TMI Blog2004 (1) TMI 308X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Assessing Officer. The Assessing Officer referred the above-mentioned properties to the DVO for ascertaining the cost of construction. The facts placed on record show that when the properties were referred to the valuation cell of the department, the DVO had allowed several opportunities to the assessees to furnish details of cost of construction along with the bills and vouchers. No such details were submitted. The assessees had also not maintained complete record of cost of construction of the properties in the books of account. No reports of the registered valuers were also submitted before the DVO. The DVO submitted the valuation reports determining the, cost of construction of the above-mentioned properties. The position of investment disclosed, cost of construction determined by the Assessing Officer on the basis of report of the DVO is shown in the chart on page 3 of the assessment order and page 2 of the CIT(A)'s order as under: ------------------------------------------------------------------------- Sr. Description Total Period of Cost of No. of properties inves- constr- constr- tm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... --------- --------- --------- 5,61,500 13,35,236 7,73,736 --------------------------------------------------------------------- However, the Assessing Officer noted that out of the investment disclosed of Rs. 5,61,000, the co-owners had included Rs. 2.50 lakhs and Rs. 1 lakh disclosed by Shri Surinder Pal Verma and Smt. Neelam Verma during the course of search in their statements under section 132(4) of the Income-tax Act. The Assessing Officer was, therefore, of the view that benefits of above mentioned surrendered amount could be given only in the hands of the co-owners for explaining their share of unexplained investment and accordingly a sum of Rs. 3.50 lakhs was added to Rs. 7,73,736 and total unexplained investment was arrived at Rs. 11,23,736. 1/8th share in the unexplained investment was arrived at Rs. 1,40,467 and included in the hands of the respective co-owners under section 69 of the Income-tax Act. 3. Aggrieved, all the assessees impugned the additions in appeals before the CIT(A). During the course of hearing of appeals before the CIT(A), it was contended that the Assessing Officer had v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elief aggregating to 16 per cent from the revised cost of construction and determined the unexplained investment in the properties for tile assessment year under reference at Rs. 8,92,669. Out of the same, the assessees had declared cost of construction in the books at Rs. 2,11,500. After adjusting the same, the CIT(A) arrived at the unexplained investment for the assessment year under reference at Rs. 6,81,169 (8,92,669-2,11,500) and 1/8th share of each of the co-owners in the unexplained investment was thus worked out at Rs. 85,146 as against Rs. 1,40,467 determined by the Assessing Officer. 4. The assessees had claimed that amount of Rs. 2.50 lakhs and Rs. 1 lakh declared by Shri Surinder Pal Verma and Smt. Neelam Verma respectively under section 132(4) should also be adjusted against the cost of construction and thereafter unexplained investment should be allocated among the co-owners in equal shares. This submissions of the assessees was rejected by the CIT(A), who held that income disclosed by Shri Surinder Pal Verma and Smt. Neelam Verma could only be available for explaining their own share of investment and not for share of investment of other co-owners. The assessees ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for cost of construction. She submitted that even the reports of the registered valuers were not submitted before the DVO. She submitted that during the course of appellate proceedings before the CIT(A), the assessees had raised several objections to the valuation report. These were confronted to the DVO, who was directed by the CIT(A) to take measurement in respect of the various items in the presence of the registered valuer and resubmit the report after taking into account the various objections raised. The DVO resubmitted the report after complying with the directions and accepting the contentions he has himself reduced the cost. He further drew our attention to pages 5 to 10 of the CIT(A)'s order in the case of Smt. Manjit Verma, where further objections raised by the assessees were duly considered and suitable relief, wherever called for, was allowed by the CIT(A). As regards amount surrendered by Shri Surinder Pal Verma and Smt. Neelam Verma, the learned D.R. submitted that credit for the same could be allowed only in their own hands to cover their share of unexplained investment and not in the hands of the other co-sharers. Thus, she submitted that respective orders of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30 sq.mt. (13,857.30 Sq.ft.) Rs. 13,75,080 Rs.99.27 SCO 10,Sector-11, 82 1287.30 sq.mt. Rs. 13,73,400 Rs.99.l5 (13,857.30 sq.ft.) -------------------------------------------------------------------- Thus, after taking into account relief allowed by the CIT(A), the cost per sq.ft. in respect of these properties works out to Rs. 83.79, Rs. 99.27 and Rs. 99.15 respectively. The variation in the rates is on account of reason that construction of SCO No.1 was during the period from 4/87 to 3/91 and construction of the remaining two properties was from 4/90 to 12/92. The cost of construction is inclusive of all items including the extra items like electric fittings, tile fittings etc. The details given in the valuation report further show that the assessees had used white glazed tiles, colour glazed tiles, grey marble tile flooring etc. Now, the question is whether cost of construction as determined by the CIT(A) could be considered fair and reasonable having regard to the quality of construction and the period during which such construction was completed? After taking into account the various submissions of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification for allowing any discount for the claim that assessees being in the same line of business must have purchased material at cheaper rates. This contention is too general. The assessees have not placed any material on record to show that the materials purchased were less than the prevalent market price. Thus, keeping in view the above facts and circumstances of the case, we are of the considered opinion that the cost taken by the CIT(A) is absolutely fair and reasonable. Therefore, the same does not merit any interference. 