1988-VIL-68-ITAT-CHN
Equivalent Citation: ITD 031, 177,
Income Tax Appellate Tribunal COCHIN
Date: 27.07.1988
UPASANA HOSPITAL.
Vs
INCOME-TAX OFFICER.
BENCH
Member(s) : D. S. MEENAKSHISUNDARAM., K. S. VISHWANATHAN.
JUDGMENT
Per Shri K.S. Viswanathan, Accountant Member --- We find it convenient to dispose of these appeals, 3 by the assessee and 3 by the department, by a common order.
2. The assessee, a registered firm, consists of 7 partners and is running a Nursing Home at Quilon. On 19-12-1985, a search was conducted in the hospital premises and the residential premises of the Managing Partner, Dr. P.N. Bhaskaran. On the basis of the materials found, the department had convincing proof that there was an escapement of taxes. A number of Fixed Deposit Receipts were found which itself amounted to more than 12 lakhs.
3. The assessee firm had not filed its returns for the assessment years 1983-84 onwards even by the date of the search. Taking advantage of the fact that a return disclosing a part of the concealed income within 15 days of the search would give them certain amount of immunity, the assessee filed their returns for the assessment years 1983-84 to 1985-86 on 30-12-1985. In that return the assessee had shown the income as per the profit and loss account which amounted to Rs. 3,00,360 for the assessment year 1983-84. Over and above this figure, the assessee declared income of Rs. 1,00,000 in the return. For the assessment year 1984-85, income returned was Rs. 4,62,707 to which the assessee declared a further sum of Rs. 1,40,000. For the assessment year 1985-86, the declared income was Rs. 7,55,119 under the head business and Rs. 7,50,000 under the head other sources. The latter addition is over and above that was disclosed as per the profit and loss account.
4. The Income-tax Officer was not quite satisfied with the amounts disclosed. On an examination, he found that the question of the cost of construction of the Nursing Home run by the assessee under the name and style of Upasana Hospital required scrutiny. The Income-tax Officer, therefore, addressed himself to the cost of construction as disclosed in the books as compared with the material discovered in the course of search operations. According to the assessee, the construction of the Nursing Home was started in 1978 and completed in 1985. There had been no dispute between the department and the assessee in respect of the amount invested in the construction of the hospital up to and including the assessment year 1982-83. The dispute had arisen only for the three assessment years now under consideration. An amount of Rs. 53,86,020 was the admitted cost of construction by the assessee for the entire period covered by the assessment years 1980-81 to 1985-86. Since the Income-tax Officer was of the opinion that this was an understatement, he referred the question of the cost of construction of the Nursing Home to the Valuation Officer who was the Superintending Engineer, Valuation, Madras. We may mention at this stage that this Valuation Officer did not submit his report to the Income-tax Officer till the date of assessment on 23-12-1986. However, it was necessary for the Income-tax Officer to complete the assessment. Therefore, he had started making his own enquiries regarding the probable cost of construction. On the basis of the plinth area, he estimated the amount of cement, concrete, bricks etc. which would be required. He had some assistance in the various bills and vouchers which were discovered in the course of the search. On the basis of those papers, there was every indication that the assessee had made a payment of Rs. 10,90,110 towards wages for completing brick work, plastering, carpentary, painting and mosaic flooring. Even this list was not complete because the last payment shown was on 10-9-1984 whereas the construction had continued even thereafter. Considering all these facts and basing himself on the available materials discovered in the course of the search, he estimated the total investment in the construction activity alone at Rs. 55,22,000. This is excluding the electrical and sanitary fittings, medical equipments, beds etc. In the final assessment order, the following figures were the estimation made by the Income-tax Officer :
Cost of construction of Bldg. Rs. 60,72,000
Medical Equipment Rs. 8,00,000
Furniture & fittings Rs. 4,70,000
Lift Rs. 3,00,000
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Total Rs. 76,42,000
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Since, according to the assessee, the cost of construction was Rs. 53,86,020, there is roundly an excess estimate by the Income-tax Officer of Rs. 22,56,000. Now, the assessee had agreed before the Income-tax Officer that cost debited to the books they had incurred for these three years was Rs. 29,02,950. We may make it clear that this figure is also part of the total cost according to the assessee. We mention this figure only to explain how the Income-tax Officer made the allocation of the addition of Rs. 22,56,000 over the three assessment years. He arrived at a proportion of the additions to be made to the additions admitted by the assessee and on that basis he spread the additional estimated cost of construction as follows :
A.Y.1983-84 Rs. 1,65,188
A.Y.1984-85 Rs. 5,18,170
A.Y.1985-86 Rs. 10,54,441
A.Y.1986-87 Rs. 5,18,201
(not before us in appeal)
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Rs. 22,56,000
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5. The assessee appealed. When the appeal was pending, the Valuation Officer to whom the reference was made regarding the cost of construction, gave his report. According to the Departmental Valuation Officer, the probable cost of construction of the building together with the cost of lift would have amounted to only Rs. 45.86 lakhs. This figure did not include the cost of furniture, medical instruments etc.
