TaxTMI 
TaxTMI 
2005 (7) TMI 341
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....No. 16, near Sardar Baug, Rajkot. The total cost of construction declared by the assessee during the previous year, relevant for asst. yr. 1991-92 is Rs. 39,33,779. It is pertinent to mention here that in this case originally order under s. 143(3) was passed on 8th March, 1994 wherein addition under s. 69C, on account of unexplained investments in the work-in-progress for Rs. 25,51,227 was made. In appeal, the CIT(A)-I, Rajkot, set aside the assessment to be framed de novo after giving the assessee due opportunity of being heard. 5. During the course of reassessment as per direction of the CIT(A), the AO observed that the assessee has shown consumption of various materials in the process of construction, viz., iron, cement, bricks, sand, stone chips, lime and other electrical goods. The Authorised Representative was asked to produce the stock register wherein quantitative details regarding the purchase and consumption of these materials had been recorded. In this regard, the Authorised Representative vide his letter dt. 13th Sept., 1996 has submitted as under: "Your honour will appreciate that as far as quantitative details are concerned, the same are available, billwise as per t....
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.... the same could be compared with the consumption of materials declared. He was also asked whether the architect has carried a regular inspection of the site and whether he had taken periodic measurement of the construction carried out. He was told that the periodic measurements taken by the architect and regular inspection reports issued by him could serve as the basic document that would substantiate the extent of construction during the previous year. Further, he was also asked to produce the certificates issued by the architect after completion of the different stages of construction. He was also asked as to what was the basis for valuation of work-in-progress and in that regard he was required to produce certificates from the architect as an evidence thereof. The Authorised Representative has failed to file any such certificate of the architect. In the absence of the inspection reports of the architect, the extent of construction, the quality of construction, etc. cannot be verified. Technical details of the beams, columns, etc. cannot be verified. The extent of materials consumed in the foundation cannot be verified in the absence of such specific details. Moreover, the Author....
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.... 4% of Rs. 10,30,391.25 for fourth stage 4% of Rs. 10,30,391.25 for fifth stage 1% of Rs. 10,30,391.25 for first floor construction Similarly, for building B the total labour payment for 35,209 sq. ft comes to Rs. 7.48,191 and the bills have been raised accordingly. From this, it can be seen that payment to labour service provider is not based on proper measurements. Furthermore, the AO found that the assessee has computed well in advance the payment to be made to the labour contractor and the bills have been prepared accordingly. Based on the above facts, the AO stated that it can safely be inferred that labour payment bills are not based on proper measurements of the construction undertaken and on the work performed by the contractor. On the contrary it is seen that the assessee, after having decided the total labour payment to be made. has apportioned the labour expenses to different stages of construction, This again renders the accounts of the assessee as not satisfactory as far as....
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....follows: (1) The Authorised Representative of the assessee stated that the DVO has arrived at the basic rate of Rs. 2,450 per sq. mt. He stated that the Government valuer has adopted the value without giving any details as to how the basic rate of Rs. 2,450 has been arrived at. The detailed computation of the DVO was called for during assessment proceedings and a copy of the same was forwarded to the assessee on 21st Jan., 1997 and he was asked to show cause as to why the basic rate of Rs. 2,450 should not be adopted in computing the cost of construction during the previous year The computation of the rate by the DVO is as follows: Rate analysis Upper Floors (Rs.) Basic rate as on 1.10.76 400.00 (RCC framed structure) Less: for lesser fl. ht. 3.35 - 2.85 @ Rs. 17/0.30 mt. ht. (-) 28.33 &nb....
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....nbsp; Say: 2,450 (per) sq. mt. ------------ In response the Authorised Representative queried as to what was meant by basic rate of Rs. 400 and what is the multiplier of 5.14 applied by the DVO. The Authorised Representative was told that the basic rate of Rs. 400 was the approved plinth area rate of construction per sq. mt. as on 1st Oct., 1976, as per CBDT Instruction No. 1671, for R.C.C. framed structure for height upto 3.35 mt. This fact is also mentioned in the rate analysis as provided to the assessee. Further. as regards to his query about the multiplier of 5.14, the Authorised Represen....
