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1993 (7) TMI 130
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....said land is 392/A. In that land a double storeyed residential building was constructed during the period, July 1984 to September 1986. Thus the period of construction falls in the accounting year relevant to assessment years 1985-86, 1986-87 and 1987-88 respectively. The property is stated to be situated near to new RTC Bus Stand and it is also stated that the stone quarry is only 1 KM away from the said house, The locality in which the house is situated is stated to be Netaji Nagar, Mandigiri, Adoni, Kurnool District. The ground floor comprised of verandah, drawing-cum-dining hall, master bed room with attached toilet, garage, pooja room, kitchen with store, rear verandah and another bed room with attached toilet. RCC stair case is provided for access to first floor through drawing-cum-dining hall. The first floor has two bed rooms with attached toilet and passage which connects the two bed rooms also serves as balcony within the building. A RCC stair case is constructed to give access to terrace of first floor where a munty is also provided. The plinth area of the ground floor and first floor was 336.20 sq. meters. Though no separate books were maintained noting the cost of cons....
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....the assessing officer had referred the question of estimating the cost of construction to the Valuation Cell (Asstt. Engineer, Unit No. I, Valuation Cell, Income-tax Deptt., Hyderabad). The Departmental valuer had visited the building and filed his report dated 11-5-1988 in which he estimated the total cost of construction at Rs. 3,83,367 and after conceding Rs. 28,790 which represents 7 1/2 per cent of the total cost of construction towards self-supervision, estimated the ultimate cost of construction at Rs. 3,55,077. The assessing officer addressed two letters dated 13-6-1988 and 15-6-1988 calling upon the assessee to file his objections to the valuation report of the Valuation Cell. The assessee was specifically called upon to state his objections why the amount of Rs. 28,790 conceded by the registered valuer towards self-supervision should not be withdrawn since the assessee is a medical practitioner and it would not have been possible for him to supervise the construction of the building personally, and also why the cost of construction of Rs. 3,83,867 arrived at by the Valuation Cell should not be adopted and why the difference in cost of construction of Rs. 1,05,867 should n....
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....bsp; 1986-87 Rs. 30,000 1987-88 Rs. 25,000 He found that the withdrawals towards household expenses were meant for the three assessment years. The admitted withdrawals were Rs. 6,000 per year. The assessee was having his wife, two children and a mother. Children are studying in schools. He, therefore, estimated the reasonable household expenses at about Rs. 8,000 per year and the difference of Rs. 2,000 was sought to be added in each of the three assessment years, namely, 1985-86, 1986-87 and 1987-88. For this purpose the assessee was issued a notice under section 148 on 5-8-1988 reopening the assessments for 1985-86 and 1986-87 and called upon the assessee to file his return. The assessee filed his return on 8-8-19....
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....nbsp; 266 31-3-1986 .. 280 31-3-1987 .. 280 It was contended that adoption of Delhi cost index is quite irrelevant when the cost of index of neighbouring Kurnool is available in CBDT's instruction No. 1671 F.No. 319/26/85 WT, dated 6-12-1985. In the above instruction of the CBDT, the cost index of Kurnool is mentioned as 220 as on 1-4-1983. Based on the cost of Kurnool, the cost index of Adoni will be a substantially low figure. The valuation report of the Valuation Cell ought to have been based on the above CBDT instruction which is not done in this case. The assessment order does not suggest t....
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....stion whether the entries are verifiable or not and whether the book entries are true or false does not arise. It is also contended that in view of the above following the ratio of the Tribunal decision in Sri Har Sarup Cold Storage & General Mills' case by the first appellate authority is wrong. In the Special Bench decision in Sri Har Sarup Cold Storage & General Mills' case the assessee had constructed a cold storage and produced account books as well as valuation report in support of the cost of construction as shown in his return. However, the Income-tax Officer obtained valuation report from the Departmental Valuation Officer who had estimated the cost of construction and relying on his report and without pointing out any defects in the assessee's account books, the Income-tax Officer added the difference as understated and treated the difference as unexplained investment of the relevant assessment years. The question that cropped up was whether the action of the Income-tax Officer could be sustained and the Special Bench held that it cannot be sustained. At page 2 as per the head note the following is what is held by the Special Bench : "By reading sections 69 and 143(3) ....
