1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR :: ORDER :: (1) Commissioner of Income Tax, Bikaner Vs. Suresh Dudi D.B.Income Tax Appeal No.13/2010 ::: (2) Commissioner of Income Tax, Bikaner Vs. Suresh Dudi D.B.Income Tax Appeal No.79/2009 ::: (3) Commissioner of Income Tax, Bikaner Vs. Jagdish Dudi D.B.Income Tax Appeal No.74/2009 ::: (4) Commissioner of Income Tax, Bikaner Vs. Rameshwar Lal Dudi D.B.Income Tax Appeal No.78/2009 DATE OF ORDER :::: 15th March 2010 PRESENT HON’BLE THE CHIEF JUSTICE MR.JAGDISH BHALLA HON’BLE MR.JUSTICE DINESH MAHESHWARI Mr.K.K.Bissa for the appellant. .... BY THE COURT: These four appeals, preferred by the Revenue under Section 260-A of the Income Tax Act, 1961 (‘the Act’) against the common order dated 14.03.2008 as passed by the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur ('the Tribunal') involving common, similar, and inter-related questions, have been considered together; and are taken up for disposal by this common order. IT Appeal No.13/2010: CIT, Bikaner Vs. Suresh Dudi This appeal relates to the return of income as filed by the assessee Shri Suresh Dudi for the financial year 2003-2004. Briefly put, the relevant aspects of the matter are that the assessee filed the return on 31.08.2004 declaring the income of 2 Rs.17,54,622/- under various heads like salary, interest, business etc. and further declaring agriculture income of Rs.16,77,175/-. While processing the return, the Assessing Officer ('the AO') noticed that the assessee had debited an amount of Rs.18,55,500/- towards construction of a commercial building at Nagaur; and found that the building was in the joint name of the assessee Shri Suresh Dudi with his bother, the other assessee Shri Jagdish Dudi (the respondent in IT Appeal No.74/2009). It was also found that the building in question had already been constructed and let out to M/s. Dunac Motors wherein the said Shri Jagdish Dudi was a partner. The assessee Shri Suresh Dudi was asked to furnish the details of the construction together with sources; and, for want of complete details, the matter was referred to the Valuation Cell under Section 142-A of the Act for estimate on the investment made towards construction of the said building. The concerned Valuation Officer ('the DVO') submitted his report putting the estimate on the total value of investment in the building at Rs.1,65,75,000/- out of which, the assessee Shri Suresh Dudi's investment was estimated at Rs.44,76,604/- that was bifurcated at Rs.32,88,988/- for the financial year 2003-2004 and at Rs.11,87,614/- for the financial year 2004- 2005. The learned AO did not agree with the explanations and submissions made on behalf of the assessee in regard to the investment as declared towards building construction; and proceeded to make an addition of Rs.14,33,488/- i.e., the sum over and above the declared investment of Rs.18,55,500/- so as to make it Rs.32,88,988/- for the financial year 2003-2004. Another aspect relevant for the present appeal has been the agriculture income, which was included for rate purposes. The 3 learned AO noticed that as against the total receipts of Rs.19,51,895/- from agriculture, the assessee had debited only an amount of Rs.2,74,720/- towards expenses, which was about 14% of the receipts. The learned AO observed that the normal agriculture expenses constitute 40% of such agriculture receipts; and, looking to the period of purchase of the land, the extent of cultivable land and the crops taken, and the opinion stated by the Assistant Director (Agricultural), Bikaner, the learned AO, while enhancing the component of expenses, estimated the agriculture income of the assessee only at Rs.1,36,078/- as against the declared income of Rs.16,77,175/-. Accordingly, the learned AO proceeded to add the balance of Rs.15,41,097/- in the assessee's income from other sources. Aggrieved by the order so passed by the AO, the assessee Shri Suresh Dudi preferred an appeal that came to be decided by the Commissioner of Income Tax (Appeals)-I, Bikaner ['the CIT(A)’] on 14.03.2007. The learned CIT(A) considered the submissions of the assessee against the additions as made in the income on account of construction of building and, after noticing that the report of the DVO was based on CPWD rates, held, with reference to the decisions of this Court, that the local PWD rates ought to have been applied for making the estimate of the cost of construction. The learned CIT(A) further found that the matter had been of self-supervision of construction as one of the co-owner of the property namely, the above referred assessee Shri Jagdish Dudi was a qualified engineering graduate who had supervised the construction work. The learned CIT(A) observed that though the DVO had given