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....n No. 1671 issued by CBDT. Further, the DVO has also elucidated as to how the basic rate of Rs. 2,450 has been arrived at. A copy of the computation has also been provided to the assessee. Further, on going through the computation made by the DVO, the AO stated that he was satisfied that the basic rate has been computed properly as per Instruction No. 1671. 13. The second objection against the valuation report raised by the Authorised Representative is that the DVO visited only one flat and he has made his computations by taking measurements of that flat. The Authorised Representative further stated that the DVO did not consider extra items fitted by the flat owner. In this regard the Authorised Representative vide letter dt. 3rd Jan., 1997 was asked the following: "You have taken a plea that spartek tiles, found in the flat during the inspection, was fitted by some other agency and it was done at the behest of the person who bought that flat. In this regard you are required to produce evidences, that spartek tiles were fitted by some other agency." The response of the Authorised Representative to the query raised above is as follows: "Your honour will appreciate that during th....
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....ost of construction comes to Rs. 78,99,778. This estimate has been prepared after taking into consideration only the cost of ground floor parking and the cost of the skeletal structure of the four upper floors. From this estimation, it can be seen that the cost of all other items like mosaic tiles, Kota stone, granite, lift, compound wall, machine room, borewell, etc. have not been considered in the relevant assessment year as objected to by the assessee. 14. The AO stated that the DVO has valued the building in toto and has apportioned these expenses over two financial years in the ratio of the cost of construction shown by the assessee in those two financial years, respectively. Therefore, the argument of the Authorised Representative that expenses pertaining to asst. yr. 1992-93 has been valued in this year is incorrect. Similarly, the Authorised Representative has raised objections regarding expenses on Kota stone, tiles, marble, granite, etc. being debited in this year. This contention of the Authorised Representative is also incorrect because it is the total expenses which have been apportioned into two years and from that it cannot be deduced as to what item of expenditure....
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....sessee is that the valuation report was sent directly to the AO without seeking any clarifications from the assessee. In this regard the AO stated that adequate opportunities were given to the Authorised Representative during assessment proceedings and he has filed all his objections against the valuation report and all of them have been taken on record. Therefore, it is immaterial that the DVO did not seek any clarification from the assessee. The AO was of the opinion that it should not make any difference to the assessee if his objections have been considered during assessment proceedings. This assessment is being framed after taking into consideration all the objections of the assessee against the valuation report, hence his contention that the DVO did not seek clarifications from him becomes infructuous. 18. With regard to the Authorised Representative's objection for making a reference to the Valuation Cell by quoting various decisions of the Tribunal, the AO observed that the summary of all these decisions cited by the Authorised Representative is that the AO cannot resort to the estimation of the cost of construction of the building unless and until the books of account of ....
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....during the previous year. Only two items are being considered namely: Rate per Assessed Sq. mt. sq. mt. cost (a) Ground floor 668.37 9,795 5,31,354 used for parking (b) Upper floors 7,518.90 2,450 1,84,21,060 (residential flats) The Authorised Representative during scrutiny proceedings, had informed that skeletal construction upto 4th floor had been completed. Therefore, only 40 per cent of the total cost of upper floors is being taken into consideration. Cost of construction worked out is as follows : (Rs.) (a) Ground floor 5,31,354 (b) 40% of upper floors 73,68,424 --------- Total cost....
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....on under s. 131(1)(d) was for asst. yr. 199192. The DVO had suo motu carried out valuation both for asst. yr. 1991-92 and for asst. yr. 1992-93. He had exceeded his jurisdiction under the Act. The above contention of the assessee is not satisfactory because the reference to DVO was made after filing of return for asst. yr. 1991-92 to assess the correct cost of construction. The DVO has assessed the cost of construction of the building referred and has rightly assessed the cost separately falling in two years. (ii) The assessee's contention that CIT(A) in his order for asst. yr. 1991-92 has accepted all the arguments of the assessee both against the assessment and against the valuation report is not correct. The CIT(A) in the first round of appeal has merely set aside the order and has not allowed the appeal of the assessee. Therefore, it cannot be understood that the CIT(A) has accepted the arguments of the assessee. As far as CIT(A)'s order is concerned, it has not been accepted by the Department and second appeal for asst. yr. 1991-92 (in which the addition was made on account of difference between the cost assessed by the DVO and the cost shown by the assessee) has already be....