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.... 1986-87. In those statements, he has already disclosed the expenditure incurred by him for construction of the house at Rs. 1,15,000 in the balance-sheet for assessment year 1985-86 and the amount spent upto the end of the assessment year 1986-87 was mentioned at Rs. 1,85,000 which represents cumulative figure. That means the assessee specifically mentioned that for assessment year 1986-87 the expenditure that was incurred for construction of the house was Rs. 1,85,000. So the fact that the assessee was going on with construction of the house at Adoni was sufficiently made known from out of the balance-sheet as well as the income and expenditure statement filed for those two years. When all the material facts sufficient to complete the assessment were already stated in the income-tax return filed for assessment years 1985-86 and 1986-87 there is no question of any such information being held back which will hinder the Income-tax Officer while finding out the total income of the assessee for 1985-86 and 1986-87. In the reasons recorded at page 1 of the paper book itself, the Income-tax Officer stated the following : "The assessee maintained regular books of accounts and the amou....
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....e-tax returns filed for these two years. In the reassessments, the Income-tax Officer accepted the departmental valuation report on the basis of which he has changed his opinion with regard to the cost of construction and made additions of Rs. 32,000 for the first year and Rs. 20,000 for the second year. The change of opinion with regard to the cost of construction which took place with the Income-tax Officer cannot be held as a valid ground for re-opening the assessment under section 147(a). This very contention though was not made either before the Income-tax Officer who made the re-assessment or before the first appellate authority, the assessee is entitled to raise the same since the respondent in an appeal can defend the order on any ground which was not dealt with by the first appellate authority. In support of this contention the assessee relied upon the decision of the Allahabad High Court in Marolia & Sorts v. CIT [1981] 129 ITR 475. In the headnote of the decision, the following is what is stated : "The power conferred on the Appellate Tribunal under section 254 of the I.T. Act, 1961, does not debar or disentitle a party not filing an appeal, from raising a fresh point....
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....e was an admission on the part of the Income-tax Officer who completed the assessment. The departmental valuation report was contained at pages 31 to 50 of the assessee's paper book. At page 41 the Departmental Valuer had clearly admitted the following : "As the assessee has produced 100% vouchers for the total work done 7 1/2% reduction towards self supervision charges is permitted." Thus there is an admission on the part of the Revenue that the whole of cost of construction was evidenced by 100% vouchers and it is contended that without questioning the genuineness or the completeness of the accounts maintained by the assessee to reveal the cost of construction, the Income-tax Officer cannot refer the question of valuation to the Valuation Cell. For this proposition he relied on the latest decision of the Rajasthan High Court in CIT v. Pratapsingh Amrosingh, Rajendra Singh and Deepak Kumar [1993] 200 ITR 788. The facts of that case appear to be similar to the facts on hand. Since the question in that case was how much investment was made on a property and out of the said investment made how much should be taken to be the income from undisclosed sources. In the facts of that ....
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....essee built a residential house at Netajinagar, Mandagiri Ward No. 21, Adoni and as per the report of the registered valuer period of construction was from 30-6-1984 to 29-8-1986. The cost of construction as per the registered valuer was Rs. 2,80,000. Therefore, the Executive Engineer, Valuation Cell, Unit I, I.T. Deptt., Hyderabad was requested to report about the cost of construction of the above property. Thus it is clear that before giving reference to the Valuation Cell, it is not stated by the Income-tax Officer that the vouchers maintained by the assessee were not believable and in the absence of his clear decision on the acceptability of the vouchers, and on the aspect whether they are true and full, the reference to the Departmental Valuation Cell itself is bad under law. Anyhow no addition under the head "Income from other sources" can be made on the basis of the Departmental Valuer's report. In support of the same proposition, the learned counsel for the assessee had also stated the following decisions : (1) Asstt. CIT v. Appayamma [1993] 66 Taxman 104 (Hyd.) (Trib.) (2) Babyland Hostel v. ITO [1988] 31 TTJ (Ahd.) 136 The facts of the last mentioned case were th....
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....unt of unexplained investment could be made." 6. For the proposition that when all the material facts were already mentioned in the original return with the help of which the assessee can satisfactorily compute the total income, there assessment under section 147(a) cannot be sustained on the ground that the full value of the property constructed was not disclosed in the return, the assessee had produced before me the decision of the Madras Bench 'B' in Third ITO v. S. Balasubramaniam [1980] 9 TTJ 158. The facts of that case are that the original assessment was completed under section 143(1)(a) without any scrutiny of the return. The assessee had constructed a building at a total cost of Rs. 31,990. Five months after completion of the original assessment, the Income-tax Officer obtained information from his Inspector's report that the cost of construction disclosed by the assessee in the return is understated, and so the Income-tax Officer instead of resorting to either section 143(2)(b) or 147(b), resorted to re-opening under section 147(a) of the Income-tax Act. The question was whether such re-opening is valid under law. The Tribunal held the following at page 159 para 2 of i....
