Income Tax Appellate Tribunal - Chennai
M. Selvaraj vs Income-Tax Officer on 6 July, 2002
Equivalent citations: [2002]258ITR82(CHENNAI)
ORDER
P.S. Kalsian, (Accountant Member)
1. These appeals by the assessee relate to the assessment years 1990-91 and 1991-92 and arise out of the common order of the Commissioner of Income-tax (Appeals-III), Madras, dated February 28, 1996, confirming the additions to the extent of Rs. 53,910 and Rs. 46,824, respectively, as unexplained investment in the construction of property at door No. 66, M. M. Avenue, Kanchipuram.
2. The assessee has constructed a house property at No. 66, M. M. Avenue, Kanchipuram, and the construction has been carried out by the assessee during the assessment years 1990-91 and 1991-92. The cost of construction was admitted by the assessee at Rs. 1.75 lakhs and at Rs. 1.52 lakhs in the assessment years 1990-91 and 1991-92, respectively. The Assessing Officer referred the matter relating to the cost of construction to the Valuation Cell of the Income-tax Department and the cost of construction was determined at Rs. 5,91,650, as against cost of construction declared by the assessee at Rs. 3,27,000. After giving an opportunity of hearing to the assessee, the Assessing Officer adopted the cost of construction of the property at Rs. 5,91,660 and allocated the difference of Rs. 1,64,660 (Rs. 5,91,660 minus Rs. 3,27,000) in the assessment years 1990-91 and 1991-92 at Rs. 82,330 each. In appeal, the Commissioner of Income-tax (Appeals) considered the submissions of the assessee as well as the cost of construction worked out by the Departmental Valuation Officer. The Commissioner of Income-tax (Appeals) found that the assessee was not able to produce all the vouchers in respect of the cost of construction, and from the details it was not possible to find out whether all the expenditure incurred have been accounted for. The Commissioner of Income-tax (Appeals) observed that any valuation on the basis of break-up of the materials was not furnished and that separate expenditure incurred on bricks, sand, cement, steel and labour was not furnished either before the Assessing Officer or before him. It was also found that even the report obtained from the registered valuer was on plinth area basis and no break-up had been furnished. Under the circumstances, the Commissioner of Income-tax (Appeals) found it not possible to accept either the cost of construction declared by the assessee or the cost of construction as determined by the registered valuer. The Commissioner of Income-tax (Appeals), however, considered the basic cost of the house property at Rs. 4,58,217 and made addition of Rs. 25,000 on account of cost of services and cost of extra items on ad hoc basis. After taking into consideration the cost of construction at Rs. 5,03,217, the Commissioner of Income-tax (Appeals) allowed deduction of 15 per cent. presumably on account of personal supervision. The Commissioner of Income-tax (Appeals) accordingly determined the cost of construction at Rs. 4,27,734 and confirmed an addition of Rs. 1,00,734 (Rs. 4,27,734 minus Rs. 3,27,000). Out of this, the Commissioner of Income-tax (Appeals) allocated proportionate amount of Rs. 53,910 for the assessment year 1990-91 and Rs. 46,824 for the assessment year 1991-92 being unexplained investment. The assessee felt aggrieved and filed the present appeals before the Tribunal.
3. It is contended by learned counsel for the assessee that the cost of construction of the house property shown in the books of account at Rs. 3,27,000 is genuine and should be accepted. It is stated that income from business has been accepted as per books of account of the assessee after examining the same and, consequently, the question of disputing the cost of construction as recorded in the books of account cannot arise. There was no finding of any discrepancy and inasmuch as the investment in the house property is recorded in the books of account genuinely. Learned counsel further contended that a reference to the Departmental Valuer by the Assessing Officer was unnecessary and unwarranted, in so far as the assessee's books of account have been accepted and that the cost of construction had been properly recorded in the assessee's accounts. It is, therefore, urged that the additions of Rs. 53,910 and Rs. 46,824 confirmed by the Commissioner of Income-tax (Appeals) being unexplained investment in the house construction in the assessment years 1990-91 and 1991-92, respectively, are not justified. Learned counsel for the assessee also stated that the valuation of the house property had been made on the basis of the C. P. W. D. rates and not on the basis of the State P. W. D. rates. According to learned counsel, the C. P. W. D. rates are applicable only for big and metropolitan cities.
