upon by the Authorised Representative, it is clear that appellant was entitled to the application of UP PWD rates instead of CPWD rates adopted for valuation by DVO. Moreover, in assessment years 1999-2000 and 2000-01 the assessing officer himself has allowed certain deductions on account of self-supervision, bulk purchases and UP PWD rates and therefore, appellants claim for entitlement to the deduction to the extent of 31 per cent deserved some consideration. On perusal of various deductions, I find that the deductions allowed by the assessing officer particularly for bulk purchases was definitely on higher side. Therefore, although the appellant is claiming deduction @ 31 per cent (6 per cent for self supervision, 10 per cent for bulk purchases and 15 per cent for UP PWD rates) I consider it just and fair to reduce the cumulative deductions to 28 per cent out of the valuation estimated by the DVO. The assessing officer is directed to work out the difference after allowing deductions @ 28 per cent from the yearly investments as estimated by the DVO and compute the additions accordingly. Of course the appellant will be entitled to get consequential benefit in terms of enhancement of value of closing stock by equivalent amount upto assessment year 1998-99.
Thus, the assessing officer is directed to recompute the additions on account of unexplained expenditure in construction under Section 69C and also allow the claim for its deduction in the light of proviso to Section 69C." 5. Aggrieved by the aforesaid relief allowed by the Commissioner (Appeals) to the assessee, the revenue has preferred these appeals before the Tribunal by raising the following solitary ground which is common in all the present appeals: That the learned Commissioner (Appeals)-II, Dehradun has erred in law and on facts in directing the assessing officer to recompute the additions on account of unexplained investment, as of unexplained expenditure under Section 69C. The assessee has made unexplained investment in constructing the shopping complex and not incurred expenditure, the order of the Commissioner (Appeals)-H, Dehradun, is erroneous".
6. We have heard the arguments of both the sides and also perused the material available on record. As submitted by the learned Counsel for the assessee before us, a similar relief allowed by the learned Commissioner (Appeals) by deleting the addition made by the assessing officer on account of difference in cost of construction in the case of one Shri Neeraj Kumar was challenged by the revenue in an appeal filed before the Tribunal and Delhi C Bench of Tribunal vide its order dated 20-1-2006 in ITA No. 2816/Del/2002 upheld the order of the learned Commissioner (Appeals) allowing such relief for the following reasons given in para No. 5 of the said order; We have heard the submissions of the learned Departmental Representative who relied on the order of the assessing officer. We are of the view that the order of Commissioner (Appeals) does not call for any interference. It is not in dispute that the assessee is in the business of construction and sale of flats. The investment said to have been made by the assessee was not recorded in the books of account as an investment made in construction of the flats were held as stock-in-trade of business by the assessee. Prior to the amendment to the provisions of Section 69C with effect from 1-4-1999 by the Finance Act, 1998 such unexplained expenditure even if considered as income should be allowed to be claimed as a deduction as an expenditure by an assessee. It is only with effect from the assessment year 1999-2000 that a proviso was introduced to Section 69C whereby unexplained expenditure when deemed as an income cannot be allowed as an expenditure. The assessee had sold all the flats and the sale price of these flats as shown by the assessee has been accepted by the revenue. In such circumstances there will be no effect on the income even if the addition is made on account of unexplained investment in construction. In view of the above, the order of the Commissioner (Appeals) is just and proper and does not call for any interference. The same is confirmed and this appeal by the revenue is dismissed." 7. Since the issue involved in the present case as well as all the material facts relevant thereto are admittedly similar to the case of Shri Neeraj Kumar (supra), we are in agreement with the contention of the learned Counsel for the assessee that the decision rendered by the Tribunal in the case of Shri Neeraj Kumar is squarely applicable in the present case. Even the decision of the Honble Calcutta High Court in the case of CIT v. Western Estates cited by the learned Counsel for the assessee further supports the assessees case on the issue under consideration, wherein it was held that construction cost being revenue expenditure of the assessees business, there was no tax advantage which could be said to have accrued to the assessee by reducing the construction cost. As such, considering all the facts of the case as well as keeping in view the decision of Delhi Bench of Tribunal in the case of Shri Neeraj Kumar (supra) and that of the Honble Calcutta High Court in the case of CIT v. Western Estates (supra), we hold there was no infirmity in the impugned order of the learned Commissioner (Appeals) in allowing relief to the assessee on the issue under consideration and upholding the same, we dismiss all these five appeals filed by the revenue.