8. The second part of the matter, which requires to be considered by this Bench is whether, CIT(A) was justified in considering the amounts of Rs. 2.50 lakhs and Rs. 1 lakh surrendered by Shri Surinder Pal Verma and Smt. Neelam Verma respectively in their own hands or not? The impugned additions have been made under section 69 of the Income-tax Act. Section 69 refers to the unexplained investments. Section 69B refers to the amount of investments etc. not fully disclosed in the books of account. The admitted position is that all the 8 persons own 1/8th equal share in the said properties. As per provisions of the Act, unexplained investments are required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light of the detailed reasons discussed above, we are of the considered opinion that learned CIT(A) was justified in treating the amount of Rs. 85,146 as unexplained investment for the assessment year under reference and liable to tax in the hands of the each co-owner. We do not find any legal or factual infirmity in the orders of the CIT(A). The same are upheld and respective grounds of assessees' appeals are dismissed. 10. The next ground of assessee's appeal in the case of Shri Surinder Pal Verma (ITA No. 786/95) is that the CIT(A) was not justified in adjusting an amount of Rs. 1,64,854 (wrongly mentioned as Rs. 1,64,584) out of the surrendered amount of Rs. 2.50 lakhs against the discrepancies in the stock. The facts of the case are that during the course of search operations, the authorized officer found stock worth Rs. 44,41,722, where as per books of account the stocks should have been worth Rs. 51,48,024. The assessee explained the difference attributable to calculation of the discrepancies totalling Rs. 2,29,627 and 5 bills, which had not been taken into account while working out the stock totalling Rs. 4,29,135. The Assessing Officer accepted the explanation in regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's share in the unexplained investment in the aforesaid property. The remaining amount of Rs. 1,64,854 was profit earned on the stock already sold but such sale had not been reflected in the books of account. Therefore, the CIT(A) held that an amount of Rs. 1,64,854 was required to be adjusted against the discrepancy in stock. The assessee is aggrieved by the order of the CIT(A) and hence this appeal before us. 12. Shri S.K. Mukhi, the learned Counsel for the assessee contended that there was no discrepancy in the stock. He submitted that the discrepancy was on account of the reason that following three bills where goods had not been received but vouchers for the same had been taken into account: (i) Rs.47,889 (ii) Rs. 1,65,065 (iii) Rs. 81,805 He submitted that while preparing the trading account, these purchases were taken into account as advance copy of the bills/confirmation about the dispatch of the material had already been received and were lying at the counter. The stock against two bills of Rs. 47,889 and Rs. 1,65,065 were dispatched by M/s. Sharda Plywood Industries from Assam vide bill Nos. 266 267 dated 30-11-1990 which reached the business premises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A)'s order in the case of Shri Surinder Pal Verma where the claim made by the assessee that goods covered under three bills were in fact received on a later date was rejected. Thus, she submitted that assessee has not been able to explain the difference in the stock to the extent of Rs. 2,93,759. Thus, the learned D.R. submitted that the order of the CIT(A) does not merit any interference. 14. We have heard both the parties and carefully considered their rival submissions with reference to the facts, evidence and material placed on record. From the facts discussed above, it is obvious that the dispute relates to difference of Rs. 2,93,759 i.e. the stock, which was found deficient in the books of account. The CIT(A) has recorded the finding that assessee has in fact sold the stock outside the books of account and sale proceeds thereof till the date of search had not been accounted for. If this view of the CIT(A) is accepted, the addition called for would be the entire sale proceeds i.e. cost of purchases and resultant profit earned thereon for the reason that cost of purchases has already been debited in the books of account. However, the assessee has contended that stock cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of Rs. 1,09,434 with the assessee. Out of the amount found, Rs. 80,434 was withdrawn by the assessee from his books of account as per entry in the cash book dated 10-12-1990. The above entry was accepted by the Assessing Officer. The balance amount was claimed to be past savings of the assessee and his wife. The Assessing Officer had allowed benefit of Rs. 10,470 on account of personal savings. The balance amount of cash was treated as unexplained and addition of Rs. 49,000 was made. On appeal, the CIT(A) did not accept. He also submitted that the assessee had received Rs. 28,936 as advance from customers. The balance addition was deleted. 