9911796707
TMI Blog1988 (7) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment years 1983-84 to 1985-86 on 30-12-1985. In that return the assessee had shown the income as per the profit and loss account which amounted to Rs. 3,00,360 for the assessment year 1983-84. Over and above this figure, the assessee declared income of Rs. 1,00,000 in the return. For the assessment year 1984-85, income returned was Rs. 4,62,707 to which the assessee declared a further sum of Rs. 1,40,000. For the assessment year 1985-86, the declared income was Rs. 7,55,119 under the head business and Rs. 7,50,000 under the head other sources. The latter addition is over and above that was disclosed as per the profit and loss account. 4. The Income-tax Officer was not quite satisfied with the amounts disclosed. On an examination, he found that the question of the cost of construction of the Nursing Home run by the assessee under the name and style of Upasana Hospital required scrutiny. The Income-tax Officer, therefore, addressed himself to the cost of construction as disclosed in the books as compared with the material discovered in the course of search operations. According to the assessee, the construction of the Nursing Home was started in 1978 and completed in 1985. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the books they had incurred for these three years was Rs. 29,02,950. We may make it clear that this figure is also part of the total cost according to the assessee. We mention this figure only to explain how the Income-tax Officer made the allocation of the addition of Rs. 22,56,000 over the three assessment years. He arrived at a proportion of the additions to be made to the additions admitted by the assessee and on that basis he spread the additional estimated cost of construction as follows : A.Y.1983-84 Rs. 1,65,188 A.Y.1984-85 Rs. 5,18,170 A.Y.1985-86 Rs. 10,54,441 A.Y.1986-87 Rs. 5,18,201 (not before us in appeal) ----------------------------- Rs. 22,56,000 ----------------------------- 5. The assessee appealed. When the appeal was pending, the Valuation Officer to whom the reference was made regarding the cost of construction, gave his report. According to the Departmental Valuation Officer, the probable cost of construction of the building together with the cost of lift would have amounted to only Rs. 45.86 lakhs. This figure did not include the cost of furniture, medical instruments etc. 6. Before the Commissioner of Income-tax (Appeals), the assessee's first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the rear block 314 sq. metres in all the floors, the exception being the 5th to 7th floors of the front block. It is also accepted that construction of the blocks were staggered over different years. 10. Now the Income-tax Officer has decided, on the materials found in the course of the search and the submissions made by the assessee that the spread over of the construction over the years would be: Up to 1-5-1980 (a) ground floor, 1st & 2nd floors of Front Block (b) Ground floor of central Block. 1980-81 1st & 2nd flrs. of central Block 1981-82 (a) 3rd floor of front Block (Asst. year 1982-83) (b) Ground floor of rear Block 1982-83 (a) 4th floor of front Block (Asst. year 1983-84) (b) 1st floor of rear Block 1983-84 (a) 3rd floor of Central Block (Asst. year 1984-85) (b) 2nd floor of rear Block 1984-85 (a) 4th floor of Central Block (Asst. year 1985-86) (b) 3rd & 4th floors of rear Block 1985-86 (a) 5th to 7th floors of Front Block (Asst. year 1986-87) Fitting of Elevator and other fittings. 11. The Income-tax Officer has further assumed uniform cost of construction for all the blocks in any given year. The cost of construction is based on the Valuation Officer' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 403.95 ------------------------------ Total Rs. 9,75,521.12 ------------------------------ Sd/- (N.GOPALAKRISHNAN NAIR) SUPERVISOR OF CONSTRUCTION UPASANA HOSPITAL & NURSING HOME, QUILON. Quilon, 1-5-1980. " 15. The certificate does not refer to any front, central or rear block. It refers to main block and side block. But the Income-tax Officer has proceeded on the basis that the main block refers to the front block and side block refers to central block. This assumption is questioned by Sri Kochunni Nair for the assessee. According to him, main block referred to would include the front and central block and side block is a reference to rear block. On that basis, Sri Nair argues that by 1-5-1980 three floors of the front and central block along with ground floor of rear block has been completed. This is against the Income-tax Officer's view that, by that date, only three storeys of front and ground floor of central block is completed. The difference is the construction of 1st and 2nd floors of central block and ground floor of rear block which according to assessee is already completed by 1-5-1980. 16. This, then, is the first issue to be decided. Now this decision has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th third to fifth floor, the details in the same page gives the work done/to be done in the 5th to 8th floor. We have used, in translation, the word "floors". This is misleading. What the paper at page 145 refers to "storey". That is clear because it refers to 8th "(Nila). Both parties agree before us there is no 8th floor. So this represent 8th storey or 7th floor from ground floor. At the end of the page, there is a total of Rs. 2,56,455. Page No. 147 deals with the amount involved in brick work @ 4 1/2" for the same structures referred to in page 145, page 149 refers to brick work 9", page 151 for bottom plastering, page 153 for wall plastering and page 155 for other miscellaneous work like door fitting, wall almirah etc. The total of all these works out to Rs. 4,36,432. 