Income Tax Appellate Tribunal - Hyderabad
Income-Tax Officer vs Dr. K. Rami Reddy on 21 July, 1993
Equivalent citations: [1994]48ITD377(HYD)
ORDER
T.V. Rajagopala Rao, Judicial Member
1. 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 assessment years 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 objections was to dismiss the appeals after accepting the impugned order passed by the Deputy Commissioner (Appeals), C-Range, Hyderabad, dated 16-5-1990.
2. The facts of the case in brief are the following. The assessee is a doctor running a clinic called Kanti Eye Hospital, at Adoni. The property was situated at Ward No. 21, Plot Nos. 3, 4, 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 September 1986. Thus the period of construction falls in the accounting year relevant to assessment years 1985-86, 1986-87 and 1987-88 respectively. The property is stated to be situated near to new RTC Bus Stand and it is also stated that the stone quarry 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 bed room with attached toilet, garage, pooja room, kitchen with store, rear verandah and another bed room 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 buidling. 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 floor was 336.20 sq. meters. Though no separate books were maintained noting the cost of construction of the building, the assessee had maintained books of account 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:
Assessment year Amount 1985-86 Rs. 1,1 5,000 1986-87 Rs. 70,000 1987-88 Rs. 93,000
For assessment year 1985-86, the assessment was originally completed under Section 143(1) on 22-8-1985 on a total income of Rs. 30,290. Similarly for assessment year 1986-87 while completing the assessment originally on 30-10-1986 under Section 143(1), the total income was determined at Rs. 34,700. For assessment year 1987-88, the assessee filed his income-tax return on 26-8-1987 admitting a total income of Rs. 24,000. Along with this return the assessee filed registered valuer's report dated 15-11-1986 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 per cent 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 value 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, Income-tax Deptt., Hyderabad). The Departmental valuer had visited the building and filed his report dated 11-5-1988 in which he estimated the total cost of construction at Rs.3,83,367 and after conceding Rs. 28,790 which represents 71/2 per cent 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 dated 13-6-1988 and 15-6-1988 calling upon the assessee to file his objections to the valuation report of the Valuation Cell. The assessee was 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 assessment year 1987-88. The assessee was also required to appear with books of account, vouchers, etc. for the hearing. The assessee filed a letter dated 6-10-1988 on 11-10-1988. Stating his objections which were all catalogued in the assessment order passed by the Assessing Officer for assessment year 1987-88. Thereupon the Assessing Officer issued another notice to the assessee dated 15-7-1988 to file full details to produce evidence towards loans etc. The assessee got filed through his authorised representative a reply dated 28-7-1988 on 2-8-1988. The Assessing Officer while completing the assessment for the assessment year 1987-88 had preferred to follow the report of the Valuation Cell than against the report of the registered valuer. After mentioning the reasons for doing so, he utimately 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 sources'. At that juncture, the authorised representative who appeared for the assessee contended before the Assessing Officer that since the period of construction extended over three accounting years ending with assessment year 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 went on. The Income-tax Officer had accepted this contention and apportioned the sum of Rs.77,000 over the three assessment years as under:
Assessment year Amount apportioned 1985-86 Rs. 32,000 1986-87 Rs. 30,000 1987-88 Rs. 25,000
He found that the withdrawals towards household expenses were meant 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 Section 148 on 5-8-1988 reopening the assessments for 1985-86 and 1986-87 and called upon the assessee to file his return. The assessee filed his return on 8-8-1988 admitting a total income of Rs.32,290 for assessment year 1985-86 and Rs. 34,700 for assessment year 1986-87. Subsequently after hearing from the assessee, re-assessments were completed for 1985-86 and 1986-87 by his reassessment orders dated 22-8-1988, in which he added Rs.25,000 and Rs. 20,000 respectively being the difference in cost of construction of the residential house in assessment years 1985-86 and 1986-87 respectively. In the regular assessment framed for assessment year 1987-88, he had included a sum of Rs. 32,000 towards 'income from other sources' representing difference in cost of consruction of the residential unit. Thus, the Income-tax Officer had committed an apparent error or mistake in respect of adding Rs.25,000 for assessment year 1985-86 and Rs.32,000 for assessment year 1987-88. Therefore, he had passed a rectificatory order under Section 154 dated 8-12-1988. According to the Income-tax Officer's rectificatory orders, the addition made for assessment year 1985-86 was Rs.32,000 and the addition made for assessment year 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 Deputy Commissioner of Income-tax (Appeals), C-Range, Hyderabad. The learned Dy. Commissioner (Appeals) had consolidated all the three appeals and disposed them of by his consolidated order dated 16-5-1990, 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 Deputy Commissioner (Appeals) 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, the Valuation Officer had adopted the Delhi cost as on 1-10-1976 and the said cost was taken as a base at 100. On that basis he arrived at the cost indices as follows:
