1. This appeal of the assessee has been filed against the order of the Commissioner (Appeals), Bhatinda, for the assessment year 1997-98.
2. During the course of hearing of the appeal, the following additional ground was raised : That the learned Income Tax Officer, Ward-2, Faridkot was not legally competent to refer the matter to the departmental Valuation Officer under Section 131 of the Income Tax Act for determination of cost of construction since there is no provision in the Income Tax Act which empowers him to make such reference.
It was submitted before the Bench that the additional ground being purely legal in nature for which the relevant facts were on record, the same may be admitted. The assessee also relied on the judgment of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v.CIT .
3. The learned departmental Representative did not raise any objection to the admission of the additional ground.
4. We have heard both the parties and considered the rival contentions.
The additional ground raised by the assessee is purely legal in nature for which relevant facts are already on record. The case does not call for investigation into the facts. Therefore, relying on the judgment of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v.CIT (supra), we admit the additional ground of appeal.
5. As regards the merits of the additional ground, the learned counsel for the assessee submitted that the assessing officer had referred the property to valuation cell under Section 131(l)(d) of the Income Tax Act, 1961 (in short 'the Act'). He submitted that no such reference to the valuation cell under Section 131(l)(d) could be made for ascertaining the cost of construction. The learned counsel relied on the following judgments in support of the abovementioned contentions :CIT v. Sudhish Kumar 6. The learned departmental Representative, on the other hand, referred to the amendment introduced in the Act by inserting Section 142A by the Finance (No. 2) Act, 2004 with retrospective effect from 15-11-1972 and submitted that such reference to valuation cell for ascertaining the cost of construction was valid.
7. We have heard both the parties and carefully considered the rival submissions with reference to facts, evidence and material placed on record. No doubt, in the case of Smt. Amiya Bala Paul v. CIT , the Hon'ble apex court has held that the assessing officer had no power under Section 131(l)(d) to refer the property to the valuation cell of the department for ascertaining the cost of construction. However, there was amendment introduced in the Act by the Finance (No. 2) Act, 2004 with retrospective effect from 15-11-1972 where such power has been conferred on the IT authorities. As a result of amendment to the Act, the assessing authority has now been vested with powers to refer the property and other valuable assets referred to in Sections 69, 69A or 69B for the purpose of ascertaining the cost of investment. However, the only restriction imposed under the Act is that this amendment shall not apply in respect of an assessment made on or before 30th day of September, 2004 and where such assessment has become final and conclusive on or before that date, except in cases where reassessment is required to be made in accordance with the provisions of Section 153A of the Act. Admittedly, in this case reference was made during the course of assessment proceedings for the assessment year under consideration. Such assessment has not yet become final and conclusive because the matter is pending before the Tribunal.
Therefore, the reference to valuation cell would be valid in view of the amendment to the Act which has been given retrospective effect from 15-11-1972. Similar matter came before the Tribunal, SMC, Amritsar Bench in the case of Income Tax Officer v. Smt. Harbans Kaur in ITA Nos. 331 to 333/Asr/2004 for the assessment years 1997-98 to 1999-2000, where it was held that in view of the retrospective amendment made by insertion of Section 142A of the Act, all pending matters had to be decided in the light of amended provisions of the Act. The relevant findings recorded by the Bench in para 3 of the aforesaid order are as under : 3. In response to the notice of hearing sent to the assessee request for adjournment was sent in by the Authorized Representative of the assessee vide letter dated 3-1-2005. I am of the view that at the time when the Commissioner (Appeals) passed the impugned orders, he did not have the benefit of the recently inserted provisions of Section 142A. Since these provisions apply to all pending matters, it would be in the fitness of things to restore the issue back to the file of the Commissioner (Appeals) with a direction to decide the appeals afresh after considering the provision. Since I am restoring the matter back to the file of the Commissioner (Appeals), the adjournment requested for is rejected. Accordingly, the matters stand restored back to the file of the Commissioner (Appeals) with a direction to decide the appeals afresh in the light of the provisions of Section 142A of the Act.
