1978-VIL-04-ITAT-JAI

Equivalent Citation: TTJ 007, 029,

Income Tax Appellate Tribunal JAIPUR

Date: 08.08.1978

INCOME TAX OFFICER.

Vs

PRAKASH CHAND SURANA.

BENCH

Member(s)  : D. D. Vyas., V. P. Sharma.

JUDGMENT

3. The assessee is an individual. For the previous year, relevant year relevant to the asst. yr. 1973-74, the return was filed declaring the income of Rs. 12,490.

4. According to the learned ITO, the assessee in the relevant year constructed a house, which is situated opposite to circuit House, Jodhpur.

5. A plot of land was purchased by Shri Bhanwar Lal, father of the assessee for Rs. 11,000 in the name of the assessee in March, 1971. At that time, the assessee was in United States of America. He came back in India in June-July, 1971. After coming to India, the assessee joined service with M/s. West Cost Paper Mills, Danuali. The assessee is a Engineer. In the year of account, the assessee was posted at Kankroli and was in service of J.K. Industries Ltd.

6. The assessee has declared the cost of construction as per balance sheet is as under:-

The cost of the land was Rs. 11,000. Thus the declared cost of construction was Rs. 1, 28,179.

7. The assessee obtained report of approved Valuer. The approved Valuer estimated the cost of construction according to the PWD schedule of 1968. He has added 50per cent on account of price rise. The copy of the report of the valuer is on the paper book. According, to the report, the cost of construction was to the extent of Rs. 1,17,000. The learned ITO also recorded the statement of Shri Vijay Gupta, Approved Valuer. In his statement also, he stated that the report filed by him is correct. The copy of the statement of the valuer is on the paper book. The assessee also filed a copy of order of the assessing authority under s. 10 of the Rajasthan Lands and Buildings Act, 1964. It is at pages 52, 53 and 54 of the paper book. The said order was passed on 15th June, 1976. According to this order, the market value of this property was taken at Rs. 1,41,000. The cost of construction was taken at Rs. 1,21,000. The learned ITO obtained report of the Inspector. According to his report, the value of cost of construction of said construction was at Rs. 1,88,725. The learned to also recorded the statement of Shri Bhanwar Lal father of the assessee, Shri Prakash Chand (assessee), Shri Heera Ram, Shri Murah Ram, Shri Pema Ram, Shri Ram Niwas, Shri Achluram, Shri Khushal Ram, Shri Ram Niwas, Mohd. Said. Before the learned ITO, the assessee also filed statement of Shri Bal Kishan, Shri Kuna Ram, Shri Shambu Lal and Shri Randhir Singh. The assessee also filed detailed objection against the report of Inspector dt. 15th March, 1976. The copy of the objections is at page 52 to 64 of the paper book. The assessee also filed detailed objections against the draft of the proposed order of assessment for the previous year relevant to 1973-74. The said objection finds place at page 66 to 71 of the paper book. The learned IAC under s. 144B of the IT Act, 1961 directed the learned ITO to make addition of Rs. 1,41,988 made by the learned ITO. In pursuance of the direction of the IAC, the learned ITO held that sum of Rs. 1,20,000 was the income of the assessee from undisclosed sources.

8. The assessee had shown cost of construction at Rs. 1,39,180. According to the learned ITO the assessee was able to explain the investment to the extent of Rs. 57,737 by 30th June, 1972. Thus the learned ITO was of the view that sum of Rs. 1,41,988 was unexplained investment. The learned ITO after keeping in view the fact that certain sums were spent on minor items and paid after June, 1972, some credit should be given for the same. Thus the learned ITO held that sum of Rs. 1,20,00 was unexplained investment.

9. The assessee took up the matter before the learned AAC. The first contention of the assessee was that in the present case, compliance of s. 114B of the IT Act was not made and as such the proceedings upto the stage of preparing the draft order on 29th March, 1976 were invalid.

10. The learned AAC after hearing the parties came to the conclusion that compliance of s. 144B of the IT Act, 1961 was not made. Thus in his opinion, the assessment order was bad in law. Thus the learned AAC annulled the asstt. Order.

