T.V.Rajagopala Rao, -
(1.) SINCE the only common point at issue is about the valuation of construction of a house situated at Adoni, these may be taken up together and disposed of by a common order. These appeals are by the Department and they relate to assessment years 1985-86 to 1987-88 respectively and the cross-objections are by the assessee. The cross-objections are filed to support the order of the first appellate authority and no independent prayer or relief is prayed for. The only prayer made in the cross objections was to dismiss the appeals after accepting the impugned order passed by the Deputy Commissioner (Appeals), C-Range, Hyderabad, dated 16-5-1990.
(2.) The facts of the case in brief are the following. The assessee is a doctor running a clinic called Kanti Eye Hospital, at Adoni. The property was situated at Ward No. 21, Plot Nos. 3, 4, 13 & 14, Netaji Nagar, Mandigiri, Adoni and Survey No. assigned to the said land is 392/A. In that land a double storeyed residential building was constructed during the period, July 1984 to September 1986. Thus the period of construction falls in the accounting year relevant to assessment years 1985-86, 1986-87 and 1987-88 respectively. The property is stated to be situated near to new RTC Bus Stand and it is also stated that the stone quarry is only 1 KM away from the said house. The locality in which the house is situated is stated to be Netaji Nagar, Mandigiri, Adoni, Kurnool District. The ground floor comprised of verandah, drawing-cum-dining hall, master bed room with attached toilet, garage, pooja room, kitchen with store, rear verandah and another bed room with attached toilet. RCC stair case is provided for access to first floor through drawing-cum-dining hall. The first floor has two bed rooms with attached toilet and passage which connects the two bed rooms also serves as balcony within the buidling. A RCC stair case is constructed to give access to terrace of first floor where a munty is also provided. The plinth area of the ground floor and first floor was 336.20 sq. meters. Though no separate books were maintained noting the cost of construction of the building, the assessee had maintained books of account for the medical profession and in those very books, the amounts obtained from different persons and other funds were credited and from out of those funds in his regular books amounts were withdrawn for purpose of utilising the same for construction of the building. According to the assessee, the cost of construction came to Rs. 2,78,000 and the break up of the said cost of construction is as follows:
For assessment year 1985-86, the assessment was originally completed under Section 143(1) on 22-8-1985 on a total income of Rs. 30,290. Similarly for assessment year 1986-87 while completing the assessment originally on 30-10-1986 under Section 143(1), the total income was determined at Rs. 34,700. For assessment year 1987-88, the assessee filed his income-tax return on 26-8-1987 admitting a total income of Rs. 24,000. Along with this return the assessee filed registered valuer's report dated 15-11-1986 in which the total cost of construction was estimated by the registered valuer at Rs. 3,10,240 out of which he had deducted a sum of Rs. 30,240 which represents 10 per cent of the estimated cost of construction towards self-supervision and ultimately he arrived at the estimated cost of construction of Rs. 2,30,000, The registered value adopted detailed estimate method in his report. The value of construction cost estimated or admitted was considered to be low and, therefore, the assessing officer had referred the question of estimating the cost of construction to the Valuation Cell (Asstt. Engineer, Unit No.I, Valuation Cell, Income-tax Deptt., Hyderabad). The Departmental valuer had visited the building and filed his report dated 11-5-1988 in which he estimated the total cost of construction at Rs.3,83,367 and after conceding Rs. 28,790 which represents 71/2 per cent of the total cost of construction towards self-supervision, estimated the ultimate cost of construction at Rs. 3,55,077. The assessing officer addressed two letters dated 13-6-1988 and 15-6-1988 calling upon the assessee to file his objections to