6. Before the Commissioner of Income-tax (Appeals), the assessee's first argument was that no addition is called for since their book figures were better than the figures estimated by the Valuation Officer himself. The Commissioner had called for a report from the Income-tax Officer regarding the Valuation Officer's report and the various objections raised by the Income-tax Officer in adopting the Valuation Officer's figures. After pointing out that the Valuation Officer had not taken into account the measurement of the work done or the materials available in the seized documents, the Income-tax Officer pointed out a very grave defect in the Valuation Officer's report in assuming that the entire construction was completed by March 1984. This was clearly against all facts.
7. We may mention here that the Income-tax Officer had proceeded on the basis of the work involved in constructing a Nursing Home of the magnitude of the building under consideration. There was the difficulty of fixing the exact quantum of work done. Realising this difficulty, the Income-tax Officer and the assessee had agreed before the Commissioner that this method may be discarded and the more preferable method of the adoption of a rate per S.Ft. of plinth area would be ideal. Thus the entire exercise which was so far taken was discarded and a new proposal was placed by the Income-tax Officer before the Commissioner (Appeals).
8. It will be necessary to give in some detail the revised proposals of the cost of construction as fixed by the Income-tax Officer. These are contained in his letter to the Commissioner dated 24th June 1987. This letter is at pages 133-137 of the Yellow-cover paper book furnished by the Department.
9. In order to understand how the Income-tax Officer fixed up the cost of construction, it is necessary at this stage to give a brief description of the building. This building consists of a front block, a rear Block and a central Block. The front Block is described by the Income-tax Officer to contain ground floor and seven floors over it; the central block is assumed to have ground floor with four floors above and the rear block ground floor and four floors. In other words, the building is divisible into three parts; all of them have ground floor with four floors above and the front portion has three more floors. The Income-tax Officer has also assumed that the front block has a plinth area of 430 sq. metres, the central 241 sq. metres and the rear block 314 sq. metres in all the floors, the exception being the 5th to 7th floors of the front block. It is also accepted that construction of the blocks were staggered over different years.
10. Now the Income-tax Officer has decided, on the materials found in the course of the search and the submissions made by the assessee that the spread over of the construction over the years would be:
Up to 1-5-1980 (a) ground floor, 1st & 2nd floors of Front Block
(b) Ground floor of central Block.
1980-81 1st & 2nd flrs. of central Block
1981-82 (a) 3rd floor of front Block
(Asst. year 1982-83) (b) Ground floor of rear Block
1982-83 (a) 4th floor of front Block
(Asst. year 1983-84) (b) 1st floor of rear Block
1983-84 (a) 3rd floor of Central Block
(Asst. year 1984-85) (b) 2nd floor of rear Block
1984-85 (a) 4th floor of Central Block
(Asst. year 1985-86) (b) 3rd & 4th floors of rear Block
1985-86 (a) 5th to 7th floors of Front Block
(Asst. year 1986-87) Fitting of Elevator and other fittings.
11. The Income-tax Officer has further assumed uniform cost of construction for all the blocks in any given year. The cost of construction is based on the Valuation Officer's report which is based on C.P.W.D. rates for each year. The figures adopted are:
Up to 1-5-1980 Rs. 574 per sq.mt.