31-3-1985 .. 266 31-3-1986 .. 280 31-3-1987 .. 280It was contended that adoption of Delhi cost index is quite irrelevant when the cost of index of neighbouring Kurnool is available in CBDT's instruction No.1671 F.No. 319/26/85 WT, dated 6-12-1985. In the above instruction of the CBDT, the cost index of Kurnool is mentioned as 220 as on 1-4-1983. 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 per cent 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 per cent vouchers for the expenditure. Before the Deputy Commissioner (Appeals), the assessee relied upon the Tribunal's decision in the case of Sri Har Samp Cold Storage & General Mills v. ITO [1988] 27 ITD 1 (Delhi) (TM), wherein the Tribunal had held that when the expenditure recored 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 the 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 assessment year 1986-87 and Rs.25,000 for 1987-88 were all deleted. Aggrieved against the impugned order passed by the Deputy Commissioner of Income-tax (Appeals), 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 Deputy Commissioner (Appeals). 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 assessee's 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 assessee's counsel. Since additional grounds are only filed as a measure of elaborating the grounds already preferred before the first appellate authority, they are admitted for consideration. The learned Departmental Representative argued that no separate books of account 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 in Sri Har Samp Cold Storage & General Mills' case (supra) by the first appellate authority is wrong. In the Special Bench decision in Sri Har Samp Cold Storage & General Mills' case (supra) the assessee had constructed a cold storage and produced account books as well as valuation report in support of the cost of construction as shown in his return. However, the Income-tax Officer 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 assessee's account books, the Income-tax Officer 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 Income-tax Officer 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 Sections 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 account, the question of adopting the departmental valuer's report does not arise. The learned Departmental Representative contends that since no books of account were maintained in which 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 re-opening the assessment. 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 containing the ITO's reasons for reopening the assessment for 1986-87 was contained at pages 4 to sic of the paper book filed by the Revenue. After tracing out the event upto that stage, the Income-tax Officer while recording the reason for reopening the assessment for 1985-86 had stated the following:
I have, therefore, reason to believe that due to assessee's omission to disclose fully and truly all material facts necessary for his assessment the income chargeable to tax has escaped assessment for the assessment year 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 income-tax return filed for assessment years 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 assessment year 1985-86 and the amount spent upto the end of the assessment year 1986-87 was mentioned at Rs. 1,85,000 which represents cumulative figure. That means the assessee specifically mentioned that for assessment year 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 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 comlete the assessment were already stated in the income-tax return filed for assessment years 1985-86 and 1986-87 there is no question of any such information being held back which will hinder the Income-tax Officer 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 Income-tax Officer stated the following:
The assessee maintained regular books of accounts and the amounts utilised for construction of house were withdrawn from his book mentioned 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 be called to be material for completion of assessment, unless and until the Income-tax Officer 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 income-tax returns originally filed for assessment year 1984-85 as well as 1985-86. Therefore, when once the material facts are already known to the Income-tax Officer and did not make any addition in the hands of the assessee for assessment years 1984-85 and 1985-86 towards cost of construction of the house, the assessee is not guilty of any suppression of facts and re-opening under Section 147(a) cannot be resorted to and the re-opening of assessments 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 assessment years 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 statement filed along with the returns it is sufficient to disclose that the assessee went on constructing the house. The Income-tax Officer did not call upon the assessee to furnish details of the expenditure incurred in each of the assessment years. However, the said information also was given by the assessee along with the return. The Income-tax Officer 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 re-opening under Section 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 income-tax returns filed for these two years. In the re-assesssments, the Income-tax Officer 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 secpnd year. The change of opinion with regard to the cost of construction which took place with the Income-tax Officer cannot be held as a valid ground for re-opening the assessment under Section 147(a). This very contention though was not made either before the Income-tax Officer who made the re-assessment 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 contention the assessee relied upon the decision of the Allahabad High Court in Marolia & Sons v. CIT [1981] 129 ITR 475. In the headnote of the decision, the following is what is stated:
The power conferred on the Appellate Tribunal under Section 254 of the I.T. Acter, 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. v. CIT [1957] 31 ITR 844 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 parry 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 Civil Procedure Code; and as we shall presently point out, the position of the Appellate Tribunal is the same as a court of appeal under the Civil Procedure Code and the powers of the Tribunal are identical with the powers enjoyed by an appellate court under the Code.