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.... correct. (3) The reference made under s. 131(1)(d) was proper to get the guidance from a technically qualified Government valuer. It is correct that the rates adopted are standard plinth area rate for residential building according to the prevailing rates of materials and labour at Rajkot, during the period of construction. (4) Even though all the technical details such as structural drawings, foundation details, etc. of many concealed items were required to be given. These were not furnished by the assessee, without which the correctness, of the materials used such as cement, steel, etc. could not be verified. As such, the general requirement of such standard structure were taken into consideration to work out the plinth area rate and accordingly the cost of construction was determined. (5) The valuation is based on actual measurement of the building and determining the specification and type of different items executed and not merely on mathematical equation. (6) The estimation is done by the standard plinth area rate and not by comparing any other building and it cannot be compared with any other building as each building has different types of materials and specification o....
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....efore, the contention of the assessee that valuation from DVO was sought only as on 31st March, 1991 is incorrect. The fact that the DVO in his report has indicated that valuation was required for asst. yr. 1991-92 is of no consequence. The DVO has written it incorrectly and hence no cognizance. Besides that, the DVO inspected the property on 4th Dec., 1992. On the date of inspection the construction of property was complete and, therefore, the DVO had no option but to value the property as it existed on the date of inspection. On the date of inspection, the construction was over. Therefore, the DVO valued the property as a whole and then bifurcated it in the same proportion as given by the assessee for 31st March, 1991 and 31st March, 1992. It is again emphasized that the AO never sought valuation as on 31st March, 1991. The AO required the DVO to give the cost of construction of the property as such which the DVO complied with. Even if for the sake of argument, if it is accepted that DVO was asked to value the construction as on 31st March, 1991 and exceeded jurisdiction inasmuch as he gave construction as 31st March, 1992 also, there is absolutely nothing wrong. An illegally obt....
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....ethod is most sound method to calculate the cost of construction. The plinth area rates depend upon material and labour rates prevailing at Rajkot at the time of construction. Further, the standard plinth area method was used for the reason that assessee failed to give or for reasons best known to it did not submit structural designs to the DVO. Had they been filed, the DVO would have determined the actual quantity of major raw materials, etc. used for construction and compared the same with the cost shown by the assessee. I fail to understand as to why the assessee should agitate on the plinth area method when it itself did not submit the structural designs to the DVO. May be the assessee knew that by providing structural designs, the exact cost of construction would be worked out and consequently, the suppression of expenditure on construction. Further, the assessee has not maintained quantitative details and day-to-day consumption of raw materials used in the construction. The assessee has further not produced any evidence to substantiate that any extra items were included in the determination of cost of construction by the DVO. Further, the DVO has stated that spartek/glazed ti....
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....directions as under: 'The assessment is accordingly set aside to be refrained after allowing a meaningful and proper opportunity of hearing to the appellant before concluding the matter. The AO is directed to check the state of the regular books of account, vouchers and bills maintained by the appellant and make a reappraisal of the issue taking note of each individual objection of the appellant relating to the DVO's report.' The said appellate order was passed on 28th Nov., 1994. The assessment order under appeal was passed on 28th March, 1005 (sic). The directions given in the above appellate order were not followed and it was simply stated that the facts are similar for asst. yr. 1992-93 also and, therefore, the book results declared by the appellant were not acceptable. However, the facts for asst. yr. 1991-92 were different inasmuch as the IT return for asst. yr. 1991-92 was before the AO when the reference to DVO was made, but the IT return for asst. yr. 1992-93 (wherein all major transactions relating to the purchases were effected) had not been even filed when the reference in question was made. In asst. yr. 1991-92, the project had barely begun (four months old) and was ....
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.... CIT (1995) 53 TTJ (Bang) 279, by Tribunal. Madras Bench in the case of K. Hari Rao vs. ITO (1979) 8 TTJ (Mad) 15, by Tribunal, Ahmedabad Bench in the case of ITO vs. Sethna Ice & Cold Storage (1980) 9 TTJ (Ahd) 537 and by Tribunal, Jaipur Bench, in the case of Singhvi Woollen Industries vs. ITO (1980) 10 TTJ (Jp) 276. In the present case, leave alone the verification of books of account but even without the IT return itself (which was not, even due when the reference to the Valuation Officer was made), the AO has made the reference to the Valuation Officer. Further, even after getting the IT return/audited accounts and various details asked for, the AO does not seem to have bothered to verify the same. Thus, while observing that no day-to-day quantitative details are filed, the AO seems to have totally overlooked the fact that the appellant has supplied the material and that the labour was given on contract as per the contract agreement. This aspect has also been overlooked by the Valuation Officer. The quantitative details regarding the materials supplied along-with the necessary details and vouchers are maintained and were produced before me as also during the assessment proceed....
