Rajasthan High Court - Jaipur
Suwalal Giriraj Ajmera vs Ito on 30 July, 2002
Equivalent citations: (2004)86TTJ(NULL)414
ORDER
B.L. Khatri, A.M. ITA Nos. 96, 97 and 29/Ju/2001 are appeals by assessee Shri Suwalal Giriraj Ajmera against the order of Commissioner (Appeals), Ajmer, for assessment yrs. 1994-95, 1996-97 and 1997-98. There are common grounds of appeal. Therefore, all these three appeals are being decided through a consolidated order.
2. We shall take up ITA No. 97/Ju/2001 for assessment year 1994-95. First of all, we shall deal with the following additional grounds of appeal raised by the appellant for assessment year 1994-95 :
(i) The assessing officer erred in initiating proceedings under section 147 of the Income Tax Act, on the basis of valuation report.
(ii) Disallowance of interest paid to the creditors.
(iii) Disallowance of interest on debtors as per W/S P.G.
3. This Bench of Tribunal has taken a consistence view that additional grounds can be raised within time-limit allowed under section 253(3) of Income Tax Act as held in the following cases :
(i) Assistant Commissioner v. Ansari Builders, ITA No. 1964/Jp/1994, 508/Jp/1996 through order dated 21-12-2000 (reported at (2001) 70 TTJ (id) 664-Ed.); and
(ii) Sh. Bannalal Jat v. Assistant Commissioner (ITA Nos. 511/Ju/2000 and 517/Ju/2000 through order dated 9-5- 2001.) Respectfully following the above decisions of this Bench, we do not admit the additional grounds of appeal. Therefore, these additional grounds are not being decided on merits.
4. Now we shall take up the main appeal. Ground Nos. 1 and 2 are regarding income from tractor. The appellant has shown net income from tractor at Rs. 3,075. The appellant has not maintained details in regard to receipts and expenses of the tractor and, therefore, income from tractor shown at Rs. 3,075 was not accepted as correct by the assessing officer. The assessing officer has estimated income from tractor at Rs. 2,000 per month which was not considered as unreasonable or excessive by the Commissioner (Appeals). In the circumstances, the addition of Rs. 8,925 made to the income from tractor was confirmed by him.
5. The learned authorised representative contended that the estimation of income at Rs. 2,000 is without any basis, Section 44AE of the Act provides for the income on tractor at the rate of Rs. 1,800 per month. The fiction is contained in the statute itself and the same was applicable with effect from 1-4-1994 (assessment year 1995-96 i.e., immediately succeeding year), The intention of the legislature is clear and the same may also be taken as basis of estimation of the tractor income in current year. It was further contended that the income of the assessee from tractor may be taken at the rate of Rs. 1,800 p.m. The learned Departmental Representative relied upon the orders of authorities below.
6. We have considered the rival submissions. It is evident that the provisions of section 44AE are not applicable for the year under appeal. However, the basis or criterion laid down therein can be taken as the basis for deciding this appeal. Therefore, we direct the assessing officer to take the income from tractor at the rate of Rs. 1,800 p.m. and allow relief accordingly.
7. Ground Nos. 3 to 7 for assessment year 1994-95 and ground No. 14 for assessment year 1996-97 are common grounds regarding valuation of a house.
Grounds Nos. 3 to 7 Cost of construction of house The facts of the case are that the appellant has constructed the house at Bhilwara. The total investment made in the house during the assessment years 1994-95, 1996-97 amounts to Rs. 10,20,593 + Rs. 2 lacs declared under VDIS (total Rs. 12,20,593). The Government Valuer determined the total cost of construction of the house at Rs. 14,30,600 by applying CPWD rates. The assessing officer made an addition of at Rs. 3,50,007 as against total difference in cost of construction as declared by assessee at Rs. 10,20,593 before taking into account Rs. 2 lacs under VDIS whereas actual difference comes to Rs. 4,10,007. The assessing officer made the addition for the period of construction as under :
Asst. yr.
