Income Tax Appellate Tribunal - Hyderabad
Prasanchand Surana vs Assistant Commissioner Of Income-Tax on 3 June, 2000
Equivalent citations: [2001]76ITD423(HYD)
ORDER
Shri Joginder Pall, Accountant Member
1. This appeal by the assessee is directed against the order of the Assessing Officer for the block period 1-4-1985 Co 8-11-1995 passed under section 143(3), read with section 158 BC (a) of the Income-tax Act, 1961.
2. In this appeal, the assessee has raised the following grounds of appeal:
"1. The order of the Assistant Commissioner of Income-tax (Inv.), Circle 5(2), Hyderabad, in making an addition of Rs. 9,98,000 as unexplained investment in construction of self-occupied residential property bearing Nos. 67, 68 and 69, P & T Colony, Secunderabad, is unsustained in law.
2. The learned Assistant Commissioner of Income-tax (Inv.), Circle 5(2), failed to note that the entire cost of construction duly supported by a Registered Valuer's report was explained and disclosed by Rameshchand Surana, Pavan Kumar Surana, Dinesh Kumar Surana - who were owners of the property - to the Assistant Commissioner of Income-tax, Central Circle III, Hyderabad, who completed the assessment under section 143(3) accepting the cost of construction and thus the present Assistant Commissioner of Income-tax (Inv.), Circle 5(2), Hyderabad, erred in reconsidering the entire issue in the Block Assessment when no material was found relating to unexplained investment in house construction during 132 proceedings.
3. Without prejudice to Ground No. 2, the learned Assistant Commissioner of Income-tax (Inv.), Circle 5(2), Hyderabad, erred in placing reliance on the report of the Valuation Cell which was a telephonic reference made by the Department and no information was gathered from the appellant by the Valuation Cell while finalising the cost of construction report, thus violating the principles of natural justice.
4. Without prejudice to Ground No. 2, the learned Assistant Commissioner of Income-tax (Inv.), Circle 5(2), Hyderabad, erred in relying on the cost of construction report - furnished by the Valuation Cell of the I.T. Department which was based on surmises and made behind the back of the assessee.
5. Without prejudice to Ground No. 2, the learned Assistant Commissioner of Income-tax (Inv.), Circle 5(2), Hyderabad erred in not appreciating the objection filed by the assessee through a Registered Valuer upholding the cost of construction disclosed by the assessee,
6. Without prejudice to Ground No. 2, the learned Assistant Commissioner of Income-tax (Inv.), 5(2), Hyderabad, having found that the appellant was a qualified Civil Engineer, erred in restricting the "Self-Supervision deduction on construction" to 1096 of the cost of construction.
7. The learned Asstt. Commissioner of Income-tax (Inv.), Circle 5(2), Hyderabad, failed to note that the Registered Valuer of the appellant commented on the Valuation Cell report, in all respects, and therefore the Asstt. Commissioner of Income-tax (Inv.), 5(2), Hyderabad, erred in making an addition of Rs. 9,98,000."
3. The facts of the case are that a search and seizure operation under section 132 of the Income-tax Act, 1961 was conducted by the Income-tax Department on 8-11-1995. During the course of search certain incriminating material including certain loose sheets indicating that the assessee had been doing money-lending business outside the books of account was found and seized. During the course of search cash of Rs. 3,58,715 was also found. The assessee's statement under section 132(4) of the Income-tax Act, 1961 was also recorded on 8-11-1995, i.e. on the date of search. He was specifically asked to explain the source of cash of Rs. 3,58,715 found at his residence. In reply, the appellant stated that cash of Rs. 1.90 lakhs found in his bed room belonged to him and Rs. 40,000 belonged to his wife Smt. Pushpa and daughter-in-law. The balance of Rs. 1.50 lakhs was offered as unexplained income. As regards the balance of Rs. 1.68 lakhs the appellant had stated that the same belonged to his son and as such would be explained by him. The Authorised Officer also noted that house property on plot Nos. 67, 68 and 69, P & T Colony, Secunderabad was constructed by the assessee during the years 1987-1991. The investment in respect of this property was admitted in the hands of three co-owners, namely (a) Shri Ramesh Surana, (b) Shri Dinesh Surana and (c) Shri Pavan Surana to the tune of Rs. 9,46,920 for the assessment years relevant to the period of construction. The axithorised officer while recording the statement under section 132(4) specifically asked the assessee (Question No. 10) to indicate the extent of investments made in the house property. The assessee was also specifically asked to state whether the cost of construction was properly disclosed to the Department. In reply to these specific questions, the assessee had replied that the total investment in the house property worked out to Rs. 12.5 lakhs inclusive of the cost of furniture. Out of this Rs. 9.5 lakhs was disclosed in the books in the names of three co-owners and the balance of Rs. 3.5 lakhs had not been recorded which the assessee offered as his income from undisclosed sources.
4. After the completion of search and seizure operation the Assessing Officer issued a notice under section 158 BC. In response to the said notice, the appellant filed a return of income showing therein undisclosed income of Rs. 10,43.000 for the block period 1-4-1985 to 8-11-1995. The undisclosed income declared in the return consisted of the following items :
(a) Unexplained investment in the construction of the property referred lo above Rs. 3,50,000
(b) Unexplained cash found during the course of search Rs. 2.23,000
(c) Unexplained investment inmoney-lending Rs. 4,70,000 Rs, 10,43.000.
