ORDER
Joginder Singh, J. M.
1. These are the two appeals preferred by the assessee against the orders of the CIT(A), dt. 3rd Dec., 2001, in ITA No. 34 & 35/W 7(3)/CIT(A)III/00-01 on the following grounds:
(i) That the CIT(A) misdirected himself in sustaining an addition of Rs. 2,95,500 as against Rs. 4,96,500 added by the AO and further failed to note the wrong approach committed in quantifying the alleged unaccounted investment.
(ii) That the CIT(A) could not note that the alleged unaccounted investment. If any, have been spread over the various asst. yrs. 1985-86 to 1992-93 as the construction started in 1985 and was in progress till 31st March, 92.
(iii) That the CIT(A) failed to consider a sum of Rs. 50,000 as advance received from two tenants as amounts available for construction of the commercial building (shops) and also considering the corresponding rents received from the said two tenants.
2. For the sake of convenience, both these appeals are being disposed of by a common and consolidated order.
1992-93
3. The assessee (HUF) represented by its Karta is Shri M. Papaiah Reddy, basically is an agriculturist. The assessee is aggrieved by the addition of Rs. 4,96,500 made by the AO, which was reduced to Rs. 2,95,500 by the first appellate authority. As per the assessment order, the impugned addition was made by the AO on the belief that the assessee invested unaccounted funds of Rs. 4,96,500 in the construction of a farm house and a commercial complex (shops) over and above the declared cost of Rs. 6 lakhs and Rs. 2 lakhs, respectively, as on 31st March, 1992. As per the assessee, the construction of the farm house commenced in 1984 and remained unfinished till 31st March, 1992. Similarly, the construction of the commercial complex (shops) was started in 1989 and was incomplete till 31st March, 1992. The assessee declared as on 31st March, 1992, in respect of two buildings under construction–
(1) Farm House construction from 1st April, 1985, to 31st March, 1992–Rs. 6 lakhs.
(2) Commercial complex (shops) construction from 1st April, 1989, to 31st March, 1992–Rs. 2 lakhs = total Rs. 8 lakhs. The assessee filed its return of income for asst. yr. 1992-93 on 28th March, 1995, in response to notice issued under Section 148 of the IT Act, 1961, declaring ‘Nil1 income and the agricultural income at Rs. 48,000. The assessment was completed under Section 143(3) on 26th March, 1997, determining the total income at Rs. 60,000, which was set aside by the first appellate authority vide its order, dt. 3rd Nov., 1998, with a direction to complete afresh after giving opportunity to the assessee and after making proper inquiry regarding the estimation of income. Notice under Section 143(2) of the Act was issued to which the authorised representative for the assessee appeared and the case was discussed.
4. The assessee constructed a residential building (farm house) which, was valued by the Department Valuation Officer vide its report dt. 15th Dec., 1994. The residential building was valued at Rs. 11,48,000 and the other building at Rs. 3,26,000. The Department Valuation Officer stated that the construction started in 1985. The assessee through its letter dt. 14th Feb., 2000, stated that the investment in the building on year ending 31st March, 1991, is Rs. 45,000 but the AO vide its letter dt. 6th Aug., 2000, estimated the investment in the building from asst, yrs 1986-87 to 1990-91 at Rs. 75,000. The assessee vide its letter dt. 24th Aug., 2000, informed the AO that Shri Papaiah Reddy (Individual) has provided an amount of Rs. 1,05,000 on 31st March, 1991, for construction of the properties and further told that the investment in the construction of the building as on 31st March, 1991, and 31st March, 1992, at Rs. 1,20,000 but the AO estimated the farm house as well as the other building at Rs. 8 lakhs and thus the total investment at Rs. 10,95,000. As per the Department Valuation Officer, the buildings were valued at Rs. 14,72,000 as on 15th Feb., 1994 (Rs. 11,48,000 + Rs. 3,26,000). The AO opined that there is no investment from HUF towards the construction of the building. As per the assessee, upto asst. yr 1994-95 the investment is Rs. 10,95,000. Thus, there a difference in valuation between the assessee and the Departmental value of Rs. 2,16,000. The AO worked out the unexplained investment at Rs. 4,96,500 and further opined that there is no possibility of investment from HUF funds as the agricultural income earned by the HUF is not sufficient for household expenses considering the family size and thus added back Rs. 4,96,500. The total income of the assessee was computed at Rs. 6,94,750. The assessee felt aggrieved and preferred appeal before the learned CIT(A). The learned CIT(A) deleted Rs. 2,01,000 and confirmed the addition of Rs. 2,95,500 and partly allowed the appeal of the assessee. The assessee is in further appeal before the Tribunal.
