ORDER
N.K. Karhail, J.M.
This appeal of the revenue is directed against the order dated 30-10-1995, passed by Commissioner (Appeals)-I; Agra, for assessment year 1990-91.
2. The effective grounds of appeal read as under :
2. The effective grounds of appeal read as under :
“1. That the learned Commissioner (Appeals) has erred in law and on facts in holding that there is no provision in the Income Tax Act, 1961, to obtain valuation report for the cost of construction of the building, whereas the assessing officer has authorised the DVO under section 131(1)(d) of the Income Tax Act, 1961, to inspect the property and to make such investigation in order to elucidate the correctness of the cost of construction and thus the assessing officer has rightly obtained the valuation report.
2. That the learned Commissioner (Appeals) has erred in law and on facts in deleting the addition of Rs. 2,26,882 made on account of unexplained investment in cold storage (III chamber) without properly appreciating the facts of the case.”
3. Briefly stated, facts are that the assessee- company during the year under consideration constructed third chamber in the cold storage in respect of which the cost shown in the books was at Rs. 25,49,118. According to the registered valuer’s report dated 9-12-1991, the investment was worked out at Rs. 25,10,250. The case was referred to departmental valuation cell who vide its report dated 17-11-1992, estimated the same at Rs. 27,76,000. Regarding the objection raised by the assessee in respect of DVO’s report the assessing officer observed that as the DVO had asked the assessee for submission of documents in details which had been submitted and taken into account for estimating the investment, accordingly, the difference between the cost estimated by the DVO and shown by the assessee was added to the income of the assessee.
3. Briefly stated, facts are that the assessee- company during the year under consideration constructed third chamber in the cold storage in respect of which the cost shown in the books was at Rs. 25,49,118. According to the registered valuer’s report dated 9-12-1991, the investment was worked out at Rs. 25,10,250. The case was referred to departmental valuation cell who vide its report dated 17-11-1992, estimated the same at Rs. 27,76,000. Regarding the objection raised by the assessee in respect of DVO’s report the assessing officer observed that as the DVO had asked the assessee for submission of documents in details which had been submitted and taken into account for estimating the investment, accordingly, the difference between the cost estimated by the DVO and shown by the assessee was added to the income of the assessee.
4. On appeal before the Commissioner (Appeals), it was submitted that the DVO had himself accepted that cold storage was not a traditional structure and, therefore, made estimate of cost after detailed measurement of each and every item of work. Therefore, there was no justification for him to add contingencies at 3 per cent totalling to Rs. 83,078. It was also stated that the DVO had allowed deduction for supervision and direct purchases at 7.5 per cent while it was a standard practice to allow deduction at 10 per cent. Had it been allowed, his valuation would further be reduced by Rs. 74,516. The assessee’s third objection was that cost of 75 mm thick insulation was taken at Rs. 143 per sq. mtr., while the same should have been taken at Rs. 110 per sq. mtr. Lastly, the DVO had added Rs. 15,000 for preparation of drawings, etc., but as the third chamber was merely an extension to existing cold storage no fresh drawings were got made and, therefore, there was no cost involved for the same. The learned Commissioner (Appeals) has observed that each and every item has been separately considered by the DVO. There does not appear to be any justification for making addition for contingencies at a flat rate of 3 per cent. Similarly, the explanation that no cost was incurred on preparation of drawings was also acceptable. It was not a new construction but only extension over existing construction. Similarly, various appellate authorities had considered deduction at 10 per cent for self-supervision instead of 7.5 per cent as reasonable. Thus, the estimate of DVO is liable to be reduced by Rs. 1,72,693. Therefore, the difference between the assessee’s books and DVO’s report came to Rs. 54,189 which can be said to be insignificant in the matters of estimate. A reliance in this connection has been made to the Special Bench decision of Tribunal in Income Tax Officer v. J.K.K. Textile Processing Mills (1990) 38 TTJ (Mad) 178. The learned Commissioner (Appeals) has further observed that legally also the addition is not tenable. There is no provision in the Income Tax Act to obtain valuation report for the cost of construction of building. Section 55A is with a view to ascertaining the fair market value of a capital asset for the purposes of Chapter IV and hence was not applicable to section 69 or section 69B which falls in Chapter VI. Hence, for the purposes of making estimate under these sections no reliance can be placed on such valuation report which was also an estimate and not true and correct cost of construction. The learned Commissioner (Appeals) has further observed as held by the Hon’ble Supreme Court in Omar Salay Mohd. Saif v. CIT (1959) 37 ITR 151 (SC) such report was also not binding on the assessing officer who was a quasi-judicial officer who can make addition to the returned income only if there was evidence to do so. Thus, the learned Commissioner (Appeals) deleted the addition of Rs. 2,26,882 made on amount of unexplained investment in cold storage (third chamber).