However, it appears that from the date of search itself, the Deputy Director of Income-tax (Investigation) had asked the District Valuation Officer to value the property with a view to ascertain the exact cost of construction. Acting on the instructions received from the Dy. Director of Investigation, the District Valuation Officer determined the cost of construction of the properly at Rs. 21,63,727 as against declared cost Rs. 9,46,920. During the course of assessment proceedings for block assessment, the Assessing Officer issued a show-cause notice to the assessee for substituting the cost of construction determined by the Departmental Valuation Officer. A copy of the valuation report was also sent to the assessee for stating his objections, if any. In reply thereto, the assessee had stated that the Departmental Valuation Officer had adopted cost of various items like external service connection, wooden panelling, compound wall and superior quality of fixtures and fittings on a higher side. Besides, the Valuation Officer had taken the cost of certain items such as arehitectural features, approval of plan, technical drawings etc. on a lumpsum basis. Further no deduction towards self-supervision had been provided though the assessee himself was a Civil Engineer. After considering the merits of assessee's contentions, the Assessing Officer allowed deduction of 10% of the cost of construction for self-supervision and adopted the cost of construction at Rs. 19.48 lakhs. Since the assessee had disclosed the cost of construction at 9.5 lakhs, the Assessing Officer added the difference of Rs. 9.9S lakhs (Rs. 19.48 lakhs - Rs. 9,50,000) as undisclosed income for the block period. Accordingly the Assessing Officer completed the assessment for the block period on a total undisclosed income of Rs. 17,08,180 as against undisclosed income of Rs. 10,43,000 disclosed in the return filed for the block period. It may be noted that out of addition of Rs. 9,98,000 made by the Assessing Officer on account of unexplained investment, in the house property, the assessee himself had disclosed a sum of Rs. 3,50,000 in the return filed for the block period. Therefore, the dispute remains for Rs. 6,48,000 (Rs. 9,98,000 -Rs. 3,50,000 disclosed). The assessee has preferred this appeal against the order of the Assessing Officer.
5. Shri K.C. Devdas, the learned counsel for the appellant has made two sets of submissions - one on legal grounds and the other on facts. Shri C.P. Ramaswamy, the learned Departmental Representative replied to the various submissions made by the learned counsel. These are discussed in the succeeding paragraphs.
6. The learned counsel for the appellant submitted that the Assessing Officer had no authority to proceed to complete the assessment for the block period. He submitted that the property in question was constructed with investments from co-owners and the same was disclosed in their hands in the respective years in which the building in question was constructed. In support of the cost of construction, the assessee had filed valuation report of the registered valuer estimating the cost of construction at Rs. 9.57 lakhs. The Assessing Officer had completed the assessment for the relevant assessment year without questioning the cost of construction declared by the assesses. Thus it could not be said that the house property in respect of which the Assessing Officer has made the addition was not disclosed before the Assessing Officer. Besides, during the course of search, no material, whatsoever, in the form of loose sheets, diary, books of account etc. were found which could show that the cost of construction declared by the assessee was not correct. In the absence of any such material, the Assessing Officer was not justified in assuming jurisdiction for the block assessment to determine the unexplained cost of construction by relying on the report of the Valuation Officer. He further submitted that the Deputy Director of Income-tax (Inv.) had referred the valuation of the property to the Valuation Cell of the Department on telephone. Immediately after receipt of telephonic instructions, the Valuation Officer visited the property for inspection and valued the same at Rs. 21.64 lakhs without affording any opportunity to the appellant and in violation of the principles of natural justice. He further submitted that the Dy. Director of Income-tax (Inv.) is not an authority to refer the property to the Valuation Cell for the purpose of ascertaining the cost of construction. He submitted that provisions of section 2(7A) have been amended subsequently to include the Dy. Director or Joint Director of Income-tax in the definition of "Assessing Officer". The law in this regard was amended by the Finance (No. 2) Act, 1998 with effect from 1-10-1998 and at the relevant time when the search took place in this case on 8-11-1995, the Dy. Director of Income-tax (Inv.) had no authority to refer the property to the Valuation Cell for ascertaining the cost of construction. He, therefore, submitted that such reference was illegal, unwarranted and without authority of law. He further submitted that Chapter XIV-B relating to completion of assessment on search cases does not provide any reference to the Valuation Cell for ascertaining the cost of construction of the property. He submitted that Chapter XIV-B is a separate code itself and the provisions have to be strictly construed. Reliving on the judgment of the Hon'ble High Court of Andhra Pradesh in the ease of Daulatram v. ITO [1990] 181 ITR 119, the learned counsel submitted that the reference could be made only under Chapter IV of the IT. Act.
He also submitted that no addition could be made while completing the search assessment for the block period by relying on the valuation report of the Valuation Officer. He relied on the decision of the Income-tax Appellate Tribunal, Hyderabad Bench in the case of Essem Intra-Port Services (P.) Ltd. v. Assn. CIT [2000] 72 ITD 228. He also relied on the decision of the ITAT, Mumbai Bench in the case of Sunder Agencies v. Dy.
CIT [1997] 63 ITD 245, IT AT, Pune Bench in the case of Parakh Foods Ltd. v. Dy. CIT [1998] 64 ITD 396 and Indore Bench in the case of Indore Construction (P.) Ltd. v. Assn. CIT [1999] 71 ITD 128. Besides he relied on the decision of J & K High Court in the case of Prem Hotel v. ITO [1997] 93 Taxman 237. He also submitted that the property stands in the names of three joint owners and the same was disclosed in their hands for the respective assessment years. The assessee is not the owner of the property. Therefore, no addition was liable to be made in the hands of the assessee. Without prejudice to the submissions made above, by the learned counsel also submitted that the Assessing Officer was not justified in relying on the report of the Valuation Officer without considering the various objections raised by the appellant on determination of the cost of construction. He also submitted that the Departmental Valuation Officer had taken value of various items at a much higher price than the prevalent rate. He also submitted that while estimating the cost of construction, ITAT, Hyderabad Benches have been allowing certain percentage on account of variation in the rates of CPWD and the rates prevalent at Hyderabad. He stated that in view of various submissions made by the assessee in regard to cost of construction, suitable deduction is liable to be made for the purpose of determining the cost of construction. In the light of these facts, he submitted that the addition made by the Assessing Officer should be deleted.