4. The learned Departmental Representative, on the other hand, supported the order of the Commissioner of Income-tax (Appeals) and stated that the Valuation Officer had asked the assessee to state his objections before submitting the valuation report with regard to the cost of construction of the house property in question, but no objection was raised by the assessee before him. He, therefore, submitted that the action of the Commissioner of Income-tax (Appeals) in sustaining Rs. 53,910 and Rs. 46,824, respectively, for the assessment years 1990-91 and 1991-92 being unexplained investment in the house construction, should be confirmed.
5. We have carefully considered the rival submissions, the facts and circumstances of the case and the material on record. The contention of learned counsel for the assessee that a reference to the Departmental Valuer was unnecessary and unwarranted in the present case and such a reference has not been made in accordance with law, is not sustainable. For the purpose of finding out the relevant facts, which are material for the purpose of assessment, the Assessing Officer could take the assistance of any authority, particularly an officer of the Department and there is no prohibition under the Income-tax Act which prevents the Assessing Officer to make reference about the cost of construction of house properties. When there is no law preventing the Assessing Officer to make reference to the Valuation Officer about the cost of construction of a house property, then the action of the Assessing Officer or referring the matter of valuation of house property cannot be considered as illegal or invalid.
6. In the case of Daulatram v. ITO [1990] 181 ITR 119, the Andhra Pradesh High Court considered a similar situation. In that case the Income-tax Officer referred the matter of valuation of a building to the Valuation Officer under Section 55A. The Valuation Officer determined the cost of construction at Rs. 24.46 lakhs. The Andhra Pradesh High Court held that the reference to the Valuation Officer under Section 55A is valid. In the case of the assessee before us, even though the Assessing Officer might have not specifically referred to the provisions of Section 55A, but the absence of reference to that section could not make the reference to the Valuation Officer invalid or unwarranted.
7. In the case of C.T. Laxmandas v. ACIT [1994] 208ITR 859, the Madras High Court had upheld the validity of reference under Section 55A by the Assessing Officer to the Valuation Officer for the purpose of making the assessment.
8. In view of the aforesaid decisions of the Andhra Pradesh and Madras High Courts, there is no illegality in making reference to the Valuation Officer in the present assessee's case for the purpose of finding out the actual cost of construction of the house property. Therefore, the argument of learned counsel that the reference to the Valuation Officer was not valid is not sustainable.
9. Though, learned counsel for the assessee has stated that the Valuation Officer in valuing the house property had adopted the C. P. W. D. rates, whereas the State P. W. D. rates should have been applied. Learned counsel could not point out any difference in the cost of construction adopted by the Commissioner of Income-tax (Appeals) even if the cost is determined on State P. W. D. rates. Learned counsel did not file any details of cost of construction based on State P. W. D. rates. In the absence of any evidence to show that the cost of construction of the house property in question based on State P. W. D. rates would be less than what has been determined by the first appellate authority, we reject the contentions of the assessee's counsel in this regard.
10. Learned counsel for the assessee has stated that no defects in the books of account in regard to the cost of construction have been pointed out by the Assessing Officer. The addition on account of unexplained investment is made under Section 69 of the Act. A query was put to the assessee's counsel during the course of hearing that suppose a person purchases bricks worth Rs. 50,000 but shows only Rs. 30,000 in his books towards purchase of bricks, then no defects in the books of account could be found out even though he has understated the cost of purchase of bricks to the tune of Rs. 20,000. Therefore, it is not necessary to find out the defects in the books of account for invoking the provisions of Section 69. The defects in the books are relevant only when the provisions of Section 145 are invoked for computing the profits and gains of business. Whether there are defects in the books of account or not, is immaterial when additions are made on account of unexplained investment in the house construction under Section 69 because even if an unaccounted investment is made, and the same is not recorded in the books of account, such unexplained investments could be found out only by finding out the cost of construction by a competent authority and an expert person like the Valuation Officer of the Department. Not a single defect has been pointed out in the valuation report of the Valuation Officer or in the appellate order passed by the Commissioner of Income-tax (Appeals) by the assessee's counsel and, therefore, we decline to interfere with the order of the Commissioner of Income-tax (Appeals) for both the years. The grounds raised by the assessee are accordingly rejected.