11. The order contention of the assessee was that learned ITO was wrong in taking the cost of construction at Rs. 1,88,727. According to the assessee, the evidence on record showed that cost of construction showed by the assessee at Rs. 1,29.000 was quite reasonable. This cost did not include the cost of the land. The learned ITO mainly relied on the report of the Inspector. Against the report of the Inspector, the assessee filed detailed objections and the same were not properly considered by the learned AAC. The assessee produced overwhelming evidence showing that cost of construction of the property was not more than Rs. 1,39,000. From the Valuer's report and his statement, it was clear that cost of construction was not more than Rs.1,70,000. The statement of Shri Bhanwarlal, the father of the assessee also goes to show that cost of the construction of the building was not more than Rs. 1,29,000. The learned ITO obtained report of 3 Inspectors. According to their report, the cost of construction of the building including the value of the land was Rs. 1.76,901. It means the cost of the construction of the building was taken by them at Rs. 1,62,901. Later on the learned ITO deputed another Inspector for preparing a second report. The Inspector proposed to take the cost of construction at Rs. 1,06,595. The learned ITO without appreciating the evidence on record, wrongly took the cost of construction at Rs. 1,18,725. As a matter of fact, there was overwhelming evidence before the learned ITO, which showed that the cost of construction was not more than Rs. 1,28,179.

12. The learned AAC discussed the contentions of the parties in detail. He also examined the whole evidence produced by the assessee. The learned AAC himself inspected the property in the presence of the assessee and the learned ITO. After considering all the evidence, the learned AAC came to the conclusion that cost of the construction was Rs. 1,34,201.

13. The other contention of the assessee was that the learned ITO was wrong in holding that the assessee was able to explain the investment to the extent of Rs. 57,737 only. It was contended that a sum of Rs. 1,14,472 was spent upto 31st day of March, 1973 and upto March 1974. Total expenditure was at Rs. 1,39,180 In this respect, it was contended that major part of the funds were borrowed from M/s. Kewal Chand Bhanwar Lal of Jodhpur in which the father of the appellant was one of the partners. The details of the loan from the said party were given in detail by the assessee and the same were reproduced by the learned ACC in his order. In addition to the said loans, the assessee has taken loans from other persons. The names and details of such loans were disclosed to the learned AAC. The learned AAC stated all the details in his order.

14. The learned AAC after considering the entire evidence on record, came to the conclusion that the entire investment was fully explained.

15. The other contention of the assessee before the learned AAC was that the learned ITO was wrong in holding that construction of the building was completed upto 30th June, 1972. Really the construction of the building was completed by 30th June, 1973 but some fittings and repairs like bath, rub, purchases of geigers was done after 30th June, 1973. Thus it was contended that loans taken from M/s. Kewal Chand Bhanwarlal and other persons should have been considered for the purpose of proving the investment in the house property. It was also contended that the learned ITO was wrong in holding that the loan from M/s. Dharm Chand Prakash Chand was not genuine. As a matter of fact, the loan advanced by M/s. Dharm Chand Prakash Chand was through M/s. Kewal Chand Bhanwar Lal. On 17th Oct. 1971, money was received and was deposited with M/s. Kewal Chand Bhanwarlal. Thus the ITO was wrong in holding that investment to the extent of Rs. 57,737 was only explained. The learned ITO was also wrong to come to the conclusion that construction was completed upto June 1972.

16. The learned AAC after considering the evidence on record and contentions of the assessee came to the conclusion that construction of the property would fall in the asst. yr. 1972-73, 1973-74 and 1974-75. According to the learned AAC the cost of construction of the property up to 30th June, 1973 was about Rs. 1,34,210. After it, some more construction and finishing work continued upto 31st day of March, 1974. Thus total expenditure came to Rs. 1,39,180. According to the learned AAC upto 30th June, 1973, the total investment was shown by the assessee at Rs. 1,35,974. According to the learned AAC, the assessee was able to explain the entire investment. Thus the learned AAC deleted the addition of Rs. 1,20,000.

17. Against the order of the learned AAC, the Department is in appeal before the Tribunal. The assessee filed the Cross Objection.

18. The Department in the grounds off appeal stated as under:-

(a) The learned AAC of Income-tax erred in-

i) annulling the assessment order made by the ITO,

ii) Deleting the addition of Rs. 1,20,0000 as assessee's income from undisclosed sources being unexplained investment in the construction of the house property.

In the cross objection the assessee stated as under:-

a) The learned AAC has erred in rejecting the assessee's submission that the assessment made by the ITO is without jurisdiction.

b) The learned AAC had rightly annulled the assessment in view of the various reasons mentioned in his order. In addition to the various reasons mentioned by the AAC in his order, the finding of annulment is further supported by the fact that provisions of s. 144B of the Act, which came into force from 1st day of April, 1976 are inapplicable for asst. yr. 1973-74.

