TMI Blog2005 (7) TMI 341X X X X Extracts X X X X X X X X Extracts X X X X ..... ear Sardar Baug, Rajkot. The total cost of construction declared by the assessee during the previous year, relevant for asst. yr. 1991-92 is Rs. 39,33,779. It is pertinent to mention here that in this case originally order under s. 143(3) was passed on 8th March, 1994 wherein addition under s. 69C, on account of unexplained investments in the work-in-progress for Rs. 25,51,227 was made. In appeal, the CIT(A)-I, Rajkot, set aside the assessment to be framed de novo after giving the assessee due opportunity of being heard. 5. During the course of reassessment as per direction of the CIT(A), the AO observed that the assessee has shown consumption of various materials in the process of construction, viz., iron, cement, bricks, sand, stone chips, lime and other electrical goods. The Authorised Representative was asked to produce the stock register wherein quantitative details regarding the purchase and consumption of these materials had been recorded. In this regard, the Authorised Representative vide his letter dt. 13th Sept., 1996 has submitted as under: "Your honour will appreciate that as far as quantitative details are concerned, the same are available, billwise as per the purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same could be compared with the consumption of materials declared. He was also asked whether the architect has carried a regular inspection of the site and whether he had taken periodic measurement of the construction carried out. He was told that the periodic measurements taken by the architect and regular inspection reports issued by him could serve as the basic document that would substantiate the extent of construction during the previous year. Further, he was also asked to produce the certificates issued by the architect after completion of the different stages of construction. He was also asked as to what was the basis for valuation of work-in-progress and in that regard he was required to produce certificates from the architect as an evidence thereof. The Authorised Representative has failed to file any such certificate of the architect. In the absence of the inspection reports of the architect, the extent of construction, the quality of construction, etc. cannot be verified. Technical details of the beams, columns, etc. cannot be verified. The extent of materials consumed in the foundation cannot be verified in the absence of such specific details. Moreover, the Authorised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stage 4% of Rs. 10,30,391.25 for fifth stage 1% of Rs. 10,30,391.25 for first floor construction Similarly, for building B the total labour payment for 35,209 sq. ft comes to Rs. 7.48,191 and the bills have been raised accordingly. From this, it can be seen that payment to labour service provider is not based on proper measurements. Furthermore, the AO found that the assessee has computed well in advance the payment to be made to the labour contractor and the bills have been prepared accordingly. Based on the above facts, the AO stated that it can safely be inferred that labour payment bills are not based on proper measurements of the construction undertaken and on the work performed by the contractor. On the contrary it is seen that the assessee, after having decided the total labour payment to be made. has apportioned the labour expenses to different stages of construction, This again renders the accounts of the assessee as not satisfactory as far as correctness and completeness is involved. 9. During the course of hearing before the AO, the assessee was asked to provide the details of construction undertaken during the previous year al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value without giving any details as to how the basic rate of Rs. 2,450 has been arrived at. The detailed computation of the DVO was called for during assessment proceedings and a copy of the same was forwarded to the assessee on 21st Jan., 1997 and he was asked to show cause as to why the basic rate of Rs. 2,450 should not be adopted in computing the cost of construction during the previous year The computation of the rate by the DVO is as follows: Rate analysis Upper Floors (Rs.) Basic rate as on 1.10.76 400.00 (RCC framed structure) Less: for lesser fl. ht. 3.35 - 2.85 @ Rs. 17/0.30 mt. ht. (-) 28.33 ----- 371.67 Less: 7-1/2% for all internal walls are of 4-1/2" thick instead of 9" thick wall and not having some internal walls (-) 30.00 -------- 341.67 Add: Services @ 27.5% 93.95 Add: for additional stories 7th to 9th floor 7 x 3 = 21 10th 11th floor 10 x 2 = 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asic rate of Rs. 2,450 has been arrived at. A copy of the computation has also been provided to the assessee. Further, on going through the computation made by the DVO, the AO stated that he was satisfied that the basic rate has been computed properly as per Instruction No. 1671. 13. The second objection against the valuation report raised by the Authorised Representative is that the DVO visited only one flat and he has made his computations by taking measurements of that flat. The Authorised Representative further stated that the DVO did not consider extra items fitted by the flat owner. In this regard the Authorised Representative vide letter dt. 3rd Jan., 1997 was asked the following: "You have taken a plea that spartek tiles, found in the flat during the inspection, was fitted by some other agency and it was done at the behest of the person who bought that flat. In this regard you are required to produce evidences, that spartek tiles were fitted by some other agency." The response of the Authorised Representative to the query raised above is as follows: "Your honour will appreciate that during the asst. yr. 1991-92, the assessee had carried out only the skeleton constru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year as objected to by the assessee. 