ORDER
1. These are the appeals filed by the Revenue against the order of the CIT(A) for the asst. yrs. 1991-92, dt. 24th March, 1999 and 1992-93, dt. 17th Jan., 1996 in the matter of order passed under Section 143(3)/251 and Section 143(3), respectively.
2. Solitary ground of appeal in the asst. yr. 1991-92 relates to CIT(A)’s action in deleting the addition of Rs. 25,51,227 made under Section 69C of the IT Act, as unexplained investment in the building.
3. In the asst. yr. 1992-93, the grievance of Revenue relates to CIT(A)’s direction in deleting the addition of Rs. 50,71,505 made as unexplained investment under Section 69 of the IT Act.
4. The brief facts of the case are that the assessee is a private limited company engaged in the business of construction of residential building named “Sanjay Apartment” situated at Survey No. 353, Ward No. 16, near Sardar Baug, Rajkot. The total cost of construction declared by the assessee during the previous year, relevant for asst. yr. 1991-92 is Rs. 39,33,779. It is pertinent to mention here that in this case originally order under Section 143(3) was passed on 8th March, 1994 wherein addition under Section 69C, on account of unexplained investments in the work-in-progress for Rs. 25,51,227 was made. In appeal, the CIT(A)-I, Rajkot, set aside the assessment to be framed de novo after giving the assessee due opportunity of being heard.
5. During the course of reassessment as per direction of the CIT(A), the AO observed that the assessee has shown consumption of various materials in the process of construction, viz., iron, cement, bricks, sand, stone chips, lime and other electrical goods. The Authorised Representative was asked to produce the stock register wherein quantitative details regarding the purchase and consumption of these materials had been recorded. In this regard, the Authorised Representative vide his letter dt. 13th Sept., 1996 has submitted as under :
“Your honour will appreciate that as far as quantitative details are concerned, the same are available, billwise as per the purchases made by the assessee. Your honour will appreciate that the assessee had handed over the construction work to a contractor vide a written agreement (copy of which has already been submitted to your honour) and the assessee was responsible for the delivery of the material on the site. It was then the contractor’s duty to ensure that the material so delivered was consumed prudently.
Your honour will appreciate that a day-to-day on-site stock register showing how many bags of cement, etc. was consumed daily has not been maintained by the assessee, since the same was not felt necessary on facts.”
6. The AO further observed that in the construction line of business consumption of raw materials is the most important aspect which has to be verified to ascertain the authenticity of the book results declared by the assessee. It is the contention of the assessee that during the previous year total cost of material consumption incurred by the company is Rs. 26,85,952. It is further noted that the assessee does not maintain any stock register as stated in his submission which has been quoted above. The Authorised Representative has further failed to substantiate as to how these quantitative details of consumption have been arrived at by the assessee. In the absence of the stock register, day-to-day consumption of various materials and its comparison with the day-to-day work of construction undertaken is not possible. The AO further observed that the presumption of the Authorised Representative that from purchase bills quantitative details of consumption can be verified is erroneous. The basic document for verification of this aspect is a stock register wherein inward and outward movement of materials are recorded from which the day-today consumption of materials and work-in-progress can be verified. The fact that labour construction contract has been given to a third party does not negate the importance of the stock register indicating quantum of building materials used in construction. The absence of stock register means that the quantitative details of consumption on a day-to-day basis cannot be verified. This is a serious defect in the books of account of the assessee which makes it unreliable. During the course of hearing before the AO, the Authorised Representative was asked whether any record had been maintained by the assessee wherein details regarding day-to-day construction activity was recorded so that the same could be compared with the consumption of materials declared. He was also asked whether the architect has carried a regular inspection of the site and whether he had taken periodic measurement of the construction carried out. He was told that the periodic measurements taken by the architect and regular inspection reports issued by him could serve as the basic document that would substantiate the extent of construction during the previous year. Further, he was also asked to produce the certificates issued by the architect after completion of the different stages of construction. He was also asked as to what was the basis for valuation of work-in-progress and in that regard he was required to produce certificates from the architect as an evidence thereof. The Authorised Representative has failed to file any such certificate of the architect. In the absence of the inspection reports of the architect, the extent of construction, the quality of construction, etc. cannot be verified. Technical details of the beams, columns, etc. cannot be verified. The extent of materials consumed in the foundation cannot be verified in the absence of such specific details. Moreover, the Authorised Representative has also failed to produce the certificates from the architect regarding the work-in-progress.
7. The AO found that during the previous year the total payment to labour contractor as declared by the assessee is Rs. 5,92,446. In this regard, the Authorised Representative was asked to produce the labour muster and the wages payment register along with the details of work performed by the contractor and the relevant, records which could substantiate it. The Authorised Representative stated that contract for labour work was given to a construction contractor and hence these details have not been maintained. Again the Authorised Representative has failed to provide details regarding the work performed by the contractor. Moreover, no work schedule has been produced by the Authorised Representative so again exact sequence of construction activity cannot be verified. The Authorised Representative has only produced six bills raised by the labour contractor. The bills for labour work have been prepared by Mayur Construction Co. running from serial Nos. 1 to 6. The bills have been prepared on three dates namely, 4th Dec., 1991, 2nd March, 1991 and 29th March, 1991. The six bills relate to the total labour payments made during the previous year. On going through the bills, it was observed that the contract for labour has been given to Mayur Construction Co. at the rate of Rs. 21.25 per sq. ft. for the entire labour work of the building. This labour rate of Rs. 21.25 per sq. ft. is quite low when compared to the extent of labour work involved in the construction process and the type and quality of construction. Further, it is seen that the assessee has computed in advance the total labour payment to be debited in the books of account and subsequently bills have been prepared.
8. The AO found that the project consists of two blocks, i.e., block A and block B. The total constructed area of building A is 49,489 sq. ft. The assessee has computed total labour cost for block A, at the rate of Rs. 21.25 per sq. ft. at Rs. 10,30,391.25. Subsequently, out of this total labour cost during the previous year, the following labour payments have been debited :
9% of Rs. 10,30,391.25 for plinth area 4% of Rs. 10,30,391.25 for first stage 4% of Rs. 10,30,391.25 for second stage 4% of Rs. 10,30,391.25 for third stage 4% of Rs. 10,30,391.25 for fourth stage 4% of Rs. 10,30,391.25 for fifth stage 1% of Rs. 10,30,391.25 for first floor construction
Similarly, for building B the total labour payment for 35,209 sq. ft cornes to Rs. 7,48,191 and the bills have been raised accordingly. From this, it can be seen that payment to labour ‘service provider is not based on proper measurements. Furthermore, the AO found that the assessee has computed well in advance the payment to be made to the labour contractor and the bills have been prepared accordingly. Based on the above facts, the AO stated that it can safely be inferred that labour payment bills, are, not based on proper measurements of the construction undertaken and on the work performed by the contractor. On the contrary it is seen that the assessee, after having decided the total labour payment to be made, has apportioned the labour expenses to different stages of construction, This again renders the accounts of the assessee as not satisfactory as far as correctness and completeness is involved.
9. During the course of hearing before the AO, the assessee was asked to provide the details of construction undertaken during the previous year along with the work schedules and necessary supporting evidences. In this regard the Authorised Representative has reported that the total R.C.C. work undertaken during the previous year is 50,640 sq. ft. and the total brick work undertaken during the previous year is 18,931 sq. ft. During assessment proceedings, it was observed that the total built-up area for building A is 48,489 sq. ft. and for building B is 35,209 sq. ft. The Authorised Representative was asked as to what was the extent of construction, as a proportion of the total built-up area, undertaken during the previous year. The Authorised Representative stated that during the previous year, the assessee had carried out the construction work of the skeleton of the building only hence, it was not possible for him to state as to what proportion of the total built-up area was constructed during the previous year. In the absence of this information comparison of consumption of various materials vis-a-vis the extent of construction is not possible, and the extent of investment made in the building during the previous year by the assessee cannot be ascertained from his books of account.
10. In view of the above, the AO reached to the conclusion that the accounts of the assessee do not reflect true and fair view of the profitability during the previous year. Consequently, the AO was not satisfied about the correctness and the completeness of the account of the assessee and hence the same was rejected under the provisions of Section 145 of the IT Act, 1961. Therefore, the reference had been made to the Valuation Cell to ascertain the cost of construction of the building under consideration, i.e., “Sanjay Apartment”, Rajkot. The DVO has assessed the cost of construction during the previous year at Rs. 64,85,006 as against the cost of construction. declared by the assessee at Rs. 39,33,779. It is observed that the difference in the cost of construction declared by the assessee and as assessed by the DVO is Rs. 25,51,227 which was treated as unexplained investment in the building and was forwarded to the assessee and his objections in respect to the valuation was called.
11. The AO dealt with the objection of the assessee as follows :
(1) The Authorised Representative of the assessee stated that the DVO has arrived at the basic rate of Rs. 2,450 per sq. mt. He stated that the Government valuer has adopted the value without giving any details as to how the basic rate of Rs. 2,450 has been arrived at. The detailed computation of the DVO was called for during assessment proceedings and a copy of the same was forwarded to the assessee on 21st Jan., 1997 and he was asked to show cause as to why the basic rate of Rs. 2,450 should hot be adopted in computing the cost of construction during the previous year The computation of the rate by the DVO is as follows :
Rate analysis
Upper Floors (Rs.)
Basic rate as on 1.10.76 (RCC framed structure) 400.00
Less : for lesser fl. ht. 3.35 – 2.85
@ Rs. 17/0.30 mt. ht. (-) 28.33
371.67
Less : 7-1/2% for all internal walls are of 4-1/2″ thick
instead of 9″ thick wall and not having some internal
walls (-) 30.00
341.67
Add : Services @ 27.5% 93.95
Add : for additional stories
7th to 9th floor 7×3 = 21
10th & 11th floor 10×2 = 20
Total 41 41.00
476.62
Rate to be adopted = Rs. 476.62 x 5.14 2,449.82
Say : 2,450
(per) sq. mt.
In response the Authorised Representative queried as to what was meant by basic rate of Rs. 400 and what is the multiplier of 5.14 applied by the DVO. The Authorised Representative was told that the basic rate of Rs. 400 was the approved plinth area rate of construction per sq. mt. as on 1st Oct., 1976, as per CBDT Instruction No. 1671, for R.C.C. framed structure for height upto 3.35 mt. This fact is also mentioned in the rate analysis as provided to the assessee. Further, as regards to his query about the multiplier of 5.14, the Authorised Representative was also provided with a chart wherein the detailed working of the calculation of the weighted cost index was shown. The computation of the weighted cost index as provided to the assessee was as below :
Calculation of weighted cost index
——————————————————————————————
S.No. Year of ending Investment Average Amount reduced Percentage W.C.I.
during the year C.I. to base 100 progress
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1. 12/90 to 3/91 39,53,779 489.25 8,04,043 32.37% 1,27,73,394
24,83,780
x 100
2. 4/91 to 3/92 88,39,615 526.25 16,79,737 67.63% = 514.27
1,27,73,394 24,83,780 100% say : 5.14
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12. The AO observed that from this it can be seen that initially the DVO has computed the cost of construction at Rs. 476.62 per sq. mt. as on 1st Oct., 1976 and subsequently, he has taken the weighted cost index of 5.14 to arrive at the basic rate of valuation for the previous year. This valuation has been done in accordance with the guidelines and in accordance with Instruction No. 1671 issued by CBDT. Further, the DVO has also elucidated as to how the basic rate of Rs. 2,450 has been arrived at. A copy of the computation has also been provided to the assessee. Further, on going through the computation made by the DVO, the AO stated that he was satisfied that the basic rate has been computed properly as per Instruction No. 1671.
13. The second objection against the valuation report raised by the Authorised Representative is that the DVO visited only one flat and he has made his computations by taking measurements of that flat. The Authorised Representative further stated that the DVO did not consider extra items fitted by the flat owner. In this regard the Authorised Representative vide letter dt. 3rd Jan., 1997 was asked the following : "You have taken a plea that spartek tiles, found in the flat during the inspection, was fitted by some other agency and it was done at the behest of the person who bought that flat. In this regard you are required to produce evidences, that spartek tiles were fitted by some other agency." The response of the Authorised Representative to the query raised above is as follows :
“Your honour will appreciate that during the asst. yr. 1991-92, the assessee had carried out only the skeleton construction and this to upto a partial level. The purchase of the tiles and the consequent fittings was done in asst. yr. 1992-93 when the entire basic structure was readied. As such your honour will appreciate that the issue under consideration is not a subject-matter of the year under consideration. Kindly, find attached herewith the first bill for the purchase of the tiles which substantiates the assessee’s stand.”