4. On appeal before the Commissioner (Appeals), it was submitted that the DVO had himself accepted that cold storage was not a traditional structure and, therefore, made estimate of cost after detailed measurement of each and every item of work. Therefore, there was no justification for him to add contingencies at 3 per cent totalling to Rs. 83,078. It was also stated that the DVO had allowed deduction for supervision and direct purchases at 7.5 per cent while it was a standard practice to allow deduction at 10 per cent. Had it been allowed, his valuation would further be reduced by Rs. 74,516. The assessee’s third objection was that cost of 75 mm thick insulation was taken at Rs. 143 per sq. mtr., while the same should have been taken at Rs. 110 per sq. mtr. Lastly, the DVO had added Rs. 15,000 for preparation of drawings, etc., but as the third chamber was merely an extension to existing cold storage no fresh drawings were got made and, therefore, there was no cost involved for the same. The learned Commissioner (Appeals) has observed that each and every item has been separately considered by the DVO. There does not appear to be any justification for making addition for contingencies at a flat rate of 3 per cent. Similarly, the explanation that no cost was incurred on preparation of drawings was also acceptable. It was not a new construction but only extension over existing construction. Similarly, various appellate authorities had considered deduction at 10 per cent for self-supervision instead of 7.5 per cent as reasonable. Thus, the estimate of DVO is liable to be reduced by Rs. 1,72,693. Therefore, the difference between the assessee’s books and DVO’s report came to Rs. 54,189 which can be said to be insignificant in the matters of estimate. A reliance in this connection has been made to the Special Bench decision of Tribunal in Income Tax Officer v. J.K.K. Textile Processing Mills (1990) 38 TTJ (Mad) 178. The learned Commissioner (Appeals) has further observed that legally also the addition is not tenable. There is no provision in the Income Tax Act to obtain valuation report for the cost of construction of building. Section 55A is with a view to ascertaining the fair market value of a capital asset for the purposes of Chapter IV and hence was not applicable to section 69 or section 69B which falls in Chapter VI. Hence, for the purposes of making estimate under these sections no reliance can be placed on such valuation report which was also an estimate and not true and correct cost of construction. The learned Commissioner (Appeals) has further observed as held by the Hon’ble Supreme Court in Omar Salay Mohd. Saif v. CIT (1959) 37 ITR 151 (SC) such report was also not binding on the assessing officer who was a quasi-judicial officer who can make addition to the returned income only if there was evidence to do so. Thus, the learned Commissioner (Appeals) deleted the addition of Rs. 2,26,882 made on amount of unexplained investment in cold storage (third chamber).
5. Before us the learned Departmental Representative has submitted that the observation of the learned Commissioner (Appeals) that there is no provision in Income Tax Act, 1961, to obtain valuation report for the cost of construction of the building is not legally sustainable. Under section 131(1)(d) of the Income Tax Act, the assessing officer has authorised the DVO to inspect the property and make such investigation in order to elucidate the correctness of the cost of construction. Thus, the assessing officer has rightly obtained the valuation report. A reliance in this connection has been made to the decision of Tribunal, Agra Bench, in the case of Das’s Friends Builders (P) Ltd. (ITA No. 283/Agra/2000) (reported at (2004) 88 TTJ (AgTa) 651-Ed).
5. Before us the learned Departmental Representative has submitted that the observation of the learned Commissioner (Appeals) that there is no provision in Income Tax Act, 1961, to obtain valuation report for the cost of construction of the building is not legally sustainable. Under section 131(1)(d) of the Income Tax Act, the assessing officer has authorised the DVO to inspect the property and make such investigation in order to elucidate the correctness of the cost of construction. Thus, the assessing officer has rightly obtained the valuation report. A reliance in this connection has been made to the decision of Tribunal, Agra Bench, in the case of Das’s Friends Builders (P) Ltd. (ITA No. 283/Agra/2000) (reported at (2004) 88 TTJ (AgTa) 651-Ed).
