1976 (7) TMI 80 - AT - Income Tax

Summary

Issues Involved:
1. Valuation of the cost of construction of a cinema theatre.
2. Justification for reducing the valuation by the Appellate Assistant Commissioner (AAC).
3. Examination of the Executive Engineer for valuation discrepancies.
4. Addition of unexplained investment as income from undisclosed sources.

Issue-wise Detailed Analysis:

1. Valuation of the cost of construction of a cinema theatre:
The assessee constructed a cinema theatre and disclosed a construction cost of Rs. 6,13,000. The Income-tax Officer (ITO) found this low and referred the matter to the Executive Engineer, Valuation Cell, who estimated the cost at Rs. 4,33,650 against the disclosed Rs. 3,79,205, resulting in a difference of Rs. 54,445. The assessee attributed the lower cost to personal supervision, use of own resources, and non-contractor labor, which the ITO partially accepted, allowing Rs. 8,000 for these factors, but added Rs. 46,445 as unexplained investment.

2. Justification for reducing the valuation by the Appellate Assistant Commissioner (AAC):
The AAC identified discrepancies in the valuation of specific items, such as the compound wall, auditorium, and plaster of Paris ceiling. After further investigation, the AAC reduced the valuation of the compound wall from Rs. 20,800 to Rs. 10,000, the auditorium from Rs. 21,700 to Rs. 14,000, and the plaster of Paris ceiling by Rs. 6,150. Additionally, the AAC noted a totalling mistake and centering cost differences, leading to further reductions. The AAC concluded that the unexplained cost was Rs. 21,508, and after allowing Rs. 13,000 for the assessee's use of own resources, retained Rs. 11,000 as income from undisclosed sources.

3. Examination of the Executive Engineer for valuation discrepancies:
The Departmental Representative argued that the AAC should have summoned the Executive Engineer for clarification. However, the Tribunal found that the AAC's adjustments were based on verified facts, such as the actual length of the compound wall and documented expenses for the auditorium. The Tribunal held that summoning the Executive Engineer would not have provided additional relevant information, as the AAC's decisions were based on concrete evidence and not merely estimates.

4. Addition of unexplained investment as income from undisclosed sources:
The assessee contended that the AAC's addition of Rs. 7,847 to the difference was unjustified. The Tribunal agreed, finding no explanation for this addition. The Tribunal recalculated the difference at Rs. 54,445, with the AAC allowing a total relief of Rs. 13,000 for own labor, which should have been Rs. 10,500. Consequently, the unexplained amount was reduced to Rs. 3,161, less than one percent of the total cost. Given the smallness of the amount and the reliance on estimates by the Executive Engineer, the Tribunal concluded that this amount should not be considered as income from undisclosed sources and directed its deletion.

Conclusion:
The Tribunal dismissed the Departmental appeal and allowed the assessee's appeal, directing the deletion of the addition made as income from undisclosed sources.