On perusal of the submission of the assessee, the AO found that the assessee himself claims that these expenditure have not been debited in the previous year relevant to the assessment year. Further, it is also observed that the assessee has produced no evidences to show that spartek tiles were fitted by some other agency. The AO opined that as the assessee himself is taking a plea that expenses on tiles have been incurred in financial year 1991-92 and those facts are not tenable for asst. yr. 1991-92 then he saw no reason why he should raise an objection regarding those expenses, in asst. yr. 1991-92. In this year the expenses of the assessee have been restricted to the skeletal structure of the building as stated by the Authorised Representative. Therefore, the AO stated that he will be in limit for discussion on valuation of the skeleton structure only. In the valuation report, the DVO has reported regarding the skeletal structure as follows :
Rate per Assessed
Sq. mt sq. mt. cost
(a) Ground floor used for parking 668.37 9.795 5,31,354
(b) Upper floors (residential flats)7,518.80 2,450 1,84,21,060
As per the discussions with Authorised Representative the skeletal structure had been completed upto the 4th floor out of the 10 upper floors. Therefore, the cost of construction for the first four floors would be 40 per cent of 1,84,21,060, i.e., 73,68,424. Here again it is observed that, even if all other items of valuation are being left out, the cost of construction comes to Rs. 78,99,778. This estimate has been prepared after taking into consideration only the cost of ground floor parking and the cost of the skeletal structure of the four upper floors. From this estimation, it can be seen that the cost of all other items like mosaic tiles, Kota stone, granite, lift, compound wall, machine room, borewell, etc. have not been considered in the relevant assessment year as objected to by the assessee.
14. The AO stated that the DVO has valued the building in to and has apportioned these expenses over two financial years in the ratio of the cost of construction shown by the assessee in those two financial years, respectively. Therefore, the argument of the Authorised Representative that expenses pertaining to asst. yr. 1992-93 has been valued in this year is incorrect.
Similarly, the Authorised Representative has raised objections regarding expenses on Kota stone, tiles, marble, granite, etc. being debited in this year. This contention of the Authorised Representative is also incorrect because it is the total expenses which have been apportioned into two years and from that it cannot be deduced as to what item of expenditure has been debited in which year. As stated above the building can only be valued in full. It is only the total investment which has been apportioned into two years.
The next objection raised by the assessee was that the borewell was in existence on the plot of land when the assessee purchased it. The valuation of the same has been done at Rs. 50,000. In this regard, the Authorised Representative was asked to produce evidences regarding existence of borewell on the plot of land prior to the purchase having been made by the assessee. The response of the Authorised Representative is reproduced below :
“Your honour will appreciate that the borewell was developed on the plot much prior to the. assessee having purchased it. The assessee is trying to obtain external evidence in this matter which will be filed shortly.”
15. In view of the above, the AO observed that the assessee has failed to produce any evidence to show that expenses on the borewell were incurred by some other agency. The assessee has also failed to show cause that the borewell was in existence at the time of purchase *of land. So his objection in this regard is not being substantiated by proper evidences and hence is not acceptable.
16. With reference to the objection of the assessee for referring the matter to the DVO under Section 131(1)(d), the Authorised Representative submitted before the AO that reference to valuation had been made for asst. yr. 1991-92 whereas the DVO has assumed jurisdiction for asst. yr. 1992-93 and a composite valuation report for the two years was given by the DVO without having jurisdiction for asst. yr. 1992-93. As regards this objection, the AO stated that even the Authorised Representative has agreed that the reference to valuation for asst. yr. 1991-92 is correct and he has only objected to the valuation for asst. yr. 1992-93. The AO also observed that evidence gathered through procedural irregularity can still be used against the assessee as the Supreme Court has held in the case of Pooran Mal v. Director of Inspection (Inv.) and Ors., , that “test of admissibility of evidence lies in its relevancy, unless there is an express or necessarily implied prohibition in the construction or other law of evidence, evidences obtained as a result of illegal search or seizure is not liable to be shut down.”
17. The next objection of the assessee is that the valuation report was sent directly to the AO without seeking any clarifications from the assessee. In this regard the AO stated that adequate opportunities were given to the Authorised Representative during assessment proceedings and he has filed all his objections against the valuation report and all of them have been taken on record. Therefore, it is immaterial that the DVO did not seek any clarification from the assessee. The AO was of the opinion that it should not make any difference to the assessee if his objections have been considered during assessment proceedings. This assessment is being framed after taking into consideration all the objections of the assessee against the valuation report, hence his contention that the DVO did not seek clarifications from him becomes infructuous.
18. With regard to the Authorised Representative’s objection for making a reference to the Valuation Cell by quoting various decisions of the Tribunal, the AO observed that the summary of all these decisions cited by the Authorised Representative is that the AO cannot resort to the estimation of the cost of construction of the building unless and until the books of account of the assessee are rejected under Section 145. In the instant case, the books of account of the assessee have been rejected for the reasons discussed at length in para Nos. 2.1 to 2.4. It is observed that the assessee has even failed to provide basic technical details of construction from which it can be deduced as to what construction activity was taken during the previous year and what should be the material consumption for that construction activity. Further, no work schedule has been provided. Details regarding day-to-day construction have not been provided. Evidences regarding work done by Mayur Construction Co. have not been provided and only six bills raised by that party have been produced. Actual physical measurements taken periodically, of the construction undertaken, has not been provided. Inspection report of the architect has not been provided. The Authorised Representative has only placed reliance on bills and vouchers. In the absence of all these details readability on the correctness and completeness of the books of account of the assessee cannot be placed. Moreover, in the absence of all these details the claim, of the assessee regarding expenses incurred on construction during the previous year cannot be verified. In view of these facts, the accounts of assessee do not reflect true picture regarding the extent of investment made in the building during the previous year. Further, it is noted that once the books of account of the assessee are rejected under Section 145 then the AO can resort to an estimation of the cost of construction of the building. This would be in consonance with the decisions cited by the learned Authorised Representative.
19. After rejection of the books of account, the AO placed reliance on the report of the DVO, dt. 5th March, 1993 having reference No. 25/DVO/1992-93/1529, to estimate the cost of construction incurred by the assessee during the previous year. The assessee has continuously raised objection that the DVO has taken into consideration expenses which have been incurred in the next financial year pertaining to asst. yr. 1992-93. Keeping in view this objection of the assessee all other items of the valuation like security cabin, machinery room, compound wall, fire stairs, mosaic tiles, Kota stone flooring, marble tiles, spartek tiles, granite platform, borewell, etc. is ignored for arriving at the cost of construction during the previous year. Only two items are being considered namely :
Rate per Assessed
Sq. mt. sq. mt. cost
(a) Ground floor used for parking 668.37 9,795 5,31,354
(b) Upper floors (residential flats) 7518.90 2,450 1,84,21,060
The Authorised Representative during scrutiny proceedings, had informed that skeletal construction upto 4th floor had been completed. Therefore, only 40 per cent of the total cost of upper floors is being taken into consideration. Cost of construction worked out is as follows :
(Rs.)
(a) Ground floor 5,31,354
(b) 40% of upper floors 73,68,424
Total cost : 78,99,778
Against this, it is seen that the cost of construction arrived at for the previous year by the DVO is Rs. 64,85,006. The AO further stated that even when we are taking the value of the skeletal structure the estimation of the DVO is less than the estimation for 40 per cent of the skeletal structure. From this it can be inferred that the valuation with regard to other items are not being considered in this year. Further, it is noted that major addition on account of valuation of Rs. 50,71,505 was made in asst, yr. 1992-93. The AO further stated that the cost of construction as worked out by the DVO is less than 40 per cent of the skeletal structure cost. In the instant case, the value ascertained by the DVO is more beneficial to the assessee and hence the same is being adopted. Therefore, addition on account of unexplained investment in the current asst. yr. 1991-92 is being restricted to Rs. 25,51,227 after taking the cost of construction at Rs. 64,85,006 as apportioned for the previous year by the DVO.
20. During the course of scrutiny assessment for the asst. yr. 1992-93, the AO observed that for the period 1st April, 1991 to 31st March, 1992, the DVO has made valuation of the construction at Rs. 1,35,48,994, against which the assessee had shown cost of construction at Rs. 84,77,584. Accordingly, the assessee was asked vide office letter dt. 2nd Jan., 1995 to explain why an addition of Rs. 50,71,505 should not be made under Section 69 of the Act to the income returned.
21. The assessee made petition before the Dy. CIT under Section 144A, and when the Dy. CIT asked for report on petition of the assessee, the same was duly submitted by the AO vide office letter dt. 8th Feb., 1995. In this report, the objections raised by the assessee were dealt with in details.
The objections raised by the assessee in his application under Section 144A, dt. 25th Jan., 1995 and his objection to the above show-cause notice by his letter dt. 13th Jan., 1995 were similar and they are discussed below :
(i) The AO’s reliance on the valuation report of the DVO is in itself bad in law because the AO’s reliance for valuation under Section 131(1)(d) was for asst. yr. 1991-92. The DVO had suo motu carried out valuation both for asst. yr. 1991-92 and for asst. yr. 1992-93. He had exceeded his jurisdiction under the Act.
The above contention of the assessee is not satisfactory because the reference to DVO was made after filing of return for asst. yr. 1991-92 to assess the correct cost of construction. The DVO has assessed the cost of construction of the building referred and has rightly assessed the cost separately falling in two years.
(ii) The assessee’s contention that CIT(A) in his order for asst. yr. 1991-92 has accepted all the arguments of the assessee both against the assessment and against the valuation report is not correct.
The CIT(A) in the first round of appeal has merely set aside the order and has not allowed the appeal of the assessee. Therefore, it cannot be understood that the CIT(A) has accepted the arguments of the assessee. As far as CIT(A)’s order is concerned, it has not been accepted by the Department and second appeal for asst. yr. 1991-92 (in which the addition was made on account of difference between the cost assessed by the DVO and the cost shown by the assessee) has already been filed before the Tribunal. Therefore, the contention of the assessee that reliance by the AO on the valuation report for asst. yr. 1992-93 would in spirit go against the observations of the Hon’ble CIT(A) is not tenable.
(iii) The next contention of the assessee that the course of action as adopted by the DVO is diametrically opposite to that prescribed under the law is not correct.
The assessee’s contention that the assessee is a limited company whose accounts are subject to mandatory audit as per the provisions of the Companies Act and, therefore, reference cannot be made to the Valuation Cell is not acceptable.
From the cases cited by the assessee, it cannot be inferred that no reference to valuation (Cell) can be made without rejecting the books of account. What has been held that books of account should be rejected for placing reliance on valuation report of valuer. In asst. yr. 1991-92, the books of account were rejected in assessment order for not maintaining quantitative details of various building materials consumed in the process of construction. The Valuation Officer had observed in his valuation report that the building was filled with spartek/colour glazed tiles whereas the assessee has produced no such details. Therefore, the details filed by the assessee cannot be said to be complete. The facts are similar for asst. yr. 1992-93 also and, therefore, the book result declared by the assessee cannot be accepted.
During the hearing for asst. yr. 1991-92 by the CIT(A), the AO and the DVO had been directed to report on objections of the assessee placed before the CIT(A). This report was duly submitted by the AO as well as by the DVO.
The DVO’s report is discussed below :
“(1) During the asst. yr. 1991-92, the construction work was in progress and the exact stage of construction during that period cannot be correctly ascertained. The building was inspected after completion of the work and after completing the building it is not possible to ascertain the correct stage of construction during the year 1990-91. Therefore, the cost of construction was determined as a whole considering all the facts. The bifurcation of expenditure was shown in the same proportion as given by the assessee during the respective years as per his statement.
(2) The statement of the assessee that all the details as required by the Valuation Officer were submitted is not correct.
(3) The reference made under Section 131(1)(d) was proper to get the guidance from a technically qualified Government valuer. It is correct that the rates adopted are standard plinth area rate for residential building according to the prevailing rates of materials and labour at Rajkot, during the period of construction.
(4) Even though all the technical details such as structural drawings, foundation details, etc. of many concealed items were required to be given. These were not furnished by the assessee, without which the correctness of the materials used such as cement, steel, etc. could not be verified. As such, the general requirement of such standard structure were taken into consideration to work out the plinth area rate and accordingly the cost of construction was determined.
(5) The valuation is based on actual measurement of the building and determining the specification and type of different items executed and not merely on mathematical equation.
(6) The estimation is done by the standard plinth area rate and not by comparing any other building and it cannot be compared with any other building as each building has different types of materials and specification of items. -Further, to determine the cost of construction of this structure, it is not required to be compared with any other structure.
