ORDER
BALASUBRAMANYAM, J.M. :
The issue to be resolved in this appeal is about cost of construction of two cinema theatres which the assessee had constructed in Gulbarga city.
2. The assessment year is 1983-84 and the previous year ended on 30th June, 1982.
3. The commencement of construction of the twin theatres started in November, 1977 and it was completed somewhere in the middle of March, 1982. In the return filed, the cost of construction shown was Rs. 21.31 lakhs. The Assessing Officer did not accept this valuation. He made a reference to the Departmental Valuation Officer (DVO) whose report was received. He had estimated the cost at Rs. 35.48 lakhs as on 19th Oct., 1984, the day of his inspection. The assessee had maintained books of account in regard to construction.
4. The assessee had objected to the report of the DVO. The assessee also had furnished to the Assessing Officer the report of an approved valuer according to which the cost was Rs. 21,36,110. The Assessing Officer accepted the DVOs valuation. On the basis of that, he determined, in his own way, the cost of construction of the two theatres for the purpose of assessment. The difference between that cost and the declared cost was treated as unexplained investment and the same was spread over for five years on month-to-month basis Rs. 22,000 was the addition made for this year (1983-84).
5. The assessee had taken the matter in appeal to the CIT(A). Before the CIT(A), various issues had been raised. The appellate authority, by his order dt. 21st Nov., 1988, restored the matter to the file of the Assessing Officer and the specific directions given were as hereunder :
“There is, therefore, no vitiation of proceedings thus far. However, the report of the valuation officer was only advisory and the ITO was bound to put it to the appellant for their objections to the estimated cost of construction which the ITO proposed to adopt. The ITO did not seem to have given an opportunity to the appellant. I, therefore, direct him to put the valuation report to the appellant, examine the appellants objections impartially in the sense that while examining the appellants objections, he should not be under the impression that the report of the valuation officer is binding on him and decide afresh the question of cost of construction and the resultant understatement of cost of construction.”
6. In deference to the above order of the CIT(A), the Assessing Officer made a second assessment. According to that, the cost was Rs. 16 lakhs above the declared figure and the same was apportioned as done earlier.
7. Noticing a mistake the primary authority rectified the order on 23rd March, 1989 and he adopted a figure of Rs. 9 lakhs in place of Rs. 16 lakhs.
8. The assessee had again appealed from the order of the Assessing Officer. The CIT(A) called for a remand report from the Assessing Officer. In the meanwhile another thing had happened.
9. As mentioned earlier, the assessee had challenged the report of the DVO. There were specific attacks not only with regard to few items of work, rate, but also the area of construction. The DVO made a rectification on 10th Aug., 1989 and by that, he held that the cost of construction was Rs. 27.71 lakhs. The reason was this. The DVO had taken the roofing as one of RCC. This was not correct. No theatre would have an RCC roofing. In this case, the roofing was of asbestos sheets with steel stresses. The DVO corrected the mistake and sent a revised estimate according to which the cost was Rs. 27.71 lakhs.
10. The CIT(A), before whom the appeal was pending, passed an order on 31st Dec., 1991 dismissing the appeal. The appeal before us is taken from the order of the CIT(A) dt. 31st Dec., 1991.
11. As per the ultimate order now in operation the addition made on the reason of “unexplained investment” is Rs. 9 lakhs. This has not been apportioned and it is held by the authorities below that the whole thing is to be added in this assessment for 1983-84.
12. Sri Kishore Mallya, the learned advocate for the assessee, made several submissions to assail the orders of the authorities below and, in particular, the order of the CIT(A), dt. 31st Dec., 1991. His first grievance was that the books of account maintained by the assessee had not been rejected by the Assessing Officer and, consequently, there was no justification to make an addition. His second submission was that the CIT(A) who called for a remand report from the Assessing Officer failed to look into the same though a report had been sent in obedience. We will at a later stage refer to the authorities cited by Sri Kishore Mallya.
13. Arguing for the Revenue, Sri Puniha stated that there is difference between the declared value and the estimate made by the registered valuer and this itself shows that the books of account could not be relied upon. According to him, this justifies estimation and the report of the DVO should, therefore, be accepted. It was also his submission that the assessee had not produced the books of account before the DVO as there was a dispute not only with regard to rates but also with regard to area of construction.
14. In reply, Sri Kishore Mallya stated that the remand report dt. 11th Dec., 1991 given by the Assessing Officer to the CIT(A) would furnish a complete answer to all the points raised on behalf of the Revenue in this appeal.
15. After a careful examination of the record we are convinced that the first appellate authority had not applied his mind at all to the questions that were posed before him for adjudication. The report of the DVO is not a sheet anchor. It is a piece of evidence like any other evidence and the acceptability of the same should have been considered by the CIT(A). No reason is given by him as to why he was preferring the DVOs report to that of approved valuers. In opposition, there was the report of the approved valuer given by the assessee. The CIT(A) had not compared the two. In fact, precisely for this reason the matter had been remanded to the file of the Assessing Officer by the CIT(A) who disposed of the appeal at the first instance by an order dt. 21st Nov., 1988. The CIT(A) merely says that the DVO has revised his valuation; and that there is no further material available in the remand report of the Assessing Officer. This is not correct. The remand report furnishes several important information which had totally escaped the attention of the CIT(A). He says that the assessee was not entitled to 10% deduction on account of self-supervision. After making a reference in passing to the report of the approved valuer, he proceeds to hold that there is no need to make any further reduction in valuation.
