2002 (6) TMI 13 - HC - Income Tax

Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in law in deleting the addition of Rs. 2.5 lakhs in the total income of the assesses in the light of the amendment made to section 44AD from April 1 1994 which is prospective and not retrospective in operation? - We have already set out the question of law and the question does not bring out the controversy in question and we reframe the question as under Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in law in deleting the addition of a sum of Rs. 2.5 lakhs in the total income of the assessee? - We hold that the question raised is not a question of law but a pure question of fact. Accordingly the appeal stands dismissed.

Summary

Issues:
Appeal under section 260A of the Income-tax Act, 1961 regarding deletion of addition of Rs. 2.5 lakhs in total income of the assessee based on valuation of construction of flats and possible escapement of income.

Analysis:
The case involved an appeal under section 260A of the Income-tax Act, 1961 regarding the deletion of an addition of Rs. 2.5 lakhs in the total income of the assessee. The assessee, a building contractor involved in construction and sale of flats, had offered his income for the assessment year 1991-92, including the net profit from the sale of flats. The dispute arose from the valuation of the construction of 12 flats during the relevant period. The Assessing Officer added a sum of Rs. 22.40 lakhs as unexplained investment under section 69 of the Act based on variations in the cost of construction estimates provided by the assessee, approved valuer, and Departmental Valuation Officer.

The Commissioner of Income-tax (Appeals) examined the case in detail, considering various factors such as the nature of construction, materials used, and the assessee's own resources like a jelly quarry and metal crushing unit. While acknowledging the possibility of some income escapement, the Commissioner sustained an addition of Rs. 2.5 lakhs, to be spread over two years. The Income-tax Appellate Tribunal, however, found no evidence to support the Department's claim of understatement or significant unaccounted investment by the assessee. The Tribunal deemed the valuation by the Departmental Valuation Officer arbitrary and held that the cost of construction could not be accepted at the inflated amount of Rs. 38.95 lakhs.

Regarding the sustained addition of Rs. 2.5 lakhs, the Tribunal noted that the Commissioner's decision lacked specific details on income escapement and referenced section 44AD of the Act, highlighting that the assessee's profit margin was higher than the fixed percentage under the section. Ultimately, the Tribunal concluded that the addition was unwarranted and deleted it. The High Court, upon review, found that the Tribunal's decision was based on an evaluation of evidence, including construction nature, costs, and profit margins, without any substantial proof of significant undisclosed investments or undervaluation. The incidental mention of section 44AD was not a basis for the decision but a supporting reference. The High Court dismissed the appeal, stating that the matter did not raise a legal question but was a factual dispute.

In summary, the High Court upheld the Tribunal's decision to delete the addition of Rs. 2.5 lakhs in the total income of the assessee, emphasizing that the decision was a factual determination based on evidence and did not warrant legal intervention.