Family Of Sp.s.s.sp Subramanian Chettiar Karaikudi v. The Income Tax Officer

Family of SP.S.S.SP Subramanian ChettiarKaraikudi... AppellantVs. The Income Tax Officer Ward 1(3), Karaikudi... Respondent PRAYER: Appeal under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal 'C' Bench,Chennai, dated 30.9.2005 made in I.T.A.No.905/Mds/2003 for the theassessment year 1996-1997 against the order of the Commissioner ofIncome tax (Appeals) I Madurai dated 17.2.2003 made inITA.No.82/2000-01 86 & 87/2001-02. against the order dated 14.3.2001 made in GIR.No.2209-S/I (2) 1996-97 on he file of the Income Tax Officer, ward I (2) Karaikudi. For Appellant :Mrs.Lakshmi SriramFor Respondent :Mr.M.SwaminathanStanding CounselJ U D G M E N T (Delivered by R.SUDHAKAR, J.) The assessee has filed this appeal assailing the order of theIncome Tax Appellate Tribunal 'C' Bench, Chennai, dated 30.9.2005made in I.T.A.No.905/Mds/2003 for the the assessment year 1996-1997and the same was admitted on the following questions of law: (i)Whether the order of the Tribunal, in the lightof the finding that the appellant had accountedfor the entire amount of cost construction to thecontractor and that the Assessing Officer did notfind any defect in respect of cost account for in https://hcservices.ecourts.gov.in/hcservices/ the books of account, is valid in law insofar asit has agreed with the order of the CIT(Appeals) in arriving at the estimated cost ofconstruction for the purpose of additionassessment u/s.69B of the Act as deemed income?(ii)Whether the Tribunal is right in law insustaining the estimated cost of construction asarrived at by the CIT (Appeals) when theTribunal has found the appellant had accountedfor the entire cost of construction in theaccount books and that no flaw was found?(iii)Whether the Tribunal is right in law inholding that the estimate made by the CIT(Appeals) is reasonable when the Tribunal itselfhas accepted the fact that appellant hasrecorded the correct and true cost ofconstruction in its flawless account books?(iv)When the Tribunal found as a fact that actualcost of construction is recorded in the booksand when such recording is found to be actualexpenditure, whether the Tribunal is right inlaw in upholding the estimated cost ofconstruction as arrived by the CIT (Appeals)?(v)Whether the Tribunal is right in law when it hasrendered a finding that the actual cost ofconstruction paid to the contractor wasaccounted and when the accounts were foundflawless by the Assessing Officer, in upholdingthe estimated cost, as unexplained investmentunder Section 69B? (vi)Whether the provisions of Section 69B areinvocable in the light of the factual finding ofthe Tribunal that Assessing Officer could notfind out any payment made over and above thepayment made to the contractor as cost ofconstruction as per the bills raised by themthat the appellant had accounted for the entireamount paid to the contractor and that theAssessing Officer could not find out any defectin respect of cost accounted for in the books ofaccount? 2.1. The facts in a nutshell are as under: Theappellant/assessee constructed a multi-storeyed residential-cum-commercial complex at Karaikudi during the assessment years 1994-1995, 1995-1996 and 1996-1997 and admitted the total cost ofconstruction as Rs.41,49,070/-. The Assessing Officer referredthe matter to the Valuation Cell, Income Tax Department, Maduraiand the Department's Valuer estimated the cost of construction ofthe complex at Rs.58,09,000/-. The assessee's objections to the https://hcservices.ecourts.gov.in/hcservices/ 2.1. The facts in a nutshell are as under: Theappellant/assessee constructed a multi-storeyed residential-cum-commercial complex at Karaikudi during the assessment years 1994-1995, 1995-1996 and 1996-1997 and admitted the total cost ofconstruction as Rs.41,49,070/-. The Assessing Officer referredthe matter to the Valuation Cell, Income Tax Department, Maduraiand the Department's Valuer estimated the cost of construction ofthe complex at Rs.58,09,000/-. The assessee's objections to the https://hcservices.ecourts.gov.in/hcservices/ valuation report were considered by the Assessing Officer andthereafter, the assessment order was passed treating thedifference in valuation to the tune of Rs.16,61,000/- as incomefor three assessment years, namely, 1994-1995, 1995-1996 and 1996-1997. Accordingly, a sum of Rs.4,84,610/- was added to the totalincome of the assessee in the assessment year 1996-1997 andassessment was completed. 2.2. The assessee appealed to the Commissioner of Income Tax(Appeals), who partly allowed the appeals and arrived at the costof construction at Rs.46,04,145/-, as against estimate made by theDepartmental Valuation Officer at Rs.58,09,000/-. The Commissionerof Income Tax (Appeals) directed the Assessing Officer to adoptthe above said figure as the cost of construction and recomputethe unexplained investment. It was also observed that theunexplained investment should be assessed in one assessment year1996-1997 and not in other assessment years, as it is not possibleto bifurcate the unexplained investment. Accordingly, theCommissioner of Income Tax (Appeals) deleted the additions madefor the assessment years 1994-1995 and 1995-1996, and directed theentire unexplained investment to be assessed as income for theassessment year 1996-1997. 2.3. Calling in question the said order, the assessee as wellas the Revenue filed appeals before the Tribunal. The Tribunaldismissed the appeals filed by the assessee as well as the Revenueand confirmed the order passed by the Commissioner of Income Tax(Appeals). The operative portion of the said order reads asunder: “3. We have heard both sides and considered theissue. It is an admitted fact the Assessing Officercould not find out anything over and above thepayments made to the contractor as cost ofconstruction as per the bills raised by them. TheAssessee has accounted for the entire amount paid tothe Contractor, M/s.Shri Construction, Chennai.Further, the Assessing Officer could not find out anydefect in respect of cost accounted for in the booksof account and the Department Valuation Officer hasvalued the property at plinth area rates. TheDepartment Valuation Officer has taken into accountexcess plinth area compared to the actual and therate adopted by the Department was also excessive ashe has applied the C.P.W.D. Rates. Since theconstruction was carried out in a moffusil area andthe quality was ordinary, the State P.W.D. Ratesshould have been applied. It is observed that theCIT (Appeals) has reasonably reduced the cost ofconstruction by 15% taking into consideration the local area rates, quality of materials inconstruction etc.” 2.4. Impugning the said order, the assessee has preferredthis appeal on the questions of law, referred supra. 