Income Tax Appellate Tribunal - Hyderabad
Income Tax Officer vs Dr. K. Rami Reddy. (Dr. K. Rami Reddy V. ... on 21 July, 1993
Equivalent citations: (1994)50TTJ(HYD)413
ORDER
T. V. RAJAGOPALA RAO, J. M. :
Since the only common point at issue is about the valuation of construction of a house situated at Adoni, these may be taken up together and disposed of by a common order. These appeals are by the Department and they relate to asst. yrs. 1985-86 to 1987-88 respectively and the cross objections are by the assessee. The cross objections are filed to support the order of the first appellate authority and no independent prayer or relief is prayed for. The only prayer made in the cross objection was to dismiss the appeals after accepting the impugned order passed by the Dy. CIT(A), C Range, Hyderabad, dt. 16th May, 1990.
2. The facts of the case in brief are the following. The assessee is a Doctor running a clinic Kanti Eye Hospital at Adoni. The property was situated at ward No. 21, Plot Nos. 3, 13 & 14, Netaji Nagar, Mandigiri, Adoni and Survey No. assigned to the said land is 392/A. In that land a double-storeyed residential building was constructed during the period July, 1984 to Sept., 1986. Thus the period of construction falls in the accounting year relevant to asst. yrs. 1985-86, 1986-87 and 1987-88 respectively. The property is stated to be situated near to now RTC Bus Stand and it is also stated the stone quary is only 1 Km away from the said house. The locality in which the house is situated is stated to be Netaji Nagar, Mandigiri, Adoni, Kurnool District. The ground floor comprised of verandah, drawing-cum-dining hall, master bedroom with attached toilet, garaga, pooja room, kitchen with store, rear verandah and another bedroom with attached toilet. RCC stair case is provided for access to first floor through drawing-cum-dining hall. The first floor has two bed rooms with attached toilet and passage which connects the two bed rooms also serves as balcony within the building. A RCC stair case is constructed to give access to terrace of first floor where a munty is also provided. The plinth area of the ground floor and first was 336.20 sq. mts. Though no separate books were maintained noting the cost of construction of the building, the assessee had maintained books of accounts for the medical profession and in those very books, the amounts obtained from different persons and other funds were credited and from out of those funds in his regular books amounts were withdrawn for purpose of utilising the same for construction of the building. According to the assessee, the cost of construction came to Rs. 2,78,000 and the break up of the said cost of construction is as follows :
Asst. yr.
Amount Rs.
1985-86 1,15,000 1986-87 70,000 1987-88 93,000 For asst. yr. 1985-86, the assessment was originally completed under S. 143(1) on 22nd Aug., 1985 on a total income of Rs. 30,290. Similarly for asst. yr. 1986-87 while completing the assessment originally on 30th Oct., 1986 under S. 143(1), the total income was determined at Rs. 34,700. For asst. yr. 1987-88, the assessee filed his IT return on 26th Aug., 1987 admitting a total income of Rs. 24,000. Along with this return the assessee filed registered valuers report dt. 15th Nov., 1986 in which the total cost of construction was estimated by the registered valuer at Rs. 3,10,240 out of which he had deducted a sum of Rs. 30,240 which represents 10% of the estimated cost of construction towards self-supervision and ultimately he arrived at the estimated cost of construction of Rs. 2,30,000. The registered valuer adopted detailed estimate method in his report. The value of construction cost estimated or admitted was considered to be low and, therefore, the Assessing Officer had referred the question of estimating the cost of construction to the Valuation Cell (Asstt. Engineer, Unit No. I, Valuation Cell, IT Deptt., Hyderabad). The Departmental Valuer had visited the building and filed his report dt. 11th May, 1988, in which, he estimated the total cost of construction at Rs. 3,83,367 and after conceding Rs. 28,790 which represents 7-1/2% of the total cost of construction towards self-supervision, estimated the ultimate cost of construction at Rs. 3,55,077. The Assessing Officer addressed two letters dt. 13th Jan., 1988 and 15th June, 1988 calling upon the assessee to file his objections to the valuation report of the Valuation Cell. The assessee specifically called upon to state his objections why the amount of Rs. 28,790 conceded by the registered valuer towards self-supervision should not be withdrawn since the assessee is a medical practitioner and it would not have been possible for him to supervise the construction of the building, personally, and also why the cost of construction of Rs. 3,83,867 arrived at by the Valuation Cell should not be adopted and why the difference in cost of construction of Rs. 1,05,867 should not be assessed as income from undisclosed sources for asst. yr. 1987-88. The assessee was also required to appear with books of account, vouchers, etc., for the hearing.
The assessee filed a letter dt. 6th Oct., 1988 on 11th Oct., 1988 stating his objections which were all catalogued in the assessment order passed by the Assessing Officer for asst. yr. 1987-88. Thereupon the Assessing Officer issued another notice to the assessee dt. 15th July, 1988 to file full details to produce evidence towards loans, etc. The assessee got filed through his authorised representative a reply dt. 28th July, 1988 on 2nd Aug., 1988. The Assessing Officer while completing the assessment for asst. yr. 1987-88 had preferred to follow the report of valuation & Cell than against the report of the registered valuer. After mentioning the reasons for doing so, he ultimately adopted the figure of Rs. 3,55,000 as estimated cost of construction. Thus as against the estimated cost of construction of Rs. 3,55,000, the Assessing Officer found that the admitted cost of construction was only Rs. 2,78,000 and the difference between the estimated cost and admitted cost being Rs. 77,000 he proposed to include the same as income of the assessee under the head undisclosed source. At that juncture, the authorised representative who apparented for the assessee contended before the Assessing Officer that since the period of construction extended over three accounting years ending with asst. yr. 1987-88, without prejudice to his general contention that there is no difference in the cost of construction, he submitted that the difference should be distributed in all the three assessment years during which the construction was on. The ITO had accepted this contention and apportioned the sum of Rs. 77,000 over the three assessment years as under :
Asst. yr.