14. The AO stated that the DVO has valued the building in toto and has apportioned these expenses over two financial years in the ratio of the cost of construction shown by the assessee in those two financial years, respectively. Therefore, the argument of the Authorised Representative that expenses pertaining to asst. yr. 1992-93 has been valued in this year is incorrect. Similarly, the Authorised Representative has raised objections regarding expenses on Kota stone, tiles, marble, granite, etc. being debited in this year. This contention of the Authorised Representative is also incorrect because it is the total expenses which have been apportioned into two years and from that it cannot be deduced as to what item of expenditure has been debited in which year. As stated above the building can only be valued in full. It is only the total investment which has been apportioned into two years. The next objection raised by the assessee was that the borewell was in existence on the plot of land when the assessee purchased it. The valuation of the same has been done at Rs. 50,000. In this regard, the Authorised Representative was asked to produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clarification from the assessee. The AO was of the opinion that it should not make any difference to the assessee if his objections have been considered during assessment proceedings. This assessment is being framed after taking into consideration all the objections of the assessee against the valuation report, hence his contention that the DVO did not seek clarifications from him becomes infructuous. 18. With regard to the Authorised Representative's objection for making a reference to the Valuation Cell by quoting various decisions of the Tribunal, the AO observed that the summary of all these decisions cited by the Authorised Representative is that the AO cannot resort to the estimation of the cost of construction of the building unless and until the books of account of the assessee are rejected under s. 145. In the instant case, the books of account of the assessee have been rejected for the reasons discussed at length in para Nos. 2.1 to 2.4. It is observed that the assessee has even failed to provide basic technical details of construction from which it can be deduced as to what construction activity was taken during the previous year and what should be the material consum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been completed. Therefore, only 40 per cent of the total cost of upper floors is being taken into consideration. Cost of construction worked out is as follows : (Rs.) (a) Ground floor 5,31,354 (b) 40% of upper floors 73,68,424 --------- Total cost: 78,99,778 --------- Against this, it is seen that the cost of construction arrived at for the previous year by the DVO is Rs. 64,85,006. The AO further stated that even when we are taking the value of the skeletal structure the estimation of the DVO is less than the estimation for 40 per cent of the skeletal structure. From this it can be inferred that the valuation with regard to other items are not being considered in this year. Further, it is noted that major addition on account of valuation of Rs. 50,71,505 was made in asst. yr. 1992-93. The AO further stated that the cost of construction as worked out by the DVO is less than 40 per cent of the skeletal structure cost. In the instant case, the value ascertained by the DVO is more beneficial to the assessee and hence the same is being adopted. Therefore, addition on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of difference between the cost assessed by the DVO and the cost shown by the assessee) has already been filed before the Tribunal. Therefore, the contention of the assessee that reliance by the AO on the valuation report for asst. yr. 1992-93 would in spirit go against the observations of the Hon'ble CIT(A) is not tenable. (iii) The next contention of the assessee that the course of action as adopted by the DVO is diametrically opposite to that prescribed under the law is not correct. The assessee's contention that the assessee is a limited company whose accounts are subject to mandatory audit as per the provisions of the Companies Act and, therefore, reference cannot be made to the Valuation Cell is not acceptable. From the cases cited by the assessee, it cannot be inferred that no reference to valuation (Cell) can be made without rejecting the books of account. What has been held that books of account should be rejected for placing reliance on valuation report of valuer. In asst. yr. 1991-92, the books of account were rejected in assessment order for not maintaining quantitative details of various building materials consumed in the process of construction. The Valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it cannot be compared with any other building as each building has different types of materials and specification of items. Further, to determine the cost of construction of this structure, it is not required to be compared with any other structure. (7) The rates of extra items are based on the prevailing market rate during the period of construction and not at the market rate at the time of inspection. (8) The contention of the assessee that the report of the Government valuer is vague is not correct. The report is based on the standard plinth area (rate) in conformity with CBDT's Instruction