1993-94
5. The assessee filed its return of income for the asst. yrs. 1993-94 on 28th March., 1995, in response to notice issued under Section 148 of the IT Act, 1961 declaring ‘Nil’ income and an agricultural income of Rs. 48,000 and income from house property at Rs. 5,000. The assessment was completed under Section 143(3) on 26th March, 1997, determining Rs. 66,000 which was set aside by the first appellate authority vide its order dt. 3rd Nov., 1998, with certain direction to the AO. The AO sent a proposal to the assessee vide its letter dt. 16th Aug., 2000, to estimate the investment in the buildings at Rs. 75,000 from 1986-87 to 1990-91, which was replied by the assessee vide its letter dt. 24th Aug., 2000. The Department Valuation Officer valued the buildings as on 15th Feb., 1994, at Rs. 13,11,000. As per the assessee, the total investment is Rs. 10,95,000, thus there is a difference in valuation between the assessee and the Departmental Valuer of Rs. 2,16,000. The entire investment of Rs. 2,50,000 made during the assessment year is considered as income from other sources and was added back. The aggrieved assessee challenged the same before the first appellate authority. The CIT(A) gave a relief of Rs. 27,500 out of the addition of Rs. 2,50,000 and partly allowed the appeal of the assessee. The aggrieved assessee is in further appeal before the Tribunal.
6. At the time of hearing, we have heard Shri Lakshminarasimhan, learned representative for the assessee along with Shri B.S. Balachandran advocate, and Shri Mahalingam, learned senior representative for the Revenue, considered the arguments advanced by both the learned representatives and also perused the record available on the file.
7. The learned representative for the assessee submitted before us that the AO and the CIT(A) failed to comprehend certain basic facts in proper perspective and the addition was made by the AO on the wrong presumption that the assessee invested unaccounted funds of Rs. 4,96,500 in construction of farm house and commercial shopping complex over and above the declared costs of Rs. 6 lakhs and Rs. 2 lakhs, respectively, as on 31st March, 1992, and the AO did not quantify the alleged unaccounted investment determined by him separately for each of the two properties under construction as on 31st March, 1992. The learned counsel further argued that there was prima facie no justification for the impugned addition of Rs. 4,96,500 for the simple reason that the construction of the said two buildings was not wholly in the financial year 1991-92 relevant to the asst. yr. 1992-93, as the farm house construction commenced in 1984 and remained unfinished till’ 31st March, 1992. Similarly, the construction of the commercial shops was started in 1989 and was incomplete by 31st March, 1992. The learned counsel further argued that if at all there was positive proof of investment of unaccounted funds over and above the declared investment, it was spread over to several years from 1985 to 1992 for the farm house and from 1989 to 1992 for the commercial learned shopping complex. The learned counsel further argued that there was no investment over and above the declared investment and before the AO the learned counsel said to have explained that only Rs. 6 lakhs and Rs. 2 lakhs were really spent in construction by 31st March, 1992, on both the buildings and cash flow, statement was filed from 1981 onwards till 1995 as the cash flow statement showed the source of invested funds. The learned counsel further claimed that the assessee was having agricultural income and also from dairy. The agricultural income varied from year to year depending upon weather conditions. The learned counsel further stated that the AO had disputed the availability of agricultural and dairy income from year to year from 1981 onwards. It was further argued that the assessee was also having borrowed funds to the tune of Rs. 3,03,500 as shown in the cash flow statement. Mr. Lakshminarasimhan further argued that the AO accepted these loans should have accepted the entire cash flow statement in the absence of any evidence to reject the same. The learned counsel further argued that cash flow statement showed investment in the farm house a sum of Rs. 4,90,000 from 1984 to 31st March, 1990, and in the financial year 1990-91 and 1991-92 Rs. 45,000 and Rs. 65,000 respectively, were spent. The AO accepted the amount of Rs. 65,000 spent during the financial year 1991-92 having come out of borrowed funds and thus the learned