the benefit of self-supervision at 5% of the total cost of construction but 4 then, the approved valuer had given the benefit of 12% of the total costs towards self-supervision. The learned CIT(A) yet further found that the DVO had made an addition at 3% on account of architect/engineer’s fees that was not added by the approved valuer. The learned CIT(A) did not approve of the approach of the learned AO particularly when the report of approved valuer was not even referred nor the assessee was called for examination to verify the aspect of self-supervision and the aspect related with the architect/engineer’s fees. The learned CIT(A) found that the estimate arrived at by the approved valuer on the total cost of construction had been Rs.98,75,000/- whereas the assessee and the others had declared the total cost of construction at Rs.93,50,873/-; and looking to the overall circumstances, while agreeing with the arguments on behalf of the assessee, proceeded to delete the addition of Rs.14,33,488/- as made by the AO on this score. In relation to the agriculture income, the learned CIT(A) observed that about 44 bighas of land was jointly owned by the assessee and his brother; and the assessee's brother had shown 24% expenses on agriculture operations whereas the assessee Shri Suresh Dudi had shown the expenses at 14% only. The learned CIT(A) found it proper to put the expenses on the agriculture operations at 24% of the total sale proceeds and hence, while taking the agriculture income at Rs.14,83,440/- as against that declared by the assessee at Rs.16,77,175/-, partly allowed the appeal. In the appeal preferred by the Revenue against the order so passed by the CIT(A), the learned Tribunal took note of all the facts of the case; and in relation to the costs of construction, considered it proper to reduce the estimate made by the DVO by 35% while 5 finding it justified: (i) to allow 20% deduction for the purpose of scaling down the valuation from CPWD rates to PWD rates; (ii) to allow 12% rebate on account of self-supervision charges; and (iii) to delete the addition of 3% as made by the DVO towards engagement of architect or engineer. Thus, while reducing the estimate of the DVO by 35%, the Tribunal put the valuation at Rs.21,37,842/- and, accordingly, modified the order of CIT(A) and made an addition of Rs.2,82,342/- over that estimated by the CIT(A) as per assessee’s figure i.e., Rs.18,55,500/-. The discussions and the findings by the learned Tribunal in regard to the estimate on the cost of construction could be usefully reproduced as under:- “4. We have heard the rival submissions and perused the relevant material on record. We find that the AO made a valid reference to the DVO u/s 142A, which governs the situation as has been held by the ld. CIT(A) and there is no cross appeal from the side of the assessee. In so far as the arguments made before the AO regarding the objections to the DVO are concerned, it is found that there is a consistent view of this Bench of the Tribunal to the effect that only PWD rates can be considered while valuing a property. The Hon'ble Jurisdictional High Court in the case of CIT Vs. Prem Kumari Murdia [2006] 204 CTR [Raj.] 343 has upheld the finding of the Tribunal in which the reduction of 20% from the cost of construction was allowed for the purposes of scaling down the valuation from CPWD to PWD rates. In our considered opinion, there is a justification for allowing 20% deduction on this count. Next claim made by the assessee is the rebate for self supervision charges at 12% cost. We note that this Bench is allowing 10% self supervision rebate in general cases. The ld.A.R. has specifically referred to the Tribunal's order in the case of Ravi Mathur [supra] and contended that 12% rebate was held to be allowable as the assessee in that case was himself a civil engineer. This fact has not been disputed by the ld.D.R. Since Shri Jagdish, another co-owner, and the assessee in the present lot of appeals, is also civil engineer, relying on the judgment in the case of Ravi Mathur [supra], we hold that 12% rebate on account of self supervision charges is eligible. Further, the DVO has added 3% on account of architect/engineer fee separately. When the owner is himself an engineer, there is hardly any need for engaging the services of an architect or engineer. Moreover, there is no such requirement that an architect or engineer must be engaged before making any construction. Many a times construction is made without the assistance of an architect or engineer. We, therefore, hold that 3% addition by the DVO to the cost of construction is not justified. To sum up, the assessee is entitled to deduction of 20% on account of conversion from CPWD to PWD rates, 12% on account of self