Vildirect: IncomeTax-caselaws-1988-VIL-65-ITAT-DEL

1988-VIL-65-ITAT-DEL

Equivalent Citation: [1988] 27 ITD 1

Income Tax Appellate Tribunal DELHI

ITA No. 2447 (Delhi) of 1985, ITA No.2448 (Delhi) of 1985

Date: 27.05.1988

SRI HAR SARUP COLD STORAGE & GENERAL MILLS

INCOME-TAX OFFICER

For the Petitioner : O. P. Sapra
For the Respondent : N. B. Singh, S. P. Jain

BENCH

G. Krishnamurthy (President (As a Third Member)), S. Grover (Judicial Member) And S. K. Chander (Accountant Member)

JUDGMENT

S. Grover (Judicial Member)

The contentions in these two second appeals are that the Commissioner of Income-tax (Appeals) Bareilly vide his common order dated 23-2-1985 erred in:

(a) retaining additions of Rs. 78,695 and Rs, 43,385 out of additions of Rs. 1,32,861 and Rs. 79,385 made respectively in the assessment years 1980-81 and 1981-82 as understated and unexplained investment; and

(b) upholding disallowance of Investment Allowance on cold storage machineries.

In respect of assessment year 1980-81 for which the accounting period ended on 31-3-1980, the assessee filed loss return of Rs. 1,68,420 which consisted of the following;

	Rs.
(i) Business loss	77,691
(ii) Investment allowance u/s 32A of IT Act	66,729
(iii) Deduction u/s 80J	24,186

2. In respect of the assessment year 1981-82 the return projected loss of Rs. 4,07,927 including carry forward loss of Rs. 90,915. The assessee-firm started construction of cold storage in July, 1979 and completed the same in July, 1981. The expenditure incurred as per account books maintained amounted to Rs. 11,44,554 as follows:

	Rs.
(1) July 1979 to 31-3-1980 (A.Y. 1980-81)	7,43,240
(2) April 1980 to 31-3-1981 (A.Y. 1981-82)	3,92,662
(3) 1-4-1981 to July 1981 (A.Y. 1982-83)	8,652
	11,44,554

3. In the course of assessment proceedings for 1980-81 the assessee filed a valuation report dated 23rd October, 1982 from one Shri Y.P. Gupta, Government registered valuer showing expenditure in the construction of two chambers of the cold storage up to 31-3-1980 at Rs. 7,62,063. The ITO, however, referred the valuation to the Departmental Valuation Officer, Lucknow, who vide his report dated 15-3-1984 reported the estimated cost of construction up to 1981 consisting of three chambers and varandah at Rs. 13,46,800, There being variations between the cost of construction projecting from the account books, of the Government registered valuer, whose report was filed by the assessee and the Departmental Valuation Officer, the assessee was given a notice under section 143(3) of the Act on 19th March, 1984 to show cause why the proportionate addition of the difference in the cost of construction, as for the books and the one estimated by the DVO, which he worked out at Rs. 1,32,861 in respect of assessment year 1980-81 and Rs. 79,385 for the next year, should not be added as unexplained investment. The assessee submitted a written explanation on 20th March, 1984 itself stating that its version of expenditure was correct and that the DVO had estimated the cost of construction of various items at very high figure which were not prevalent in those years. The assessee also submitted complete details of construction cost from the books and submitted that since no understated expenditure was pointed out by the DVO, there was no justification in rejecting the assessee’s book version. The ITO, however, accepted the DVO’s estimate and by further observing that there was difference in the assessee’s registered valuer’s report as compared to the books, made aforesaid additions as understated cost in the two years.

4. Before the learned CIT(A) it was contended that whereas the assessee’s books gave complete details of expenditure in relation to quantity and area constructed, the DVO had adopted valuation by taking high estimate on several items. For the assessee’s list of items, where higher rates were taken, were filed. it was submitted that if higher valuation factor was taken into account, and necessary adjustments made the difference between the assessee’s book version and the DVO’s estimate worked out to less than 20 per cent and in view of the contemporary books evidence no addition was called for. The learned CIT(A) though accepted the assessee’s primary averment and objection against the additions still only partly modified the additions and it is considered expedient to notice para 3.a of the CIT(A) order, because to a great extent it has the effect of resolving, the controversy as it was in terms stated that there was no Allegation that the assessee had not correctly stated the extent of the construction or the quality in any significant respect:

"3.a I have gone through the, assessment order and have examined the matter. It is clear that the difference in the two estimates arises mainly on account of application of different rates of estimate to different items of work. There is no observation that the appellant had not correctly stated the extent of the construction or the quality of the construction in any significant respect. The appellant has given a list of six items out of which on consideration, I find that following items really represent a difference of opinion for which no addition should have been made.

