TMI Blog2002 (7) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned judgment and order of the Tribunal. - - - - - Dated:- 25-7-2002 - Judge(s) : M. S. SHAH., K. A. PUJ. JUDGMENT The judgment of the court was delivered by M.S. SHAH J.-These twelve tax appeals are filed by the Income-tax Officer, Rajkot, for challenging the common judgment and order dated September 29, 2001, passed by the Income-tax Tribunal, Rajkot, in one group of six appeals filed by Tirupati Builders and the other group of six appeals filed by Mahavir Builders in respect of the assessment years 1985-86, 1986-87 and 1987-88. Since in all these appeals common questions of fact and law are involved, the same are being disposed of by this common judgment. The respondent-assessees, i.e., Tirupati Builders and Mahavir Builders, are two separate partnership firms engaged in the business of construction and selling of flats. Tirupati Builders constructed the property known as Ajanta Apartments at Rajkot. The construction was commenced in the year relevant to the assessment year 1985-86 and it continued up to the year relevant to the assessment year 1987-88. The assessee had declared the cost of construction in the books of account maintained by the firm. While framing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of unexplained cost of construction and also deleted the further addition of 10 per cent. made by the Assessing Officer on such unexplained cost of construction. However, the Commissioner of Income-tax (Appeals) enhanced the profit to 15 per cent. as against 10 per cent. declared by the assessees. This profit has been enhanced on the actual cost of construction declared by the assessees in their books of account. The aforesaid orders of the Commissioner of Income-tax (Appeals) were challenged by both the assessees as well as by the Revenue before the Incometax Appellate Tribunal (hereinafter referred to as "the Tribunal"). The Tribunal held that the reopening of assessments for the assessment years 1985-86 and 1987-88 was justified in both the cases and that the Assessing Officer was also justified in making the reference to the Departmental Valuation Officer for determining the cost of construction. However, the Tribunal was of the view that the Assessing Officer had not granted proper and due opportunity of hearing to the assessees before estimating the cost of construction. The Tribunal accordingly restored the matters back to the Assessing Officer for determining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made a grievance against the refusal of cross-examination of the Departmental Valuation Officer in spite of the direction of the Tribunal. In his order dated January 21, 1999, the Commissioner found substance in the said grievance but ultimately took the view that in similar cases his predecessor had taken a view that it is possible that variation of about 10 per cent. to 15 per cent. may arise on account of various assumptions built in the standard plinth area method. The Commissioner made the following observations: "It is not possible to place an exact figure of the cost of construction and there has already been enough debate and discussion on the subject. The matter is about 13 years old and there has to be an end of the litigation. Under the circumstances, I take an overall view of the matter and in order to serve the ends of justice and fairness taking a balanced approach, I hold that the cost of construction be taken at Rs. 1,300 per sq. mt. which is about 15 per cent. less than the Departmental Valuation Officer's estimate. Thus the total cost of construction of Tirupati Builders works out to Rs. 15,53,929 and that of Mahavir Builders works out to Rs. 15,53,994." In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental Valuation Officer and the cost shown by the assessee under section 69C may be assessable as unexplained expenditure as soon as the amount is debited in the profit and loss account the same is neutralised and the net result is nil addition. To neutralise the profit and loss account, the Legislature has amended section 69C and added a proviso to it with effect from April 1, 1999. The Tribunal also accepted the assessee's contention that the Departmental Valuation Officer had adopted the plinth area rate method which was an inferior method of determining the cost of construction and also did not accept the defects as pointed out by the Assessing Officer that the assessee ought to have maintained the consumption and balance of raw material either day-to-day accounts or on any regular interval of any specified period. The Tribunal referred to the observations of the Supreme Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597 and in the case of C.B. Gautam v. Union of India [1993] 199 ITR 530 wherein it was observed by the Supreme Court that "a difference up to 15 per cent. may be attributable to bona fide error of estimation made by two different experts". The Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 260A of the Income-tax Act, 1961. After the order of remand, while the Assessing Officer proceeded to reframe the assessments, the Assessing Officer declined the request of the assessees to cross-examine the Departmental Valuation Officer stating in his letter dated October 14, 1997, that- "as regards your right to cross-examine the Departmental Valuation Officer, I have to inform you that since the Departmental Valuer has done the valuation in advisory capacity, the opportunity of being heard is not given to the assessee." Learned standing counsel for the Revenue was not in a position to state that the Departmental Valuation Officer had actually given an opportunity of hearing to the assessees before submitting his valuation reports. In this view of the matter, it appears to us that in the facts of the two cases at hand, the assessees did not have a reasonable opportunity of being heard before the Departmental Valuation Officer submitted his reports which were important parts of the material relied upon by the Assessing Officer. It is true that the Assessing Officer had also referred to the other aspects like cost of construction of the buildings in the same localit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion report. We are informed by learned standing counsel appearing for the Revenue that ordinarily the Departmental Valuation Officer appointed under section 131 of the Act himself gives opportunity of hearing to the assessee in such matters and, therefore, the question of issuing any direction to the Assessing Officer to permit the assessee to cross-examine the Departmental Valuation Officer should not ordinarily arise. Mr. Naik has expressed the apprehension that such directions may again be issued by the Tribunal to the Assessing Officer to permit the assessees to cross-examine the Departmental Valuation Officer or any other quasi-judicial authority. We are sure that the Tribunal will keep in mind that when a quasi-judicial authority like the Departmental Valuation Officer gives an opportunity of hearing to the assessee, the Tribunal would not issue a direction for permitting the assessee to cross-examine the Departmental Valuation Officer or any other quasi-judicial authority but in the peculiar facts and circumstances of the case indicated hereinabove in para. 13 we are not inclined to interfere with the impugned judgment and order dated November 29, 2001, of the Tribunal. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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