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....respondence between the DVO and the appellant, it is seen that the DVO vide his letter No. 2(5)/DVO/1992-93/402, dt. 14th July, 1992, raised 14 queries and the same had been duly replied, including plan and structural designs, vide appellant's letter of 19th Aug., 1992. No other details besides the above 14 details were called for by the DVO, though the appellant had volunteered vide his above letter to furnish any further information if required. Apart from what has been stated above, the AO has not found any defects in the accounts maintained by the appellant. It is, therefore, felt that it is not the defect in the accounts but it is the valuation report that has prompted the AO to reject the books. However, as seen above, the AO has not made out a case for not accepting the cost of construction as declared by the appellant. As has been held by many judicial authorities including Tribunal, 'C' Bench, Ahmedabad in the case of Babyland Hostel vs. ITO (1988) 31 TTJ (Ahd) 136, the addition made by giving blind eye to the material available on record and without pin-pointing any glaring or major defects in the books of account maintained by the appellant cannot be sustained. The AO is....
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.... also completed. Only after having the figures for total cost of construction, the AO could have formed an opinion as to the suppression of the cost of construction. The AO could not come to the conclusion at the time of making reference on 3rd July, 1992, that the books of account were liable to be rejected. In the assessment order, the AO has stated that the books of account suffered from following deficiencies, as pointed out in detail in para 8 above of this order: (a) No stock register was maintained wherein quantitative details regarding the purchases and consumption of materials could be recorded. The AO has described in detail as to theoretical consequences can follow for non-maintenance of the register and what he cannot find out in the absence of the said register. Since, the appellant took the stand that it was completing only one project, all purchases could be taken towards consumption for the construction. The appellant produced bills and vouchers for all purchases. From these bills and vouchers the necessary figures of consumption for the period under consideration could be arrived at. Mere maintenance of stock register would not throw any light on the suppressio....
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....f cost of construction for the asst. yr. 1991-92 under consideration, the basis of bifurcating the total cost of construction determined by the DVO, does not appear to be scientific. The method adopted by the DVO is based on the assumption that provision in the cost of construction is proportionate to the total cost of construction determined. This is not adequate to make addition under s. 69C. Further, the starting point of determination by the DVO is the value mentioned in Instruction No. 1671 which is based on the rate of 1st Oct., 1976 and to which the cost of index has been applied. In the next assessment year, i.e., asst. yr. 1992-93, the addition was made of Rs. 50,71,505 on the basis of the same valuation report. The same was deleted by the CIT(A) under appellate order No. CIT.R-I/82/199596, dt. 17th Jan., 1996. When this fact was brought to the notice of the AO at the time of assessment, he has stated that the Department has not accepted the decision of the CIT(A) and second appeal has been filed before the Tribunal. The appellant has also relied on the following two decisions: 1. Nishant Housing Development (P) Ltd. vs. Asstt. CIT (1995) 52 ITD 103 (Pat); 2. Ruby Buil....
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.... onus lies on the assessee to prove that such costs have been incurred by others and not by the assessee. In the instant case neither the assessee provided name and address of the prospective buyer nor confirmation from the prospective buyer regarding purchase of these spartek tiles, or payment of additional price to the assessee for such work. He further pointed out that the assessee failed to provide even the report of any chartered engineer or valuer to the effect that the construction cost recorded in the books of account were same or nearby to the total cost recorded in the books. He further submitted that without controverting various findings recorded by the AO, the CIT(A) has brushed aside all the observations of the AO and just by pointing out some defects in the AO's order, he has deleted the entire additions. 27. On the other hand, the learned Authorised Representative vehemently argued that reference was made by the AO without application of mind and without rejecting books of account. As per the learned Authorised Representative, the reference was made without finding any defects whatsoever in the books of account and that the AO has made a reference purely on the bas....