No. 1671 and adjusted the same as per the cost index of Rajkot during the period of construction. The cost index of Rajkot during the period is by taking into account the prevailing rate of materials and labour there. (9) Spartek/colour glazed tiles were observed as used during the inspection and at no stage it was substantiated by the assessee with evidence that such work was done by some other agency. Even though, only one flat was measured and verified in detail, the other flats have also having similar provisions, it was not required to measure each and every flat. (10) The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed jurisdiction inasmuch as he gave construction as 31st March, 1992 also, there is absolutely nothing wrong. An illegally obtained information can always be utilized against the assessee. However, the prime condition is that the assessee should be given an opportunity of being heard before the information is used against him. In the instant case, the AO has issued a proper show-cause notice dt. 2nd Jan., 1995 (point No. 16 in the notice). In view of the discussion as above, the first contention of the assessee squarely fails, both in law and on facts. The assessee's contention that CIT(A) in his order for asst. yr. 1991-92, in the first round of appeal has accepted all the arguments of the assessee both against the assessment and against the valuation report is not correct. The CIT(A) has merely set aside the order and has not allowed the appeal of the assessee. Therefore, it cannot be understood that the CIT(A) accepted the arguments of the assessee. As far as CIT(A)'s order is concerned, it has not been accepted by the Department and appeal for asst. yr. 1991-92, (in which the addition was made on account of difference between the cost assessed by the DVO and the cost shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tra items were included in the determination of cost of construction by the DVO. Further, the DVO has stated that spartek/glazed tiles were used whereas the assessee contended that it did not use them. At no stage the assessee has furnished as to which other agency fixed any such spartek tiles. Besides that no details have been furnished regarding alterations made at the request of flat owners at the time of construction and its effect on costing, etc. In view of the above discussion, I hold that the AO is right on relying on the DVO's report for the asst. yr. 1992-93. In nutshell, the petition under s. 144A on both the issues stands rejected." 23. After considering the order framed by the Dy. CIT under s. 144A as well as DVO's report, the AO reached to the following conclusion: "1. Reference to Valuation Cell was in order and the valuation report is valid and not bad in law. 2. For the sake of argument, even if it was bad in law, the information contained therein has been used after giving a proper opportunity of being heard to the assessee. 3. The book results declared by the assessee cannot be accepted as reflecting true state of affairs and hence it is rejected. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not been even filed when the reference in question was made. In asst. yr. 1991-92, the project had barely begun (four months old) and was in progress when the reference to the DVO was made whereas in asst. yr. 1992-93, the project was completed and the sales of the flats were effected and possession was also given. Thus, when the AO was completely in dark about the total cost of construction, yet to be declared by the appellant and verified by him, how could he make a reference to the Valuation Cell. Further, though the DVO has stated that the valuation required was as on 31st March, 1991 in the valuation report, from the observations made by the Dy. CIT himself which read as under: 'The first contention that the reference to the DVO was made for asst. yr. 1991-92 only and, therefore, the valuation report for asst. yr. 1992-93 cannot be made use in assessment order for asst. yr. 1992-93 is prima facie incorrect and untenable. The reference to the DVO was made by the AO vide letter dt. 3rd July, 1992. Perusal of the same reveals that the AO never stated that the valuation is to be made as on 31st March, 1991 only. Even in the 'subject' stated in the letter, there is no such re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterials supplied along-with the necessary details and vouchers are maintained and were produced before me as also during the assessment proceedings. The day-to-day consumption details can, therefore, only be obtained from the contractor to whom the appellant entrusted the work. Regarding the spartek/colour glazed tiles, etc., the AO as well as the Valuation Officer had missed the point that when the Valuation Officer visited the site, the project had already been completed and the flats had also been handed over to the respective buyers. The appellant has also filed copy of advertisement giving various features and details of fittings provided by the builder and the same did not show any provision for spartek/colour glazed tiles. It, therefore, the AO had any doubt about the appellant's contentions, he should have probed further into the matter especially when he was specifically directed to do so by the appellate authority. The appellate authority in the appellate order for asst. yr. 1991-92 had also directed to consider the appellant's objections about the borewell expenses and had also directed to verify the books of account. But the AO has done none of this. It has been held b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on record and without pin-pointing any glaring or major defects in the books of account maintained by the appellant cannot be sustained. The AO is, therefore, directed to delete the addition of Rs. 50,71,505." 