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....d 18-3-1976. Property income from self-occupied property was shown for the period from May 1972 when the house was completed upto Diwali 1972 when the assessment year 1973-74 ended at Rs. 600 which was accepted by the Income-tax Officer. In the original assessment order for 1972-73 it was stated that the property was constructed during the period from July 1971 to May 1972, the property was having fine marble fittings with tiles and bathrooms. Cost of construction was shown at Rs. 1,32,000 for which details were furnished. No valuation certificate was furnished by the assessee in support of the cost of construction. Since it is a technical matter and since the cost of construction exceeded Rs. 1 lakh, the matter was referred to the Valuation Cell and if any variation is found suitable action will be taken under section 147(a) separately. The departmental valuer estimated the cost of construction at Rs. 1,69,500. The difference between the disclosed cost and the value adopted by the departmental valuer was felt to be income which had escaped assessment and the Income-tax Officer initiated re-assessment proceedings for both the years namely 1972-73 and 1973-74. In appeal, the Appella....
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.... the decision it is stated that two conditions are to be satisfied before the Income-tax Officer acquires jurisdiction to issue notice under section 148 of the I.T. Act in respect of assessments beyond the period of four years but within a period of eight years from the end of the relevant year. These are as follows : (1) The ITO must have reason to believe that income chargeable to tax has escaped assessment, and (2) He must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee : (a) to make a return under section 139 for the assessment year or, (b) to disclose fully and truly material facts necessary for the assessment for that year. Reasonable belief that income has escaped assessment is the sine qua non for initiation of proceedings. From the facts and circumstances of that case, the M.P. High Court held that there was no evidence that the assessee had failed to disclose fully and truly all material facts necessary for assessment. The sole basis for issue of notice under section 148 was the report of the Departmental Valuer regarding the renovation work. This report was just an estimate and had b....
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.... doubt, to ascertain the true value of the house even before finalising the original assessment order. Further for assessment year 1987-88, along with the income-tax return the assessee filed registered valuer's report according to which the cost of construction was estimated at Rs. 2,80,000. However, the Income-tax Officer holding that the said valuation was too low to be accepted referred the question of valuation to the Departmental Valuer and the said report was made the basis for re-opening which according to the above decisions cannot be made the sole basis and re-opening under section 147(a) on the strength of the mere report of the departmental valuer cannot be valid. 7. The learned counsel for the assessee also brought to the notice of this Tribunal later decision of the M.P. High Court in Abdul Majid v. ITO [1989] 178 ITR 616. Since the ratio of the decision accords with the ratio already discussed above, this Tribunal need not particularly deal with the facts as well as the ratio of the decision. For the proposition that without rejecting the account books maintained by the assessee in which the cost of construction was duly noted the reference to the Valuation Office....
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....hing is stated about the valuation of the house or the cost that went into the house construction in assessment years 1985-86 and 1986-87 it cannot be presumed that the Income-tax Officer had deliberated upon the subject or found that there was no need for any addition to be made in either of those two years. My attention was also drawn by the learned Departmental Representative to another portion of the book by the same learned authors, particularly page 3640 of the same edition and in the same volume in which it is stated that ordinarily valuation report can constitute information for the purpose of section 147(b). The learned Departmental Representative also drew my attention to page 3655 of the same book in which it is stated that where re-assessment proceedings were initiated under section 147(a) and the appellate authority finds that the conditions of that clause are not present but those of section 147(b) are obtaining, it can well treat the notice as one under section 147(b) and support the re-assessment subject to the limitation provisions. The learned Departmental Representative argued that under section 147(b) the time limit for reopening the assessment under section ....
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.... and not choosing to call upon the assessee with supporting evidence or not choosing to re-open the assessment under section 143(2)(b) or 143(3), it is not permissible for the Income-tax Officer to reopen the matter under section 147(a) solely on the strength of the Departmental Valuer's report. Neither the construction of the house nor the value of construction can be said to be material facts necessary for assessment before the Income-tax Officer since the house was built only for residential purposes of the assessee and he has no other house and, therefore, no sort of income is derived from the said house and also no sort of income was returned from the said house. During the course of the original assessments, the Income-tax Officer did not call upon the assessee to produce any evidence in support of the cost of construction returned. The Revenue admitted that the cost of construction is fully backed by 100 per cent vouchers and the amount of withdrawals made towards cost of construction were all fully recorded in the account books of the assessee maintained during the course of his medical profession. Regarding the maintenance of accounts or regarding the fact that there are 1....