supervision charges and 3% on account of exclusion of architect/engineer fees. Total of these three items comes to 35%. If this percentage is applied to the estimate of the DVO, remaining valuation comes to Rs.21,37,842/-. As against this figure, the assessee has 6 declared only a sum of Rs.18,85,500/-. Since the reference to the DVO is valid and all the objections raised by the assessee have been met and further the assessee has not maintained any accounts qua the construction, in our considered opinion, the resultant differential amount of Rs.2,82,342/- [21,37,842/- minus 18,55,500/-] merits addition. We, therefore, modify the impugned order to this extent and uphold the addition to the tune of Rs.2,82,342/-. This ground is partly allowed.” In relation to the expenses on agriculture operations, the learned Tribunal noticed the fact that in the succeeding year too, the AO had made an estimate for the agriculture expenses that was reduced in the first appeal to 29% and the assessee had not disputed sustenance of the addition made by the CIT(A) in both the orders and, therefore, found it just and proper to put an estimate on the agriculture expenses at 29% of the total sale proceeds. The Tribunal said,- ''........Now coming to the expenses part, though the assessee had furnished some details of agricultural expenses before the AO, which were only to the tune of 14%, the ld. CIT(A) held that 24% expenses were reasonable as these are at par with the percentage of expenses claimed by the assessee's brother under similar circumstances. However, it is further important to note that in the immediately succeeding year, which would be dealing with infra, the AO again estimated agricultural expenses, which estimate has been reduced in the first appeal to 29%. The assessee has not disputed the sustenance of addition by the ld.CIT(A) in both the years. Looking to the entirety of the facts and circumstances of the present case, we are of the considered opinion that it would be just and fair if the agricultural expenses are held at 29% of the total sale proceeds. This ground is, therefore, partly allowed.'' Seeking to assail the order so passed by the Tribunal, it is submitted in this appeal on behalf of the Revenue that the Tribunal has not examined the matter in its entirety and was not justified in holding that the deduction of 35% was allowable from the value estimated by the DVO on the cost of construction. It is further submitted that when the AO had made the addition in the agriculture income on the basis of the letter of Assistant Director of Agriculture 7 whose was an expert opinion in relation to the cultivation of crops; and when the agriculture expenses estimated by AO at 40% to 45% were indeed accepted by the Tribunal in various other cases, modification of such estimate to 29% was not justified. Having given thoughtful consideration to the submissions made and having examined the material placed on record, we are clearly of the view that the grounds urged on behalf of the appellant remain totally bereft of substance; and do not make out any substantial question of law worth consideration. The matter relating to the cost of construction has been dealt with and examined by the Tribunal from all the relevant angles and so far this appeal by the Revenue is concerned, we are unable to find any illegality if the Tribunal has allowed reduction of 20% from the estimate as made by the DVO for the purpose of scaling down the valuation from CPWD rates to PWD rates. In this very process of making a fair estimate, allowing of 12% rebate on account of self- supervision charges cannot be said to be arbitrary or whimsical in the fact situation of this case particularly when the co-owner Shri Jagdish Dudi is admittedly a qualified engineer and it has been found as a fact that the construction was supervised by him. Deletion of 3% addition as made by the DVO on account of architect/engineer’s fees also appears to be justified particularly when the owner himself was an engineer and there was hardly any need for engaging the services of any other professional. The process of estimate on the cost of construction as dealt with by the Tribunal remains fair, just, and reasonable; and cannot be said to be violating any statutory mandate. 