*Sl. No.*	*Item*	*Difference (Rs.)*
1.	Contractors profit	35,862
2.	Item No. 7 M.S. Reinforcement	32,593
3.	Item No. 19 Insulation with fibre glass	6,808
4.	Architect’s fee	14,903
		90,166

The remaining three points mentioned by the learned authorised representative represent an examination of technical details and specification which are difficult for a laymen to evaluate. It Is, however, clear that the appellant is entitled to a reduction of at least Rs. 90,166 as worked out above and bifurcation of this amount will be, in the two years in the proportion: Rs. 54,166 in asst. year 1980-81 and Rs. 36,000 in assessment year 1981-82. The Income- tax Officer will modify the computation of income in the above two years by reducing the amounts accordingly."

5. Before proceeding further we like to clarify that though the ITO went by the estimated cost of construction of the DVO at Rs. 13,46,800 as against the book version of Rs. 11,44,554 and thus, worked out the difference at Rs. 2,02,246, the additions made in the two years amounted to Rs. 2,12,246 (Rs. 1,32,861 plus Rs. 79,385) apparently a typographical error. This would make a difference of Rs. 10,000 but since we are taking the view that no addition was called for, it is not necessary for us to make necessary correction with regard to the said error.

6. We were assisted by Shri O.P. Sapra, Advocate and Shri N.B. Singh, Sr. Departmental Representative for the parties. The learned Advocate very effectively submitted that considering the learned CIT(A)’s observation and findings and there being no attack or allegation even from the Assessing Officer that the assessee understated any expenses or made construction which were not recorded and there being complete date-wise details from 8th July, 1979 the very foundation of the addition, which admittedly was on estimate of the DVO on the basis of inspection in 1984, was wrong. Detail of expenditure on construction from the books for three years have been filed and is at pages 1 to 12 of the assessee’s paper book.

7. The assessee’s Advocate further referring us to the assessment order for assessment year 1980-81, which was passed on 18th June, 1984, submitted that though the assessee had filed registered valuer’s report in respect of the period 31-3-1981 also, the ITO order projected a different picture, inasmuch as it was stated in the assessment that the assessee had only filed report for the period ending 31-3-1980 and on purpose kept back report in respect of the later period. Such contention we found to be correct and are inclined to agree that the Assessing Officer’s mind was influenced on that account also, as is projected from first few sentences of the assessment order under the head "Unexplained investment in the construction of cold storage" as follows :

"The assessee had filed valuation report dated 23-10-1982 from Shri Y.P. Gupta, Approved Valuer, which showed the investment In the construction of two chambers of the cold storage as on 31-3-1980 at Rs. 7,62,663 as against an investment of Rs. 7,51,892 shown by the assessee in its books of accounts. It may be noted that the construction of the cold storage consisting of three chambers with outer verandahs was completed before 31-3-1981 whereas the assessee’s approved valuer valued the property in respect of the construction up to 31-3-1980 only although he had personally inspected the property on 13-10-1982 as per part III. Declaration of his report, i.e., much after the entire construction had been completed. It is not clear what prevented him from valuing the entire property consisting of three chambers and verandahs."

We find that the report dated 23rd October, 1982 in terms was requested in respect of assessment year 1980-81 and the second report dated 2-4-1984 in respect of the period ending 31-3-1981 was obtained on 3-4-1984 and submitted before the assessment, in which the cost of construction was worked out at Rs. 11,54,800 as against the book version of Rs. 11,44,554. Such difference, according to us, was only natural and could be a minus or plus factor for which neither any addition should have been made nor relief granted. A copy of the report dated 2-4-1984 Is at pages 13 to 24 of the paper book. Against the book version, which was admittedly contemporary evidence, the report obtained by the ITO from the DVO, for which there was no statutory requirement, could not be made the basis for assessment and consequent additions, as done.