7. On the other hand, Shri C.P. Ramaswamy, the learned Departmental Representative, submitted that it is incorrect to say that nothing incriminating was found during the course of search. He submitted that during the course of search cash of Rs. 3,58,715 was found. In the statement recorded under section 132(4), the assessee admitted cash of Rs. 1,50,000 as unexplained and offered it to tax. In fact in the return filed in response to notice issued under section 158BC(a), the appellant disclosed unexplained cash of Rs. 2,23,000 representing undisclosed income. Besides, he also drew our attention to the fact relating to loose sheets/slips found during the course of search which indicated that the appellant had carried on money-lending business outside the books. In fact in the return of income filed in response to notice under section 158BC(a), the appellant admitted undisclosed income of Rs. 4,70,000 from money-lending business. As regards unexplained investment in the house property, the learned Departmental Representative drew our attention to the submissions of the appellant recorded under section 132(4) of the Act on the date of search i.e. 8-11-1995. In response to question No. 10, the assessee had clearly stated that cost of only Rs. 9.5 lakhs for the construction of the property was recorded in the books of account. The assessee also admitted that the balance of Rs. 3.5 lakhs has not been recorded in the books which was offered by the assessee as his undisclosed income. He further submitted that income of Rs. 3.5 lakhs admitted during the course of search was duly reflected in the return of income filed in response to noticed issued under section 158BC(a). He, therefore, submitted that it is not correct to say that no incriminating material was found during the course of search so far as addition on account of unexplained income relating to unexplained investment in the house property is concerned.
8. Replying to the point raised by the learned counsel about the reference made by the Dy. Director of Income-tax (Inv.) to the Valuation Officer, the learned Departmental Representative submitted that D.D.T.T. (Inv.) is vested with full powers to take the help of any officer of the Central Government or police officer or of both, to assist him for all or any of the purposes specified in sub-section (1) of section 132 or sub-section (1A) of section 132. He submitted that such power is specifically conferred on the authorised officer under section 132(2) of the Income-tax Act. He submitted that reference to Valuation Cell to determine the cost of construction arose directly from the search as the fact that the appellant had admittedly spent more than what was reflected in the books of account for the construction of the house property was revealed by a search of the premises. Further, the appellant himself had admitted undisclosed income of Rs. 3.50 lakhs representing unexplained investment in the house property. In order to take the enquiry to its logical end, the authorised officer was justified in taking the assistance of the Valuation Officer of the Department to determine the correct cost of construction. Therefore, the procedure followed by the D.D.I.T. (Inv.) should not be considered as objectionable on any score. He further submitted that such power is also vested with the Dy. Director of Income-tax (Inv.) under section 131(1 A) of the Income-tax Act. He also relied on the judgment of the Gauhati High Court in the case of CIT v. Smt. Amiya Bala Paul [1999] 240 ITR 378 wherein the Hon'ble High Court has held that the assessing authority was competent to call for report from Valuation Officer under sections 131, 133(6) and 142, of the Income-tax Act. The Hon'ble High Court has stated that the income-tax authorities have enough powers to call for such report with a view to ascertain the cost of construction of the property. While distinguishing the machinery provisions from the charging provisions, the Gauhati High Court has held that machinery provisions are not to be so strictly interpreted, but they are broadly to be utilised to provide a machinery to achieve the purpose of the Act or to effectuate the charging provisions of the Act. The Hon'ble High Court has also held that sections 131, 133 and 142 of the Income-tax Act, 1961 are machinery provisions which vest ample powers in the Assessing Officer. The learned Departmental Representative also relied on the judgment of the Hon'ble High Court of Andhra Pradesh in the case of Daulatram (supra) wherein the Hon'ble High Court has held that even second reference to the Valuation Officer could be made where there was material which came to light admittedly subsequent to finalisation of the valuation by the first Valuation Officer. He stated that the powers of the investigating authority in ascertaining the correct cost of construction through Valuation Officer of the Department could not be called into question in view of the legal position and judicial decisions cited above.
9. The learned Departmental Representative further submitted that it is not correct on the part of the appellant to say that various points raised on the valuation made by the Valuation Officer were not considered by the Assessing Officer while determining the cost of construction. He submitted that it is not that the Assessing Officer blindly followed the valuation report. On the contrary, the Assessing Officer forwarded copy of the valuation report to the appellant asking him to state his objections, if any, to the valuation made by the Valuation Officer. In reply thereto, the appellant had, inter alia, contended that the Valuation Officer had not allowed any deduction on account of self-supervision. Taking due note of this submission of the assessee, the Assessing Officer had allowed deduction of 10% towards self-supervision from the cost of construction determined by the Valuation Officer. He also submitted that the appellant had not maintained complete details about cost of construction of the house properly. Complete bills and vouchers have not been maintained by the assessee. He drew our attention to pages 23 to 33 of the assessee's paper book wherein copies of certain bills were filed which indicated the names of some other person. To this the learned counsel for the appellant replied that copies of these bills were filed only to show the comparative rates prevailing at the relevant lime. Reacting to this, the learned Departmental Representative submitted that even those bills do not prove anything for [he simple reason that cost of an item would depend on the quality of that item and these bills do not show that items used by the appellant in construction of the house property were the same as mentioned in those bills. The learned Departmental Representative also drew our attention to the valuation report filed by the assessee along with the regular return. He submitted that even the assessee's own valuer had estimated the cost of construction and the valuation was not based on actual expenditure incurred. Once it was a questions of estimate and there was evidence that the appellant had not correctly stated the cost of construction as admitted during the course of statement under section 132(4), the D.D.I.T. (Inv.) was justified in referring the properly to the Valuation Officer who is technically competent to undertake such job and the Assessing Officer was justified in arriving at the cost of construction after giving due weightage to the submissions made by the assessee. He, therefore, submitted that the order of the Assessing Officer does not warrant any interference on this account.
