Vildirect: IncomeTax-caselaws-1992-VIL-165-ITAT-DEL

1992-VIL-165-ITAT-DEL

Equivalent Citation: ITD 041, 298,

Income Tax Appellate Tribunal DELHI

Date: 24.02.1992

NARESH BEHAL.

INCOME-TAX OFFICER.

BENCH

Member(s) : CH. G. KRISHNAMURTHY., M. A. A. KHAN.

JUDGMENT

Per Sri M. A. A. Khan, J. M. --- This is an appeal from the order of the CIT(A) dated15-1-1988 maintaining an addition of Rs. 1,03,980 on account of alleged unexplained investment by the assessee in the construction of his factory building.

2. The relevant facts are these :---

At an open auction, held on27-7-1976by the Delhi Development Authority, the assessee, an individual, had purchased Plot No. C-59/3 in the Industrial Area, Okhla, Phase-II,New Delhifor Rs. 81,500 on perpetual leasehold basis. The assessee completed the construction of factory building thereupon by November/December 1980.

3. In the return filed for the assessment year 1981-82 relevant to previous year ending on 31-3-1981 the assessee declared the details of cost of construction of the factory building as under :

Amount spent up to 31-3-1980 ---- Rs. 2,43,503

Amount spent during the year under consideration ---- Rs. 1,28,332

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Rs. 3,71,835

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4. In addition to the construction account the assessee filed registered valuer's report dated27-5-1981along with the return. The registered valuer Sri A. N. Gambhir had determined the cost of construction at Rs. 3,62,582 although he had valued the land under the factory building at Rs. 1,15,366 as against the cost of acquisition thereof at Rs. 81,500. The ITO did not accept the cost of construction as declared by the assessee and called for an information on the point under section 133(6) of the Income-tax Act, 1961 (the Act) from the official valuer. The official valuer by his report dated3-3-1984determined the cost of construction at Rs. 5,64,000 which included an expenditure of Rs. 37,000 incurred by the assessee after the close of the accounting period under consideration. Thus adopting the cost of construction at Rs. 5,27,000 (Rs. 5,64,000 minus Rs. 37,000) the ITO concluded that the assessee had made investment of Rs. 1,55,165 (Rs. 5,27,000 minus Rs. 3,71,835) out of his income from undisclosed sources. He accordingly made an addition of Rs. 1,55,165 in his order dated17-3-1984passed under section 143/144B of the Act. The assessee appealed to the CIT(A).

5. In appeal the CIT(A) felt convinced that the addition of Rs. 1,55,165 was made without giving an opportunity to the assessee to meet and rebut the report of the official valuer. He, therefore, set aside the assessment on the point to be reframed de novo.

6. In the reassessment proceedings as per directions of the CIT(A) the ITO took into account the supplementary report dated 30-3-1984, whereby the official valuer had rectified an alleged calculation mistake of Rs. 31,000 in the adoption of rate of construction of the basement and had determined the cost of construction at Rs.5,95,000 as against Rs.5,64,000 mentioned in his original report. After excluding the expenditure of Rs. 37,000 incurred in the subsequent year the ITO adopted the difference of Rs. 1,86,165 between the cost of construction as determined by the official valuer at Rs.5,58,000 (Rs.5,95,000 minus Rs.37,000) and as declared by the assessee at Rs. 3,71,835 as unexplained investment of the assessee from undisclosed sources. This time he made an addition of Rs. 1,86,165. The assessee again approached the CIT(A) in appeal.

7. The CIT(A) noted that the departmental valuer had taken the cost as in late 80's whereas the major part of building construction had taken place much prior to that. He found the cost index at 165, adopted by official valuer as too high and that at 135 declared by the registered valuer as too low. He then adopted it at 150. He further pointed out that addition of Rs. 31,000 to the originally determined cost of construction of Rs. 5,64,000 by the official receiver was without any justification and sound basis. The learned CIT(A) thus determined the unexplained investment made by the assessee in the construction of the factory building carried on during the year under consideration at Rs. 1,03,980. It is the sustenance of this addition that has been challenged by the assessee in this appeal. There is, however, no cross-appeal or cross-objection from revenue against the reduction of the addition.

8. Mr. C. S. Agarwal, Advocate appearing for the assessee had vehemently urged that the IT authorities were not at all justified in ignoring the cost of construction of the factory building as reflected in assessee's account books the authenticity and correctness of which were never doubted by them. In support of his argument the learned counsel relied upon the appellate order dated28-7-1988passed in wealth-tax case of the assessee for this very year, the relevant entries in the ledger and theFactoryBuildingA/c. and a number of decisions of various Benches of the Tribunal and of some High Courts. On the other hand, the learned departmental representative has supported the order under appeal.

