2002 (10) TMI 50 - HC - Income Tax

Construction of a commercial building - Income From Undisclosed Sources - In view of the fact that all the expenditure incurred by the assessee and recorded in the books of account are not supported by bills or vouchers, the assessing authority cannot be found fault with for not accepting the accounts. When the accounts maintained by the appellant could not be accepted, certainly, the assessing authority has to determine the cost of construction of the building to find out as to whether any expenditure has been incurred from unaccounted sources. Tribunal had adverted to the remand report which showed that all the expenses recorded in the books of account are not supported by vouchers and bills and upheld the rejection of the accounts of the appellant. When the accounts are rejected, the assessing authority has to estimate the cost of construction for which he has to refer the matter to the Departmental Valuer. Hence, the authority cannot be found fault with for referring the matter to the valuation cell and in relying on the report submitted by the valuation cell. In fact, the first appellate authority took note of the various circumstances and granted substantial relief to the appellant. The Tribunal had sustained the same.

Summary

Issues:
Assessment of income from undisclosed sources based on cost of construction of a commercial building.

Analysis:
The appellant, a dealer in rice, was assessed for the assessment year 1990-91, where the assessing authority determined the cost of construction of a commercial building named "S.K. Towers" at Rs. 24,56,812, differing from the appellant's claimed cost of Rs. 18,49,189. The assessing authority treated the variance of Rs. 6,07,623 as income from undisclosed sources. In subsequent appeals, the Commissioner of Income-tax (Appeals) reduced the addition to Rs. 2 lakhs, which was further confirmed by the Tribunal.

The appellant contended that the assessing authority should not have referred the matter to the Departmental Valuer and should have relied on the appellant's regular books of account. The appellant argued that the entire addition should have been deleted as there was no justification for the valuation report. However, the senior standing counsel for the Revenue defended the referral to the Departmental Valuer, stating that the Tribunal had sufficient reasons to reject the appellant's accounts and rely on the valuation report.

The Tribunal's remand report highlighted that while the appellant maintained regular books of account, not all expenditures were supported by bills or vouchers. Due to this lack of supporting documentation, the assessing authority was justified in not accepting the accounts and had to determine the cost of construction to identify any unaccounted expenditures. The assessing authority's decision to obtain a valuation report from the Departmental Valuer was deemed appropriate in this context.

The first appellate authority granted relief to the appellant by reducing the addition to Rs. 2 lakhs from the original assessment. The Tribunal upheld this decision after considering all relevant circumstances. The High Court, after careful consideration, agreed with the Tribunal's findings, stating that no substantial question of law arose from the order. Consequently, the appeal was dismissed, affirming the Tribunal's decision regarding the assessment of income from undisclosed sources based on the cost of construction of the commercial building.