8. In any case the learned CIT(A) in terms held that the DVO, estimate could not be said to be reliable and, therefore, modified the additions and the department has accepted the observations on the basis of which additions were reduced. That fact also goes to strengthen the assessee’s pleading that there was no case for rejection, the actual cost of construction projected from the books. A copy of the Tribunal’s order in the case of ITO v. Anupam Talkies [IT Appeal No. 101 (Delhi) of 1984, dated 9-4-1985] in respect of assessment year 1974-75 has been filed, in which case more or less on similar facts, as prevailing in the present case, the Tribunal accepted the book version regarding the cost of construction in view of complete details recorded in the account books. A part of para 5 of the said order, which is at pages 41 to 44 we reproduce below:

"5. We have heard the learned representatives on both the sides and have also gone through the record. The case of the assessee was that it had maintained the accounts for the construction. The copies of the building investment account had also been filed before the ITO. The ITO has nowhere rejected the accounts maintained by the assessee. In its reply dated 29-1-1977 the assessee had specifically stated before the ITO that complete vouchers were available for external services and electrical installations. Further, in its reply dated 21-2-1977, the assessee had stated that the details of expenses incurred on the building of the cinema had been filed and that the vouchers were produced for verification. It was also stated that all the books were fully verifiable and that the book results be accepted. Again in another letter dated 21-3-1978 the assessee bad stated before the CIT(A) that complete details of the material used and job done had been maintained by it. We are of the view that without finding fault with the accounts maintained by the assessee for the construction of the building in question and without rejecting the same, the ITO could not purport to embark upon the estimate of the likely investment in the construction. Further, the mere opinion of the Departmental Valuer that the value of the construction was more than what was declared by the assessee could not show that there was unexplained investment on the part of the assessee."

9. For the Revenue Shri N.B. Singh though very strongly sought to support the orders of the lower authorities, was not in a position to controvert that the assessee had filed a report from registered valuer in respect of 31-3-1981 also. Therefore, keeping all aspects in close focus and by holding that since the details of cost of construction in the books was not even alleged to be wrong and further in view of the learned CIT(A) observations which were not controverted we hold that no addition whatsoever was called for and the assessee’s version should have been accepted, which we now direct. The result would that the additions retained in respect of cost of construction shall stand deleted.

10. As stated in the assessment orders the assessee claimed Investment Allowance under sec. 32A of the Act at Rs. 66,729 @ 25 per cent of the value of machinery amounting to Rs. 2,66,916 for the assessment year 1980-81 and Rs. 80,082 of the cost of new machinery amounting to Rs. 3,20,330 for the assessment year 1981-82. The ITO, however, denied the claim on the ground that cold storage could not be considered as an industrial undertaking which manufacture or produce any article or thing.

11. The assessee’s claim was in terms of sec. 32A(2)(b)(iii) of the Act, which provides that the machinery or plant must be installed after the 31st day of March, 1978 in any Industrial undertaking for the purpose of business of manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule.

12. Before us It was submitted that it would not be correct to suggest that the assessee did not produce any, article or thing. Reliance was placed on the following noted authorities :

(a) Addl. CIT v. Farrukhabad Cold Storage (P.) Ltd. (1977) 107 ITR 816(All.).

(b) Singh Engg. Works (P.) Ltd. v. CIT (1979) 119 ITR 891(ALL).

(d) CIT v. Yamuna Cold Storage (1981) 129 ITR 728(Punj. & Har.)

(e) CIT v. Lakhtar Cotton Press Co. (P.) Ltd. (1983) 142 ITR 503(Guj.).

(f) G.A. Renderian Ltd. v. CIT (1984) 145 ITR 387. (Cal.).

(g) CIT v. Datacons (P.) Ltd. (1985) 155 ITR 66(Kar.).

(h) Shree Mulchand & Co. Ltd. v. CIT (1986) 162 ITR 764 (Bom.).

(i) CWT v. Krishna Kumar Mittal (1980) 3 Taxman 167(All.)

(j) Nand Lal Cold Storage v. ITO [IT Appeal No. 3979 (Delhi) of 1982, dated 27-4-1984].

