2004 (1) TMI 308 - AT - Income Tax

Summary

Issues Involved:
1. Unexplained investment in property construction.
2. Adjustment of surrendered amounts against unexplained investments.
3. Discrepancies in stock found during search.
4. Determination of cost of construction.

Summary:

1. Unexplained Investment in Property Construction:
The first common issue raised in all four appeals relates to sustaining an addition of Rs. 85,146 on account of unexplained investment in the construction of properties. The properties were referred to the DVO for ascertaining the cost of construction. The DVO's valuation reports showed a significant difference between the disclosed investment and the determined cost of construction. The CIT(A) allowed further relief after considering objections and directed the DVO to reconsider the matter. The CIT(A) finally determined the unexplained investment at Rs. 8,92,669, and each co-owner's share was worked out at Rs. 85,146.

2. Adjustment of Surrendered Amounts Against Unexplained Investments:
The assessees contended that the amounts declared by Shri Surinder Pal Verma and Smt. Neelam Verma u/s 132(4) should be adjusted against the cost of construction. The CIT(A) rejected this, holding that the surrendered amounts could only be used to explain their own share of investment. The Tribunal, however, found that the surrendered amounts should be considered for the total investment in the properties and adjusted accordingly.

3. Discrepancies in Stock Found During Search:
The next ground in the case of Shri Surinder Pal Verma involved an addition of Rs. 1,64,854 out of the surrendered amount of Rs. 2.50 lakhs against discrepancies in stock. The CIT(A) observed that the stock found was less than the stock as per books, indicating sales outside the books. The Tribunal directed reconsideration of the matter, allowing the assessee to furnish necessary supporting evidence.

4. Determination of Cost of Construction:
The Tribunal noted that the assessees had not maintained complete records of cost of construction, and the DVO's initial valuation was significantly higher than the disclosed investment. The CIT(A) allowed some relief but did not fully address all objections. The Tribunal found that the cost of construction adopted by the CIT(A) was fair and reasonable, considering the quality of construction and the period during which it was completed.

Separate Judgment by Third Member:
The Third Member agreed with the Vice President on all points of difference, including allowing further relief of 5% in estimating the cost of construction, adjusting the surrendered amounts against the total investment, and deleting the addition for discrepancies in stock. The matter was referred back to the regular Bench for passing the order according to the majority view.