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..... As has been clearly laid down in the decisions described in the attached Annex. A the AO must point out glaring defects in the books of account before he can take recourse to the report of the Valuation Cell. (c) Reference may also be made to the observations of the first appellate authority in the order for asst. yr. 1992-93 wherein at p. 4, she has clearly stated that "In the present case the AO has referred the matter to the DVO under s. 131(1)(d) without application of mind and hence reference itself is bad in law. This is clearly borne out by the fact that the AO had asked for several details (for asst. yr. 1991-92) on 22nd Oct., 1992, i.e., 3 months and 16 days after referring the matter to the Valuation Officer." (d) The DVO had sent his report directly to the AO. No objections were invited nor were any additional details sought for by the respondent. It may kindly be noted that all the details that were sought for by the DVO vide his letter dt. 14th July, 1992 were provided by the assessee vide its letter dt. 19th Aug., 1992. After that there was no communication from the DVO's office. The DVO has not bothered to seek any further details whatsoever. As such the entire....
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....tended that details about the day-to-day work done have also not been maintained. The AO has further on contended that bills per se do no certify consumption. The AO has failed to appreciate that this requirement for maintaining day-to-day consumption details apart from being unnecessary is impossible to maintain. The respondent begs to submit that this was the only project it had undertaken; that obviously all that it had purchased was consumed; that books of account cannot be rejected because something that is impossible to maintain has not been maintained. The AO has failed to appreciate that a method of accounting has to be practically sustainable and commercially practicable. How does the AO expect the respondent to maintain a day-to-day record of steel consumption or cement consumption or Kapchi consumption, etc. The respondent begs to submit that the learned AO's contention is devoid of any kind of commercial evaluation and consequently does not merit the consideration to form the basis for invoking the provisions of s. 145. The learned AO has further on stated that day-to-day details about what work was done have not been maintained. The respondent begs to submit that it wo....
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....ght of objections by the respondent. In the present case, the AO relied on the DVO's report as conclusive which is absolutely unjustified. The AO has also mentioned that for asst. yr. 1991-92, the respondent's books of account were rejected because no quantitative details of materials consumed had been filed. This objection of the AO is patently wrong because all the relevant quantitative details were specifically sought for by the AO vide his letter of 28th Dec., 2004 and all these details were duly submitted by the respondent on 4th March, 1994, i.e., during the assessment proceedings. This contention of the respondent has also been accepted by the CIT(A) for asst. yr. 1991-92. The AO has not even bothered to correct this factual defect while drafting the order for asst. yr. 1992-93. In fact he has rested complacent with the fact that the AO having thus rejected the books of account for asst. yr. 1991-92, the accounts for asst. yr. 1992-93 automatically stand rejected. This is clearly unlawful on facts when the respondent has submitted every conceivable details including quantitative details to the AO. The AO has not advanced a single substantive reason for invoking the provisio....
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.... to invocation of power to make a reference under s. 142A. the argument of the learned Authorised Representative was as follows: Even if one presumes that s. 142A applies and the reference to the Valuation Officer can be made, s. 142A states the circumstances under which the reference can be made. The section states that where an estimate of the value of any investment referred to in s. 69 or 69B is required to be made, the AO may require the Valuation Officer to make an estimate of such value and report the same to him. Sec. 69 is attracted when the investment is not at all reflected in the books of account. Sec. 69B applies where the AO finds that the amount expended on making investment exceeds the amount recorded in the books of account. Thus, the prerequisite before the AO to make the reference is that he must have found that the cost exceeds the cost recorded in the books of account. It, therefore, follows that he must examine the books of account and on such examination, he must find out whether the cost exceeds the books cost. Unless this is done, he does not get the power to make a reference to the Valuation Officer. 34. With regard to DVO's report, submission of the lea....
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....r objections as raised by the respondent. The respondent further on begs to submit that all the details as sought for by the DVO were provided to him. The AO on p. 15 has drawn up a factually incorrect conclusion that technical details of the construction were not provided. The DVO had sought 14 details vide his letter dt. 14th July, 1992 all of which were provided by the assessee vide his letter dt. 19th Aug., 1992. Copies of these letters are attached at pp. 50 to 67 of the synopsis. The DVO has not sought any additional details after these submissions. The DVO vide his letter dt. 16th Nov., 1994 has contended that technical details regarding the concealed items were not submitted. The assessee begs to submit that this contention of the DVO is contrary to facts. All the details that were sought for by him were submitted. If anything further was required, (it) was not (sic) the duty of the AO to inform the assessee accordingly. And further even the details submitted in the Annexures have also been completely ignored by the DVO for no reason whatsoever. The respondent further on begs to submit that the entire exercise as carried out by the AO on p. 17 is inconceivable in law. The....