25. For the asst. yr. 1991-92, the addition was deleted by the CIT(A) after having the following observations vide its order dt. 24th March, 1999 : "I have considered the contentions of the AO and gone through the case laws relied upon by the appellant carefully. The first basic question raised by the appellant is in respect of jurisdiction assumed by the AO for making reference to the District Valuation Officer to determine the cost of construction of the building, which related to the assessment year under consideration, Le., asst. yr. 1991-92. The return of income for the assessment year was filed on 27th Dec., 1991, for which assessment year only skeleton construction was completed. The reference to the DVO was made on 3rd July, 1992. At that time the return for the subsequent assessment year, i.e., asst. yr. 1992-93, was not even due and the same was filed on 28th Dec., 1992. Without knowing the total cost of construction disclosed by the assessee, the AO could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... figures of consumption for the period under consideration could be arrived at. Mere maintenance of stock register would not throw any light on the suppression of investment in the construction. Therefore, mere non-maintenance of stock register in the present case would not lead to the conclusion of suppression of investment and the same is not so vital as to be fatal for altogether rejecting the books of account. The AO has not commented anything on the state of bills and vouchers maintained and produced before him, i.e., whether taken together for the whole period they were inadequate. The next objection of the AO is non-production of architect's periodic reports of inspection. In para 8(b) above, the AO's conclusions have been quoted. In the first place, as pointed out by the appellant, the architect is not obliged to prepare such detailed reports as was inputed by the AO and secondly, even from such technical details as would have been given by the architect, the suppression of investment may not be worked out. Thus, the above two deficiencies pointed out by the AO do not appear to be sufficient for rejecting the books of account. For the payments to labour contractor, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal. The appellant has also relied on the following two decisions: 1. Nishant Housing Development (P) Ltd. vs. Asstt. CIT (1995) 52 ITD 103 (Pat); 2. Ruby Builders vs. ITO (ITA No. 267/Ahd/1988, dt. 3rd July, 1998 (Tribunal, Ahmedabad Bench 'A'). Keeping in view the above facts and circumstances and the judicial decisions, the addition of Rs. 25,51,227 is deleted." 26. Aggrieved by the above orders of the CIT(A), the Revenue approached us for further adjudication. It was argued by the learned Departmental Representative that the assessee failed to provide quantitative details of different building materials used by the assessee in the construction project, nor any stock register was maintained. Failure of assessee to provide technical details of construction activity from which it can be deduced that what construction activity was taken during the previous year and what should be the material consumed for that construction activity. Therefore, the AO was justified in making a reference to the DVO. He further submitted that in view of the amendment brought in the statute book by way of s. 142A with retrospective effect, the AO was justified in making a reference to the V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Authorised Representative, the reference was made without finding any defects whatsoever in the books of account and that the AO has made a reference purely on the basis of presumption that the assessee's (sic) failure not being satisfactory, the reference was made. As per the learned Authorised Representative, the reference to the Valuation Officer was made by the AO vide letter dt. 3rd July, 1992, when the return for asst. yr. 1992-93 was not even filed before the AO, and that bulk of the cost of construction was pertaining to the asst. yr. 1992-93 only. As per the learned Authorised Representative, the DVO carried out inspection of the property on 4th Dec., 1992 when the entire building was sold out and occupied and that the DVO visited only one flat No. 11A. The query letter issued by the DVO on 14th July, 1992 was complied with by the assessee vide its letter dt. 19th Aug., 1992. The final report was sent by the DVO directly to the AO without providing any opportunity to the assessee of rebuttal whatsoever. With regard to the spartek tiles used in the building, the learned Authorised Representative submitted that as far as personalized changes effected by the purchasers of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts letter dt. 19th Aug., 1992. After that there was no communication from the DVO's office. The DVO has not bothered to seek any further details whatsoever. As such the entire report is prepared on the back of the assessee without providing any opportunity of rebuttal to the assessee which is clearly against the principles of natural justice and against decided judicial principles. 