Having established his right to urge a new point in an appeal, the learned Counsel for the assessee had invited my attention to the well-known decision of the Supreme Court in the case of Indian & Eastern Newspaper Society v. CIT [ 1979] 119 ITR 9961. 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 re-opening. The learned Counsel for the assessee contended that in the regular assessment made for assessment year 1987-88 there was an admission on the part of the Income-tax Officer who completed the assessment. The departmental valuation report was contained at pages 31 to 50 of the assessee's 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 71/2% 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 Income-tax Officer cannot refer the question of valuation to the Valuation Cell. For this proposition he relied on the latest decision of the Rajasthan High Court in CITv. Pratapsingh Amrosingh, Rqjendra Singh and Deepak Kumar [1993] 200 ITR 788. The facts of that case appear to be similar to the 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 that 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 surces' 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 we are concerned are succinctly stated in the headnote at page 789 which are as under:
During the relevant assessment year 1971-72, for which the previous year ended on 31-3-1971, 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 Income-tax Officer 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 respect of each item in the books. Simply because the valuation report was of a 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 Income-tax Officer later referred the matter to the Valuation Cell by his letter dated 29-12-1987. Copy of the letter was produced at page 7 of the Department's paper book. In the said letter it is only stated that the assessee built a residential house at Netajinagar, Mandagiri Ward No. 21, Adoni and as per the report of the registered valuer period of construction was from 30-6-1984 to 29-8-1986. The cost of construction as per the registered valuer was Rs.2,80,000. Therefore, the Executive Engineer, Valuation Cell, Unit I, I.T. 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 stated by the Income-tax Officer that the vouchers maintained by the assessee were 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 from other sources" can be made on the basis of the Departmental Valuer's report. In support of the same proposition, the learned Counsel for the assessee had also stated the following decisions:
(1) Asstt. CITv. Appayamma [1993] 66 Taxman 104 (Hyd.) (Trib.) (2) Babyland Hostel v. 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 Section 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 of Rs.3,27,728. The CIT (Appeals) after giving all the findings in favour of the assessee estimated the cost of construction at Rs.500 per sq. meter as against the estimate of Rs.790 per sq. meter adopted by the ITO and Rs. 450 per sq. meter disclosed by the assessee.