16. Many aspects of the case have not been noticed by the CIT(A) at all. This is not a case where the assessee had failed to furnish books of account maintained in regard to construction. It was mentioned at the Bar that the assessee was not doing any business during the period of construction and that the accounts were kept only in connection with expenditure incurred for construction work.
17. The assessment order does not show that the Assessing Officer had found loopholes in the accounts. There is no mention that the accounts were being rejected to justify estimation. This is one aspect. The remand report sent by the Assessing Officer is on record. The three points which he considered according to the direction given by the CIT(A), in his order dt. 9th Sept., 1990, were :
“(i) That the quantity of the materials purchased was not lesser than the quantity required for the construction;
(ii) All the materials used in the construction have been accounted for;
(iii) The quality and the quantity of the materials used as per the books of account tally with the quantity of the materials used in the construction of the theatre;
(iv) The expenditure in respect of the construction of the two theatres has been taken at Rs. 18,66,881 by the Asstt. CIT. However, the details furnished before me show the total expenditure at Rs. 21,30,985. The break-up being Rs. 13,25,841 for Sangam theatre and Rs. 8,05,144 for Triveni theatre. This needs verification.”
19. The report gives answers to each one of the above. It would be appropriate for us to furnish the answers in the very words of the Assessing Officer. The report reads :
“Based on the above facts, I am of the opinion that :
(i) The quantities of the materials purchased were not less than the quantities required for construction.
(ii) All the materials used for the construction have been properly accounted for.
(iii) The quality and the quantity of the materials used as per the books of accounts tallied with the quality and quantity of the materials used for the construction of the theatre.”
The Assessing Officer, before furnishing the report, had examined the items of construction and the expenditure incurred and he based his opinion taking into consideration all facts. Nothing more is necessary to show that all was good about the accounts maintained by the assessee.
20. For the Revenue, it was stated that the books of account had not been furnished to the DVO. The DVO is not an auditor. He has to work out the volume and extent of construction and fix up the cost taking reasonable rates. Majority of the work had been got done through contractors and this fact was before the DVO when he rectified his report on 23rd March, 1989.
21. In this case too much dependence on the report of the DVO would also be not proper. He had committed a great blunder valuing the theatres as if the auditoriums were of RCC construction. On being objected to, he could open his eyes and find that GI sheets and steel stresses had been used for roofing. That is the reason for bringing down the estimation from Rs. 38.41 lakhs to Rs. 27.71 lakhs.
22. Another point raised was in regard to parking space. It was submitted at the Bar that a common parking place was planned since they were twin theatres built side by side.
23. The report of the DVO reads “considering the prevailing rates of materials and labour in the locality the following plinth area rates are adopted”.
He does not compare his rates with the rates of the approved valuer. Though the assessee had given work on contract basis, major supplies had been made by the assessee himself. As submitted at the Bar, it is quite possible that the assessee might have been able to procure building materials at favourable rates and this is also a fact which cannot be altogether ignored.
24. Sri Puniha pointed out that the approved valuer has taken the cost at Rs. 21,36,100 whereas the returned cost was Rs. 21,31,000. There is a difference of about Rs. 5,000. The submission on behalf of the Revenue was that this difference could be a ground to reject the books of account. We cannot easily accept this submission. The reasons is this. When the construction work involves several lakhs, a difference of Rs. 5,000 is not a staggering figure. After all the report of the approved valuer is only opinion evidence.
25. Books of account, if found unreliable, should be expressly rejected. As we have stated earlier, the Assessing Officer has not rejected the accounts. Two decisions cited by Sri Mallya are pertinent to be noted here. One is the decision of the Calcutta High Court in the case of Western Estates (1977) 109 ITR 343 (Cal)(sic) and the other, the decision of the Rajasthan High Court in the case of CIT vs. Pratapsingh Amrosingh Rajendra Singh & Deepak Kumar (1993) 200 ITR 788 (Raj). It is pointed out that when proper books are maintained by an assessee, reference to valuation cell is not valid when accounts are not rejected. It is held that addition could not be made on the basis of the report of the valuation officer. The principle laid down in those two authorities is squarely applicable to the facts of the appeal before us.
26. We may also make reference to few decisions of the Tribunal which were cited on behalf of the assessee. Relevant of them are : the decision of the Madras Bench of the Tribunal in the case of K. Hari Rao vs. Second ITO(1979) 8 TTJ (Mad) 15; the decision of the Ahmedabad Bench of the Tribunal in the case of ITO vs. Sethna Ice & Cold Storage (1980) 9 TTJ (Ahd) 537; and the decision of the Jaipur Bench of the Tribunal in the case of Singhvi Woollen Industries vs. ITO (1980) 10 TTJ (JP) 276. In all these cases it is held that when account books were properly maintained with regard to cost of construction, and the same were not rejected by the Assessing Officer, reference to valuation call for estimate was not justified. In the instant case not only the assessment order does not dismiss the accounts, the remand report given by the Assessing Officer fully supports the claim of the assessee.
27. For the foregoing, we hold that the returned cost which is unshaken by the Assessing Officer deserves to be accepted. Consequently, no addition is called for under S. 69. Reversing the orders of the authorities below, the entire addition made towards cost of construction is deleted. The assessee succeeds.
28. The appeal is allowed.