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TMI Blog1993 (8) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... e and also on a correct interpretation of the provision of section 22 of the Income-tax Act, 1961, the Tribunal was correct in law in upholding the order of the Commissioner of Income-tax (Appeals) that the Income-tax Officer erred in concluding that the annual letting value of the flats at 10, Gurusaday Road, Calcutta, was assessable in the hands of the assessee and thereby deleting the addition made on the point ?" The facts as found by the Tribunal are as under: This reference relates to the income-tax assessment of the assessee, a partnership firm for the financial year ending March 31, 1975, corresponding to the assessment year 1975-76. The assessee-firm is engaged in the business of constructing multi-storeyed buildings and selling offices and flats therein. The dispute, in this reference, relates to the construction of a multi-storeyed building at No. 10, Gurusaday Road, Calcutta. The assessee started making preparations for construction of a ten-storeyed building at No. 10. Gurusaday Road, Calcutta. The construction work was taken up in 2 phases, one comprising the main building consisting of forty-nine flats and the other comprising the annexe building consisting of thir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the cost of construction of the annexe building at Rs. 35,82,804 as against the cost of construction shown in the books of account of the assesseefirm being Rs, 19,99,278. According to the Income-tax Officer, the cost of construction of the annexe building had been understated by the assessee to the tune of Rs. 15,83,126 (Rs. 35,82,404 minus Rs. 19,99,278). Since the construction of the annexe building took place in three financial years, i.e., 1972-73, 1973-74 and 1974-75, corresponding to the assessment years 1973-74, 1974-75 and 1975-76, the Income-tax Officer proposed to treat one-third of the sum of Rs. 15,83,216, i.e., Rs. 5,27,709 as unexplained investment of the assessee-firm in each of these three financial years. On this basis, the Income-tax Officer added Rs. 5,27,709 as the unexplained income of the assessee-firm for the assessment year 1975-76 which is now in reference before this court. The assessee-firm challenged the aforesaid addition made by the Income-tax Officer in appeal filed before the Commissioner of Income-tax (Appeals). It was contended on behalf of the assessee-firm before the Commissioner of Income-tax (Appeals) that,-- (a) The assessee-firm had ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Income-tax Act, there is no power to make reference to a Valuation Officer save and except under section 55A of the Income-tax Act, 1961, which section can be invoked only for the purpose of determining the income chargeable under the head "Capital gains". There is no provision in the Income-tax Act for making reference to the District Valuation Officer for determining the cost of construction. Section 55A has no application for computing business income. (k) Even the District Valuation Officer did not estimate the cost of construction of the building, but only its fair market value. Cost of construction can never be equal to fair market value. These two are different concepts. The Commissioner of Income-tax (Appeals) considered the aforesaid submissions made on behalf of the assessee-firm and found great force therein. He held that there is no basis for making any addition in the hands of the assessee-firm in the assessment year 1975-76 which is the only year involved in this reference. The Revenue filed an appeal against the aforesaid order of the Commissioner of Income-tax (Appeals) before the Income-tax Appellate Tribunal. It may be noted that the first two questions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75-76, now in reference before this court, was deleted wholly by the Commissioner of Income-tax (Appeals) and the order of the Commissioner of Income-tax (Appeals) was confirmed by the Tribunal. The contention of the Revenue in question No. 1 is to the effect that the Commissioner of Income-tax (Appeals) should have given an opportunity of being heard to the Departmental Valuation Officer. No such ground was raised by the Revenue before the Commissioner of Income-tax (Appeals). The Revenue never approached the Commissioner of Income-tax (Appeals) for giving the District Valuation Officer any notice and/or any opportunity of being heard. The Commissioner of Income-tax (Appeals) is not required to give any notice to the District Valuation Officer under section 246 and/or 250 and 251 of the Income-tax Act, 1961. It may also be noted that when an appeal is heard by the Commissioner of Income-tax (Appeals) under section 23 of the Wealth-tax Act, 1957, and one of the questions involved in the appeal relates to the valuation of any asset, the Commissioner of Income-tax (Appeals) is required to give a notice of hearing to the Departmental Valuation Officer under sub-section (3A) of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uced the District Valuation Officer to represent the Department before the Commissioner of Income-tax (Appeals) and/or the Tribunal. The Revenue did not do so. In the absence of any provision in the income-tax law corresponding to section 23(3A) of the Wealth-tax Act, 1957, the first question raised by the Revenue in this reference is answered in the affirmative and in favour of the assessee. In the second question raised by the Revenue, in this reference, the only issue in dispute is whether the Tribunal was correct in law in upholding the order of the Commissioner of Income-tax (Appeals) deleting the additions made under section 69B of the Income-tax Act, 1961. It has been submitted by the learned advocate for the Revenue relying on the decision of the Calcutta High Court in the case of Rahmat Development and Engineering Corporation v. CIT [1981] 130 ITR 602 that section 69 of the Act deems unexplained investments to be the income of the assessee and that position has to be accepted in penalty proceedings. The moment section 69 is attracted, the unexplained investments become, by fiction of law, the income of the assessee. It is apparent from the facts already stated hereinabo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n building commenced, the appellant advertised the fact that flats were available for sale. An intending purchaser was to make an initial deposit as and by way of earnest money. Simultaneously with the making of the initial deposit or soon thereafter, a printed agreement was signed by the assessee and each of the intending purchasers. The provisions of the agreement need not be examined in detail. Suffice it to note that according to clause 4 of the agreement the balance of the purchase price of the flat was to be paid in specified instalments at different stages of completion of the building as stipulated in that clause. The initial response was good. However, in the years 1967-68 to 1969-70 when, as pointed out earlier, owing to adverse market sentiment, the assessee was forced to suspend work on the building, the frequency of the enquiries about the flats slowed down and the flow of deposits stopped. Things looked up in 1971-72 and all the flats of the main building were taken. The deposits were made, generally, simultaneously with the signing of the agreement for sale. In a number of cases the deposits were made even before the agreement was signed. Quite a few purchasers paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, as the assessee itself had offered the income for being taxed, the Income-tax Officer computed the net income from business at Rs. 2,13,862 and included it in the appellant's total income "by way of protective measure only". The Commissioner of Income-tax (Appeals), however, accepted the contention of the assessee and held that the Income-tax Officer erred in concluding that the annual letting value of the flats in question was assessable in the hands of the appellant. Accordingly, he deleted the addition made on this count in each of the assessments under appeal. In our view, the contention of the Revenue does not appear to be correct. The question is now concluded by the judgment and decision in the case of Madgul Udyog [1990] 184 ITR 484 (Cal), and the Tribunal was correct in law in upholding the order of the Commissioner of Income-tax (Appeals) that the Income-tax Officer erred in holding that the annual letting value of the flats at 10, Gurusaday Road, Calcutta, was assessable in the hands of the assessee. Question No. 3 is, therefore, answered in the affirmative and against the Revenue. Mr. Moitra, the learned advocate appearing for the Revenue, made an oral prayer f ..... 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