16. The assessee has brought the issue in appeal. There is no dispute that Rs. 80,437 were withdrawn by the assessee from the books of account and entry to that extent has been accepted to be genuine. The Assessing Officer has further allowed benefit of Rs. 10,470 from past savings to explain Rs. 28,936, which was claimed to be received as advance from the customers. However, this claim was not accepted. We are of the view that when the case of advance from customers is not accepted and Rs. 28,936 is treated as cash with the assessee, then b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) at Rs. 85,146. In view of our detailed discussion in the preceding paragraphs, the addition is confirmed. 22. The other grounds raised in the memo of appeals were not pressed at the time of hearing and the same are, therefore, dismissed as such. 23. In the result, whereas the appeals of Shri Surinder Pal Verma and Smt. Chander Kanta Verma are partly allowed, the appeals of Smt. Manjit Verma and Smt. Neelam Verma are dismissed. Vimal Gandhi, Vice President. - These four appeals have been filed by four assessees all co-owners, each having 1/8th share in S.C.O. Nos. 1,9 and 10, Sector 11, Panchkula. As a common point relating to addition on account of un-explained investment was involved, these appeals were heard together and are being disposed of through this consolidated order for the sake of convenience. 2. The assessment year involved is 1991-92. The name of the eight co-owners who acquired above properties and made investments in the construction of 3 shop-cum-office (S.C.O.) are recorded in para 1, page 2 of the assessment order. The Assessing Officer after noting investments in the construction referred this matter to the D.V.O. who as per his letter dated 19-1-1994 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------- A. SCO No.1, Sec. 11, 80,000 1,73,363 93,363 Panchkula B. SCO No.9, Sec. 11 2,81,500 6,32,724 3,51,224 C. SCO No.10,Sec. 11, 2,00,000 5,29,149 3,29,149 Panchkula --------- --------- --------- 5,61,500 13,35,236 7,73,736 --------------------------------------------------------------------- 3.1 The Assessing Officer vide his letter dated 31-1-1994, asked the assessees, co-sharers as to why difference of Rs. 7,73,736 be not added in the 8 hands as undisclosed investment. Thus, in the above show-cause notice, the Assessing Officer gave benefit of Rs. 2,50,000 and Rs. 1 lakh disclosed/surrendered by Sh. Surinder Pal Verma and Smt. Neelam Verma during the course of search in their statements under section 132(4) of the Income-tax Act. 4. The Assessing Officer has also made reference to the reply furnished by the assessee at page 4 of the assessment order in the case of Sh. Surinder Pal Verma. The Assessing Officer had noted that along with reply the assessees had submitted valuation report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) of the Income-tax Act, Sh. Surinder Pal Verma and Smt. Neelam Verma clearly intended to cover investment in properties besides covering other discrepancies. 7. The assessees challenged above additions in appeal and through their representatives filed objections to the proposed valuation suggested by the D.V.O. and pointed to the wide variations in D.V.O.'s report and reports of their registered valuer. The learned Commissioner of Income-tax (Appeals) on facts and circumstances of the case considered it necessary to get the revaluation of properties carried through the D.V.O. Accordingly, the revised report was submitted by the D.V.O. According to this report, the value of S.C.O. No.1 was taken at Rs. 13,87,200 against Rs. 18,40,900 earlier suggested by the D.V.O. It was agreed between the parties that the value of S.C.O. Nos. 9 and 10 would be reduced and taken on the basis of value worked out for S.C.O. No.1. Accordingly, value of S.C.O. Nos. 9 10 was proportionately worked out and reduced for determining the unexplained investments by the co-sharers. 8. After the receipt of revised report from the D.V.O., the learned Commissioner of Income-tax (Appeals) again invited ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessees on account of higher premium applied by the D.V.O. We are of the view that premium applied by the D.V.O. is certainly on higher side and the assessees are entitled to some benefit on this account. 12. The next major objection raised on behalf of the assessees to the valuation of the D.V.O. pertain to the quantity of steel taken by the D.V.O. It was stated to be highly excessive. The quantity of steel was taken at the rate of 112 kg. per cubic metre as against 72 kg. taken by the registered valuer of the assessee. As per expert's opinion made available to us, 75 kg. to 100 kg. of steel should be used per cubic metre on structure depending upon the type of construction. It has been opined that use of higher than requisite quantity of steel, in fact, damages the building. We have considered above objections. We are of the view that it would have been better for the D.V.O. if this point was discussed objectively after taking into consideration the detailed report of the registered valuer and assessee's objections. 13. It was further objected to by the assessee that the value of shutter was added twice, one in item No.14 and other in item No.25 of the D.V.O's report. In fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd being in same trade obtained material at discount. This contention is not without substance. 17. After Considering of objections of the assessee, relevant material on record, order of learned Commissioner of Income-tax (Appeals) and reports of the D.V.O. and registered valuer of the assessee and above discussion, I am inclined to allow some more relief to the assessees. The learned Commissioner of Income-tax (Appeals) reduced estimated value of S.C.O.No.1 from Rs. 13,87,200 to Rs. 11,71,614 with the following remarks: - Rs. Cost of construction as per Valuation Officer's report before allowing rebate on account of self supervision. 