Amount apportioned 1985-86 32,000 1986-87 30,000 1987-88 25,000 He found that the withdrawals towards household expense were made for the three assessment years. The admitted withdrawals were Rs. 6,000 per year. The assessee was having his wife, two children and a mother. Children are studying in schools. He, therefore, estimated the reasonable household expenses at about Rs. 8,000 per year and the difference of Rs. 2,000 was sought to be added in each of the three assessment years, namely, 1985-86, 1986-87 and 1987-88. For this purpose the assessee was issued a notice under S. 148 on 5th Aug., 1988 reopening the asst. yr. 1985-86 and 1986-87 and called upon the assessee to file his return. The assessee filed his returns on 8th Aug., 1988 admitting a total income of Rs. 32,290 for asst. yr. 1985-86 and Rs. 34,700 for asst. yr. 1986-87. Subsequently after hearing from the assessee, reassessments were completed for 1985-86 and 1986-87 by his reassessment orders dt. 22nd Aug., 1988, in which the added Rs. 25,000 and Rs. 20,000 respectively being the difference in cost of construction of the residential house in asst. yrs. 1985-86 and 1986-87 respectively. In the regular assessment framed for asst. yr. 1987-88, he had included a sum of Rs. 32,000 towards income from other sources representing difference in cost of construction of the residential unit. Thus, the ITO had committed an apparent error or mistake in respect of adding Rs. 25,000 for asst. yr. 1985-86 and Rs. 32,000 for asst. yr. 1987-88. Therefore, he had passed a rectificatory order under S. 154 dt. 8th Dec., 1988. According to the ITOs rectificatory orders, the addition made for asst. yr. 1985-86 was Rs. 32,000 and the addition made for asst. yr. 1988-89 was Rs. 25,000 being the difference in cost of construction of the residential house in those years.
3. Aggrieved against the reassessments for 1985-86 and 1986-87 and regular assessment for 1987-88 and aggrieved against the additions made towards income from other sources, the assessee preferred appeals before the Dy. CIT(A), C Range, Hyderabad. The learned Dy. CIT(A) had consolidated all the three appeals and disposed them of by his consolidated order dt. 16th May, 1990, whereby he deleted the additions for those three years totalling to Rs. 77,000 and allowed the appeals filed before him. It was contended before the Dy. CIT(A) that there is no approved cost index for Adoni Town even according to the Departmental Valuation report. The indices are based on the cost indices of Kurnool as approved by Government of India. To arrive at the cost indices of Adoni, then Valuation Officer adopted the Delhi cost as on 1st Oct., 1976 and the said cost was taken as a base at 100. On that basis he arrived at the cost indices as follows :
31.3.85 266 31.3.86 280 31.3.87 280 It was contended that adoption of Delhi cost index is quite irrelevant when the cost of index of neighbouring Kurnool is available in CBDTs instruction No. 1671 F. No. 319/26/85-WT dt. 6th Dec., 1985. In the above instruction of the CBDT, the cost index of Kurnool is mentioned as 220 as on 1st April, 1983. Based on the cost of Kurnool, the cost index of Adoni will be a substantially low figure. The valuation report of the Valuation Cell ought to have been based on the above CBDT instruction which is not done in this case. The assessment order does not suggest that the books of account maintained by the assessee are irrelevant or unreliable. When the cost recorded is supported by 100% invoices, bills and vouchers, etc., the Assessing Officer had not given any finding that they are not capable of verification and it was urged that simply rejecting the cost of construction admitted by the assessee on the ground that it is too low, cannot be sustained. It is significant, argued the learned counsel, that the Departmental Valuation Officer himself admitted in his report that the assessee had produced 100% vouchers for the expenditure. Before the Dy. CIT(A), the assessee relied upon the Tribunals decision in the case of Sri Har Sarup Cold Storage & General Bills vs. ITO (1988) 27 ITD 1 (Del), wherein the Tribunal had held that when the expenditure recorded in regular account books maintained by the assessee have not been shown to be wrong, untrue or defective, the question of placing reliance on the opinion of experts and their valuation report should not arise. Accepting these arguments of the assessee, the appeals were allowed and the additions made in each of these years, namely, Rs. 32,000 for 1985-86, Rs. 20,000 for asst. yr. 1986-87 and Rs. 25,000 for 1987-88 were all deleted. Aggrieved against the impugned order passed by the Dy. CIT(A), the Department came up in second appeals before this Tribunal. As already stated the assessee filed cross-objections with no specific prayers but only supporting the impugned order of the Dy. CIT(A). Thus the matters stand for my consideration.
