TMI Blog2000 (3) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... y - to the Assistant Commissioner of Income-tax, Central Circle III, Hyderabad, who completed the assessment under section 143(3) accepting the cost of construction and thus the present Assistant Commissioner of Income-tax (Inv.), Circle 5(2), Hyderabad, erred in reconsidering the entire issue in the Block Assessment when, no material was found relating to unexplained investment in house construction during 132 proceedings. 3. Without prejudice to Ground No. 2, the learned Assistant Commissioner of Income-tax (Inv.), Circle 5(2), Hyderabad, erred in placing reliance on the report of the Valuation Cell which was a telephonic reference made by the Department and no information was gathered from the appellant by the Valuation Cell while finalising the cost of construction report, thus violating the principles of natural justice. 4. Without prejudice to Ground No. 2, the learned Assistant Commissioner of Income-tax (Inv.), Circle 5(2), Hyderabad, erred in relying on the cost of construction report - furnished by the Valuation Cell of the I.T. Department which was based on surmises and made behind the back of the assessee. 5. Without prejudice to Ground No. 2, the learned Assistan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion No. 10) to indicate the extent of investments made in the house property. The assessee was also specifically asked to state whether the cost of construction was properly disclosed to the Department. In reply to these specific questions, the assessee had replied that the total investment in the house property worked out to Rs. 12.5 lakhs inclusive of the cost of furniture. Out of this Rs. 9.5 lakhs was disclosed in the books in the names of three co-owners and the balance of Rs. 3.5 lakhs had not been recorded which the assessee offered as his income from undisclosed sources. 4. After the completion of search and seizure operation the Assessing Officer issued a notice under section 158BC. In response to the said notice, the appellant filed a return of income showing therein undisclosed income of Rs. 10,43,000 for the block period 1-4-1985 to 8-11-1995. The undisclosed income declared in the return consisted of the following items : (a) Unexplained investment in the construction of the property referred to above Rs. 3,50,000 (b) Unexplained cash found during the course of search Rs. 2,23,000 (c) Unexplained investment in money-lending Rs. 4,70,000 ------------------ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. 5. Shri K.C. Devdas, the learned counsel for the appellant has made two sets of submissions - one on legal grounds and the other on facts. Shri C.P. Ramaswamy, the learned Departmental Representative replied to the various submissions made by the learned counsel. These are discussed in the succeeding paragraphs. 6. The learned counsel for the appellant submitted that the Assessing Officer had no authority to proceed to complete the assessment for the block period. He submitted that the property in question was constructed with investments from co-owners and the same was disclosed in their hands in the respective years in which the building in question was constructed. In support of the cost of construction, the assessee had filed valuation report of the registered valuer estimating the cost of construction at Rs. 9.57 lakhs. The Assessing Officer had completed the assessment for the relevant assessment year without questioning the cost of construction declared by the assessee. Thus it could not be said that the house property in respect of which the Assessing Officer has made the addition was not disclosed before the Assessing Officer. Besides, during the course of search, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Essem Intra-Port Services (P.) Ltd. v. Asstt. CIT [2000] 72 ITD 228. He also relied on the decision of the ITAT, Mumbai Bench in the case of Sunder Agencies v. Dy. CIT [1997] 63 ITD 245, ITAT, Pune Bench in the case of Parakh Foods Ltd. v. Dy. CIT [1998] 64 ITD 396 and Indore Bench in the case of Indore Construction (P.) Ltd. v. Asstt. CIT [1999] 71 ITD 128. Besides be relied on the decision of J K High Court in the case of Prem Hotel v. ITO [1997] 93 Taxman 237. He also submitted that the property stands in the names of three joint owners and the same was disclosed in their hands for the respective assessment years. The assessee is not the owner of the property . Therefore, no addition was liable to be made in the hands of the assessee. Without prejudice to the submissions made above, by the learned counsel also submitted that the Assessing Officer was not justified in relying on the report of the Valuation Officer without considering the various objections raised by the appellant on determination of the cost of construction. He also submitted that the Departmental Valuation Officer had taken value of various items at a much higher price than the prevalent rate. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexplained investment in the house property is concerned. 8. Replying to the point raised by the learned counsel about the reference made by the Dy. Director of Income-tax (Inv.) to the Valuation Officer, the learned Departmental Representative submitted that D.D.I.T. (Inv.) is vested with full powers to take the help of any officer of the Central Government or police officer or of both, to assist him for all or any of the purposes specified in sub-section (1) of section 132 or sub-section (1A) of section 132. He submitted that such power is specifically conferred on the authorised officer under section 132(2) of the Income-tax Act. He submitted that reference to Valuation Cell to determine the cost of construction arose directly from the search as the fact that the appellant had admittedly spent more than what was reflected in the books of account for the construction of the house property was revealed by a search of the premises. Further, the appellant himself had admitted undisclosed income of Rs. 3.50 lakhs representing unexplained investment in the house property. In order to take the enquiry to its logical end, the authorised officer was justified in taking the assistance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant asking him to state his objections, if any, to the valuation made by the Valuation Officer. In reply thereto, the appellant had, inter alia, contended that the Valuation Officer had not allowed any deduction on account of self-supervision. Taking due note of this submission of the assessee, the Assessing Officer had allowed deduction of 10% towards self-supervision from the cost of construction determined by the Valuation Officer. He also submitted that the appellant had not maintained complete details about cost of construction of the house property. Complete bills and vouchers have not been maintained by the assessee. He drew our attention to pages 23 to 33 of the assessee's paper