As regards the contention that the property did not belong to the appellant as it was owned by three joint owners, namely, three sons of the assessee, the learned Departmental Representative, submitted that during the course of statement recorded under section 132(4) on the dale of search, the appellant himself had stated that the balance of Rs. 3.5 lakhs representing unexplained cost of construction was not recorded in the books which amount was offered by the assessee himself as his undisclosed income. Admittedly, unaccounted component of the cost was met by the appellant. He also drew our attention to assessee's answer to question No.7 where he had clearly stated that as regards cash of Rs. 1.68 lakhs, the same will be explained by his son as same was found from his room. The learned Departmental Representative submitted that if unexplained investment in the house property was not made by him, there was no need for him to admit such income in his hands, which was duly followed up in the return of income filed in pursuance of notice issued under section l58BC(a). In the light of these submissions, the leaned Departmental Representative submitted that the order of the Assessing Officer be confirmed.
10. We have given utmost consideration to the rival submissions made both by the learned counsel for the appellant and the learned Departmental Representative for the Revenue. We have also perused the order of the Assessing Officer and referred to various other documents and papers filed in form of paper book. We have also examined the facts, evidence and material on record. Now the first ground that needs to be considered is whether the Assessing Officer was justified in determining the component of unexplained investment in the house property at Rs. 9.98 lakhs as against Rs. 3.50 lakhs disclosed by the assessee in the return of income. Before answering this question, it is also necessary to record our finding on the legal objections raised by the appellant that the Assessing Officer had no authority to travel beyond the undisclosed income of Rs. 3.50 lakhs disclosed in the return filed in response to notice under section 158BC(a) so far as it relates to unexplained investment in the house property. We have also to examine whether the assessee's contention that the Assessing Officer had no material to disturb the settled position about the cost of construction reflected in the regular returns filed by the three joint owners or the material which came into possession during the course of search could be sent to prompt the Assessing Officer to examine this issue in detail while completing the search assessment for the block period.
11. Chapter XIV-B of the Income-tax Act was inserted which provided special procedure for search assessments. The objective of the new procedure was to make search assessments cost effective, efficient and meaningful. While regular assessments deal with the computation of total income or loss of the assessee for each assessment year, the new procedure provided for determination of undisclosed income of the appellant during the block period. The provisions of Chapter XIV-B provided charging of tax at the rate of 60 per cent on the undisclosed income determined for the block period as against normal maximum rate of tax at 30 per cent. However, the new procedure provided immunity from penalty and interest. The most important factor which requires to be noted is the determination of the undisclosed income for the block period. In order to enable the Assessing Officer to assume jurisdiction for completion of assessment in search eases, two elements must be satisfied i.e., factum of non-disclosure on the part of the assessee must be existing and secondly non-disclosure of income must flow from the search operations carried out in that case. It means that books of account, documents, loose sheets, diaries or other evidence and material gathered during the course of search must reveal the factum of undisclosed income. Now, naturally the question arises as to what is the meaning of 'undisclosed income' which needs to be determined in the search cases.
Section 158B(b) defines the undisclosed income as under :
"'undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act."
According to the dictionary meaning 'undisclosed' means something which is hidden from the knowledge of others. The word 'hide' means deliberate intention of the person hiding the fact. Therefore 'undisclosed income' would include every income which is hidden from the knowledge of the Department. A plain reading of section 158B also reveals that entries in the books of account or other documents or transactions represent wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act. Section 158BB(1) further deals with computation of undisclosed income of the block period. The section provides that the undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed in accordance with the provisions of Chapter IV, on the basis of evidence found as a result of search or requisition of books of account or documents and such other material or information as are available with Assessing Officer as reduced by aggregate of the total income provided under clauses (a) to (f). Thus for computing the undisclosed income of the block period, the Assessing Officer has to compute the total income of the block period on the basis of evidence found as a result of search or requisition of books of account or documents and such other material or information as are available with the Assessing Officer. The evidence found as a result of search or requisition would be evidence that has been gathered by the authorised officer under sections 132 and 132A. This would also include the statements recorded by the authorised officer during the course of search and seizure under section 132(4) which empowers the Income-tax Officer to record statement of any person in possession of such assets or books of account or documents, on oath which could be used in evidence in any proceeding under the Income-tax Act. Evidence so gathered by the authorised officer under section 132 along with material seized, marked or inventorised would be available before the Assessing Officer for the purpose of computing the undisclosed income for the block period. Reliance in this regard is placed on the judgment of the Gujarat High Court in the case of N.R. Paper & Board Ltd, v. Dy. CIT [1998] 234 ITR 733'.
12. Section 158B(b) of the Income-tax Act also refers to undisclosed income as that which has not been or would not have been disclosed for the purposes of this Act. In this regard it is relevant to refer to provisions of section 132 which mentions the circumstances under which the income-tax authorities are empowered to exercise the power of search and seizure. These circumstances have been mentioned in section 132(1)(a), (b) and (c). Sub-section (c) to section 132(i) mentions one of the circumstances where income-tax authorities can mount search is that where any person is found to be in possession of any money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been or would not be disclosed for the purposes of this Act. Here also reference-has been made to transactions representing wholly or partly income or property which has not been or would not be disclosed.
13. Section 158BB(2) of the Income-tax Act, 1961 provides that in computing the undisclosed income of the block period, the provisions of sections 68, 69, 69A, 69B and 69C shall be applicable. Section 69B of the Income-tax Act deals with amount of investments etc. not fully disclosed in the books of account. The provisions of section 69B read as under :
"Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year."
Thus, the deeming provisions of section 69B which equally apply to search assessments for the block period have to be kept in view while determining the undisclosed income of the assessee. It may be noted that all the provisions referred to above have to be interpreted in their natural, normal legal meaning so as to advance the objects of the section for which these have been enacted.