(k) ITO v. AR. Alagappan (1985) 14 ITD 224(Mad.).

It was submitted that the storage of potatoes or any other article in cold storage do not involve merely the placing of the articles in the chambers but involve constant handling of the articles so that all parts are exposed to the required temperature because in the absence of such operations, preservation of articles cannot be assured Yamuna Cold Storage’s case, (supra).

13. The judgment of the Allahabad High Court in Farrukhabad Cold Storage (P.) Ltd.’s case (supra) and Tarai Development Corpn. v. CIT (1979) 120 ITR 342 (All.) were pressed into service for the submission that wherever processing was involved it must be held that manufacturing operation existed. Since the ITO in terms stated that cold storage involve processing, it was contended that the necessary corrollary was that there was manufacturing operation and thus, benefits of section 32A could not be denied.

14. The Hon’ble Allahabad High Court in the case of Krishna Kumar Mittal’s case (supra) vide judgment dated 20th September, 1979, extract of which was given to us at page 45, held by following its earlier judgment in Farrukhabad Cold Storage (P.) Ltd.’s case (supra) that the Explanation to sec. 5(1)(xxxi) is identical with definition of the words ‘industrial undertaking’ given in sec. 2(7)(d) of the Finance Act, 1967. Thus, a cold storage is an ‘industrial undertaking’ within the meaning of Explanation to sec. 5(1)(xxxi) of the Wealth-tax Act.

15. In view of the abovenoted judgments and particularly those of the Allahabad High Court, which Is jurisdictional High Court in the case of the assessee, we hold that the assessee has been wrongly denied investment allowance claim. Directing that the same be allowed as per law, the assessee’s appeals are allowed on second ground also.

16. In the result appeals allowed.

Per S. K. Chander (Accountant Member)

I have carefully gone through the proposed judgment of my learned brother but with great respect, I find myself unable to accept either the observations made therein or the decision arrived at by him insofar as the additions relating to construction of cold storage are concerned.

2. Though there may not be any statutory requirement of obtaining a report from departmental Valuation Officer, I do not find anything wrong in the ITO availing himself of the services of a technically qualified person to assist him to assess the cost of construction and that is exactly what the ITO has done and in my opinion he has every right to consider this report as one of the pieces of evidence for ascertaining the cost of construction of chambers of cold storage In respect of which the assessee had itself filed valuation report dated 23-10-1982 of its own valuer albeit for cost of construction up to 31-3-1980 only despite the fact that construction was complete before it. Thus the assessee had itself discarded the version of cost of construction as per its books of accounts and this case, therefore, cannot be compared with other cases mentioned in the proposed order.

3. Further in my opinion the ITO is right in pointing out that the assessee merely objected to the report of Valuation Officer as making excessive valuation of cost of construction but did not show how it was wrong. The basis on which it was attached were not put before him as pointed in the impugned asstt. order that the assessee did not file technical drawbacks or comparative chart as alleged to show that valuation report was wrong. It was with this background that the learned CIT(A) appreciated the contention of the assessee and found that the difference of Rs, 90,166 resulted from difference of opinion and thought it proper to delete the same. The assessee apparently could not make a case for deletion of the amounts sustained by the learned CIT(A) in respective asstt. years.

4. In my opinion nothing more has been done before us and the additions sustained by the learned CIT(A) cannot be deleted merely because the assessee feels aggrieved but does not show any evidence to justify the deletion. Its books version is no longer sacrosanct once the assessee itself gave it a go-by by filing valuation reports, one dated 23rd October, 1982 and the other dated 2-4-1984. It has not been claimed that assessee bas bills and vouchers for all cost of construction and as such no valuation is called for from either side. The additions are, therefore, confirmed.

5. The arithmetical error as pointed out by my learned brother is apparent and cannot be disputed.

6. In so far as question of investment allowance on the cold storage is concerned, the assessee being from Moradabad, the issue is apparently covered by the judgment of the Allahabad High Court in the case of Farrukhabad Cold Storage (P.) Ltd. (supra) and other Judgments noted in the order by my learned brother.

