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TMI Blog1997 (7) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... as a partner) for investment in the property. The AO noticed that excluding those two amounts, the assessee had to explain the source of the balance amount of Rs. 20,65,000 invested in the building. In his letter dt. 20th Dec., 1993 the assessee furnished his explanation regarding the source of the funds as under: . . Rs. . Total cost as on 17th July, 1989 22,00,000 . Cost upto 11-1-1988 90,000 . So amount invested from 1-4-1988 to 17-7-1989 21,10,000 (a) Old materials returnable to Government authorities utilised for construction 6,66,140 (b) Materials supplied by Government authorities this year and utilised in the construction 4,42,720 (c) Materials purchased by the firm Anirudhan Associates diverted for construction 5,25,000 (d) Payment to labourers effected through the firm and later on refunded 70,000 (e) Payment still outstanding to the labourers 1,00,000 (f) Materials supplied by Narmada Design Centre and paid out of bank account of Anirudhan Associates 1,18,427 (g) Amount payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted before us that, as a contractor executing large works for various departments, it was possible for the assessee to roll the materials like cement, steel, etc., in other works as and when they were not immediately necessary for the assigned works. It was pointed out that the construction of Vasanthom Towers commenced on 29th April, 1987, and that it was completed in the financial year 1992-93 and that it was the investment upto 17th July, 1989, that was being considered for the asst. yr. 1990-91. Shri Balakrishnan stated that in his letter dt. 20th Dec., 1993 the assessee had furnished details of cement, steel, timber, etc., he could divert for the construction of the shopping complex. It was stated that in the arbitration proceedings the departments had raised claims against the assessee for recovery of large quantities of cement, steel, etc., in respect of some of the works completed by him. The paper-book filed by the learned counsel contain the letters from the Executive Engineer giving details of the materials to be recovered. Relying on these letters the learned counsel contended that the CIT(A) was not correct in stating that there was no evidence to show that the mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch work materials would be supplied by the departments. It was also contended that when the assessee was making the claim that he had diverted materials belonging to Government departments for his own work, it was for him to prove the same with concrete evidence. The Departmental Representative pointed out that the letters from the Executive Engineer relied on by the assessee's counsel referred to the materials to be recovered in respect of the works executed in 1975, in 1980, and in 1984. It was stated that when the works were done under different divisions and the materials were supplied by those divisions, there was no question of the assessee removing the materials from one work to another, for which permission of the Government would have been necessary. Shri Sudhakaran Pillai stated that no evidence had been furnished to show that permission had been given for rolling the materials in another work in a different department. It was also not proved by credit being given towards the cost of materials while settling the bills. It was strongly contended by the Departmental Representative that in the absence of evidence the AO and the CIT(A) were justified in holding that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... belonging to the Executive Engr., Road Division issued for the construction of communication road from Veli to Venpalavattom 5,250 5,770 — These materials were also lying for a long time pending the disposal of arbitration proceedings. As they were not immediately returnable these were put into use for the time being 4. Materials returnable to the Executive Engr., bldg. divn. issued in connection with the construction of guest house 2,650 8,731 — . . Total 42,180 54,133 16,018 . .Approximate value Rs. 84,360 54,133 40,450 . .. . Rs. Total cost of Government Cement 84,360 materials put into use Steel 5,41,330 for construction Timber 40,450 . . 6,66,140 7. It is true that there is no direct evidence to show that the assessee had been diverting materials like steel, cement, etc., from the Government contract work for the purpose of his private construction. But then it appears that in the arbitration proceedings between the assessee and the Government departments, the claim fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he had not returned the above materials to the Executive Engineer, we find merit in the claim that the above materials can be accepted as used by the assessee for his private construction work. It is necessary to point out in this context that the assessee commenced the construction of the shopping complex on 29th April, 1987. It appears that he had not maintained any accounts for the construction. As per the assessee's letter dt. 20th Dec., 1993, the investment upto 31st Aug., 1988 was Rs. 90,000. In the WT return for the asst. yr. 1989-90 the assessee had shown the same amount as the investment till 31st March, 1989. But as the investment is not supported by any primary evidence, it would not be unreasonable to accept the claim that the materials for the construction of the legislative complex had been diverted by the assessee for the private construction after 29th April, 1987. As the earlier work was abandoned in 1986, the assessee could have made use of the materials in 1987 for the construction of the shopping centre. For coming to this finding, we rely on the subsequent letter issued by the Executive Engineer on 10th Feb., 1995. On the strength of the above letter, we hold t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p cement and steel in his premises for using in the shopping complex. As a matter of fact when the construction of the indoor stadium was completed after 1975, it is doubtful whether the assessee had even planned the construction of the shopping complex, which actually took place after a decade. We do not accept the claim of the learned counsel that the assessee had been rolling these materials in other works. That was not the claim raised by the assessee before the AO or the CIT(A). Further, as the assessee was executing the contract works for Government departments and for their works the materials were supplied to the assessee, we do not find the need for the assessee to roll the materials in the works executed for some other departments. In view of the long delay in time, we agree with the Revenue authorities that the assessee could not have diverted the materials supplied by the P.H. water supply division for the purpose of the construction of the shopping complex in 1987 or thereafter. 