13,87,200 Less: Relief on account of service charges. 10,000 ---------- 13,77,200 ---------- Less: Rebate on account of self Supervision @ 10% 1,37,720 ---------- 12,39,480 Less: Cost of constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income-tax (Appeals), she had two reports of valuation of properties, one by the Departmental Valuation Officer and other by Sh. Puri. There was wide variation between the two and, therefore, the learned Commissioner of Income-tax (Appeals) directed the Departmental Valuation Officer to redetermine the value of three properties. In the fresh report, the Departmental Valuation Officer estimated the value of three properties at a much lower figure. The learned Commissioner of Income-tax (Appeals) again invited objections from the assessees on the fresh report. The assessees submitted detailed objections with calculation before the learned Commissioner of Income-tax (Appeals). The learned Commissioner of Income-tax (Appeals) noted that some construction was carried by the tenants and not by the assessee. The learned Commissioner of Income-tax (Appeals) deducted value of above construction. Besides, allowing deduction of 10 per cent for self supervision as is done in almost all other cases, no other relief was allowed except rebate of Rs. 10,000 for all the objections. Some of the objections were not considered at all. There is no rebuttal to the claim put forward by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition of Rs. 1 lakh with the following observations: "3.1 In this case a disclosure of Rs. 1 lakh was made in the year under consideration on account of unexplained investment in construction of properties. The Assessing Officer observed that the amount of Rs. 1 lakh was surrendered, Rs. 50,000 in assessment year 1990-91 and Rs. 50,000 during the assessment year 1991-92 towards discrepancies found and value of jewellery. It is also mentioned in the assessment order that the assessee confirmed this fact during the recording of her statement on 11-12-1990. Therefore no credit was allowed of the surrendered amount of Rs. 1 lakh and addition of Rs. 1,40,467 was made. The issue regarding extent of unexplained investment in construction of properties stands already discussed vide my order of date in Appeal No. 74/P-27/94-95 in the case of another co-owner of the property, namely Smt. Manjit Verma for the assessment year 1991-92, wherein unexplained investment has been upheld to the extent of Rs. 85,416. Accordingly, the appellant's share in unexplained investment works out to Rs. 85,416 as against Rs. 1,40,467 made by the Assessing Officer." 22.1 As regards surrender of Rs. 2,50,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the showroom." 23. Sh. Mukhi, learned counsel for the assessee vehemently contended that Rs. 3,50,000 surrendered towards investment for construction should have been considered while determining whether if there was any unexplained investment. The relevant question that was to be determined was as to what was the total investment made by the co-owners in the construction of the buildings. Only in case any un-explained investment was found, the same could be assessed in the hands of co-sharers as per their shares in the properties. The Revenue has treated the construction of 3 S.C.Os. by 8 co-owners as one unit. Therefore, the investment and unexplained investment if any, has to be taken at one place. He also argued that there would be anomaly of Rs. 3,50,000 admittedly contributed by the co-sharers towards investment is not taken into account for purposes of total investment. As per admitted position, the investment has been made by all co-sharers. How and in what proportion, these co-sharers made investment, is not of much concern of the Revenue. The agreement governing the mutual relationship of the co-sharers is private agreement among co-sharers. 24. The learned Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Act which says that where in any financial year the assessee has made investment, which is not recorded in the books of account and the assessee offers no explanation about the "nature and source of investment" to the satisfaction of the Assessing Officer, the investment may be treated as deemed income of the assessee of the financial year. It is evident from above section that before any investment is treated as deemed income, the assessee has to be allowed an opportunity to explain "nature and source of investment." 26.1 I may also refer to section 132(4) of the Income-tax Act under which a person authorized to carry on search and seizure, may examine any person who is found in possession and control of any books of account, documents, money, bullion, jewellery or other valuable articles or things. As per Circulars and Instructions of the CBDT, the authorized person carrying on the search is required to ask the person subjected to the search whether he intends to make a surrender in terms of Explanations to section 271(1)(c) of the Income-tax Act. Accordingly, statements of two co-owners were recorded. The relevant portions of the statements have been extracted above. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntative, on the other hand, held that proceedings for other years have been re-opened to make addition of unexplained investment which fact was stoutly challenged by the assessee. No dear evidence of what has happened in other assessment years on the question of investment in building is available on record. In the above circumstances and for reasons discussed below, I am of the view that the Tribunal is competent to issue directions only for assessment year 1991-92 and not for any other assessment year. 30. In this connection, I may refer to decision of Hon'ble Supreme Court in the case of ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335 wherein their Lordships have observed as under: - "The decision of an Income-tax Officer given in a particular year did not operate as res judicata in the matter of assessment of the subsequent years. The jurisdiction of the Tribunals in the hierarchy created by the Act was no higher than that of the Income-tax Officer: it was also confined to the year of assessment. That the jurisdiction of the Appellate Assistant Commissioner under section 31 was strictly confined to the assessment order of the particular year under appeal." Their Lordships ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es paid thereon to cover investment and, therefore, there is no question of treating as unexplained investment merely because in the statement under section 132(4), these persons had stated that the surrender made was to cover investment in construction and discrepancies in jewellery and stock also. In the, above circumstances and on account of clear evidence and stand of Sh. Surinder Pal Verma and Smt. Neelam Verma in their returns, Rs. 3,50,000 added during the course of assessment had to be treated as explained investment. It could not be treated as unexplained investment. Having exercised the choice if any discrepancy was found in jewellery or in stock, the Revenue authorities were/are fully justified in making addition for those discrepancies as income or gains liable to be charged to tax. 31.2 In the light of above discussion, I am of considered opinion that credit for Rs. 3,50,000 has to be given and above investment cannot be treated as unexplained. The position, therefore emerges as under :- Total investment as worked out above Rs. 8,25,908 Less cost of construction explained Rs. 5,61,500 ------------ As per the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.44,41,722 Add: Addition of bills. (Rs.) (Rs.) 1. 44,628 2. 87,748 3. 47,889 4. 1,65,065 5. 81,805 ------------------------- : 4,29,135 ---------- 48,68,857 ---------- Regarding the balance of Rs. 2,79.167, the assessee stated that there were certain calculation discrepancies in the stock inventory prepared on 11-12-1990 which were pointed out to the Dy. Director of Income-tax, (Investigation) on 26-3-1991. Total difference on account of these discrepancies were to this bill of Rs. 2,76,993. The assessee has submitted that these discrepancies are in respect of serial Nos. 13, 14, 60, 63, 77, 80, 85, 87, 93, 119, 120, 124 of Annexure 'D' and 42, 51, 63, 67, 80 in respect of basement. From the perusal of these entries as shown by the assessee, it is found that there is a difference of Rs. 61.508 only in the value of stock against Rs. 2,76,993 shown by the assessee per annexure attached with his reply. After giving credit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax (Appeals). She ultimately found discrepancies to the extent of Rs. 3,47,832 and confirmed addition to the extent of Rs. 1,64,584 with the following observations: - "In fact, stocks available as per trading account as on 11-12-1990 prepared on the basis of books of account were of the value of Rs. 51,48,024 whereas stocks physically found as per inventory prepared at that point of time were of the lower value. Thus, there could not be any unexplained investment in the stocks, stocks found at the time of search operations being less than stocks available as per books of account. However, the explanation furnished in this regard at least in part is not satisfactory and tenable. In my opinion, the only inference which can be drawn is that some stocks had been sold outside the books of account and sales till the date of search had not been accounted for. In this view of the matter, this fact could not be relevant for rejection of the books results and for assessing profits with reference to unexplained sales of the said stocks. The Assessing Officer herself in the case of M/s. T.L. Verma Company in the A. Year 1991-92 has taken this view and made addition to the extent of ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds in respect of 5 bills were accounted for and accepted by the Assessing Officer. It was submitted that the Assessing Officer while rejecting the explanation of the assessee relating to alleged discrepancies in stock has merely observed that the stock inventory were prepared at the time of search after physical verification and all bills and goods received were taken into account at the time of search. It was submitted that part of the explanation was accepted by the Assessing Officer and on appeal by the Commissioner of Income-tax (Appeals), which clearly showed that position of stock was prepared in a hurry and had calculation error. It was accordingly argued that there was no discrepancy and the alleged addition for such discrepancy was totally un-called for. 35. The learned Departmental Representative on the other hand, supported the impugned orders of the Assessing Officer. 36. Observations of the Assessing Officer as stated earlier are not clear and do not spell out how the so-called discrepancy is assessable income of the assessee. On further appeal, the learned Commissioner of Income-tax (Appeals) has restricted the addition to Rs. 1,64,584 on the basis of alleged surr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10% goods % stock 3,09,004 Sales 10% 7,98,487 Purchase 10,33,469 CST 1,48,851 GP 67,545 Closing stock 4,62,680 ---------- ---------- 14,10,018 14,10,018 ---------- ---------- Closing stock as on 11-12-1990 Rs. 8% goods 42,58,209 10% goods 4,62,680 Actl. goods recd. from Elite Traders vide bill No. 53 dated 10-12-1994 44,628 ---------- 47,65,517 ----------- Goods recd. from M/s. Sharda Plywood vide Bill No. 267, dt. 30-11-1990. But yet to be posted in purchase A/c. 47,889 (Advice No. 246) -do- of Sharda Plywood Ind. 1,65,065 Bakelite Hylam Ltd. Challn. Nos. 6658. 