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TMI Blog1997 (7) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm Anirudhan Associates (in which he was a partner) for investment in the property. The AO noticed that excluding those two amounts, the assessee had to explain the source of the balance amount of Rs. 20,65,000 invested in the building. In his letter dt. 20th Dec., 1993 the assessee furnished his explanation regarding the source of the funds as under: . . Rs. . Total cost as on 17th July, 1989 22,00,000 . Cost upto 11-1-1988 90,000 . So amount invested from 1-4-1988 to 17-7-1989 21,10,000 (a) Old materials returnable to Government authorities utilised for construction 6,66,140 (b) Materials supplied by Government authorities this year and utilised in the construction 4,42,720 (c) Materials purchased by the firm Anirudhan Associates diverted for construction 5,25,000 (d) Payment to labourers effected through the firm and later on refunded 70,000 (e) Payment still outstanding to the labourers 1,00,000 (f) Materials supplied by Narmada Design Centre and paid out of bank account of Anirudhan Associates 1,18,427 (g) Amount payable to cement supplier 1,45,000 (h) Own cars used 45,000 . . 21,12,287 The AO did not accept the claim that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c., in other works as and when they were not immediately necessary for the assigned works. It was pointed out that the construction of Vasanthom Towers commenced on 29th April, 1987, and that it was completed in the financial year 1992-93 and that it was the investment upto 17th July, 1989, that was being considered for the asst. yr. 1990-91. Shri Balakrishnan stated that in his letter dt. 20th Dec., 1993 the assessee had furnished details of cement, steel, timber, etc., he could divert for the construction of the shopping complex. It was stated that in the arbitration proceedings the departments had raised claims against the assessee for recovery of large quantities of cement, steel, etc., in respect of some of the works completed by him. The paper-book filed by the learned counsel contain the letters from the Executive Engineer giving details of the materials to be recovered. Relying on these letters the learned counsel contended that the CIT(A) was not correct in stating that there was no evidence to show that the materials were diverted by the assessee for using in the construction of the building. According to the learned counsel, the assessee's claim was that the materials su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Government departments for his own work, it was for him to prove the same with concrete evidence. The Departmental Representative pointed out that the letters from the Executive Engineer relied on by the assessee's counsel referred to the materials to be recovered in respect of the works executed in 1975, in 1980, and in 1984. It was stated that when the works were done under different divisions and the materials were supplied by those divisions, there was no question of the assessee removing the materials from one work to another, for which permission of the Government would have been necessary. Shri Sudhakaran Pillai stated that no evidence had been furnished to show that permission had been given for rolling the materials in another work in a different department. It was also not proved by credit being given towards the cost of materials while settling the bills. It was strongly contended by the Departmental Representative that in the absence of evidence the AO and the CIT(A) were justified in holding that the assessee could not have stored the materials for such a long time after the completion of the earlier works in 1980, 1984, etc., to use in the construction of the shoppi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diately returnable these were put into use for the time being 4. Materials returnable to the Executive Engr., bldg. divn. issued in connection with the construction of guest house 2,650 8,731 — . . Total 42,180 54,133 16,018 . .Approximate value Rs. 84,360 54,133 40,450 . .. . Rs. Total cost of Government Cement 84,360 materials put into use Steel 5,41,330 for construction Timber 40,450 . . 6,66,140 7. It is true that there is no direct evidence to show that the assessee had been diverting materials like steel, cement, etc., from the Government contract work for the purpose of his private construction. But then it appears that in the arbitration proceedings between the assessee and the Government departments, the claim for recovering materials from the assessee are pending. In the course of the assessment proceedings the AO had written to the Executive Engineers concerned for clarification regarding the materials to be returned by the assessee. It is a fact that some of the Executive Engineers confirmed that there were materials to be returned by the assessee. These letters are available in the paper book filed before us by the learned counsel for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1989. But as the investment is not supported by any primary evidence, it would not be unreasonable to accept the claim that the materials for the construction of the legislative complex had been diverted by the assessee for the private construction after 29th April, 1987. As the earlier work was abandoned in 1986, the assessee could have made use of the materials in 1987 for the construction of the shopping centre. For coming to this finding, we rely on the subsequent letter issued by the Executive Engineer on 10th Feb., 1995. On the strength of the above letter, we hold that the assessee should be given credit for the quantity of materials that could have been used by him for the construction of the shopping complex. There is nothing to show that the Government has given up the claim against the assessee. The assessee had admittedly abandoned the work in the middle and the matter is still under dispute. The Executive Engineer has also clarified that the work has been arranged to be completed through another agency at the risk and cost of Shri G. Anirudhan. In the above circumstances, it would not be correct to hold that an amount equal to the value of these materials represented ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessee to roll the materials in the works executed for some other departments. In view of the long delay in time, we agree with the Revenue authorities that the assessee could not have diverted the materials supplied by the P.H. water supply division for the purpose of the construction of the shopping complex in 1987 or thereafter. 