14. Now the case of the assessee has to be viewed in the light of the legal position explained above. Assessee's submission that no incriminating material was found from the premises of the assessee has to be considered in the light of the provisions of the Act mentioned above. Admittedly, three co-owners had declared the cost of construction of the said property in their returns of income at Rs. 9.50 lakhs. In support of the same, valuation report of the registered valuer was also filed. The facts of the case also show that cost of construction shown by the three co-owners at Rs. 9.50 lakhs was accepted without any critical examination. It is also borne from the records that appellant had not maintained complete details i.e., bills and vouchers for the cost of construction. On the dale of hearing, the learned counsel admitted that they had maintained only details in the form of bills and vouchers for purchase of steel and cement. These items taken together may not constitute more than 15 percent of the total cost of construction. It is also relevant to point out that the valuation report of the registered valuer filed along with regular returns indicated that the cost of construction was estimated and the same was not based on the actual expenditure incurred by the assessee. It is also a fact that no loose sheets, documents or diaries etc. were found during the course of search which indicated that the assessee had in fact understated the cost of construction. However, the quantitative and qualitative aspects of the property came to light only during the course of search and seizure. This is evident from question No. 10 put to the assessee during the course of recording statement from him under section 132(4) of the Income-tax Act. This question specifically refers to the fact that cost of construction admitted by the appellant appeared to be on the lower side looking to the observations of the authorised officer in regard to various facilities etc. In reply thereto, the assessee had stated that only Rs. 9.5 lakhs was recorded in the books of account towards investment and the assessee was offering the remaining Rs. 3.5 lakhs being the difference in the cost of construction. These facts clearly show that what the assessee had disclosed was only part of the cost of construction and the balance was not disclosed in the return of income. This fact of non-recording of part of the investment in the books of account came to light only during the course of search on the basis of facts revealed by the search.
15. Now, can we say that the Assessing Officer had no jurisdiction to determine the undisclosed income represented by undisclosed investment in the house property by relying on the statement of the assessee recorded under section 132(4) of the Income-tax Act. Could we say that the fact stated the statement recorded under section 132(4) did not have any evidentiary value and since the Assessing Officer had not found any loose sheets, books of account and other documents, he was precluded from estimating the undisclosed income represented by unexplained investment over and above 3.5 lakhs disclosed by the assessee in the return filed in pursuance of notice issued under section 158BC(a). As mentioned above, evidence gathered during the course of search and seizure forms the basis for determining the undisclosed income of the block period. Such material or evidence may not necessarily be in the form of entries or loose sheets found and seized during the course of search. This information could be gathered by way of investigation and examination of the person under section 132(4) of the Income-tax Act, 1961. Section 132(4) clearly mentions that the statement recorded during the course of search can be used in evidence in any proceedings under the Income-tax Act. Explanation to section 132(4) further mention that the authorised officer is at liberty to examine the person in respect of matters relevant for any investigation connected with any proceeding and need not necessarily be confined to books of account, other documents or assets found as a result of the search. In the case of Thiru John v. Returning Officer AIR 1977 SC 1724, the Hon'ble Supreme Court has held that confession of the party has substantive evidentiary value. An admission, if clearly and unequivocally made is the best evidence against the party until the same is effectively rebutted with some conclusive evidence. Now in this case, not only the appellant admitted having invested a sum of Rs. 3.5 lakhs in the property which was not recorded in the books of account and offered to tax but also followed it up by disclosing the same as undisclosed income of the appellant for the block period. It is also pertinent to mention that at no stage the appellant retracted from the admission. Thus the fact that the assessee had invested part of unaccounted income in the said properly came to light during the course of search operation and it is also a fact that but for carrying out search operation, the qualitative and quantitative aspects of the properly indicating partly concealed income of the assessee would have never come to light. Therefore, unexplained investment in the property formed material evidence during the course of search and the admission of the appellant that part of the cost was not recorded in the regular books also confirms that there was undisclosed income represented by unexplained investment for the block period and the Assessing Officer was justified in taking cognizance of the same during the search assessment for the block period. We, therefore, do not accept the assessee's contention that no material or evidence was found during the course of search which could indicate unexplained investment in the property. We hold that the Assessing Officer correctly assumed jurisdiction for determination of the undisclosed income represented by unexplained investment in the house properly.
16. Now the next issue that needs to be considered is whether the Assessing Officer was justified in estimating the undisclosed income represented by unexplained investment in the property over and above Rs, 3.5 lakhs disclosed by the appellant in the return filed in response to notice under section 158BC(a). Once the Assessing Officer has assumed jurisdiction in view of the fact that evidence and material found during the course of search or evidence gathered during the course of investigation indicated undisclosed income, the Assessing Officer is vested with full authority and powers in making the block assessment. In this regard, he had the authority to use powers conferred under sections 142, 143 and other sections of the Income-tax Act until specifically precluded from the same. Their Lordships of the Calcutta High Court in the case of Shaw Wallace & Co. Ltd. v. Asstt. CIT [1999] 238 ITR 13 have held that the Assessing Officer is not permitted to use part of his power for block assessment and reserve the balance for making regular assessment thereafter and, therefore, he must use all his powers during the block assessment, so that the computation is complete once for all and each rupee of total income which is in excess of the contingencies provided for in clauses (a) to (f) of section 158BB(1) gets taxed as undisclosed income. Now it is obvious that in this case the qualitative aspects of the construction, the cost of furniture and fixtures came to light during the course of search. This appears to be the fact which prompted the D.D.I.T. (Inv.) to refer the property to the Valuation Cell of the Department. The fact that the assessee had not recorded part of the cost of construction came to light during the course of recording of statement under section 132(4) of the Income-tax Act. The determination of actual cost of construction is a technical subject which cannot be done by the Assessing Officer or the D.D.I.T. (Inv.) himself and this issue has direct bearing on the quantification or determination of undisclosed income represented by unexplained investment in the house property. Therefore, rightly so, the D.D.I.T. (Inv.) referred the valuation of the property to the Valuation Cell of the Department for determination of the actual cost of construction. It is only on receipt of the valuation report that the Assessing Officer came to know about the actual cost of construction which was admittedly much higher than the one disclosed by the assessee in the statement under section 132(4) and the return filed in response to notice under section 158BC(a). We, therefore, hold that the D.D.I.T. (Inv.) was justified in referring the property to the Valuation Cell as the same had direct bearing on the determination of the total undisclosed income for the block period.