1980-81 Rs. 671 ,,
1981-82 Rs. 914 ,,
1982-83 Rs. 1109 ,,
1983-84 Rs. 1221 ,,
1984-85 Rs. 1372 ,,
12. To the figures arrived at in the above manner, that is, plinth area constructed each year multiplied by the cost of construction per sq. metre, he added these estimated figures :
5th to 7th floor of Front Block. Rs. 1,00,000 Water and sanitary-fittings. Worked out on the total cost of civil construction estimated at Rs. 47,59,076 @ 27 1/2% Rs. 13,08,746 Extra for white glaze tiles Rs. 7,000 Collapsible gate Rs. 10,500 Generator Room Rs. 11,253 Compound wall etc. Rs. 75,000 Elevator Rs. 3,00,000 Architect's fees @ 2% Rs. 1,29,432
13. The total cost of the building and fittings were thus estimated at Rs. 66.1 lakhs. The Commissioner of Income-tax (Appeals) had practically accepted these estimates. He made only certain marginal adjustments like reducing the cost of elevator, Architect's fee etc. and fixed the cost at Rs. 63.74 lakhs. The spread-over of the period of construction given by the Income-tax Officer had been approved by the Commissioner (Appeals) in toto. He reduced the estimated cost of medical equipments and furniture and fittings also.
14. Against these findings of the Commissioner (Appeals) both the assessee and the department have come on appeal. The arguments before us were concentrated on the spread-over fixed by the Income-tax Officer. Now it will be noticed that the Income-tax Officer starts with the constructions completed up to 1-5-1980. This is an odd date to begin with. It is based on a certificate dated 1-5-1980 filed in the course of the earlier assessment years regarding the cost of construction. The certificate is reproduced below :
" This is to certify that an amount of Rs. 9,75,521.12 has been utilised for the construction of the building owned by M/s Upasana Hospital and Nursing Home and bifurcation of the construction is given below :
Building (already commissioned and put into use on 1-5-1980). Three floors of the Main Block and Ground floor for the side block Rs. 7,21,056.15 Building (under construction) Two floors of the side block and materials for the top floors Not put into use Rs. 1,27,061.02 Electric & sanitation fittings.Cost of fittings utilised for the completed part of the building. Rs. 1,27,403.95
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Total Rs. 9,75,521.12
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Sd/- (N.GOPALAKRISHNAN NAIR)
SUPERVISOR OF CONSTRUCTION
UPASANA HOSPITAL & NURSING HOME,
QUILON.
Quilon,
1-5-1980. "
15. The certificate does not refer to any front, central or rear block. It refers to main block and side block. But the Income-tax Officer has proceeded on the basis that the main block refers to the front block and side block refers to central block. This assumption is questioned by Sri Kochunni Nair for the assessee. According to him, main block referred to would include the front and central block and side block is a reference to rear block. On that basis, Sri Nair argues that by 1-5-1980 three floors of the front and central block along with ground floor of rear block has been completed. This is against the Income-tax Officer's view that, by that date, only three storeys of front and ground floor of central block is completed. The difference is the construction of 1st and 2nd floors of central block and ground floor of rear block which according to assessee is already completed by 1-5-1980.
16. This, then, is the first issue to be decided. Now this decision has to be based on some material. These materials are certain papers found in the course of the search. These papers are found at pages 141 to 157 of the yellow paper book. We have studied these papers. They represent certain calculations made by masons or contractors. Papers at pages 141 and 142 are definitely estimates by contractors. Paper at page 142 is to be first considered because that contains the earliest date noted in these papers -7-1-1982. This date is not questioned by either party before us. The heading for this is "rate for Second Floor". For brick work Rs. 130 for 9" wall and Rs. 160 for 41/2 " wall is quoted. There is quoting of rates for wall-plastering, door fitting etc. It is clear that on the date when the quotation is given, second floor of one of the blocks is yet to be commenced. Which is that 2nd floor? Is it the central block or is it the rear block? According to the I.T.O.'s estimate, 2nd floor of the central block was completed in 1980-81. So this cannot be the estimates of central block. This has to be, consequently, the estimates of the rear block. To this inference, the objection of the department is that these estimates of 7-1-1982 may be acted on later and 2nd floor of rear block was constructed only in 1983-84. But Sri Kochunni Nair for the assessee counters this by pointing out that the rear block is constructed over two years as is evident from other seized papers and this would refer to 1982-83 and 1983-84. Thus, the assessee wants to shift the cost of construction of first and second floors of central Block for 1980-81 to pre-1-5-1980; so also 3rd floor of central block to pre-1-5-1980. This would leave a gap in the construction activity, if we go by the I.T.O's periodic table, as adjusted according to the contentions of the assessee. There would be no construction activity in 1980-81. And in 1981-82, only the front block work on 3rd floor taken up.