8 So far the component of agriculture income is concerned, the assessee had claimed agriculture receipts to the tune of Rs.19,51,895/- against which, only an amount of Rs. 2,74,720/- was deducted by him towards expenses that worked out to about 14% of the receipts. Such percentage of expenditure was considered to be on lower side but while making an estimate, the learned AO put the component of expenses at a whopping 40% of the receipts. The learned CIT(A) while dealing with the first appeal, referred to the fact that such expenses had been shown by the assessee's brother at 24% and hence, put the same figure towards expenses in relation to this assessee. The Tribunal, however, noted that for the succeeding year, such estimate had been put at 29% in the first appeal and, for the assessee not disputing the findings in the first appeal and for the totality of facts and circumstances, found it just and proper to put the agriculture expenses at 29% of the sale proceeds. The aspect related with agriculture expenses was, again, a matter of putting a fair and reasonable estimate; and the figure as put by the AO at 40% was also of estimate only. As against 40% as taken by the AO and 24% as taken by the CIT(A), the Tribunal has put this estimate at 29% after taking all the relevant factors into account including the estimate put in relation to the succeeding year. The estimate as made by the Tribunal remains fair and reasonable; and cannot be said to be fanciful or arbitrary or whimsical or violating any statutory requirement. Accordingly, and for the foregoing discussion, we are satisfied that no substantial question of law is involved in this appeal preferred by the Revenue; and the appeal deserves to be dismissed. 9 IT Appeal No.79/2009: CIT, Bikaner Vs. Suresh Dudi This appeal relates to the same assessee Shri Suresh Dudi in relation to the return of income for the financial year 2004-2005. The very same aspects relating to the cost of construction of the same building and estimate on agriculture expenses are involved in this case too; and herein also, the Tribunal has modified the order of CIT(A) while allowing reduction of 35% from the value estimated by DVO in relation to the cost of construction and while putting the agriculture expenses at 29% of the total sale proceeds. For the very same reasons as foregoing, this appeal is also required to be dismissed. IT Appeal No.74/2009: CIT, Bikaner Vs. Jagdish Dudi This appeal relates to the other assessee Shri Jagdish Dudi for the return of income as filed for the financial year 2003-2004. The very same aspects relating to the cost of construction of the same building and estimate on agriculture expenses are involved in this case too. The facts relating to this assessee Shri Jagdish Dudi, as being the co-owner of the building in question and being the engineering graduate and self-supervisor of the construction, have already been discussed hereinbefore. In relation to this assessee too, for the same reasons as considered in detail qua the other assessee Shri Suresh Dudi, the Tribunal allowed 35% reduction on the cost of construction of the same building as estimated by the DVO and put the agriculture expenses at 29%. For the very same reasons as foregoing, this appeal is also devoid of substance and is required to be dismissed. 10 IT Appeal No.78/2009: CIT, Bikaner Vs. Rameshwar Lal Dudi This appeal relates to another assessee Shri Rameshwar Lal Dudi in relation to the return of income as filed for the financial year 2003-2004. The very same aspect relating to the estimate on agriculture expenses, as discussed above, is involved in the present matter too but coupled with two other aspects, as discussed infra. This assessee had shown himself to be the authorised dealer of petroleum products of Indian Oil Corporation and had filed the return for the financial year 2003-2004 declaring the income of Rs.7,08,373/- and further the agriculture income of Rs.6,53,273/-. This assessee claimed deduction in respect of different vehicles as said to have been used for business purpose. After considering the assessee's reply, the learned AO though allowed the expenses and depreciation in respect of some of the vehicles but not the amount of Rs.8,66,772/- in respect of four vehicles viz., Tata Siera, Icon, Safari, and Scorpio. The learned CIT(A) found that the AO had without any reason presumed that the said vehicles were used for the purposes other than business. The learned CIT(A) though held that the vehicles had been in use for business but observed that at the same time personal user of the vehicles could not be denied; and, therefore, disallowed 1/5th part of the expenses, depreciation and HP Charges as claimed in relation to these vehicles and restricted the addition to Rs.1,73,354/- as against Rs.8,66,772/- as made by the AO. This assessee had further suggested an amount of Rs.2,10,887/- having been paid towards interest to the specified persons but the AO found it to be a rather on the higher side and, with reference to the bank rate of interest, allowed such interest in 11 relation to the specified persons only @ 13.2%. The learned AO thus, made an addition of Rs.25,301/- on this count. However, this addition came to be deleted by the CIT(A) with