Addition 1994-95 93,222 1995-96 2,96,460 1996-97 37,325 While making the above additions the assessing officer had not given the benefit of Rs. 2 lacs declared under VDIS on account of cost of construction by the appellant.
8. After having discussed the plea of the appellant, and also after having rejected the valuation of registered valuer, the Commissioner (Appeals) directed the assessing officer to adopt valuation/cost of construction as determined by the Government Valuer to allow deduction for self-supervision and direct purchases of material at 10 per cent for working out addition on account of unexplained investment in construction of the house. The learned authorised representative made the following submissions :
(1) The assessee produced cash book, ledger and vouchers before the assessing officer during the assessment proceeding which were test-checked. He also furnished the required details, information/explanation and it was examined. This fact is available in assessment order at page No. 1. Assessee maintained detailed accounts in respect of investment made in construction of house.
(2) Assessing officer made addition without rejecting the accounts made by the assessee. The assessing officer did not point out even single defect in the accounts maintained by the assessee in respect of construction account. There were defective accounts in respect of tractor income, which assessing officer has specifically pointed out and the assessee has also accepted. However, there is no defect in the construction account and that being the position, the investment in house as reflected in the detailed accounts maintained by the assessee should have been accepted.
(3) In the following judgments it has been held that without rejection of books of accounts, no addition can be made on the basis of valuation report :
(i) CIT v. Pratapsingh Amrosingh Rajendra Singh and Deepak Kumar (1993) 200 ITR 788 (Raj);
(ii) Decision of Jodhpur Bench in Income Tax Officer v. Bharat Motors (ITA No. 2327/Jp/1994; order dated 11-4- 2000) (reported at (2000) 68 TTJ (Jd) 431 -Ed.); and
(iii) CIT v. Hotel Joshi 22 Tax World 807 (Raj).
(4) Therefore, the present addition made without rejecting the books is liable to be deleted.
(5) In the alternative and without prejudice to above there are following defects in the valuation report of DVO :
(i) The DVO has made the valuation by applying CPWD rates. However, the house is situated at Bhilwara. Therefore, against the CPWD rates, the valuation should have been made at local PWD rates. The difference in valuation made on CPWD rates and local PWD rates have effect of around 20 per cent to 25 per cent. In various judgments it has been held that valuation should be made on the basis of local PWD rates. In the present case, after considering disclosure under VDIS the difference is less than 15 per cent approximately. The learned authorised representative relied upon the following judgments :
(i) Ram Raj Soni v. Assistant Commissioner 21 Tax World 668 (Jp);
(ii) Mustak Ahmed v. Assistant Commissioner 22 Tax World 25 (Jp); and
(iii) CIT v. Hotel Joshi (supra).
(ii) The difference is minor, which is less than 5 per cent. There ought to be some. estimation error in two estimations. There cannot be straightjacket formula that the estimate is correct against actual, therefore, in case of some difference, the benefit of doubt must be resolved in favour of the assessee. Reliance is placed on Income Tax Officer v. Kamboj Rice & General Mills (1998) 97 Taxman 48 (Chd)(Mag) where valuation difference of around 20 per cent has been ignored.
(iii) It is further submitted that in various cases, self-supervision is allowed at 15 per cent whereas Commissioner (Appeals) has allowed only 10 per cent so it is requested that 15 per cent should be allowed for self-supervision and if this is considered then there will be a minor difference so no addition should have been made on this ground.
(iv) It cannot be assumed that investment in construction of the property was evenly distributed throughout the entire period of construction and, therefore, incomplete building cannot be valued on that assumption.