4. I have heard Shri K. Vasantha Kumar, the learned Departmental Representative and Shri K. K. Viswanatham, the learned counsel for the assessee. A paper book containing 78 pages was filed by the assessees counsel apart from filing some loose papers. The learned Departmental Representative also filed a paper book containing 7 pages. At the time of hearing, additional grounds of appeal were filed by the assessees counsel. Since additional grounds are only filed as a measure of elaborating the ground already preferred before the first appellate authority, they are admitted for consideration. The learned Departmental Representative argued that no separate books of accounts were maintained for cost of construction of the building and so the question whether the entries are verifiable or not and whether the book entries are true or false does not arise. It is also contended that in view of the above, following the ratio of the Tribunal decision reported in (1988) 27 ITD 1 (Del) by the first appellate authority is wrong. In the Special Bench decision report in (1988) 27 ITD 1 (supra), the assessee had constructed a cold storage and produced account books as well as valuation report of the cost of construction as shown in his return. However, the ITO obtained valuation report from the Departmental Valuation Officer who had estimated the cost of construction and relying on his report and without pointing out any defects in the assessees account books, the ITO added the difference as understated and treated the difference as unexplained investment of the relevant assessment years. The question that cropped up was whether the action of the ITO could be sustained and the Special Bench held that it cannot be sustained. At page 2 as per the head note the following is what is held by the Special Bench :
"By reading Ss. 69 and 143(3) together, it is imperative that the ITO must, rather he had 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 unreliability not just by expressing a capricious view but by pointing out flaws in the evidence, if any. It was only after the evidence was rejected that the ITO would get the power to estimate the cost of construction. It was at that point of time that he could rely upon the report of the Valuation Officer."
According to the above decision, the occasion to consider the valuation report arises only after rejecting the account books produced by the assessee in which the cost of construction was fully given. Without rejecting the cost of construction recorded in the books of accounts, the question of adopting the Departmental Valuers report does not arise. The learned Departmental Representative contends that since no books of accounts were maintained in which the cost of construction was noted by the assessee, reliance on this decision is misconceived and, therefore, the impugned order is liable to be reversed.
5. Firstly, it is argued by Shri K. K. Viswanatham, the learned counsel for the assessee, that there is no nexus between any omission to give information and the reasons for reopening the assessments. Copy of the reasons for reopening the assessment for 1985-86 was furnished at pages 1 to 3 of the paper book filed by the Revenue. So also copy of the order sheet contained the ITOs reasons for reopening the assessment for 1986-87 was contained at pages 4 to 6 of the paper book filed by the Revenue. After tracing out the events upto that stage, the ITO while recording the reasons for reopening the assessment for 1985-86 had stated the following :
"I have, therefore, reason to believe that due to assessees omission to disclose fully and truly all material facts necessary for his assessment the income chargeable to tax has escaped assessment for the asst. yr. 1985-86."
According to the learned counsel for the assessee, there was no charge that the assessee omitted to furnish any details necessary for completion of the assessment for 1985-86. In fact the assessee filed income and expenditure statement, as well as balance sheet along with his IT return filed for asst. yrs. 1985-86 and 1986-87. In those statements, he has already disclosed the expenditure incurred by him for construction of the house at Rs. 1,15,000 in the balance sheet for asst. yr. 1985-86 and the amount spent upto the end of the asst. yr. 1986-87 was mentioned at Rs. 1,85,000 which represents cumulative figure. That means the assessee specifically mentioned that for asst. yr. 1986-87 the expenditure that was incurred for construction of the house was Rs. 1,85,000. So the fact that the assessee was going on with construction of the house at Adoni was sufficiently made is known from out of the balance sheet as well as the income and expenditure statement filed for those two years. When all the material facts sufficient to complete the assessment were already stated in the IT return filed for asst. yrs. 1985-86 and 1986-87 there is no question of any such & information being held back which will hinder the ITO while finding out the total income of the assessee for 1985-86 and 1986-87. In the reasons recorded at page 1 of the paper book itself, the ITO stated the following :
"The assessee maintained regular books of accounts and the amounts utilised for construction of house were withdrawn from his book maintained for the medical profession."
The assessee is not under an obligation to furnish details regarding the quantum of expenditure spent in those two respective assessment years towards construction of the house, since that information cannot to be material for completion of assessment, unless and until the ITO had called upon the assessee to do so and the assessee failed to furnish such information in his turn. Even though there is no such duty to disclose full details as to how much was spent towards construction of the house, the assessee had furnished such information along with the IT returns originally filed for asst. yr. 1984-85 as well as 1985-86. Therefore, when once the material are already known to the ITO and did not make any addition in the hands of the assessee for asst. yrs. 1984-85 and 1985-86 towards cost of construction of the house, the assessee is not guilty of any suppression of facts and reopening under S. 147(a) cannot be resorted to and the reopening of assessment for 1984-85 and 1985-86 are bad under law for that reason. Out of the facts of the case, there is only a duty on the part of the assessee to show that he constructed a house during the accounting year relevant to asst. yrs. 1984-85 and 1985-86. After having shown that he had undertaken construction of the house, there is no further duty on the part of the assessee to disclose how much was incurred towards the cost of construction for each of the accounting years relevant to these two years. From the statements filed along with the returns it is sufficient to disclose that the assessee went on constructing the house. The ITO did not call upon the assessee to furnish details of expenditure incurred in each of the assessment years. However, the said information also was given by the assessee along with the return. The ITO failed to make any addition whatsoever towards cost of construction of the house while making the original assessment. In fact he had chosen to accept the return of income filed by the assessee. Under the circumstances, the reopening under S. 147(a) is bad under law since there is no omission of any material fact which can be said to have been made in the original IT returns filed for these two years. In the reassessments, the ITO accepted the Departmental valuation report on the basis of which he has changed his opinion with regard to the cost of construction and made additions of Rs. 32,000 for the first year and Rs. 20,000 for the second year. The change of opinion with regard to the cost of construction which took place with the ITO cannot be held as a valid ground for reopening the assessment under S. 147(a). This very contention though was not made either before the ITO who made the reassessment or before the first appellate authority, the assessee is entitled to raise the same since the respondent in an appeal can defend the order on any ground which was not dealt with by the first appellate authority. In support of this ground which was not dealt with by the first appellate authority. In support of this contention the assessee relied upon the decision of the Allahabad High Court in Marolia & Sons vs. CIT (1981) 129 ITR 475 (All). In the headnote of the decision, the following is what is stated.
