1987 (12) TMI 331 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 3,40,472 on account of alleged unexplained investment in the construction of Babyland Hostel.
2. Validity of the valuation report by the Department Valuer versus the assessee's valuation report.
3. Acceptance of the cost of construction as disclosed by the assessee.

Summary of Judgment:

Issue 1: Addition of Rs. 3,40,472 on Account of Alleged Unexplained Investment
The Income Tax Officer (ITO) made an addition of Rs. 3,40,472 to the assessee's income, citing unexplained investment in the construction of Babyland Hostel. This was based on a valuation report by the Department Valuer, which estimated the cost of construction at Rs. 6,68,200, significantly higher than the Rs. 3,27,728 declared by the assessee. The ITO issued a notice u/s 274 r/w s. 271(10(c)) for concealment of income by furnishing inaccurate particulars.

Issue 2: Validity of the Valuation Report by the Department Valuer
The assessee contested the ITO's reliance on the Department Valuer's report, arguing that proper books of accounts were maintained and supported by vouchers and bills. The CIT (A) noted that the ITO had not rejected the books of accounts nor found any specific defects. The assessee's valuer, using Public Works Department (PWD) rates, estimated the cost at Rs. 2,84,022, closely matching the declared amount. The CIT (A) found the Department Valuer's comparison with a luxurious bungalow inappropriate and reduced the estimated cost to Rs. 500 per sq. meter from Rs. 790 per sq. meter.

Issue 3: Acceptance of the Cost of Construction as Disclosed by the Assessee
The Tribunal observed that the assessee maintained proper books of accounts, which were fully supported by vouchers and bills. The CIT (A) had given findings in favor of the assessee but still sustained certain additions without a clear basis. The Tribunal noted that the income tax authorities ignored the books of accounts without identifying any major defects. Referring to similar cases, the Tribunal directed the ITO to accept the assessee's declared cost of construction at Rs. 3,27,728 and modify the assessment accordingly.

Conclusion:
The Tribunal partly allowed the assessee's appeal, directing the ITO to accept the disclosed cost of construction and delete the addition sustained by the CIT (A). The Revenue's appeal was dismissed.