29. Through his written submission, the learned Authorised Representative condemned the action of the AO for rejection of the books of account through his following submissions: The learned AO vide para 2 of his order has laid out his contentions for rejecting the books of account of the respondent. The learned AO has, however, not indicated whether the accounts are being rejected pursuant to s. 145(1) or 145(2). Your Honours' may kindly note that the respondent is a public limited company whose accounts come in for stringent audit requirements pursuant to the provisions of the Companies Act, 1956, which audit has to be conducted by a duly qualified chartered accountant. The learned AO has rejected the books without even for a while observing that the accounts are certified for true and fair view a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the provisions of s. 145. The learned AO has further on stated that day-to-day details about what work was done have not been maintained. The respondent begs to submit that it would be impossible to maintain records which would show that the 54th bag of cement was consumed on the fourth floor or that steel rod No. 64 was consumed on the 10th floor. The AO has summarily rejected the bills, vouchers produced without not even considering that purchases would precede consumption. This apart the respondent has executed only one contract; has followed the completed contract method and accounted for sales in asst. yr. 1992-93. Consequently, there is no impact of any kind on inventory valuation. That the respondent begs to submit that its purchases have been accepted. And since it had handed over the entire construction work to a professional contractor, the said. purchases were treated as consumed at the point of purchase itself. As your Honour can well see that as at 31st March, 1991, the entire expenditure has been transferred as work-in-progress. As such even if for a brief moment it were to be presumed that there should be some closing stock, even then both the work-in-progress an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts when the respondent has submitted every conceivable details including quantitative details to the AO. The AO has not advanced a single substantive reason for invoking the provisions of s. 145 and rejecting the books of account regularly maintained by the respondent. Further, he has not given any opportunity to the respondent to put his objections against the valuation report. In fact, no copy of the report was given to the respondent. Further, there was no necessity on the part of the respondent to file any valuation report because the cost of construction as debited in the books of account is itself the total value. The respondent's valuation report was not necessary because the respondent was carrying out construction activities as part of its business activities. This aspect has also been upheld by the Tribunal, Bangalore in the case of Patil Enterprises vs. Asstt. CIT (1995) 53 ITJ (Bang) 279. Thus, when the AO was completely in dark about the total cost of construction, yet to be declared by the respondent and verified by him, how could he make a reference to the Valuation Cell. 31. The learned Authorised Representative vehemently argued that very rejection of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he must find out whether the cost exceeds the books cost. Unless this is done, he does not get the power to make a reference to the Valuation Officer. 34. With regard to DVO's report, submission of the learned Authorised Representative is as follows: The first objection to the report is that the DVO has submitted his report directly to the AO. He has not bothered to seek any clarifications from the assessee with regard to the valuation being done by him. Much to the contrary, in his letter dt. 16th Nov., 1994, a copy of which is attached at pp. 69 to 70 of this synopsis, has simply stated that "It was not necessary on the part of this office to give any opportunity to the assessee to file his objections and, therefore, the report was sent to the AO directly". The assessee, therefore, submits that no opportunity was given to it to file its objections against the said valuation report. The DVO has not laid out any break-up of the quantities considered for the valuation. He has not substantiated as to how the rate of Rs. 2.450 has been conjured up. The AO has rested complacent with providing a statement. However, the specific queries raised by the respondent have not been com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Annexures have also been completely ignored by the DVO for no reason whatsoever. The respondent further on begs to submit that the entire exercise as carried out by the AO on p. 17 is inconceivable in law. The AO has failed to appreciate that this is not a case of approaching the nearest figure of valuation as made by the DVO; it is rather a case of examining the factual basis of the valuation process. The AO has refrained from carrying out the judicial exercise which he is dutybound to do. And after a maze of imaginary twists and turns, he has landed the respondent at the same point wherein he had begun. Additionally, the respondent also begs to submit that even otherwise there is no provision in IT Act either for making reference to DVO for determining cost of construction or for obtaining report of DVO for computing business income. The respondent begs to invite your Honour's kind attention to the decision of the Hon'ble Supreme Court in Smt. Amiya Bala Paul vs. CIT (2003) 182 CTR (SC) 489 : (2003) 262 ITR 407 (SC), wherein this contention has been confirmed by the apex Court. 