17. These submissions have to be further tested by what the seized materials show. So we go to the next important material which is at pages 145 to 157. There is a controversy whether these papers were estimates submitted by contractors or they represent bills for work done. It is necessary, first, to explain what these papers contain. Page 145 has a heading. It says "Concrete" --- 3, 4, 5 floors total concrete (work) 19,954 cft. Although the title suggests the work connected with third to fifth floor, the details in the same page gives the work done/to be done in the 5th to 8th floor. We have used, in translation, the word "floors". This is misleading. What the paper at page 145 refers to "storey". That is clear because it refers to 8th "(Nila). Both parties agree before us there is no 8th floor. So this represent 8th storey or 7th floor from ground floor. At the end of the page, there is a total of Rs. 2,56,455. Page No. 147 deals with the amount involved in brick work @ 4 1/2" for the same structures referred to in page 145, page 149 refers to brick work 9", page 151 for bottom plastering, page 153 for wall plastering and page 155 for other miscellaneous work like door fitting, wall almirah etc. The total of all these works out to Rs. 4,36,432.
18. Apart from the question which block these notings refer to, there is also the question of the date of these notings. There are no dates given in any of these papers. But the Income-tax Officer has assigned the date of 2-5-1984 in the assessment order, while referring to the actual expenses on wages incurred in the construction which he totalled at Rs. 10,90,110. How did he get this date of 2-5-1984? That has to be probed, because, the I.T.O's case of spread over of the work partly depends on this date. We enquired from Shri Subramanian, the learned Departmental Representative, the basis for this date. He submitted that the totalling of the bills at page 157 of the paper book contain the signature with the date 2-5-undemeath. We do not think so. What he has written under his name is the village or house name and district name - that is Quilon. The way he has written "Quilon" in English looks like 2 - 5. This can be easily verified because his signature with similar appendage appears in other seized papers as well, which, admittedly are different dates. So, there is no basis to show that the bill of 4,36,432 covered by pages 145 to 157 in paper book refer to work done prior to 2-5-1984.
19. We have no doubt in our mind that these papers represent bill for work already done. Firstly, the amount are exact, not estimates. Second, we have already seen the papers which give the estimate and which are at pages 141 to 144 in the paper book. The rates quoted in pp.141 to 144 are the basis for the calculations at pages 145 to 157. Third, there is internal evidence in the reference to work done in 3rd floor--------------------- at old rate. It appears that the rates fixed increases by one rupee for each floor. For the 4th floor, at old rates, the wages would be Rs. 10 per sft. In fact the paper says 45% of 4th floor work was at this rate and for balance 55% at new rate which was Rs. 11 per sft. This cannot be possible unless the work was already done by the time the paper was written. Fourth, a reference is made to not constructing on the 4th floor front wing easter end 50 x 40 ft. This reference is in the papers connected with concrete (page 145) brick work 4 1/2" (page 147) brick work 9" (page 149) and wall plaster (page 153). This has to be ex post facto. Fifth, a number of miscellaneous items are mentioned at page 155 which is also possible only after the work is completed.
20. Having found that, these papers refer to actual work, we still have to decide when the work was completed and to which block or blocks it refers to. First we would proceed to fix the dates. As stated earlier, the bills adopt a rate mentioned in pages 141 to 144. From the language used in these pages (i.e. 141 to 144) it is clear they are estimates offered by the contractor. Entries in page 142 which is dated 7-1-1982, in our opinion, should be read along with page 141 which should follow it. These two are written in two pages of a calendar diary of 1981 which has a page for each day. The entries in page 142-141 ( in that order) is the estimate for the work to be done in that year of 1981-82. The rates would be different for the next year of 7-1-1983 to 7-1-1984. It was obvious to the contractor that the work of this dimension would take more than one year. That is why, apparently, by writing "7-1-1983 to 7-1-84" he has reserved the right to revise the rates for the next year. He stipulates "labour charges 15% for construction of "charam" must be given. Tools must also be given. If (the contractor) brings (his own) tools for making 'charam' like, chatti, spade etc. For that 20% labour charges should be given." He also says that "the other rates are for a period of one year only". Then he gives another heading '7-1-83 to 7-1-84'. Now, we find from the bills that concrete work for the third floor and a part of the 4th was done in one year at "old rate" and other floors were at new rates. So we can infer that third floor and 4th floor partly was done in the first year and the balance in second year. Obviously, the first year is 1982-83 and second year is 1983-84.