the valuation report of the Valuation Cell. The assessee was specifically called upon to state his objections why the amount of Rs. 28,790 conceded by the registered valuer towards self-supervision should not be withdrawn since the assessee is a medical practitioner and it would not have been possible for him to supervise the construction of the building personally, and also why the cost of construction of Rs. 3,83,867 arrived at by the Valuation Cell should not be adopted and why the difference in cost of construction of Rs. 1,05,867 should not be assessed as income from 'undisclosed sources' for assessment year 1987-88. The assessee was also required to appear with books of account, vouchers, etc. for the hearing. The assessee filed a letter dated 6-10-1988 on 11-10-1988. Stating his objections which were all catalogued in the assessment order passed by the Assessing Officer for assessment year 1987-88. Thereupon the Assessing Officer issued another notice to the assessee dated 15-7-1988 to file full details to produce evidence towards loans etc. The assessee got filed through his authorised representative a reply dated 28-7-1988 on 2-8-1988. The Assessing Officer while completing the assessment for the assessment year 1987-88 had preferred to follow the report of the Valuation Cell than against the report of the registered valuer. After mentioning the reasons for doing so, he utimately adopted the figure of Rs. 3,55,000 as estimated cost of construction. Thus as against the estimated cost of construction of Rs. 3,55,000, the Assessing Officer found that the admitted cost of construction was only Rs. 2,78,000 and the difference between the estimated cost and admitted cost being Rs.77,000 he proposed to include the same as income of the assessee under the head 'Undisclosed sources'. At that juncture, the authorised representative who appeared for the assessee contended before the Assessing Officer that since the period of construction extended over three accounting years ending with assessment year 1987-88, without prejudice to his general contention that there is no difference in the cost of construction, he submitted that the difference should be distributed in all the three assessment years during which the construction went on. The Income-tax Officer had accepted this contention and apportioned the sum of Rs.77,000 over the three assessment years as under:
He found that the withdrawals towards household expenses were meant for the three assessment years. The admitted withdrawals were Rs.6,000 per year. The assessee was having his wife, two children and a mother Children are studying in schools. He, therefore, estimated the reasonable household expenses at about Rs.8,000 per year and the difference of Rs.2,000 was sought to be added in each of the three assessment years, namely, 1985-86, 1986-87 and 1987-88. For this purpose the assessee was issued a notice under Section 148 on 5-8-1988 reopening the assessments for 1985-86 and 1986-87 and called upon the assessee to file his return. The assessee filed his return on 8-8-1988 admitting a total income of Rs.32,290 for assessment year 1985-86 and Rs. 34,700 for assessment year 1986-87. Subsequently after hearing from the assessee, re-assessments were completed for 1985-86 and 1986-87 by his reassessment orders dated 22-8-1988, in which he added Rs.25,000 and Rs. 20,000 respectively being the difference in cost of construction of the residential house in assessment years 1985-86 and 1986-87 respectively. In the regular assessment framed for assessment year 1987-88, he had included a sum of Rs. 32,000 towards 'income from other sources' representing difference in cost of consruction of the residential unit. Thus, the Income-tax Officer had committed an apparent error or mistake in respect of adding Rs.25,000 for assessment year 1985-86 and Rs.32,000 for assessment year 1987-88. Therefore, he had passed a rectificatory order under Section 154 dated 8-12-1988. According to the Income-tax Officer's rectificatory orders, the addition made for assessment year 1985-86 was Rs.32,000 and the addition made for assessment year 1988-89 was Rs.25,000 being the difference in cost of construction of the residential house in those years.
