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TMI Blog2001 (11) TMI 1018X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of construction as per the books of account maintained by the firm. 4. While framing the assessment order for assessment year 1986-87, the Assessing Officer noted that the assessee has understated the cost of construction. He, therefore, referred the matter relating to the determination of the cost of construction to the Departmental Valuation Officer under section 131(1)(d) of the Act. The D.V.O. after inspection of the property and after taking into consideration the relevant material submitted his report on 28-3-1998 to the Assessing Officer. The assessments for assessment years 1985-86 and 1987-88 has already been completed under section 143(1) prior to receipt the report of the D.V.O. as well as prior to completion of regular assessment order for assessment year 1986-87. Hence, the Assessing Officer has reopened the assessments under section 147(b) of the Income-tax Act for the above two years. He estimated the cost of construction at ₹ 1,531 per sq. meter against the cost disclosed by the assessee at ₹ 1,117 per sq. meter. He made the addition of the difference of the cost. The Assessing Officer was of the opinion that the assessee must have earned profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore estimating the cost of construction. The Hon ble Tribunal has restored the matter back to the file of the Assessing Officer for determining the actual cost of construction. The directions given by the Tribunal are being reproduced here below: - However, on the merit of the additions made by the Assessing Officer, we are of the view that all such additions were made by the Assessing Officer without properly considering the submissions made on behalf of the assessee. Furthermore the assessees submitted certain fresh material before the CIT(A) such as detailed working showing reasonableness of the consumption of steel, which were not supplied to the ITO or to the D.V.O. by the CIT(A) before arriving at the conclusions. The entire proceedings have been conducted by the Assessing Officer as well as by the CIT(A) in disregard of the principles of natural justice and also not in conformity with the relevant provision of law. In the interest of justice and fairness, we consider it just and proper to set aside the orders of the CIT(A) as well as of the Assessing Officer for all the years under consideration in the case of both these assessees and we restore the matter back to the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom time to time in relation to different types of methods of accounting which can be adopted by the persons engaged in such business. After considering these facts the Assessing Officer will determine the assessee s income in accordance with the provisions of law. As a result of the aforesaid findings, the orders passed by the CIT(A) as well as by the Assessing Officer are set aside and the matter is restored back to the I.T.O. for making fresh assessments in accordance with law after providing reasonable opportunity to the assessee. 8. In compliance with the directions of the Hon ble Tribunal the Assessing Officer has made the assessments of all the three years in the case of both the firms. The Hon ble Tribunal has specifically directed the Assessing Officer to allow the opportunity of cross-examination of the Valuation Officer to the assessee. However, in spite of these directions, the Assessing Officer did not allow the assessee to cross-examine the Valuation Officer, and in this way, the hostile attitude of the Assessing Officer put the canoe at the very start after such a long period. He made the very additions on the basis of that very material. The ld. Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermined it as ₹ 1,531 per sq.m. and the ld. CIT(A) estimated it at ₹ 1,300 per sq.m. Similarly, in the case of M/s. Mahavir Builders the assessee declared the cost of construction at ₹ 1,058, the DVO determined it at ₹ 1,530 per sq.m., the CIT(A) estimated at ₹ 1,300 per sq.m. In this way, the ld. CIT(A) upheld a part of the addition and deleted a part of it. 10. The assessee is in appeal against the retention of the addition and the revenue is in appeal against the deletion of addition sustained by the ld. CIT(A). 11. Both the assessees have taken similar grounds of appeal in all the years except the variation in amounts. Similarly, the revenue has taken only one ground of appeal, which is common in all the appeals for all the three years. Hence for the sake of brevity of repetition, we reproduce the grounds of appeal taken by the assessee in the case of M/s. Tirupati Builders from assessment year 1986-87: - The grounds of appeal mentioned hereunder are without prejudice to one another. 1.The learned Assessing Officer has erred in not conducting the set aside assessment proceedings as directed by Hon ble ITAT. 2.The learned Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per Book as well as the relevant report. He has pointed out various defects in the DVO s report. The ld. Counsel submitted that the DVO while determining the cost of construction adopted the plinth area rate method, which is the inferior method for ascertaining the cost of construction and is normally used for budgetary sanctions in the Government departments. While highlighting the defects in the plinth area rate method, the learned counsel submitted that in the case of M/s. Dreamland Enterprises, Gandhidham, the DVO has worked out the cost of construction on the basis of a plinth area rate method at ₹ 26,78,000, when he was directed to work out the cost of construction on the basis of item-wise analysis the cost worked out at ₹ 15,83,332, i.e., 40% less. In support of his contention, the ld. Counsel has taken us through the Article of N.P.V. Prasanna, M.I.S. M.I.W.W.A., F.I.V.M Vishakhapatnam. Copy of the article is available at page 20 of the Paper Book. The ld. Author has pointed out that there is variation in working out the cost of construction at 34.2% in both the methods, i.e., plinth area rate method, detailed quantity survey and rate analysis method. 