TMI Blog1993 (7) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... e storeyed residential building was constructed during the period, July 1984 to September 1986. Thus the period of construction falls in the accounting year relevant to assessment years 1985-86, 1986-87 and 1987-88 respectively. The property is stated to be situated near to new RTC Bus Stand and it is also stated that the stone quarry is only 1 KM away from the said house, The locality in which the house is situated is stated to be Netaji Nagar, Mandigiri, Adoni, Kurnool District. The ground floor comprised of verandah, drawing-cum-dining hall, master bed room with attached toilet, garage, pooja room, kitchen with store, rear verandah and another bed room with attached toilet. RCC stair case is provided for access to first floor through drawing-cum-dining hall. The first floor has two bed rooms with attached toilet and passage which connects the two bed rooms also serves as balcony within the building. A RCC stair case is constructed to give access to terrace of first floor where a munty is also provided. The plinth area of the ground floor and first floor was 336.20 sq. meters. Though no separate books were maintained noting the cost of construction of the building, the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o state his objections why the amount of Rs. 28,790 conceded by the registered valuer towards self-supervision should not be withdrawn since the assessee is a medical practitioner and it would not have been possible for him to supervise the construction of the building personally, and also why the cost of construction of Rs. 3,83,867 arrived at by the Valuation Cell should not be adopted and why the difference in cost of construction of Rs. 1,05,867 should not be assessed as income from 'undisclosed sources' for assessment year 1987-88. The assessee was also required to appear with books of account, vouchers, etc. for the hearing. The assessee filed a letter dated 6-10-1988 on 11-10-1988. Stating his objections which were all catalogued in the assessment order passed by the Assessing Officer for assessment year 1987-88. Thereupon the Assessing Officer issued another notice to the assessee dated 15-7-1988 to file full details to produce evidence towards loans etc. The assessee got filed through his authorised representative a reply dated 28-7-1988 on 2-8-1988. The Assessing Officer while completing the assessment for the assessment year 1987-88 had preferred to follow the report of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence in cost of construction of the residential house in assessment years 1985-86 and 1986-87 respectively. In the regular assessment framed for assessment year 1987-88, he had included a sum of Rs. 32,000 towards 'income from other sources' representing difference in cost of construction of the residential unit. Thus, the Income-tax Officer had committed an apparent error or mistake in respect of adding Rs. 25,000 for assessment year 1985-86 and Rs. 32,000 for assessment year 1987-88. Therefore, he had passed a rectificatory order under section 154 dated 8-12-1988. According to the Income-tax Officer's rectificatory orders, the addition made for assessment year 1985-86 was Rs. 32,000 and the addition made for assessment year 1988-89 was Rs. 25,000 being the difference in cost of construction of the residential house in those years. 3. Aggrieved against the reassessments for 1985-86 and 1986-87 and regular assessment for 1987-88 and aggrieved against the additions made towards income from other sources, the assessee preferred appeals before the Deputy Commissioner of Income-tax (Appeals), C-Range, Hyderabad. The learned Dy. Commissioner (Appeals) had consolidated all the three ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of experts and the valuation report should not arise. Accepting these arguments of the assessee, the appeals were allowed and the additions made in each of these years, namely, Rs. 32,000 for 1985-86, Rs. 20,000 for assessment year 1986-87 and Rs. 25,000 for 1987-88 were all deleted. Aggrieved against the impugned order passed by the Deputy Commissioner of Income-tax (Appeals), the Department came up in second appeals before this Tribunal. As already stated the assessee filed cross-objections with no specific prayers but only supporting the impugned order of the Deputy Commissioner (Appeals). Thus the matters stand for my consideration. 4. I have heard Shri K. Vasantha Kumar, the learned Departmental Representative and Shri K. K. Viswanatham, the learned counsel for the assessee. A paper book containing 78 pages was filed by the assessee's counsel apart from filing some loose papers. The learned Departmental Representative also filed a paper book containing 7 pages. At the time of hearing, additional grounds of appeal were filed by the assessee's counsel. Since additional grounds are only filed as a measure of elaborating the grounds already preferred before the first appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which cost of construction was noted by the assessee, reliance on this decision is misconceived and, therefore, the impugned order is liable to be reversed. 5. Firstly, it is argued by Shri K. K. Viswanatham, the learned counsel for the assessee that there is no nexus between any omission to give information and the reasons for re-opening the assessment. Copy of the reasons for reopening the assessment for 1985-86 was furnished at pages 1 to 3 of the paper book filed by the Revenue. So also copy of the order sheet containing the ITO's reasons for reopening the assessment for 1986-87 was contained at pages 4 to sic of the paper book filed by the Revenue. After tracing out the event upto that stage, the Income-tax Officer while recording the reason for reopening the assessment for 1985-86 had stated the following : "I have, therefore, reason to believe that due to assessee's omission to disclose fully and truly all material facts necessary for his assessment the income chargeable to tax has escaped assessment for the assessment year 1985-86." According to the learned counsel for the assessee, there was no charge that the assessee omitted to furnish any details necessary