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TMI Blog2012 (6) TMI 677X X X X Extracts X X X X X X X X Extracts X X X X ..... ond floor. A notice under section 143(2) of the Act was served on the assessee. The assessee supported the cost admitted by him with a valuation report from Sri Pakkirsamy, chartered engineer and approved valuer. As the said report was not in accordance with law, a reference was made under section 133(6) to the Officer of the Valuation Department of Chennai, requesting him to inspect the building and furnish a report on the cost of construction of the building. The Valuation Officer gave his report estimating the cost of construction at Rs.41,10,000. The cost for the godowns was estimated by him at Rs.23,22,000, while the cost for the residential flat was estimated at Rs.17,88,000. From the aforesaid estimate, prima facie it is clear that the assessee has understated the cost of construction to an extent of Rs.28,60,000 (Rs. 41,10,000 - Rs. 12,50,000). Thereafter, on February 27, 2001, a letter was sent to the assessee calling upon him to file his objections as to why the difference of Rs. 28,60,000 in the cost of construction should not be assessed to tax under the provisions of section 69B of the Act. The assessee filed his objection statement and along with the objections he fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding of the Appellate Tribunal on the concurrent finding of fact and imposition of penalty upon the differential costs on the basis of estimated cost of the building is proper and valid ? (iii) Whether the Appellate Tribunal is justified in affirming the order of penalty passed by the Assessing Authority when the assessment on the undisclosed income is set aside by the Appellate Tribunal ?" 4. Learned counsel appearing for the appellant assailing the impugned order contended that the imposition of penalty cannot be automatic. Unless the explanation offered by the assessee is found to be false or when he fails to offer an explanation then, or when a person is unable to substantiate or fails to prove that such explanation is bona fide by acceptable evidence, then only the penalty should be imposed under section 271(1)(c) of the Act. Secondly, it was contended by relying on the judgments of the apex court that the penalty cannot be levied on the basis of merely an estimate of a cost of construction. As in this case, none of the three valuation reports which are on record found to be accurate. Thirdly, it was contended that the construction act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating the cost of construction at Rs. 32,05,000. As far as the assessee is concerned, he has accepted the said cost of construction. The argument is that though the assessee accepted the cost of construction of Rs. 32,05,000, it was only to purchase peace with the Department and, therefore, that cannot be the basis for initiating penalty proceedings. Whether the assessee accepted the said amount of the cost of construction to buy peace or not, the legal effect is that the total cost of construction is Rs. 32,05,000. The assessee has in his first return shown the cost of con- struction as only Rs. 12,50,000 and after being asked to show cause as to why the cost of construction should not be treated as Rs. 41,10,000, as per the Government Valuer's report, he volunteered to give a second report showing that the cost of construction at Rs. 23 lakhs. Though an explanation was offered by showing that the first report was based on drawings and the second report was based on the actual measurement, even that has not been substantiated before the authorities. Therefore, it is a clear case of concealment of income by the assessee. If the cost of construction is taken as Rs. 32,05,000, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee accepted the cost of construction at Rs. 32,05,000. We are satisfied from the material on record that there was a deliberate attempt on the part of the assessee to suppress the true facts from the assessing authority and they did not avail of the opportunity to support their explanations by any acceptable evidence, at least by producing the accounts which they had maintained while putting up the construction. In that view of the matter, when the assessee in the first instance admittedly increased the cost of construction as Rs. 23,22,000 from the initial figure of Rs. 12,50,000 and ultimately accepted Rs. 32,05,000, he cannot wriggle out of the admission by saying that to purchase peace with the Department the valuation was accepted. 9. The apex court in the case of K. P. Madhusudhanan v. CIT [2001] 251 ITR 99 (SC) ; [2001] 169 CTR (SC) 489 while interpreting the Explanation to section 271(1)(c) of the Act has held as under (page 103) : "The Explanation to section 271(1)(c) is a part of section 271. When the Income-tax Officer or the Appellate Assistant Commissioner issues to an assessee a notice under section 271, he makes th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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