17. The next objection raised by the learned counsel for the appellant is that the D.D.I.T, (Inv.) was not competent to refer the valuation of the property to the Valuation Cell for determination of the cost of construction. After careful consideration of the provisions of the Act, we hold that this objection is devoid of any merit. Section 132(2) of the Income-tax Act clearly empowers the authorised officer to requisition the services of any police officer or any officer of the Central Government to assist him. The D.D.I.T. (Inv.) invariably is the authorised officer in this case. Besides section 131(1A) empowers the Dy. Director of Income-tax along with other authorities to exercise the powers conferred under sub-section (1) of section 131 on the income-tax authorities, notwithstanding that no proceedings with respect to such person or class of persons are pending before him or any other income-tax authority. Thus, this section also empowers the Dy. Director of Income-tax (Inv.) to refer the valuation of the property to the Valuation Cell. Besides in terms of section 131 (1 A), the D.D.I.T. (Inv.) can also exercise the powers vested under section 131 of the Income-tax Act. Moreover as per the provisions of section 132(1)(c) one of the circumstances under which the power of search can be exercised by the income-tax authorities is where the assessee is found to be in possession of assets which represent either wholly or partly income or property which has not been or would not be disclosed for the purposes of Income-tax Act. Now in this case, the fact that part of the cost of construction in the house property represented by undisclosed income within the meaning of section 69B came to light during the course of search only. Therefore in discharge of his statutory duties, the D.D.I.T. (Inv.) rightly referred the property to the Departmental Valuation Officer to ascertain the correct cost of construction. This by no stretch of imagination could be considered as arbitrary or unreasonable exercise of powers vested in him. Moreover, the Hon'ble High Court of Andhra Pradesh in the case of Daulatram (supra) has held that the income-tax authorities have wide powers under sections 55A, 131 and 142 of the Income-tax Act to refer the valuation of the property to the Valuation Officer for a second time if the crucial fact in determining the correct cost of construction comes to the knowledge of the authorities subsequent to the first valuation report. Besides, the Gauhati High Court in the case of Smt. Amiya Bah Paul (supra) has held that the Assessing Officer is vested with wide powers under sections 131, 133(6), 142(2) and section 75 of the Civil Procedure Code to call for report from the Valuation Officer for the purpose of determination of the cost of construction. The same High Court held that a reference to the Valuation Cell in exercise of the powers conferred under these sections relate to machinery provisions of the Income-tax Act, therefore, these need to be construed liberally. Section 158BB(1) clearly provides computation of undisclosed income under Chapter XIV-B in accordance with the provisions of Chapter IV. Therefore, it is not correct to say that D.D.I.T. (Inv.) or the Assessing Officer cannot refer the valuation of the property to the Valuation Cell under Chapter XIV-B. It may be noted that both in the cases before the Andhra Pradesh High Court and the Gauhati High Court reference was made for determination of the cost of construction under Chapter IV of the Income-tax Act. Since provisions of sections 131, 131 (1A)and 132(2) empowers the D.D.I.T. (Inv.) to make use of such authority, there is no infirmity in the action of the D.D.I.T. (Inv.) in referring the valuation of the property to the Valuation Cell for the purposes of Chapter XIV-B. Section 131(1A) empowers the D.D.I.T. (Inv.) to exercise such authority even though he may not be the Assessing Officer. Therefore, assessee's objection that in section 2(7A) of the Income-tax Act, Joint Director of Income-tax or the Dy. Director of Income-tax (Inv.) was introduced in the definition of assessment officer subsequently and for the relevant period he had no authority to do so is without any merit. Section 2(7A) has been amended because subsequently the power of assessment has also been conferred on the D.D.I.T. (Inv.) as also on the Joint Director of Income-tax. That does not mean that earlier the D.D.I.T. (Inv.) had no power to refer the valuation of the property to the Valuation Cell whereas such power is clearly vested in him under sections 131, 131(1 A) and 132 of the Income-tax Act, Therefore, the objections raised by the learned counsel for the appellant are held to be devoid of any merit on this point.
18. The next legal issue raised by the learned counsel is that the assessee is not the owner of the property. It is contended that once the assessee is not the owner, the Assessing Officer was not justified in including the component of unexplained investment in the property in his hands. Over and above, the cost of construction was admitted by him in the statement recorded under section 132(4) and the return of income filed in pursuance of notice under section 158BC(a) of the Act. We have given our utmost consideration to this submission as well. Now in the statement recorded under section 132(4), it is the appellant who admitted unexplained investment from his source and accordingly offered the same to tax. But his confession was that total investment over and above those reflected in the return was to the tune of Rs. 3.5 lakhs. Now the cost declared by the respective owners in the regular returns of income was only to the tune of Rs. 9.5 lakhs. Moreover it is relevant to note that all the three joint owners are sons of the appellant. Two sons were studying at the relevant time when the property was constructed. Only the third son is reported to have some independent source of income. All the sons were staying with the father i.e. the assessee. If the assessee had not borne the entire cost of unexplained investment in the property nothing prevented him to say so before the authorised officer in the statement recorded under section 132(4) or in the subsequent proceedings as he had replied while explaining the cash found from his residence that cash of Rs. 1.68 lakhs could be explained by his son as the same was found from his room. The admission of the assessee in the statement recorded under section 132(4) and disclosing of Rs. 3.5 lakhs as undisclosed income represented by unexplained investment in the properly would show that total unexplained investments have to be considered in the hands of the appellant himself. The dispute relates only to the quantum of addition to be made on this account, which in this case has been found to be higher than disclosed/ admitted by the assessee. Therefore, the objection raised in this regard is also found to he devoid of any merit.
