M/s Renaissance Realcon Pvt. ltd. v. Principle Commissioner of Income-tax-5
[Citation -2015-LL-1204]

Citation 2015-LL-1204
Appellant Name M/s Renaissance Realcon Pvt. ltd.
Respondent Name Principle Commissioner of Income-tax-5
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 04/12/2015
Assessment Year 2010-11
Judgment View Judgment
Keyword Tags business of real estate • cost of construction • district valuation officer • registered valuer • books of accounts
Bot Summary: The AO made an addition of Rs. 36,26,586 on account of alleged excess cost of construction on the ground that cost should be taken at Rs.511 per sq. The Assessee contended that cost of construction could not be taken at more than Rs.750 per sq. The AO preferred to go by a report dated 27th February 2013 of a Chartered Engineer engaged by the Assessee, which determined the cost of construction in the year 2008 to be Rs.5,550 per sq. Being the cost of construction adopted by the Assessee, was determined as the excess amount of cost of construction and added back to the income. Having persuaded the AO not to go by the report of the DVO, the Assessee fell back on a report of a Chartered Engineer which gave the cost of construction for the year 2008 at Rs.5,550 per sq. The ITAT has, in the absence of there being any proper determination of the cost of construction for the AY in question by the Assessee, gone by the figure of Rs.511 per sq. Dr. Rakesh Gupta, learned counsel for the Assessee, states that the Assessee has in its possession all the relevant records which it is prepared to produce for determining the cost of construction in any manner that may be considered appropriate so that an arbitrary figure is not adopted.


$ * IN HIGH COURT OF DELHI AT NEW DELHI 3. + ITA 736/2015 M/S RENAISSANCE REALCON PVT.LTD ..... Appellant Through: Dr. Rakesh Gupta, Advocate with Ms. Poonam Ahuja, Mr.Rohit Kumar Gupta, Advocates. versus PRINCIPAL COMMISSIONER OF INCOME TAX-5..... Respondent Through: Mr.Rahul Chaudhary, Senior Standing counsel with Mr. Ruchir Bhatia, Advocate. CORAM: JUSTICE S.MURALIDHAR JUSTICE VIBHU BAKHRU ORDER % 04.12.2015 1. Admit. 2. following question is framed for consideration: Whether ITAT was justified in restoring order of Assessing Officer ( AO ) arriving at cost of construction at Rs.511 sq. ft., for flats sold by Assessee during year in question. 3. background to filing of this appeal is that Assessee who is in business of real estate developers and builders filed its return of income for Assessment Year ( AY ) 2010-11, which was selected for scrutiny. assessment was completed under Section 143 (3) of Income Tax Act, 1961 ( Act ) on 13th March 2013 at total ITA No. 736/2015 Page 1 of 5 income of Rs.70,55,158. 4. AO made addition of Rs. 36,26,586 on account of alleged excess cost of construction on ground that cost should be taken at Rs.511 per sq. ft. as against Rs.750 per sq. ft. shown by Assessee. During course of assessment, AO appointed District Valuation Officer ( DVO ) who undertook evaluation under Section 142A of Act and determined cost of construction at Rs. 1,174 per sq. ft. However, Assessee contended that cost of construction could not be taken at more than Rs.750 per sq. ft. Assessee explained that from sale proceeds of each property cost of land is deducted and balance is claimed to represent sale price. By allowing for profit margin of 10% from sale price cost of construction per sq. ft. is worked out. Thereby, cost of construction per flat is determined. 5. AO, however, preferred to go by report dated 27th February 2013 of Chartered Engineer engaged by Assessee, which determined cost of construction in year 2008 to be Rs.5,550 per sq.m. Adopting this yardstick, AO determined cost of construction at Rs.511 per sq.ft. difference between said figure and Rs.750 per sq.ft., being cost of construction adopted by Assessee, was determined as excess amount of cost of construction and added back to income. 6. Aggrieved by above order, Assessee went before Commissioner of Income Tax (Appeals [CIT (A)] who by order dated 21st August 2013 allowed appeal in part. CIT(A) adopted ITA No. 736/2015 Page 2 of 5 estimate figure of Rs.700 per sq.ft. as cost of construction by taking selling price for succeeding year which was Rs.735 per sq.ft. addition was, therefore, reduced to Rs.7,58,700, thereby granting Assessee relief of Rs.28,67,886. 7. Aggrieved by above order of CIT (A), Revenue went in appeal, ITA No.6093/Del/2013, before ITAT. ITAT, in impugned order dated 6th May 2015, noted that Assessee did not adduce any evidence in support of estimated cost of construction of Rs.700 per sq.ft and no valid reason was assigned by CIT (A) either, while granting relief to Assessee. Accordingly, ITAT restored order of AO. 8. Court has heard submissions of Dr. Rakesh Gupta, learned counsel for Assessee and Mr. Rahul Chaudhary, learned counsel for Revenue. 9. It is seen that report of DVO which was commissioned by AO was not acceptable to Assessee. That report estimated cost of construction at Rs.1174 per sq.ft. Having persuaded AO not to go by report of DVO, Assessee fell back on report of Chartered Engineer which gave cost of construction for year 2008 at Rs.5,550 per sq.m. It is contended before this Court that cost of construction of flats that were sold during AY 2010-11 was definitely higher than Rs. 511 per sq.ft. which figure was valid only for 2008. It is further sought to be contended that all that Assessee had done was arrive at mean between Rs.1034 per sq.ft determined by ITA No. 736/2015 Page 3 of 5 DVO and Rs.511 per sq. ft, which was figure for 2008 construction as determined by report of Chartered Engineer produced by Assessee himself. ITAT has, in absence of there being any proper determination of cost of construction for AY in question by Assessee, gone by figure of Rs.511 per sq. ft. 10. net result is that authentic determination of cost of construction for flats which were sold during AY 2010-11 is not available in record. Dr. Rakesh Gupta, learned counsel for Assessee, states that Assessee has in its possession all relevant records which it is prepared to produce for determining cost of construction in any manner that may be considered appropriate so that arbitrary figure is not adopted. 11. In considered view of Court, approach adopted by ITAT in matter was possibly not best way of going about determining whether CIT (A) was in error in adopting figure of Rs.700 per sq.ft. as cost of construction of flats in question. One method was to insist on proper report of valuation taking into account books of accounts maintained by Assessee himself. alternative method of taking figure for 2008 and applying to it 'mark up' by cost inflation index should normally be resorted to when Assessee is unable to produce its books of accounts or documents. Where it is prepared to do so, as in present case, former method should be adopted. 12. In view of statement made by counsel for Assessee ITA No. 736/2015 Page 4 of 5 before this Court, Court is of view that ITAT should re- examine above issue on merits by calling for report of valuation by any approved registered valuer as may be considered appropriate by ITAT. ITAT will issue appropriate directions regarding production by Assessee of its records relevant to issue of determination of cost of construction of flats sold during AY in question. 13. Accordingly, impugned order dated 6th May 2015 of ITAT as regards above issue is thereby set aside and ITA No. ITA No.6093/Del/2013 is remanded to ITAT for fresh determination of above issue. 14. appeal is disposed of in above terms. certified copy of this order be sent to ITAT for necessary action. S.MURALIDHAR, J VIBHU BAKHRU, J DECEMBER 4, 2015 mg ITA No. 736/2015 Page 5 of 5 M/s Renaissance Realcon Pvt. ltd. v. Principle Commissioner of Income-tax-5
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