19. The learned Departmental Representative contended that the learned AAC was wrong in annulling the assessment order. If the learned AAC was of the view that provisions of sub-s. (4) of s. 144B were not complied, he should have afforded the ITO an opportunity as required under the said provision, assessment order could not be annulled.

20. The learned counsel for the assessee conceded before us that the learned ACC was wrong in annulling the assessment. The learned counsel also contended that provisions of s. 144B came into force w.e.f. 1st day of April, 76. The asstt. Order relates to asstt. yr. 1973-74. As such the provisions of s. 144B are not attracted.

21. In our opinion, the provisions of s. 144B of the Act were not applicable. In the present case the said section came in force w.e.f. 1 st day of April, 1976. The assessment year involved is 1973-74. So proviso to s. 144B are not applicable. Apart from it, if there was any contravention of sub-s. (4) of s. 144B of the Act, 1961, the learned AAC should have not sent back the case to the ITO for affording such opportunity. From the aforesaid facts, it is clear that the learned AAC was not correct in annulling the asstt. Order.

22. At the time of hearing of the case both the parties agreed that the appeal may be decided on merit on the basis of the evidence on record. Accordingly, the appeal shall be decided on merits.

23. The first contention of the learned Department Representative was that the learned AAC was wrong in estimating the cost of construction at Rs. 1,39,180 upto 31st day of March, 1974. The cost of construction was not less than Rs. 1,88,725. The report of the Inspector relied by the learned ITO was quite detailed. The Inspector gave reasons in support of his estimate. From the report of the Inspector, it is clear that value of the land and cost of construction of the property were to the extent of Rs. 1,99,225. It includes the value of land at Rs. 11,000. The statement of Shri Bhanwarlal under whose supervision. The construction was made goes to show that construction was completed upto June, 1972 and according to his statement, it is not proved that by that time, the cost of construction was Rs. 1,40,000. According to the learned Departmental Representative, the statement of Shri. Bhanwarlal is contradictory and as such does not aspire any confidence. Even the report of the valuer shows that cost of construction was Rs. 1,17,000. The assessee had shown cost construction of the property at Rs. 1,40,000. So the valuer's report is not reliable. The other evidence produced by the assessee was also not reliable. Thus it was contended that finding of the learned AAC is incorrect.

24. The learned Counsel for the assessee supported the order of the learned AAC. Inter alia, it was contended that the learned IAC himself inspected the property in the presence of the assessee and the ITO. The learned AAC after hearing the parties and discussing the entire evidence on record, gave clear finding that the cost of construction upto 30th June, 1973 was Rs. 1,34,210. In his opinion, the cost of construction upto 31-3-1974 was Rs. 1,39,180. Thus it was contended that the finding of the learned AAC is quite correct, and no interference is called for.

25. The learned counsel further contended that the learned AAC had not allowed 10 per cent deduction for self supervision as provided in PWD rchedule. It is clear that the construction was supervised personally by the father of the assessee. If this is considered, the cost of construction as worked out by the learned AAC would come down. The cost of construction pertaining to the asst. yr. 1973-74 to 1974-75 was Rs.1,28,179. The cost of construction as showed by the assessee is fully supported by the evidence on record. The cost of construction as worked out by the learned ITO was based on the Inspector's Report, which is not supported by sufficient evidence. As a matter of fact, the cost of construction estimated by the learned ITO at Rs. 1,88,725 was without any basis. The cost of construction as per Balance Sheet was correctly shown. It was also pointed out that in Wealth-tax matters, three valuers were deputed for determining the value of the building. The said valuers determined the cost of construction at Rs. 1,62,901. They submitted the report on 10th May, 1973. The Inspector estimated the cost of construction at Rs. 1,88,725. So from this point of view alone the Inspector's report has no worth.

26. We have heard the parties and perused the entire material on record. The learned AAC has discussed this point in great detail. His finding is supported by sufficient material. So the finding of the learned AAC on this point is correct. We fully agree with the reasons given by the learned AAC in coming to his conclusion.