As we have differed the following point of difference is referred to the Hon’ble President, Income-tax Appellate Tribunal under sec. 255(4) of the Income-tax Act, 1961 :

"Whether on the facts and in the circumstances of the case the Judicial Member has been correct in holding that there was no justification for retaining additions of Rs. 78,695 and Rs. 79,385 in respect of assessment years 1980-81 and 1981-82 as understated and unexplained investment in the construction of cold storage, or the view taken by the Accountant Member that the CIT(A) rightly retained such additions, is Justified ?

THIRD MEMBER ORDER

Per Ch. G. Krishnamurthy (President)

This is a matter referred to the Third Member for his opinion under sub-section (4) of section 255 of the Income-tax Act, 1961. The difference of opinion arose between the Members of Delhi Bench ‘C’, who heard these appeals and the point of difference of opinion referred for the opinion of the Third Member is:

"Whether on the facts and In the circumstances of the case the Judicial Member has been correct in holding that there was no justification for retaining additions of Rs. 78,695 and Rs. 79,385 in respect of assessment years 1980-81 and 1981-82 as understated and unexplained investment in the construction of cold storage, or the view taken by the Accountant Member that the CIT(A) rightly retained such additions, is justified ?"

2. The facts are very brief and lie in a narrow compass. The assessee is a registered firm carrying on business of cold storage known as Sri Har Sarup Cold Storage and General Mills at Moradabad. It started the construction of the cold storage in July 1979 and it was completed by July 1981. It consisted of the construction of three Chambers with outer verandahs. The cost of construction as per books was Rs. 11,44,554 incurred as under:

	Rs.
(i) July 1979 to 31-3-1980 (Relevant for assessment year 1980-81)	7,43,240
(ii) 1-4-1980 to 31-3-1981 (Relevant for assessment year 1981-82)	3,92,662
(iii) 1-4-1981 to July, 1981 (Relevant for assessment year 1982-83)	8,652
Total	11,44,554

In the course of assessment proceedings for the assessment years 1980-81 and 1981-82, the Income-tax Officer required into the cost of construction shown in the books to ascertain whether it was truly and properly stated. The assessee sought to support the cost of construction by filing a valuation report obtained from the Government approved valuer, Shri Y.P. Gupta dated 23-10-1982 which showed that the cost of construction of the two Chambers of the cold storage up to 31-3-1980 was Rs. 7,62,063. This was against the cost of construction shown by the books at Rs. 7,43,240 (Rs. 7,53,240 should be the figure as noted by the Members in their orders). The Income-tax Officer, however, referred the matter to the Departmental Valuation Officer, Lucknow. He vide his report dated 15-3-1984 reported the estimated cost of construction for the entire project i.e., up to July 1981 at Rs. 13,46,800, which covered the three Chambers and outer verandahs. There was thus a variation between the cost of construction shown by the books and the cost of construction estimated by the Departmental Valuation Officer. The difference worked out to Rs. 2,02,246. The Income- tax Officer wanted the assessee to explain the difference, in response to which the assessee stated that the valuation report filed by him from his approved valuer was correct and that the valuation made by the Departmental Valuation Officer was incorrect because he estimated the cost of construction by applying very high rates, which were never ruling at the relevant period of construction. It was also pointed out before the Income-tax Officer by filing the technical drawings and comparative charts with a view to show as to how the rates adopted by the Departmental Valuation Officer were far in excess of the cost of construetion estimated by the assessee’s valuer, who was also a Govt. approved valuer. It was prayed that the cost of construction shown by the books being proper should be accepted. The Income-tax Officer did not accept this explanation. According to him the assessee had not filed technical data showing how the Departmental Valuation Officer had adopted excessive rates. He then referred to the fact that when the investment shown by the assessee in the books fell short by Rs. 10,771 even as per the valuation report of the assessee’s valuer, the accounted version could not be accepted as reliable and correct. Observing that the Departmental Valuation Officer had given detailed workings of the valuation of the building, he held that the cost of construction shown by the books was not true and proper and added the difference of Rs. 2,02,246 in two assessment years 1980-81 and 1981-82 on proportionate basis, which worked out to Rs. 1,32,861 in the assessment year 1980-81 and Rs. 79,385 in the assessment year 1981-82.