9. In view of above submission, it was requested that the entire addition should be deleted.
10. The learned Departmental Representative relied on the orders of the assessing officer and Commissioner (Appeals).
11. We have considered the rival submissions and have perused the material on record. In point Nos. 1,2,3 and 4, the appellant has contended that since complete details of cost of construction were contained in the books of accounts produced before the assessing officer, no addition was called for on account of investment in construction of house in view of various judgments cited by him. As regards this contention of the appellant, we find that at p. 3 of his order, the Commissioner (Appeals) had stated that since the appellant failed to produce the details of construction expenses, the assessing officer was justified in making a reference to the valuation cell for determination of cost of construction of house. In view of this fact, we hold that the assessing officer was justified to make addition on the basis of valuation report.
12. In point No, 5 the learned authorised representative had relied on the judgment of Tribunal, Jaipur Bench, which are relevant. There was no such point in the case of CIT v. Hotel Joshi (supra). In the case of Mustaq Ahmed v. Asstt. CIT (supra) it was held by the Tribunal, Jaipur Bench, that it is appropriate to allow the assessee's claim in respect of local PWD rates by following the consistence view of the Bench. This Bench has allowed reduction of 15 per cent to 25 per cent on account of difference of valuation in CPWD rates and PWD rates. They had allowed deduction of 20 per cent from the amount of valuation of the DVO subject to the amount of investment shown by the assessee himself. This judgment of the Tribunal, Jaipur Bench, will be given due consideration while deciding these appeals and deduction at the rate of of 15 per cent is considered reasonable on this account in this case.
13. As regards the contention that self-supervision charges be allowed at the rate of 15 per cent instead of 10 per cent allowed by the Commissioner (Appeals), we hold that deduction allowed by the Commissioner (Appeals) at 10 per cent for self-supervision and direct purchases is reasonable. We decline to interfere with the order of the Commissioner (Appeals) on this point. After having considered the case law and fact of the case and also our finding in the order, we proceed to estimate the cost of construction valuation of the house as under :
Rs.
1. Valuation by DVO before deduction for self-supervision at the rate of 7.5% 15,46,600
2. Deduct 10% for self-supervision as allowed by the Commissioner (Appeals) 1,54,660 13,91,940
3. Deduct 15% between PWD rates and CPWD rates as held by Tribunal Jaipur Bench in the case of Mustaq Ahmed (supra) 2,08,791 11,83,149
4. Total investment shown by the appellant 12,20,593
14. Thus, the investment declared by the appellant at Rs. 12,20,593 inclusive of amount of VDIS at Rs. 2,00,000 is more than cost of construction as estimated above. Therefore, addition of Rs. 93,222 for assessment year 1994-95 made by the assessing officer and sustained by the Commissioner (Appeals) with marginal relief for deduction for selfsupervision at the rate of 10 per cent is hereby deleted. Similarly addition of Rs. 37,325 for assessment year 1996-97 made by the assessing officer and sustained by the Commissioner (Appeals) with marginal relief is also deleted.
15. Ground No. 8 is regarding addition for low household expenses. The Commissioner (Appeals) has discussed this issue at pp. 4 and 6 of his order. The assessing officer had made addition of Rs. 5,700 on account of low household withdrawals. The appellant has shown household withdrawals at Rs. 12,399 i.e., Rs. 1,000 per month which were considered to be ridiculously low by the assessing officer. The assessing officer has estimated the household expenses at the rate of Rs. 1,500 p.m. which were not considered as unreasonable or excessive by the Commissioner (Appeals). In the circumstances addition of Rs. 5,700 made in the income of the appellant on account of inadequate withdrawals for household expenses was confirmed by the Commissioner (Appeals). ,
16. The learned authorised representative has contended that during the year under consideration the assessee resided at a small village Gadarmala near Bhilwara. He was having his own agriculture land also and kept buffalo and cows. Therefore, he got edible products, milk, etc. from these sources. He further argued that his sons were having their own source of income.