27. Since the appeal was argued before us in detail, we would also like to give reasons in brief in upholding the order of the learned AAC. The assessee has filed detailed objections vide his letter dated 20th Feb., 1976 against the report of the Inspector. Such objection finds place at pages 45 to 59 of the paper book. The assessee filed other objections before the learned ITO against the Inspector's report. They are available at page 60 to 64 of the paper book. Inter alia, it was stated in the objection that the construction was carried on under the supervision of Shri Bhanwarlal, father of the assessee. It is common ground that Bhanwarlal was the main person under whose supervision, the construction was done. It is general practice in the IT Department that a deduction of about 10 per cent for supervision is given in estimating the cost of construction. This point was specially raised before the learned ITO, but he did not consider the aspect of the case. In our opinion, the learned ITO was wrong in not considering this contention of the assessee. The learned ITO worked out cost of construction at Rs. 1,38,000. If deduction of 10 per cent of the total cost is allowed, the cost of construction would be reduced by about Rs. 18,000. So the cost of construction would come to Rs. 1,70,000. The Inspector added a sum of Rs. 22,000 on adhoc basic. The PWD Rules do not provide for such additions. So this adhoc addition also should not be considered. If this addition is excluded, the cost of construction would come to Rs. 1,48,000. Other contentions of the assessee have already been discussed by the learned AAC in detail. Under these circumstances, we do not think it necessary to discuss those reasons again.

28. We may also point out that three valuers of the Department estimated the cost of construction at Rs. 1,62,901 on 10th May, 1973. The Income-tax Inspector on the other hand valued the cost of construction at Rs. 1,88,725. The copy of the report of the 3 valuers is on the paper book. According to their report, the cost of construction was Rs. 1,16,358. They have added Rs. 46,543 for increase in cost from 1967 to 1972 @ 40 per cent of the above cost. Thus the total cost of construction was worked out at Rs. 1,62,901. On the fact of such report of 3 valuers, the report of the Inspector showing the cost of construction at Rs. 1,88,725 which was accepted by the learned ITO could hardly be accepted. Apart from it, the statement of Shri Bhanwarlal, father of the assessee was, recorded in detail. He clearly stated that the cost of construction was Rs. 1,40,000. His statement is quite consistent. His statement is also supported from facts and figures. He has also explained the investment of Rs. 1,40,000. Regarding investment, we would discuss in detail later on. There is another independent evidence on record, which shows that cost of construction as worked out by the learned AAC is quite reasonable. An order of the assessing authority under s. 10 of the Rajasthan Lands and Buildings Act, 1964 was passed on 15th June, 1976. The copy of the said order in on the paper book. The appropriate authorities have given all the details in arriving at the cost of construction. According to the said owner, the said of construction is worked out at Rs. 1,20,300 This evidence is also material for the purpose of deciding the point in issue. We may point out that the said value was determined in accordance with X-3. As discussed above, the assessee obtained the report of the Valuer. He valued the cost of construction according to PWD schedule of 1968 and he has added 50 per cent on account of price rise. The said report was given on 28th Aug., 1973. The statement of valuer was also recorded by the learned ITO on 16th June, 1976. From his report and his statement, it comes out that the cost of construction was Rs. 1,17,000. We have gone through the report of the valuer and his statements carefully. From his statement and the report, it is clear that his report is based on proper material. This report mainly agrees that the cost of construction was worked out by the assessing authority under s. 10 of the Rajasthan Lands and Buildings Act, 1964. The learned ACC after considering all the evidence came to the conclusion that the cost of construction upto 30th June, 1973 was Rs. 1,34,210 and upto 31st day of March, 1974 was Rs. 1,39,180. The said estimate is quite reasonable and is in accordance with the material on record.

29. Looking to the aforesaid facts, entire evidence on record and the order of the learned AAC, we are of the view that finding of the learned AAC on this point is quite correct.

30. Other contention of the learned Departments Representative was that the learned AAC was wrong in holding that construction continued upto 31st day of March, 1974. According to the learned Departmental Representative, the construction was completed by 30th June, 1972. This is also clear from the statement of Shri Bhanwarlal. The learned AAC was wrong in interpreting the evidence which is on record. Thus it was contended that the construction work was completed upto 30th June, 1972 and as such addition may be made accordingly.

31. The learned counsel for the assessee supported the order of the learned AAC and contended that the learned ITO did not discuss the evidence of independent persons properly. The learned AAC correctly appreciated the evidence and thus it was contended that the finding of the learned AAC is correct.

