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TMI Blog2002 (7) TMI 751X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Valuation Cell of the Income-tax Department and the cost of construction was determined at Rs. 5,91,650, as against cost of construction declared by the assessee at Rs. 3,27,000. After giving an opportunity of hearing to the assessee, the Assessing Officer adopted the cost of construction of the property at Rs. 5,91,660 and allocated the difference of Rs. 1,64,660 (Rs.5,91,660 minus Rs. 3,27,000) in the assessment years 1990-91 and 1991-92 at Rs. 82,330 each. In appeal, the Commissioner of Income-tax (Appeals) considered the submissions of the assessee as well as the cost of construction worked out by the Departmental Valuation Officer. The Commissioner of Income-tax (Appeals) found that the assessee was not able to produce all the vouchers in respect of the cost of construction, and from the details it was not possible to find out whether all the expenditure incurred have been accounted for. The Commissioner of Income-tax (Appeals) observed that any valuation on the basis of break-up of the materials was not furnished and that separate expenditure incurred on bricks, sand, cement, steel and labour was not furnished either before the Assessing Officer or before him. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated that the valuation of the house property had been made on the basis of the C.P.W.D. rates and not on the basis of the State P.W.D. rates. According to learned counsel, the C.P.W.D. rates are applicable only for big and metropolitan cities. 4. The learned Departmental Representative, on the other hand, supported the order of the Commissioner of Income-tax (Appeals) and stated that the Valuation Officer had asked the assessee to state his objections before submitting the valuation report with regard to the cost of construction of the house property in question, but no objection was raised by the assessee before him. He, therefore, submitted that the action of the Commissioner of Income-tax (Appeals) in sustaining Rs. 53,910 and Rs. 46,824, respectively, for the assessment years 1990-91 and 1991-92 being unexplained investment in the house construction, should be confirmed. 5. We have carefully considered the rival submissions, the facts and circumstances of the case and the material on record. The contention of learned counsel for the assessee that a reference to the Departmental Valuer was unnecessary and unwarranted in the present case and such a reference has not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost is determined on State P.W.D. rates. Learned counsel did not file any details of cost of construction based on State P.W.D. rates. In the absence of any evidence to show that the cost of construction of the house property in question based on State P.W.D. rates would be less than what has been determined by the first appellate authority, we reject the contentions of the assessee s counsel in this regard. 10. Learned counsel for the assessee has stated that no defects in the books of account in regard to the cost of construction have been pointed out by the Assessing Officer. The addition on account of unexplained investment is made under section 69 of the Act. A query was put to the assessee s counsel during the course of hearing that suppose a person purchases bricks worth Rs. 50,000 but shows only Rs. 30,000 in his books towards purchase of bricks, then no defects in the books of account could be found out even though he has understated the cost of purchase of bricks to the tune of Rs. 20,000. Therefore, it is not necessary to find out the defects in the books of account for invoking the provisions of section 69. The defects in the books are relevant only when the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in society (which I refer them as big people) get substantial concessions and reductions in the purchase price of several commodities, article and things in the market compared to other common citizens or lesser mortals (whom I refer as small people). The cost of articles or things to such big people will be less compared to the cost of the same article to small people. I pose a question to myself can the Assessing Officer make addition under any deeming provision of the Income-tax Act in the case of big people on the ground that the market price/value of a particular article or thing is opined by an expert to be more than what was spent while purchasing ? The answer obviously will have to be "no". 13. The DVO is a trained expert for tendering opinion on the valuation aspects of any property or asset but he is not trained nor he is an expert in tendering opinions on the cost aspects of any property or asset. It is the job of a cost analyst and not that of the DVO to find out the cost of construction of any property and I repeat that the Valuation Officer is not a cost analyst at all. Though the Assessing Officer may obtain an opinion from an expert, namely, the DVO, under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not spent anything over and above Rs. 3,27,000 and the same is duly recorded in the account books, supported by vouchers to the extent available. The Assessing Officer does not deal with the case of the assessee in relation to the cost of construction on the basis of the evidence produced before him, namely, the account books and the relative vouchers but ignores the same cooly sitting in his arm chair acting on the opinion of the Valuation Officer of the Income-tax Department who is not a cost analyst at all and on that basis subjects the assessee to tax and exposes the assessee to other penal and adverse consequences provided under the law. I think it is too harsh to subject an assessee to tax and other adverse and penal consequences merely on the basis of reports and opinions of experts of the valuation matters of properties. I could have well agreed with the Assessing Officer, had he taken pains to find out the real cost of construction. But for the reason best known to him, the Assessing Officer did not embark upon any such serious enquiry to find out if any amount is spent over and above the sum of Rs. 3.27 lakhs by the assessee which got reflected and recorded in the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion of the Departmental Valuation Officer (DVO) ?" 2. I have heard counsel for the assessee as well as the learned Depart-mental Representative. 