Assuming for a while for arguments sake that the D.D.I.T. (Inv.) had no authority to refer the valuation of the property to the Valuation Cell, does it mean that the Assessing Officer should not have considered such valuation for the purpose of determining the undisclosed income for the block period. Admittedly, the valuation report dated 13-11-1995 was received by the Assessing Officer much before completion of the block assessment. It formed part of the seized material handed over to the Assessing Officer. How could the Assessing Officer ignore such valuation report which has a vital bearing on the quantification of undisclosed income for the block period. He was duty bound to consider all material and evidence while completing the block assessment. -In the case of Pooran Mal v. Director of Inspection (lnvestigation) [1974] 93 ITR 505, the Hon'ble Supreme Court has held that where the test of admissibilily of evidence lies in relevancy unless there is an express or implicit prohibition in the Constitution or other law, evidence obtained as a result of illegal search and seizure is not liable to be shut out. Admittedly the Assessing Officer, on receipt of valuation report, has followed the correct course in forwarding a copy of the same to the assessee and inviting his objections.
It was only after giving due weight age to the points raised by the assessee that the Assessing Officer arrived at the quantum of undisclosed income represented by unexplained investment in the property. We, therefore, hold that there was neither any illegality nor irregularity on the part of the Dy. Director of Income-tax (Inv.) to refer the valuation of the property to the Valuation Cell. There was also no illegality or infirmity on the part of the Assessing Officer to consider such valuation report for the determination of undisclosed income for the block period.
19. Now the last objection of the appellant relates to determination of the cost of construction by the Valuation Officer at Rs. 21.64 lakhs. The contentions of the appellant, in brief, arc that the Valuation Officer estimated the cost of construction without allowing reasonable opportunity to the appellant. In this regard we notice that the Assessing Officer had forwarded a copy of the valuation report along with his letter allowing the appellant an opportunity to state his objections, if any. During the course of proceedings for the block period, the appellant had stated that the cost of certain items taken by the Valuation Officer was on the higher side, had not allowed deduction for self-supervision and that cost of certain items was taken on lumpsum basis. The Assessing Officer considered the objections of the appellant and allowed deduction of 10% for self-supervision from the total cost of construction determined by the Valuation Officer. It is not that the Assessing Officer had blindly followed the valuation report of the Valuation Officer. We have also perused the valuation report dated 13-11-1995 of the Valuation Officer. It is noticed from para 5.3 of the report that Valuation Officer has considered the valuation report of the assessee's registered valuer. He has also mentioned that for the following reasons, the valuation report of the registered valuer could not be accepted.
"The Registered Valuer's Report dated 7-10-1989 from M/s. K.D. Subramaniam & Associates, is for Rs. 9.57 lakhs.
This report cannot be adopted for the following reasons :
(1) Date of start of construction was not mentioned.
(2) The estimate is in the detailed estimate format, but all items in detail have not been covered. The quantities are neither based on any structural drawings or recorded measurements. Rates are not based on any standard rates.
(3) Percentage provision for services are neither based on the Central Board of Direct Taxes approved Plinth Area Rates or of Andhra Pradesh Public Works Department Plinth Area Rates. Provision made for services are very much lower than that of Plinth Area Rates of APPWD.
(4) No consideration has been made for superior specification of almost all items."
It is also a fact that the Valuation Officer also estimated the cost of construction by adopting the plinth area method, In para 5.1 of the valuation report, it has been mentioned that reasonable cost of construction is determined based on standard plinth area of rates of 1976 as approved by the C.B.D.T. and duly enhanced by the cost index prevailing during the period December 1987 to May 1989 at Secunderabad. The same report also mentions that items which are not covered under standard plinth area rates have been considered separately and added to this estimate. The assessee's objection to the valuation report have also been perused. The assessee has stated that comparing rates at Delhi with the rate prevailing at Hyderabad is not fair. It has been pointed out that there is substantial variation in the rates prevailing at both the places,
20. We have given utmost consideration to these objections. A perusal of the valuation report shows that the Valuation Officer has not applied the rates prevailing at Delhi rather he has adjusted the same by the cost index prevailing during the relevant period at Secunderabad, i.e. the place where the appellant's property is situated. Even otherwise we have noted that the quality of construction in this case is far superior to the normal construction of C.P.W.D. We have noted that on ground floor, first floor and steps first class marble flooring has been provided. Similarly wood work for doors, windows and cub-boards was of superior quality teak wood. Even the quality of electrical, sanitary and brass fittings is far superior. However, we have considered the facts and noted that there are notable variation in the cost of materials as adopted by the Valuation Officer and those prevailing rates pointed out by the assessee. In many cases, the Tribunal has noted such rate variation and granted suitable deductions from the cost of construction. The Cochin Bench of the Tribunal has allowed a deduction of 10% in the cost of construction on the ground that CPWD rates are not applicable to private construction -Upasana Hospital & Nursing Home v. ITO [1990] 48 Taxman 20 (Marg.). The Hyderabad Bench in the case of CDS Prakash Rao v. Assn. CIT [IT(SS) Appeal No. 155 (Hyd.) of 1997 dated 21-4-1999] has allowed deduction of 10% from the value as per report of Valuation Officer towards variation and other objections raised by the assessee.