6672 Dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the premises of the assessee were subjected to search on 11-12-1990. The narrations before purchases of Rs. 47,889 and Rs. 1,65,065 in annexure 'P' clearly show that the amount of Bill No. 267 and that of Advice No. 246 were "yet to be posted in purchase account". Likewise, only on the basis of a challan from M/s. Bakelite Hylam addition of goods of value of Rs. 81,085 was made with clear narration, "bills yet to be received". It is clear from above primary evidence that these three amounts were not debited to the purchase account. There is absolutely no material on record to show that above goods were received and sold outside the books of account. The value of the goods have been added on the basis of advice and challans which are received in advance. The value of these goods have been added in the purchase account without bothering to see that the assessee had not debited these goods in the purchases. Even the primary evidence does not support the version of the Revenue that goods were taken in purchases. These were debited in purchase account much later on 16-1-1991 as per evidence on record. These accounts have duly accepted. Thus, when goods are not debited in the purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kindly be considered under section 255(4) of the Income-tax Act. THIRD MEMBER ORDER Shri B.M. Kothari, A.M. - There was a difference of opinion between the then learned Vice President and learned Accountant Member, who heard these appeals and the following points of difference were referred by them to the Hon'ble President, Income-tax Appellate Tribunal under section 255(4) of the Income-tax Act, 1961: - "1. Whether on the facts and in the circumstances of the case, there is justification to allow further relief of Rs. 66,761 in estimating the cost of construction of S.C.Os. at Panchkula in assessment year 1991-92? 2. Whether on the facts and in the circumstances of the case, there is justification to allow relief of Rs. 3,50,000 for explaining investment in the construction of S.C.Os. disclosed by the co-owners, Sh. Surinder Pal Verma (Rs. 2,50,000) and Smt. Neelam Verma (Rs. 1 lakh) in statements under section 132(4) of the Income-tax Act and in their returns of income? 3. Whether on the facts and in the circumstances of the case and having regard to the primary material, addition of Rs. 1,64,584 for alleged discrepancies in stock is to be deleted or matter remand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng into consideration the report of the registered valuer and the various other objections submitted on behalf of the assessee. The D.V.O. submitted a revised report on the basis of measurement etc. taken in the presence of appellants as well as their registered valuer. The revised estimate of the cost of construction of S.C.O. No.1 was made at Rs. 13,17,800 as against Rs. 18,40,900 originally made by him. The learned Commissioner of Income-tax (Appeals) thereafter considered the various objections submitted on behalf of the assessee. The Commissioner of Income-tax (Appeals) determined the value of S.C.O. No.1 at Rs. 11,71,614 as against the original valuation estimated by the D.V.O. at Rs. 18,40,900. This works out to 67.34% of the cost of construction as per first report of the D.V.O. All these facts were pointed out with a view to show that the D.V.O. had made an arbitrary and excessive estimate of cost of construction. The learned counsel submitted that various objections raised before the D.V.O., as well as before the Commissioner of Income-tax (Appeals), were not dealt with by the learned Commissioner of Income-tax (Appeals), which have been elaborately pointed out in para 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll as the D.V.O. that local P.W.D. rates of Haryana should be applied instead of applying the CPWD rates. He placed reliance on judgment in CIT v. Raj Kumar [1990] 182 ITR 436 (All.), Sheikhar Chand Jain Sons v. IAC [1988] 32 TTJ (Delhi) 570 and Maheshwari Dying Works v. ITO [1987] 60 CTR (Jp.) (Trib.) 87 to support this contention. If this contention of the assessee is accepted, further substantial relief of more than 5% would be justified. 6. The learned counsel further contended that additions based on the report of the D.V.O. is patently wrong and unjustified. He placed reliance on the judgment of Hon'ble Apex Court in the case of Smt. AmiyaBala Paul v. CIT[2003] 262 ITR 407. In this case, the Income-tax Officer made the addition of Rs. 2,79,000 in assessment year 1982-83 and Rs. 1,77,000 in respect of assessment year 1983-84 as undisclosed investment in the construction of the house on the basis of report given by the Valuation Officer. The Tribunal held that the Assessing Officer could not have referred the question of cost of construction of the assessee's house to the Valuation Officer. The Hon'ble Supreme Court in the aforesaid judgment has held that the Valuation Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng surrendered for meeting the unexplained cost of construction of these S.C.Os. and unexplained stock, if any. Subsequently when the return of income was filed, he has clearly stated that such disclosure of income to the tune of Rs. 2,50,000 was made in relation to unexplained cost of construction of these three S.C.Os. for assessment year 1991-92. It is clear from the observations made by the Assessing Officer on page 5 of the assessment order, wherein he has inter alia observed as under: - "While filing the return for assessment year 1991-92, Shri Surinder Pal Verma has shown surrender of Rs. 2,50,000 towards investment in SCO Nos. 1, 9 10, Sector 11, Panchukla." 