for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is not guilty of any suppression of facts and re-opening under section 147(a) cannot be resorted to and the re-opening of assessments for 1984-85 and 1985-86 are bad under law for that reason. Out of the facts of the case, there is only a duty on the part of the assessee to show that he constructed a house during the accounting year relevant to assessment years 1984-85 and 1985-86. After having shown that he had undertaken construction of the house, there is no further duty on the part of the assessee to disclose how much was incurred towards the cost of construction for each of the accounting years relevant to these two years. From the statement filed along with the returns it is sufficient to disclose that the assessee went on constructing the house. The Income-tax Officer did not call upon the assessee to furnish details of the expenditure incurred in each of the assessment years. However, the said information also was given by the assessee along with the return. The Income-tax Officer failed to make any addition whatsoever towards cost of construction of the house while making the original assessment. In fact he had chosen to accept the return of income filed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the trial court. It is true that he may support the decision of the trial court, not only on the grounds contained in the judgment of the trial court but on any other ground. In appreciating the question that arises before us, one must clearly bear in mind the fundamental difference in the positions of the appellant and the respondent. The appellant is the party who is dissatisfied with the judgment. Now what we have just said is nothing more than really a summary of the provisions with regard to appeals and cross-objections contained in Order XLI of the Civil Procedure Code; and as we shall presently point out, the position of the Appellate Tribunal is the same as a court of appeal under the Civil Procedure Code and the powers of the Tribunal are identical with the powers enjoyed by an appellate court under the Code." Having established his right to urge a new point in an appeal, the learned counsel for the assessee had invited my attention to the well-known decision of the Supreme Court in the case of Indian Eastern Newspaper Society v. CIT [1979] 119 ITR 996. The said decision was cited in support of the proposition that an error discovered on a reconsideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was Rs. 3,83,320. The Income-tax Officer referred the matter to the Valuation Cell and the Valuation Officer estimated the cost of additions and alterations at Rs. 4,48,400. The assessment was reopened and additions made to the income of an amount of Rs. 55,780. The Tribunal, however, deleted the addition. On a reference : Held, that there was no dispute that the assessee maintained proper books of account and the same had been accepted in the past and no defects were pointed out in the books. The expenses were fully supported by vouchers. Full details were also mentioned in respect of each item in the books. Simply because the valuation report was of a higher amount, the books could not be said to be unreliable. The Tribunal was, therefore, justified in deleting the addition of Rs. 55,780." Here also, before making the reference to the Valuation Cell, the Assessing Officer did not pronounce his opinion on the set of accounts maintained by the assessee in which he recorded the cost of construction. So also he did not pronounce whether 100% vouchers maintained by the assessee for the whole of the expenditure was believable or not. The Income-tax Officer later referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition could not be made on the basis of 'probable cost of construction'. Even though the CIT (Appeals) has given his findings which are clearly in favour of the assessee, he thought it fit to sustain certain additions by estimating the cost of construction at Rs. 500 per sq. meter, without any basis for this action. All this litigation has started only because search operation under section 132 of the Act carried out at the premises of the assessee and the department could not find anything in such operation. In fact the income-tax authorities have simply ignored the books of accounts of the assessee. Without pinpointing any glaring or major defects therein. Surely, the addition made by giving blind eye to the material available on record cannot get approval from a judicial body like the Tribunal. In this view of the matter, there is no justification of making any addition in the manner made by the ITO or sustained by CIT (Appeals). Therefore, the ITO is directed to accept the assessee's cost of construction at Rs. 3,27,728 and modify the assessment accordingly." The conclusion of the Tribunal as can be found out from the headnote of the decision is as follows : "When the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that simply because the estimated cost of construction made by the departmental valuer exceeded the cost of construction disclosed by the assessee as per his account books and vouchers, it cannot be said that the cost difference between the book value and the value as per the departmental valuer is not disclosed it amounts to suppression of material facts which justifies re-opening under section 147(a). The non-disclosure of the factum of construction and investment made does not constitute material fact for purposes of section 147(a) when no income accrued from investment made in construction, was also sought to be justified by citing the decision of the Jaipur Bench of the Tribunal in ITO v. S.M. Saraf [1984] 20 TTJ (JP.) 159, a photo copy of which is furnished at pages 55 to 59. It is held in that decision that facts which enabled the Income-tax Officer to make investigation cannot also be said to be material facts within the meaning of section 147(a). It is further held that report of the Valuer cannot constitute material fact for making the assessment. Therefore, re-opening the assessment for not disclosing the factum of construction and investment made in return or for not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the part of the