The Tribunal held as follows:
The assessee has maintained proper books of account in respect of the construction of the property in question, not only that the books of account 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 (Appeals). Addition could not be made on the basis of 'probable cost of construction'. Even though the CIT (Appeals) 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. meter, without any basis for this action. All this litigation has started only because search operation under Section 132 of the Act carried out at the premises of the assessee and the department could not find anything in such operation. In fact the income-tax authorities have simply ignored the books of accounts of the assessee. Without pinpointing any 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 the Tribunal. In this view of the matter, there is nojustification of making any addition in the manner made by the ITO or sustained by CIT (Appeals). Therefore, the ITO is directed to accept the assessee's 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 headnote 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 Section 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' in Third ITO v. S. Balasubramaniam [19.80] 9 TTJ 158. The facts of that case are that the original assessment was completed under Section 143(l)(a) without any scrutiny of the return. The assessee had constructed a building at a total cost of Rs. 31,990. Five months after completion of the original assessment, the Income-tax Officer obtained information from his Inspector's report that the cost of construction disclosed by the assessee in the return is understated, and so the Income-tax Officer instead of resorting to either Section 143(2)(b) or 147(b), resorted to re-opening under Section 147(a) of the Income-tax Act. The question was whether such re-opening 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 necessay 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 Court's decision in ITO v. Madnani Engg. Works Ltd. [1979] 118 ITR 11, it is further held by the Tribunal that it was for the Income-tax Officer to investigate correct cost. 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 Income-tax Officer. Therefore, it is argued that simply because the estimated cost of contruction 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 re-opening under Section 147(a). The non-disclosure of the factum of construction and investment made does not constitute material fact for purposes of Section 147(a) when no income accrued from investment made in construction, was also sought to be justified by citing the decision of the Jaipur Bench of the Tribunal in ITO v. S.M. Saraf [1984] 20 TTJ (JP.) 159, a photo copy of which is furnished at pages 55 to 59. It is held in that decision that facts which enabled the Income-tax Officer to make investigation cannot also be said to be material facts within the meaning of Section 147(a). It is further held that report of the Valuer cannot constitute material fact for making the assessment. Therefore, re-opening the assessment for not disclosing the factum of construction and investment made in return or for not filing a report of valuer was justified. The facts before the Tribunal in brief are the following. The original assessment for 1972-73 and 1973-74 were completed on 7-9-1974 and 18-3-1976. Property income from self-occupied property was shown for the period from May 1972 when the house was completed upto Diwali 1972 when the assessment year 1973-74 ended at Rs.600 which was accepted by the Income-tax Officer. In the original assessment order for 1972-73 it was stated that the property was constructed during the period from July 1971 to May 1972, the property was having fine marble fittings 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 action will be taken under Section 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 the Income-tax Officer initiated re-assessment proceedings for both the years namely 1972-73 and 1973-74. In appeal, the Appellate Assistant Commissioner reversed the order of the Income-tax Officer. Thereupon an appeal was filed by the Department cross-objection was filed by the assessee before the Tribunal, Jaipur Bench of the Tribunal, following the A.P. High Court's decision in K.C.P. Ltd. v. ITO [1984] 146 ITR 2841 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 Section 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 assessment year 1972-73.
For the assessment year 1973-74, it was held that merely because the 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 can constitute evidence but it cannot constitute a material fact necessary for making the assessment. In K.C.P. Ltd.'s case (supra) the A.P. High Court explained as to what are material facts within the meaning of Section 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 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 re-opening assessment by issuing notice under Section 148 ? My attention is drawn to the decision of the M.P. High Court in Haji Abdul Gaffar v. ITO [1985] 154 ITR 11. As per the headnote of the decision it is stated that two conditions are to be satisfied before the Income-tax Officer acquires jurisdiction to issue notice under Section 148 of the I.T. Act in respect of assessments beyond the period of four years but within a period of eight years from the end of the relevant year. These 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 inome has escaped assessment by reason of the omission or failure on the part of the assessee: (a) to make a return under Section 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 Section 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 be said to be only opinion of the Valuer and on that basis the Income-tax Officer could not acquire jurisdiction to issue notice under Section 148. Thus, it is sought to be argued that the Departmental Valuer's report by itself cannot be considered to be material fact and it cannot be made the sole basis for issuing notice under Section 148. In the facts of the case before me also by the departmental valuer's report only the Income-tax Officer came to the conclusion that income escaped assessment. Now according to the M.P. High Court decision, the valuation report cannot be made the sole basis for re-opening the assessment under Section 148. So the re-opening is bad under law. This argument is sought to be reinforced by the Calcutta High Court's decision in Smt Tarawati Debi Agarwal v. ITO [1986] 162 ITR 6061. The Calcutta High Court held the following as per the headnote of that decision at page 606:
Held, that in assuming jurisdiction under Section 147(a), the Income-tax Officer did not have any prima facie ground for thinking that there had been any non-disclosure of material facts. The primary facts regarding the construction of the house had been disclosed by the assessee and it was for the Income-tax Officer to investigate into facts and find out whether the cost of construction 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 construction more than what had been shown by her in the course of assessment proceedings, the Income-tax Officer could not proceed merely on the basis of the valuation report of the departmental valuer. He has to reject the assessee's valuation assigning reasons therefor. The re-assessment notices were not valid and were liable to be quashed.