35. We have considered the rival contentions, carefully gone through the orders of the aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process and the type and quality of construction undertaken by the assessee-firm. He further observed that the assessee has computed in advance the total labour payment to be debited in the books of account and subsequently bills have been prepared, which were explained by the AO at p. 5 of his order. No details were filed by the assessee to justify the labour rate of Rs. 21.25 per sq. ft. with reference to the quality and quantity of work undertaken for the entire labour work of the building. With regard to construction undertaken during the previous year 1990-91 relevant to the asst. yr. 1991-92, it was submitted before the AO that total RCC work undertaken was 50,640 sq. ft. and the total brick work undertaken was 18,931 sq. ft. However during the course of assessment proceedings, the AO observed that the total built-up area for building A was 48.489 sq. ft. and for building B was 35,209 sq. ft. During the course of scrutiny assessment, the assessee was asked as to what was the extent of construction, as a proportion of total built-up area, undertaken during the previous year. It was replied by the assessee that during the previous year it has carried out only the construction w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Rs. 50,71,505 were made under the head "unexplained investment". 36. We also found that during the course of assessment proceedings for the asst. yr. 1992-93, an application was also made by the assessee under s. 144A to the Dy. CIT, praying for issue of necessary directions to the AO and call for and examine records of the proceeding. An order was passed by the Dy. CIT on 24th March, 1995 under s. 144A in which petition of the assessee was rejected with the observation that many details like structural design/drawings, etc., were not furnished to the Valuation Officer and that reference made to the Valuation Cell under s. 131(1)(d) is proper and appropriate to get guidance from the technically qualified Government valuer. The Dy. CIT also found that standard plinth area method was used by the DVO for the reasons that the assessee failed to submit structural designs to the DVO and, therefore, the plinth area method is the most sound method to calculate the cost of construction. The Dy. CIT observed that had the assessee filed the structural designs to the DVO, the DVO would have determined the actual quantity of extra raw materials, etc. used for construction and the AO could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dual cannot be shown in the assessee's books of account. As per CIT(A), the AO has accepted the DVO's report because of his technical competence but he failed to consider the fact that the valuation report as referred under s. 131(1)(d) is only by way of guidance. As per the CIT(A), standard plinth area method is applicable to the Government contractors and used for the construction of Government buildings which are given to the Government contractors and is inclusive of material and labour charges and profit element is also a part of cost of construction. As per the CIT(A), it is well known fact that the Government rates of construction are very high as compared to the private building contractors and hence the valuation of private building cannot be done at the same rate of Government. He further stated that there is no provision in the IT Act either for making reference to the DVO for determining the cost of construction or for obtaining the report of Departmental Valuation Officer for computing business income. With regard to the use of spartek/coloured glazed tiles, the CIT(A) observed that if the AO has any doubt about the appellant's contention regarding use of these tiles b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money, that the second step before the AO is to make addition under any of the provisions contained under s. 69/69A/69B or 69C. It is, therefore, not very much pertinent to say that since after receipt of DVO's report, the addition was made under S. 69C and not under s. 69, 69A or 69B, the reference made to DVO under S. 131(1)(d) was not valid, since there is no mention of s. 69C in S. 142A. In the instant case, addition of Rs. 50.71 lacs was made under S. 69 in the asst. yr. 1992-93 whereas in the asst. yr. 1991-92 addition was made under S. 69C amounting to Rs. 25.51 lacs with reference to the difference in cost of construction recorded in books of account vis-a-vis the valuation shown by the DVO in his report, in spite of the fact that undisputedly in both the assessment years, the assessee was carrying on the same activity of building construction. 41. In view of the above amended provisions and assessee's failure to maintain and furnish quantitative details of major building material like iron, steel, cement sanitary fittings, hardware, electric fittings, etc. actually used in the building construction vis-a-vis recorded in the books of account, we do not find any infirmity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In respect of spartek tiles/glazed tiles/marble having been used in the construction as found by the DVO, even though declined by the assessee on the plea that the tiles were fitted by the respective buyers of the flat, as per our considered opinion, the burden of proof to explain the particular item being fitted in the building is on the assessee-builder unless he gives detail with regard to investment in these items by some other agencies. In the instant case. the assessee has neither supplied any confirmation from the respective buyers of the flat to the effect that these spartek/coloured tiles were fitted by them and not by the assessee-builder.. nor any bills in the name of respective buyers were produced. The assessee could very well shift the burden on the Revenue by furnishing confirmation from the respective buyers to the effect that some of the items fitted in the building have been either supplied by them or fitted by their own team of persons at their own cost. Undisputedly in the instant case the assessee has