11. In the result, the assessee's both appeals are dismissed.
Abdul Razack, (Judicial Member)
12. I have perused the order passed by my learned Brother, Accountant Member, but I am unable to agree with him in relation to the addition of Rs. 53,910 for the assessment year 1990-91 and Rs. 46,824 relating to the assessment year 1991-92 as unexplained investment in terms of Section 69 of the Income-tax Act, 1961, on the basis of the report of the Valuation Officer (DVO) of the Income-tax Department. My reasons are below :
Whether or not books are maintained by an assessee in respect of the construction undertaken ; yet, I think it is the fundamental and imperative duty of an Assessing Officer to accept or to reject the disclosed cost of construction. In the event of the Assessing Officer not accepting the disclosed amount spent on construction then he should have cogent and tangible evidence and material in his possession. The report, opinion or certificate of the DVO, in my view, is not dependable and cogent evidence as per law.
13. Cost and value are the two different concepts. The value of an article or thing may be say "X" amount, but an assessee may purchase it for a lessor amount for variety of reasons. In such a case, the cost to such purchaser assessee will be lesser than the real market value. It is common knowledge that doctors, lawyers, chartered accountants, engineers, architects and lot of other persons occupying high posts and status in society (which I refer them as big people) get substantial concessions and reductions in the purchase price of several commodities, article and things in the market compared to other common citizens or lesser mortals (whom I refer as small people). The cost of articles or things to such big people will be less compared to the cost of the same article to small people. I pose a question to myself can the Assessing Officer make addition under any deeming provision of the Income-tax Act in the case of big people on the ground that the market price/value of a particular article or thing is opined by an expert to be more than what was spent while purchasing ? The answer obviously will have to be "no".
14. The DVO is a trained expert for tendering opinion on the valuation aspects of any property or asset but he is not trained nor he is an expert in tendering opinions on the cost aspects of any property or asset. It is the job of a cost analyst and not that of the DVO to find out the cost of construction of any property and I repeat that the Valuation Officer is not a cost analyst at all. Though the Assessing Officer may obtain an opinion from an expert, namely, the DVO, under the powers of enquiry vested upon him in law, but the question is, can the Assessing Officer subject the assessee to tax on the basis of such an opinion of the DVO and further, expose the assessee to additional levies and imposts including penalties and prosecutions under various provisions of the Income-tax Act, 1961 ? If the answer is in the affirmative, then I think such a power is arbitrary oppressive and unreasonable offending Articles 14 and 21 of the Constitution of India and cannot be allowed to be exercised as has been authoritatively laid down by their Lordships of the Supreme Court in the illuminating and landmark judgment rendered in the case of Smt. Menaka Gandhi v. Union of India, AIR 1978 SC 597. A cursory look at the report submitted by the DVO clearly shows that it is more a valuation report, than a report or an opinion on the cost aspects of construction. I, therefore, do not wish to give any credence and discuss the merits of such a report of the DVO.
15. The objection of the assessee that the DVO's report should not be relied upon for making addition under Section 69 of the Act have been brushed aside by the Assessing Officer so much so that the report given by the registered valuer of the assessee appointed under the Wealth-tax Act by the Central Board of Direct Taxes has not been given credence. From the contents of the assessment order, it appears that the Assessing Officer has not applied his mind at all to the facts and figures furnished by the expert registered valuer of the assessee.