10. The assessee next claims that the following quantities of materials from the roads division could be used in his own construction: Cement — 5,250 kgs. Steel — 5,770 kgs. The assessee's explanation was as under: "These materials were also lying for a long time pending the disposal of arbitration proceedings. As they were not immediately returnable they were put into use for the time being." The Executive Engineer, Roads Division, Thiruvananthapuram, in his letter dt. 10th June, 1994, clarified that the assessee had not returned the balance quantity of 5250 kgs. of cement and 5,770 kgs of steel. He also stated that it was not known whether the assessee had used them for his private work. From the assessment order it can be seen that the work of Veli-Venpalavattom road, for which the materials had been supplied, was completed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready completed by him. 13. There is the further claim that the assessee could divert materials valued at Rs. 4,42,720 out of the materials supplied for the contract works during the current year. In his letter dt. 20th Dec., 1993, the assessee made the claim as under : "At the time of April to June, 1989, I had with me stock of materials issued by the Government for execution of their work. Upto 30th Sept., 1989, total work executed amounted to Rs. 15,80,000, when the profit of this is deducted the total cost will come to Rs. 14 lacs. This work was completed before 31st March, 1989 and the same value is shown as work in progress on the balance sheet as on 31st March, 1989. In addition to this, I had undertaken a number of works and had received materials from various Government departments. The value of materials that were issued to me for the execution of work amounted to Rs. 4,42,720. As these works were to be completed by November, and December, there was no difficulty in using them for construction in June and July and replacing them on getting the loan and rent advances." The assessee's claim was that for the execution of the contract works, the Government had supplied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were issued. If the assessee's claims were to be accepted it would mean that he was able to remove materials from the work site in the months of April to June, 1989, continuously for his own private work. In that case no work would have been carried out at the Government work site. It is difficult to believe that the assessee could divert for his own purpose cement, steel, etc., valued at Rs. 4,42,720 in the months of April, May and June without the knowledge of the PWD officials. Further, that would have been possible only if during the same period more quantity of materials had been supplied. In this context, it would be useful to refer to the letter, the AO issued to the assessee on 18th April., 1995. That letter reads as under: "On 16th Feb., 1995, various evidence collected from the Executive Engineer, legislative complex, A.En., roads division, A.En., NH roads division were given for your perusal and you were called to produce proof of diversion of Government materials for construction of Vasanthom Towers. This has not been produced. Your case is finally posted for hearing on 26th April, 1995, at 10 A.M. on which date you have to produce proof of diversion of Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , were diverted by him for the construction of Vasanthom Towers. The AO noticed that in the income-tax assessment of the firm, their claim was that they were not maintaining proper books of account. However, in the course of the assessment proceedings on the assessee a ledger was produced. In support of the claim regarding diversion of materials, entries on p. 61 of that ledger were relied on. The AO noticed that in the ledger there were numerous corrections of dates and amounts upto 17th July, 1980. A copy of folio 51 is attached to the assessment order as Annexure I. In the appeal proceedings the CIT(A) noticed that the corrections and erasures were made on the entries on dates between 3rd April, 1989, and 3rd Sept., 1989, and that there were no corrections and thereafter. The CIT(A) held that even if the entries were accepted as correct, that would only show the purchase of materials by the firm; but that would not show that the materials purchased by the firm were utilised by the assessee for his own construction. Before the Tribunal, it was submitted on behalf of the assessee that the Revenue authorities were not justified in disbelieving the claim that the assessee was able t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstituted by the members of the assessee's family only, it was not difficult to make use of the labour from the firm for the construction of the shopping complex. The assessee's claim was that the payment to the labourers were first made by the firm and that it was possible for reimbursing the amount after he raised the loan from LIC. The assessee is the senior partner of the firm and the other members of the firm are his close relations. The firm was also doing Government contract works. It was, therefore, possible for the assessee to engage the labour working for the firm for his own construction for which payments were made first by the firm. The claim was that subsequently money was reimbursed to the firm. In the circumstances of this case, we hold that credit can be given for the sum of Rs. 70,000 as labour charges payable to the firm, for the work done by their labour and reimbursement made subsequently. The AO will give credit for the sum of Rs. 70,000 accordingly. 