1992 (6) TMI 66 - AT - Income Tax

Summary

Issues Involved:
1. Restriction of addition on account of unexplained investment in the construction of the factory building.
2. Sustaining the addition of Rs. 50,000 as unexplained investment.

Summary:

Issue 1: Restriction of Addition on Account of Unexplained Investment
The revenue appealed against the CIT (Appeals) for reducing the addition of Rs. 7,39,200 to Rs. 50,000 u/s 69, while the assessee cross-objected against sustaining the Rs. 50,000 addition. The assessee disclosed a construction cost of Rs. 5,12,453, supported by an Approved Valuer's estimate of Rs. 5,10,000. The Departmental Valuation Officer (DVO) estimated the cost at Rs. 12,49,000, citing detailed descriptions and higher rates compared to the assessee's valuation report. The CIT (Appeals) found discrepancies in the DVO's report and, after a joint inspection, revised the cost to Rs. 8,37,000. The CIT (Appeals) sustained Rs. 50,000 as unexplained investment, noting defects in the assessee's books of account.

Issue 2: Sustaining the Addition of Rs. 50,000
The Departmental Representative argued that the CIT (Appeals) erred in reducing the cost by 35-40%, emphasizing defects in the assessee's valuation report and books of account. The assessee's counsel contended that the DVO's cost estimation was arbitrary, comparing the construction to a multi-storeyed building, and ignoring detailed quantitative rates provided by the assessee. The counsel referenced a CPWD Circular differentiating cost indices for buildings and food grain godowns, arguing that the CIT (Appeals) correctly reduced the cost by 35-40%.

Tribunal's Findings:
The Tribunal noted that the ITO failed to point out specific defects in the assessee's books of account and vouchers, which detailed day-to-day construction expenses. The Tribunal emphasized that the ITO must reject the books of account with specific reasons before relying on the DVO's report. The Tribunal found the assessee's books maintained in the regular course of business and without specific defects. The revised DVO report, after a 40% reduction, closely matched the assessee's declared cost. The Tribunal concluded that the CIT (Appeals) correctly reduced the cost and that no addition was warranted for unexplained investment. Consequently, the departmental appeal was dismissed, and the assessee's cross-objection was allowed.