(7) The rates of extra items are based on the prevailing market rate during the period of construction and not at the market rate at the time of inspection.
(8) The contention of the assessee that the report of the Government valuer is vague is not correct. The report is based on the standard plinth area (rate) in conformity with CBDT’s Instruction No. 1671 and adjusted the same as per the cost index of Rajkot during the period of construction. The cost index of Rajkot during the period is by taking into account the prevailing rate of materials and labour there.
(9) Spartek/colour glazed tiles were observed as used during the inspection and at no stage it was substantiated by the assessee with evidence that such work was done by some other agency. Even though, only one flat was measured and verified in detail, the other flats have also having similar provisions, it was not required to measure each and every flat.
(10) The assessee has not produced any evidence to substantiate that any extra items included in the estimation by this office are executed by the purchasers.”
22. The case was heard by Dy. CIT, RR-1, Rajkot and order under Section 144A was passed on 24th March, 1995. In this order the petition under Section 144A was rejected by the Dy. CIT, as per following observation :
“The first contention that the reference to the DVO was made for asst. yr. 1991-92 only and, therefore, the valuation report for asst. yr. 1992-93 cannot be made use in assessment order for asst. yr. 1992-93 is prima facie incorrect and untenable. Reference to the DVO was made by the AO vide letter dt. 3rd July, 1992. Perusal of the same reveals that the AO never stated that the valuation is to be made as on 31st March, 1991 only. Even in the ‘subject’ stated in the letter there is no such reference. The AO in para 1 of the letter has simply stated that the assessee-company has filed return for asst. yr. 1991-92 declaring cost of construction at Rs. 87,28,539 including cost of land of Rs. 47,94,760. The AO has requested the DVO in para 2 that he should determine the correct and true cost of construction and send the valuation report on or before 31st March, 1993. Nowhere the AO has stated even indirectly, that valuation be made as on 31st March, 1991. Therefore, the contention of the assessee that valuation from DVO was sought only as on 31st March, 1991 is incorrect. The fact that the DVO in his report has indicated that valuation was required for asst. yr. 1991-92 is of no consequence. The DVO has written it incorrectly and hence no cognizance. Besides that, the DVO inspected the property on 4th Dec., 1992. On the date of inspection the construction of property was complete and, therefore, the DVO had no option but to value, the property as it existed on the date of inspection. On the date of inspection, the construction was over. Therefore, the DVO valued the property as a whole and then bifurcated it in the same proportion as given by the assessee for 31st March, 1991 and 31st March, 1992. It is again emphasized that the AO never sought valuation as on 31st March, 1991. The AO required the DVO to give the cost of- construction of the property as such which the DVO complied with. Even if for the sake of argument, if it is accepted that DVO was asked to value the construction as on 31st March, 1991 and exceeded jurisdiction inasmuch as he gave construction as 31st March, 1992 also, there is absolutely nothing wrong. An illegally obtained information can always be ^utilized against the assessee. However, the prime condition is that the assessee should be given an opportunity of being heard before the information is used against him. In the instant case, the AO has issued a proper show-cause notice dt. 2nd Jan., 1995 (point No. 16 in the notice). In view of the discussion as above, the first contention of the assessee squarely fails, both in law and on facts.
The assessee’s contention that CIT(A) in his order for asst. yr. 1991-92, in the first round of appeal has accepted all the arguments of the assessee both against the assessment and against the valuation report is not correct.
The CIT(A) has merely set aside the order and has not allowed the appeal of the assessee. Therefore, it cannot be understood that the CIT(A) accepted the arguments of the assessee. As far as CIT(A)’s order is concerned, it has not been accepted by the Department and appeal for asst. yr. 1991-92, (in which the addition was made on account of difference between the cost assessed by the DVO and the cost shown by the assessee) has already been filed before the Tribunal. Therefore, the contention of the assessee that reliance by the AO on the valuation report for asst. yr. 1992-93 would in spirit go against the observations of the Hon’ble CIT(A) is not tenable.
The next contention is also analysed critically regarding reference to the Valuation Cell though no defect was found in the assessment order. It is the contention of the assessee that no reference to the Valuation Cell can be made unless defects are found in the books of account. The assessee has misread the judicial pronouncements. What is held is that books of account must be rejected before reliance is placed on the DVO’s report. Therefore, there is no restriction on the making of reference to the Valuation Cell. Restriction exists only for use of DVO’s report inasmuch as books require to be rejected before reliance is placed on DVO’s report. Further, the contention of the assessee that all the details were given to the Valuation Officer for determining cost of construction is incorrect. Many details like structural designs, etc. were not furnished to the Valuation Officer. Further, the reference made to Valuation Cell under Section 131(1)(d) is proper and appropriate to get guidance from a technically qualified Government valuer.
Further, the plinth area method is most sound method to calculate the cost of construction. The plinth area rates depend upon material and labour rates prevailing at Rajkot at the time of construction. Further, the standard plinth area method was used for the reason that assessee failed to give or for reasons best known to it did not submit structural designs to the DVO. Had they been filed, the DVO would have determined the actual quantity of major raw materials, etc. used for construction and compared the same with the cost shown by the assessee. I fail to understand as to why the assessee should agitate on the plinth area method when it itself did not submit the structural designs to the DVO. May be the assessee knew that by providing structural designs, the exact cost of construction would be worked out and consequently, the suppression of expenditure on construction. Further, the assessee has not maintained quantitative details and day-to-day consumption of raw materials used in the construction. The assessee has further not produced any evidence to substantiate that any extra items were included in the determination of cost of construction by the DVO. Further, the DVO has stated that spartek/glazed tiles were used whereas the assessee contended that it did not use them. At no stage the assessee has furnished as to which other agency fixed any such spartek tiles. Besides that no details have been furnished regarding alterations made at the request of flat owners at the time of construction and its effect on costing, etc.
In view of the above discussion, I hold that the AO is right on relying on the DVO’s report for the asst. yr. 1992-93.
In nutshell, the petition under Section 144A on both the issues stands rejected.”
23. After considering the order framed by the Dy. CIT under Section 144A as well as DVO’s report, the AO reached to the following conclusion :
“I. Reference to Valuation Cell was in order and the valuation report is valid and not bad in law.
2. For the sake of argument, even if it was bad in law, the information contained therein has been used after giving a proper opportunity of being heard to the assessee.
3. The book results declared by the assessee cannot be accepted as reflecting true state of affairs and hence it is rejected.
Thus, an addition of Rs. 50,71,505 is made to the income of the assessee as unexplained investment under Section 69 of the IT Act. This is the difference between the cost determined by the DVO and that shown by the assessee.”
24. Aggrieved by the above order of the AO, the assessee approached the first appellate authority, who has deleted the entire addition, without controverting the findings recorded by the AO. After having the following observations for the asst. yr. 1992-93, the CIT(A) deleted the addition vide its order dt. 17th Jan., 1996 :
“I have considered the rival submissions and also perused the appellate order for asst. yr. 1991-92. The objections raised before me had also been raised for asst. yr. 1991-92 (since the issue involved is common) arid the CIT(A) on merits agreeing with the appellant’s contentions had held that the method adopted by the DVO was unclear especially when there was no reference made for the valuation of the property for asst. yr. 1992-93 and further he also held that the valuation suffered from various infirmities such as appellant’s objections relating to the investment made by the purchasers and the fact that the borewell was already in existence, had been completely ignored. In the said appellate order, the appellate authority while setting aside the assessment order gave specific directions as under :
The assessment is accordingly set aside to be refrained after allowing a meaningful and proper opportunity of hearing to the appellant before concluding the matter. The AO is directed to check the state of the regular books of account, vouchers and bills maintained by the appellant and make a reappraisal of the issue taking note of each individual objection of the appellant relating to the DVO’s report.’
The said appellate order was passed on 28th Nov., 1994. The assessment order under appeal was passed on 28th March, 1005 (sic). The directions given in the above appellate order were not followed and it was simply stated that the facts are similar for asst. yr. 1992-93 also and, therefore, the book results declared by the appellant were not acceptable. However, the facts for asst. yr. 1991-92 were different inasmuch as the IT return for asst. yr. 1991-92 was before the AO when the reference to DVO was made, but the IT return for asst. yr. 1992-93 (wherein all major transactions relating to the purchases were effected) had not been even filed when the reference in question was made. In asst. yr. 1991-92, the project had barely begun (four months old) and was in progress when the reference to the DVO was made whereas in asst. yr. 1992-93, the project was completed and the sales of the flats were effected and possession was also given. Thus, when the AO was completely in dark about the total cost of construction, yet to be declared by the appellant and verified by him, how could he make a reference to the Valuation Cell. Further, though the DVO has stated that the valuation required was as on 31st March, 1991 in the valuation report, from the observations made by the Dy. GIT himself which read as under:
‘The first contention that the reference to the DVO was made for asst. yr. 1991-92 only and, therefore, the valuation report for asst. yr. 1992-93 cannot be made use in assessment order for asst. yr. 1992-93 is prima facie incorrect and untenable. The reference to the DVO was made by the AO vide letter dt. 3rd July, 1992. Perusal of the same reveals that the AO never stated that the valuation is to be made as on 31st March, 1991 only. Even in the ‘subject’ stated in the letter, there is no such reference. The AO in para 1 of the letter has simply stated that the assessee-company has filed return for asst. yr. 1991-92 declaring cost of construction at Rs. 87,28,539 including cost of land of Rs. 47,94,760. The AO has requested the DVO in para 2 that he should determine the correct and true cost of construction and send the valuation report on or before 31st March, 1993. Nowhere the AO has stated even indirectly, that valuation be made as on 31st March, 1991. Therefore, the contention of the assessee that valuation from the DVO was sought only as on 31st March, 1991 is incorrect.’
It is evident that the reference was made for asst. yr. 1992-93 also. In the case of ITO v. Tandel Automobiles, (1990) 38 TTJ (Ahd) 438 : (1991) 35 ITD 191 (Ahd), the Tribunal, Ahmedabad Bench–A, has held that ‘once the books had not been rejected or even doubted by the ITO, he was in fact having no basis for even issuing the commission under Section 131(1)(d) of the Act. This very fact itself outweights the reliance by the ITO on the report of the DVO.’ Thus, not only the rejection of books of account for placing reliance on valuation report is a precondition but it is also a precondition for making the reference to the Valuation Officer. Similar, view has been taken by the Tribunal, Bangalore Bench, in the case of Patil Enterprises v. Asstt. CIT (1995) 53 TTJ (Bang) 279, by Tribunal, Madras Bench in the case of K. Hari Rao v. ITO (1979) 8 TTJ (Mad) 15, by Tribunal, Ahmedabad Bench in the case of ITO v. Sethna Ice & Cold Storage (1980) 9 TTJ (Ahd) 537 and by Tribunal, Jaipur Bench, in the case of Singhvi Woollen Industries v. ITO (1980) 10 TTJ (Jp) 276. In the present case, leave alone the verification of books of account but even without the IT return itself (which was not even due when the reference to the Valuation Officer was made), the AO has made the reference to the Valuation Officer. Further, even after getting the IT return/audited accounts and various details asked for, the AO does not seem to have bothered to verify the same. Thus, while observing that no day-to-day quantitative details are filed, the AO seems to have totally overlooked the fact that the appellant has supplied the material and that the labour was given on contract as per the contract agreement. This aspect has also been overlooked by the Valuation Officer. The quantitative details regarding the materials supplied alongwith the necessary details and vouchers are maintained and were produced before me as also during the assessment proceedings. The day-to-day consumption details can, therefore, only be obtained from the contractor to whom the appellant entrusted the work. Regarding the spartek/colour glazed tiles, etc., the AO as well as the Valuation Officer had missed the point that when the Valuation Officer visited the site, the project had already been completed and the flats had also been handed over to the respective buyers. The appellant has also filed copy of advertisement giving various features and details of fittings provided by the builder and the same did not show any provision for spartek/colour glazed tiles. If, therefore, the AO had any doubt about the appellant’s contentions, he should have probed further into the matter especially when he was specifically directed to do so by the appellate authority. The appellate authority in the appellate order for asst. yr. 1991-92 had also directed to consider the appellant’s objections about the borewell expenses and had also directed to verify the books of account. But the AO has done none of this. It has been held by the Courts that the point in issue is to be proved by the party making the assertion and negative is not to be proved [Chowkchand Balabux v. CIT, (1961) 41 ITR 465 (Assam)). However, the AO having failed to do so in the first instance, i.e.,. asst. yr. 1991-92, even after being directed by the appellate authority, has not followed the directions for asst. yr. 1992-93. As a matter of fact, there also appears discrepancy regarding the Valuation Officer’s visiting the entire building and not only one flat at the time of inspection because as per the assessment order, while discussing the DVO’s report it is stated by the AO as under :
‘Spartek/colour glazed tiles were observed as used during the inspection and at no stage it was substantiated by the assessee with evidence that such work was done by some other agency. Even though, only one flat was measured and verified in detail, the other flats were also having similar provisions, it was not required to measure each and every flat.’