"The power conferred on the Tribunal under S. 254 of the IT Act, 1961, does not debar or disentitle a party not filing an appeal, from raising a fresh point or a ground on the basis of which he could support the judgment."
Shri K. K. Viswanatham contended that even on a ground which was not taken up or discussed by the first appellate authority, the order of the first appellate authority can be supported and sustained by the respondent in an appeal. This proposition was also supported by the decision of the Bombay High Court in New India Life Assurance Co. Ltd. vs. CIT (1957) 31 ITR 844 (Bom) in which Chief Justice Chagla had observed at page 855 as follows :
"The position with regard to the respondent is different. It is not open to him to urge before the Court of appeal and get a relief which would adversely affect the appellant. If the respondent wanted to challenge the decision of the trial Court, it was open to him to file a cross-appeal or cross-objections. But the very fact that he had not done so shows that he is quite content with the decision given by the trial Court. Therefore, under these circumstances, his only right is to support the decision of the trial Court. It is true that he may support the decision of the trial Court, not only on the grounds contained in the judgment of the trial Court but on any other ground. In appreciating the question that arises before us, one must clearly bear in mind the fundamental difference in the positions of the appellant and the respondent. The appellant is the party who is dissatisfied with the judgment. Now what we have just said is nothing more than really a summary of the provisions with regard to appeals and cross-objections contained in order XLI of the CPC; and as we shall presently point out, the position of the Tribunal is the same as a Court of appeal under the CPC and the powers of the Tribunal are identical with the powers enjoyed by an Appellate Court under the Code."
Having established his right urge a new point in an appeal, the learned counsel for the assessee had invited my attention to the well-known decision the Supreme Court in the case of Indian & Eastern Newspapers Society Ltd. vs. CIT (1979) 119 ITR 996 (SC). The said decision was cited in support of the proposition that an error discovered on a reconsideration of the same material (and no more) did not give him the power of reopening. The learned counsel for the assessee contended that in the regular assessment made for asst. yr. 1987-88, there was an admission on the part of the ITO who completed the assessment. The Departmental valuation report was contained at pages 31 to 50 of the assessees paper book. At page 41, the Departmental valuer had clearly admitted the following :
"As the assessee has produced 100% vouchers for the total work done 7-1/2% reduction towards self-supervision charges is permitted."
Thus there is an admission on the part of the Revenue that the whole of cost of construction was evidenced by 100% vouchers and it is contended that without questioning the genuineness or the completeness of the accounts maintained by the assessee to reveal the cost of construction, the ITO cannot refer the question of valuation to the Valuation Cell. For this propose he relied on the latest decision of the Rajasthan High Court in CIT vs. Pratapsingh Amrosingh Rajendra Singh & Deepak Kumar (1993) 200 ITR 788 (Raj). The facts of the case appear to be similar to facts on hand, since the question in that case was how much investment was made on a property and out of the said investment made how much should be taken to be the income from undisclosed sources. In the facts of the case some additions and alterations were made to the building belonging to the assessee. The question relates to determination of aggregate amount spent in those additions and alterations. The assessee maintained proper books of account and the expenditure incurred was fully supported by vouchers. Without rejecting the books, a reference was made to the Valuation Cell and on the suggested value by the Cell, addition was made. The question is whether such addition towards income from other source is sustainable. The additions were deleted by the Tribunal. The matter was taken to the High Court in reference. The facts as well as the relevant decision with which are concerned are succinctly stated in the headnote at page 789 which are as under :
"During the relevant asst. 1971-72, for which the previous ended on 31st March, 1971, the assessee made certain additions and alterations to its building and the total expenditure incurred according to the books of account maintained by the assessee was Rs. 3,83,320. The ITO referred the matter to the Valuation Cell and the Valuation Officer estimated the cost of additions and alterations at Rs. 4,48,400. The assessment was reopened and additions made to the income of an amount of Rs. 55,780. The Tribunal, however, deleted the addition. On a reference :
"Held, that there was no dispute that the assessee maintained proper books of account and the same had been accepted in the past and no defects were pointed out in the books. The expenses were fully supported by vouchers. Full details were also mentioned in respected of each item in the books Simply because the valuation report was of higher amount, the books could not be said to be unreliable. The Tribunal was, therefore, justified in deleting the addition of Rs. 55,780."