book wherein copies of certain bills were filed which indicated the names of some other person. To this the learned counsel for the appellant replied that copies of these bills were filed only to show the comparative rates prevailing at the relevant time. Reacting to this, the learned Departmental Representative submitted that even those bills do not prove anything for the simple reason that cost of an item would depend on the quality of that item and these bills do not show that items used by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the order of the Assessing Officer and referred to various other documents and papers filed in form of paper book. We have also examined the facts, evidence and material on record. Now the first ground that needs to be considered is whether the Assessing Officer was justified in determining the component of unexplained investment in the house property at Rs. 9.98 lakhs as against Rs. 3.50 lakhs disclosed by the assessee in the return of income. Before answering this question, it is also necessary to record our finding on the legal objections raised by the appellant that the Assessing Officer had no authority to travel beyond the undisclosed income of Rs. 3.50 lakhs disclosed in the return filed in response to notice under section 158BC(a) so far as it relates to unexplained investment in the house property. We have also to examine whether the assessee's contention that the Assessing Officer had no material to disturb the settled position about the cost of construction reflected in the regular returns filed by the three joint owners or the material which came into possession during the course of search could be sent to prompt the Assessing Officer to examine this issue in detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account or other documents or transactions represent wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act. Section 158BB(1) further deals with computation of undisclosed income of the block period. The section provides that the undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed in accordance with the provisions of Chapter IV, on the basis of evidence found as a result of search or requisition of books of account or documents and such other material or information as arc available with Assessing Officer as reduced by aggregate of the total income provided under clauses (a) to (f). Thus for computing the undisclosed income of the block period, the Assessing Officer has to compute the total income of the block period on the basis of evidence found as a result of search or requisition of books of account or documents and such other material or information as are available with the Assessing Officer. The evidence found as a result of search or requisition would be evidence that has been gathered by the authorised officer u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this behalf in the books of account maintained by the assessee for any source of income and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year." Thus, the deeming provisions of section 69B which equally apply to search assessments for the block period have to be kept in view while determining the undisclosed income of the assessee. It may be noted that all the provisions referred to above have to be interpreted in their natural, normal legal meaning so as to advance the objects of the section for which these have been enacted. 14. Now the case of the assessee has to be viewed in the light of the legal position explained above. Assessee's submission that no incriminating material was found from the premises of the assessee has to be considered in the light of the provisions of the Act mentioned above. Admittedly, three co-owners had declared the cost of construction of the said property in their returns of income at Rs. 9.50 lakhs. In support of the same, valuation report of the regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under section 132(4) did not have any evidentiary value and since the Assessing Officer had not found any loose sheets, books of account and other documents, he was precluded from estimating the undisclosed income represented by unexplained investment over and above 3.5 lakhs disclosed by the assessee in the return filed in pursuance of notice issued under section 158BC(a). As mentioned above, evidence gathered during the course of search and seizure forms the basis for determining the undisclosed income of the block period. Such material or evidence may not necessarily be in the form of entries or loose sheets found and seized during the course of search. This information could be gathered by way of investigation and examination of the person under section 132(4) of the Income-tax Act, 1961. Section 132(4) clearly mentions that the statement recorded during the course of search can be used in evidence in any proceedings under the Income-tax Act. Explanation to section 132(4) further mention that the authorised officer is at liberty to examine the person in respect of matters relevant for any investigation connected with any proceeding and need not necessarily be confined to book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n indicated undisclosed income, the Assessing Officer is vested with full authority and powers in making the block assessment. In this regard, he had the authority to use powers conferred under sections 142, 143 and other sections of the Income-tax Act until specifically precluded from the same. Their Lordships of the Calcutta High Court in the case of Shaw Wallace Co. Ltd. v. Asstt. CIT [1999] 238 ITR 13 have held that the Assessing Officer is not permitted to use part of his power for block assessment and reserve the balance for making regular assessment there after and, therefore, he must use all his powers during the block assessment, so that the computation is complete once for all and each rupee of total income which is in excess of the contingencies provided for in clauses (a) to (f) of section 158BB(1) gets taxed as undisclosed income. Now it is obvious that in this case the qualitative aspects of the construction, the cost of furniture and fixtures came to light during the course of search. This appears to be the fact which prompted the D.D.I.T. (Inv.) to refer the property to the Valuation Cell of the Department. The fact that the assessee had not recorded part of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the power of search can be exercised by the income-tax authorities is where the assessee is found to be in possession of assets which represent either wholly or partly income or property which has not been or would not be disclosed for the purposes of Incometax Act. Now in this case, the fact that part of the cost of construction in the house property represented by undisclosed income within the meaning of section 69B came to light during the course of search only. Therefore in discharge of his statutory duties, the D.D.I.T. (Inv.) rightly