1998 (2) TMI 166 - AT - Income Tax

Summary

Issues:
Appeal against addition of unexplained investment in construction of house.

Analysis:
The appeal was against the addition of Rs. 1,04,267 sustained by the CIT(A) regarding unexplained investment in the construction of a residential house. The Assessing Officer had made the addition based on the cost of construction determined by the Departmental Valuation Officer (D.V.O.) at Rs. 2,25,000, while the assessee claimed the cost was Rs. 1,22,300. The CIT(A) upheld most of the Assessing Officer's working but allowed a higher rebate for the use of old material, resulting in the final addition of Rs. 1,04,267.

During the hearing, the assessee's counsel argued that the commission issued to the D.V.O. by the Assessing Officer was illegal as no assessment proceedings were pending at that time. The counsel cited relevant case laws to support this argument. Additionally, the counsel contended that the D.V.O.'s valuation was incorrect and that the rebate for the use of old material allowed by the CIT(A) was insufficient.

The Departmental Representative supported the assessment order, stating that the Assessing Officer had the authority to issue the commission to the D.V.O. under section 131(1)(d) of the Income-tax Act, 1961. The DR argued that the Assessing Officer's actions were valid, and the assessment order was fair and reasonable.

The Tribunal analyzed the relevant provisions of the Income-tax Act and the Code of Civil Procedure to determine the Assessing Officer's powers to issue a commission to the D.V.O. The Tribunal held that the commission for determining the cost of construction fell within the scope of technical/expert investigation, allowing the Assessing Officer to issue such a commission.

Ultimately, the Tribunal found that the commission issued by the Assessing Officer was not in accordance with the law as no assessment proceedings were pending at that time. Therefore, the D.V.O.'s report could not be used against the assessee. However, since the assessee had submitted a report from an approved valuer estimating the cost of construction at Rs. 1,22,300, the Tribunal recalculated the unexplained investment at Rs. 46,317, lower than the amount upheld by the CIT(A).

Consequently, the Tribunal partly allowed the assessee's appeal, reducing the addition for unexplained investment to Rs. 46,317 from Rs. 1,04,267.