Income Tax Appellate Tribunal - Delhi
Income-Tax Officer vs Pitamber Industries (P.) Ltd. on 1 June, 1992
Equivalent citations: [1992]42ITD373(DELHI)
ORDER
J.P. Bengra, Judicial Member
1. There is an appeal by the revenue and cross objection by the assessee against an order of the Commissioner of Income-tax (Appeals)-V, New Delhi, pertaining to the assessment year 1983-84.
2. The grievance of the revenue is that the CIT (Appeals) erred in restricting the addition of Rs. 7,39,200 on account of unexplained investment in the construction of the factory building to Rs. 50,000 under Section 69 whereas the grievance of the assessee is that the CIT (Appeals) erred in sustaining the addition of Rs. 50,000 as unexplained investment. The facts of the case are that the assessee-company constructed a factory building at 4, Rajasthani Udyog Industrial Estate, New Delhi. The construction of the building started on 16-6-1980 and completed on 19-7-1982. As per audited balance-sheet filed with the return of the assessee, the assessee disclosed total cost of construction at Rs. 5,12,453. The Approved Valuer of the assessee Shri A.P. Saxena estimated the cost of construction at Rs. 5,10,000. As against this, the Departmental Valuation Officer estimated the cost of construction of factory building at Rs. 12,49,000. While coming to this conclusion the Assessing Officer observed as under :
(i) Assessee company's valuation report is too sketchy and vague whereas the Government valuation report gives a detailed description of the construction undertaken.
The assessee company's valuation report has completely omitted several aspects of the construction including compound wall, Bitumen Coated Rods and Steel Gates whereas the Government valuation report has given a detailed description and value these aspects of the construction.
The rates of the construction shown in the assessee's valuation report is on the lower side as evidenced on comparison with the standard prevailing rates at that time as adopted by the Govt. Valuer.
The assessee company itself was given several opportunities to file various supporting documents and details before the Govt. Valuer and the Govt. Valuation Officer has prepared his report after taking this into account and on a physical inspection of the building.
3. When the matter came before the CIT (Appeals), the report of the departmental valuer was assailed on the ground that the rate adopted by the departmental valuer relates to the multi-storeyed building having height upto six stories. Further the assessing officer did not meet the point mentioned in the approved valuer's report. The CIT (Appeals) feeling that the Assessing Officer has not met the objections raised on valuation report, forwarded the objection to the Govt. valuer for his comments as there were certain discrepancies pointed out by the approved valuer and they needed physical verification. According to the instructions of the CIT (Appeals) the factory premises were visited jointly by the Govt. valuer and the approved valuer along with his counsel and a revised cost of construction of building was arrived at Rs. 8,37,000 as against Rs. 12,49,200 reported earlier. Considering the revised report of the valuer, the CIT (Appeals) rejected the assessee's contention regarding adoption of same value as declared by the assessee, holding that the assessing officer pointed out defects in the maintenance of books of account where he has mentioned that record of vouchers was not maintained in regular course of business. Therefore, he agreed for making estimate. But on the point of taking valuation of factory building, the CIT (Appeals) adopted the valuation after sustaining a sum of Rs. 50,000 as unexplained investment under Section 69 in the construction of the factory building. The department is aggrieved against the reduction of the value of the factory building and the assessee is aggrieved against sustaining the addition of Rs. 50,000.