16. The next ground in this appeal is that the CIT(A) erred in not allowing the assessee's claim regarding the sum of Rs. 1,00,000 remaining as outstanding liability towards wages account. The assessee's claim w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion No. 6 the AO had asked the assessee to give the details regarding the claim of Rs. 1,45,000 as 'amount payable to cement suppliers'. The assessee gave his answer in the following terms: "That was the amount outstanding. It was subsequently paid in cash. The details are not now available." If the claim that such a large amount was payable towards the credit purchase of cement were correct, the assessee would have been in a position to give atleast the name and address of the suppliers. In the absence of any evidence or any details regarding the claim, the CIT(A) felt that the AO was justified in not giving credit for the sum of Rs. 1,45,000 as claimed by the assessee. In the circumstances of the case, we are not persuaded to take a different view. Accordingly we uphold the finding of the CIT(A). 18. In the course of the hearing of this case, the assessee's counsel raised another contention against the assessment, with the submission that no addition could have been made for the asst. yr. 1990-91 on the basis of the cost of construction of the building taken at Rs. 22 lakhs. Shri Balakrishnan started his arguments with the submission that the assessee could not have mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Departmental Representative pointed out that the assessment was made on the basis of the accounts, including the books impounded by the AO, the sworn statement of the assessee recorded on 28th Nov., 1989, assessee's letter dt. 20th Dec., 1993, the wealth-tax records of the assessee and other materials. According to the learned Departmental Representative, the statement given by the assessee in the WT return that the investment till 31st March, 1989, was only Rs. 90,000 may or may not be correct; but that statement could not be the basis of the contend that the investment till 17th July, 1989, could not have been Rs. 22 lakhs. Shri Sudhakaran Pillai stated that for reasons best known to the assessee, he might not have shown the actual investment till 31st March, 1989, but that would not mean that the investment till 17th July, 1989, could not have been Rs. 22 lakhs, especially when the report was by a recognised valuer approved by the LIC and on the strength of that report the assessee had availed of loan from LIC. The learned Departmental Representative strongly contended that it was later in the day for the assessee's counsel to contend before the Tribunal now that the investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction : Finishing works nearing completion water tank and machine room floor under construction. .. Rs. .(b) i. Present value of land 4,50,000 . ii. Present value of building construction so far (as per original estimate and plan) 22,00,000 . iii. Increase/decrease in cost due to additional work/alteration in plan/or specification 10,000 The LIC accepted the above valuation and on that basis sanctioned loan of Rs. 9 lakhs to the assessee. The records also show that the assessee got the building insured by the United India Insurance Co. as per his proposal dt. 19th July, 1989. As per the policy, the building was insured for the period from 19th July to 31st March, 1990, for a valuer of Rs. 29 lakhs. In a letter filed before the AO on 26th March, 1993, the assessee stated as under: "Similarly, your goodself had stated that as per the valuation of LIC officials, the cost of construction before 17th July, 1989 is Rs. 22 lakhs. The fact is that I had made this investment by taking materials on credit from the suppliers and also there was liability to the labour contractors on the hope that they can be paid off on availing the loan. Out of this, Rs. 9 lakhs were p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Towers till 31st March, 1989, at Rs. 90,000. It appears that there was no enquiry made by the AO in the wealth-tax or in the income-tax assessment regarding the investment till 31st March, 1989. The assessee has also not furnished any evidence to show that the actual investment till 31st March, 1989, was only Rs. 90,000. We do not accept the plea that as no additions were made in the wealth-tax or income-tax assessment for the asst. yr. 1989-90 on account of the investment in the building, the investment of Rs. 90,000 as shown by the assessee should be taken as the correct figure. All that can be said at this stage is that there was no evidence furnished by the assessee to show that the investment in Vasanthom Towers till 31st March, 1989, was Rs. 90,000 only. It may be noted that the assessee's claim all along was that he was not maintaining any accounts for the construction. In his letter dt. 20th Dec., 1993, the assessee had stated thus : "Due to insufficiency of funds to carry out the construction work, I had attempted to avail loan from the LIC. Though my request was for Rs. 15 lakhs, the authorities were prepared to sanction only Rs. 10 lakhs, that too on condition that I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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