In the facts of this case also, the fact that the house is being constructed and the fact that he had incurred Rs. 1,15,000 in the accounting year relevant for assessment year 1985-86 and Rs. 70,000 in the accounting year relevant to assessment year 1986-87 were already disclosed by the Income and Expenditure Statement as well as the Balance-sheet attached to the income-tax 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 assessment year 1987-88, along with the income-tax return the assessee filed registered valuer's report according to which the cost of construction was estimated at Rs.2,80,000. However, the Income-tax Officer 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 re-opening which according to the above decisions cannot be made the sole basis and re-opening under Section 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 of this Tribunal later decision of the M.P. High Court in Abdul Majid v. ITO [1989] 178 ITR 6162. Since the ratio of the decision accords with the ratio already discussed above, this Tribunal need not particularly deal with the facts as well as the ratio 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 to the Valuation Officer to estimate the cost of construction was bad under law was also sought to be supported by the Full Bench decision of the Delhi Bench in Sri Har Samp Cold Storage & General Mills' case (supra). I feel it 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 this regard.
8. The learned Departmental Representative, countered the arguments of Shri K.K. Viswanatham stating firstly that the assessment for 1585-86 as well as 1986-87 were completed under Section 143(1) and not under Section 143(3) of the I.T.Act. Before sending intimation under Section 143(1) accepting the return of income, the Income-tax Officer need not necessarily conduct any enquiry or deliberate upon any aspect involved in the proceedings and, therefore, the intimation under Section 143(1)(a) does not reflect any opinion of the Income-tax Officer regarding any aspect involved in the assessment and simply because in the re-assessment proceedings, a higher value was taken towards cost of construction carried on in the accounting years relevant to assessment years 1985-86 and 1986-87 on the strength of the departmental valuer's report cannot be said to represent a change of opinion on the part of the Income-tax Officer 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 Edition, 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 a change of opinion. [S. Srinivasan v. CIT [1975] 101 ITR 94 (Mad.), VE.A. Vairavan Chetiiar v. CIT [1973] 92 ITR 474 (Mad.). Also see, Smt. Nirmala Birla v. 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 v. H.P Sharma [1980] 122 ITR 675, 699 (Delhi).
Therefore, it was argued that by the mere fact that nothing is stated about the valuation of the house or the cost that went into the house construction in assessment years 1985-86 and 1986-87 it cannot be presumed that the Income-tax Officer had 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 is stated that ordinarily valuation report can constitute information for the purpose of Section 147(b). The learned Departmental Representative also drew my attention to page 3655 of the same book in which it is stated that where re-assessment proceedings were initiated under Section 147(a) and the appellate authority finds that the conditions of that clause are not present but those of Section 147(b) are obtaining, it can well treat the notice as one under Section 147(b) and support the re-assessment subject to the limitation provisions.
The learned Departmental Representative argued that under Section 147(b) the time limit for reopening the assessment under Section 147(b) is 4 years. However, in this case, Section 143(1) assessments were made for assessment year 1985-86 on 22-8-1985 and for assessment year 1986-87 on 30-10-1986 whereas the re-assessment notices were issued to the assessee on 5-8-1988 which is quite within the four years time limit and, therefore, for the purpose though the notices were issued purporting them to be under Section 147(a), if the facts disclosed that they can be justified under Section 147(b) nothing prevents the Tribunal to justify reopening under Section 147(b). Thus after hearing both sides I am of the view that the arguments advanced by Shri K.K. Viswanatham, learned advocate for the assessee should prevail upon the arguments advanced by the learned Departmental Representative.