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....purchases. The AO further observed that in the absence of the inspection report of the architect, the extent of construction carried out at site cannot be verified and that technical details of the beams, columns, etc. could not be verified. In the absence of technical details, the extent of material consumed in the foundation cannot be verified. The AO further observed that the Authorised Representative has failed to produce certificate from the architect regarding work-in-progress shown at the end of the year in the construction account and balance sheet. With regard to payment of labour charges, the AO observed that labour work was done through M/s Mayur Construction Co. for which six bills issued by it in the month of February and March were furnished. The AO found that labour work has been given at the rate of Rs. 21.25 per sq.ft. for the entire labour work of the building, which was quite low when compared to the labour work involved in the entire construction process and the type and quality of construction undertaken by the assessee-firm. He further observed that the assessee has computed in advance the total labour payment to be debited in the books of account and subseque....
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....gh in this letter it was stated that structural drawings were enclosed, but the same is not correct because while commenting on the assessee's submission, as required by the AO, the DVO in its letter dt. 16th Nov., 1994 had categorically stated that: "Even though all the technical details such as structural drawings, foundation details, etc. of main concealed items were required to be given. These were not furnished by the assessee, without which the correctness of the material used such as cement, steel, etc. could not be verified." After receipt of DVO's report, the assessee was confronted by the AO with various rates taken by the DVO in his report. The objections of the assessee were called for and the AO has dealt in detail with each and every objection of the assessee before adopting the valuation report of the DVO. Detailed justification was given by the AO for the plinth area rate taken in the valuation report. Accordingly, the additions of Rs. 25,51,227 and Rs. 50,71,505 were made under the head "unexplained investment". 36. We also found that during the course of assessment proceedings for the asst. yr. 1992-93, an application was also made by the assessee under s. 144A....
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.... valuation report is valid and not bad in law. He further noted that even if it was bad in law, the information contained therein has been used after giving proper opportunity of being heard to the assessee. 38. From the order of the CIT(A), we found that he has deleted the entire additions without any cogent reasons to the effect that reference to the DVO was not warranted under s. 131(1)(d). The CIT(A) further observed that reference was made to the DVO much prior to the filing of return by the assessee for the asst. yr. 1992-93, in which major expenditure were incurred, therefore, the AO was having no material to come to the conclusion that the assessee has not recorded the correct expenditure on the construction. He further observed that division of cost of construction by the DVO is irrational. He further noted that there was no question of giving evidence regarding changes made by the respective owners of the flats insofar as cost incurred by the individual cannot be shown in the assessee's books of account. As per CIT(A), the AO has accepted the DVO's report because of his technical competence but he failed to consider the fact that the valuation report as referred under s.....
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....r sub-s. (1) shall, for the purpose of dealing with such reference, have all the powers that he has under S. 38A of the WT Act, 1957. As per provisions of sub-s. (3) of S. 142A. on receipt of report from the Valuation Officer. the AO may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment. It is very much pertinent here to bring on record that while making a reference to the DVO after rejecting the books of account or pointing out mistakes in the construction account, the only moot question before the AO pertains to know the quantum of unaccounted investment made out of unaccounted money which has not been recorded in the books of account, and for which assessee does not offer any explanation about the nature and source, of investment or the explanation offered by him is not found to be satisfactory. It is only after knowing the quantum of unexplained investment or the unaccounted money, that the second step before the AO is to make addition under any of the provisions contained under s. 69/69A/69B or 69C. It is, therefore, not very much pertinent to say that since after receipt of DVO's report, the addit....
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....account under s. 145. Whenever the AO wants to adopt the valuation as made by the DVO, he is first of all required to point out the defects in the construction account maintained by the assessee or to indicate that construction cost shown in the books of account are not correct or that cost of construction could not be correctly deduced due to the information asked from the assessee but not supplied by him to the AO. 43. In the instant case, we found that in respect of various construction cost incurred by the assessee, no quantitative details regarding purchase, consumption in the construction and the work-in-progress was neither maintained nor furnished by the assessee. We also found that structural and other construction details drawings required was also not furnished so as to enable the AO/DVO to arrive at the correct quantity of building material used in the construction and comparing the same with the actual cost debited in the books of account. In respect of spartek tiles/glazed tiles/marble having been used in the construction as found by the DVO, even though declined by the assessee on the plea that the tiles were fitted by the respective buyers of the flat, as per our c....