8. The assessee consistently stated before the learned Departmental Authorities that the amount of Rs. 2,50,000 has been offered for tax towards unexplained cost of construction of the three S.C.Os. The learned Departmental Authorities were, therefore, not justified in not accepting this contention. The learned counsel relied upon the elaborate discussion made in the order proposed by the learned Vice President in relation to aforesaid point. He submitted that the learned Vice President has rightly directed the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,50,000 will cover the income arising on account of sales relatable to discrepancies in the stock. 11. The learned counsel submitted that the assessee had fully reconciled the difference between the stock as per books of account and the stock physically found during the search. These three invoices/ challans were found during the search but the material represented by these three invoices had not been included in the physical inventory of stock prepared during the search either because the goods in question had not been received till the date of search or because the goods were received on the date of search and were not included in the physical inventory. He brought to my notice a certificate placed at page 49 of the Paper Book. This certificate has been issued by Asstt. Excise Taxation Officer, Sales Tax Check Barrier, Ramgarh (Ambala) on 28-3-1994. The contents of the said certificate is reproduced below: "This is certified that truck No. AMK 3764 carrying plywood from Assam to Panchkula had crossed S.T.C.B., Ramgarh on 10-12-1990 between 9 to 10 P.M. and stand entered in non-taxable register of this barrier. The goods had been declared at first entry barrier of Haryana S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated that the Assessing Officer has not doubted the correctness of opening stock and closing stock shown by the assessee. He has also not doubted the correctness of the declared figure of sales. The learned Accountant Member has set aside the aforesaid issue for further verification such as examining the relevant documents like octroi receipts etc. The learned counsel submitted that there is no octroi in Panchkula. The assessee had produced entire relevant material before the Assessing Officer. The Assessing Officer did not examine any of those suppliers, nor examined any person, nor has brought any material on records to doubt the correctness of the aforesaid submissions made on behalf of the assessee. The matter should not, therefore, be restored back to the Assessing Officer after a period of more than 12 years as proposed by the learned Accountant Member. The learned counsel thus, strongly supported the order proposed by the learned Accountant Member in this regard also. 14. Smt. Geet Mala, the learned Sr. Departmental Representative strongly supported the order proposed by the learned Accountant Member and also relied upon the elaborate reasons recorded in the orders of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 235 (Ker.). She submitted that the assessment based on the statement of the assessee recorded in the course of search must be upheld as the statement being the voluntary one, there is no scope for the assessee to change the facts stated in the said statement. The learned Sr. Departmental Representative thus, strongly supported the order of the learned Accountant Member in relation to this point also. 16. As regards the third point of difference relating to discrepancy in the stock found in search, the learned Sr. Departmental Representative submitted that the learned Accountant Member has rightly set aside the issue back to the Commissioner of Income-tax (Appeals) for making further enquiries. The assessee at the time of search did not raise this point that the goods purchased vide the three bills in question were not actually received till the time of search and were not included in the physical inventory of stock prepared during search, in spite of the fact that these bills were specifically included for determining the stock as per books of account maintained by the assessee. The explanation given by the assessee is, therefore an after thought and has rightly been rejected by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h in addition to his other normal income, in the return of income filed by him. The Assessing Officer did not include this amount of Rs. 2,50,000 while computing taxable income of the assessee in the assessment order because he had made a separate addition on account of unexplained investment in property to the tune of Rs. 1,40,467 and addition on account of unexplained investment in the stock to the tune of Rs. 5,12,460. The Assessing Officer on page 9 of the assessment order specifically mentioned that no separate addition of Rs. 2,50,000 is made on account of disclosure of income shown in the return in view of the aforesaid addition made by him. The Commissioner of Income-tax (Appeals) reduced addition on account of unexplained investment in the property to the tune of Rs. 85,416. He also sustained an addition to the extent of Rs. 1,64,584 being income arising on account of undisclosed sales relatable to discrepancy in the stock. The Commissioner of Income-tax (Appeals) specifically mentioned that both these additions sustained by him aggregating to Rs. 2,50,000 are covered by the amount of income surrendered by Shri Surinder Pal Verma to the tune of Rs. 2,50,000 in his return o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to be included in the hands of these two persons will accordingly work out to Rs. 44,068 each (Rs. 2,64,408 divided by 6). The only effective point of difference is, therefore, as to whether the addition on account of unexplained investment in the case of Mrs. Chandra Kanta Verma and Mrs. Manjit Verma should be Rs. 85,416 as confirmed by the learned Commissioner of Income-tax (Appeals) and approved by the learned Accountant Member or it should be reduced to Rs. 44,068 as proposed by the learned Vice President in his order. However, since separate points of difference have been referred under section 255(4) and elaborate arguments have been advanced by the learned representatives, I would deal with all those points in the following paragraphs. 