21. Now that we know the bill represents two or more years work, we should try to find out which block it would refer to. By third floor, the contractor means third storey or second floor. It is not front block or central block, because the Income-tax Officer has assigned the construction of these to prior years. Therefore, it has to represent only the rear block. If it is for rear block, and since the estimates are for third storey onwards, it follows that the ground floor and first floor of rear block must have been completed earlier. The second floor and part of third floor of rear block has been constructed in accounting year 1982-83 (assessment year 1983-84). The Income-tax Officer's contention that 2nd floor of rear block was in accounting year 1983-84 is unacceptable. So also that the finding that third and fourth floor was in 1984-85. We would put them at least one year ahead.
22. We must refer to one factor in the bills pointed out by Shri Subramanian. He stated that, the paper at page 145 premises that the area of concreting was 19,954 (roundly 20,000) and for third floor 1/5 is taken and the payment due were worked out on that basis. So if 1/5th represents a floor's work, he urges, the bill contains details for 5 floors. If, as per assessee's contention only three floors are done, the calculation should be one-third and not one-fifth. There is a simple answer to this point raised by the department. The bill represents the dues for construction in more than one block. This is obvious because we have already found it refers to work in rear block and at the same time it contains work done in 6, 7 and 8th floors which are in a different block altogether. The reference to 1/5th which puzzled the Department, is found only in working out the dues of 3rd storey. It is not found in any work connected with other floors. Fifth floor work was 8150 sq.ft. If it represented 1/5th, then the total billing should be 8150 x 5 and not 19,954. Fourth floor work is 4980 + 2824 = 7804. So 1/5th does not represent five floors work done in 1982-83 accounting year and the following year.
23. But we think the references to 'One-fifth' is certainly a clue to be followed up. After studying the paper, we have come to the conclusion that 19,954 sq.ft. of concreting was done at old rates. The area pertaining to the rear block included in it was 45% of 19,954 i.e. 8980 which was allocated 4000 sq.ft. to third floor and 4980 sq.ft. to fourth floor. These two together represent 45% of the work done in the rear block. There must have been some difficulty in measuring the work at old rates in third floor and the contractor must have estimated that one-fifth should refer to rear block to be allocated among the two floors on a rough and ready basis. We should refer to one other evidence relied on by the department to shift the year of construction to a later date. This evidence is a promissory note for Rs. 72,000 found in the premises during the course of the search. During the course of the search, Dr. Bhaskaran had been questioned about this promissory note. It has been made out by the contractor Jaichandran Pillai for Rs. 72,000. According to Dr. Bhaskaran, the bill made by Jaichandran Pillai for concreting and other works amounting to Rs. 4,94,200 was found to be excessive on re-measurement. The actual cost of work done was Rs. 4,14,100 and so for the excess amount paid to Jaichandran Pillai, a promissory note had been taken from him. We have no material to doubt the correctness of the date on which the excess paid to Jaichandran Pillai was discovered. It was 30-5-1985. Since this note refers to the excess work done as determined by Jaichandran Pillai's bills it puts outer date of the work at 30-5-1985. It is no evidence for anything more. It does not further help the department in fixing the date of construction in 1983-84 as required by the departmental representative.
24. So now, this leads to a finding that in 1982-83 concreting was done to the extent of about 16,000 sq.ft. at old rates in some other block. Which is that block? In our opinion, this could possibly refer to the third and fourth floors of the central block. These, according to the Income-tax Officer has been completed in accounting year 1983-84 and 1984-85. We must infer on materials available that it was possibly 1982-83 or even earlier, because the paper mentions "old rates" and not rates given in the estimates of Jayachandran Pillai, contractor of 7-1-82.
25. On the basis of these materials we have to revise the findings of the Commissioner (Appeals) on the dates on which the three blocks were constructed. Our findings are :
(i) The finding of the Commissioner of Income-tax (Appeals) regarding the front portion is acceptable, as no serious objections have been taken.