reference to the account confirmations filed by the assessee. In the appeal preferred by the Revenue in this matter, the Tribunal, again, put the agriculture expenses at 29% for the reasons as discussed in Suresh Dudi's case (supra). In relation to the vehicles, the Tribunal found the AO having proceeded absolutely without any basis and the CIT(A) having rightly appreciated the facts. The Tribunal proceeded to reject the grounds urged by the Revenue with the following observations:- “30. After considering the rival submissions and perusing the relevant material on record, we find that the AO has given absolutely no basis for coming to the conclusion that the afore referred four vehicles were not used for the purpose of business and there was no need for the assessee to use these vehicles. We are unable to uphold the view taken by the AO on the simple ground that a businessman knows his interest best. If a particular expenditure is claimed to have been incurred for business interest, the AO cannot substitute his opinion that there was no necessity for incurring this expenditure. As expenditure has not been held by the AO to be ingenuine and incurred for non- business purpose, in our considered opinion the ld.CIT(A) rightly appreciated the facts in coming to the conclusion that 20% of these expenses was rightly disallowable on account of personal use. This ground is not accepted.” The Tribunal also found baseless the addition in relation to the interest paid on deposits and found the CIT(A) justified in deleting this addition with the following observations:- “Moreover, interest @ 15% on deposits from relatives cannot be straightway held to be excessive compared with bank interest assumed reasonably by the AO at 13.2%. Obvious reason is that many formalities have to be fulfilled before taking loans from financial institutions like furnishing securities, etc., whereas nothing of this sort is required when loan is obtained from the relatives. When facts are considered in entirety, we find that the ld.CIT(A) has rightly come to the conclusion in deleting this addition.” In relation to this appeal, apart from the submissions as made in assailing the Tribunal’s estimate on agriculture expenses at 29%, it is submitted that the Tribunal was not justified in upholding the 12 findings of CIT(A) (i) on disallowance of depreciation and expenses on maintenance of luxury vehicles, particularly when the assessee could not prove that these vehicles were used for business purpose; and (ii) on interest paid to the family members referable to Section 40(A) 2(b) of the Act, particularly when interest paid to the sundry creditors was much on the lower side. Having considered the submissions made and having perused the record, we are clearly of the view that the findings and conclusions as reached by the CIT(A) and as affirmed by the Tribunal in relation to the vehicles and rate of interest cannot be considered to be contrary to any legal requirement; and the baseless additions as made by the AO have rightly been modified in relation to the vehicles and have rightly been deleted in relation to the interest paid. In relation to the vehicles, we find nothing of error or illegality in the Tribunal’s observations particularly when there was no reason or basis for the AO to come to the conclusion that the aforesaid four vehicles were not at all used for business purpose. The Tribunal yet maintained the order passed by the CIT(A) whereby 20% of the claimed expenses were disallowed on account of likely personal use of vehicles. Taking an overall view of the matter, this ground does not lead to any substantial question of law worth consideration. On the issue related with interest, the submissions as made with reference to Section 40A (2) (b) of the Act are entirely baseless. Merely for there being the specified persons referable to the aforesaid provision, it cannot be said that the rate of interest as stated by the assessee is always required to be reduced. The Tribunal has noted the submissions of the assessee that the interest 13 was paid to the depositors at the rates ranging between 9% to 15%. In the given fact situation, there was no justification with the AO for reducing the rate of interest in relation to the specified persons at 13.2% and making an addition of Rs.25,301/-. The CIT(A) has rightly deleted such an addition and the Tribunal has rightly affirmed his views. In any case, this ground does not make out any substantial question of law worth consideration by this Court. Another aspect related with this matter had been of the agriculture income wherein, again, the AO proceeded to put an estimate on the expenses on the higher side that was reduced by the CIT(A) at 24% and that was altered by the Tribunal to 29% in accord