15. Af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the Tribunal. The ld. CIT(A) in para 13 of the order has specifically observed to this effect. But we are of the opinion that the ld. CIT(A) has rightly observed that the non-compliance of the directions of the ld. Tribunal by the Assessing Officer do not render the whole proceedings annulled, though they reduce considerable evidential value of the DVO s report. Under these circumstances, we are of the opinion that adverse inference deserves to be drawn against the admissibility of DVO s report. Now the fact again remains, what is the cost of construction if any addition is required to be made. The only evidence available with the Assessing Officer is DVO s report. In support of this report, there is no evidence on record, which indicates that it cannot be relied upon. 19. The ld. Assessing Officer in para 7.1 pointed out five defects in the assessee s books of account. The assessees were asked to meet with the defects by letter dated 20-3-1998. The defects are: - 1.That the assessee did not maintained any record for purchases, consumption and balance of raw material either day-to-day or on any regular interval of any specified periods. 2.There is no closing stock d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered some other material. There is nothing on record which can suggest the basis on which ld. CIT(A) estimated the cost at ₹ 1,300 per sq. m. As far as the finding of the ld. Assessing Officer is concerned, that cannot be accepted for the following reasons: - 1.The ld. Assessing Officer has not allowed the assessee to cross-examine the DVO in spite of specific direction by the ITAT. 2.The DVO has adopted plinth area rate method, which, in our opinion, the assessee has successfully demonstrated that is an inferior method of determining the cost of construction. 3.The cost of construction determined by the DVO is an opinion of an expert. There is no mathematical formula, which can very well calculate exact cost of construction. The opinion of an expert normally be accepted with corroboration of other materials. 4.The Assessing Officer has pointed out certain defects in the books of account of the assessee. In para 7.3 of the assessment order the ld. Assessing Officer has assigned reasons as to how the books of accounts of the assessee are not reliable. At serial No. 1 at page 10 of the assessment order, the ld., Assessing Officer observed that the entries debited t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. On the other hand, in the case of capital investment, unexplained investment, if any will be assessable under section 69B. There are different consequences in the two situations. In the first situation, although the difference of the actual cost estimated by the DVO and the cost shown by the assessee may be assessable as unexplained expenditure under section 69C, as soon as the amount is debited in the P amp;L account the same is neutralized and the net result is nil addition. However, in the latter case, i.e., the case of unexplained investment added under section 69B, since unexplained investment does not go to the P amp;L account, there is no figure setting it off over and the entire amount remains income. Thus, in the expenditure towards it has to be allowed as a deduction under section 37(1). In this connection, we may point out that to negative the above reasoning the legislature has amended section 69C and added proviso to it with effect from 1-4-1999. 25. The second fold of submission raised by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellate Tribunal. However, subsequently, learned senior counsel for the first respondent conceded that the Income-tax Appellate Tribunal did perform judicial functions and was a court subordinate to the High Court. Hence, there is no need to examine any further, the contention that the said Tribunal is not a court. Hence the Tribunal is a court. On an analysis of the provisions recorded above, shall make it clear that the contempt of court means civil contempt or criminal contempt. Wilful disobedience to any judgment, decree, direction or order amounts to civil contempt. If the Tribunal is satisfied that any person has violated its order or direction, then it can send reference under section 10 of the Contempt of Courts Act for initiating the contempt proceedings and punishing the contemnor. There is no dispute with regard to the proposition that the Tribunal is subordinate to the High Court. Article 227 of the Constitution of India specifically empowers the High Court to have supervisory control qua the judicial and quasi-judicial bodies within its jurisdiction. 27. Section 10 of the Contempt of Courts Act empowers the High Court to exercise the same jurisdiction, pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings, according to section 20, can be initiated within one year from the date on which contempt is alleged to have been committed. The limitation had already expired. Hence, we cannot make a reference for initiating the contempt proceedings. However, it does not mean that we approve the conduct of the Assessing Officer. The Assessing Officer has unnecessarily dragged the assessee in the second round of the litigation. Hence, we are of the opinion that the assessee deserves to be compensated with cost. Hence, we are of the opinion that the appeals of the assessee deserve to be allowed with cost. The cost is quantified at ₹ 2,500 per appeal of the assessee. 30. In the result, ITA No. 40(RJT.)/1999 allowed with cost ₹ 2,500 ITA No. 41(RJT.)/1999 allowed with cost ₹ 2,500 ITA No. 42(RJT.)/1999 allowed with cost ₹ 2,500 ITA No. 168(RJT.)/1999 dismissed without any cost ITA No. 169(RJT.)/1999 dismissed without any cost ITA No. 170(RJT.)/1999 dismissed without any cost ITA Nos. 171 to 173(RJT.)/1999 dismissed without cost ITA No. 43(RJT.)/1999 assessee s appeal allowed with cost ₹ 2,500 ITA No. 44(RJT.)/1999 assessee s appeal a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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