Income Tax Appellate Tribunal - Pune
Vrishali Hotels Pvt. Ltd. vs Assistant Commissioner Of Income Tax on 12 March, 1999
Equivalent citations: (2000)66TTJ(PUNE)692
ORDER
B. L. Chhibber, A.M. The only ground raised in this appeal by the assessee reads as under:
"The learned assessing officer was not justified in rejecting the contention of the appellant that the cost of construction of hotel building was Rs. 1,05,58,000 as per books of account, regularly maintained and in holding on purely estimate basis that the cost of the said building was Rs. 1, 16,65,124 thereby making an addition of Rs. 10,78,537 to the undisclosed income. The learned assessing officer failed to appreciate the facts and circumstances of the case as also the evidence submitted by the appellant in support of the value of investment shown. The addition, thus, being unjustified in law and on facts, may kindly be heard."
2. The assessee is a private limited company and was incorporated on 8-2-1995, with total share capital of Rs. 30 lakhs. A search and seizure operation was conducted on Kamat Group of cases of which the assessee is a member, on 27-6-1996. During the course of search, the search party noted that the assessee- company was constructing a hotel building i.e. Hotel Vrishali (P) Ltd. Kolhapur. The hotel building construction was in progress at the time of search and according to the assessing officer the total cost of construction was not available to the Income Tax Department at the time of search. After the information about the hotel building construction was received by the assessing officer from the Deputy Director (Investigation) Kolhapur, he referred the case to the District Valuation Officer (hereinafter referred to as `DVO'), Bombay under section 55A(b)(II) of the Income Tax Act, 1961. The District Valuation Officer was required to assess the cost of construction of the hotel building as on 27-6-1996 being the date of search. He was also requested to find out the final cost of the construction as the construction activities were at completion stage when the matter was referred to the District Valuation Officer. The District Valuation Officer submitted his valuation report on 24-2-1997. The property was inspected by the District Valuation Officer on 10-2-1997 as mentioned in paras 2.3 of the valuation report and he arrived at the final value of Rs. 1,16,65,124 i.e. Rs. 116.65 lakhs. Thereafter, the assessing officer issued a notice under section 158BC of the Income Tax Act, 1961 and in response to this, the assessee-company filed its return declaring NIL undisclosed income for the block period 1-4-1986 to 27-6-1996. The assessing officer worked out the undisclosed income at Rs. 10,78,537 mainly on the basis of the difference between the cost of construction recorded in the books of accounts and the cost of construction estimated by the assessing officer as per para 6 of his order. He treated this difference of Rs. 10,78,537 as undisclosed investment, in the cost of construction of the hotel building under section 69B of the Income Tax Act, 1961. Aggrieved by the order of the assessing officer the assessee is in appeal before us.
3. Shri K.A. Sathe the learned counsel for the assessee submitted that the valuation was made de hors the search operation as it had no relation to anything found as a result of search. As a matter of fact no material or evidence was found direct or indirect to suggest that any undisclosed income was utilised in meeting the cost of construction. Indeed, there was no occasion for the assessee- company which had just taken birth and was not carrying on any business and was only engaged in constructing the hotel building. In support of his contention, he relied upon the decision of the Supreme Court in the case of CIT v. Bharat Engineering & Construction Co. (1972) 83 ITR 187 (SC) and further submitted that the valuation report was prepared on estimated basis. The learned counsel concluded that in the absence of any material whatsoever found as a result of search or otherwise to indicate any concealed income, no addition can be made in a normal assessment; let alone in a block assessment merely on the basis of theoretical estimation of cost of construction. In support of this contention, he also placed reliance on this Tribunal judgment in the case of Parakh Foods Ltd. v. Dy. CIT (1998) 64 ITD 396 (Pune-Trib) and in the case of CIT v. Pratap Singh Amro Singh Rajendra Singh (1993) 200 ITR 788 (Raj). According to the learned counsel even under section 69, the burden is on the revenue to prove that any unexplained investment has in fact been made. He further placed reliance on the decision of the Tribunal in the case of Kasat Textiles (P) Ltd. v. Asstt. CIT (1998) 66 ITD 510 (Pune-Trib).
4. Shri Hari Krishan, the learned Senior Departmental Representative strongly supported the order of the assessing officer. He submitted that general arguments that no incriminating documents, material evidence was found during the course of search and seizure operations which indicated that there was undisclosed investments in the construction of hotel building by the assessee, was irrelevant. The learned Departmental Representative submitted that the mere fact that the assessee had not correctly shown investments in the hotel building is enough for the assessing officer to assume jurisdiction. The learned Departmental Representative further submitted that in cases of unexplained investment there cannot be any positive evidence all the time showing unrecorded expenditure since it was a common knowledge that lot of unexplained investment goes into the construction of properties. He further submitted that the action of the department in referring the case for estimating the cost of construction to the Valuation Cell of Income Tax department cannot be challenged by the assessee since this is a reference made by the assessing officer for its own benefit to a person who is technically qualified for this purpose. Moreover, a copy of the report was given by the assessing officer to the assessee and comments were not only obtained by him but also duly discussed in the block assessment order. Therefore, no arguments can be taken by the assessee in this regard. The learned Departmental Representative further submitted that the District Valuation Officer is a qualified engineer in the employment of Central Public Works Department having vast experience in this field of various townships of the country and not restricted to one town as is probably the case with the registered valuer. The Central Public Works Department collects data from all over the country and the rates of costs of construction are determined for Delhi as the base. On the basis of the reports received from their own offices situated at various places in the country, multiplying factor is worked out for a particular place in the country which is applied to the rate shown for Delhi for arriving at correct cost of construction of a particular township. It is, therefore, incorrect to say that the departmental valuer was not aware of the rates or the constructional details of the city of Kolhapur. The learned Departmental Representative, therefore, concluded that the assessing officer was justified in making an addition of Rs. 10,78,537.
5. We have considered the rival submissions and perused the facts on record. In our opinion, the impugned addition does not fall within the scope of Chapter XIV-B. All the expenditure on construction of building is duly recorded in the books of accounts and no material or evidence whatsoever was found at the time of search which could show that the assessee had spent any amount outside the books of accounts. In para 2 of his order, the assessing officer has clearly recorded that the company has maintained regular books of accounts and filed its return of income for the assessment year 1996-97 declaring total income at Rs. NIL." Whatever expenditure was incurred by the assessee on the cost of construction, was reflected in the books of accounts written upto the date of search. Accordingly, the addition is based on the report of the District Valuation Officer and it cannot be said that anything was hidden from the knowledge of the department. Even in the course of assessment proceedings, the assessing officer brought no material on record that any particular sum was incurred on the cost of construction outside the books of accounts. He has simply followed the District Valuation Officer's report which was not accepted by the assessee because it was based on pure estimate. Therefore, without going into the merits of the case, we are of the considered opinion that the impugned addition cannot be treated as "undisclosed income" within the meaning of section 158BB. In this view, we are supported by the decision of this Bench in the case of Parakh Foods Ltd. IT (SS) A. No. 1/(PN)/1996, dt. 14-7- 1997 (supra) and Kasat Textiles Ltd. v. Assistant Commissioner (supra).
6. Since the assessee succeeds on preliminary ground, we do not deem it fit to go into the merits and demerits of the report of the District Valuation Officer. The addition of Rs. 10,78,537 is accordingly deleted.
7. In the result, the appeal is allowed.