However, as per the DVO’s comments of 16th Nov., 1994, it is seen that the Valuation Officer has stated as under :
‘Even though only one flat was measured and verified in detail, the other flats were also seen to satisfy the comparability.’
It is also seen that the DVO has mentioned that only some details were produced. From scrutiny of the correspondence between the DVO and the appellant-, it is seen that the DVO vide his letter No. 2(5)/DVO/1992-93/402, dt. 14th July, 1992, raised 14 queries and the same had been duly replied, including plan and structural designs, vide appellant’s letter of 19th Aug., 1992. No other details besides the above 14 details were called for by the DVO, though the appellant had volunteered vide his above letter to furnish any further information if required. Apart from what has been stated above, the AO has not found any defects in the accounts maintained by the appellant. It is, therefore, felt that it is not the defect in the accounts but it is the valuation report that has prompted the AO to reject the books. However, as seen above, the AO has not made out a case for not accepting the cost of construction as declared by the appellant. As has been held by many judicial authorities including Tribunal, ‘C’ Bench, Ahmedabad in the case of Babyland Hostel v. ITO (1988) 31 TTJ (AM) 136, the addition made by giving blind eye to the material available on record and without pin-pointing any glaring or major defects in the books of account maintained by the appellant cannot be sustained. The AO is, therefore, directed to delete the addition of Rs. 50,71,505.”
25. For the asst. yr. 1991-92, the addition was deleted by the CIT(A) after having the following observations vide its order dt. 24th March, 1999 :
“I have considered the contentions of the AO and gone through the case laws relied upon by the appellant carefully. The first basic question raised by the appellant is in respect of jurisdiction assumed by the AO for making reference to the District Valuation Officer to determine the cost of construction of the building, which related to the assessment year under consideration, i.e., asst. yr. 1991-92. The return of income for the assessment year was filed on 27th Dec., 1991, for which assessment year only skeleton construction was completed. The reference to the DVO was made on 3rd July, 1992. At that time the return for the subsequent assessment year, i.e., asst. yr. 1992-93, was not even due and the same was filed on 28th Dec., 1992. Without knowing the total cost of construction disclosed by the assessee, the AO could not have come to the conclusion that the cost of constraction for the building had been suppressed.
The appellant has relied on the decisions of the Tribunal, Calcutta Bench, in the case of Modern Construction Development & Project Promotion v. Asstt. CIT (1997) 63 ITD 235 (Cal). At p. 237 in respect of assumption of jurisdiction by the AO, for reference to the DVO, the following has been held :
‘From various judgments, the proposition would emerge that (a) for the purpose of making an addition towards unexplained investment, the AO was under legal obligation to verify the books and vouchers maintained by the assessee in support of the cost of construction shown by him and point out specific defects; (b) upon rejection of the books or upon pointing out defects, the AO would acquire the right to refer the matter to the Valuation Officer, if so required.’
Thus, it is clear that for making a reference to the Valuation Officer to determine the cost of construction, the AO should first come to the conclusion that the books of account showing the cost of construction are not reliable and hence, liable to be rejected.
In the present case, the reference was made to the DVO even before the return for asst. yr. 1992-93 was filed. This was the year when major portion of construction was carried out and the construction of the building was also completed. Only after having the figures for total cost of construction, the AO could have formed an opinion as to the suppression of the cost of construction. The AO could not come to the conclusion at the time of making reference on 3rd July, 1992, that the books of account were liable to be rejected.
In the assessment order, the AO has stated that the books of account suffered from following deficiencies, as pointed out in detail in para 8 above of this order :
(a) No stock register was maintained wherein quantitative details regarding the purchases and consumption of materials could be recorded.
The AO has described in detail as to theoretical consequences can follow for non-maintenance of the register and what he cannot find out in the absence of the said register. Since, the appellant took the stand that it was completing only one project, all purchases could be taken towards consumption for the construction. The appellant produced bills and vouchers for all purchases. From these bills and vouchers the necessary figures of consumption for the period under consideration could be arrived at. Mere maintenance of stock register would not throw any light on the suppression of investment in the construction. Therefore, mere non-maintenance of stock register in the present case would not lead to the conclusion of suppression of investment and the same is not so vital as to be fatal for altogether rejecting the books of account. The AO has not commented anything on the state of bills and vouchers maintained and produced before him, i.e., whether taken together for the whole period they were inadequate.
The next objection of the AO is non-production of architect’s periodic reports of inspection. In para 8(b) above, the AO’s conclusions have been quoted. In the first place, as pointed out by the appellant, the architect is not obliged to prepare such detailed reports as was inputed by the AO and secondly, even from such technical details as would have been given by the architect, the suppression of investment may not be worked out.
Thus, the above two deficiencies pointed out by the AO do not appear to be sufficient for rejecting the books of account. For the payments to labour contractor, the AO has observed that the rate of Rs. 21.25 per sq. ft. is quite low keeping in view the construction process and the type and quality of construction. Further, the labour payments were determined in advance. Here, the AO does not say as to what is (the) appropriate rate if the rate of Rs. 21.25 per sq. ft. is quite low. The payments to labour contractor has to be determined in accordance with the different stages of construction carried out by the labour contractor. The schedule for such payments has been detailed in the assessment order. There appears nothing wrong in entering into such a contract relating to the payment vis-a-vis different stages of construction. Here also the deficiency as pointed out by the AO is not sufficient to reject the books of account.
From the different aspects as discussed above, the conclusion is that the book results should have been rejected at the time of making reference to the DVO on 3rd July, 1992. Rejecting the books in the assessment order cannot be a substitute for assuming jurisdiction by rejecting the books at the time of reference, as held by Courts and as quoted above from a decision in para 17, above. In any case, the defects pointed out by the AO are not sufficient and adequate to arrive at the conclusion that the cost of construction has been suppressed.
As to the manner of determination of cost of construction for the asst. yr. 1991-92 under consideration, the basis of bifurcating the total cost of construction determined by the DVO, does not appear to be scientific. The method adopted by the DVO is based on the assumption that provision in the cost of construction is proportionate to the total cost of construction determined. This is not adequate to make addition under Section 69C. Further, the starting point of determination by the DVO is the value mentioned in Instruction No. 1671 which is based on the rate of 1st Oct., 1976 and to which the cost of index has been applied.
In the next assessment year, i.e., asst. yr. 1992-93, the addition was made of Rs. 50,71,505 on the basis of the same valuation report.
The same was deleted by the CIT(A) under appellate order No. CIT.R-I/82/1995-96, dt. 17th Jan., 1996. When this fact was brought to the notice of the AO at the time of assessment, he has stated that the Department has not accepted the decision of the CIT(A) and second appeal has been filed before the Tribunal. The appellant has also relied tin the following two decisions :
1. Nishant Housing Development (P) Ltd. v. Asstt. CIT (1995) 52 ITD 103 (Pat);
2. Ruby Builders v. ITO (ITA No. 267/Ahd/1988, dt. 3rd July, 1998 (Tribunal, Ahmedabad Bench ‘A’) [reported at (1999) 63 TTJ (And) 202-Ed.].
Keeping in view the above facts and circumstances and the judicial decisions, the addition of Rs. 25,51,227 is deleted.”
26. Aggrieved by the above orders of the CIT(A), the Revenue approached us for further adjudication. It was argued by the learned Departmental Representative that the assessee failed to provide quantitative details of different building materials used by the assessee in the construction project, nor any stock register was maintained. Failure of assessee to provide technical details of construction activity from which it can be deduced that what construction activity was taken during the previous year and what should be the material consumed for that construction activity. Therefore, the AO was justified in making a reference to the DVO. He further submitted that in view of the amendment brought in the statute book by way of Section 142A with retrospective effect, the AO was justified in making a reference to the Valuation Officer for the purpose of making an assessment under the IT Act. As the assessee has constructed a residential building, for which no structural drawings were provided by the assessee in spite of specific query by the DVO and the AO, the DVO was justified in applying the basic rate of Rs. 2,450 per sq. mt. He further submitted that the DVO has arrived at the valuation in accordance with the guidelines and instructions as contained in Instruction No. 1671 issued by the CBDT. He further submitted that the DVO has also elucidated as to how the basic rate of Rs. 2,450 has been arrived at. A copy of the computation has also been provided to the assessee. As per the learned Departmental Representative, before applying the rates, the DVO has given due credit and adjusted the rate as per the prevailing rate of construction in Rajkot at the relevant point of time. As per the learned Departmental Representative, during the course of inspection, the DVO has found that spartek tiles were fitted in the building, which was stated by the assessee as having fitted by the prospective buyers, but no confirmation were filed from the prospective buyers to the effect that spartek tiles were fitted by them through incurring additional expenditure. If the assessee wants to shift the burden of any part of cost of construction having been incurred by others, the onus lies on the assessee to prove that such costs have been incurred by others and not by the assessee. In the instant case neither the assessee provided name and address of the prospective buyer nor confirmation from the prospective buyer regarding purchase of these spartek tiles, or payment of additional price to the assessee for such work. He further pointed out that the assessee failed to provide even the report of any chartered engineer or valuer to the effect that the construction cost recorded in the books of account were same or nearby to the total cost recorded in the books. He further submitted that without controverting various findings recorded by the AO, the CIT(A) has brushed aside all the observations of the AO and just by pointing out some defects in the AO’s order, he has deleted the entire additions.
27. On the other hand, the learned Authorised Representative vehemently argued that reference was made by the AO without application of mind and without rejecting books of account. As per the learned Authorised. Representative, the reference was made without finding any defects whatsoever in the books of account and that the AO has made a reference purely on the basis of presumption that the assessee’s (sic) failure not being satisfactory, the reference was made. As per the learned Authorised Representative, the reference to the Valuation Officer was made by the AO vide letter dt. 3rd July, 1992, when the return for asst. yr. 1992-93 was not even filed before the AO, and that bulk of the cost of construction was pertaining to the asst. yr. 1992-93 only. As per the learned Authorised Representative, the DVO carried out inspection of the property on 4th Dec., 1992 when the entire building was sold out and occupied and that the DVO visited only one flat No. 11 A. The query letter issued by the DVO on 14th July, 1992 was complied with by the assessee vide its letter dt. 19th Aug., 1992. The final report was sent by the DVO directly to the AO without providing any opportunity to the assessee of rebuttal whatsoever. With regard to the spartek tiles used in the building, the learned Authorised Representative submitted that as far as personalized changes effected by the purchasers of the flat are concerned, it was incumbent upon the AO to ask the said flat owners how they had effected the said changes. With regard to the AO’s observation vide para 3.8 of his order for the asst. yr. 1991-92 to the effect that “book results cannot be accepted because books of the assessee do not contain the true picture of affair. The floors are fitted with marble flooring and spartek tiles where as the books contain no details of such fittings. No quantitative details of materials consumed have been filed”, the learned Authorised Representative submitted that as far as the flooring is concerned, the said expenditure is incurred in the asst. yr. 1992-93, there was no question of accounting for these expenses in the asst. yr. 1991-92.
28. Following was the categorical submission of the learned Authorised Representative, Mr. Singhvi during the course of hearing :
(a) The reference to the Valuation Cell made without any application of mind, was made before the IT return for asst. yr. 1992-93 during the course of which bulk of the construction was carried out was even filed by the respondent.
(b) The reference was made purely on a notional contention that the valuation as shown by the assessee was not satisfactory. No concrete evidence, not even a whisper has been made in the entire order as far as the rejection of the books of account is concerned. As has been clearly laid down in the decisions described in the attached Annex. A, the AO must point out glaring defects in the books of account before he can take recourse to the report of the Valuation Cell.
(c) Reference may also be made to the observations of the first appellate authority in the order for asst. yr. 1992-93 wherein at p. 4, she has clearly stated that “In the present case, the AO has referred the matter to the DVO under Section 131(1)(d) without application of mind and hence reference itself is bad in law. This is clearly borne out by the fact that the AO had asked for several details (for asst. yr. 1991-92) on 22nd Oct., 1992, i.e., 3 months and 16 days after referring the matter to the Valuation Officer.”