21. Having regard to the facts and circumstances of the case, we hold that deduction of 10% from the cost of construction of Rs. 21.64 lakhs determined by the Valuation Officer would meet the ends of justice. This will be in addition to deduction at the rate of 10% allowed by the Assessing Officer for self-supervision. Thus the appellant would be entitled to deduction of Rs. 2,16,400 (10% of Rs. 21,64,000) on this count. This would reduce the cost of construction to Rs. 17,31,600. Considering the fact that total built-up area of the property is 686 sq. metres (7381 sq. ft.) it would give a cost of Rs. 234 per sq. ft. which appears to be fair and reasonable keeping in view the quality of construction. Therefore, this ground of appeal is allowed in part.
22. Now we turn to the various decisions relied upon by the learned counsel for the appellant. The first case relied upon by the appellant is of the Andhra Pradesh High Court in the case of Daulatram (supra). In this case, the Hon'ble High Court had held that the Assessing Officer is vested with all powers to refer the properly to the Valuation Cell even for the second time, when material evidence came to the knowledge of the Assessing Officer after the first valuation was made. The learned counsel has relied on this order to say that reference to the Valuation Cell could be made only under Chapter IV and not under Chapter XIV-B. This is not correct. As per the provisions of section 158BB(1) undisclosed income of the block period is to be computed in accordance with the provisions of Chapter IV.
Even otherwise, provisions of section 158BH of Chapter XIV-B provide that save as otherwise provided in this Chapter, all other provisions of this Act shall apply to assessment made under Chapter XIV-B. Therefore, it is not correct to say that valuation in this case cannot be referred to the Valuation Cell under Chaptr XIV-B. The next case relied on by the learned counsel is that of I.T.A.T., Hyderabad Bench in the case of Essem In Ira-Port Services (P.) Ltd. (supra). In that case, the Assessing Officer had referred the case to the Valuation Cell and the differential amount between the cost of construction declared in the books and as determined by the Valuation Officer was brought to tax. The I.T.A.T. deleted the addition on the ground that the fact of construction of the property was disclosed to the departmental authorities before the search and seizure operations and, therefore, there was no material for the Department to bring the differential amount to tax. The facts of the present case are different from the facts of the case relied on by the learned counsel. In this case search operation carried out by the Department clearly brought out the fact that the assessee had not disclosed part of the cost of construction in the books of account and the assessee had also offered the amount of Rs. 3.50 lakhs as undisclosed income on this account. Therefore, there was clear evidence brought out by the search and seizure operations to the effect that part of the cost of construction was not reflected in the regular books of account. In the case relied on by the learned counsel, no such evidence was available with the assessing authority.
The next case relied on by the learned counsel is that of I.T.A.T., Mumbai Bench in the case of Sunder Agencies (supra). In that case, the I.T.A.T. had held that section 158BA does not provide a licence to revenue for making roving enquiries connected with completed assessment in the absence of any direct evidence coming to the possession of department as a result of search. The facts of that case are also not applicable to the facts of this case. In the case before the I.T.A.T., Bombay, there was no incriminating material which could show undisclosed income on the part of the assessee. However, in this case, the evidence gathered during the course of search and seizure operations clearly brought out the fact of partial disclosure of investment in the house property. Partial disclosure docs not amount to true and full disclosure and in this case, the facts detailed above do show that but for the search the appellant would have never disclosed part of the unaccounted investment in the house property. Therefore, this decision is not applicable to the facts of this case.
The next case relied on by the learned counsel is of Pune Bench in the case of Parakh Foods Ltd. (supra). The decision in this case does not come to the rescue of the assessee. The Pune Bench has clearly held that assessee's contention that undisclosed income must be that income which is detected as a result of search cannot be accepted. At page 398, the I.T.A.T. has held that there may be cases where the Assessing Officer may find out huge income subsequent to the date of search and that too from the books of account of the assessee itself. Therefore, the contention of the assessee that undisclosed income must be assessed 6n the basis of material found as a result of search or other material having nexus with the seized material was not accepted by the I.T.A.T. It has been held that the expression 'such other material' has to be understood as any other material and may not necessarily be material arising out of the search. Even the material gathered during the course of investigations could be used for determining the undisclosed income for the block period.
The next decision relied on by the learned counsel is that of Indore Bench in the case of Indore Construction (P.) Ltd. (supra). The facts of the case are clearly distinguishable from the facts of the present case. In that case search warrant was not issued in the case of the assessee. Therefore, the Indore Bench has held that the Assessing Officer has no authority to assume jurisdiction for completing the block assessment. In this case, search operation was carried out in the case of the assessee and such action brought out the fact of part unaccounted investment in the house property.
The last case relied on by the learned counsel is of J& K High Court in the case of Pram Hotel (supra). In that case, the question was whether reference to Valuation Officer could be made without giving the assessee an opportunity of being heard and without disclosing the reason therefor. The facts of that case are clearly distinguishable from the facts of the present case. In that case reference was made to the Valuation Officer without recording any reason to reopen the assessment already completed by the Assessing Officer. That ease was not one where search operation was carried out by the Department. But in this case, search operation was carried out and the same brought out admitted unexplained investment in the property to the extent of Rs. 3.5 lakhs. This itself was sufficient ground for referring the case to the Valuation Cell. Moreover, we have already held that D.D.I.T. (Inv.)'s action in referring valuation of the property to the Valuation Cell was neither arbitrary nor unreasonable. Besides the judgment of the jurisdictional High Court in the case of Daulatram (supra) and of the Gauhati High Court in Smt. Amiya Bala Paul's case (supra) clearly support the view that reference to Valuation Cell can be made for ascertaining the cost of construction of the property.
23. Having regard to the facts and circumstances of the case and the legal position detailed above, we allow the assessee's appeal in part.
24. In the result, the appeal is partly allowed.