4. The learned Departmental Representative Shri B.K. Sinha supported the action of the Income-tax Officer and submitted that after revised report of the Departmental Valuation Officer, there was no occasion for the CIT (Appeals) to reduce the cost of construction of factory building by 35 to 40 per cent and giving relief of Rs. 6,89,200 to the assessee. It was pointed out that defects were found in the valuation report of the approved vauer which are mentioned in the order of the Assessing Officer. On account of those defects the valuation given by the approved valuer cannot be adopted. On the point of taking the valuation declared by the assessee in his return, it was pointed out that the Assessing Officer has observed that the books of account are not acceptable because they are not kept in regular course of business and further day-to-day consumption of material was not maintained and details of stock purchased and used and work-in-progress were not maintained. The learned Departmental Representative tried to get a support from the revised report of the Departmental Valuation Officer wherein the D.V.O. has mentioned that books of account maintained by the assessee did not indicate the purpose for which the payments were made and (he approved valuer has not given detail as to how the quantities have been arrived at. In view of these defects pointed out by the DVO, the value declared by the assessee could not have been adopted. Therefore, an estimate was based on the DVO's report. The CIT (Appeals) has gone wrong in reducing the cost of construction as declared by the DVO. The learned counsel for the assessee Shri O.P. Sapra very vehemently argued that the cost of construction arrived at by the DVO is arbitrary and without following proper method of valuation of cost of construction. It was pointed out that the construction cost of assessee's go down has been compared with the construction of six-storeyed building ignoring the fact that in six-storeyed building huge foundation and very heavy reinforcement to bear the weight of six-storeyes are required whereas the assessee has constructed a go down on the ground floor with normal reinforcement. It was further pointed out that the assessee has given complete details of quantitative rates of material used in the construction of factory building and go down which has been completely ignored by the DVO. It was pointed out that when the details were supplied why not the Govt. valuer should consider the rates based on actual quantities and should base his decision on per sq. metre rate. Inviting our attention to the Circular published by the Director General of Works. C.P.W.D., New Delhi, under Memorandum No. SSW(NDZ)SW V/IV/ 674(A), dated 30-4-1987. It was pointed out that the cost index for buildings and that for the Food Grains God owns are different. Thus the cost index of building cannot be applied to the plinth area rate for food storage go down. It was further pointed out that the C.P.W.D. had not worked out the cost index for different places for Food Grains Storage Go downs. Some multiplier has to be worked out by which the building cost index is to be multiplied and which in time can be used as cost index for Food Grains Storage Go downs applicable for plinth area rates. It was submitted that the assessee had produced complete details which is appearing right from pages 14 to 78 of the Second Paper Book. Therefore, there is no reason to reject the valuation arrived at by the assessee on the basis of books of account prepared by the assessee. There was no reason to make estimated cost of construction and thereby to make an addition on account of unexplained investment under Section 69. Reliance was placed on the decision of the Tribunal in the case of Sri Har Sarup Cold Storage & General Mills v. ITO [IT Appeal Nos. 2447 and 2448 (Delhi) of 1985, dated 27-5-1988]. It was further pointed out that the C1T (Appeals) keeping in view the fact that the revised rate according to the C.P.W.D. Circular is effective from 1-6-1986, has reduced the cost of construction between 35 per cent to 40 per cent when it was agreed by the D.V.O. himself. Therefore, there is no reason to adopt valuation declared by the D.V.O. It was also submitted that the CIT (Appeals) has gone wrong in sustaining addition of Rs. 50,000. No defects were found in the maintenance of the books of account of the assessee.
5. We have considered the rival submissions. We would like to deal with the first point of the assessee relating to rejection of cost of construction shown by the assessee on the basis of books of account maintained by the assessee for construction. In this connection, it will be pertinent to mention here that before the assessing officer the assessee has alleged that it had maintained day-to-day books of account for construction of said property and also kept complete vouchers for the cost of material and labour charges. However, the assessing officer observed that the books of account are not acceptable as the record of vouchers was not kept in regular course of business as such day-to-day consumption of material was not maintained and details of stock purchased, used in construction work and work-in-progress were not given. The second report of the DVO on which the learned Departmental Representative also laid emphasis, speaks of the rejection of books of account in paragraph 23 where it is mentioned that the assessee has not indicated the purpose for which such payments were made and he has not mentioned actual quantity and rates. Here we would like to mention that the assessee has filed the details of cost of construction along with certain vouchers appearing from pages 14 to 78 of the Paper Book before us again giving details of cement, bricks, badarpur, rodi, stonedust etc. and the amount spent on each item. Even day-to-day expenses on building construction is given. It is pertinent to mention here that the ITO has not pointed out particular defect in these statements and vouchers produced before him. Thus it is clear that evidence to arrive at the cost of construction as per the maintenance of books of account were given by the assessee. When the assessee maintained books of account and recorded investment in those books of account, it becomes compulsory as per the Legislative Mandate that the ITO should point out defects in the maintenance of those books of account. It is not open to him to ignore the evidence provided by these entries in the books of account and go only by the valuation report given by the Valuation Officer. When the ITO proposes to go by the Valuation Officer's report, it means that the books of account maintained by the assessee and produced by him in support of cost of construction within the meaning of Section 143(3) of the Income-tax Act, require specific comment to reject the material as unreliable. The ITO can only make the assessment after rejecting the evidence produced by the assessee in support of his return. The assessee can, therefore, offer the books of account maintained by him in support of his cost of construction. The ITO must look into that evidence and point out the defects with regard to falsity and unreliability of these evidences. It is only after the evidence is rejected on the specific point, the ITO will get the power to estimate the cost of construction and rely upon the report of the Valuation Officer. The unreliability of the books of account without showing defect in that, cannot be taken for granted. In the present case, we find that the account books are relevant and they are maintained by the assessee in the regular course of construction. The ITO had not found the maintenance of books of account faulty or defective with regard to specific point. Therefore, he cannot disregard the valuation shown by the assessee on the maintenance of books of account, day-today vouchers etc. So the estimate made by the revenue authorities disregarding the valuation of the assessee is unjustifiable. Similar view was expressed by the Tribunal in the case of Sri Har Samp Cold Storage & General Mills [supra). Therefore, respectfully following the reasoning of that case, we are of the opinion that the revenue authorities have gone wrong in estimating the cost of construction other than what is declared by the assessee without bringing on record the specific point for rejection on the maintenance of books of account. However, the very fact remains that the CIT (Appeals) had made an addition of Rs. 50,000 as unexplained investment. The department is also aggrieved on the deletion made by the CIT (Appeals). In this case the DVO initially adopted the following rates :
Revised Main Building R.C.C. framed structure 5424 Sq. ft. 378068 Rs. 5,92,306 or 504.07 sq.m. @Rs. 1175 per sq.m.