Aggrieved against the reassessments for 1985-86 and 1986-87 and regular assessment for 1987-88 and aggrieved against the additions made towards income from other sources, the assessee preferred appeals before the Deputy Commissioner of Income-tax (Appeals), C-Range, Hyderabad. The learned Dy. Commissioner (Appeals) had consolidated all the three appeals and disposed them of by his consolidated order dated 16-5-1990, whereby he deleted the additions for those three years totalling to Rs. 77,000 and allowed the appeals filed before him. It was contended before the Deputy Commissioner (Appeals) that there is no approved cost index for Adoni Town even according to the Departmental Valuation report. The indices are based on the cost indices of Kurnool as approved by Government of India. To arrive at the cost indices of Adoni, the Valuation Officer had adopted the Delhi cost as on 1-10-1976 and the said cost was taken as a base at 100. On that basis he arrived at the cost indices as follows:
It was contended that adoption of Delhi cost index is quite irrelevant when the cost of index of neighbouring Kurnool is available in CBDT's instruction No.1671 F.No. 319/26/85 WT, dated 6-12-1985. In the above instruction of the CBDT, the cost index of Kurnool is mentioned as 220 as on 1-4-1983. Based on the cost of Kurnool, the cost index of Adoni will be a substantially low figure The valuation report of the Valuation Cell ought to have been based on the above CBDT instruction which is not done in this case. The assessment order does not suggest that the books of account maintained by the assessee are irrelevant or unreliable. When the cost recorded is supported by 100 per cent invoices, bills and vouchers etc., the Assessing Officer had not given any finding that they are not capable of verification and it was urged that simply rejecting the cost of construction admitted by the assessee on the ground that it is too low, cannot be sustained. It is significant, argued the learned Counsel, that the Departmental Valuation Officer himself admitted in his report that the assessee had produced 100 per cent vouchers for the expenditure. Before the Deputy Commissioner (Appeals), the assessee relied upon the Tribunal's decision in the case of Sri Har Samp Cold Storage & General Mills v. ITO  27 ITD 1 (Delhi) (TM), wherein the Tribunal had held that when the expenditure recored in regular account books maintained by the assessee have not been shown to be wrong, untrue or defective, the question of placing reliance on the opinion of experts and the valuation report should not arise. Accepting these arguments of the assessee, the appeals were allowed and the additions made in each of these years, namely, Rs.32,000 for 1985-86, Rs.20,000 for assessment year 1986-87 and Rs.25,000 for 1987-88 were all deleted. Aggrieved against the impugned order passed by the Deputy Commissioner of Income-tax (Appeals), the Department came up in second appeals before this Tribunal. As already stated the assessee filed cross-objections with no specific prayers but only supporting the impugned order of the Deputy Commissioner (Appeals). Thus the matters stand for my consideration.
(3.) I have heard Shri K. Vasantha Kumar, the learned Departmental Representative and Shri K.K. Viswanatham, the learned Counsel for the assessee. A paper book containing 78 pages was filed by the assessee's counsel apart from filing some loose papers. The learned Departmental Representative also filed a paper book containing 7 pages. At the time of hearing, additional grounds of appeal were filed by the assessee's counsel. Since additional grounds are only filed as a measure of elaborating the grounds already preferred before the first appellate authority, they are admitted for consideration. The learned Departmental Representative argued that no separate books of account were maintained for cost of construction of the building and so the question whether the entries are verifiable or not and whether the book entries are true or false does not arise. It is also contended that in view of the above following the ratio of the Tribunal decision in Sri Har Samp Cold Storage & General Mills' case (supra) by the first appellate authority is wrong. In the Special Bench decision in Sri Har Samp Cold Storage & General Mills' case (supra) the assessee had constructed a cold storage and produced account books as well as valuation report in support of the cost of construction as shown in his return. However, the Income-tax Officer obtained valuation report from the Departmental Valuation Officer who had estimated the cost of construction and relying on his report and without pointing out any defects in the assessee's account books, the Income-tax Officer added the difference as understated and treated the difference as unexplained investment of the relevant assessment years. The question that cropped up was whether the action of the Income-tax Officer could be sustained and the Special Bench held that it cannot be sustained. At page 2 as per the head note the following is what is held by the Special Bench:
By reading Sections 69 and 143(3) together, it is imperative that the ITO must, rather he had a statutory duty, to examine the evidence produced by the assessee in support of his cost of construction, namely, the books of account, record a finding about the falsity or unreliability not just by expressing a capricious view but by pointing out flaws in the evidence, if any. It was only after the evidence was rejected that the ITO would get the power to estimate the cost of construction. It was at that point of time that he could rely upon the report of the Valuation Officer.
According to the above decision, the occasion to consider the valuation report arises only after rejecting the account books produced by the assessee in which the cost of construction was fully given. Without rejecting the cost of construction recorded in the books of account, the question of adopting the departmental valuer's report does not arise. The learned Departmental Representative contends that since no books of account were maintained in which cost of construction was noted by the assessee, reliance on this decision is misconceived and, therefore, the impugned order is liable to be reversed.;