referred the property to the Departmental Valuation Officer to ascertain the correct cost of construction. This by no stretch of imagination could be considered as arbitrary or unreasonable exercise of powers vested in him. Moreover, the Hon'ble High Court of Andhra Pradesh in the case of Daulatram has held that the income-tax authorities have wide powers under sections 55A, 131 and 142 of the Income-tax Act to refer the valuation of the property to the Valuation Officer for a second time if the crucial fact in determining the correct cost of construction comes to the knowledge of the authorities subsequent to the first valuation report. Besides, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is not the owner, the Assessing Officer was not justified in including the component of unexplained investment in the property in his hands. Over and above, the cost of construction was admitted by him in the statement recorded under section 132(4) and the return of income filed in pursuance of notice under section 158BC(a) of the Act. We have given our utmost consideration to this submission as well. Now in the statement recorded under section 132(4), it is the appellant who admitted unexplained investment from his source and accordingly offered the same to tax. But his confession was that total investment over and above those reflected in the return was to the tune of Rs. 3.5 lakhs. Now the cost declared by the respective owners in the regular returns of income was only to the tune of Rs. 9.5 lakhs. Moreover it is relevant to note that all the three joint owners are sons of the appellant. Two sons were studying at the relevant time when the property was constructed. Only the third son is reported to have some independent source of income. All the sons were staying with the father i.e. the assessee. If the assessee had not borne the entire cost of unexplained investment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was neither any illegality nor irregularity on the part of the Dy. Director of Income-tax (Inv.) to refer the valuation of the property to the Valuation Cell. There was also no illegality or infirmity on the part of the Assessing Officer to consider such valuation report for the determination of undisclosed income for the block period. 19. Now the last objection of the appellant relates to determination of the cost of construction by the Valuation Officer at Rs. 21.64 lakhs. The contentions of the appellant, in brief, are that the Valuation Officer estimated the cost of construction without allowing reasonable opportunity to the appellant. In this regard we notice that the Assessing Officer had forwarded a copy of the valuation report along with his letter allowing the appellant an opportunity to state his objections, if any. During the course of proceedings for the block period, the appellant had stated that the cost of certain items taken by the Valuation Officer was-on the higher side, had not allowed deduction for self-supervision and that cost of certain items was taken on lump-sum basis. The Assessing Officer considered the objections of the appellant and allowed deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi rather he has adjusted the me by the cost index prevailing during the relevant period at Secunderabad, i.e. the place where the appellant's property is situated. Even otherwise we have noted that the quality of construction in this case is far superior to the normal construction of C.P.W.D. We have noted that on ground floor, first floor and steps first class marble flooring has been provided. Similarly wood work for doors, windows and cub-boards was of superior quality teak wood. Even the quality of electrical, sanitary and brass fittings is far superior. However, we have considered the acts an note that there are notable variation in the cost of materials as adopted by the Valuation Officer and those prevailing rates pointed out by the assessee. In many cases, the Tribunal has noted such rate variation and granted suitable deductions from the cost of construction. The Cochin Bench of the Tribunal has allowed a deduction of 10P% in the cost of construction on the ground that CPWD rates are not applicable to private construction Upasana Hospital Nursing Home v. ITO[1990] 48 Taxman 20 (Mag.). The Hyderabad Bench in the case of CDS Prakash Rao v. Asstt. CIT [IT(SS) Appeal No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Valuation Officer was brought to tax. The I.T.A.T. deleted the addition on the ground that the fact of construction of the property was disclosed to the departmental authorities before the search and seizure operations and, therefore, there was no material for the Department to bring the differential amount to tax. The facts of the present case are different from the facts of the case relied on by the learned counsel. In this case search operation carried out by the Department clearly brought out the fact that the assessee had not disclosed part of the cost of construction in the books of account and the assessee had also offered the amount of Rs. 3.50 lakhs as undisclosed income on this account. Therefore, there was clear evidence brought out by the search and seizure operations to the effect that part of the cost of construction was not reflected in the regular books of account. In the case relied on by the learned counsel, no such evidence was available with the assessing authority, The next case relied on by the learned counsel is that of I.T.A.T., Mumbai Bench in the case of Sunder Agencies. In that case, the I.T.A.T. had held that section 158BA does not provide a licence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was carried out in the case of the assessee and such action brought out the fact of part unaccounted investment in the house property. The last case relied on by the learned counsel is of J K High Court in the case of Prem Hotel . In that case, the question was whether reference to Valuation Officer could be made without giving the assessee an opportunity of being heard and without disclosing the reason therefor. The facts of that case are clearly distinguishable from the facts of the present case. In that case reference was made to the Valuation Officer without recording any reason to reopen the assessment already completed by the Assessing Officer. That case was not one where search operation was carried out by the Department. But in this case, search operation was carried out and the same brought out admitted unexplained investment in the property to the extent of Rs. 3.5 lakhs. This itself was sufficient ground for referring the case to the Valuation Cell. Moreover, we have already held that D.D.I.T. (Inv.)'s action in referring valuation of the property to the Valuation Cell was neither arbitrary nor unreasonable. Besides the judgment of the jurisdictional High Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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