(d) The DVO had sent his report directly to the AO. No objections were invited nor were any additional details sought for by the respondent. It may kindly be noted that all the details that were sought for by the DVO vide his letter dt. 14th July, 1992 were provided by the assessee vide its letter dt. 19th Aug., 1992. After that there was no communication from the DVO’s office. The DVO has not bothered to seek any further details whatsoever. As such the entire report is prepared on the back of the assessee without providing any opportunity of rebuttal to the assessee which is clearly against the principles of natural justice and against decided judicial principles.
29. Through his written submission, the learned Authorised Representative condemned the action of the AO for rejection of the books of account through his following submissions :
The learned AO vide para 2 of his order has laid out his contentions for rejecting the books of account of the respondent. The learned AO has, however, not indicated whether the accounts are being rejected pursuant to Section 145(1) or 145(2). Your Honours’ may kindly note that the respondent is a public limited company whose accounts come in for stringent audit requirements pursuant to the provisions of the Companies Act, 1956, which audit has to be conducted by a duly qualified chartered accountant. The learned AO has rejected the books without even for a while observing that the accounts are certified for true and fair view and did not contain any adverse or qualificatory observations by the auditors.
Your Honours’ will appreciate that the respondent has maintained a detailed register wherein purchase of every item has been booked, both for value and quantity. These details had also been provided to the AO during the course of the assessment proceedings. All the purchases are supported by bills and vouchers. The Hon’ble CIT(A) vide para 3 of his order had specifically asked the AO to verify the state of the regular books of account including vouchers, bills, etc., the respondent begs to categorically submit that the AO has not pointed out a single irregularity in the vouchers and bills submitted. Details of the quantities consumed along with the English translation is attached at pp. 12-21 and 22-25 of the Vol. 1 of the paper book.
The learned AO vide paras 2.1 to 2.4 of his order has laid out his contentions for rejecting the books of account of the respondent. In a nutshell, the learned AO has pointed out the following defects :
That the respondent has not maintained a day-to-day register recording the consumption of the several raw materials utilized in the construction. The AO vide para 2.1 of his order has contended that the respondent has not maintained any details vide which the day-to-day consumption of the raw materials would be verifiable. The AO has further on contended that details about the day-to-day work done have also not been maintained. The AO has further on contended that bills per se do no certify consumption. The AO has failed to appreciate that this requirement for maintaining day-to-day consumption details apart from being unnecessary is impossible to- maintain. The respondent begs to submit that this was the only project it had undertaken; that obviously all that it had purchased was consumed; that books of account cannot be rejected because something that is impossible to maintain has not been maintained. The AO has failed to appreciate that a method of accounting has to be practically sustainable and commercially practicable. How does, the AO expect the respondent to maintain a day-to-day record of steel consumption or cement consumption or Kapchi consumption, etc. The respondent begs to submit that the learned AO’s contention is devoid of any kind of commercial evaluation and consequently does not merit the consideration to form the basis for invoking the provisions of Section 145. The learned AO has further on stated that day-to-day details about what work was done have not been maintained. The respondent begs to submit that it would be impossible to maintain records which would show that the 54th bag of cement was consumed on the fourth floor or that steel rod No. 64 was consumed on the 10th floor. The AO has summarily rejected the bills, vouchers produced without not even considering that purchases would precede consumption. This apart the respondent has executed only one contract; has followed the completed contract method and accounted for sales in asst. yr. 1992-93. Consequently, there is no impact of any kind on inventory valuation. That the respondent begs to submit that its purchases have been accepted. And since it had handed over the entire construction work to a professional contractor, the said purchases were treated as consumed at the point of purchase itself. As your Honour can well see that as at 31st March, 1991, the entire expenditure has been transferred as work-in-progress. As such even if for a brief moment it were to be presumed that there should be some closing stock, even then both the work-in-progress and the closing stock as at 31st March, 1991 would be carried forward in the balance sheet as opening balances as at 1st April, 1991. There would be no impact relating to taxation. As such the method of accounting adopted by the assessee has been accepted by the AO. The only defect he refers to is in the maintenance of records and as detailed out above, this too would have no impact on the profit returned since the entire profit has been returned in asst. yr. 1992-93.
30. With regard to reference under Section 131(1)(d), the Authorised Representative stated as follows :
Section 131(1)(d) speaks of ‘issuing commissions’. However, before making order under Section 131(1)(d), there must be an application of mind by the AO. There must be evidence that there was material on record from where the necessity of invoking Section 131(1)(d) has emerged. In the present case, the AO has referred the matter to the DVO under Section 131(1)(d) without application of mind and hence reference itself is bad in law. This is clearly borne out by the fact that the AO had asked for several details (for asst. yr. 1991-92) on 22nd Oct., 1992, i.e., 3 months and 16 days after referring the matter to the Valuation Officer. The report given by the DVO under Section 131(1)(d) is in the advisory capacity and hence cannot be final or conclusive. This may be used as -guide and the report of the DVO must be examined in light of objections by the respondent. In the present case, the AO relied on the DVO’s report as conclusive which is absolutely unjustified.
The AO has also mentioned that for asst. yr. 1991-92, the respondent’s books of account were rejected because no quantitative details of materials consumed had been filed. This objection of the AO is patently wrong because all the relevant quantitative details were specifically sought for by the AO vide his letter of 28th Dec., 2004 and all these details were duly submitted by the respondent on 4th March, 1994, i.e., during the assessment proceedings. This contention of the respondent has also been accepted by the CIT(A) for asst. yr. 1991-92. The AO has not even bothered to correct this factual defect while drafting the order for asst. yr. 1992-93. In fact he has rested complacent with the fact that the AO having thus rejected the books of account for asst. yr. 1991-92, the accounts for asst. yr. 1992-93 automatically stand rejected. This is clearly unlawful on facts when the respondent has submitted every conceivable details including quantitative details to the AO (copies of details filed during the assessment proceedings were filed before me). The AO has not advanced a single substantive reason for invoking the provisions of Section 145 and rejecting the books of account regularly maintained by the respondent.
Further, he has not given any opportunity to the respondent to put his objections against the valuation report. In fact, no copy of the report was given to the respondent.
Further, there was no necessity on the part of the respondent to file any valuation report because the cost of construction as debited in the books of account is itself the total value. The respondent’s valuation report was not necessary because the respondent was carrying out construction activities as part of its business activities. This aspect has also been upheld by the Tribunal, Bangalore in the case of Patil Enterprises v. Asstt. CIT (1995) 53 TTJ (Bang) 279.
Thus, when the AO was completely in dark about the total cost of construction, yet to be declared by the respondent and verified by him, how could he make a reference to the Valuation Cell.
31. The learned Authorised Representative vehemently argued that very rejection of the accounts being uncalled for, the basis for the AO to draw adverse inference on the judicial decision relied on by the assessee stands admonished. For this purpose, he placed reliance on the following decisions :
1. ITO v. Dreamland Ent., Rajkot (And, Tribunal)
2. Shri Murlidhar Hirjibhai v. ITO, Rajkot (Ahd, Tribunal)
3. Nishant Housing Development (P) Ltd. v. Asstt. CIT, (1995) 52 ITD 103 (Pat)
4. ITO v. Tandel Automobiles, (1990) 38 TTJ (Ahd) 438 : (1991) 35 ITD 191 (Ahd)
5. ITO v. Pitamber Industries (P) Ltd., (1992) 42 ITD 373 (Del)
6. Babyland Hostel v. ITO, (1988) 31 TTJ (Ahd) 136
7. CIT v. Western Estates,
32. In support of the proposition that, without rejecting books of account or pinpointing any glaring defects in the books of account, no addition can be made on the basis of DVO’s report about the estimated cost of construction, following case laws were relied on :
(a) Babyland Hostel v. ITO (supra)
(b) ITO v. Tandel Automobiles (supra)
(c) Sayar Engg. (P) Ltd. v. ITO (1992) 43 TTJ (Jp) 23
(d) ITO v. Sagar Cold Storage & Ice Factory, 113 Taxation 7 (Del)
(e) Sri Har Sarup Cold Storage & General Mills v. ITO, (1988) 27 ITD 1 (Del)(TM)
(f) Aferesh Behal v. ITO (1992) 41 ITD 298 (Del)
(g) ITO v. Pitambar Industries (P) Ltd. (supra)
(h) CIT v. Pratap Singh Amro Singh Rajendra Singh & Deepak Kumar .
33. With regard to invocation of power to make a reference under Section 142A, the argument of the learned Authorised Representative was as follows :
Even if one presumes that Section 142A applies and the reference to the Valuation Officer can be made, Section 142A states the circumstances under which the reference can be made. The section states that where an estimate of the value of any investment referred to in Section 69 or 69B is required to be made, the AO may require the Valuation Officer to make an estimate of such value and report the same to him. Section 69 is attracted when the investment is not at all reflected in the books of account. Section 69B applies where the AO finds that the amount expended on making investment exceeds the amount recorded in the books of account. Thus, the prerequisite before the AO to make the reference is that he must have found that the cost exceeds the cost recorded in the books of account. It, therefore, follows that he must examine the books of account and on such examination, he must find out whether the cost exceeds the books cost. Unless this is done, he does not get the power to make a reference to the Valuation Officer.
34. With regard to DVO’s report, submission of the learned Authorised Representative is as follows :
The first objection to the report is that the DVO has submitted his report directly to the AO. He has not bothered to seek any clarifications from the assessee with regard to the valuation being done by him. Much to the contrary, in his letter dt. 16th Nov., 1994, a copy of which is attached at pp. 69 to 70 of this synopsis, has simply stated that “It was not necessary on the part of this office to give any opportunity to the assessee to file his objections and, therefore, the report was sent to the AO directly”. The assessee, therefore, submits that no opportunity was given to it to file its objections against the said valuation report.
The DVO has not laid out any break-up of the quantities considered for the valuation. He has not substantiated as to how the rate of Rs. 2,450 has been conjured up. The AO has rested complacent with providing a statement. However, the specific queries raised by the respondent have not been complied with.
In particular the respondent would like to reiterate that the AO has at p. 11 of the order not bothered to appreciate that it is not the question of the fitting of the spartex tiles but the very purchase was not effected by the respondent that is material to the issue. He “has misled himself by not examining the bills that the respondent produced and which were of mosaic tiles.
The AO has further on grievously erred in contending that since the issue involved pertained to the valuation of the skeletal structure only, the objections as raised by the respondent are not relevant. He has failed to appreciate that a substantial part of the valuation report was being challenged on factual grounds and that a convenient reliance so placed by him on an apparently factually erroneous valuation report is beyond the purview of the Act.
Your Honour’s kind attention is further on invited to the erroneous issue of proportioning as advanced differently by both the AO and the DVO. The learned AO has failed to appreciate the respondent’s arguments in this regard that during the course of the asst. yr. 1991-92 only the skeletal structure was constructed and that too in part. Consequently, the entire exercise of proportioning total costs over these two periods would be incorrect. What can be apportioned is only the cost of the skeletal figure. This is of course without prejudice to all the other objections as raised by the respondent.
The respondent further on begs to submit that all the details as sought for by the DVO were provided to him. The AO on p. 15 has drawn up a factually incorrect conclusion that technical details of the construction were not provided. The DVO had sought 14 details vide his letter dt. 14th July, 1992 all of which were provided by the assessee vide his letter dt. 19th Aug., 1992. Copies of these letters are attached at pp. 50 to 67 of the synopsis. The DVO has not sought any additional details after these submissions. The DVO vide his letter dt. 16th Nov., 1994 has contended that technical details regarding the concealed items were not submitted. The assessee begs to submit that this contention of the DVO is contrary to facts. All the details that were sought for by him were submitted. If anything further was required, (it) was not (sic) the duty of the AO to inform the assessee accordingly. And further even the details submitted in the Annexures have also been completely ignored by the DVO for no reason whatsoever.
The respondent further on begs to submit that the entire exercise as carried out by the AO on p. 17 is inconceivable in law. The AO has failed to appreciate that this is not a case of approaching the nearest figure of valuation as made by the DVO; it is rather a case of examining the factual basis of the valuation process. The AO has refrained from carrying out the judicial exercise which he is duty bound to do. And after a maze of imaginary twists and turns, he has landed the respondent at the same point wherein he had begun.
Additionally, the respondent also begs to submit that even otherwise there is no provision in IT Act either for making reference to DVO for determining cost of construction or for obtaining report of DVO for computing business income. The respondent begs to invite your Honour’s kind attention to the decision of the Hon’ble Supreme Court in Smt. Amiya Bala Paul v. CIT , wherein this contention has been confirmed by the apex Court.