(ii) With regard to the central block, we accept the contention of Shri Kochunni Nair that in the contemporaneous certificate dated 1-5-1980 the words "Main Block" included the central block also and so the three floors were constructed before 1-5-1980. On the basis of the materials at page 145 of the paper, the reference to 55% of the concreting work must be to central block and so third and fourth floors of this block were constructed in 1981-82.
(iii) Ground floor and first floor of rear portion completed before 1-5-1980. This is based on certificate dated 1-5-1980. Second, third and fourth floors were constructed in 1981-82 to 1983-84.
26. We will now deal with certain other arguments of the assessee. The first argument is that the Valuation Officer's report which fixed the cost at a figure much below what assessee himself had disclosed must be accepted. We find no merit in this submission. The report is not binding as in wealth-tax and if the Income-tax Officer finds it is not based on material evidence available it should be discarded. It was rightly discarded.
27. A ground has been taken against the rates adopted. It is submitted that these rates are CPWD rates and would not represent the cost of construction for private parties. There is some force in this argument. We would, therefore, reduce the rates by 10% as against 7 1/2% given in Valuation Report.
28. The other grounds --- electrical and sanitary fittings, water tanks etc. --- in our opinion, can be rejected because we find the Commissioner's order for these items are reasonable.
29. We will now take up the Department's appeals on the cost of construction. No specific ground has been taken by the Department, except to state that the unaccounted investment should not have been reduced to Rs. 19 lakhs. On going through the order, the reduction objected to by the department resolves into three items :
(i) Reduction in cost of lift Rs. 97,000
(ii) Reduction in medical equipment Rs. 3,00,000
(iii) Reduction in furniture etc. Rs. 1,20,000
30. We will consider the issue regarding lift here. The other two items have to be considered along with assessee's objection in his appeals. The cost, as per invoice of Otis India Ltd. was Rs. 2,41,570. The Income-tax Officer estimated it at Rs. 3 lakhs since it would entail erection charges. The Commissioner of Income-tax (Appeals) by some oversight took the cost to be Rs. 2,03,000. This is certainly an error because the Company itself in their letter to the Income-tax Officer dated 13-01-1988 has said that the payment received by them was Rs. 2,43,584. There has to be considerable civil work in installing the lift and these cannot be ignored. So the estimate of Rs. 3 lakhs by the Income-tax Officer is reasonable and will be restored.
31. We take up next the question of medical equipment the Income-tax Officer has estimated it at Rs. 8 lakhs and Commissioner (Appeals) at Rs. 5 lakhs. The first objection of Shri Kochunni Nair is that the expenses on medical equipments should not be considered on par with the cost of construction of the nursing home and so there should be no question of estimate. He submitted that if the Income-tax Officer has material to show that any medical equipment has been acquired and it is not reflected in the books, there could be an addition under section 69 in the year of acquisition. His next submission was there are no such acquisition not accounted for and so the whole addition should be deleted. The Department wants the restoration of addition of Rs. 8 lakhs.
32. The records show that for the year ended 31-3-81 the total investment in medical equipments were Rs. 4,66,283 (as per depreciation statement). Thus there is nearly Rs. 5 lakhs worth of equipments by 1981-82 itself.
33. Shri Subramanian then submitted that till the assessment stage both the Income-tax Officer and the assessee had proceeded on the basis that the cost of civil construction of the Nursing Home building along with furniture, fittings and medical equipments must be considered together. That is how the figures were worked out. If the medical equipments have to be separated from the consolidated figure, he submitted the assessee's admitted cost of construction also should be altered from Rs. 53,86,020 to a lesser figure.