20. I will first deal with point of difference relating to grant of further relief @ 5% amounting to Rs. 66,761 allowed by the learned Vice President for estimating the cost of construction of S.C.Os at Panchkula in the year under consideration, namely in assessment year 1991-92. It is true that the learned Commissioner of Income-tax (Appeals) has adopted a detailed procedure in order to arrive at a fair and reasonable estimate of cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qtl. and the rate of premium applied by him is 220%. It has also been mentioned in the said chart that the details of steel have not been given by Valuation Officer in his report. The Registered Valuer has determined the value of such reinforcement in the basement at Rs. 44,667. Thus, there is a difference of opinion between the two experts in relation to this one item to the tune of Rs. 30,090. Similarly, there is a difference in the estimate of "steel reinforcement" used in ground floor, 1st floor and second floor to the tune of Rs. 89,540 between the report of the D.V.O. and the Registered Valuer. The learned Commissioner of Income-tax (Appeals) has also not given any relief on account of the fact that the assessee is a dealer of building material and was in a position to acquire other building material at discounted rates. The assessee has submitted item wise difference between the report of the D.V.O. and the Registered Valuer. The learned Commissioner of Income-tax (Appeals) has not given any relief in relation to the major items of differences indicated in the said chart which relate to the cost of steel reinforcement, the percentage of premium applied by the D.V.O. at subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Verma and Smt. Neelam Verma, is concerned, it is clear from the facts elaborately discussed in the order proposed by learned Vice President and learned Accountant Member that Shri Surinder Pal Verma had surrendered an amount of Rs. 2,50,000 towards unexplained cost of construction of these three S.C.Os and for difference in his stock, if any, in the statement recorded during search. However, at the time of filing of the return of income, Shri Surinder Pal Verma had disclosed the income of Rs. 2,50,000 surrendered during search and explained its utilization towards construction of the aforesaid properties. Shri Surinder Pal Verma has not retracted from his statement recorded during the course of search while filing the return of income. He had shown the said sum of Rs. 2,50,000 as his own and has also paid tax thereon. He has only clarified/modified the manner of utilization of the said amount of Rs. 2,50,000 offered during the search. In the statement recorded during search, it was clearly indicated that this surrender of Rs. 2,50,000 is being made for investment in the construction of S.C.Os and for difference in stock, if any. It should be appreciated that the statement during se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the year under consideration, may be adjusted against their shares in unexplained investment of the said property in other assessment years. On the other hand, the learned Vice President observed that the option to earmark the utilization of such income surrendered by them lies with the persons who have so surrendered the income liable to tax. In the present case, both, Shri Surinder Pal Verma and Smt. Neelam Verma have clearly and categorically stated in the returns as well as in the assessment proceedings that the amount of Rs. 2,50,000 and Rs. 1 lakh surrendered by both of them should be treated as invested in construction of the three S.C.Os. The learned Vice President has discussed this point elaborately and very thoroughly in para 21 of page 11 to para 31.1 of page 19 of his order. He has given convincing reasons to support his conclusion that the aggregate amount of Rs. 3,50,000 offered for tax by Shri Surinder Pal Verma and Smt. Neelam Verma should be adjusted against the cost of construction of three S.C.Os incurred in assessment year 1991-92 and only the balance amount of Rs. 2,64,408 should be treated as unexplained investment, which should be added in the hands of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which were available at the time of search. However, the goods represented by the aforesaid three transactions of purchases were in transit and have not been included in the physical inventory prepared during the course of search. After submission of these documents, the Assessing Officer did not examine any connected person, nor examined the suppliers; nor brought any material on records to disprove the correctness of the aforesaid facts. The contention of the assessee that the goods purchased from M/s. Sharda Plywood Industries, Assam did not reach the assessee's premises till the commencement of the search and the same were not included in the physical inventory of the stock, is probable as the said material had been cleared by the Sales Tax Check Post, Ramgarh at 10 p.m. on 10-12-1990. Likewise, the confirmation of M/s. Bakelite Hylam Limited also clearly proves that the goods were dispatched from Hyderabad on 11-12-1990. Therefore, the question of their inclusion in the physical inventory of stock does not arise. The Assessing Officer has not brought any material on record in rebuttal of the aforesaid submission made on behalf of the assessee. 28. It is well settled law tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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