35. We have considered the rival contentions, carefully gone through the orders of the authorities below and also deliberated on the judicial pronouncements cited by the learned Authorised Representative and the learned Departmental Representative during the course of hearing as well as discussed by the lower authorities in their respective orders, in the factual matrix of the case under consideration. From the record we find that during the previous year 1990-91 relevant to the asst. yr. 1991-92, under consideration, the assessee had started construction of a residential building called “Sanjay Apartments”. The return was filed on 27th Dec., 1991. The cost of construction declared by the assessee for the said building for the asst. yr. 1991-92 was Rs. 39,33,779. During the course of scrutiny for the asst. yr. 1991-92, the AO found that the assessee had shown consumption of building materials in the process of construction like, iron, steel, cement, bricks, electrical goods, etc. The Authorised Representative was, therefore, asked to produce stock register wherein quantitative details regarding purchase, consumption and closing stock of these materials have been recorded. The Authorised Representative failed to produce any such register. The AO, therefore, found it difficult to work out the actual consumption of respective materials and the value of work-in-progress shown in the books of account vis-a-vis cost of construction debited in the books of account with reference to different purchases. The AO further observed that in the absence of the inspection report of the architect, the extent of construction carried out at site cannot be verified and that technical details of the beams, columns, etc. could not be verified. In the absence of technical details, the extent of material consumed in the foundation cannot be verified. The AO further observed that the Authorised Representative has failed to produce certificate from the architect regarding work-in-progress shown at the end of the year in the construction account and balance sheet. With regard to payment of labour charges, the AO observed that labour work was done through M/s Mayur Construction Co. for which six bills issued by it in the month of February and March were furnished. The AO found that labour work has been given at the rate of Rs. 21.25 per sq.ft. for the entire labour work of the building, which was quite low when compared to the labour work involved in the entire construction process and the type and quality of construction undertaken by the assessee- firm. He further observed that the assessee has computed in advance the total labour payment to be debited in the books of account and subsequently bills have been prepared, which were explained by the AO at p. 5 of his order. No details were filed by the assessee to justify the labour rate of Rs. 21.25 per sq. ft. with reference to the quality and,, quantity of work undertaken for the entire labour work of the building. With regard to construction undertaken during the previous year 1990-91 relevant to the asst. yr. 1991-92, it was submitted before the AO that total RCC work undertaken was 50,640 sq. ft. and the total brick work undertaken was 18,931 sq. ft. However during the course of assessment proceedings, the AO observed that the total built-up area for building A was 48,489 sq. ft. and for building B was 35,209 sq. ft. During the course of scrutiny assessment, the assessee was asked as to what was the extent of construction, as a proportion of total built-up area, undertaken during the previous year. It was replied by the assessee that during the previous year it has carried out only the construction work of the skeleton of the building, hence it was not possible for him to state as to what proportion of the total built-up area was constructed during the previous year. The AO observed that in the absence of this information comparison of consumption of various materials vis-a-vis the extent of construction is not possible, and the extent of investment made in the building during the previous year by the assessee cannot be ascertained from his books of account. In view of these observations, the AO reached to the conclusion that the accounts of the assessee do not reflect true and fair view of the cost of construction recorded in the books of account and the profitability during the previous year. Due to inability of the assessee to furnish various details called for by the AO so as to verify the correctness of various building materials alleged to be used in the building construction as shown in the books of account, the books of account were rejected under Section 145. Only after rejecting the books of account, the AO made a reference to the DVO. The DVO has valued the cost of construction at Rs. 64,85,006 for the asst. yr. 1991-92 and Rs. 1,35,48,994 for the asst. yr. 1992-93. The DVO called for various information from the assessee with regard to the building so constructed vide its letter dt. 14th July, 1992, which was duly acknowledged by the assessee and replied on 19th Sept., 1992. Even though in this letter it was stated that structural drawings were enclosed, but the same is not correct because while commenting on the assessee’s submission, as required by the AO, the DVO in its letter dt. 16th Nov., 1994 had categorically stated that :
“Even though all the technical details such as structural drawings, foundation details, etc. of main concealed items were required to be given. These were not furnished by the assessee, without which the correctness of the material used such as cement, steel, etc. could not be verified.”
After receipt of DVO’s report, the assessee was confronted by the AO with various rates taken by the DVO in his report. The objections of the assessee were called for and the AO has dealt in detail with each and every objection of the assessee before adopting the valuation report of the DVO. Detailed justification was given by the AO for the plinth area rate taken in the valuation report. Accordingly, the additions of Rs. 25,51,227 and Rs. 50,71,505 were made under the head “unexplained investment”.
36. We also found that during the course of assessment proceedings for the asst. yr. 1992-93, an application was also made by the assessee under Section 144A to the Dy. GIT, praying for issue of necessary directions to the AO and call for and examine records of the proceeding. An order was passed by the Dy. CIT on 24th March, 1995 under Section 144A, in which petition of the assessee was rejected with the observation that many details like structural design/drawings, etc., were not furnished to the Valuation Officer and that reference made to the Valuation Cell under Section 131(1)(d) is proper and appropriate to get guidance from the technically qualified Government valuer. The Dy. CIT also found that standard plinth area method was used by the DVO for the reasons that the assessee failed to submit structural designs to the DVO and, therefore, the plinth area method is the most sound method to calculate the cost of construction. The Dy. CIT observed that had the assessee filed the structural designs to the DVO, the DVO would have determined the actual quantity of extra raw materials, etc. used for construction and the AO could have compared the same with the cost shown by the assessee. He further noted that “I fail to understand as to why the assessee should agitate on the plinth area method when it had itself did not submit the structural designs to the DVO. May be the assessee knew that by providing structural designs, the exact cost of construction would be worked out and consequently the suppression of expenditure on construction. Further, the assessee has not maintained quantitative details and day-to-day consumption of raw materials used in the construction. The assessee has further not produced any evidence to substantiate that any extra items were included in the determination of cost of construction by the DVO. Further, the DVO has stated that spartek/glazed tiles were used whereas the assessee contended that it did not use them. At no stage, the assessee has furnished as to which other agency fixed and used spartek tiles. Besides that no details have been furnished regarding alterations made at the request of the flat owners at the time of construction and its effect on costing, etc.
In view of the above discussion, I hold that the AO is right in relying on the DVO’s report for the asst. yr. 1992-93.
In the nutshell, the objection under Section 144A on both issues stands rejected.”
37. In view of the above order of the Dy. CIT under Section 144A, the AO observed that reference to the Valuation Cell was in order and the valuation report is valid and not bad in law. He further noted that even if it was bad in law, the information contained therein has been used after giving proper opportunity of being heard to the assessee.
38. From the order of the CIT(A), we found that he has deleted the entire additions without any cogent reasons to the effect that reference to the DVO was not warranted under Section 131(1)(d). The CIT(A) further observed that reference was made to the DVO much prior to the filing of return by the assessee for the asst. yr. 1992-93, in which major expenditure were incurred, therefore, the AO was having no material to come to the conclusion that the assessee has not recorded the correct expenditure on the construction. He further observed that division of cost of construction by the DVO is irrational. He further noted that there was no question of giving” evidence regarding changes made by the respective owners of the flats insofar as cost incurred by the individual cannot be shown in the assessee’s books of account. As per CIT(A), the AO has accepted the DVO’s report because of his technical competence but he failed to consider the fact that the valuation report as referred under Section 131(1)(d) is only by way of guidance. As” per the CIT(A), standard plinth area method is applicable to the Government contractors and used for the construction of Government buildings which are given to the Government contractors and is inclusive of material and labour charges and profit element is also a part of cost of construction. As per the CIT(A), it is well known fact that the Government rates of construction are very high as compared to the private building contractors and hence the valuation of private building cannot be done at the same rate of Government. He further stated that there is no provision in the IT Act either for making reference to the DVO for determining the cost of construction or for obtaining the report of Departmental Valuation Officer for computing business income. With regard to the use of spartek/coloured glazed tiles, the CIT(A) observed that if the AO has any doubt about the appellant’s contention regarding use of these tiles by the respective buyers, he should have probed further into the matter. Regarding existence of borewell for which no expenditure was shown in the books of account, the CIT(A) stated that the AO should have verified the fact that at the time of purchase of land, the borewell was already in existence. But the AO has not done anything.
39. In view of the above discussion, three major issues fall for our consideration. First is the legality of reference made to the DVO, second is justification in making the addition on the basis of DVO’s report without pointing out defects in the books of account and/or rejecting the books of account by invoking provisions of Section 145, and third is deduction to be allowed on account of unexplained investment which has ultimately resulted into unexplained expenditure, thereby increasing the total cost of construction.
40. So far as reference to the Valuation Officer is concerned, Section 142A has been introduced in the statute book by Finance (No. 2) Act, 2004 with retrospective effect from 15th Nov., 1972, according to which for the purpose of making an assessment or reassessment under this Act, where an estimate of the value of any investment is required to be made, the AO may require the Valuation Officer to make an estimate of such value and report the same to him. It has been further provided in Sub-section (2) of Section 142A that the Valuation Officer to whom a reference is made under Sub-section (1) shall, for the purpose of dealing with such reference, have all the powers that he has under Section 38A of the WT Act, 1957. As per provisions of Sub-section (3) of Section 142A, on receipt of report from the Valuation Officer, the AO may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment. It is very much pertinent here to bring on record that while making a reference to the DVO after rejecting the books of account or pointing out mistakes in the construction account, the only moot question before the AO pertains to know the quantum of unaccounted investment made out of unaccounted money which has not been recorded in the books of account, and for which assessee does not offer any explanation about the nature and source ,of investment or the explanation offered by him is not found to be satisfactory. It is only after knowing the quantum of unexplained investment or the unaccounted money, that the second step before the AO is to make addition under any of the provisions contained under Section 69/69A/69B or 69C. It is, therefore, not very much pertinent to say that since after receipt of DVO’s report, the addition was made under Section 69C and not under Section 69, 69A or 69B, the reference made to DVO under Section 131(1)(d) was not valid, since there is no mention of Section 69C in Section 142A. In the instant case, addition of Rs. 50.71 lacs was made under Section 69 in the asst. yr. 1992-93 whereas in the asst. yr. 1991-92 addition was made under Section 69C amounting to Rs. 25.51 lacs with reference to the difference in cost of construction recorded in books of account vis-a-vis the valuation shown by the DVO in his report, in spite of the fact that undisputedly in both the assessment years, the assessee was carrying on the same activity of building construction.
41. In view of the above amended provisions and assessee1 s failure to maintain and furnish quantitative details of major building material like iron, steel, cement sanitary fittings, hardware, electric fittings, etc. actually used in the building construction vis-a-vis recorded in the books of account, we do not find any infirmity in the action of the AO for making reference to the Valuation Officer for determining the quantum of unexplained investment involved in the cost of construction. The decision cited by the learned Authorised Representative in this context relates to the pre-amended position, therefore, not applicable to the facts and circumstances of the instant case in view of the amendment brought in by the insertion of Section 142A with retrospective effect.
However, there is no dispute to the well-settled legal proposition that the valuer’s report as referred under Section 131(1)(d) is only by way of guidance and before using the same, the AO should give full opportunity to the assessee and also give reasons for adopting the valuation made by the DVO, in place of construction cost actually debited in the books of account.
42. Next question which falls for our consideration pertains to the addition to be made on the basis of DVO’s report only after pointing out specific defects in the books of account, and/or after rejecting the books of account under Section 145. There is no dispute to the well-settled legal proposition that no addition can be made merely on the basis of valuation report, which is just an estimate prepared by a technical person on the basis of physical inspection and measurement of building, without pointing out specific defects in the construction account kept in the books of account and/or rejecting the books of account under Section 145. Whenever the AO wants, to adopt the valuation as made by the DVO, he is first of all required to point out the defects in the construction account maintained by the assessee or to indicate that construction cost shown in the books of account are not correct or that cost of construction could not be correctly deduced due to the information asked from the assessee but not supplied by him to the AO.