7.1 The attention of the learned Authorised Representative was drawn to this decision of the Tribunal, (SMC) Amritsar Bench, at the time of hearing of the appeal. The learned Authorised Representative submitted that the judgments relied upon by the learned Authorised Representative may be taken into account while deciding the present appeal. We have referred to the two judgments relied upon by the learned Authorised Representative. In the case of CIT v. Krishan Lal Dua (supra); the facts of the case before the Hon'ble High Court were that while completing the assessment for the assessment year 1994-95, the assessing officer noted that the assessee had constructed a building in the financial years 1992-93 and 1993-94 relevant to the assessment years 1993-94 and 1994-95 at the cost of Rs. 9,65,250. During the course of assessment proceedings for the assessment year 1994-95, the assessing officer referred the property to the valuation cell for ascertaining the cost of construction. The valuation cell of the department valued the cost of the building at Rs. 12,53,900. After considering the objections filed by the assessee, the assessing officer determined the difference in the cost of construction declared and estimated by the Valuation Officer at Rs. 2,39,243. He also observed that 69.38 per cent construction was made in the financial year 1992-93 relevant to the assessment year 1993-94. Therefore, the proportionate difference for the assessment year 1993-94 was found to be at Rs. 1,65,984. The assessing officer initiated the reassessment proceedings under Section 148 and accordingly made an addition of Rs. 1,65,984. The learned Commissioner (Appeals) sustained the addition. However, the Tribunal deleted the addition on the ground that the assessing officer had no power to make addition on the basis of DVO's report. On appeal to the High Court, it was held that the assessment for the assessment year 1993-94 had become final on 31-3-1995. Therefore, Section 142A could not be pressed into service in view of the proviso to Section 142A because the assessment had become final and conclusive before 30-9-2004. But these are not the facts of the present case. In this case, the appeal before the Tribunal is still pending. Therefore, it cannot be said that the assessment in this case had become conclusive and final. Thus, the ratio of the judgment of the Hon'ble Punjab & Haryana High Court in the above case is not applicable to the facts of the present case.
7.1 The other judgment relied upon by the learned counsel is of Hon'ble Delhi High Court in the case of CIT v. Sudhish Kumar (supra). The facts of the case were that in the accounting year relevant to the assessment year 1996-97, the assessee purchased ground floor of a property for consideration of Rs. 2.75 lakhs and sold it for Rs. 2.90 lakhs. After referring to the purchase and sale deeds, the assessing officer inferred that the assessee remodelled the property before selling. He, therefore, referred the property to the valuation cell for ascertaining the cost of alterations etc. for the purpose of considering the extent of unexplained investment under Section 69. Subsequently, on receipt of valuation report, the assessing officer found a difference of Rs. 4,91,100. It was added under Section 69 of the Act. The learned Commissioner (Appeals) deleted the addition. On appeal, the Tribunal held that the assessing officer has no powers under the Act to refer to the Valuation Officer the question of cost of construction of the property. On appeal, the Hon'ble Delhi High Court noticed that the assessment order was passed on 31-3-1999 and the Tribunal decided the appeal vide its order dated 23-7-2004. Since the assessment had become final and conclusive before 30-9-2004, mentioned in the proviso to Section 142A, the Hon'ble High Court held that the addition under Section 69 could not be made by relying on the report of the Valuation Officer. Thus, it is clear that the Hon'ble Delhi High Court decided the matter in favour of the assessee because the assessment in that case had become final and conclusive before the date mentioned in the proviso to Section 142A. Therefore, the ratio of this decision is also not applicable to the facts of the present case.
7.2 Thus, in the light of above mentioned facts and circumstances of the case and the legal position discussed above, we find no merit in the additional ground of the assessee. Therefore, the same is rejected.