3. Aggrieved by these additions, the assessee preferred appeals before the Commissioner (A). More or less the same contentions were repeated before him by filing some charts. It was pointed out before the Commissioner (A) that the accounted version of the assessee was fully supported by bills details and vouchers and merely because the Departmental Valuation Officer had also given details, It did not mean that his valuation report was correct because he adopted very high rates. Some of the items where wide difference in rates obtained were listed out and pointed out to the Commissioner (A). The Commissioner (A) after going through those details came to the conclusion that the difference In the two estimates arose only because of the application of different rates of estimates to different items of work. He also made another significant observation that there was no finding that the assessee had not correctly stated the extent of the construction or that the quality of the construction was such as to adopt different rates. Referring to the list of items on which there was wide variation in the rates, the Commissioner (A) pointed out that in respect of four of those items, which were given hereunder, there could not be any difference of opinion between the two valuation reports and to that extent the assessee was entitled to the relief in the sense that the Departmental Valuation Officer had adopted a higher rate of valuation:

Sl. No.	Item	Difference (Rs.)
1.	Contractors profit	35,862
2.	Item No. 7 M.S. Reinforcement	32,593
3.	Item No. 19 Insulation with Fibre glass	6,808
4.	Architects Fee	14,903
		90,166

Observing that the assessee was entitled to the relief on this score, he deleted this Rs. 90,166 from the estimate made by the Departmental Valuation Officer and apportioned Rs. 54,166 to the assessment year 1980-81 and Rs, 36,000 to the assessment year 1981-82 and reduced the additions made by the Income-tax Officer to that extent.

4. Still aggrieved by the order of the Commissioner (A), the assessee came up before the Tribunal in a further appeal. The learned Judicial Member held after hearing the parties that there was no basis for the estimate nor was there any basis for the rejection of the books of account. In coming to this conclusion, the learned Judicial Member relied upon an order of the Tribunal In the case of Anupam Talkies (supra) in which case the Tribunal observed that when the account books were properly maintained and when the Income-tax Officer had not rejected the account books as unreliable or untrue or false and when vouchers were available in respect of the expenditure incurred for construction, the books of account should not be refused as evidence of cost of construction merely on the ground that the Departmental Valuation officer had shown a higher valuation than what was declared by the assessee and the difference could not be taken as unexplained investment. Not finding any defects having been pointed out by the Income-tax Department in the books maintained by the assessee, the learned Judicial Member found no justification for sustaining any addition and directed the deletion of the additions. But the learned Accountant Member held that even though there was no statutory requirement for obtaining a report from the Departmental Valuation Officer, the Income-tax Officer was entitled under the law to avail himself of the services of a technically qualified person to assist him to assess the cost of construction and that the valuation report was relied upon by him only as a piece of evidence. When the assessee filed a valuation report in support of the cost of construction, in preference to the account books, as evidence of cost of construction, it meant that the assessee discarded the accounted version of the cost of construction as per books and therefore no grievance could be made out by the assessee when reliance was placed upon the reports of the Valuation Officers for the purpose of ascertainment of the cost of construction, The learned Accountant Member also pointed out that except stating that the estimate adopted by the Departmental Valuation Officer was high, the assessee did not show how it was high. Therefore there was no merit in that contention. In the absence of any evidence, the additions sustained by the Commissioner (A) should not be Interfered with and they should confirmed. Thus the above difference of opinion arose between the learned Brothers, who heard the appeals and the matter was referred to the Third Member.

5. Before I proceed to express my opinion, I would like to state that the figure of Rs. 79,385 mentioned in the difference of opinion as the addition made for the assessment year 1981-82 was not correct and the correct figure should be Rs. 33,385. This appears to be an obvious clerical mistake, which the Bench will take notice of while disposing of the appeals in accordance with the opinion of the majority.