34. This submission would take us to the consideration of the details of the admitted cost of Rs. 53.86 lakhs. It is clear this figure includes medical equipment of
X-Ray machine etc. Rs. 2,28,018
Surgery equipments Rs. 59,168
ICCU equipment Rs. 99,025
Lab equipments Rs. 1,03,737
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Rs. 4,89,948
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35. In effect, the Income-tax Officer has added three lakhs. Now, although the assessment order does not refer to the materials, the records show acquisition of materials outside the books. We deal with them below. Respirator Monal: There is evidence that it has been imported and cost the assessee Rs. 48,246. This acquisition pertains to accounting year 1982-83. Items cost fixed at Rs. 54,990: The basis for this addition is a letter from M/s Electrocare Systems and Services dated 22-10-1981, giving certain quotations for Monal B Respirator. In our opinion, this is merely an enquiry made by the assessee and does not show any acquisition. On the other hand, three months later in January 1982, the assessee has imported the same item. So there is no case for inclusion of this sum of Rs. 54,990. Short-wave Diathermy: There is evidence on the basis of two letters to the assessee from M/s Electrocare Systems & Services that the assessee had acquired them in 1984-85 accounting year. Equipments worth Rs. 19,500 has been added on the basis of a letter from the seller dated 5-6-1984. We find this is merely a reply to an enquiry. It is not an invoice. This cannot be considered. There is, however, evidence for purchase of Ultra Sound doppler tone for Rs. 4800 on 27-1-1983. This would be considered in accounting year 1982-83. Although there is evidence for acquisition of equipments worth Rs. 62,046, outside the books, it would not support the case for wholesale estimate. The Commissioner of Income-tax (Appeals) estimated it at Rs. 5 lakhs because the admitted investment was Rs. 4,89,948. To this, must be added Rs. 62,046. To that extent the Department would succeed. But we are of opinion that the addition should not be a part of the total cost for spread over. Each addition must be assessed in the year of investment. So Rs. 48,246 and Rs. 4,800 should be considered for assessment year 1983-84 and Rs. 9000 for the assessment year 1985-86. To this extent the Department's contention is accepted.
36. We next consider the reduction in the estimated cost of furniture and fittings. The admitted cost is Rs. 4,70,141 which is part of the total admitted cost of acquisition of Rs. 53.86 lakhs. The Income-tax Officer had proceeded on this figure but the Commissioner of Income-tax (Appeals) had reduced it to Rs. 3.50 lakhs. This certainly reduces the figure to below what the assessee himself has admitted. So Rs. 4.70 lakhs fixed by the Income-tax Officer has to be restored.
37. For the assessment year 1984-85 and 1985-86 there is a ground arising out of an addition made by the Commissioner himself. According to the Commissioner, the assessee had made investments in land for Rs. 50,000 and Rs. 39,000 respectively in the two years, not accounted for in the books. The assessee's case is that there is no unaccounted for acquisition at all. These purchases are found in the books. This submission has not been contradicted. So the additions stand deleted.
38. The above paragraphs would dispose of the quantum of additions. Since the addition is for a period of three years, the question of allocation over the three years would arise. There was also a submission by Shri Nair that the allocation should be spread over six years since that is the period over which the budding was constructed. But we do not accept this submission, because up to now the case of both parties have been that the unaccounted funds were utilised in these years only. So the allocation must be for these three years. Now although, the total admitted cost of construction was above Rs. 53 lakhs for a period of six years, the admitted cost for these three years was Rs. 29,02,950. So the ratio adopted by the Income-tax Officer is reasonable and is upheld.
39. But we must make one small amendment. The Income-tax Officer must deduct from the addition upheld by us Rs. 62,046 representing medical equipment cost. This has to be assessed in the appropriate years of acquisition as indicated already.
40. To sum up : the spread over of the construction would be as follows :
Front Block : All the floors (except 5th, 6th and 7th) were constructed before the assessment year 1983-84. No controversy on cost of construction of 5th, 6th and 7th floors before us.
Central Block : Up to Second Floor the issue is not before us. Third and Fourth Floors were constructed in 1982-83 assessment year (Paras 24 & 25).
Rear Block : Ground and first floor constructed before assessment year 1982-83. Second floor partly constructed in 1981-82 (assessment year 1982-83) 4000 sq.ft. of second floor and 4890 sq.ft. of third floor constructed in 1982-83 (assessment year 1983-84). Third floor 2824 sq.ft. and 4th floor constructed in 1983-84 (assessment year 1984-85).
Rate: C.P.W.D. rates should be reduced by 10%.
Lift: Income-tax Officer's estimate restored.
Furniture: Income-tax Officer's estimate restored.
Medical Equipments: Rs. 48,246 plus Rs. 4,800 to be considered in assessment year 1983-84, Rs. 9,000 for assessment year 1985-86.
41. All the appeals are partly allowed.
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