8. Now all the grounds raised in the appeal relate to sustaining an addition of Rs. 3,62,972 made by the assessing officer on account of difference between the cost of construction shown by the assessee and as estimated by the DVO. Briefly stated, the facts of the case are that the assessee constructed a house property jointly along with his wife Smt. Kusum Anand. This property was constructed during the period 1-4-1994 to 31st Aug., 1999. The assessee had declared the cost of construction pertaining to the assessment year under consideration at Rs. 3,34,764. The assessing officer referred the property to the valuation cell for ascertaining the cost of construction. The Valuation Officer determined the total cost of construction at Rs. 22,61,340. As per original report dated 25-11-1994 as against the total cost of construction declared at Rs. 17,25,963, the cost of construction relating to the assessment year under reference was estimated by the DVO at Rs. 5,91,860. When the assessee was confronted with the valuation report of the DVO, he raised several objections to the cost estimated. These objections were referred to the Valuation Officer who revised the cost to Rs. 23,67,700. However, the cost relating to the assessment year under consideration was determined at Rs. 4,57,238 as against cost of Rs. 5,91,860 as per original report. The assessee again raised several objections to the cost estimated by the DVO. The assessing officer considered these objections and allowed deduction for the various points raised amounting to Rs. 1,91,782 on account of marble crazy and staircase railings and Rs. 23,071 for builder's efforts. After allowing 10 per cent for self-supervision, the assessing officer arrived at the cost at Rs. 20,97,153. Since the assessee had declared the cost of construction at Rs. 17,25,963, the assessing officer added the difference of Rs. 3,71,190 i.e. (Rs. 20,97,153-Rs. 17,25,963) under Section 69 of the Act. It may be added that the assessee had only 1/2 share in the said property. The other 1/2 share belonged to the wife who was separately being assessed. But it appears that during the course of assessment proceedings, the assessee consented before the assessing officer vide his letter dt. 13-3-2000 (copy placed at p. 74 of the paper book No. 1) that the entire difference may be treated in his hands. Therefore, the assessing officer treated the entire; difference in the hands of the assessee.
Further, it may be mentioned that the difference in the cost of construction as shown and as determined by the DVO amounting to Rs. 3,71,190 did not relate to the assessment year under consideration. In fact, difference between the cost of construction shown and as determined relating to the assessment year under consideration worked out to Rs. 1,22,474. However, the assessee vide order sheet entry dated 23-2-2000 agreed before the assessing officer that the entire difference in the cost of construction relating to all the assessment years may be considered in the assessment year under consideration.
Therefore, the assessing officer made an addition of Rs. 3,71,190 being unexplained cost of construction under Section 69 of the Act.
9. Being aggrieved, the assessee filed an appeal before the Commissioner (Appeals). It was argued before the Commissioner (Appeals) that the DVO had estimated the cost by applying CPWD rates whereas the PWD rates applicable to the States were required to be applied for the purpose of estimating the cost of construction. It was submitted that the Valuation Officer had estimated the cost in an arbitrary manner. It was stated that the assessee had estimated the cost of construction for the ground floor and first floor at Rs. 3,337 and Rs. 3,324 per sq yard respectively whereas in the case of Sh. Krishan Kumar, the Valuation Officer had valued the cost at Rs. 2,336 and Rs. 2,608 respectively per sq. yard It was also stated that the assessee was owner only to the extent of 50 per cent and his wife owned remaining 50 per cent share in the property. She was separately being assessed to tax. Still the assessing officer erroneously considered the entire difference in the hands of the assessee by obtaining a letter that the entire difference may be considered in his hands. It was also argued that the action of the DVO was arbitrary for the reason that while submitting the first report, the DVO had applied lower rates and while submitting the second report, he had applied much higher rate for the same property which was accepted by him during the course of first valuation. The learned Commissioner (Appeals) referred these objections to the Valuation Officer. The Valuation Officer submitted that while estimating the cost in the first report, the assessee had submitted that only a sum of Rs. 12,78,963 has been incurred. However, subsequently, the assessee had stated that a further sum of Rs. 4,47,000 was incurred during the period 1-4-1999 to 23-8-1999. As regards other case cited by the assessee where different rates were taken, the Valuation Officer stated that the same depended on the type, design and specification of the property. Certain other objections raised were stated to be devoid of any merit. It was also argued that during the course of assessment proceedings, the assessee who was a doctor was under tremendous amount of stress and with a view to buy peace of mind, the assessee agreed to difference of opinion of investment to be considered in the assessment year under consideration. But this agreement was with an understanding that no penalty proceedings for concealment would be initiated.