18. Apart from the question which block these notings refer to, there is also the question of the date of these notings. There are no dates given in any of these papers. But the Income-tax Officer has assigned the date of 2-5-1984 in the assessment order, while referring to the actual expenses on wages incurred in the construction which he totalled at Rs. 10,90,110. How did he get this date of 2-5-1984? That ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 which is dated 7-1-1982, in our opinion, should be read along with page 141 which should follow it. These two are written in two pages of a calendar diary of 1981 which has a page for each day. The entries in page 142-141 ( in that order) is the estimate for the work to be done in that year of 1981-82. The rates would be different for the next year of 7-1-1983 to 7-1-1984. It was obvious to the contractor that the work of this dimension would take more than one year. That is why, apparently, by writing "7-1-1983 to 7-1-84" he has reserved the right to revise the rates for the next year. He stipulates "labour charges 15% for construction of "charam" must be given. Tools must also be given. If (the contractor) brings (his own) tools for making 'charam' like, chatti, spade etc. For that 20% labour charges should be given." He also says that "the other rates are for a period of one year only". Then he gives another heading '7-1-83 to 7-1-84'. Now, we find from the bills that concrete work for the third floor and a part of the 4th was done in one year at "old rate" and other floors were at new rates. So we can infer that third floor and 4th floor partly was done in the first year and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates. The area pertaining to the rear block included in it was 45% of 19,954 i.e. 8980 which was allocated 4000 sq.ft. to third floor and 4980 sq.ft. to fourth floor. These two together represent 45% of the work done in the rear block. There must have been some difficulty in measuring the work at old rates in third floor and the contractor must have estimated that one-fifth should refer to rear block to be allocated among the two floors on a rough and ready basis. We should refer to one other evidence relied on by the department to shift the year of construction to a later date. This evidence is a promissory note for Rs. 72,000 found in the premises during the course of the search. During the course of the search, Dr. Bhaskaran had been questioned about this promissory note. It has been made out by the contractor Jaichandran Pillai for Rs. 72,000. According to Dr. Bhaskaran, the bill made by Jaichandran Pillai for concreting and other works amounting to Rs. 4,94,200 was found to be excessive on re-measurement. The actual cost of work done was Rs. 4,14,100 and so for the excess amount paid to Jaichandran Pillai, a promissory note had been taken from him. We have no material to doubt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound has been taken against the rates adopted. It is submitted that these rates are CPWD rates and would not represent the cost of construction for private parties. There is some force in this argument. We would, therefore, reduce the rates by 10% as against 7 1/2% given in Valuation Report. 28. The other grounds --- electrical and sanitary fittings, water tanks etc. --- in our opinion, can be rejected because we find the Commissioner's order for these items are reasonable. 29. We will now take up the Department's appeals on the cost of construction. No specific ground has been taken by the Department, except to state that the unaccounted investment should not have been reduced to Rs. 19 lakhs. On going through the order, the reduction objected to by the department resolves into three items : (i) Reduction in cost of lift Rs. 97,000 (ii) Reduction in medical equipment Rs. 3,00,000 (iii) Reduction in furniture etc. Rs. 1,20,000 30. We will consider the issue regarding lift here. The other two items have to be considered along with assessee's objection in his appeals. The cost, as per invoice of Otis India Ltd. was Rs. 2,41,570. The Income-tax Officer estimated it at Rs. 3 lakh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer has added three lakhs. Now, although the assessment order does not refer to the materials, the records show acquisition of materials outside the books. We deal with them below. Respirator Monal: There is evidence that it has been imported and cost the assessee Rs. 48,246. This acquisition pertains to accounting year 1982-83. Items cost fixed at Rs. 54,990: The basis for this addition is a letter from M/s Electrocare Systems and Services dated 22-10-1981, giving certain quotations for Monal B Respirator. In our opinion, this is merely an enquiry made by the assessee and does not show any acquisition. On the other hand, three months later in January 1982, the assessee has imported the same item. So there is no case for inclusion of this sum of Rs. 54,990. Short-wave Diathermy: There is evidence on the basis of two letters to the assessee from M/s Electrocare Systems & Services that the assessee had acquired them in 1984-85 accounting year. Equipments worth Rs. 19,500 has been added on the basis of a letter from the seller dated 5-6-1984. We find this is merely a reply to an enquiry. It is not an invoice. This cannot be considered. There is, however, evidence for purchase of Ul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted cost for these three years was Rs. 29,02,950. So the ratio adopted by the Income-tax Officer is reasonable and is upheld. 39. But we must make one small amendment. The Income-tax Officer must deduct from the addition upheld by us Rs. 62,046 representing medical equipment cost. This has to be assessed in the appropriate years of acquisition as indicated already. 40. To sum up : the spread over of the construction would be as follows : Front Block : All the floors (except 5th, 6th and 7th) were constructed before the assessment year 1983-84. No controversy on cost of construction of 5th, 6th and 7th floors before us. Central Block : Up to Second Floor the issue is not before us. Third and Fourth Floors were constructed in 1982-83 assessment year (Paras 24 & 25). Rear Block : Ground and first floor constructed before assessment year 1982-83. Second floor partly constructed in 1981-82 (assessment year 1982-83) 4000 sq.ft. of second floor and 4890 sq.ft. of third floor constructed in 1982-83 (assessment year 1983-84). Third floor 2824 sq.ft. and 4th floor constructed in 1983-84 (assessment year 1984-85). Rate: C.P.W.D. rates should be reduced by 10%. Lift: Income-tax Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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