1980-VIL-10-ITAT-AHM

Equivalent Citation: TTJ 009, 537,

Income Tax Appellate Tribunal AHMEDABAD

Date: 29.02.1980

INCOME TAX OFFICER.

Vs

SETHNA ICE & COLD STORAGE.

BENCH

Member(s)  : A. Y. Metha., J. H. Parekh.

JUDGMENT

2. The ITO proposed the addition of Rs. 3,95,190 on the ground that it was the income from undisclosed source, the amount according to the ITO having been spent in addition to the cost of cinema construction shown by the assessee. Ultimately, the ITO estimated the cost of construction at Rs. 14,36,800 as against the cost of Rs. 13,44,788 shown by the assessee. In the revised report of the D.V.O. the cost of certain items was estimated at Rs. 5,72,280 against the cost as per books shown at Rs. 4,80,379. In estimating the cost of these items which are 5 in number the District Valuation Officer took the rates from the Executive Engineer, Gujarat P.W.D., Broach. The D.V.O. sought to justify the addition to these rates for contingency and for the prevailing tender percentage on the ground that the trend of tenders actually received by the P.W.D. during the relevant period in relation to the scheduled rate justified such addition. The ITO took the view that an addition of Rs. 92,000 was called for by way of under-statement of the cost of construction of Relief Cinema.

3. The assessee preferred an appeal before the AAC. Before the AAC seven items included in the valuation report were objected to on behalf of the assessee. The AAC deleted the addition of Rs. 92,000 because he disapproved the addition of Rs. 43,264 which was added by the Valuation Officer on the ground of prevailing tender percentage and also disapproved the addition of Rs. 56,180 on account of electrical installations. The case of the assessee was that there were tender quotations which were received at the rates below the P.W.D. rates. In view of this evidence, we hold that AAC rightly deleted the addition of Rs. 43,264. The addition of Rs. 1,66,532 was proposed which was ultimately reduced to Rs. 1,32,065 being the addition at 30 per cent of the gross cost on sanitary and electrical work. According to the local P.W.D. rates the cost came to Rs. 78,184. The AAC observed that originally in his valuation at Rs. 16 lakhs the D.V.O. had taken the Delhi Cost Index Method and he was therefore, justified in estimating the value of electricity and water supply charges at 30 per cent. The AAC observed that having changed his system of valuation to Gujarat P.W.D. rates, the Valuation Officer should have taken the Gujarat P.W.D. rates for electricity and water supply charges. Following the Gujarat P.W.D,. rates, the total cost of installation of sanitary and electricity fittings came to Rs. 46,615 plus Rs. 29,270 i.e. Rs. 75,885.

4. In our view, the AAC rightly held that the Valuation Officer having adopted the P.W.D. rates, should have followed the same for electricity and water supply charges also and should not have invoked 30 per cent which could be done under the Delhi Cost Index Method. Substituting the figure of Rs. 75,885 for Rs. 1,32,065 adopted by the Valuation Officer, the addition which is unjustified comes to Rs. 56,180. We are unable to accept the submission of Shri Kappor, the learned departmental representative, that even where the Valuation Officer does not apply the same schedule of rates to all the items of work, his valuation should be accepted in respect of the items where the rates at which the assessee purchased or got the work executed. In fact, in our view, on the assumption that two different schedules of rates could be applied, no addition could be made on the only ground that one schedule of rates showed the rates higher than the rates shown by the assessee in respect of some items and the other schedule of rates showed the rates higher than the rates shown by the assessee in respect of other items. There can be no basis for the addition unless the lower of the rates in the two different schedules for each and every item, if applied, would justify such addition. The assessee may be able to purchase or get work executed at less than the market rate for more than one reason. That would not justify the conclusion that the assessee paid more from the undisclosed source of income but in fact showed less. The AAC rightly deleted the addition of Rs. 92,000 as the addition of Rs. 43,264 on account of tender percentage and the addition to the extent of Rs. 56,180 on account of electrical installation were not justified.

5. Shri J.P. Shah, the learned Advocate for the assessee, raised a larger question that no addition could be made on the strength of the Valuation Officer in a case like this, where the assessee produced minutest information about all the items of expenditure duly supported by vouchers and where it was not shown that the items were either understated or underinvoiced. In fact, this was the main grievance of the assessee in its letter dt. 17th March, 1976 addressed to the ITO. There is considerable force in this contention. We may not be understood to lay down that it is not open to the authorities to satisfy that the assessee in fact did incur the expenditure as claimed. If, however, the ITO verifies the actual expenditure and does not find under statement or under-invoice of any item, the ITO would not be justified to make any addition on the basis of the report of the Valuation Officer. On the assumption that the ITO even in such circumstances can rely on the report of the Valuation Officer, this appeal must fail because the AAC rightly disallowed Rs. 43,264 added by the Valuation Officer and further disallowed Rs. 56,180 out of Rs. 1,32,065 added by the Valuation Officer. In the result, the appeal on this ground fails.

6. The only other ground of appeal is that the AAC erred in reducing the expenses of Rs. 3584 held by the ITO to be the entertainment expenses to Rs. 500 and in thus deleting a sum of Rs. 3,084. Before the AAC it was contended on behalf of the assessee that the additions of Rs. 1,200 and Rs. 3,584 made by the ITO were not justified. The ITO added Rs. 1,200 as lumpsum addition because in the ice account of the assessee no quantity account was maintained. The AAC confirmed this addition and there is no further appeal from the decisions of the AAC on this point. Out of the expenses of Rs. 3,584 incurred by the assessee for tea, soda, fanta, etc., the ITO disallowed half the amount i.e. Rs. 1,792 on estimated basis as expenditure for non-business purpose. The ITO disallowed the other half as entertainment expenses under s. 37(2B) of the IT Act. The AAC restricted the disallowance on account of personal element to Rs. 500 only.

7. In our view, the AAC rightly restricted the disallowance to Rs. 500 only. No material is placed before us which would show that the expenses were lavish or extravagant. The disallowance of half the amount for personal and non-business purpose was on the high side and the disallowance of Rs. 500 would appear as entertainment expenses was completely unjustified. The appeal on this ground also fails.

8. The appeal is dismissed.

 

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