6. Now the question is, which view expressed by the learned Members is the correct view on the facts and circumstances of the case. The assessee strongly relied upon the orders of the Tribunal passed in similar cases and urged that as no discrepancy was pointed out in the account books maintained by the assessee, it was not open to the Income-tax Officer to reject the accounted version merely on the basis of the report of the Departmental Valuation Officer treating that as the foundational evidence for rejecting the accounted version. The evidence gathered by the Income-tax Officer in the shape of a valuation report can be relied upon only if (a) the account books were found to be defective and external evidence became necessary to arrive at the cost of construction : and (b) the report was a fair and true estimate of the cost of construction. If either of these factors are absent, the valuation report given by the Departmental Valuation Officer remains only a piece of paper. In the eyes of law, it has no sanctity at all. The Income- tax Officer not having found fault with the account books should not have rushed to obtain a report from the Departmental Valuation Officer and then say that the accounted version was wrong only by comparing the figures and not by examining the cost of construction with reference to vouchers, quantity of work done etc. The assessee stated that he maintained vouchers of the expenditure incurred by him but they do not seem to have been examined at all. The vouchers are in support of the expenditure incurred. As against these arguments of the assessee, the learned Departmental Representative submitted that the books of account are relevant only for the purpose of ascertaining income from business and they are not relevant at all for the purpose of ascertaining the cost of construction or its estimate. Section 69 under which addition is made or can be made for understatement of cost of construction does not refer to books of account at all. Therefore rejection of books cannot be made a reason for the purpose of finding out the cost of construction. When the assessee itself filed two valuation reports to justify the cost of construction, it meant that the accounted version was discarded and the discarded version of accounts should not be again brought into focus so as to ignore the valuation report. Nothing, therefore, will turn upon the argument of the assessee that the Income-tax Officer not having rejected the account books should hot have relied upon the valuation report of the Departmental Valuation Officer. He therefore justified the action of the Commissioner (A) as well as the view expressed by the learned Accountant Member.

7. In my opinion the argument that books of account are not relevant for the purpose of finding out the cost of construction is neither a valid nor a safe argument. The logical conclusion of this argument would be that the books of account would become totally irrelevant and perhaps need not be even maintained where cost of construction of any immovable property was involved or for that matter any investment was involved. This does not appear to be the object of the legislation. Then no one need maintain account books and take the trouble of disclosing the cost of construction or investment in the account books. Then the matters can be left to the whims, fancies and the credibility, respectability of the Valuation Officers ; be they engaged by the assessee or by the department. As it often happens, the valuation placed upon cost of construction by the Departmental Valuation Officer is always higher, and that valuation would always prevail over the cost of construction estimated by the assessee’s valuer and eventually lead to a situation where additions will have to be sustained or deleted depending upon the valuation report, which means guess work because the valuation of a property for the purposes of ascertaining the cost of construction would always be after the event was over. Thus contemporaneous evidence to arrive at the cost of construction would never the be available if the books of account are not relevant as urged by the learned Departmental Representative. Since guess work becomes vague, unreliable and uncertain and since that should never form the basis of an assessment and contemporaneous evidence should always be preferred, books of account are always relevant to find out the cost of investment. That was the reason why section 69 under which the unexplained investment could be added as the income of the assessee from undisclosed sources, placed greatest defiance upon the maintenance of accounts as well as upon the disclosure of investments in the books of account maintained. That was why section 69 provided :

"69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the Investments or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the value of the investments may be deemed to be the Income of the assessee of such financial year."

This shows that the value of the investments before they are treated as the income of the assessee must first be such as are not recorded "in the books of account, if any, maintained by him for any source of income" and the assessee offers no explanation about the difference or the explanation offered by him is not satisfactory. Therefore maintenance of books of account and the recording of the Investments In these books of account are two compulsive legislative requirements for section 69 to apply. It cannot therefore be an argument to say that books of account are not relevant for the purpose of making addition u/s 69 and that the books of account become relevant only for the purpose of ascertaining business income. This argument appeared to me to be suffering from a fallacy and I am therefore unable to accept it. As I have pointed out a short while ago, there should be contemporaneous evidence of the investment and the evidences on which the assessee can rely are only the books of account maintained by him and these matters cannot be left to the guesstimate of any authorities in each and every case.