Here also, before making the reference to the Valuation Cell, the Assessing Officer did not pronounce his opinion on the set of accounts maintained by the assessee in which he recorded the cost of construction. So also he did not pronounce whether 100% vouchers maintained by the assessee for the whole of the expenditure was believable or not. The ITO later referred the matter to the Valuation Cell by his letter. dt. 29th Dec., 1987. Copy of the letter was produced at page 7 of the Departments paper book. In the said letter it is only stated that the assessee built a residential at Netajinagar, Mandagiri Ward No. 21, Adoni and as per the report of the registered valuer period of construction was from 30th June, 1984 to 29th Aug., 1989. The cost of construction as per the registered valuer was Rs. 2,80,000. Therefore, the Executive Engineer, Valuation Cell, Unit I, IT Deptt., Hyderabad was requested to report about the cost of construction of the above property. Thus it is clear that before giving reference to the Valuation Cell, it is not believable and in the absence of his clear decision on the acceptability of the vouchers, and on the aspect whether they are true and full, the reference to the Departmental Valuation Cell itself is bad under law. Anyhow no addition under the head "Income form other sources" can be made on the basis of the Departmental Valuers report. In support of the same position, the learned counsel for the assessee had also stated the following decisions :
(1) ITO vs. P. Appayamma (1993) 66 Taxman 104 (Hyd) (Trib) (2) Babyland Hostel vs. ITO (1988) 31 TTJ (Ahd) 136 The facts of the last mentioned case were the following :
"The assessee firm runs a residential hostel and a school. While framing the assessment under S. 143(3), the ITO made an addition of Rs. 3,40,471 on account of alleged unexplained investment in the construction of Hostel. The Departmental Valuation Officer had worked out the probable cost of construction of the building at Rs. 6,68,200 (excluding cost of land) as against the declared cost Rs. 3,27,728. The CIT(A) after giving all the findings in favour of the assessee estimated the cost of construction at Rs. 500 per sq. mtr. as against the estimate of Rs. 790 per sq. mtr. adopted by the ITO and Rs. 450 per sq. mtr. disclosed by the assessee. The Tribunal held as follows :
"The assessee has maintained proper books of accounts in respect of the construction of the property in question, not only that the books of accounts are fully supported by vouchers and bills. In fact this aspect of the matter has not been challenged either by the ITO or by the CIT(A). Addition could not be made on the basis of "probable cost of construction". Even though the CIT(A) has given his findings which are clearly in favour of the assessee, he thought it fit to sustain certain additions by estimating the cost of construction at Rs. 500 per sq. mtr., without any basis for this action. All this litigation has started only because search operation under S. 132 of the Act was carried out at the premises of the assessee and the Department could not find anything in such operations. In fact the IT authorities have simply ignored the books of accounts of the assessee without pinpointing glaring or major defects therein. Surely, the addition made by giving blind eye to the material available on record cannot get approval from a judicial body like Tribunal. In this view of the matter, there is no justification of making any addition in the manner made by the ITO sustained by the CIT(A). Therefore, the ITO is directed to accept the assessees cost of construction at Rs. 3,27,728 and modify the assessment accordingly."
The conclusion of the Tribunal as can be found out from the head notes of the decision is as follows :
"When the assessee had maintained proper books of accounts in respect of construction of property fully supported by vouchers and bills and no major defect was found therein, no addition on account of unexplained investment could be made."
6. For the proposition that when all the material facts were already mentioned in the original return with the help of which the assessee can satisfactorily compute the total income, there assessment under S. 147(A) cannot be sustained on the ground that the full value of the property constructed was not disclosed in the return. The assessee had produced before me the decision of the Madras Bench B reported as Third ITO vs. S. Balasubramaniam (1980) 9 TTJ (Mad) 158. The facts of that case are that the original assessment was completed S. 143(1)(a) without any scrutiny of there turn. The assessee had constructed a building at a total cost of Rs. 31,990. Five months after compilation of the original assessment, the ITO obtained information from his Inspectors report that the cost of construction disclosed by the assessee in the return is understated, and so the ITO instead of resorting to either S. 143(2)(b) or 147(b), resorted to reopening under S. 147(a) of the IT Act. The question was whether such reopening is valid under law. The Tribunal held the following at page 159 para 2 of its order :
"First of all, as rightly stated by the AAC, the fact that the assessee constructed a house is not ordinarily a material fact necessary for his assessment unless of course the ITO in the course of assessment proceedings had asked the assessee a question whether he had constructed or made any investments in the accounting year. So the assessee cannot be accused of suppressing material facts necessary for his assessment because question of suppression arises only when there is an obligation to disclose. On that ground case of the Department has to be rejected."