assessee in disclosing material facts for the assessment year 1972-73." For the assessment year 1973-74, it was held that merely because the report of the valuer was not filed by the assessee, it cannot be said that the assessee, omitted or failed to disclose material facts. The Tribunal further held that the report of the valuer can constitute evidence but it cannot constitute a material fact necessary for making the assessment. In K.C.P. Ltd.'s case the A.P. High Court explained as to what are material facts within the meaning of section 148 of the Act. Their Lordship held that every material fact which has got a bearing on the assessment for that assessment year must be disclosed by the assessee. What is the material fact is a question of fact which has to be decided in each case and it is not possible to lay down any hard and fast rule. The building constructed by the assessee was for his residential purpose and unless he is obliged to disclose the income derived therefrom the fact firstly that he had been constructing a house and if so its value would not constitute material facts. In the facts and circumstances, what are the requirements for re-opening asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under section 147(a), the Income-tax Officer did not have any prima facie ground for thinking that there had been any non-disclosure of material facts. The primary facts regarding the construction of the house had been disclosed by the assessee and it was for the Income-tax Officer to investigate into facts and find out whether the cost of construction as disclosed was correct or not. In any event, valuation was always a question of opinion and unless there was a clear finding on the basis of the material that the assessee had invested in the construction more than what had been shown by her in the course of assessment proceedings, the Income-tax Officer could not proceed merely on the basis of the valuation report of the departmental valuer. He has to reject the assessee's valuation assigning reasons therefor. The re-assessment notices were not valid and were liable to be quashed." In the facts of this case also, the fact that the house is being constructed and the fact that he had incurred Rs. 1,15,000 in the accounting year relevant for assessment year 1985-86 and Rs. 70,000 in the accounting year relevant to assessment year 1986-87 were already disclosed by the Income and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... higher value was taken towards cost of construction carried on in the accounting years relevant to assessment years 1985-86 and 1986-87 on the strength of the departmental valuer's report cannot be said to represent a change of opinion on the part of the Income-tax Officer and in support of this contention, the learned Departmental Representative had brought to my notice the commentary by Chaturvedi Pithisaria in 'Income-tax Law', Fourth Edition, Vol. 3 page 3645 which is as under : "But if, at the time of making an assessment, the Assessing Officer had not considered a matter, it cannot be said that when he subsequently considers it, that would amount to a change of opinion. [S. Srinivasan v. CIT [1975] 101 ITR 94 (Mad.), VE.A. Vairavan Chettiar v. CIT [1973] 92 ITR 474 (Mad.). Also see, Smt. Nirmala Birla v. WTO [1976] 105 ITR 483 (Cal.) (FB)]. This is so because a change of opinion presupposes that there was, earlier, a formation of an opinion. When no such opinion was formed, it will be too far fetched to assume that a change in that opinion was being effected. Mere silence on a matter or absence of discussion in the original order does not imply that the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Income and Expenditure Statements as well as balance-sheet were filed before the Income-tax Officer. For assessment year 1987-88 along with the income-tax return, registered valuer's report estimating the value of cost of construction at Rs. 2,80,000 was also filed. In the return filed for assessment year 1985-86, the cost of construction said to have been incurred by the assessee was stated to be Rs. 1,15,000 and for assessment year 1986-87 it was stated to be Rs. 70,000. Thus the returns filed by the assessee would certainly disclose that he is carrying on with the construction of the house and if the Income-tax Officer had any suspicion about the correctness of the expenditure incurred towards house construction in any of those two years or in the regular assessment for 1987-88, he should have called upon the assessee to produce all material facts or all voucher account books etc. In support of his stated cost of construction. However, the Assessing Officer did not choose to question the correctness of the cost of construction disclosed in the original returns. By means of intimations under section 143(1) for 1985-86 and 1986-87, the Income-tax Officer must be deemed to ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sources". When the report itself cannot be made the basis for reopening under section 147(a), the question of considering the validity of the reopening under section 147(b) also does not arise. The very fact that the Income-tax Officer did not choose to reopen the proceedings under section 147(2)(b) or section 143(3) or section 147(b) discloses that he had accepted the cost of construction admitted in the income-tax return. Otherwise this Tribunal feels that he would have reopened the assessment under one of the above provisions even before resorting to reopening under section 147(a). Thus, I hold that the reopening is bad under law. I further hold that the Income-tax Officer merely changed his opinion regarding the correct value of cost of construction and intended to exercise his power to reopen the assessment. According to the Supreme Court's decision already cited supra re-opening cannot be validated by mere change of opinion. 10. Even on merits also, I do not feel that this is a fit case where the value found out by the Departmental Valuer represents the correct cost of construction. The Departmental Valuer had adopted plinth area method whereas the registered valuer went b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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