6. The learned Departmental Representative has further submitted that since there was difference in the cost estimated by the DVO and shown by the assessee, the assessing officer was justified to make addition on account of unexplained investment in the cold storage. A reliance in this connection has been made to the decision in Smt. Shashi Deid v. Income Tax Officer & Ors. (1999) 154 CTR (MP) 1 and Daulatram & Ors. v. ITO & Ors. (1990) 181 ITR 119 (AP) and 156 Taxation 130 (sic).
6. The learned Departmental Representative has further submitted that since there was difference in the cost estimated by the DVO and shown by the assessee, the assessing officer was justified to make addition on account of unexplained investment in the cold storage. A reliance in this connection has been made to the decision in Smt. Shashi Deid v. Income Tax Officer & Ors. (1999) 154 CTR (MP) 1 and Daulatram & Ors. v. ITO & Ors. (1990) 181 ITR 119 (AP) and 156 Taxation 130 (sic).
7. On the other hand, the learned counsel for the assessee has relied upon the order passed by the Commissioner (Appeals). In this connection, he has referred to page 1 of the paper book wherefrom it could be seen that the DVO estimated the cost of construction at Rs. 27,76,000 and as per registered valuer’s report it was Rs, 25,10,250, whereas the cost of construction as per books of the assessee was Rs. 25,49,118. The assessing officer made the addition of Rs. 2,26,882 being difference between the estimated cost by the DVO and the cost of construction as shown in the books of the assessee, Thus, the cost shown in the books has not been disputed by the revenue inasmuch as the assessing officer himself has given credit to the figure of Rs. 25,49,118. He has further submitted that the learned Commissioner (Appeals) has rightly deleted the addition made on account of contingencies at the rate of 3 per cent inasmuch as the DVO estimated the cost of construction after detailed measurement of each and every item. The learned Commissioner (Appeals) allowed the deduction for self- supervision at the rate of 10 per cent instead of 7.5 per cent allowed by the DVO. The deduction at the rate of 10 per cent has been held as reasonable by the Tribunal, Agra Bench, in the case of Shakuntala Sheet Grah (P) Ltd. (ITA No. 6635/Del/1995). He further submitted that since the drawings were got made for the third chamber, the DVO wrongly made the addition on this account. Thus, the learned counsel has argued that if the additions made on account of contingencies, supervision charges and preparation of drawings are deleted there remains balance of difference of Rs. 54,189 which fall within the marginal cost which can be ignored. Thus, he has supported the order passed by the learned Commissioner (Appeals).
7. On the other hand, the learned counsel for the assessee has relied upon the order passed by the Commissioner (Appeals). In this connection, he has referred to page 1 of the paper book wherefrom it could be seen that the DVO estimated the cost of construction at Rs. 27,76,000 and as per registered valuer’s report it was Rs, 25,10,250, whereas the cost of construction as per books of the assessee was Rs. 25,49,118. The assessing officer made the addition of Rs. 2,26,882 being difference between the estimated cost by the DVO and the cost of construction as shown in the books of the assessee, Thus, the cost shown in the books has not been disputed by the revenue inasmuch as the assessing officer himself has given credit to the figure of Rs. 25,49,118. He has further submitted that the learned Commissioner (Appeals) has rightly deleted the addition made on account of contingencies at the rate of 3 per cent inasmuch as the DVO estimated the cost of construction after detailed measurement of each and every item. The learned Commissioner (Appeals) allowed the deduction for self- supervision at the rate of 10 per cent instead of 7.5 per cent allowed by the DVO. The deduction at the rate of 10 per cent has been held as reasonable by the Tribunal, Agra Bench, in the case of Shakuntala Sheet Grah (P) Ltd. (ITA No. 6635/Del/1995). He further submitted that since the drawings were got made for the third chamber, the DVO wrongly made the addition on this account. Thus, the learned counsel has argued that if the additions made on account of contingencies, supervision charges and preparation of drawings are deleted there remains balance of difference of Rs. 54,189 which fall within the marginal cost which can be ignored. Thus, he has supported the order passed by the learned Commissioner (Appeals).