Applying the supreme Courts decision in ITO vs. Madnani Engg. Works. Ltd. (1978) 118 ITR 1 (SC), it is further held by the Tribunal that it was for the ITO to investigate correct. The assessee could not have been said to have failed to make a true and full disclosure of the materials just because the figure disclosed by the assessee did not coincide with the figure estimated by the ITO. Therefore, it is argued that simply because the estimated cost of construction made by the Departmental Valuer exceeded the cost of construction disclosed by the assessee as per his account books and vouchers, it cannot be said that the cost difference between the book value and the value as per the Departmental Valuer is not disclosed it amounts to suppression of material facts which justifies reopening under S. 147(a). The non disclosure of the factum of construction an investment made does not constitute material fact for purposes of S. 147(a) when no income accrued from investment made in construction, was also sought to be justified citing the decision of the Jaipur Bench of the Tribunal reported as ITO vs. S. M. Saraf (1984) 20 TTJ (JP) 159, photocopy of which is furnished at pages 55 to 59. It is held in that decision that facts which enabled the ITO to make investigation cannot also he to be material facts within the meaning of S. 147(a). It is further held that report of the valuer cannot constitute material fact for making the assessment. Therefore, reopening the assessment for not disclosing the factum of construction and investment made in return or for not filing a report of valuer was not justified. The facts before the Tribunal in brief are the following. The original assessment for 1972-73 and 1973-74 were completed on 7th Sept., 1974 and 18th March, 1976. Property income from self-occupied property was shown for the period from May, 1972 when the house was completed upto Dewali 1972, when the asst. yr. 1973-74 ended at Rs. 600 which was accepted by the ITO. In the original assessment order for 1972-73 was stated that the property was constructed during the period from July 1971 to May 1972, the property was having fine marble fitting with tiles and bathrooms. Cost of construction was shown at Rs. 1,32,000 for which details were furnished. No valuation certificate was furnished by the assessee in support of the cost of construction. Since it is a technical matter and since the cost of construction exceeded Rs. 1 lakh, the matter was referred to the Valuation Cell and if any variation is found suitable will be taken under S. 147(a) separately. The Departmental Valuer estimated the cost of construction at Rs. 1,69,500. The difference between the disclosed cost and the value adopted by the Departmental Valuer was felt to be income which had escaped assessment and ITO initiated reassessment proceedings for both the years, namely, 1972-73 and 1973-74. In appeal, the AAC reversed the order of the ITO. Thereupon an appeal was filed by the Department and cross objection was filed by the assessee before the Tribunal Jaipur Bench of the Tribunal, following the A. P. High Courts decision in K. C. P. Ltd. vs. ITO (1984) 146 ITR 284 (AP) held the following :
"On the facts and in the circumstances of the case, when from the investment made in the construction no income accrued, we are of the view that the law does not enjoin upon the assessee to disclose the factum of construction, and investment made in the incomplete construction in the return."
It also held that the facts which merely enable the ITO to make investigation cannot be said to be material facts within the meaning of S. 147(a). It further held as follows :
"..... the facts to be disclosed are the ones which have bearing on income and only such facts can be said to be material facts necessary for making the assessments. We, therefore, hold that there was no omission or failure on the part of the assessee in disclosing material facts for the asst. yr. 1972-73."
For the asst. yr. 1973-74, it was held that merely because report of the valuer was not filed by the assessee, it cannot be said that the assessee omitted or failed to disclose material facts. The Tribunal further held that the report of the valuer constitute evidence but it cannot constitute a material fact necessary for making the assessment. In (1984) 146 ITR 284 (AP) (supra), the Andhra Pradesh High Court explained as to what are material facts within the meaning of S. 148 of the Act. Their Lordship held that every material fact which has got a bearing on the assessment for that assessment year must be disclosed by the assessee. What is the material fact is a question of fact which has to be decided in each case and it is not possible to lay down any hard and fast rule. The building constructed by the assessee was for his residential purpose and unless he is obliged to disclose the assessee was for his residential purpose and unless he is obliged to disclose the income derived therefrom, the fact firstly that he had been constructing a house and, if so its value would not constitute material facts. In the facts and circumstances, what are the requirements for reopening assessment by issuing notice under S. 148 ? My attention is drawn to the decision of the M. P. High Court in Haji Abdul Gaffar vs. ITO (1985) 154 ITR 1 (MP). As per the headnote of the decision it is stated that two conditions are to be satisfied before the ITO acquires jurisdiction to issue notice under S. 148 of the IT Act in respect of assessment beyond the period of four years but within a period of eight years from the end of the relevant year. They are as follows :
(1) The ITO must have reason to believe that income chargeable to tax has escaped assessment, and (2) He must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee : (a) to make a return under S. 139 for the assessment year or (b) to disclose fully and truly material facts necessary for the assessment for that year.
Reasonable belief that income has escaped assessment is the sine qua non for initiation of proceedings. From the facts and circumstances of that case the M. P. High Court held that there was no evidence that the assessee had failed to disclose fully and truly all material facts necessary for assessment. The sole basis for issue of notice under S. 148 was the report of the Departmental Valuer regarding the renovation work. This report was just an estimate and had been obtained more than three years after the work had been completed. It could said to be only opinion of the valuer and on that basis the ITO could not acquire jurisdiction to issue notice under S. 148. Thus, it is sought to be argued that the Departmental Valuers report by itself cannot be considered to be material fact and it cannot be made the sole basis for issuing notice under S. 148. In the facts of the case before me also by the Departmental Valuers report only the ITO came to the conclusion that income escaped assessment. Mow according to the M. P. High Court decision, the valuation report cannot made the sole basis for reopening the assessment under S. 148. So the reopening is bad under law. This argument is sought to be reinforced by the Calcutta High Court decision law Smt. Tarawati Debi Agarwal vs. ITO (1986) 162 ITR 606 (Cal). The Calcutta High Court held the following as per the headnote of that decision at page 606 :
"Held, that in assuming jurisdiction under S. 147(a), the ITO did not have any prima facie ground for thinking that there had been any nondisclosure of material facts. The primary facts regarding the construction of the house had been disclosed by the assessee and it was for the ITO to investigate into facts and find out whether the cost of constructing as disclosed was correct or not. In any event, valuation was always a question of opinion and unless there was a clear finding on the basis of the material that the assessee had invested in the the construction more than what had been shown by her in the course of assessment proceedings, the ITO could not proceed merely on the basis of the valuation report of the Departmental Valuer. He has to reject the assessees valuation assigning reasons therefor. The reassessment notice were not valid and were liable to be quashed."