32. In our opinion, the contention of the Revenue is quite correct. If the statement of Shri Bhanwarlal is considered, in its entirety, it would be clear that the construction continued upto 31st day of March, 1974. The statement of Shri Bhanwarlal was recorded on 30th June, 1973 and on 10th March, 1976. In the first statement, he did say that the construction work was completed upto June, 1972. At that time, he also stated that the total cost of construction was Rs. 1,40,000. He has also given details of the cost of construction. In the other statement recorded on 10th March, 1976, Shri Bhanwarlal clearly stated that after 5 or 6 months of 5th Nov., 1972, the construction continued. Furniture etc. Were fixed later on. If his statement is considered in its entirety, it would be clear that construction work continued upto 30th June, 1973. From his statement, it is also clear that even after 30th June, 1973, some work was to be done in the house. This is clear from a letter dated 13th April, 1973 sent by Shri Bhanwarlal to the ITO. In that letter, Shri Bhanwarlal clearly stated that construction work and finishing work continued upto June, 1973. Apart from the statement of Shri Bhanwarlal, there is certificate of the valuer dated 8th April, 1978. In this certificate, the valuer stated that the building was completed in June, 1973. When the statement of Shri. Vijay Gupta, Valuer was recorded, he clearly stated that when he inspected the property in June, 1973, minor finishing work like painting of walls, wood work was under progress and as such he took it for granted that building was in final process of completion. The assessee also filed affidavits of Shri Heera Ram, Murah Ram, Shri Pema Ram, Shri Achluram, Shri Ram Niwas, Shri Khushal Ram. Their statements were also recorded. From the affidavits and evidence, it is clear that these persons did work in the construction of this house. According to their evidence, it is clear that the construction, finishing and other work continued upto June, 1973. The learned ITO rejected the evidence of these persons on the ground that these persons were tuitored. The learned ITO gave no reasons whatsoever for rejecting their evidence. We have gone through their evidence carefully. Their statements are quite consistent. They are also independent persons. Thus we are of the view that the learned ITO was not correct, in rejecting their testimony. Apart from it, there are statements of Shri Bal Kishan, Koona Ram and Shambhulal. There is also aa certificate of Shri Randhir Singh of 11th April, 1976. In the statement Shri Bal Krishan stated that he worked in the said house from 11th Jan., 1972 to June, 1973. From his statement, it is clear that he made electric fitting in the said house for which payment was made to him. Similarly, the statement of Shri Koona Ram shows that he did finishing work in the said house from Dec. 1972 to March, 1973. The certificate of Shri Shambhu Lal dated 5th April, 1976 is also material. He was posted as Supdt. Circuit House at Jodhpur. His family remained there till June, 1973. According to this certificate the construction of the said house was completed in June, 1973. Similarly, the statement of Shri Randhir Singh, Retd. Brigadier, goes to show that construction and finishing touches were completed before the rains in June, July, 1973. Looking to the aforesaid facts and entire evidence on record, in our opinion, the finding of the learned ITO that construction work was completed upto June, 1972 is not correct. On the other hand, the learned AAC was right in holding that construction work was completed upto June, 1973.

33. The other contention of the Revenue was that the learned AAC was wrong in holding that the assessee was able to explain the entire investment in question. According to the learned D.R., the learned ITO gave good reasons in coming to the conclusion that investment to the extent of Rs. 1,20,00 was explained.

34. The learned counsel for the assessee supported the order of the learned AAC. In our opinion, the learned AAC gave good reasons in support of his finding. The statement of Shri Bhanwarlal in quite consistent. He has complained in detail the investment in the property. From his statement, it is clear that sums of Rs. 1,10,000, Rs. 9000 and 11,000 were taken on loan from M/s Kewal Chand Bhanwarlal, Jodhpur, M/s Dharm Chand Prakash Chand, Jodhpur & M/s Surana Finance Corpn. Ahmedabad, respectively. He also stated that he has taken loan of Rs. 1000 from some other person, but at that time he could not remember the name, His statement is fully supported from the Balance Sheet, it comes out that the assessee invested Rs. 59,359, 55,113 and 24,707 in the asst. yrs. 1972-73, 73-74 and 1974-75 respectively. The learned AAC gave other reasons in support of his finding.

35. Looking to the aforesaid facts and evidence on record, in our opinion, the assessee was able to explain the investment in the construction of the building.

36. The learned counsel for the assessee stated before us that he does not press the cross objection.

37. In the result the appeal is dismissed. The Cross objection is also dismissed.

 

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