16. The scheme of the Income-tax Act clearly suggests that it is the real income which has to be taxed and not the income based on hypothesis of fiction or on the basis of gossip or opinions of experts. In the instant case, the Assessing Officer has no material whatsoever to come to a conclusion that the assessee has spent much more than what has been recorded in his account books and disclosed to the Department. The only basis available with the Assessing Officer is the report of his own Valuation Officer, who reported that the cost of construction was to the extent of Rs. 5,91,660 and not Rs. 3,27,000 as declared by the assessee. In giving such an opinion, the DVO has applied the rates prescribed by the C. P. W. D. and I do not know on what basis C. P. W. D. rates can be applied for finding out the cost of construction when the assessee says that he has not spent anything over and above Rs. 3,27,000 and the same is duly recorded in the account books, supported by vouchers to the extent available. The Assessing Officer does not deal with the case of the assessee in relation to the cost of construction on the basis of the evidence produced before him, namely, the account books and the relative vouchers but ignores the same cooly sitting in his arm chair acting on the opinion of the Valuation Officer of the Income-tax Department who is not a cost analyst at all and on that basis subjects the assessee to tax and exposes the assessee to other penal and adverse consequences provided under the law. I think it is too harsh to subject an assessee to tax and other adverse and penal consequences merely on the basis of reports and opinions of experts of the valuation matters of properties. I could have well agreed with the Assessing Officer, had he taken pains to find out the real cost of construction. But for the reason best known to him, the Assessing Officer did not embark upon any such serious enquiry to find out if any amount is spent over and above the sum of Rs. 3.27 lakhs by the assessee which got reflected and recorded in the account books supported by related vouchers. The Assessing Officer, I repeat has merely relied upon the report of the DVO which is nothing but an opinion of an expert on the valuation aspects/matters of a given property. It is for these reasons I am unable to agree with the Commissioner and even with my learned Brother, Accountant Member. The addition sustained by the Commissioner (Appeals) to the extent of Rs. 53,910 for the assessment year 1990-91 and Rs. 46,824 for the assessment year 1991-92 in terms of Section 69 of the Act as unexplained investment is wholly unwarranted and unjustified particularly reading the phraseology used in Section 69 of the Act. I, therefore, direct the Assessing Officer to delete the addition of Rs. 53,910 relating to the assessment year 1990-91 and Rs. 46,824 relating to the assessment year 1991-92 sustained by the Commissioner (Appeals) as unexplained investment in terms of Section 69 of the Act in the construction of house property at 66, M. M. Avenue, Kanchipuram.
17. The appeal is allowed.
ORDER OF REFERENCE TO THIRD-MEMBER
18. As we have differed in our views in the above mentioned income-tax appeal, we refer the below given point for determination by the Third Member in accordance with the provisions of Sub-section (4) of Section 255 of the Income-tax Act, 1961, and we request the President, Income-tax Appellate Tribunal, for making suitable reference. The point of difference is as under :
"Whether, on the facts and in the circumstances of the case, the addition under Section 69 of the Income-tax Act can be made on proportionate basis for the assessment years 1990-91 and 1991-92 on the basis of the report/opinion of the Departmental Valuation Officer (DVO) ?"
ORDER OF THIRD MEMBER I.S. Verma, (Judicial Member)
19. In consequence upon difference of opinion between the Members constituting "C" Bench of the Income-tax Appellate Tribunal, Chennai (which heard the present appeals), the President of the Tribunal has, in exercise of his powers under Section 255(4) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), appointed me to express my opinion as "Third Member" on the following question :
"Whether, on the facts and in the circumstances of the case, the addition under Section 69 of the Income-tax Act can be made on proportionate basis for the assessment years 1990-91 and 1991-92 on the basis of the report/opinion of the Departmental Valuation Officer (DVO) ?"
20. I have heard counsel for the assessee as well as the learned Departmental Representative.
21. So far as the facts relating to the issue are concerned, the same have been stated in detail in para. No. 2 (page 85) of the order of the learned Accountant Member and, therefore, to avoid repetition are not stated here.
22. Counsel for the assessee first of all went through the findings of the learned Accountant Member contained in paras. 5 to 8 (pages 86 and 87) of his order and made the following submissions :
(i) That the Assessing Officer having not disputed the correctness of the books of account maintained by the assessee for the purpose of his business income as well as for construction of the property, it was not justified on his part to make a reference to the Valuation Officer for finding out the cost of construction of the property.