3. We have heard Mrs.Lakshmi Sriram, learned counselappearing for the assessee and Mr.M.Swaminathan, learned StandingCounsel appearing for the Revenue and perused the orders passed bythe Tribunal and the authorities below. 4. Even though this appeal was admitted on the questions oflaw referred supra, the learned counsel on either side fairlyconcede that the core issue to be determined in this appeal is“Whether the Assessing Officer is entitled to resort to Section69B of the Act and consequently, refer the matter to theDepartmental Valuation Officer, when books of account were notrejected?” 2.4. Impugning the said order, the assessee has preferredthis appeal on the questions of law, referred supra. 3. We have heard Mrs.Lakshmi Sriram, learned counselappearing for the assessee and Mr.M.Swaminathan, learned StandingCounsel appearing for the Revenue and perused the orders passed bythe Tribunal and the authorities below. 4. Even though this appeal was admitted on the questions oflaw referred supra, the learned counsel on either side fairlyconcede that the core issue to be determined in this appeal is“Whether the Assessing Officer is entitled to resort to Section69B of the Act and consequently, refer the matter to theDepartmental Valuation Officer, when books of account were notrejected?” 5. The main plea taken by the learned counsel for theassessee is that the onus probandi lies on the Assessing Officerto establish that the assessee has understated or concealed theactual cost of construction and without discharging the onus, theAssessing Officer is not empowered to rely upon the valuationgiven by the Departmental Valuation Officer, when the books ofaccount were never rejected. 6. The learned Standing Counsel for the Revenue is notdisputing the fact that the books of account furnished by theassessee were never rejected by the Department. 7. In the case on hand, it is beyond any cavil that the booksof account furnished by the assessee were never rejected. Noexplanation was called for from the assessee stating that therewas concealment or understatement of amount in the books ofaccount. The initial burden cast on the department to prove thatthere was understatement or concealment of income has not beendischarged and, therefore, the Assessing Officer is not empoweredto refer the matter to the Departmental Valuation Officer or relyon such report. 8. The above said view of this Court is fortified by thefollowing decisions: (i) In Sargam Cinemas v. Commissioner of Income Tax (2010) 328 ITR513 (SC), the Supreme Court has held as under:“In the present case, we find that the Tribunaldecided the matter rightly in favour of the assesseeinasmuch as the Tribunal came to the conclusion thatthe assessing authority could not have referred thematter to the Departmental Valuation Officer (DVO) https://hcservices.ecourts.gov.in/hcservices/ without the books of account being rejected. In thepresent case, a categorical finding is recorded bythe Tribunal that the books were never rejected.This aspect has not been considered by the HighCourt. In the circumstances, reliance placed on thereport of the DVO was misconceived.” (emphasis supplied) (ii) Following the above decision of the Supreme Court, a DivisionBench of the Delhi High Court in Commissioner of Income Tax v.Bajrang Lal Bansal, (2011) 335 ITR 572 (Delhi) has held as under:“The primary burden to prove understatement orconcealment of income was on the Revenue and it wasonly when such burden was discharged that it would bepermissible to rely upon the valuation given by theDistrict Valuation Officer. The opinion of theDistrict Valuation Officer, per se, was not aninformation and could not be relied upon without thebooks of account being rejected which had not beendone in the assessee's case. Moreover, there was noevidence found as a result of the search to suggestthat the assessee had made any payment over and abovethe consideration mentioned in the return of theassessee.”(emphasis supplied) (iii) In K.K.Seshaiyer v. Commissioner of Income Tax, (2000) 246ITR 351, a Division Bench of this Court held as under:“When the actual cost of construction was dulyrecorded by the assessee and that cost also was setout in the agreement with the contractor, specifyingthe rates, and which rates had been accepted by theTribunal, and there was no finding that the buildingwas larger than the assessee had claimed or hadbetter quality of construction or fixtures than theassessee had recorded in his books, the opinion ofthe valuer could not be straightaway substituted forthe actual cost that was recorded in the assessee’sbooks. The Tribunal had not found that the booksmaintained by the assessee were not credible.Therefore, the Tribunal was not right in notaccepting the valuation of house property submittedby the assessee.” 9. In view of the findings recorded above and law enunciatedin the decisions referred supra, this appeal deserves to beallowed. Ex consequenti, this appeal is allowed by answering thequestion of law formulated by this Court in favour of the assesseeand against the Revenue. No costs. Sd/- Asst.Registrar (CS II ) /true copy/ Sub Asst. RegistrarsasiTo:1. The Assistant Registrar, Income Tax Appellate Tribunal Chennai Bench "C", Chennai.2. The Secretary, Central Board of Direct Taxes, New Delhi.3. The Commissioner of Income Tax (Appeals) - I Madurai4. The Income Tax Officer Ward I(2), Concurrent Jurisidiction Karaikudi.1 cc to M/s. Lakshmi Sriram, Advocate, sr. 71261 cc to M/s. M. Swaminathan, Advocate, sr. 7109T.C.(A).No.1117 of 2006GP (CO)kk 18/3