10. The assessee next claims that the following quantities of materials from the roads division could be used in his own construction: Cement — 5,250 kgs. Stee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee's claim of diversion of materials from the construction of the Government guest house, to the shopping complex was rightly rejected by the AO. 12. From the above, it can be seen that the assessee is entitled to the credit for an amount equal to the value of the following materials from the construction of the legislative complex, in explaining the source of the investment in the shopping complex: Cement — 585 bags (29,250 kgs.) — Value Rs. 58,500 Steel — 22,559 kgs. — Value Rs. 2,25,590 On the basis of the value as shown by the assessee, the assessee should be given credit for a total sum of Rs. 2,55,000 as the value of the materials diverted for the construction of the shopping complex out of the works already completed by him. 13. There is the further claim that the assessee could divert materials valued at Rs. 4,42,720 out of the materials supplied for the contract works during the current year. In his letter dt. 20th Dec., 1993, the assessee made the claim as under : "At the time of April to June, 1989, I had with me stock of materials issued by the Government for execution of their w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 21st Dec., 1994, the assessee furnished details of the works executed for N.H. division and roads division. The AO also examined the Executive Engineers concerned. The Asstt. Executive Engineer, N.H. sub-division, deposed that there was no work-in-progress as on 31st March, 1989, and that as per his MAS statement the first issue of materials was made on 16th Aug., 1989, only. The A.En., roads division, stated that he had been issuing materials like cement and steel regularly from 12th Jan., 1989. In the assessment order the AO noted that the M. Book produced by the A.En. showed that the assessee was carrying on routine work continuously. It was also brought on record that whenever materials were supplied to the contractor entries were made in the books maintained by the PWD and then gate passes were issued. If the assessee's claims were to be accepted it would mean that he was able to remove materials from the work site in the months of April to June, 1989, continuously for his own private work. In that case no work would have been carried out at the Government work site. It is difficult to believe that the assessee could divert for his own purpose cement, steel, etc., valued at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of the materials supplied by the departments. Normally, it would not be possible to remove such a large quantity of materials without the knowledge of the Engineers in-charge of the work. The AO has, therefore, rightly rejected the assessee's claim in the absence of any evidence supporting the claim. We are in agreement with the CIT(A) that no credit could be given to the assessee for the sum of Rs. 4,42,720 claimed as value of materials diverted for the construction of the shopping complex in the current year, prior to 17th July, 1989. 14. The assessee's next claim is that he had diverted materials worth Rs. 5,25,000 purchased by the firm Anirudhan Associates for the private construction. The assessee's claim before the AO was that materials purchased by the firm, in which he was a partner, were diverted by him for the construction of Vasanthom Towers. The AO noticed that in the income-tax assessment of the firm, their claim was that they were not maintaining proper books of account. However, in the course of the assessment proceedings on the assessee a ledger was produced. In support of the claim regarding diversion of materials, entries on p. 61 of that ledger were relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in not accepting the claim for credit of Rs. 70,000 being the labour used from the firm Anirudhan Associates. The learned counsel Shri Balakrishnan submitted that the assessee could make use of the labour from the firm for the construction of the shopping complex and that towards the labour charges Rs. 70,000 was subsequently reimbursed to the firm. It was stated that the entries on p. 55 of the ledger would show the charges paid through the labour contractor. Shri Balakrishnan submitted that during the previous year till 27th June, 1989, the total debit in the account came to Rs. 1,32,300 and that out of the same Rs. 70,000 represented the labour charges payable by the assessee in connection with the construction of Vasanthom Towers. The learned counsel further stated that as the firm was constituted by the members of the assessee's family only, it was not difficult to make use of the labour from the firm for the construction of the shopping complex. The assessee's claim was that the payment to the labourers were first made by the firm and that it was possible for reimbursing the amount after he raised the loan from LIC. The assessee is the senior partner of the firm and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed cement on credit and that payment of Rs. 1,45,000 was made to the suppliers subsequently. This