neither furnished the confirmation from the respective buyers nor the name, address or other particulars of such buyer, so as to enable the Department to make fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6th Nov., 1994 that even the report of the registered valuer was not furnished to justify the expenditure incurred by the assessee giving the documentary proof after determining the quantities of items executed in the construction and analyzing the rates. We also found that even though in the letter written by the assessee to the DVO dt. 19th Aug., 1992, the structural drawing was alleged to be enclosed, but the same was not furnished nor we found it in the paper book. Thus, the assessee failed to provide basic technical details of construction activity from which it can be deduced that what construction activity was taken during the previous years and what should be the material consumed for that construction activity. The CIT(A) only tried to point out faults in the AO's order and stated that he (AO) should have made enquiries regarding other building materials used in the construction, as found during the physical inspection by the DVO, if the same was not found recorded in the books of account. Here it is pertinent to mention that without furnishing the name and address and other particulars of specific buyer having put in his own building material in construction, the onus can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n No. 1671 issued by CBDT, in reply to the query of the assessee. Even after taking into consideration the skeleton structure as suggested by the assessee himself, the valuation worked out was more, therefore, the AO restricted the valuation for the asst. yr. 1991-92 as per DVO's computation, which was favourable to the assessee. Even though while making a reference to the DVO on 3rd July, 1992, the return for the asst. yr. 1992-93 was not furnished, but since the scrutiny assessment for the asst. yr. 1991-92 was already under consideration and the building was duly completed by 31st March, 1992, there is no merit in CIT(A)'s observation to the effect that the AO was not justified in making a reference to the DVO when the return for the asst. yr. 1992-93 was not filed in which major construction cost was incurred. 45. So far as AO's complete reliance on the DVO's report is concerned, we are inclined to agree with the learned Authorised Representative, Mr. Sanghavi, that the AO had relied on DVO's report as a conclusive evidence while making the addition with reference to the total difference between cost recorded in the books of account and the value arrived at by the DVO, rather ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchased/utilized in construction and/or remaining in a stock or work-inprogress, which is required to be furnished duly certified by the auditors, as per requirement of tax audit report under s. 44AB, were furnished, Even though in the Annexure to the auditor's report dt. 5th Sept., 1991, for the previous year ending on 31st March, 1991, the auditor at point NO.1 has stated that: "The company has maintained records showing full particulars including quantitative details and situation of fixed assets at site including work-inprogress. It has been physically verified by the management." At point No. 21 of the impugned report of auditor, it was mentioned that: "With regard to cl. 4(B)(ii), the company does not compile a record in respect of total material and labour consumed on each flat but has a record of such consumption in respect of its construction activities (building) as a whole." 47. However, during the course of scrutiny assessment before the AO, the assessee vide letter dt. 13th Sept., 1996 has clearly denied the maintenance of stock register regarding consumption of various building materials in the construction. The AO in his order for the asst. yr. 1990-91, dt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt held that if the assessee has maintained proper books of account and all details are maintained in such books of account, which are duly supported by vouchers and no defects are pointed out and books are not rejected, the figures shown therein have to be followed. However, in the instant case, the assessee has not maintained quantitative details of purchases, consumption and work-in-progress of building materials used in the construction, in its books of account, therefore, it cannot be said that all details were maintained in the books of account so as to cover by the decision of this case. Furthermore, before making a reference to the DVO, the AO has rejected the books of account under s. 145 by observing that due to inability of the assessee to furnish various details called for so as to verify the correctness of various building materials alleged to be used in the building construction. Thus, the facts and circumstances of the case under consideration are distinguishable. In the case of Dream Land Enterprises ITA 3461/Ahd/1990, relied on the learned Authorised Representative, the additions were deleted by the Tribunal by observing that where the assessee has submitted comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of unexplained expenditure. Such expenditure may be on account of capital, revenue or personal account. If the expenditure is for acquisition of any capital asset, the same is not liable to be charged to trading or P L a/c, but is directly taken in the balance sheet, therefore, no question of deduction of such expenditure arises. Similarly, if the expenditure is on personal account, the same (is) directly taken to the balance sheet and the capital account is reduced accordingly. But if expenditure is