9. From the facts and circumstances of this case, firstly I hold that the material facts necessary to be brought to the notice of the Income-tax Officer were already mentioned in the income-tax returns filed for assessment years 1985-86 and 1986-87. Along with those returns, the Income and Expenditure Statements as well as balance-sheet were filed before the Income-tax Officer. For assessment year 1987-88 along with the income-tax return, registered valuer's report estimating the value of cost of construction at Rs. 2,80,000 was also filed. In the return filed for assessment year 1985-86, the cost of construction said to have been incurred by the assessee was stated to be Rs. 1,15,000 and for assessment year 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 house and if the Income-tax Officer had any suspicion about the correctness of the expenditure incurred towards 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 voucher 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 Section 143(1) for 1985-86 and 1986-87, the Income-tax Officer must be deemed to have accepted the disclosed sums towards cost of construction. Not choosing to dispute the sums representing the cost of construction for either of those two years and not chousing to call upon the assessee with supporting evidence or not choosing to re-open the assessment under Section 143(2)(b) or 143(3), it is not permissible for the Income-tax Officer to reopen the matter under Section 147(a) solely on the strength of the Departmental Valuer's report. Neither the construction of the house nor the value of construction can be said to be material facts necessary for assessment before the Income-tax Officer 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 from the said house. During the course of the original assessments, the Income-tax Officer did not call upon the assessee to produce any evidence in support of the cost of construction returned. The Revenue admitted that the cost of construction is fully backed by 100 per cent vouchers and the amount of withdrawals made towards cost of construction were all fully recorded in the account books of the assessee maintained during the course of his medical profession. Regarding the maintenance of accounts or regarding the fact that there are 100 per cent vouchers supporting the cost of construction there is no dispute between the parties. However, the Income-tax Officer did not either reject or found fault with the true nature or genuineness of the 100 per cent 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 of 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 cied on behalf of the assessee and the said departmental valuer's report cannot be made the basis to re-open the assessment under Section 147(a). The Departmental valuer's report would only express opinion of the valuation about the cost of construction. It is not conclusive in its nature. Valuer's 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 from other sources". When the report itself cannot be made the basis for reopening under Section 147(a), the question of considering the validity of the reopening under Section 147(b) also does not arise. The very fact that the Income-tax Officer did not choose to reopen the proceedings under Section 147(2)(b) or Section 143(3) or Section 147(b) discloses that he had accepted the cost of construction admitted in the income-tax return. Otherwise this Tribunal feels that he would have reopened the assessment under one of the above provisions even before resorting to reopening under Section 147(a). Thus, I hold that the reopening is bad under law. I further hold that the Income-tax Officer 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's decision already cited supra re-opening cannot be validated by mere change of opinion.
1O. Even on merits also, I do not feel that this is a fit case where the value found out by the Departmental Valuer represents the 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 1-10-1976 whereas according to the CBDT's Instruction No. 1671 in F.No. 319/26/85-WT, dated 6-12-1985, the cost of index of Kurnool is to be adopted. Adopting the cost indices of Delhi and taking the same as on 1-10-1976 at 100, the Departmental Valuer had arrived at the cost indices as on 31-3-1985 at 266, as on 31-3-1986 at 280 and as on 31 -3-1987 at 280 whereas if he follows the cost index of Kurnool it is only 220 as on 1-4-1983. Basing on the cost index of Kurnool if the value is worked out it will be substantially low figure. The CBDT's circular mentioned above is provided and as per item No. 43, the cost index was to be at 220 from 1 -4-1983/14-5-1983. 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 from 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 121/2 per cent of cost of construction would be allowed towards self-supervision. However, the Departmental valuer allowed only 71/2 per cent.
11. A survey of the above facts would clearly reveal that the value of the property was correctly estimated by the approved valuer 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 a ease where re-opening can be upheld or a ease where addition under the head 'Other sources' 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.