However, the assessing officer not only made the entire addition in the hands of the assessee for the assessment year under consideration, but also initiated penalty proceedings under Section 271(l)(c). It was also submitted that during the course of valuation of the property, the assessee had given bills and vouchers for the purchase of materials from the relatives and friends. However, these were ignored while valuing the cost of construction. The learned Commissioner (Appeals) considered these submissions and allowed a marginal relief of Rs. 8,218 and reduced the addition to Rs. 3,62,972. The relevant findings recorded by the Commissioner (Appeals) in para 8 of the impugned order are as under: 8. I have given careful consideration to the submissions made by the Authorised Representative of the appellant as well as observations of the VO/assessing officer. It is a factual position that in variation of cost of construction as estimated by the assessing officer is based on expert opinion of the Valuation Officer and the cost of construction as shown by the appellant is more than 10 per cent and, therefore, the same cannot be considered to be an honest difference of opinion. It is a factual position that the assessing officer has estimated the cost of construction at Rs. 20,97,157 against the actual cost of construction shown by the appellant of Rs. 17,25,963. It is a factual position that the assessing officer has allowed the deduction in respect of self supervision @ 10 per cent as claimed by the appellant. All the objections raised by the appellant either before the assessing officer or at the time of inspection by the VO for estimating the cost of construction and also at the appellate stage are fully met. The finding of the assessing officer ignoring the estimate made by the registered valuer for the cost of construction is on the sound footings and as per norms laid down for estimating the cost of construction of any building. The appellant tried to mislead the appellate authority to the extent in comparing the estimate made in the case by the Valuation Officer of the cost of construction of a shop with that of palatial building like that of the appellant consisted of residential house and clinic. The construction of Happy Sweet House is of garage type in nature whereas the building of the appellant is having all the amenities of modern living. Thus, the estimate made by the assessing officer is fair and reasonable. The assessing officer has in fact allowed relief in respect of marble crazy, staircase railing etc. amounting to Rs. 1,91,782 and the said relief allowed by the assessing officer reduced the market cost of construction estimated by the VO. I feel that if the relief given by the assessing officer under various items is increased to Rs. 2,00,000 it will meet the ends of justice. I, therefore, endorse the report of the VO for the cost of construction of the building and accordingly estimate the cost of construction at Rs. 20,88,935 as against Rs. 20,97,153 estimated by the assessing officer. It is more so because the facts of the various case laws quoted by the Authorised Representative are widely and fairly distinguishable from the facts of the present case. Thus, there is a variation of Rs. 3,62,972 in the cost of construction which remains unexplained.
Since the cost of construction estimated by me is of Rs. 20,88,935 as against investment shown by the appellant at Rs. 17,25,963 resulting into variation of Rs. 3,62,972 which exceeds 10 per cent and, therefore, the ratio of judgment of Hon'ble Tribunal, Amritsar Bench, Amritsar in the case of Income Tax Officer v. J.P. Enterprises is not applicable in the case of the appellant.
Therefore, the entire addition of Rs. 3,62,972 is investment of the appellant in the construction of the building not shown to the department and assessable for the assessment year 1997-98. The appellant gets a relief of Rs. 8,218.
Assessee is aggrieved with the order of the Commissioner (Appeals).
Hence, this appeal before the Bench.
