1988 (7) TMI 96 - AT - Income Tax

Summary

Issues Involved:
1. Escapement of taxes and search operations.
2. Cost of construction of the Nursing Home.
3. Valuation Officer's report and its discrepancies.
4. Spread-over of construction costs.
5. Adoption of CPWD rates.
6. Costs of lift, medical equipment, and furniture.
7. Allocation of unaccounted investment over assessment years.

Issue-wise Detailed Analysis:

1. Escapement of Taxes and Search Operations:
The assessee, a registered firm running a Nursing Home, was subject to a search operation on 19-12-1985, which uncovered substantial evidence of tax evasion, including Fixed Deposit Receipts amounting to more than 12 lakhs. The firm had not filed returns for the assessment years 1983-84 onwards until 30-12-1985, when they disclosed part of the concealed income.

2. Cost of Construction of the Nursing Home:
The Income-tax Officer (ITO) scrutinized the cost of construction of the Nursing Home, which the assessee claimed was Rs. 53,86,020 for the period 1980-81 to 1985-86. The ITO, suspecting understatement, estimated the total investment in construction at Rs. 55,22,000 based on materials found during the search. The final assessment included costs for the building, medical equipment, furniture, and lift, totaling Rs. 76,42,000.

3. Valuation Officer's Report and Its Discrepancies:
The Valuation Officer's report, submitted after the assessment, estimated the probable cost of construction at Rs. 45.86 lakhs, excluding furniture and medical instruments. The Commissioner of Income-tax (Appeals) (CIT(A)) noted objections from the ITO regarding the Valuation Officer's assumptions and measurements.

4. Spread-over of Construction Costs:
The ITO and the assessee agreed to adopt a rate per square foot of plinth area for cost estimation. The revised proposals detailed the construction spread over different years, with specific costs assigned to each block and floor of the building. The CIT(A) largely accepted these estimates with minor adjustments.

5. Adoption of CPWD Rates:
The ITO based the cost of construction on CPWD rates for each year, which the CIT(A) accepted with a slight reduction. The Tribunal further reduced these rates by 10%, acknowledging the argument that CPWD rates might not represent the cost for private parties accurately.

6. Costs of Lift, Medical Equipment, and Furniture:
- Lift: The ITO's estimate of Rs. 3 lakhs was restored, considering the civil work involved in installation.
- Medical Equipment: The CIT(A) reduced the estimated cost from Rs. 8 lakhs to Rs. 5 lakhs. The Tribunal found evidence of unaccounted acquisitions amounting to Rs. 62,046 and decided these should be assessed in the respective years of acquisition.
- Furniture: The CIT(A) reduced the cost to Rs. 3.50 lakhs, but the Tribunal restored the ITO's estimate of Rs. 4.70 lakhs, aligning with the assessee's admitted costs.

7. Allocation of Unaccounted Investment Over Assessment Years:
The Tribunal upheld the ITO's method of allocating the additional estimated cost of construction over the three assessment years based on the proportion of admitted costs. However, it mandated deducting Rs. 62,046 for medical equipment from the total addition and assessing it in the appropriate years.

Conclusion:
The Tribunal partly allowed all the appeals, with specific adjustments to the cost of construction, adoption of CPWD rates, and allocation of unaccounted investments. The spread-over of construction costs was detailed, and reductions were made where appropriate, ensuring a fair assessment of the assessees' tax liabilities.