17. We have considered the rival submissions. We find that at p. 6 of his order the assessing officer had mentioned that the appellant had taken the plea that household expenses were partly met by agricultural income. The assessing officer after seeking the capital account in which the assessee had already credited the agricultural income of Rs. 23,600, found the withdrawal shown by assessee at Rs. 12,300. As such the plea of the assessee that household expenses were met from agricultural income was not accepted. We conclude that the assessing officer had rightly estimated the household expenses at the rate of 1,500 p.m. and the Commissioner (Appeals) had rightly confirmed the same. Therefore, we decline to interfere with the order of Commissioner (Appeals).
18. Ground No. 9 is regarding charging of interest under sections 234A, 234B and 234C. The learned authorised representative contended that the assessing officer has charged interest under sections 234A, 234B and 234C without any specific order in the assessment order. The assessing officer has mentioned in his order as "Charge interest as per rules". Without any specific order regarding charging of interest, no interest can be charged in view of the decision of the Hon'ble High Court of Patna in the case of Uday Mistanna Bhandar & Complex v. CIT & Ors. (1997) 222 ITR 44 (Pat) and CIT & Ors. v. Ranchi Club (P) Ltd. (2000) 164 CTR (SC) 200. The learned Departmental Representative supported the order of the assessing officer.
19. We have considered the rival submissions. We find that the assessing officer has directed to charge the interest as per rule. Section and amount had been mentioned in ITNS-150 (Calculation Sheet). This issue has already been decided by this Bench in favour of revenue in the case of Madanlal Saboo & Ors. in ITA No. 229/Jp/1995 through order dated 27-3-2002. Therefore, we hold that the assessing officer has rightly charged the interest under sections 234A, 234B and 234C of the Income Tax Act.
20. Now we shall take up ITA No. 96/Ju/2001 for assessment year 1996-97. First of all we shall deal with the additional ground of appeal regarding initiation of proceedings under section 147 of the Income Tax Act. Additional grounds are not being admitted by us in view of the reasons already given by us above in this order for the assessment year 1994-95.
21. Ground Nos. 1 to 4 are regarding valuation of house at Bhilwara. These grounds and ground Nos. 3-7 for the assessment year 1994-95 are common. These grounds have already been decided in appeal for the assessment year 1994-95 in this order. Therefore, addition of Rs. 37,325 made by the assessing officer and addition sustained by the Commissioner (Appeals) with marginal relief is hereby deleted.
22. Ground No. 5 for assessment year 1996-97, Ground Nos. 1-7 for assessment year 1997-98 are common grounds relating to disallowance of proportionate interest on the funds borrowed for construction of a house by the assessee at Bhilwara for the assessment year 1996-97. The assessing officer disallowed interest payment at Rs. 1,76,591. The Commissioner (Appeals) after having discussed the facts of the case at pp. 2 and 3 of his order, confirmed the disallowance of interest payment, to the extent of Rs. 1,11,681 and allowed relief of Rs. 64,910.
23. For assessment year 1997-98, the assessing officer disallowed Rs. 1,57,835 out of interest payment for funds utilized for construction of a house. After having discussed the fact of the case at pp.. 2 and 3 of the order for this year, the Commissioner (Appeals) restricted the disallowance of interest to Rs. 72,442 and allowed a relief of Rs. 85, 393.
24. For assessment years 1996-97 and 1997-98, the learned authorised representative made the following submissions.
25. For the assessment year 1996-97, the learned Commissioner (Appeals) has given finding that at the most borrowed funds to the extent of Rs. 4,49,540 could be treated to have been utilized for purpose of plots/construction of house. It may be stated here that the amount borrowed (Rs. 38,335) from the creditor i.e., M/s Jai Shiv Company do not carry any interest. Therefore, this amount cannot be said to be utilized for purchasing non-income bearing assets and interest pertaining to the balance amount can only be disallowed. As mentioned in appeal for the assessment year 1994-96, the assessee borrowed amount at the rate of 12 per cent p.a. approximately, therefore, the disallowance works out to Rs. 49,344. The balance amount of Rs. 31,573 (forming part of Rs. 80,920) should be allowed. Total relief amount prayed for thus comes to Rs. 62,336 (30,761 + 31,675).