claim was not accepted by the AO, as also by the CIT(A). It was submitted by the assessee's counsel that being a reputed contractor, the assessee had no difficulty in getting on credit cement from the dealers and that he could make the payment after one or two months when the loan was raised from LIC. The fact remains that there is no evidence to show the purchase of cement on credit. The assessee could have given at least the address of the dealers who had supplied cement on credit. In the assessment order the AO has referred to the fact that even in the sworn statement of Shri Anirudhan recorded on 28th Nov., 1994, no details about outstanding liabilities on account of cement purchase were given. As question No. 6 the AO had asked the assessee to give the details regarding the claim of Rs. 1,45,000 as 'amount payable to cement suppliers'. The assessee gave his answer in the following terms: "That was the amount outstanding. It was subsequently paid in cash. The details are not now available." If the claim that such a large amount was payable towards the credit purchase of ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was miscarriage of justice. Shri Balkrishnan made an earnest request for deleting the entire addition with the plea that the assessee could not have made investment of Rs. 22 lakhs prior to 17th July, 1989, and so there was no question of any unexplained investment to be added as income from other sources. 19. Per contra, the Departmental Representative, Shri Sudhakaran Pillai made the submission that the assessee had never questioned the valuation report of the LIC valuer and that it was on the basis of that report the assessee had availed of the loan from the LIC. It was the assessee who had given details regarding the source for the investment of Rs. 22 lakhs in the building till 17th July, 1989, and that there was no claim by the assessee that the report by LIC valuer was not reliable. The learned Departmental Representative pointed out that the assessment was made on the basis of the accounts, including the books impounded by the AO, the sworn statement of the assessee recorded on 28th Nov., 1989, assessee's letter dt. 20th Dec., 1993, the wealth-tax records of the assessee and other materials. According to the learned Departmental Representative, the statement given b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l valuer for mortgage loans under M-1/OYHS/IF-IIs. In the report the name of the applicant is given as G. Aniruhdhan. It can be seen from the report that the applicant Shri G. Anirudhan wanted to raise a loan from LIC by mortgaging the property at Peroorkada (shopping complex) and for that purpose the inspection-cum-technical report was prepared by the applicant's engineer/penal valuer Shri K. Mathew Varghese, (Retd) Chief Engineer, Kerala PWD on 18th July, 1989. In the report the valuer reports: "I have inspected on 17th July, 1989, the land and the structure thereon and scrutinised the plan and estimate submitted by the applicant and have to report as under: In column XIV the details of the construction are given as under: xiv. Structure for five floors and roof completed. (a) The present stage of construction : Finishing works nearing completion water tank and machine room floor under construction. .. Rs. .(b) i. Present value of land 4,50,000 . ii. Present value of building construction so far (as per original estimate and plan) 22,00,000 . iii. Increase/decrease in cost du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are also not inclined to accept that a responsible engineer who is in the panel of valuers for the Insurance Corporation would give a bogus report about the construction of the building, if the structure was not there. The assessee has also to explain how he could get the building insured on 19th July, 1989, for a total value of Rs. 29 lakhs. Considering the above facts, and the circumstances of the case, we do not find any fault with the AO or the CIT(A) in making the report of the LIC valuer the basis for estimating the cost of the investment till 17th July, 1989. 22. The next question to be considered is whether the investment of Rs. 22 lakhs till 17th July, 1989, could have been made in the light of the assessee's claim that till 31st March, 1989, the investment was Rs. 90,000. It may be noted that it was in the WT return for the asst. yr. 1989-90 that the assessee had shown the investment in Vasanthom Towers till 31st March, 1989, at Rs. 90,000. It appears that there was no enquiry made by the AO in the wealth-tax or in the income-tax assessment regarding the investment till 31st March, 1989. The assessee has also not furnished any evidence to show that the actual investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment till 31st March, 1989 was Rs. 90,000, especially when that statement is not corroborated. We do not, therefore, accept the contention that when the assessee had shown the investment till 31st March, 1989, for wealth-tax purpose, the investment of Rs. 22 lakhs till 17th July, 1989, as estimated by the LIC valuer was not correct. 23. To complete the record, we may also make it clear here that even if the actual investment till 31st March, 1989, was more than Rs. 90,000, the entire addition on account of unexplained investment till 17th July, 1989, could be considered for the asst. yr. 1989-90. First of all, there was no claim by the assessee before the Revenue authorities that the unexplained income should be spread over the period from 29th April, 1987, relating to the asst. yr. 1988-89 onwards. There was no such claim before the Tribunal also for spread over of the unexplained income. It may noted that the unexplained investment in the building came to light on the basis of the report of the LIC valuer. The investment was found as on 17th July, 1989. Under s. 69 of the IT Act, when in any financial year immediately preceding the assessment year, the assessee has made invest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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