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....s of account but was found to be actually incurred during the physical inspection and valuation of building. Non-supply of structural drawings of building disabled the Department to find out correctness of the quantity of iron, steel, cement and other major building materials actually debited in the books of account. Even though the CIT(A) had stated in his order by referring to the letter of assessee dt. 19th Aug.,1992 in reply to DVO's letter dt. 14th July, 1992 that the assessee had furnished structural drawings to the DVO but it is factually not correct because as per letter of DVO, dt. 16th Nov., 1994 written to the Asstt. CIT, technical details, such as structural drawings, foundation details etc. of the main concealed items were required to be given, but these were not furnished by the assessee without which the correctness of the material used such as cement, steel, etc. could not be verified. It was also observed by the DVO in this letter dt. 16th Nov., 1994 that even the report of the registered valuer was not furnished to justify the expenditure incurred by the assessee giving the documentary proof after determining the quantities of items executed in the construction an....
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....he AO has failed to undertake. We are, therefore, inclined to agree with learned Departmental Representative, Mr. A.K. Singh, that CIT(A) being a quasi judicial authority, it is incumbent on him to exercise the same in the interest of justice, rather than accepting the version of the assessee on its face value, by pointing out defects and laches in AO's action, without any cogent reasons/materials. The observation of the CIT(A) that standard plinth area method is applicable only to the Government work, and not to the work undertaken by private agency is devoid of any merit. As the assessee did not furnish structural designs of building, the DVO had correctly taken the plinth area rate after applying weighted cost index rate of 5.14 to arrive at the basic rate of valuation for the relevant assessment year under consideration. Furthermore, the AO had furnished complete break-up of such rate as adopted by the DVO which was in accordance with the Instruction No. 1671 issued by CBDT, in reply to the query of the assessee. Even after taking into consideration the skeleton structure as suggested by the assessee himself, the valuation worked out was more, therefore, the AO restricted the v....
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....sessee has furnished as to which other agency fixed any such spartek/glazed tiles. Besides that, no details have been furnished regarding alteration made at the request of the flat owners at the time of construction and its effect on costing, etc. We also found that even the assessee did not furnish the report of registered valuer or chartered engineer so as to substantiate the correctness of the cost of construction debited in the books of account or to indicate any wrongful determination of valuation of building by the DVO. Had the assessee supplied the valuation report of chartered engineer/registered valuer, the same could have been the basis for justifying the correctness of cost of construction debited in the books of account and comparing the valuation carried out by the DVO in his report. We also found that the turnover of the assessee in the asst. yr. 1992-93 was more than Rs. 40 lakhs but no quantitative details of major building materials purchased/utilized in construction and/or remaining in a stock or work-inprogress, which is required to be furnished duly certified by the auditors, as per requirement of tax audit report under s. 44AB, were furnished, Even though in th....
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....ating that the assessee had filed copy of advertisement giving details of fittings provided by the builder and the same did not show any provision for spartek/colour/glazed tiles, when undisputedly the DVO during the course of physical verification of building found all these things fitted in the building and the CIT(A) had not brought on record any materials to show that no such tiles were actually fitted or that expenditure on these items were actually incurred by some other agency and the same have been duly verified and confirmed or that the report of DVO in this regard is wrong. 50. Now let us discuss the case laws relied on by the learned Authorised Representative in his written submission filed before the Bench as contained at pp. 22 to 25 of the paper book, with reference to addition to be made on the basis of mistake in the books of account vis-a-vis DVO's report. In the case reported at (1993) 200 ITR 788 (Raj), Rajasthan High Court held that if the assessee has maintained proper books of account and all details are maintained in such books of account, which are duly supported by vouchers and no defects are pointed out and books are not rejected, the figures shown there....
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....re not rejected by the AO under s. 145 However in the instant case even before making a reference to the DVO, the books of account were rejected under s. 145 after giving due reasons for rejecting the same. Thus the facts of the instant case are distinguishable to the case cited by learned Authorised Representative. 51. Now coming to the last issue regarding allowing deduction of unexplained expenditure which has been added under s. 69C. According to s. 69C, where in any financial year the assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the AO, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year. It is crystal clear on the plain reading of above provision that addition under s. 69C is made on account of unexplained expenditure. Such expenditure may be on account of capital, revenue or personal account. If the expenditure is for acquisition of any capital asset, the same is not liable to be charged to trading or P&L a/c, but is direct....