(ii) That the Assessing Officer though was authorised to call for information from any authority or a person by virtue of his powers under Section 133(6) of the Act and also could appoint commission for determining the market value of a property by virtue of his powers under Section 131(1)(d) of the Act, but the powers under Section 131(1)(d) could be exercised only after having come to the conclusion that the cost of construction shown by the assessee was not correct and for that purpose, it was incumbent upon the Assessing Officer to record his satisfaction. Relying on this legal requirement, counsel for the assessee pleaded that the reference to the Valuation Officer without satisfying the aforesaid requirement was itself bad in law and, therefore, any report procured in consequence of such a reference cannot be relied upon.
(iii) That the Valuation Officer should have applied the State P. W. D. rates instead of the Central P. W. D. rates. Objecting to the findings of the learned Accountant Member, the assessee's counsel submitted that the assessee was never required to furnish the State P. W. D. rates. Even otherwise, according to counsel, the onus was on the Revenue to find out the State P. W. D. rates and not on the assessee. Supporting his submission, counsel submitted that since it is the Revenue which is disputing the correctness of the cost of construction, the law required that it should have been computed in a fair and justified manner. He, therefore, submitted that the assessee's failure to furnish the State P. W. D. rates should not have been considered so as to deny the relief to it. If at all the assessee was required to furnish the rates, counsel pleaded, it should have been allowed an opportunity to do so.
(iv) That so far as the books of account are concerned, the onus is on the Revenue to find out the defects in the same which could be done by bringing any information or material by way of enquiries to prove that entries in the assessee's books of account were not correct. Once the books have been accepted, the Revenue cannot claim or allege that the assessee had prevented the Revenue to find fault with the books or the Revenue had no power to find faults. Learned counsel, therefore, submitted that the books containing the accounts of construction of the property having been accepted, there was no question of making any reference to the Valuation Officer and for this purpose he relied on the decision of the jurisdictional High Court in the case of K.K. Seshaiyar v. CIT [2000] 246 ITR 351 (Mad). In support of his submission that the State P. W. D. rates should have been applied, counsel relied on the unre-ported decision of the Income-tax Appellate Tribunal, A-Bench, Chennai, in the case of M.S. Ponraj v. ITO in I. T. A. Nos. 1656 and 1657/Mds of 1996, dated June 23, 1998, for the assessment years 1989-90 and 1990-91.
23. The learned Departmental Representative, on the other hand, first of all submitted that the question referred for the opinion of the Third Member is not properly framed because it goes to show as if the Members constituting the Division Bench had, in principle, agreed that there could be addition but the difference was on the point regarding apportionment of the addition in the two years under consideration.
24. On merits, the learned Departmental Representative submitted that the Valuation Officer had given ample opportunity to the assesses and no such objections were raised before him. According to him, the plea relating to adoption of the State P. W. D. rates was not taken either before the Assessing Officer or before the Valuation Officer and has been afterwards and hence the same should not be considered. Referring to the order of the Commissioner of Income-tax (Appeals), the learned Departmental Representative submitted that the Commissioner of Income-tax (Appeals) has already allowed the required relief to the assessee and no further relief was required to be given to the assessee. On the point of account books, the learned Departmental Representative relied on the findings of the learned Accountant Member.
25. In his rejoinder, counsel for the assessee submitted that the assessee has right to raise any issues affecting his tax liability at any time of the proceedings and for this purpose relied on the decision of the Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383.
26. I have considered the rival submissions, the facts and circumstances of the case and the orders of both the learned Members who had constituted the Bench. So far as the assessee's objection with regard to requirement or validity or justification for making a reference to the Valuation Officer is concerned, I am of the opinion that, as explained hereinafter, the assessee is right in his submission that the Assessing Officer has no jurisdiction to make reference to the Valuation Officer either under Section 133(6) or under Section 131(1)(d) of the Act without recording his conclusion that the cost of construction shown by the assessee is not correct :
(i) There is no provision under the Income-tax Act, like the one available under the Wealth-tax Act, where the matter can be referred to the Valuation Cell. The Assessing Officer, of course, can collect information under Section 131(1)(d), but, before proceeding to collect information by invoking his jurisdiction under that section, he has to have some material at least prima facie before him, to show that the assessee's version is understated and such material should be borne out from the records as were in existence before making a reference. If the books of account have been maintained wherein investment is recorded, as is the case here, the Assessing Officer has to find some infirmities in the said books of account particularly with reference to the cost of construction as entered therein, so as to clothe himself with jurisdiction to get an information about the true "cost" thereof by making a reference to the Valuation Officer or from any other source. Further, Section 69 of the Act clearly says that only such investment can be treated as "undisclosed income" of the asses-see, which has not been found recorded in the books of account.