8. Thus when maintenance of books of account and recording of Investments in those books of account become compulsory as per the legislative mandate then what is the duty of the Income-tax Officer In so far as those books of account are concerned. Is it open to him to ignore the evidence provided by those entries In the books of account and go only by the valuation report given by the Valuation Officer. When the Income-tax Officer proposes to go by the Valuation Officer’s report, It means that the books of account maintained by the assessee and produced by him in support of cost of construction within the meaning of section 143(3) of the Income-tax Act, whereunder on the day specified in the notice issued u/s 143(3), after hearing such evidence as the assessee may produce and such other evidence as the Income-tax Officer may require on specified points and after taking into account all relevant material were rejected as unreliable. The Income-tax Officer can only make the assessment after rejecting the evidence produced by the assessee in support of his return. The assessee can therefore offer the books of account maintained by him In support of his cost of construction and the Income-tax Officer must look into that evidence become making an assessment. When the Income-tax Officer looks into that evidence, he must record his observation as to the reliability, authenticity and correctness of the evidence. It becomes therefore imperative by reading sections 69 and 143(3) together, that the Income-tax Officer must, rather he has a statutory duty, to examine the evidence produced by the assessee in support of his cost of construction, namely, the books of account, record a finding about the falsity or unrellability, not just by expressing a capricious view but by pointing out evidence, material and flaws in the evidence, If any. It is only after the evidence is rejected that the Income-tax Officer will get the power to estimate the cost of construction. It is at that point of time that he can rely upon the report of the Valuation Officer. To this extent, namely, relying upon the report of the Valuation Officer, the learned Accountant Member is right in his observation but before he comes to the stage of relying upon the Valuation Officer’s report, there is an anterior stage, a legal compulsion to reject the evidence produced by the assessee, namely, the books of account by showing mistakes, discrepancies, or omissions in it. This also accords well with the ‘best evidence’ rule since experts report is only a relevant evidence but not conclusive. This the Income-tax Officer has not done. The order of the Income-tax Officer does not show anywhere how the account books maintained by the assessee suffers from any defect. Nor the order passed by the Commissioner (A) shows that the account books maintained by the assessee In support of the cost of construction were faulty, defective, false or unreliable. The unrelia- bility of the account books without showing any defects in them cannot be taken for granted. It is this aspect that the learned Judicial Member emphasised, although in a different way, with which I concur. The assessee no doubt produced valuation reports, I cannot at this stage see why and at whose behest, but the production of two valuation reports does not mean that the assessee had discarded his books of account as unreliable. What the assessee did was to reinforce the accounted version by producing the valuation reports as an independent external aid and as a piece of corroborative evidence. "That is not to say that the accounted version had been discarded by the assessee and it is not therefore open to him to rely upon them in preference to the valuation reports. This inference does not therefore appeal to me. It is not therefore a case where the assessee discarded the accounted version and tried to support the cost of construction with reference to valuation reports." Now, having come to the conclusion that the account books are relevant and that the account books have not been shown to be wrong, faulty or defective the question of Placing reliance upon the opinion of experts like valuation reports, should not arise. However, the very facts that the Commissioner (A) had found that a sum of Rs. 90,166 in the valuation report given by the Departmental Valuation Officer was incorrect and excessive, shows that even that report could not be said to be a true and fair estimate of the cost of construction. When the assessee had been urging before the authorities below that the rates adopted by the Departmental Valuation Officer were high, I thought, it was the duty of the authorities below to find out whether there was any substance in the allegations made by the assessee and it is not proper to reject that allegation without examining it. Every allegation made by an assessee is a contention put forward by him in support of his return of income, it is the duty of the Assessing Officer or the appellate authorities to consider those contentions and to record their findings. While the Income-tax Officer totally rejected the claim of the assessee as untenable and even as unentertainable, the Commissioner (A) found merit in it to some extent and deleted a major chunk of Rs. 90,166. This shows how unsafe it would be to rely upon the Departmental Valuation Officer’s report without examining it with reference to the contentions raised by the assessee because in law the valuation report given by a Valuation Officer is only a piece of relevant but secondary evidence given by an expert not binding upon the authorities except in case where it is so statutorily ordained, like in wealth-tax.

9. For these reasons, I am of the opinion that "the Income-tax Officer not having pointed out any defects in the account books, should not have rejected the accounted version and the Commissioner (A) having found that the valuation made by the Departmental Valuation Officer was excessive to a great extent, should have examined the matter in greater detail and in any case should have found out defects in the accounted version and not having done that, his order also suffers from the same defect as that of the Income-tax Officer" and that the view expressed by the learned Judicial Member placing reliance upon another order of the Tri- bunal taking a similar view is more acceptable. I, therefore, agree with the view expressed by the learned Judicial Member.

10. The matter will now go before the regular Bench for disposal of the appeals according to majority opinion.

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