In the facts of this case also, the fact that the louse is being constructed and the facts that he had incurred Rs. 1,15,000 in the accounting year relevant for asst. yr. 1985-86 and Rs. 70,000 in the accounting year relevant to asst. yr. 1986-87 were already disclosed by the income and expenditure statement as well as the balance sheet attached to the IT returns filed for those years. It was the duty of the Assessing Officer if he had got any doubt, to ascertain the true value of the house even before finalising the original assessment order. Further for asst. yr. 1987-88, along with the IT return the assessee filed registered valuers report according to which the cost construction was estimated at Rs. 2,80,000. However, the ITO holding that the said valuation was too low to be accepted referred the question of valuation to the Departmental Valuer and the said report was made the basis for reopening which according to the above decisions cannot be made the sole basis nd reopening under S. 147(a) on the strength of the mere report of the Departmental valuer cannot be valid.
7. The learned counsel for the assessee also brought to the notice this Tribunal a later decision of the M. P. High Court in Abdul Majid vs. ITO & Ors. (1989) 178 ITR 616 (MP). Since the ration of the decision accords with the ratio already discussed above, this Tribunal need not particularly deal with the facts as well as the ratio it of the decision. For the proposition that without rejecting the account books maintained by the assessee in which the cost of construction was duly noted the reference by the Valuation Officer to estimate the cost of construction was under bad under law was also sought to be supported by the Full Bench decision of the Delhi Bench in Sri Har Sarup Cold Storage & General Mills vs. ITO (supra). I feel is not necessary to specifically discuss either the facts or the ratio since it accords with the ratio of other decisions already stated on behalf of the assessee in his regard.
8. The learned Departmental Representative, countered the arguments of Shri K. K. Viswanatham stating firstly that the assessment for 1985-86 as well 1986-87 were completed under S. 143(1) and not under S. 143(3) of the IT Act. Before sending intimation under S. 143(1) accepting the return of income, the ITO need not necessarily conduct any enquiry or deliberate upon any aspect involved in the proceedings and, therefore, the intimation under S. 143(1)(a) does not reflect any opinion of the ITO regarding any aspect involved in the assessment and simple because in the reassessment processing, a higher value was taken towards cost of construction carried on in the accounting years relevant to asst. 1985-86 and 1986-87 on the strength of the Departmental Valuers report cannot be said to represent a change of opinion on the part of the ITO and in support of this contention, the learned Departmental Representative had brought to my notice the Commentary by Chaturvedi & Pithisaria in Income-tax Law, Fourth Edn., Vol. 3 page 3645 which is as under :
"But if, at the time of making an assessment, the Assessing Officer had not considered a matter, it cannot be said that when he subsequently considers it, that would amount to change of opinion." S. Srinivasan vs. CIT (1975) 101 ITR 94 (Mad) and VE. A. Vairavan Chettiar vs. CIT (1973) 92 ITR 474 (Mad). Also see Smt. Nirmala Birla vs. WTO (1976) 105 ITR 484 (Cal) (FB). This is so because a change of opinion presupposes that there was, earlier, a formation of an opinion. When no such opinion was formed, it will be too far-fetched to assume that a change in that opinion was being effected. Mere silence on a matter or absence of discussion in the original order does not imply that the Assessing Officer adjudicated upon the same one way or the other [see CIT vs. H. P. Sharma (1980) 122 ITR 675 (Del)]."
Therefore, it was argued that by the mere fact that noting is stated about the valuation of the house or the cost that went into the house construction in asst. yrs. 1985-86 and 1986-87 it cannot be presumed that the ITO deliberated upon the subject or found that there was no need for any addition to be made in either of those two years. My attention was also drawn by the learned Departmental Representative to another portion of the book by the same learned authors particularly page 3640 of the same edition and in the same volume in which it stated that ordinarily valuation report can constitute information for the purpose S. 147(b). The learned Departmental Representative also drew my attention to page 3655 of the same book in which it is stated that where reassessment proceeding were initiated under S. 147(a) and the appellate authority finds that the conditions of that clause are not present but those of S. 147(b) are obtaining, it can well treat the notice as one under S. 147(b) and support the reassessment subject to the limitation provisions. The learned Departmental Representative argued that under 149 the time limit for reopening the assessment under S. 147(b) is 4 years. However, in this case, S. 143(1) assessments were made for asst. yr. 1985-86 on 22nd Aug., 1985 and for asst. yr. 1986-87 on 30th Oct., 1986 whereas the reassessment notices were issued to the assessee on 5th Aug,. 1988 which is quit within the years time limit and, therefore, for the purpose though the notices were issued purporting them to be under S. 147(a), if the facts disclosed that they can be justified under S. 147(b) noting prevents the Tribunal to Justify reopening under S. 147(b). Thus after hearing both sides I am of the view that the argument advanced by Shri K. K. Viswanatham, learned advocate for the assessee should prevail upon the argument advanced by the learned Departmental Representative.