(ii) To have a clarity of understanding in relation to the ambit and scope of the powers of the Assessing Officer under Section 131(1)(d), let me go to the relevant provisions contained in the Civil Procedure Code. Section 75 of the Civil Procedure Code which provided for the powers of a court to issue commissions reads as under :
"Subject to such conditions and limitations as may be prescribed, the court may issue a commission-
(a) to examine any person ;
(b) to make a local investigation ;
(c) to examine or adjust accounts ;
(d) to make a partition ;
(e) to hold a scientific, technical or expert investigation ;
(f) to conduct sale of property which is subject to speedy and natural decay and which is in the custody of the court pending the determination of the suit ;
(g) to perform any ministerial act."
As is evident from a plain reading of Section 75 of the Civil Procedure Code out of the various purposes as contained therein for which a court may issue a commission, the purposes which are of relevance in the context of the situation presently under discussion and which can be made use of by the Assessing Officer in utilising the agency of a Valuation Officer to ascertain the cost of construction of a building, are purposes under Clauses (b) and (c) of Section 75 of the Civil Procedure Code, i.e. to make a local investigation and to hold a scientific, technical or expert investigation. Other purposes provided for in Section 75 of the Civil Procedure Code being not relevant, need not be gone into. Order 26 of the Civil Procedure Code lays down the rules relating to issue of commission and allied matters. Rule 9, Order 26, provides for commission to make a local investigation ; Rule 10 thereof lays down the procedure of commission and Rule 10A in respect of commission for scientific investigation. Rule 16 specifies the powers of Commissioners and provides that unless otherwise directed by the order of appointment, commission may, (a) examine the parties themselves or any witness produced by the parties or any other person called upon by the Commissioner to give evidence in the matter ; (b) call for and examine documents and other things relevant to the subject of inquiry ; and (c) at any reasonable time enter upon or into any land or building mentioned in the order. Thus, it is clear that subject to the order of appointment, Valuation Officer, on being appointed by the Assessing Officer as a Commissioner under Section 131(1)(d) for the purpose of ascertaining the cost of construction of a building, can enter into, inspect and survey the building, examine the owner of the building, and any other person called upon by him to give evidence in the matter and call for and examine all the documents and other things relevant for such ascertainment. Here a pertinent question, that arises is, does the exercise of discretion by the Assessing Officer in favour of issuing a commission to a Valuation Officer for ascertaining the cost of construction of a building presupposes judicial application of mind by the Assessing Officer or can so be done by the Assessing Officer at his sweet will in each and every case where a building is constructed by an assessee ? The answer to this question will necessitate probing into the legal implication of Rule 9 of Order 26 of the Civil Procedure Code. Rule 9 of the Order of the Civil Procedure Code reads as follows :
"In any suit in which the court deems a local investigation to be requisite or proper for the purpose of elucidating any matter in dispute, or of ascertaining the market value of any property, or the amount of any mesne profits or damages, or annual net profits, the court may issue a commission to such person as it thinks fit directing him to make such investigation and to report thereon to the court :
Provided that, where the State Government has made rules as to the persons to whom such commission shall be issued, the court shall be bound by such rules."
A bare perusal of the above rule leads one to infer that purposes like ascertaining the market value of any property, or the amount of any mesne profits or damages or annual net profits, provided for therein are contextually inapplicable for the purpose of ascertaining the cost of construction of a building in relation to which the Assessing Officer seeks to appoint a Valuation Officer as Commissioner under Section 131(1)(d) of the Act. Once the aforesaid purposes are ruled out, there remains the only purpose "of elucidating any matter in dispute for which the Assessing Officer can fall back upon the powers of a civil court under Rule 9, Order 26 of the Civil Procedure Code which has to be a dispute about any matter which requires elucidation. In other words, the court must first get itself judicially satisfied that there is a matter in dispute and then it must also further get satisfied that for the purposes of elucidating such matter in dispute, issuance of a commission is requisite or proper.