43. In the instant case, we found that in respect of various construction cost incurred by the assessee, no quantitative details regarding purchase, consumption in the construction and the work-in-progress was neither maintained nor furnished by the assessee. We also found that structural and other construction details- drawings required was also not furnished so as to enable the AO/DVO to arrive at the correct quantity of building material used in the construction and comparing the same with the actual cost debited in the books of account. In respect of spartek tiles/glazed tiles/marble having been used in the construction as found by the DVO, even though declined by the assessee on the plea that the tiles were fitted by the respective buyers of the f fiat, as per our considered opinion, the burden of proof to explain the particular item being fitted in the building is on the assessee-builder unless he gives detail with regard to investment in these items by some other agencies. In the instant case, the assessee has neither supplied any confirmation from the respective buyers of the flat to the effect that these spartek/coloured tiles were fitted by them and not by the assessee-builder, nor any bills in the name of respective buyers were produced. The assessee could very well shift the burden on the Revenue by furnishing confirmation from the respective buyers to the effect that some of the items fitted in the building have been either supplied by them or fitted by their own team of persons at their own cost. Undisputedly in the instant case the assessee has neither furnished the confirmation from the respective buyers nor the name, address or other particulars of such buyer, so as to enable the Department to make further enquiry from those respective buyers to ascertain the fact of spartek tiles, etc. put in the flats, which were found by the DVO during his physical inspection of the building. Even though the DVO has visited one flat and taken entire measurement of the same, but he has verified the details put in the other flats having similar provisions/facilities and, therefore, it was not required to measure each and every flat. We also found that these confirmations and/or particulars of buyers who have put marble/spartek/ glazed tiled in flooring, etc. were also not furnished even before the CIT(A) nor before the Bench. Confirmation regarding borewell found by DVO on physical inspection was also not furnished so as to justify non-recording of expenditure in the books of account. As per our considered view, the statement of the assessee to the effect that borewell was in existence at the time of purchase of open plot of land is not sufficient for discharging the burden of the assessee for not recording its cost in the books of account, without bringing some corroborative material or evidence on record in support of it.
44. Thus, the CIT(A) was not justified in taking the cost of construction shown by the assessee debited in its books of account by brushing aside the findings recorded by the AO, and the DVO while determining the cost of construction with regard to the items of cost not found to be recorded in the books of account but was found to be actually incurred during the physical inspection and valuation of building. Non-supply of structural drawings of building disabled the Department to find out correctness of the quantity of iron, steel, cement and other major building materials actually debited in the books of account. Even though the CIT(A) had stated in his order by referring to the letter of assessee dt. 19th Aug., 1992 in reply to DVO’s letter dt. 14th July, 1992 that the assessee had furnished structural drawings to the DVO but it is factually not correct because as per letter of DVO, dt. 16th Nov., 1994 written to the Asstt. GIT, technical details, such as structural drawings, foundation details etc. of the main concealed items were required to be given, but these were not furnished by the assessee without which the correctness of the material used such as cement, steel, etc. could not be verified. It was also observed by the DVO in this letter dt. 16th Nov., 1994 that even the report of the registered valuer was not furnished to justify the expenditure incurred by the assessee giving the documentary proof after determining the quantities of items executed in the construction and analyzing the rates. We also found that even though in the letter written by the assessee to the DVO dt. 19th Aug., 1992, the structural drawing was alleged to be enclosed, but the same was not furnished nor we found it in the paper book. Thus, the assessee failed to provide basic technical details of construction activity from which it can be deduced that what construction activity was taken during the previous years and what should be the material consumed for that construction activity. The CIT(A) only tried to point out faults in the AO’s order and stated that he (AO) should have made enquiries regarding other building materials used in the construction, as found during the physical inspection by the DVO, if the same was not found recorded in the books of account. Here it is pertinent to mention that without furnishing the name and address and other particulars of specific buyer having put in his own building material in construction, the onus cannot be shifted to Revenue. Had the assessee provided confirmation from the respective buyers, the onus could have been easily shifted to the Revenue so as to make the Revenue liable to find out the actual state of affairs, otherwise without any information or whereabouts of particular buyer, the Department could not proceed further. Any how, if the AO failed to carry out further enquiry, the CIT(A) having coterminous powers could have collected the desired information and find out authenticity of extra building materials like spartek tiles/marbles, actually used in the construction, but not recorded by the assessee in its books of account. It was not justified on the part of the CIT(A) to find out fault on AO’s part without any cogent reason and delete the entire additions which are legally and factually sustainable. There is no dispute to the well-settled legal proposition that the powers conferred on the CIT(A) under Section 251 are quasi-judicial powers, it is incumbent on him to exercise the same if the facts and circumstances so warrant. If the CIT(A) fails to exercise the powers and responsibility casted on him, and arbitrarily refuses to make the enquiry if the facts and circumstances so demand, his action would be open for correction by the higher authority/forum. As per our considered view, such coterminous powers of the CIT(A) are also having equal responsibility to undertake the necessary enquiry which the AO has failed to undertake. We are, therefore, inclined to agree with learned Departmental Representative, Mr. A.K. Singh, that CIT(A) being a quasi judicial authority, it is incumbent on him to exercise the same in the interest of justice, rather than accepting the version of the assessee on its face value, by pointing out defects and laches in AO’s action, without any cogent reasons/materials. The observation of the CIT(A) that standard plinth area method is applicable only to the Government work, and not to the work undertaken by private agency is devoid of any merit. As the assessee did not furnish structural designs of building, the DVO had correctly taken the plinth area rate after applying weighted cost index rate of 5.14 to arrive at the basic rate of valuation for the relevant assessment year under consideration. Furthermore, the AO had furnished complete break-up of such rate as adopted by the DVO which was in accordance with the Instruction No. 1671 issued by CBDT, in reply to the query of the assessee. Even after taking into consideration the skeleton structure as suggested by the assessee himself, the valuation worked out was more, therefore, the AO restricted the valuation for the asst. yr. 1991-92 as per DVO’s computation, which was favourable to the assessee. Even though while making a reference to the DVO on 3rd July, 1992, the return for the asst. yr. 1992-93 was not furnished, but since the scrutiny assessment for the asst. yr. 1991-92 was already under consideration and the building was duly completed by 31st March, 1992, there is no merit in CIT(A)’s observation to the effect that the AO was not justified in making a reference to the DVO when the return for the asst. yr. 1992-93 was not filed in which major construction cost was incurred.
45. So far as AO’s complete reliance on the DVO’s report is concerned, we are inclined to agree with the learned Authorised Representative, Mr. Sanghavi, that the AO had relied on DVO’s report as a conclusive evidence while making the addition with reference to the total difference between cost recorded in the books of account and the value arrived at by the DVO, rather than treating the DVO’s report as a mark of guidance. At this stage, as per our considered view, the AO should have confined himself to the points of difference indicated in the report of DVO by treating the report supplied by him (DVO) in advisory capacity, as a mark of guide.
46. The fact of spartek tiles found to be fitted in the building, will not exonerate the assessee to prove purchase of spartek tiles by the assessee or use of tiles from such outside agency with some evidence,, simply by furnishing first bill of mosaic tiles which as per original plan he was supposed to put in. We also found that even the Dy. CIT while rejecting the assessee’s petition under Section 144A had categorically stated in his order that the assessee did not supply the structural drawings for the reasons best known to him (assessee). The Dy. GIT had further observed that had the assessee filed the structural drawings, the DVO could have determined the actual quantity of major raw materials, etc. used in construction and could have compared the same with the cost shown by the assessee. In its order under Section 144A, the Dy. CIT also observed that the assessee has not furnished any evidence to substantiate that any extra items were included in the determination of the cost of construction by the DVO and that the DVO has stated that spartek/glazed tiles were used whereas the assessee contended that it did not use them. At no stage the assessee has furnished as to which other agency fixed any such spartek/glaged tiles. Besides that, no details have been furnished regarding alteration made at the request of the flat owners at the time of construction and its effect on costing, etc. We also found that even the assessee did not furnish the report of registered valuer or chartered engineer so as to substantiate the correctness of the cost of construction debited in the books of account or to indicate any wrongful determination of valuation of building by the DVO. Had the assessee supplied the valuation report of chartered engineer/registered valuer, the same could have been the basis for justifying the correctness of cost of construction debited in the books of account and comparing the valuation carried out by the DVO in his report. We also found that the turnover of the assessee in the asst. yr. 1992-93 was more than Rs. 40 lakhs but no quantitative details of major building materials purchased/utilized in construction and/or remaining in a stock or work-in-progress, which is required to be furnished duly certified by the auditors, as per requirement of tax audit report under Section 44AB, were furnished, Even though in the Annexure to the auditor’s report dt. 5th Sept., 1991, for the previous year ending on 31st March, 1991, the auditor at point No. 1 has stated that :
“The company has maintained records showing full particulars including quantitative details and situation of fixed assets at site including work-in-progress. It has been physically verified by the management.”
At point No. 21 of the impugned report of auditor, it was mentioned that :
“With regard to Clause 4(B)(ii), the company does not compile a record in respect of total material and labour consumed on each flat but has a record of such consumption in respect of its construction activities (building) as a whole.”
47. However, during the course of scrutiny assessment before the AO, the assessee vide letter dt. 13th Sept., 1996 has clearly denied the maintenance of stock register regarding consumption of various building materials in the construction. The AO in his order for-the asst. yr. 1990-91, dt. 5th March, 1997, has dealt with this issue at p. 2, para 2.1, wherein clear finding has been recorded on the basis of assessee’s reply to the effect that “The Authorised Representative has further failed to substantiate as to how these quantitative details of consumption have been arrived at by the assessee. In the absence of the stock register, day-to-day consumption of various materials and its comparison with the day-to-day work of construction is not possible. The Authorised Representative has stated that bills of purchase of different raw materials are available. In this context, I would like to state that bills per se do not certify as to what quantity of materials was consumed and as to what quantity of material was left in the closing stock of the assessee.”
48. In view of the above observation of the AO regarding non-maintenance of any quantitative records regarding” consumption/utilization of various building materials, which is duly supported by the letter of the assessee and non-furnishing of- any quantitative details of purchase/consumption/work-in progress/closing stock at the year end, duly certified by the auditor, we are not inclined to give any credence to the notes given in the audit report for both the asst. yrs. 1990-91 and 1991-£2.
49. Furthermore, we do not appreciate the observation of the CIT(A) for exonerating the assessee from explaining the spartek/glazed tiles in the building, merely by stating that the assessee had filed copy of advertisement giving details of fittings provided by the builder and the same did not show any provision for spartek/colour/glazed tiles, when undisputedly the DVO during the course of physical verification of building found all these things fitted in the building and the CIT(A) had not brought on record any materials to show that no such tiles were actually fitted or that expenditure on these items were actually incurred by some other agency and the same have been duly verified and confirmed or that the report of DVO in this regard is wrong.
50. Now let us discuss the case laws relied on by the learned Authorised Representative in his written submission filed before the Bench as contained at pp. 22 to 25 of the paper book, with reference to addition to be made on the basis of mistake in the books of account vis-a-vis DVO’s report.
In the case reported at (supra), Rajasthan High Court held that if the assessee has maintained proper books of account and all details are maintained in such books of account, which are duly supported by vouchers and no defects are pointed out and books are not rejected, the figures shown therein have to be followed. However, in the instant case, the assessee has not maintained quantitative details of purchases, consumption and work-in-progress of building materials used in the construction, in its books of account, therefore, it cannot be said that all details were maintained in the books of account so as to cover by the decision of this case. Furthermore, before making a reference to the DVO, the AO has rejected the books of account under Section 145 by observing that due to inability of the assessee to furnish various details called for so as to verify the correctness of various building materials alleged to be used in the building construction. Thus, the facts and circumstances of the case under consideration are distinguishable.
In the case of Dream Land Enterprises ITA 3461/Ahd/1990, relied on the learned Authorised Representative, the additions were deleted by the Tribunal by observing that where the assessee has submitted complete details both in terms of quantity and value of various items of building materials to the DVO as well as to the AO, no addition on the basis of DVO’s report should be made. It was also observed that no addition on account of unexplained cost of construction should be made unless and until there are some positive materials or some specific defects or mistakes which are pointed out by the AO or DVO in the construction expenses disclosed by the assessee. However, in the instant case positive materials were brought Oh record by the DVO/AO to the effect that Spartek/glazed tiles were fitted in the building and there was borewell in the building, whereas no cost on such tiles or expenses on borewell were found to be recorded in the books of account. Furthermore quantitative details of materials purchased, used and remaining in stock as work-in-progress were neither maintained nor furnished to the AO or DVO. Thus it cannot be said that the assessee had furnished both quantitative and value-wise details of main building materials used in the construction of building. Thus this case as relied on by learned Authorised Representative is also of no help to the assessee as it is distinguishable on facts, as discussed hereinabove.
In the case of Nishant Housing Development (P) Ltd. (supra), it was held by the Patna Tribunal that CIT(A) was justified in deleting the addition made with reference to DVO’s report when the books of account were not rejected by the AO under Section 145. However in the instant case even before making a reference to the DVO, the books of account were rejected under Section 145 after giving due reasons for rejecting the same. Thus the facts of the instant case are distinguishable to the case cited by learned Authorised Representative.