26. For assessment year 1997-98 the learned authorised representative submitted that investment in the house was 10,20,593 as against own capital of Rs. 6,32,812 and house loan of Rs. 2,86,706 total Rs. 9,19,518. This fact is narrated in appeal order at page No. 2 para. 4. Hence it can be said that the borrowed fund of Rs. 1,01,075 (Rs. 10,20,593 minus Rs. 9,19,518) was utilized for construction of house, hence interest of Rs. 12,130 (1,01,075 at the rate of 12 per cent) can be disallowed under the head business income'.
27. For assessment years 1996-97 and 1997-98, the learned authorised representative submitted that in the present case the Commissioner (Appeals) as well as the assessing officer has given the finding that the assessee has used interest-bearing funds for construction of house property. Without prejudice to all other arguments, it is submitted that as per provisions of section 24(1)(vi) of the Income Tax Act, 1961, where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital is allowable as deduction from the income from house property. Further, in the year under consideration the property was let out. This being the position entire interest on borrowed capital which is considered to be utilized for construction of house property is an eligible deduction under section 24(1)(vi). In this aspect of the matter it is further submitted that section 71 of the Act (as it stood at the relevant time) permits set off of loss from house property from income under any other head (in the same year). Thus, at the cost of repetition it may be mentioned that if interest is not permitted to be allowed as deduction from business income, the same is allowable as deduction under the head 'income from house property'. It is also important to mention here that even assessing officer has given specific finding that borrowed funds has been utilized for acquisition of property/construction of house building (assessment order p. 5). Therefore, in light of the legal position emerging from the combined reading of section 24(1)(vi) and section 71, the disallowance is liable to be deleted particularly when there is no dispute as regards genuineness of credits and interest payments thereon.
The learned authorised Representative had relied upon the case of CIT v. Smt. Archana Dhanwatey (1982) 136 ITR 355 (Bom) wherein it was held as under :
"That, however, the deduction could be allowed from the income from other sources though not claimed by the assessee and the Tribunal was right in holding that if the claim for deduction made before the Income Tax Officer could not be considered by way of deduction from the income from house property but could be considered against the income from other sources, nothing prevented the Income Tax Officer from considering the claim against the income from other sources, and that it was the duty of the Income Tax Officer to consider whether the claim for deduction was allowable against any other income. There was a duty on the part of the Income Tax Officer to consider whether the assessee was entitled to a deduction from the income from other sources, though no such specific claim was made by the assessee. The jurisdiction of the Income Tax Officer was in accordance with law, because, if in fact and in law, the assessee was entitled to a deduction which would have ultimately affected his or her total income, the assessee could not be assessed on a larger income."
28. The learned authorised representative also relied upon para 12 of CBDT Circular No. 14 (XL-35) 1955 Taxman's Circular Vol. 17, 1997, Item 491, 4th Edition, quoted in the case of Parekh Bros v. CIT & Ors. (1983) 36 CTR (Ker) 372. This portion of the circular reads as under :
"Officer of the department must not take advantage of the ignorance of an assessee as to his rights. It is one of their duty to assist the taxpayer in every reasonable way, particularly in matters of claiming and securing relief and in this regard the officers should take the initiative of guiding a taxpayers".
29. Therefore, it was submitted that the assessing officer may be directed to allow deduction for interest payment under section 24(1)(vi) and to set off of loss from property income under any other head of income for the same year under section 71 of the Income Tax Act.
30. We have considered the rival submissions. For assessment year 1996-97, the learned authorised representative has also argued for allowing relief on non-interest bearing loan from Jai Shiv Co. who did not charge any interest. Secondly, the Commissioner (Appeals) had disallowed the interest at the rate of 18 per cent whereas the assessee had claimed that interest was paid at the rate of 12 per cent.