10. The learned counsel for the assessee reiterated the submissions which were made before the authorities below. He drew our attention to p. 1 of the paper book which is yearwise chart indicating the cost of construction shown by the assessee and as estimated by the DVO. He submitted that the difference in the cost of construction shown and estimated by the Valuation Officer worked out to Rs. 1,22,474 for the assessment year under consideration. The said difference also pertained to both the assessees in which the assessee's 1/2 share worked out to Rs. 66,237. He submitted that as per provisions of Section 69, even if, any addition is required to be made on account of unexplained investment, the same, would be for the unexplained investment made in that financial year relevant to the assessment year. He submitted that the entire addition could not be made in one assessment year. In this regard, he relied on the decision of the Tribunal, Chandigarh Bench in the case of Thakur Singh (HUF) v. Income Tax Officer (2004) 89 TTJ (Chd) 478 (a copy placed at pp. 71 to 77 of the paper book). He submitted that even if the assessee had agreed to consider the entire difference relating to various assessment years in one assessment year, such agreement had no meaning which was clearly against the provisions of the Act. He further submitted that while estimating the cost, the Valuation Officer of the department had adopted CPWD rates. He submitted that it is settled position that while estimating the cost, the local PWD rates are required to be applied. Drawing our attention to written submissions submitted before the assessing officer (copy placed at pp. 4 to 7 of paper book No. 2), the learned counsel submitted that this claim was made before the authorities below. He submitted that the valuation report of the registered valuer estimating the cost at Rs. 17,82,300 was based on State PWD rates. Relying on the decision of Tribunal, Indore Bench in the case of Income Tax Officer v.Parkash Chand Soni (2005) 94 TTJ (Ind) 631, the learned counsel submitted that the difference between the CPWD and PWD rates varied upto 25 per cent inasmuch as PWD rates were lower by 25 per cent. He further relied on the following decisions in support of the contention that PWD rates were to be applied : (i) Tribunal, Jodhpur Bench, in the case of Suwalal Giriraj Ajmera v. Income Tax Officer (2004) 86 TTJ (Jd) 414 (copy placed at pp. 59 to 70 of the paper book).
(ii) Judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Harchand Palace where it was held that the cost of construction estimated at the scheduled rates of the PWD was more scientific and reliable.
(iii) He also relied on the decision of Hon'ble Punjab & Haryana High Court in the case reported in 107 ITR 63 (sic). But there is no judgment of the Hon'ble Punjab & Haryana High Court reported in this ITR at p. 63 on this issue.
Relying on the decision of Tribunal, Amritsar Bench in the case of Smt.
Veena v. Income Tax Officer (1998) 5 Indian Taxation Reports 330, the learned Authorised Representative submitted that difference in the cost of construction upto 14 per cent was required to be ignored.
11. The learned departmental Representative, on the other hand, heavily relied on the orders of the authorities below. He submitted that during the course of assessment proceedings, the assessee raised objections to the valuation report. These were considered and substantial relief of more than Rs. 2 lakhs was allowed. Similarly, the learned Commissioner (Appeals) allowed further relief of Rs. 8,000. He further submitted copies of the order-sheet entries stating that on 13-3-2000, the assessee himself suggested the entire difference in the cost of construction relating to all assessment years may be considered in the assessment year under consideration. Thus, the assessee cannot plead that the addition should be made only in regard to difference relating to the assessment year under consideration.
12. We have heard both the parties at some length and given our thoughtful consideration to the rival submissions, examined the facts, evidence and material placed on record. We have also gone through the orders of the authorities below. From the facts discussed above, it is obvious that the addition has been made under Section 69 of the Act.
Section 69 of the Act provides that where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year. Thus, it is clear from the bare reading of the section that addition could be made only in respect of unexplained investment made in the financial year relating to that assessment year. Now in this case, we find that the property was constructed during the period from 1-4-1994 to 23-8-1999.
