2002 (10) TMI 66 - HC - Income Tax

Unexplained Investment - assessing authority, it is seen, had rejected the books of account of the assessee with regard to the cost of construction of the commercial building on the ground that certain expenses incurred in connection with the construction of the building have not been recorded in the regular books of account. - Once the regular books of account of the assessee are rejected, it is for the assessing authority to estimate the cost of construction of the commercial complex. It is in those circumstances the assessing authority had referred the matter to the Departmental Valuer and the assessing authority had determined the cost of construction at the figure reported by the said valuer. The assessee got relief from the first appellate authority and the Tribunal confirmed the same. Admittedly, the assessee had not shown any payment of supervision charges, transportation charges, etc., in the accounts. All the authorities have found that the books of account are not properly maintained. The valuation report submitted by the assessee also differed. The first appellate authority found that the valuation report of the assessee and the Department cannot be sustained and took the average of both which method was accepted by the Tribunal also. We are unable to find out any question of law arising from the finding so arrived at by the Tribunal

Summary

Issues:
Assessment of cost of construction for a commercial building for three consecutive years - Rejection of assessee's accounts by assessing authority - Referral to Departmental Valuer for valuation - Discrepancy in cost determination - Appeal to Commissioner of Income-tax (Appeals) II - Appeal to Income-tax Appellate Tribunal - Justification of cost determination by authorities - Rejection of books of account by assessing authority - Estimation of cost by adopting average of valuer's and assessee's figures - Discrepancies in supervision charges, transportation charges, etc., in accounts - Maintenance of proper books of account - Validation of valuation method by Tribunal - Absence of substantial legal questions - Dismissal of appeals.

Analysis:
The judgment pertains to three appeals filed by the assessee against the common order of the Income-tax Appellate Tribunal concerning the assessment years 1987-88, 1988-89, and 1989-90. The primary issue revolves around the cost of construction of a commercial building, where the assessing authority rejected the accounts maintained by the assessee and referred the matter to the Departmental Valuer. The Valuer determined the cost at Rs. 29,83,400, leading to a discrepancy with the assessee's declared cost of Rs. 19,29,051. The Commissioner of Income-tax (Appeals) II modified the cost to Rs. 24,67,590, representing an average of the two figures. The Tribunal upheld this decision, dismissing the assessee's appeal. The assessing authority's rejection of the accounts was based on certain expenses not being recorded, which the appellate authorities did not accept despite explanations provided by the assessee.

The judgment highlights the importance of maintaining proper books of account, as the authorities found discrepancies in the supervision charges, transportation charges, and other expenses not being recorded. The assessing authority's decision to refer the matter to the Valuation Cell after rejecting the accounts was deemed justified by the Tribunal. The Tribunal validated the method of estimating the cost by adopting the average of the valuer's and assessee's figures. The first appellate authority's approach of considering all relevant factors in determining the cost was upheld, indicating a fair assessment process. The Tribunal concluded that no substantial legal questions arose from the findings, ultimately dismissing the appeals due to the lack of merit. The judgment emphasizes the significance of accurate record-keeping and the authority's discretion in estimating costs when accounts are rejected, underscoring the need for transparency and compliance in financial reporting.