8. We have heard the parties and perused the records of the case. We find force in the argument of the learned Departmental Representative that Commissioner (Appeals) was not justified in observing that there is no provision to obtain valuation report in the case of construction of the building inasmuch as in the case of Das’s Friends Builders (P) Ltd. (supra), Tribunal, Agra, has held that “by virtue of provision under section 131(1)(d) the assessing officer has got powers to issue commission for the purposes of obtaining information in respect of income or loss. Such commission could be issued for seeking opinion of an expert during the course of assessment proceedings. There is no prerequisite for issuing commission. The opinion of the expert is not a gospel truth but certainly it has got persuasive value. However, we find no reason to interfere with the order deleting the addition made on account of unexplained investment in the cold storage”. It is seen that the assessing officer has given due credit to the figure shown in the case of construction in the books of the assessee. In other words, the books of account of the assessee have not been rejected by the assessing officer. The assessing officer has not assigned any reason for adopting the valuation estimated by the DVO. He has merely proceeded to make addition on the basis of difference between the DVO’s estimate and the cost shown in the books of the assessee. The addition made on account of contingencies at 3 per cent is not justified when the DVO himself has estimated the cost of construction after detailed consideration of each and every item. Further, the DVO ought to have given deduction for self-supervision at the rate of 10 per cent instead of 7.5 per cent as the deduction at 10 per cent for self-supervision has been considered by the various authorities as reasonable. Further, since there has been no preparation of drawings for the extension of the existing cold storage (third chamber), the DVO has wrongly added the cost of Rs. 15,000 for preparation of drawings. Thus, if the aforesaid amounts are deducted from the cost estimated by the DVO, there remains marginal difference of Rs. 54,189 which can be ignored in view of the decision of Tribunal, Agra Bench, in the case of Suresh Cold Storage & Ice Factory. Thus, we are of the view that the Commissioner (Appeals) was justified in deleting the addition of Rs. 2,26,882 made on account of unexplained investment in the construction of cold storage. We, therefore, uphold the impugned order.
8. We have heard the parties and perused the records of the case. We find force in the argument of the learned Departmental Representative that Commissioner (Appeals) was not justified in observing that there is no provision to obtain valuation report in the case of construction of the building inasmuch as in the case of Das’s Friends Builders (P) Ltd. (supra), Tribunal, Agra, has held that “by virtue of provision under section 131(1)(d) the assessing officer has got powers to issue commission for the purposes of obtaining information in respect of income or loss. Such commission could be issued for seeking opinion of an expert during the course of assessment proceedings. There is no prerequisite for issuing commission. The opinion of the expert is not a gospel truth but certainly it has got persuasive value. However, we find no reason to interfere with the order deleting the addition made on account of unexplained investment in the cold storage”. It is seen that the assessing officer has given due credit to the figure shown in the case of construction in the books of the assessee. In other words, the books of account of the assessee have not been rejected by the assessing officer. The assessing officer has not assigned any reason for adopting the valuation estimated by the DVO. He has merely proceeded to make addition on the basis of difference between the DVO’s estimate and the cost shown in the books of the assessee. The addition made on account of contingencies at 3 per cent is not justified when the DVO himself has estimated the cost of construction after detailed consideration of each and every item. Further, the DVO ought to have given deduction for self-supervision at the rate of 10 per cent instead of 7.5 per cent as the deduction at 10 per cent for self-supervision has been considered by the various authorities as reasonable. Further, since there has been no preparation of drawings for the extension of the existing cold storage (third chamber), the DVO has wrongly added the cost of Rs. 15,000 for preparation of drawings. Thus, if the aforesaid amounts are deducted from the cost estimated by the DVO, there remains marginal difference of Rs. 54,189 which can be ignored in view of the decision of Tribunal, Agra Bench, in the case of Suresh Cold Storage & Ice Factory. Thus, we are of the view that the Commissioner (Appeals) was justified in deleting the addition of Rs. 2,26,882 made on account of unexplained investment in the construction of cold storage. We, therefore, uphold the impugned order.
9. In the result, appeal of the revenue is dismissed.
9. In the result, appeal of the revenue is dismissed.