9. Form the facts and and circumstances of his case, firstly I hold that the material facts necessary to be brought to the notice of the ITO were already mentioned in the IT returns filed asst. yrs. 1985-86 and 1986-87. Along with those returns, the income and expenditure statements as well as balance sheet were filed before the ITO. For asst. yr. 1987-88 along with the IT return, registered valuers report estimating the value of cost of construction at Rs. 2,80,000 was also filled. In the return filled for asst. yr. 1985-86, the cost construction said to have been incurred by the assessee was stated was stated to be Rs. 1,15,000 and for asst. yr. 1986-87 it was stated to be Rs. 70,000. Thus the returns filed by the assessee would certainly disclose that he is carrying on with the construction of the of the house and if the ITO had any suspicion about the correctness of the expenditure incurred toward house construction in any of those two years or in the regular assessment for 1987-88, he should have called upon the assessee to produce all material facts or all account books, etc., in support of his stated cost of construction. However, the Assessing Officer did not choose to question the correctness of the cost of construction disclosed in the original returns. By means of intimations under S. 143(1) for 1985-86 and 1986-87, the ITO must be deemed to have accepted the disclosed sums towards cost construction. Not choosing to dispute the sums representing the cost of construction for either of those two years and not choosing to call upon the assessee with supporting evidence or not choosing to reopen the assessment under S. 143(2)(b) or 143(3), it is not permissible for the ITO to reopen the matter under S. 147(a) solely on the strength of Departmental Valuers report. Neither the construction of the house nor the value of construction can be said to be material facts necessary for assessment before the ITO since the house was built only for residential purposes of the assessee and he has no other house and, therefore, no sort of income is derived from the said house and also no sort of income was returned form the said house. During the course of the original assessments, the ITO did not call upon the assessee to produce any evidence in support of the cost construction returned. The Revenue admitted that the cost of construction is fully backed by 100% vouchers and the amount of withdrawals made towards cost construction were all fully recorded in the account books of the assessee maintained during the course of his medical profession. Regarding the maintainable of accounts or regarding the fact that there there are 100% vouchers supporting the cost of construction there is no dispute between the parties. However, the ITO did not either not reject or found fault with the true nature or genuineness of the 100% vouchers maintained and he never found by any evidence whatsoever that some extra amounts were in fact spent towards construction of the house in any these three assessment years under consideration. Thus without rejecting the account books and vouchers, a reference to the Departmental Valuer cannot be made as per the decision already cited on behalf of the assessee and the said departmental valuers report cannot be made the basis to reopen the assessment under S. 147(a). The Departmental Valuers report would only express opinion of the valuation about the cost construction. It is not conclusive in its nature. Valuers report cannot be made basis to determine the so-called escaped income to determine the amount liable to be added in the hands of the assessee under the head income form other sources. When the report itself cannot be made the basis for reopening under S. 147(a), the question of considering the validity of the reopening under S. 147(b) also dose not arise. The very fact that the ITO did not choose to reopen the proceedings under S. 147(2)(b) or S. 143(3) or S. 147(b) discloses that he had accepted the cost of construction admitted in the IT return. Otherwise this Tribunal feels that he would have reopened the assessment under one of the above provision before resorting to reopening under S. 147(a). Thus, I held that the reopening is bad under law. I further hold the ITO merely changed his opinion regarding the correct value of cost of construction and intended to exercise his power to reopen the assessment. According to the Supreme Court decision already cited supra reopening cannot be validated by mere change of opinion.
10. Even on merits also, I do not feel that this is a fit case where the value found out by the Departmental Valuer represents correct cost of construction. The Departmental valuer had adopted plinth area method whereas the registered valuer went by detailed estimate method. In order to arrive at the cost indices of Adoni the Departmental Valuer had adopted the Delhi cost as on 1st Oct., 1976 whereas according to the CBDTs Instruction No. 1671 in F. No. 319/26/85-WT dt. 6th Dec., 1985, the cost of index of Kurnool is to be adopted. Adopting the cost indices of Delhi and taking the same as on 1st Oct., 1976 at 100 the Departmental Valuer had arrived at the cost indices as on 31st March 1985 at 266, as on 31st March, 1986 at 280, as on 31st March, 1987 at 280 whereas if he follows the cost index of Kurnool, it is only 220 as on 1st April, 1983. Basing on the cost index of Kurnool if the value is worked out, it will substantially low figure. The CBDTs circular mentioned above is provided and as per item No. 43, the cost index was to be 220 from 1st April, 1983/14th May, 1983. If the cost is worked out as per the cost index given in CBDT circular, I hold that the value of cost of construction would be much lower and would have justified the returned figure. Further the concession which the doctor/assessee obtained in transport, labour, etc., as also nearness to the quarry form the building site should be taken into consideration. Further, there is ample evidence to show that his mother had supervised the construction for the assessee and ordinarily 10 to 12-1/2% of cost of construction would be allowed towards self supervision. However, the Departmental Valuer allowed only 7-1/2%.
11. A survey of the above facts would clearly reveal that the value of the property was correctly estimated by the approved value at Rs. 2,80,000 which tallies with the returned figure. Therefore, I hold that the reopening is bad under law and on merits also it is not case where reopening can be upheld or a case where addition under the head "other source" can be upheld.
12. In the result, I find no force in the Departmental appeals which are dismissed. The cross-objections filed by the assessee are found to be infructuous and, hence they are also dismissed.