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TMI Blog1994 (9) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... ance sheet have been prepared for all years from regular books of account which have been audited also. The total cost of construction according to the assessee's books was Rs. 84,58,353 for Surya Apartment and Rs. 79,04,406 for Vaibhav Apartment. 4. The Assessing Officer has first given a finding that the cost as per assessee's books should be something else. He has referred to the final bills drawn on M/s Nishant Sahkari Grih Nirman Samiti Ltd., Patna in respect of the two buildings. According to him, the assessee sold the two apartments to the said co-operative society. He analysed the figures in bills and came to conclusion that the net cost of construction for Surya Apartment came to only Rs. 60,48,895 and the net cost of construction for Vaibhav Apartment came to Rs. 75,64,426. These figures are relevant since the Assessing Officer worked the unexplained investment not with respect to the cost of construction as per assessee's books but as per these revised figures. Thereafter, he split the year-wise investment as under : -------------------------------------------------------------------------------------------------------------------------------------------------- Surya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same as the cost for Income-tax quarters. However, the estimate was reduced to Rs. 201 per sq. ft. for Vaibhav Apartment considering that it had a lesser number of storeyes. The estimated cost in this manner for Surya Apartment came to Rs. 1,11,60,182 and the estimated cost for Vaibhav Apartment came to Rs. 98,64,678. 8. The Assessing Officer adopted the above estimates as the true cost of construction. Thereafter, he deducted the cost, not as disclosed in the books of account, but the cost determined by him on the basis of bills drawn on M/s Nishant Sahkari Grih Nirman Samiti Ltd., Patna. The undisclosed investment worked out for Surya Apartrnent was Rs. 51,11,287 and the undisclosed investment for Vaibhav Apartment amounted to Rs. 23,00,252. 9. At this stage it will be useful to summarise the various figures and other data as below : Vaibhav Surya (a) Area constructed 49,078 sq. ft. 53.398 sq. ft. (b) Investment as per books Rs. 79,04,406.00 Rs. 84,58,353.00 (c) Rate per sq. ft. Rs. 154.13 per sq. ft Rs. 1 13.28 per sq. ft (d) Cost of construction Rs. 75,64,426.00 Rs. 60,48,895.00 reflected in bill to Nishant Cooperative as worked out by Assessing Officer (e) Cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs colony and others were not really comparable. 5. Alternatively, even if there was excess unexplained expenditure and addition was made on account of it, the expenditure should be debited to the profit and loss account. This would reduce the profits by exactly the same amount and, therefore, there would be no net addition. 6. The bill submitted to M/s Nishant Sahkari Grih Nirman Samiti was as per the agreement with the society. Obviously the amount billed and the cost of construction could not be identical. The Assessing Officer had confused the amount billed with the cost of construction and arrived at a cost of his own which had really no basis ; and 7. The DVO had made the valuation based on CBDT Circular No. 1671 which was binding on the Assessing Offlcer, particularly when he had been unable to find any mistake or omission therein. 12. The CIT(A) passed a lengthy order but in it he dealt with the objection Nos. 4 & 7 only and not the remaining 5 objections. He observed that the three buildings cited by the Assessing Officer were not comparable to the case of the assessee. In the case of I.T. staff quarters under construction, the estimate approved included substantial de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... departmental appeal that the comparable cases taken by the Assessing Officer were quite suitable and, therefore, the addition made should be restored. He further invited our attention to para 2 of the assessment order where, according to him, defects had been pointed out in the cost of construction as per assessee's books. He admitted fairly that it had not been recorded as such that proviso to section 145(1) was being invoked, but from the tenor of the order it followed that the Assessing Officer was proceeding only on the basis of proviso to section 145(1). He, therefore submitted that the addition made by the Assessing Officer should be restored. 18. We have heard the rival submissions carefully. Some important preliminary legal issues have been raised and it is necessary to deal with them first. The assessee is a builder and had maintained regular books of account which were closed and adjusted and were also audited. It was claimed that all expenditure incurred on the construction of the two buildings --- Surya Apartment and Vaibhav Apartment, had been entered in the account books. The first question for consideration is the circumstances under which the Assessing Offlcer can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20. Two conclusions follow from the above discussion. The first is that no defects in the books have been pointed of the nature described in proviso to section 145(1) or section 145(2). The second conclusion is that the base figure for unexplained investment, if any, should be the amounts recorded in the assessee's books and not the estimated figures arrived at in para 2 of the assessment order. This second conclusion takes care of objection No. 6 raised before the CIT(A), and also before us, in addition to the first objection. 21. A weak attempt was also made by the Id. DR by inviting our attention to para 17 of the assessment order where it was mentioned that the investment shown by the assessee was incorrect and unreliable. However, this observation is not based on the examination of the assessee's books of account and supporting documents but on the basis of estimates of cost of construction obtained by the Assessing Officer in the case of some other buildings. The remark, therefore, does not fulfil the conditions laid down either in proviso to section 145(1) or section 145(2). 22. We will now look at the cases relied upon by the Id. counsel for the assessee in support of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the past and no defects were pointed out in the books. The expenses were fully supported by vouchers. Full details were also mentioned in respect of each items in the books. Simply because the valuation report of the valuation cell was of a higher amount, the books could not be said to be unreliable. The Tribunal was, therefore, justified in deleting the addition. Relevant extract at page 971 :--- " We have considered the matter. In respect of the investment which is made in the property, there can be only two methods to find out the correct position (i) when proper books of account are maintained, and (ii) valuation report. If the assessee has maintained proper books of account and all details are mentioned in such books of account, which are duly supported by vouchers and no defects are pointed out and the books are not rejected, the figures shown therein have to be followed. The valuation report can be taken into consideration only when the books of account are not reliable or are not supported by proper vouchers or the income-tax Officer is of the opinion that no reliance can be placed on such books of account. It Is true that the Income-tax Officer has no option but to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the course of business. The situation was quite different from another case where a building may be constructed as a capital investment. In the former case, the expenses are debited to the profit and loss account whereas in the latter case, i.e., the case of capital investment, the expenses are not debited in the profit and loss account. It follows that in the former case, if the assessee has incurred expenditure in excess of the amounts recorded in the books, then the unexplained expenditure would be assessable as income under section 69C of the Income-tax Act. On the other hand, in the case of a capital investment, unexplained investment if any will be assessable under section 69 of the Income-tax Act, 1961. There are different consequences in the two situations. In the first situation although some amount may be assessable as unexplained expenditure under section 69C, as soon as the amount is debited in the profit and loss account, the addition is neutralised and the net result is a nil addition. However, in the latter case, since unexplained investment does not go to the profit and loss account, there is no figure setting it off and the entire amount remains income. This dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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