counsel challenged the addition for the asst. yr. 1992-93. The learned counsel further argued that without assigning any basis proposed vide his letter dt. 16th Aug., 2000, an estimated sum of Rs. 75,000, which was objected by the assessee vide its letter dt. 6th Oct., 2000, and informed the actual expenses to the tune of Rs. 4,90,000 incurred upto 31st March, 1990. The learned counsel further argued that the CIT(A) examined the cash flow statement filed by the assessee vide its letter dt. 6th Oct., 2000, but could not be considered. The learned counsel further argued that though the CIT(A) reduced the addition to Rs. 2,95,500 as against Rs. 4,96,500, but could not note that the alleged unaccounted investment would have to be spread over to several years prior to asst. yr. 1992-93 and relied upon the decision in the case of Upasana Hospital and Nursing Home v. ITO (1990) 48 Taxman 20 (Coch)(Mag). The learned counsel concluded his argument by saying that an amount of Rs. 2,95,000 requires deletion to which the learned senior counsel for the Revenue Shri Mahalingam argued that the AO was not aware of the cash flow statement. So the assessee’s claim of having spent Rs. 4,90,000 on the construction by 31st March, 1992, should not be entertained. A query was raised by the Bench that the AO was aware of the assessee’s claim of having spent Rs. 4,90,000 by 31st March, 1990, as the same was communicated to the AO through the assessee’s letter dt. 6th Oct., 2000, as the same finds a place/mention at p. 5 in the assessment order itself, to which Mr. Mahalingam told that the cash flow statement was filed before the learned CIT(A). The learned representative for the Revenue strongly supported the orders of the lower authorities. Mr. Mahalingam further argued that the agricultural income is overstated and the assessee is also having large family to support. Mr. Mahalingam also argued that the cash flow statement is not based on any record and pointed out that the matter may be sent back to the AO.
8. We have considered the rival submissions. From the record it is seen that the AO has not given any valid reason or any basis for Rs. 75,000 estimated by him towards probable expenses by 31st March, 1990, as against Rs. 4,90,000 which has been specifically mentioned by the assessee in its letter, dt. 6th Oct., 2000, addressed to the AO which is duly mentioned in the assessment order itself. It is also noticed that the AO and CIT(A) while considering the total investment on the two buildings (Rs. 6 lakhs + Rs. 2 lakhs) has not considered the expenses of Rs. 2 lakhs exclusively on commercial shopping complex accepted by the AO and deducted the sum of Rs. 2 lakhs in determining the unaccounted investment in both the buildings. It is also noticed that the AO and CIT(A) have not considered the fact that the alleged unaccounted investment cannot be assessed in one year in the light of the decision of the Hon’ble High Court of Kerala in the case of Upasana Hospital and Nursing Home v. CIT (2002) 253 ITR 507 (Ker). From the order of the learned CIT(A) it is nowhere mentioned that the agricultural income is inflated and the Department is also not in appeal for the asst. yr. 1992-93. The AO has accepted Rs. 65,000 as spent during the financial year 1991-92 on the constructions from 1990 onwards is having a nexus with the borrowals. The Department, on the other hand, has not provided any material evidence to show on the basis of which the assessee can be disbelieved. In the light of letters written by the assessee to the Revenue and the cash flow statement made available by the assessee before the Revenue authorities, it is clear that the expenses incurred in on construction in farm house was Rs. 4,90,000 till 31st March, 1990, was met out of the known sources. On the other hand, the AO has not adduced any valid reason or any basis for Rs. 75,000 estimated by him towards probable expenses by 31st March, 1990, as against Rs. 4,90,000 specifically claimed and mentioned in the assessee’s letter dt. 6th Oct., 2000, addressed to AO. The AO on the other hand, has specifically mentioned about the said letter in its order, so we are not in agreement with the contention of the learned counsel for the Revenue that the said letter was not available with the AO. The assessee has also cited the case of Brittania Industries Ltd. v. Dy. CIT of the Hon’ble High Court of Calcutta in its support. In the light of the foregoing reasons, the addition of Rs. 2,95,000 sustained by the CIT(A) is deleted.