(iii) The Shorter Oxford Dictionary on Historical Principle defines the word "elucidate" to mean, "to render lucid, to throw light upon to explain". Thus, it is only for the purposes of clarifying or explaining any matter in dispute, that, under Rule 9, Order 26 of the Civil Procedure Code, the court may issue a commission to a person of its choice to carry out the required investigation and report back to the court ;
(iv) The powers of the Assessing Officer under Section 131(1) cannot be wider than those of the civil court under the provisions of the Civil Procedure Code, Coming to the application of these powers to matters under this Act, be it said that when an assessee furnishes his return under the Act showing in the financial statements accompanying the return an expenditure in the construction of building at a certain figure, it cannot be said that by the very act of furnishing the return, the assessee has led to a situation where it can be said that there is a matter which is in dispute. The assessee in this case may have with his detailed accounts backed up by supporting bills and vouchers or other such materials and/or evidences which can fully substantiate the adequacy and reasonableness or the cost of construction shown by him. However, he can prove this only if the Assessing Officer so asked him and allows him a reasonable opportunity to do so. Agreed that the Assessing Officer in determining the total income of an assessee has to play the dual role of a prosecutor and a judge but by no stretch of imagination can it be said that in every case where an assessee has constructed a building there has to be a dispute which requires elucidation. The Assessing Officer can ascertain the adequacy or otherwise of the cost of construction of building shown by an assessee only after he has given to the concerned assessee chance to substantiate the same and has looked into the materials and/or evidences produced by the assessee, After such examination, if the Assessing Officer, for lawful and valid reasons, comes to a conclusion that the quantum of expenditure shown by the assessee is inadequate, then and then only, can it be said that he has derived a judicial satisfaction which can be interpreted to give rise to a dispute about the matter of adequacy or otherwise of the amount of the cost of construction. Thus, before a commission in favour of a Valuation Officer can be issued by the Assessing Officer in terms of Section 131(1)(d), the Assessing Officer must get himself judicially satisfied about the inadequacy of the cost of construction shown by an assessee. As explained above, the Assessing Officer can derive the above satisfaction only after he has granted an opportunity to the assessee to explain his investment and has looked into the materials and/or evidence produced by the assessee. It is an established position of law that "no commission can be issued for the purposes of collecting evidence in suit" (Basanta Kumar Swain v. Baidya Kumar Parida, AIR 1989 Orissa 118 ; Institution of Engineers (India) v. Bishnu Pada Bag, AIR 1978 Cal 296). The object and purpose of local investigation under Rule 9, Order 26 of the Civil Procedure Code is to clarify or explain any point which is left doubtful on the evidence on record.
The detailed analysis of the aforesaid provisions clearly shows that the Assessing Officer, before deciding to make a reference to the Valuation Officer, should come to the conclusion that there is a dispute, i.e., the cost of construction shown by the assessee is not correct.
Having arrived at the conclusion as aforesaid, the Assessing Officer, in my opinion, has a further duty to record the reasons for arriving at such satisfaction and this is so because, as held by the Orissa High Court in the case of K. Raghunath Rao v. Smt. Tumula Jailaxmi, AIR 1988 Orissa 30 (page 31): "an order to issue of a commission to any person under Rule 9, Order 26 of the Civil Procedure Code is discriminatory. Being a judicial order it is required to be supported by reasons, so that propriety of the exercise of discretion would be visible". On the facts of the present case it was held (page 31) "a bare perusal of the order shows that the same is not supported by any reason. On this short ground, the order is liable to be set aside on account of exercise of jurisdiction with material irregularity". The High Court further elucidated the requirement of law by observing (page 32): "Since issue a writ to a person for local investigation would depend upon the facts and circumstances of each case, no hard and fast rule can be laid down. This much can be said that the basic prerequisite for issue of such a writ is the satisfaction of the court that a local investigation is requisite or proper. This satisfaction is to be judicial satisfaction based on reason".