A.C.C. Steel Godown 7260 sq.ft. or 674.72 sq.m. @ Rs. 668 sq.m. 335484 Rs. 4,50,713 Mezzanine Floor 918 sq.ft. or 85.32 sq.m. @ Rs. 926 sq.m. 54690 Rs. 79,006 641 Ground Floor 918 sq.ft. or 85.32 sq.m. @ Rs. 1241 sq.m. 75338 Rs. 1,05,882 883 Add for Extra 9" thick bricks compound @ Rs. 220 Rs. 49,280 wall 7400 ft. or 224.00 m. Steel Gates 3 Nos. LS Rs. 5,000 Roads painted with two coats of .. 5979 sq.ft. or 555.66 sq.m. @ 123 sq.m. Rs. 68,346 -------------- Total Rs. 13,50,533 Less for self supervision @ 7 1/2% (-) 1,01,290 -------------- Net Value Rs. 12,49,243 Say Rs. 12.49,200
Later on when it was pointed out that a revised plinth area rate for Delhi is applicable for 1-6-1986 as per the Circular of Director General of Works, CPWD, New Delhi, dated 30-4-1987, he revised the plinth area rate as under :
1. R.C.C. roof Shed 504.09 sq. m. @ 750 per sq.m. Rs. 3,78,068
2. A.C. Sheet Shed (7260 - 800 sq.ft.) = 600.15 sq.m. @ Rs. 559 per sq.m. Rs. 3,35,484
3. G.F. 85.32 sq.m. @ Rs. 883 per sq.m. Rs. 75,338
4. Mezzanine floor 85.32 sq.m. @ Rs. 641 per sq.m.
(Rates for items 1 to 4 are excluding services). Rs. 54,690
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Total: Rs. 8,43,580
Deduct for self-supervision and self-procurement
of maerials @ 71/2% Rs. 63,269
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Net Rs. 7,80,311
Add for electric service as per actual Rs. 5,000
Add for M/s or SI as per actual Rs. 20,000
Add for compound wall, roads, plinth as per actual Rs. 32,000
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Total Rs. 8,37,311
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Say Rs. 8.37,000
Therefore, he arrived at the cost of construction at Rs. 8,37,000. Before the CIT (Appeals), it will be pertinent to mention here, that, this revised report was submitted by the DVO on the joint inspection of assessee's valuer, DVO and his counsel. It was agreed before the CIT (Appeals) that there is scope of reduction of 35 per cent to 40 per cent in the value arrived at by the DVO in his second report. It will be pertinent to mention here that there is noting on the second report in the handwriting of the DVO, where he after giving 40 per cent of reduction, calculated two figures, one Rs. 5,25,000 and Rs. 5,28,000 approximately which goes to show that the estimated value of construction shown by the DVO after giving a reduction of 35 per cent to 40 per cent on the estimated value of Rs. 8,37,000 gives nearly the same value with a minor difference as declared by the assessee. The value adopted by the DVO relates to a period of 1-6-1986 whereas this construction has taken place from 16-6-1980 to 1982 i.e., four years before that. Keeping in view the rate of inflation in mind, there is scope of reduction of 40 per cent if he wants to arrive at the estimated value as on September 1982. Therefore, we agree with the finding of the CIT (Appeals) that the value of the DVO in the revised report at Rs. 8,37,000 should be further reduced by 40 per cent. So taking into consideration this aspect of the matter also, there is hardly any difference in the value of cost of construction shown by the assessee and that arrived at by the DVO after giving reduction. Therefore, we are of the opinion that from this angle also no addition is called for. In view of this, we are of the opinion that the value declared by the assessee for cost of construction of factory building is reasonable and there is no scope for making addition on account of unexplained investment from the point of view discussed above. We therefore, dismiss the departmental appeal and allow the assessee's cross-objection accordingly.