This fact is admitted by the Valuation Officer also and it is clear from the copy of the valuation report placed at pp. 10 to 14 of the paper book. In fact p. 11 of the paper book No. 1 gives yearwise details of the cost of construction. Admittedly, the difference of Rs. 1,22,474 in the cost of construction as declared by the assessee and as determined by the Valuation Officer relates to assessment year under consideration. Therefore, as per provisions of Section 69 of the Art, the addition, if any, could be made in the assessment year under consideration would only be at Rs. 1,22,474 and not at Rs. 3,71,190, even though the assessee had agreed that the entire addition may be considered in this assessment year. But such agreement has no meaning which is contrary to the provisions of the Act. The view that when the property is constructed in more than one year, the addition under Section 69 could be made only in respect of difference relating to that assessment year is supported by the decision of Tribunal, Chandigarh Bench in the case of Thakur Singh (HUF) v. Income Tax Officer (supra) to which one of us the AM was a party. Therefore, firstly, we hold that the addition should be restricted only to the difference in the cost of construction relating to the assessment year under consideration and not to the entire difference relating to all assessment years.
12.1 As regards the submission that only 50 per cent difference should alone be considered in the hands of the assessee, we find no merit in the same because there is a letter dated 13-3-2000 from the assessee stating that the entire difference may be considered in his hands.
Since this point was accepted by the assessee during the course of assessment proceedings and there is nothing in the provisions of the Act which prohibits consideration of such component of investment as the unexplained investment of the husband we are of the opinion that objection now raised in this regard is not valid. In fact, the learned Authorised Representative conceded before us that this point was not seriously contested before the Tribunal.
12.2 The next aspect of the case that requires consideration is the objection of the assessee to estimate the cost as per PWD rates instead of CPWD rates. It is settled position that while estimating the cost of construction, the local PWD rates should be preferred over the CPWD rates. This is so because the rates prevailing at the place where the property has been constructed are more realistic and scientific. The various decisions referred to above including the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Harchand Palace (supra) supports this view. We find that the assessing officer had allowed relief of Rs. 1,91,172 on account of marble crazy, staircase railing etc. He also allowed relief of Rs. 23,071 for builder's efforts. The assessing officer has also reduced 10 per cent on account of self-supervision. Thus, the cost of construction was reduced to Rs. 20,97,153 from the cost estimated by the Valuation Officer. However, it appears that the assessee has not been allowed any margin on account of claim of the assessee for applying PWD rates. The learned Commissioner (Appeals) has also allowed only a relief of Rs. 8,218. We also find that in the first valuation report, the Valuation Officer had estimated the cost of ground floor @ Rs. 3,737 per sq. mtr. But in the revised report estimated the cost at Rs. 3,900 per sq. mtr. Since the ground floor was constructed first, there should have not been much variation in the cost estimated at the first stage and cost estimated at the second stage in the valuation report. Therefore, to some extent, we are of the opinion that the rates applied by the Valuation Officer are excessive. Thus, taking an overall view of the objections of the assessee and PWD rate, we feel it would be fair and just to allow a relief @ 15 per cent to the cost estimated by the Valuation Officer.
The cost estimated by the Valuation Officer for the assessment year under consideration is Rs. 4,57,238 and 15 per cent thereof would work out to Rs. 68,585. Thus, the difference would remain at Rs. 53,889 i.e.
(1,22,474-68,585). This difference works out to less than 12 per cent.
If we consider the relief of Rs. 8,218 allowed by the Commissioner (Appeals), the difference would work out to about 10 per cent. The valuation of the property is just a matter of opinion. It is consistently being accepted by the various Benches of the Tribunal that if the difference in the cost of construction declared and estimated works out to about 10 per cent, the same is to be ignored. Reliance in this regard is placed on the decision of Tribunal, Amritsar Bench in the case of Income Tax Officer v. J.M.P. Enterprises (1994)49 TTJ (Asr)(TM) 31 : (1993) 46 ITD 104 (Asr)(TM). Therefore, we are of opinion that no addition under Section 69 is called for.
12.3 Having regard to these facts and circumstances of the case, we are of the considered opinion that the learned Commissioner (Appeals) was not justified in sustaining the impugned addition. We set aside the order of the Commissioner (Appeals) and delete the impugned addition.