CIT and Anr Vs R Hanumaiah Associates (Karnataka High Court) – No addition can be made on account of the unexplained investment on the basis of the DVO findings when the assessee satisfactorily explains that the difference was on account of the construction expenditure incurred, which was not considered by the DVO.
CIT and Anr v R Hanumaiah Associates
Decided By- Karnatka High Court
ITA Nos. 3225, 3224 of 2005
Decided on: 12 July 2011
This ITA.No. 3225 OF 2005 is filed under section 260-A of I.T.Act, 1961, arising out of order dated 30.06.2005 passed in ITA No. 1294/Bang/2003 for the Assessment year 1996-1997, praying to formulate the substantial questions of law stated therein and allow the appeal and set aside the orders passed by the ITAT, Bangalore in ITA. No. 1294/Bang/2003 dated 30.06.2005 and confirm the order of the Appellate Commissioner confirming the order passed by the Income Tax Officer, Circle-6(3), Bangalore.
This ITA.No. 3224 OF 2005 is filed under section 260-A of I.T.Act, 1961,. arising out of order dated 30.06.2005 passed in ITA No. 1293/Bang/2003 for the Assessment year 1995-1996, praying to formulate the substantial questions of law stated therein and allow the appeal and set aside the orders passed by the ITAT, Bangalore in ITA,No.1293/Bang/2003 dated 30.06.2005 and confirm the order-. of the Appellate Commissioner confirming the order passed by the Income Tax Officer, Circle-6(3), Bangalore.
These ITAs coming on for hearing this day, SABHAHIT, 3 delivered the following:-
These two appeals are disposed off by a common order as they involve common questions of law and fact and have been admitted by order dated 4-12-2006 for considering the following substantial questions of law:-
“1. Whether the Tribunal was correct in holding that the difference between the cost of construction of commercial complex constructed by the Assessee at No. 11, Palace Road, Bangalore,declared by the Assessee and that worked out by the District Valuation Officer by taking into consideration the contribution of building materials made by the tenants of Rs. 17,95,000/- and 10°/0 supervision charges ?
2. Whether the Tribunal was correct in holding that there was no difference in the cost of construction declared by the Assessee and that worked out by the District Valuation Officer, by ignoring the fact that the District Valuation Officer had worked out the cost of construction of the building without including the various expenses incurred towards cost of land, furniture, interest on borrowed capital and the work carried out by the tenant like false ceiling, aluminium partitions, internal furnishings, carpet, ceramic tiles flooring, polished granite, dado of the front phase of lift wall, 250 KVA generator set, acoustic enclosures for the generator, etc., of a sum of Rs. 17,95,000/- which had been contributed by the tenants and consequently recorded a perverse finding ?”
The material facts leading up-to these appeals are as follows: –
The assessee was assessed in the status Association of Persons (ADP) and he has der;ved income from the house property and other source. In respect of the assessment years 1995-96, 1996-97 one of the assessee had not filed the original returns of income. A survey came ‘z.o the: conducted the premises of the assess,,:e on 29-9-1999. The assessee had constructed a commercial complex at No.11, Palace Road, Bangalore, the valuation of the property was referred to District Valuation Officer who worked the cost of construction at Rs. 74,94,297/-, The assessee had admitted the cost of construction at Rs. 56,42,934/-. The difference of Rs. 14,40,643/- and a sum of Rs. 29,52,911/- was treated as Undisclosed income of the assessee respectively for the said assessment years 1995-96 and 1996-97 since it was found that the assessee had not maintained any proper books of accounts or vouchers for incurring the expenditure towards the cost of construction, the. assessing officer referred the matter to the District. Valuation Officer. Accordingly the order of assessment was passed by the assessing officer on 27-3-2002 and additional unexplained ii-!vestment was added to the valuation made towards the cost of construction and the same was confirmed by the appellate authority in appeal. Being aggrieved by the said order the assessee preferred an appeal before the Income Tax Appellate Tribunal in ITA Nos.1294/2003 and 1293/Bang/2003. The Tribunal by a common order in both the appeals held that the additions made towards the unexplained expenditure had been satisfactorily explained by the assessee and after taking the cost of the construction Rs. 56,27,477/- given by the assessee and the additions of Rs. 17,95,000/- the same would come to Rs. 74,22,477/-. The same figure would be nearer to Rs. 75,94,000/- which has been adopted by the DVO and accordingly deleted the additions made by the assessing officer which had been confirmed in appeal and allowed the appeal in-part by rejecting the contention of the revenue regarding the unexplained additional investment.
2. Being aggrieved ty the oyder of the Tribunal deleting the unexplained investment these appeals are filed raising the above said substantial questions of law and the appeals have ‘seen admitted to consider the above said questions of law.
3 We have heard the learned appearing for the appellants arld the learned counsel appearing for the respondent.
4. The learned appearing for the appellants vehemently argued that the order passed by the Tribunal is wholly erroneous and it is passed without reference to the finding given by the assessing officer that the DVO had not taken the expenditure into account and the same had not been explained by producing the vouchers or hooks of accounts of the assessee and wherefore the order of the Tribunal deleting the addition of unexplained Li vestment is liable to be set aside and he has taken us through the order passed by the DVO and the appellate authority as also the order of the Tribunal which• has gone into these two appeals.
5. The learned counsel appearing for the respondent submitted that according to the report of the DVO the cost of construction was Rs. 75,94,000/- and the Tribunal has held that the tenant had made certain improvements in the property for the beneficial enjoyment of the property and even if the said addition is taken into account it would come to Rs. 17,95,000/- by adding to the income declared towards construction at Rs. 56,27,477/- and the Tribunal further held that the assessee had spent the amount up-to August 1996 which has not been taken into account and what is taken into account by the assessing officer is up-to December 1994 only and wherefore the finding given on the question of fact that having regard to the•.material on record, ever if the contention of the revenue is accepted it would come to Rs. 75,94,000/- which is nearer to valuation made by DVO and dismissed the appeal by deleting, the unexplained investment. The said finding is at para 6. It is well settled that the Tribunal is the final authority on the question of finding of fact. The said finding is based upon the well founded reasons and cannot be said to be arbitrary or perverse as it is clear from the order passed by the Tribunal that they have verified the DVO report and also taken into account the amount spent up-to December,1994 and the amount incurred to up-to August, 1996. Accordingly, we answer the substantial questions of law against the Revenue and hold that the appeals are devoid of merits and pass the following order:-
Both the appeals are dismissed.