51. Now coming to the last issue regarding allowing deduction of unexplained expenditure which has been added under Section 69C. According to Section 69C, where in any financial year the assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the AO, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year.
It is crystal clear on the plain reading of above provision that addition under Section 69C is made on account of unexplained expenditure. Such expenditure may be on account of capital, revenue or personal account. If the expenditure is for acquisition of any capital asset, the same is not liable to be charged to trading or P&L a/c, but is directly taken in the balance sheet, therefore, no question of deduction of such expenditure arises. Similarly, if the expenditure is on personal account, the same (is) directly taken to the balance sheet and the capital account is reduced accordingly. But if expenditure is in the course of business on revenue account, the same is debited as expenditure to be reduced out of gross income/sale proceeds. Whether, the expenditure is capital or revenue, essentially depends on the nature of expenses and also on the nature of business activity, the assessee is carrying on. Same expenditure may be capital expenditure for one assessee, whereas revenue expenditure for another assessee. Expenditure on construction of building meant for self use in the business, is capital in nature, whereas for an assessee engaged in the business of construction and sale of-building, the expenditure on building construction is revenue in nature.
In the instant case, the assessee being a builder, is engaged in the construction of multistoried building arid sale of flats. Such building is stock-in-trade for the assessee-builder, therefore, any expenditure on such building activity is essentially revenue in nature. While computing income from sale of such building/flats, all expenditure incurred on its construction is liable to be deducted.
With reference to the expenditure not found to be recorded in the books of account, on account of such building construction, but are actually found to be incurred, and an addition for which is made by the AO under Section 69C, the same is to be allowed as a deduction while computing profit on sale of such building.
52. In this respect it was argued by the learned Authorised Representative that since the assessee is engaged in the construction of building whatever expenditure is incurred on the construction whether recorded or not recorded in the books of account, are in the nature of revenue expenditure, the same should be allowed as a deduction while computing the profit on sale of such building.
53. On the other hand, it was argued by learned Departmental Representative that as per proviso provided below Section 69C, such unexplained expenditure is not to be allowed as a deduction under any head of income.
54. We have considered the contentions of learned Authorised Representatives of assessee and Revenue, and are inclined to agree with learned Authorised Representative of the assessee, Mr. Sanghavi that assessee in the instant case undisputedly engaged in the building construction, the addition on account of unexplained investment is going to indirectly increase the cost of construction of the impugned building which is stock-in-trade of the assessee, therefore, same is liable to be deducted while computing business income. In this regard various Benches of the Tribunal are taking consistent view for allowing deduction of extra expenditure found to be incurred on building and added under Section 69C. For this purpose, reliance may be placed on the decision of Ruby Builders v. ITO (1999) 63 TTJ (Ahd) 202, Nishant Housing Development (P) Ltd. (supra). Furthermore, the proviso to Section 69C had been inserted in the statute book by Finance (No. 2) Act 1998 w.e.f. 1st April, 1999. Thus the effect of this proviso will alter the position only w.e.f. asst. yr. 1999-2000 and not prior to it. As in the instant case, the relevant assessment years under consideration are 1991-92 and 1992-93, the proviso had no effect, therefore, we are persuaded to agree with learned Authorised Representative that deduction for such unexplained investment, which has been added under Section 69C is to be considered while computing profits on sale of such building in the hands of assessee-builder, in respect of assessment years falling prior to the asst. yr. 1999-2000. As per our considered opinion, such unexplained investment which has ultimately resulted into unexplained expenditure towards construction of building, are revenue in nature, therefore, can be allowed while computing the profits and gains of business out of sale of alleged building in the relevant year of sale. If the addition under Section 69C has been made in year earlier to the year of sale, respective addition is required to be made in the income of the assessee in that year, but at the same time work-in-progress shown by the assessee in that year should be increased by such addition, so as to give benefit of deduction in the year of sale, on the basis of earned forward balance in the account of work-in-progress.
55. In the asst. yr. 1992-93, the addition of Rs. 50.71 lacs has been made by the AO under Section 69 and not under Section 69C, and the GIT(A) has also not deleted the addition by treating the same as revenue in nature.
56. With respect of addition made under Section 69/69B following recent judgments are very much relevant.
Hon’ble Calcutta High Court in the case of Unit Construction Co. Ltd. v. Jt. CIT observed that for the purpose of Sections 69 and 69B of the IT Act, 1961, it is not necessary that the books of account have to be rejected expressly or that it is to be, in express terms, recorded that the books of account are not reliable or the explanation is not satisfactory. It has to be gathered from the order itself whether in effect the AO was satisfied with the explanation or had found that the books of account were not reliable. It is not the technical terms, which must appear in the order. It is the substance of the order that the AO was not satisfied with the explanation which is relevant. This is apparent from Sections 69 and 69B of the IT Act, 1961. Where accounts are not reflected in the account books, they can be explained by the assessee, who under Section 69 is entitled to an opportunity to explain. If in the opinion of the AO the explanation is not satisfactory, the income can be added. The phraseology of Section 69 creates a legal fiction. Held, that, in the instant case, the AO had not rejected the books of account. He had not specifically observed that the books of account were not reliable. But he had pointed out that a sum of Rs. 2,68,986 was spent during the year for building construction.
Furthermore, Hon’ble Rajasthan High Court in Smt. Amar Kumari Surana v. CIT observed as under :
“It is true that merely on the basis of fair market value no addition can be made under Section 69B, but on the basis of sufficient material on record some reasonable inference can be drawn that assessee has invested more amount that the one shown in account books, then only the addition under Section 69B can be made. The burden is on the Revenue to prove that real investment exceeds the investment shown in account books of the assessee. The consistent finding of the ITO, AAC and the Tribunal is that the assessee has not shown the correct value of the property in her account books, and thereby, concealed the investment made for purchase of the plot of land. The Tribunal has considered the valuation report of the valuer in respect of the plot in question and also the fact that notice was given to assessee as to why the value of the plot should not be taken as has been valued by the valuer,. The assessee failed to give any reason as to why the value, valued by the valuer should not be accepted. The Tribunal has also considered the size of the plot, location and potential use of the plot of land. It is also noticed by the Tribunal that the assessee has failed to show that in the area the value of plots is lesser than the rate shown in valuation report. In the valuation report, the costs have also been given of the neighbouring plots sold during the relevant period. The plot in question purchased by the assessee measuring 1,799.99 sq. yds. the value has been estimated by the Tribunal as Rs. 68,400. The cost of the land shown by the assessee comes to Rs. 36 per sq. yds., that is roughly half of the rate prevalent in the area. There is not direct evidence that assessee has paid more than Rs. 45,00 for purchase of plot land, but at the same time it cannot be ignored that no evidence has been adduced by the assessee before ITO as to why the plot of land has been sold to assessee for roughly at half of the rate than the prevalent market rate. Not even a single reason has been given as to why the property has been sold to assessee for roughly half of the prevalent market rate. In absence of that, the only inference can be drawn that has, in fact, concealed the actual consideration paid to seller. There is no ground to interference in the addition made under Section 69B.”
57. While dealing with the provisions of Section 69C, Delhi High Court in the case of Yadu Hari Dalmia v. CIT observed that statutory provisions contained under Section 69C embodies a rule of evidence which is quite clear.’ It follows as a normal rule of presumption and evidence that where an assessee has incurred certain expenditure and is not able to account satisfactorily for the same, an inference can be drawn that the expenditure or the unaccounted part thereof must have been met out of undisclosed income of the previous year. The case of an item of proved expenditure is in principle not different from that of cash credit. In both the cases, the assessee is in possession of certain funds during the previous year the source of which he is unable or unwilling to explain satisfactorily. It is a matter entirely in the assessee’s knowledge as to how the cash credits came to be introduced or the items of wealth came to be acquired or the expenditure was incurred and once it is postulated that such cash credit or investment or expenditure belongs to the assessee then his failure to explain the same or to explain satisfactorily can constitute a reasonable ground for an inference that the source thereof must be an item taxable under the Act. Otherwise, if a non-taxable source or a capital item was utilized for the purpose in question, the assessee could and would easily have come forward with an explanation to the said effect and proved it to the satisfaction of the ITO. The whole history of the introduction of Sections 68 to 68D and the judicial decisions bearing thereupon clearly establish the proposition that these sections are only clarificatory and that even otherwise an addition can be made towards income from undisclosed sources in respect, inter alia, of amounts of expenditure which the assessee is found to have actually incurred but not satisfactorily explained.
58. It is pertinent to mention here that even prior to insertion of Section 69C, unexplained expenditure has been held to be income from undisclosed sources and added to the assessee’s income. Reference may be made to Madan Lal v. CIT, and L.M. Thapar and Ors. v. CIT, .
59. In the instant case inspite of addition in the asst. yr. 1992-93 having been made on account of unexplained investment by invoking provisions of Section 69 and not Section 69C, but the fact remains the same to the effect that the assessee is a builder in both the relevant assessment years, whatever extra investment has been put in, the same has resulted into extra cost of construction. We are, therefore, inclined to give deduction for the addition made under Section 69 on account of unexplained investment in the asst. yr. 1992-93, which has resulted into unexplained expenditure, while computing profit on sale of building which in the instant case took place in the asst. yr. 1992-93.
In view of the discussion contained hereinabove, the cost of construction debited by the assessee in its books of account cannot be blindly accepted to be true and correct, even though the defects pointed out by the AO and DVO are not enough to reject the books of account out rightly, but nonetheless necessary adjustment is required to be made in the cost of construction so recorded by the assessee in its books of account.
60. Thus, the major defects found by the Department in the instant case, were with regard to non-maintenance and non-furnishing of quantitative details of major construction material used, non-furnishing of structural drawing and designs so as to enable the Department to find out exact or tentative quantity and quality of various building materials required to be consumed for. undertaking the construction of building as per the structural drawings and design, and to compare the same with the expenditure actually debited in the books of account, non-furnishing of valuation report of chartered engineer or registered valuer so as to enable the Department to find out correctness of building cost actually debited in the books of account with reference to the valuation arrived at by the assessee’s valuer, the use of spartek/glazed tiles in the building but not found recorded in the books of account, and non-recording of expenditure relating to borewell. Other than these defects, no other major defects were found by the AO. As per our considered view, even though these defects are not sufficient for rejection of books of account out rightly and adoption of DVO’s valuation in toto, but as per our considered view some addition/adjustment is required to be made in the cost of construction recorded in the books of account. Keeping in view totality of the facts and circumstances of the case as discussed hereinabove, we are inclined to modify the orders of both the lower authorities and direct the AO to sustain the addition to the extent of Rs. 5.90 lakhs in the asst. yr. 1991-92 and Rs. 12.71 lakhs in the asst. yr. 1992-93, which works out to 15 per cent of cost of construction shown by the assessee in its books of account amounting to Rs. 39.33 lakhs in asst. yr. 1991-92 and Rs. 84.77 lakhs in asst. yr. 1992-93, subject to deduction to be allowed in respect of additions of unexplained investment which has ultimately resulted into unexplained expenditure on the project, to serve the end of justice. As the addition in the asst. yr. 1991-92 has been made under Section 69C, but there is no sale or profit in the asst. yr. 1991-92, in view of discussion made hereinabove, the AO is directed to increase the work-in-progress accordingly as on 31st March, 1991 and allow deduction of such unexplained investment out of income declared in the asst. yr. 1992-93. As the project/building had been sold in the asst. yr. 1992-93 and the entire profit on sale of building had been offered for taxation in the asst. yr. 1992-93, the assessee is entitled to get deduction of unexplained investment resulting into unexplained expenditure for both the assessment years, while computing the income under the head “Profit and gains of business and profession”, in the asst. yr. 1992-93.
61. Thus, as against addition of Rs. 25.71 lakhs made by the AO under Section 69C in the asst. yr. 1991-92, an addition of Rs. 5.90 lakhs is directed to be retained. An addition of Rs. 12.71 lakhs as against addition of Rs. 50.71 lakhs made by the AO under Section 69 in the asst. yr. 1992-93, is directed to be retained subject to allowing deduction of unexplained expenditure of Rs. 18.61 lacs (5.90+12.71). Accordingly, the AO is directed to give deduction of unexplained expenditure of both the years to the extent sustained by us, amounting to Rs. 18.61 lacs (5.90+12.71), while computing’ income under the head “Profit and gains of business and profession” for the asst. yr. 1992-93, being the year of sale of building.
62. In the result, appeals of the Revenue in both the years are allowed in part as indicated above.