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....sentative of the assessee, Mr. Sanghavi that assessee in the instant case undisputedly engaged in the building construction, the addition on account of unexplained investment is going to indirectly increase the cost of construction of the impugned building which is stock-in-trade of the assessee, therefore, same is liable to be deducted while computing business income. In this regard various Benches of the Tribunal are taking consistent. view for allowing deduction of extra expenditure found to be incurred on building and added under s. 69C. For this purpose, reliance may be placed on the decision of Ruby Builders vs. ITO (1999) 63 TTJ (Ahd) 202, Nishant Housing Development (P) Ltd. Furthermore, the proviso to s. 69C had been inserted in the statute book by Finance (No.2) Act 1998 w.e.f. 1st April, 1999. Thus the effect of this proviso will alter the position only w.e.f. asst. yr. 1999-2000 and not prior to it. As in the instant case, the relevant assessment years under consideration are 1991-92 and 1992-93, the proviso had no effect, therefore, we are persuaded to agree with learned Authorised Representative that deduction for such unexplained investment, which has been added unde....
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....cifically observed that the books of account were not reliable. But he had pointed out that a sum of Rs. 2,68,986 was spent during the year for building construction. Furthermore, Hon'ble Rajasthan High Court in Smt. Amar Kumari Surana vs. CIT (1996) 134 CTR (Raj) 313 : (1997) 226 ITR 344 (Raj) observed as under: "It is true that merely on the basis of fair market value no addition can be made under s. 69B, but on the basis of sufficient material on record some reasonable inference can be drawn that assessee has invested more amount that the one shown in account books, then only the addition under s. 69B can be made. The burden is on the Revenue to prove that real investment exceeds the investment shown in account books/of the assessee. The consistent finding of the ITO, AAC and the Tribunal is that the assessee has not shown the correct value of the property in her account books, and thereby, concealed the investment made for purchase of the plot of land. The Tribunal has considered the valuation report of the valuer in respect of the plot in question and also the fact that notice was given to assessee as to why the value of the plot should not be taken as has been valued by the....
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....enditure was incurred and once it is postulated that such cash credit or investment or expenditure belongs to the assessee then his failure to explain the same or to explain satisfactorily can constitute a reasonable ground for Ian inference that the source thereof must be an item taxable under the Act. Otherwise, if a nontaxable source or a capital item was utilized for the purpose in question, the assessee could and would easily have come forward with an explanation to the said effect and proved it to the satisfaction of the ITO. The whole history of the introduction of ss. 68 to 68D and the judicial decisions bearing thereupon clearly establish the proposition that these sections are only clarificatory and that even otherwise an addition can be made towards income from undisclosed sources in respect, inter alia, of amounts of expenditure which the assessee is found to have actually incurred but not satisfactorily explained. 58. It is pertinent to mention here that even prior to insertion of s. 69C, unexplained expenditure has been held to be income from undisclosed sources and added to the assessee's income. Reference may be macte to Madan Lal vs. CIT (1984) 42 CTR (Del) 197: (....
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....in toto, but as per our considered view some addition/adjustment is required to be made in the cost of construction recorded in the books of account. Keeping in view totality of the facts and circumstances of the case as discussed hereinabove, we are inclined to modify the orders of both the lower authorities and direct the AO to sustain the addition to the extent of Rs. 5.90 lakhs in the asst. yr. 1991-92 and Rs. 12.71 lakhs in the asst. yr. 1992-93, which works out to 15 per cent of cost of construction shown by the assessee in its books of account amounting to Rs. 39.33 lakhs in asst. yr. 1991-92 and Rs. 84.77 lakhs in asst. yr. 1992-93, subject to deduction to be allowed in respect of additions of unexplained investment which has ultimately resulted into unexplained expenditure on the project, to serve the end of justice. As the addition in the asst. yr. 1991-92 has been made under s. 69C, but there is no sale or profit in the asst. yr. 1991-92, in view of discussion made hereinabove, the AO is directed to increase the work-in-progress accordingly as on 31st March, 1991 and allow deduction of such unexplained investment out of income declared in the asst. yr. 1992-93. As the pr....