9. For the asst. yr. 1993-94, the AO has held that the assessee invested the unaccounted income of Rs. 2,50,000 towards the construction expenses on the two buildings during 1st April, 1992, to 31st March, 1993, over and above the declared investment of Rs. 8 lakhs for the earlier assessment years. The AO examined the source of investment and found that the assessee’s claim of availability of deposits of Rs. 1,75,000 was received from seven tenants (Rs. 25,000 each) cannot be believed as all such lease agreements were entered into after 31st March, 1993. The learned counsel for the assessee told that the assessee actually received deposits of Rs. 50,000 only from two tenants during the financial year 1992-93 and the balance of Rs. 1,25,000 was received after 31st March, 1993, on various dates as per cash flow statement and the rent received from the said two tenants i.e., Rs. 6,000 was disclosed for the asst. yr. 1993-94, which could not be looked into by the AO as per the learned counsel for the assessee. From the assessment order it is seen that at p. 7 of the asst. yr. 1992-93, there are seven lease agreements and each lessee paid Rs. 25,000 but while tabulating the details, the AO has mentioned 5 lease agreements executed after 1st April, 1993, and has omitted to refer two lease agreements relevant to the asst. yr. 1993-94. From the cash flow statement from 1981 to 1995, we are convinced that there is adequate funds available, even on the opening day 1st April, 1992. The learned counsel for the assessee specifically drawn our attention to cash flow statement filed from 1981 to 1995 which shows that rental deposits received during the financial year 1992-93 were only Rs. 50,000 and not Rs. 1,75,000. The learned counsel further explained that these lease amounts of Rs. 1,25,000 paid by the other 5 tenants were received after 31st March, 1993, and thus the cash flow statement gives a complete picture of funds available with the assessee for meeting the construction expenses of Rs. 2,50,000. This fact is not in dispute that the cash flow statement was examined by the learned CIT(A), We are not convinced with the argument of the learned counsel for the Revenue that, the matter may be sent back to the AO as there must be some end to the litigation and certainly may cause hardship to the assessee due to prolonged litigation. At the same time, no cross-objection has been preferred by the Revenue. At the same time, the AO has admitted the existence of 7 lessees but has not considered other 2 lease agreements relevant to the financial year 1992-93 and at the same time, the AO has considered, the rent received of Rs. 6,000 paid by both these lessees and the same were brought to assessment. From the material on record available before us and specially the cash flow statement, we are convinced that the assessee has explained all the sources of funds available with him to meet the construction expenses, so it is not necessary to send the case back to the AO as argued by the learned counsel for the Revenue. This fact is not disputed that the assessee is not having agricultural income. Certainly the agricultural production depends on so many factors, such as weather conditions and the availability of monsoon water. At the same time the assessee has claimed of having dairy income.
In the light of above discussion and the facts on record, the addition made by the AO and partially sustained by the CIT(A) cannot survive. The appeals of the assessee are allowed and are disposed of in the aforesaid manner.