in the course of business on revenue account, the same is debited as expenditure to be reduced out of gross income/sale proceeds. Whether, the expenditure is capital or revenue, essentially depends on the nature of expenses and also on the nature of business activity, the assessee is carrying on. Same expenditure may be capital expenditure for one assessee, whereas revenue expenditure for another assessee. Expenditure on construction of building meant for self use in the business, is capital in nature, whereas for an assessee engaged in the business of construction and sale of building, the expenditure on building construction is revenue in nature. In the instant case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the relevant assessment years under consideration are 1991-92 and 1992-93, the proviso had no effect, therefore, we are persuaded to agree with learned Authorised Representative that deduction for such unexplained investment, which has been added under s. 69C is to be considered while computing profits on sale of such building in the hands of assessee-builder, in respect of assessment years falling prior to the asst. yr. 1999-2000. As per our considered opinion, such unexplained investment which has ultimately resulted into unexplained expenditure towards construction of building, are revenue in nature, therefore, can be allowed while computing the profits and gains of business out of sale of alleged building in the relevant year of sale. If the addition under s. 69C has been made in year earlier to the year of sale, respective addition is required to be made in the income of the assessee in that year, but at the same time work-in-progress shown by the assessee in that year should be increased by such addition, so as to give benefit of deduction in the year of sale, on the basis of earned forward balance in the account of work-in-progress. 55. In the asst. yr. 1992-93, the addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase of the plot of land. The Tribunal has considered the valuation report of the valuer in respect of the plot in question and also the fact that notice was given to assessee as to why the value of the plot should not be taken as has been valued by the valuer. The assessee failed to give any reason as to why the value, valued by the valuer should not be accepted. The Tribunal has also considered the size of the plot, location and potential use of the plot of land. It is also noticed by the Tribunal that the assessee has failed to show that in the area the value of plots is lesser than the rate shown in valuation report. In the valuation report, the costs have also been given of the neighbouring plots sold during the relevant period. The plot in question purchased by the assessee measuring 1,799.99 sq. yds. the value has been estimated by the Tribunal as Rs. 68,400. The cost of the land shown by the assessee comes to Rs. 36 per sq. yds., that is roughly half of the rate prevalent in the area. There is not direct evidence that assessee has paid more than Rs. 45,00 for purchase of plot land, but at the same time it cannot be ignored that no evidence has been adduced by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 58. It is pertinent to mention here that even prior to insertion of s. 69C, unexplained expenditure has been held to be income from undisclosed sources and added to the assessee's income. Reference may be macte to Madan Lal vs. CIT (1984) 42 CTR (Del) 197: (1984) 149 ITR 533 (Del) and L.M. Thapar Ors. vs. CIT (1984) 41 CTR (Cal) 55 : (1984) 149 ITR 383 (Cal). 59. In the instant case inspite of addition in the asst. yr. 1992-93 having been made on account of unexplained investment by invoking provisions of s. 69 and not s. 69C, but the fact remains the same to the effect that the assessee is a builder in both the relevant assessment years, whatever extra investment has been put in, the same has resulted into extra cost of construction. We are, therefore, inclined to give deduction fat the addition made under s. 69 on account of unexplained investment in the asst. yr. 1992-93, which has resulted into unexplained expenditure, while computing profit on sale of building which in the instant case took place in the asst. yr. 1992-93. In view of the discussion contained hereinabove, the cost of construction debited by the assessee in its books of account cannot be blindly accepted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the asst. yr. 1991-92, in view of discussion made hereinabove, the AO is directed to increase the work-in-progress accordingly as on 31st March, 1991 and allow deduction of such unexplained investment out of income declared in the asst. yr. 1992-93. As the project/building had been sold in the asst. yr. 1992-93 and the entire profit on sale of building had been offered for taxation in the asst. yr. 1992-93, the assessee is entitled to get deduction of unexplained investment resulting into unexplained expenditure for both the assessment years, while computing the income under the head "Profit and gains of business and profession", in the asst. yr. 1992-93. 61. Thus, as against addition of Rs. 25.71 lakhs made by the AO under s. 69C in the asst. yr. 1991-92, an addition of Rs. 5.90 lakhs is directed to be retained. An addition of Rs. 12.71 lakhs as against addition of Rs. 50.71 lakhs made by the AO under s. 69 in the asst. yr. 1992-93, is directed to be retained subject to allowing deduction of unexplained expenditure of Rs. 18.61 lacs (5.90+12.71). Accordingly, the AO is directed to give deduction of unexplained expenditure of both the years to the extent sustained by us, amoun ..... 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