31. The assessing officer is directed to allow relief to the extent of interest on the credit from Jai Shiv Co. and to work out disallowable interest at the rate of 12 per cent for assessment year 1996-97. The assessing officer is directed to calculate disallowable interest payment on Rs. 1,01,075 at the rate of 12 per cent for assessment year 1997-98 and allow necessary relief.
32. As regards the last contention for both the years, the learned authorised representative has rightly placed reliance on the case of CIT v. Smt. Archana Dhanwantay and Board circular (supra) and contended that if interest payment is disallowable under the head 'Income from business' then it was allowable from the head 'income from house property' under section 24(1)(vi) of the Income Tax Act, and loss from the house property can be set off against the income of the current year under any head of the income under section 71 of Income Tax Act.
33. Therefore, we direct the assessing officer to allow deduction of interest paid on borrowed capital for construction of a house from the "income from house property" under section 24(1)(vi) of the Income Tax Act and loss should be set off against income under any head for the same years under section 71 of the Income Tax Act.
34. Ground No. 8 is regarding addition of unexplained cash credit of Rs. 50,000. The learned authorised representative made the following submissions :
The amount was received through account payee cheque. The assessee filed confirmation of the creditor and also gave address as well as copy of Bank account of the creditor vide letter dated 18-2-2000. The assessee also requested twice to issue summons and examine the creditor. The assessing officer did not pursue the matter in respect of notice under section 131. The proceeding made by the assessing officer in this regard are clear from the assessment order p. 4 wherein he has mentioned that summons under section 131 of the Act was issued in the name of this creditor on 24-4-2000, through registered post but it remained uncomplied with. This fact is incorrect as the assessment order was passed on 16-3-2000. Therefore, no summons could have been given on 24-4-2000, that is, after passing the assessment order. Therefore, the assessee has performed his part of onus. However, the assessing officer miserably failed to perform his part and wrongly gave a finding of fact for the purpose of making the addition.
35. We have considered the rival submissions. After having considered the facts of the case, we restore this issue to the file of the assessing officer with the direction that he should again summon the cash creditor under section 131 and readjudicate on the issue after allowing an opportunity to the appellant.
36. Ground No. 9 is regarding addition for low household expenses. The assessee had declared household expenses at Rs. 14,150. The assessing officer estimated the household expenses at Rs. 48,000. The Commissioner (Appeals) has sustained the addition. The learned authorised representative repeated the arguments as given for assessment year 1994-95. However, during this year the estimation made at Rs. 48,000 is highly excessive looking to the past history of the case which is as under :
Asst. yr.
Declared by assessee Estimated by Assessing Officer 1994-95 12,300 18,000 1995-96 8,800 15,000 1996-97 13,200 24,000 1997-98 14,150 48,000 The learned Departmental Representative relied upon the order of the assessing officer.
37. We have considered the rival submissions. We are of the opinion that the estimation of household expenses at Rs. 48,000 is excessive. Keeping in view the past history of the case as discussed above for the immediately preceding year, that is, assessment year 1996-97, the assessing officer had estimated the expenditure at Rs. 24,000 whereas during the year under appeal, the assessing officer has estimated the household expenses at Rs. 48,000. This appears to be excessive looking to the past history of the case. Therefore, the addition is considered reasonable at Rs. 36,000. The assessing officer is directed to allow relief of Rs. 12,000.
38. Ground No. 10 is regarding charging of interest under sections 234A, 234B and 234C. We have already decided this issue while deciding the appeal for asst. yr, 1994-95. Through this order we have held that the assessing officer has rightly charged the interest under sections 234A, 234B and 234C. Therefore, we decline to allow any relief to the appellant on this ground.
39. In the result, all the appeals for assessment years 1994-95, 1996-97 and 1997-98 are allowed in part.