Commissioner of Income-tax Vs. Roshan Lal Seth - Court Judgment

S.S. Sodhi, J.

1. The assessee, Roshan Lal Seth, constructed a house in Jalandhar which was completed during the assessment year 1970-71. According to the assessee, the total investment in the construction of this house was Rs. 27,676. The value of this construction, as estimated by the approved valuer, was Rs. 27,981. In explaining the sources of the funds utilised for the construction of this house, the assessee disclosed that he had taken a loan from the Government of Rs. 17,000 while Rs. 13,200 had been advanced to him by his sons during the period April 1, 1968, to March 31, 1970.

2. The Income-tax Officer, while making the assessment for the assessment year 1971-72, did not doubt the investment of Rs. 17,000 in theconstruction of the house which the assessee had obtained as loan from the Government, but he did not accept the contribution of Rs. 13,200 said to have been made by the assessee's sons. This sum was consequently treated as income of the assessee from undisclosed sources for the assessment year 1971-72.

3. On appeal, the assessee challenged the addition of Rs. 13,200 on the plea that the investment in the house had been made during the assessment year 1970-71 and he could, consequently, be called upon to explain only that investment, that had been made in that year, that is, 1970-71, and no addition could be made on that account for the assessment year 1971-72. This was accepted by the Appellate Assistant Commissioner holding that the house had been constructed during the previous year relevant to the assessment year 1970-71 and if any part of the expenditure incurred on its construction remained unexplained, the assessee could be called upon to explain it only during the assessment year 1970-71 and not in the assessment year 1971-72 and as the amount in question did not relate to the assessment year 1971-72, the additions made by the Income-tax Officer were legally not justified and were accordingly deleted.

4. The Income-tax Officer then started reassessment proceedings under Section 147(b) read with Section 148 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), for the assessment year 1970-71. In doing so, a reference was also made by him to the Valuation Officer for determining the fair market value of the house in question under Section 16A of the Wealth-tax Act.

5. According to the Valuation Officer, the estimated market value of the house was Rs. 62,000 with reference to the wealth-tax assessment for the year 1971-72. Accepting this report, the Income-tax Officer made an addition of Rs. 34,324 in the income of the assessee, this being the difference in valuation as estimated by the Valuation Officer and the investment as disclosed by the assessee. In addition, he also found that the sum of Rs. 13,200 had not been contributed by the two sons of the assessee.

6. On appeal, the Appellate Assistant Commissioner held that considering that some amenities are provided in the house after its completion and the fact that distempering, etc., may not have taken place, as per the plea of the assessee, a benefit of Rs. 10,000 was allowed and the cost of construction up to the year in question was thus taken to be Rs. 52,000. As regards the item of Rs. 13,200 said to have been received by the assessee from his sons, he confirmed the addition of Rs. 10,000. In other words, he gave relief to the assessee to the extent of Rs. 3,200 on this account.

7. Besides this, there was another disputed amount of Rs. 5,000 during the assessment year 1971-72. It came to the knowledge of the Income-taxOfficer that a sum of Rs. 5,000 had been deposited with Hamdard Printing Press in the name of the assessee's wife. The assessee informed the Income-tax Officer that this sum represented gifts made by his sons to his wife from time to time. The Income-tax Officer took the view that the sons were not in a position to make any such gifts and he, therefore, added this sum of Rs. 5,000 too as being the income of the assessee from an undisclosed source.

8. When the matter went up to the Tribunal by way of appeal, it was held that the Income-tax Officer was not justified in assessing the investment on the house de novo at Rs. 62,000 and thereby making an addition of Rs. 34,324, this being the difference between Rs. 62,000 and Rs. 27,676 which was the original estimate as per the report of the approved valuer. Further, it was held that the estimate of Rs. 62,000 was not validly taken by the Income-tax Officer as Section 16A of the Wealth-tax Act could not be availed of for purposes of income-tax assessment proceedings. It was observed in this behalf that determination of the fair market value thereunder was not determinative of the investment, as investment means what is actually spent by the assessee in a particular year on the construction of a house, whereas fair market value is what the house would fetch if sold in the open market. It was, accordingly, held that wholly irrelevant evidence had been considered by the Income-tax Officer for ascertaining the investment made by the assessee during the assessment year 1970-71.

9. As regards the sum of Rs. 5,000 deposited with Hamdard Printing Press, Jalandhar, in the name of the assessee's wife, the Tribunal held that the Income-tax Officer was not justified in calling upon the assessee to explain this deposit. It was held in this behalf that either the person in whose books the deposit appears or the person in whose name the deposit stands should have been called upon to explain the deposit. This amount of Rs. 5,000 could not, therefore, be added to the assessee's income and its deletion was, accordingly, ordered.

10. It was in this background that the following questions of law were referred to this court for its opinion :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Income-tax Officer was not justified in estimating the investment in the house at Rs. 62,000 and thereby making an addition of Rs. 34,324 ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in deleting the addition of Rs. 5,000 made on account of deposit made by the assessee's wife with Hamdard Printing Press ?'

11. In the context of the peculiar circumstances in which these questions have come to be referred, no exception can indeed be taken to the reasoning adopted by the Tribunal in dealing with these matters. When, at the time of the earlier assessment, the estimate of the approved valuer regarding the cost of construction of the house had been accepted and it was at no stage doubted, no occasion was provided thereafter for this matter to have been reopened. The Tribunal is, at any rate, correct in its view that determination of the fair market value under Section 16A of the Wealth-tax Act cannot be appropriately used in estimating the cost of construction of a house. Question No. (1) has thus to be answered in the affirmative, in favour of the assessee and against the Revenue.

12. Similarly, question No. (2) must be answered in the affirmative, in favour of the assessee and against the Revenue as the Tribunal rightly held that the person, in whose name the deposit stands, or in whose books the deposit appears, must be called upon to explain the deposit. Admittedly, neither of them were called upon to do so. There was thus clearly no warrant for adding this sum of Rs. 5,000 to the income of the assessee.

13. Both the questions are thus answered in favour of the assessee and against the Revenue. There will, however, be no order as to costs.