9. It is by now well settled that the entries in the account books maintained in the regular course of the things are relevant & admissible in evidence and, in a sense, carry with them a presumption of their correctness until the contrary is proved. Therefore, if it is proved on record that a person has maintained the record of an expenditure in the regular course of the things, such record must be given due evidentiary value and should not be lightly overlooked or rejected. Even if such an evidence is sought to be rebutted by some other admissible evidence then the worth of the two should be impartially evaluated and the more weighty should be accepted.

10. In the matter of determination of the cost of construction of a building in order to know the extent of investment made therein the basic difference between certain related concepts is required to be kept in mind. The evidence showing or suggesting the incurring of actual expenditure should ordinarily be preferred to estimation of the expenditure incurred unless the former suffers from patent defects of falsity or incorrectness. In other words direct evidence is to be preferred to indirect evidence. Then the concept of " cost " should not be confused or equated with the concepts of " price " and/or ' value '. ' Cost ' signifies the actual expenditure incurred on the manufacture, production or construction of an article, goods or thing. ' Price ' refers to the amount paid for acquisition of an article, goods or thing. In the hands of the purchaser ' price paid ' represents ' cost of acquisition ' which is not synonym to ' cost of production or construction '. ' Value ' is the amount especially a material or monetary one, considered fair exchange in return of an article, goods or thing. ' Cost ' does not change without additional expenditure whatever has been incurred on bringing an article, goods or thing into existence remains unaffected by subsequent circumstances, unless additions, alteration in the object have been made. ' Price ' would be affected by the doctrine of ' supply and demand '. It may be less than the actual cost or higher than the ' value ' depending upon the circumstances prevailing at a particular point of time. ' Value ' goes on appreciating or depreciating by lapse of time, depending upon, besides the doctrine of supply and demand, location, site availability of amenities, liquidity, marketability, etc., of the thing concerned. The concept of ' cost of construction ' is, therefore, altogether different from the concept of ' valuation ' of a property. In the Income-tax Act we are only concerned with the ' cost of construction ' in the context of ' investment ' made in an immovable property in a particular year than with the valuation thereof on a particular date. Therefore, it is all the more desirable that the direct evidence on ' cost of construction ' be, unless found unreliable and unacceptable, preferred to the indirect evidence on that point coming through the road of estimated valuation.

11. In the instant case it is not disputed that the assessee had maintained the account of construction of the factory building. In fact the expenditure of Rs. 2,43,503 stated in such accounts to have been incurred during the period from1-4-1979to31-3-1980was accepted by the Department. That means that a part of the same evidence was accepted as correct and true. No reasons were given by the ITO not to have similarly accepted the remaining part of the same evidence representing expenditure of Rs. 1,28,332 incurred during the year under consideration, as true and correct. He pointed out no defects in them. He found no fault with them. He expressed no doubts and reservations against their acceptability. Without pointing out at the defects in the account of expenditure the ITO was not at all justified in calling for an information under section 133(6) on the point of cost of construction. In our approach to this issue we are, we think fortified by the decisions of the Tribunal in the case of Sri Har Sarup Cold Storage & General Mills v. ITO [ 19881 27 ITD 1(Delhi)(TM).

12. An information called for by an ITO under section 133(6) does not carry the same probative value as is attached in law to the report of valuation called for under section 55A of the Act or under section 16A of Wealth-tax Act, 1957. While the former is simply advisory in character and persuasive in effect the later is binding upon the ITO/ WTO. In fact the information obtained under section 133(6) is relevant to the extent of the facts sought to be obtained through such information. In former's own opinion about the evidentiary value of the facts informed by him would not be relevant. The person calling for the information shall have to evaluate the facts himself and then arrive at his own conclusions regarding their acceptability. In fact, it is highly doubtful if the opinion of the informant under section 133(6) would be of the same evidentiary value as that of an expert tendering advisory opinion to the ITO under section 131(d) of the Act.

13. Be that as it may, we have before us the further undisputed fact of acceptance by revenue of the same figure of Rs. 3,71,835 on account of cost of construction of the factory building up to 31-3-1980 in assessee's wealth-tax case for this very year as it was not brought to our notice that the order passed by the Dy. CWT(A) on 28-71988 in assessee's appeal for assessment year 1981-82 was ever challenged in second appeal. That position too helps us to hold that in the facts and circumstances of the case the cost of construction as returned by the assessee was required to be accepted and no addition on account of difference between the cost of construction as declared by the assessee and as that estimated by official valuer was justified. We, therefore, delete the addition made.

14. In the result, the appeal is allowed

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