28. Omission to record satisfaction with reason, it can be argued on the strength of the above judgment, would warrant setting aside of the order issuing writ of local investigation.
29. From the above enuciation of law, it can be safely concluded that the Assessing Officer before he issues a commission under Section 131(1)(d) must apply his judicial mind and derive satisfaction that such a commission in the facts and circumstances of the case before him, is requisite or proper. Such satisfaction of the Assessing Officer must be supported by reasons which ought to be recorded by him so that the property of the exercise of discretion by him is visible. If the order of the Assessing Officer to issue a commission under Section 131(1)(d) of the Act is not supported by any reason, such an order would be liable to be set aside on account of exercise of jurisdiction with material irregularity.
30. So far as the present case is concerned, the Revenue has not brought in any evidence with regard to the satisfaction of the Assessing Officer or recording of such satisfaction and, therefore, I am of the opinion that the reference made by the Assessing Officer to the Valuation Officer or elucidation of cost of construction was itself without jurisdiction and, consequently, the report submitted in consequence upon such reference was not a reliable document.
31. Coming to the assessee's plea that the State P. W. D. rates should have been adopted, I am of the opinion that this issue is squarely covered by the decision of the A-Bench of this Tribunal in the case of M.S. Ponraj (I. T.A. Nos. 1656 and 1657/Mds of 1996) referred to earlier, a copy of which is placed on record, in favour of the assessee and against the Revenue, more so because the Revenue, has not brought any decision to my knowledge taking a contrary view. I am, therefore, of the opinion that if at all the cost of construction is to be determined it should have been by adopting the State P. W. D. rates and not by adopting the C. P. W. D. rates. The valuation report based on the C. P. W. D. rates was, therefore, not to be relied upon.
32. Coming to the assessee's plea that its books of account having not been rejected there was no question of disputing the cost of construction or at least for making a reference to the Valuation Officer, I, after having gone through the orders of both the learned Members, am of the opinion that this issue is now squarely covered in the assessee's favour and against the Revenue by the decision of the Madras High Court in the case of K.K. Seshaiyer [2000] 246 ITR 351, wherein it was held (as per headnote) as under :
". . . that when the actual cost of construction was duly recorded by the assessee and that cost also was set out in the agreement with the contractor, specifying the rates, and which rates had been accepted by the Tribunal, and there was no finding that the building was larger than the assessee had claimed or had better quality of construction or fixtures than the assessee had recorded in his books, the opinion of the valuer could not be straightaway substituted for the actual cost that was recorded in the assessee's books. The Tribunal had not found that the books maintained by the assessee were not credible. Therefore, the Tribunal was not right in not accepting the valuation of house property submitted by the assessee at Rs. 2,16,586."
33. I am, therefore, of the opinion that so far as the present case is concerned, the Revenue having not rejected the books of account of the assessee there was no justification for disputing the cost of construction recorded in the books or making any addition on this point.
34. In view of the totality of the aforesaid discussion, I hold :
(i) The Commission issued by the Assessing Officer under Section 131(1)(b) of the Act without recording his satisfaction that the cost of construction shown by the assessee was not correct, was not valid.
(ii) The valuation report given by the Valuation Officer in consequence upon an invalid order issuing commission was a non est report and could not be relied upon.
(iii) The assessee's books of account having not been rejected, no addition was called for on the ground that the cost of construction shown by the assessee was not correct.
(iv) If at all the valuation was to be determined it should have been determined on the basis of the State P. W. D. rates and not the Central P.W. D. rates.
35. Having arrived at the aforesaid conclusions, I am of the opinion that on the facts and circumstances of the case there can be no addition under Section 69 of the Act either as a whole or on proportionate basis in any of the assessment year, i.e., 1990-91 and 1991-92, on the basis of the report of the Departmental Valuation Officer and, consequently, I answer the question referred for my opinion in the negative in favour of the assessee and against the Revenue. The assessee's appeals are accordingly allowed.
36. The matter will now go back to the regular Bench for passing appropriate orders.