3. So far as the facts relating to the issue are concerned, the same have been stated in detail in para. No. 2 (page 85) of the order of the learned Accountant Member and, therefore, to avoid repetition are not stated here. 4. Counsel for the assessee first of all went through the findings of the learned Accountant Member contained in paras 5 to 8 (pages 86 and 87) of his order and made the following submissions : ( i )That the Assessing Officer having not disputed the correctness of the books of account maintained by the assessee for the purpose of his business income as well as for construction of the property, it was not justified on his part to make a reference to the Valuation Officer for finding out the cost of construction of the property. ( ii )That the Assessing Officer though was authorised to call for information from any authority or a person by virtue of his powers under section 133(6) of the Act and also could appoint commission for determining the market value of a property by virtue of his powers under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed decision of the Income-tax Appellate Tribunal, A-Bench, Chennai, in the case of M.S. Ponraj v. ITO [I.T. Appeal Nos. 1656 and 1657 (Mad.) of 1996, dated 23-6-1998, for the assessment years 1989-90 and 1990-91. 5. The learned Departmental Representative, on the other hand, first of all submitted that the question referred for the opinion of the Third Member is not properly framed because it goes to show as if the Members constituting the Division Bench had, in principle, agreed that there could be addition but the difference was on the point regarding apportionment of the addition in the two years under consideration. 6. On merits, the learned Departmental Representative submitted that the Valuation Officer had given ample opportunity to the assessee and no such objections were raised before him. According to him, the plea relating to adoption of the State P.W.D. rates was not taken either before the Assessing Officer or before the Valuation Officer and has been afterwards and hence the same should not be considered. Referring to the order of the Commissioner of Income-tax (Appeals), the learned Departmental Representative submitted that the Commissioner of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( ii )To have a clarity of understanding in relation to the ambit and scope of the powers of the Assessing Officer under section 131(1)( d ), let me go to the relevant provisions contained in the Civil Procedure Code. Section 75 of the Civil Procedure Code which provided for the powers of a court to issue commissions reads as under : "Subject to such conditions and limitations as may be prescribed, the court may issue a commission ( a )to examine any person; ( b )to make a local investigation; ( c )to examine or adjust accounts; ( d )to make a partition; ( e )to hold a scientific, technical or expert investigation; ( f )to conduct sale of property which is subject to speedy and natural decay and which is in the custody of the court pending the determination of the suit; ( g )to perform any ministerial act." As is evident from a plain reading of section 75 of the Civil Procedure Code out of the various purposes as contained therein for which a court may issue a commission, the purposes which are of relevance in the context of the situation presently under discussion and which can be made use of by the Assessing Officer in utilising the agency of a Valuation Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the market value of any property, or the amount of any mesne profits or damages, or annual net profits, the court may issue a commission to such person as it thinks fit directing him to make such investigation and to report thereon to the court : Provided that, where the State Government has made rules as to the persons to whom such commission shall be issued, the court shall be bound by such rules." A bare perusal of the above rule leads one to infer that purposes like ascertaining the market value of any property, or the amount of any mesne profits or damages or annual net profits, provided for therein are contextually inapplicable for the purpose of ascertaining the cost of construction of a building in relation to which the Assessing Officer seeks to appoint a Valuation Officer as Commissioner under section 131(1)( d ) of the Act. Once the aforesaid purposes are ruled out, there remains the only purpose "of elucidating any matter in dispute for which the Assessing Officer can fall back upon the powers of a civil court under rule 9, Order 26 of the Civil Procedure Code which has to be a dispute about any matter which requires elucidation. In other words, the court must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said that he has derived a judicial satisfaction which can be interpreted to give rise to a dispute about the matter of adequacy or otherwise of the amount of the cost of construction. Thus, before a commission in favour of a Valuation Officer can be issued by the Assessing Officer in terms of section 131(1)( d ), the Assessing Officer must get himself judicially satisfied about the inadequacy of the cost of construction shown by an assessee. As explained above, the Assessing Officer can derive the above satisfaction only after he has granted an opportunity to the assessee to explain his investment and has looked into the materials and/or evidence produced by the assessee. It is an established position of law that "no commission can be issued for the purposes of collecting evidence in suit" Basanta Kumar Swain v. Baidya Kumar Parida AIR 1989 Ori. 118; Institution of Engineers (India) v. Bishnu Pada Bag AIR 1978 Cal. 296. The object and purpose of local investigation under rule 9, Order 26 of the Civil Procedure Code is to clarify or explain any point which is left doubtful on the evidence on record. 9. The detailed analysis of the aforesaid provisions clearly shows that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. So far as the present case is concerned, the Revenue has not brought in any evidence with regard to the satisfaction of the Assessing Officer or recording of such satisfaction and, therefore, I am of the opinion that the reference made by the Assessing Officer to the Valuation Officer or elucidation of cost of construction was itself without jurisdiction and, consequently, the report submitted in consequence upon such reference was not a reliable document. 11. Coming to the assessee s plea that the State P.W.D. rates should have been adopted, I am of the opinion that this issue is squarely covered by the decision of the A-Bench of this Tribunal in the case of M.S. Ponraj ( supra ) referred to earlier, a copy of which is placed on record, in favour of the assessee and against the Revenue, more so because the Revenue, has not brought any decision to my knowledge taking a contrary view. I am, therefore, of the opinion that if at all the cost of construction is to be determined it should have been by adopting the State P.W.D. rates and not by adopting the C.P.W.D. rates. The valuation report based on the C.P.W.D. rates was, therefore, not to be relied upon. Coming to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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