TMI Blog1998 (7) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... had purchased a plot of land No. 19 situated in sector-11, Gandinagar from the State Government authorities for a sum of Rs. 13,25,000 in auction on 31st Jan., 1989. The AO noted that the assessee had entrusted the work of construction of 'shopping centre' known as 'Abhishek' to Esvee Builders. As per the agreement entered into between the assessee and said Esvee Builders, Esvee Builders was supposed to submit the bills from time to time for the building materials, construction work and labour, etc. along with the supervision charges at 15 per cent. In the assessment year under consideration the AO found that the assessee has debited a sum of Rs. 16,06,200 on account of cost of construction in the P L a/c relating to 'Abhishek' shopping centre and this amount of Rs. 16,06,200 was as per the bills issued by Esvee Builders in favour of the assessee inclusive of the supervision charges. During the course of assessment proceedings the AO referred the question of cost of construction of the shopping centre 'Abhishek' to the Departmental Valuation Officer (DVO) who determined the cost of 'Abhishek' at Rs. 68,98,300 as against the value shown by the assessee as per its books of accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T were unrealistic. The AO however rejected the submissions made by the assessee through his authorised representative and made an addition of Rs. 4,99,300 on account of alleged unexplained investment/expenditure not fully accounted for in the books in relation to the construction of shopping centre known as 'Abhishek' which was relevant to the asst. yr. 1992-93. 4. It appears that the AO has also reopened the cases for asst. yr. 1991-92 and have also made additions for asst. yrs. 1993-94 to 1994-95 also on the basis of the alleged suppression of construction cost yearwise on the basis of the report of the DVO vis-a-vis the amount actually shown by the assessee in its books of accounts. For the asst. yr. 1991-92 the addition made under s. 69C on account of alleged suppression of cost of construction was Rs. 6,25,342. For the asst. yr. 1993-94 the addition made was Rs. 1,15,482 and for the asst. yr. 1994-95 the addition made was Rs. 35,862. The assessments for the years 1991-92, 1993-94 and 1994-95 have been framed by the AO on 27th March, 1998 whereas the assessment for the asst. yr. 1992-93 which is subject-matter of dispute before us was framed by the AO on 31st March, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was estimated at Rs. 54,61,300. It was submitted that the AO as well as the CIT(A) have wrongly rejected the report of the approved valuer and relied on the report of the DVO on a mistaken belief that the factual details given in the report of the approved valuer were incorrect which have been found so by the DVO on actual measurement of the area. The learned counsel for the assessee invited our attention to the observations of the AO at p. 5 of the assessment order wherein it is mentioned as under: "(i) The area of upper floors is taken at 2,258.48 sq. ft. against, 2,580.60 sq. ft. actually measured and executed by the valuation cell." The learned counsel also referred to the observations of the CIT(A) in this regard at p. 9 of the appellate order wherein the CIT(A) referred to this very discrepancy that the area of upper floors has been taken by the approved valuer at 2,258.48 sq. ft. whereas on verification by the DVO it was found to be 2,580.60 sq. ft. In this connection the learned counsel has referred to the assessment order passed by the AO for asst. yr. 1991-92 at pp. 5 and 6, copy of which has been furnished to us at pp. 157 to 158 of the paper-book III. The rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31 TTJ (Ahd) 136; and (iii) ITO vs. Dreamland Enterprises (1995) 81 Taxman 143 (Ahd). 7. The learned counsel for the assessee further objected to the action of the AO in charging interest under s. 234A, 234B and 234C and also the action of the AO in initiating the penalty proceedings under s. 271(1)(c). 8. At the time of hearing, the learned counsel for the assessee raised an alternative argument that even assuming though not admitting that there has been some understatement in the cost of construction as debited in the books of accounts, it will not result into any tax advantage to the assessee because any addition on account of alleged unexplained investment/expenditure required to be made by invoking the provisions of s. 69B/69C will be offset by the claim of an equivalent amount as a deduction under s. 37 because admittedly the amount spent is on acquiring flats/shops in the commercial shopping centre 'Abhishek' which is stock-in-trade of the assessee. 9. The learned Departmental Representative strongly supported the order of the CIT(A) and submitted that the AO was perfectly justified in making a reference to the DVO as an expert to assist him in the discharge of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause under s. 37 expenditure can be allowed as a deduction only against the income from business and profession. It was submitted that once the income is assessed under the head "Income from other sources" under s. 69B/69C then only deduction which can be allowed/claimed by the assessee is under s. 57(3). Accordingly it was submitted that the decisions relied upon by the learned counsel for the assessee are distinguishable on facts. The learned Departmental Representative further argued that even assuming though not admitting that the assessee is entitled to deduction under s. 37 in respect of income which is being treated as deemed income under s. 69C on the ground that the assessee has not been able to record the expenditure in the books of accounts, then it will lead to rendering s. 69C as redundant and it will further encourage the practice of assessee indulging into unaccounted business transactions because then there will be no distinction in an unaccounted business and accounted business. It was submitted that ss. 40A(3) and 69C was brought in the statute to curb the use of unaccounted money in business and if any expenditure is not found recorded in the books of accounts th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred by the assessee on the construction of shopping centre 'Abhishek'. After obtaining the report of the DVO, the AO called upon the assessee to show cause as to why suitable addition on pro rata basis may not be made to the income of the assessee on account of unexplained expenditure/investment made by the assessee in the cost of construction of shopping centre 'Abhishek' which according to the AO came to Rs. 4,99,300 in the year under consideration. The assessee objected to the proposed action of the AO and filed a report of the Govt. approved valuer supporting the cost of construction debited by the assessee in its books of accounts. The AO however rejected the report of the approved valuer and preferred the report of the DVO on account of certain alleged discrepancies which were found to be non-existence even by the AO as mentioned in the assessment order for the asst. yr. 1993-94, relevant portion of which we have referred in para 6 above. On appeal, the CIT(A) upheld the action of the AO mostly relying on the alleged discrepancies in the measurement of certain areas which have been found to be non-existence as admitted by the AO in its order for asst. yr. 1993-94 referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndment in the Finance Bill, 1998, in the following manner: "29 Amendment of s.69C.—In s. 69C of the IT Act, the following proviso shall be inserted at the end w.e.f. 1st day of April, 1999, namely: "Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income". Thus, from the above it is clear that if the reasoning relied upon by the Departmental Representative that if an addition on account of unexplained expenditure is made under s. 69C then the deduction could not be allowed under s. 37(1) was obvious and automatic then there was no need of amending s. 69C by adding the proposed proviso which will come into force w.e.f. 1st April, 1999, and is relevant to asst. yr. 1999-2000 only and has not been made retrospective in operation. The assessment year under consideration is admittedly 1992-93 to which the effect of this amendment, if it is approved and made into law subsequently, will not be applicable. Thus, taking into consideration the totality of the facts and circumstances of the case, we are of the opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X
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