Surinder Pal Verma v. Assistant Commissioner of Income-tax

Joginder Pall, Accountant Member. - These four appeals have been filed by four assessees, as shown in the caption of the order, against the respective orders of the CIT(A), Chandigarh for the assessment year 1991-92. Since some of the issues involved in these appeals are common, these were heard together and are being disposed of by this consolidated order for the sake of convenience.

2. The first common issue raised in all the four appeals relates to sustaining of an addition of Rs. 85,146 on account of unexplained investment in the construction of the properties, i.e. SCO Nos. 1, 9 & 10, Sector-11, Panchkula. The facts of these cases are that the above mentioned three properties were owned by 8 co-owners each having 1/8th share therein. The Income-tax Department had carried out search and seizure action at the business and residential premises of the assessees. Thereafter, assessment proceedings, were taken up by the Assessing Officer. The Assessing Officer referred the above-mentioned properties to the DVO for ascertaining the cost of construction. The facts placed on record show that when the properties were referred to the valuation cell of the department, the DVO had allowed several opportunities to the assessees to furnish details of cost of construction along with the bills and vouchers. No such details were submitted. The assessees had also not maintained complete record of cost of construction of the properties in the books of account. No reports of the registered valuers were also submitted before the DVO. The DVO submitted the valuation reports determining the cost of construction of the above-mentioned properties. The position of investment disclosed, cost of construction determined by the Assessing Officer on the basis of report of the DVO is shown in the chart on page 3 of the assessment order and page 2 of the CIT(A)’s order as under :

The Assessing Officer further took note of the fact that investment made in the year under consideration, i.e., for the period from 1-4-1990 to 31-3-1991, aggregated to Rs. 13,35,236. As against the same, the assessees, declared cost of construction including an amount of Rs. 2,50,000 and Rs. 1,00,000 disclosed by Shri Surinder Pal Verma and Smt. Neelam Verma respectively. Thus, the Assessing Officer worked out the difference in the cost of construction as determined by the DVO and as shown by the co-owners at Rs. 7,73,736 as under :

However , the Assessing Officer noted that out of the investment disclosed of Rs. 5,61,000, the co-owners had included Rs. 2.50 lakhs and Rs. 1 lakh disclosed by Shri Surinder Pal Verma and Smt. Neelam Verma during the course of search in their statements under section 132(4) of the Income-tax Act. The Assessing Officer was, therefore, of the view that benefits of above mentioned surrendered amount could be given only in the hands of the co-owners for explaining their share of unexplained investment and accordingly a sum of Rs. 3.50 lakhs was added to Rs. 7,73,736 and total unexplained investment was arrived at Rs. 11,23,736. 1/8th share in the unexplained investment was arrived at Rs. 1,40,467 and included in the hands of the respective co-owners under section 69 of the Income-tax Act.

3. Aggrieved, all the assessees impugned the additions in appeals before the CIT(A). During the course of hearing of appeals before the CIT(A), it was contended that the Assessing Officer had valued the properties in an arbitrary manner. Several objections were raised against the cost of construction determined by the DVO. The assessees also filed reports of registered valuers. Since there was a large variation in the estimate as per registered valuer and as per reports of the DVO, learned CIT(A) directed the DVO to reconsider the matter taking into account the objections of the registered valuer and call for further information wherever necessary. The DVO also directed to take measurement etc. in the presence of registered valuer to avoid any further variation on this account. After complying with the directions of the CIT(A), the DVO resubmitted the revised reports. These were duly confronted to the assessees. The assessees had raised certain objections, which were duly taken into account by the CIT(A) and these have been discussed on pages 5 to 10 of the CIT(A)’s order in the case of Smt. Manjit Verma. The CIT(A) allowed further relief wherever was called for, e.g. the assessees had contended that the Assessing Officer had allowed only 5 per cent for self-supervision instead of 10 per cent claimed. Accepting the contentions of the assessees, the CIT(A) allowed deduction at the rate of 10 per cent for self-supervision. It was contended that the DVO was not justified in adding 3 per cent for contingencies and miscellaneous in cost of construction. The DVO explained that such provision was made to cover the cost of detailed drawing, deployment of Chowkidar to take care of material at site, expenditure incurred on site visits by the proprietors and other hidden items. Taking into account these facts, the CIT(A) held that there was no justification for allowing any deduction on this account. However, accepting the contentions of the assessees in regard to internal electrification, the CIT(A) allowed some relief and accepted the estimate of the registered valuer. The CIT(A) also allowed a relief of Rs. 10,000 for cost of sanitary fittings in the basement. The submissions of the assessees that DVO had worked out the cost by taking quantity of steel at the rate of Rs. 112 kg./cu.m. as against Rs. 72 kg./cu.m did not find favour with the CIT(A) on the ground that the cost taken by the DVO was correct because the properties in question were load bearing. Thus, after taking into account the various submissions of the assessees, the CIT(A) allowed further relief aggregating to 16 per cent from the revised cost of construction and determined the unexplained investment in the properties for the assessment year under reference at Rs. 8,92,669. Out of the same, the assessees had declared cost of construction in the books at Rs. 2,11,500. After adjusting the same, the CIT(A) arrived at the unexplained investment for the assessment year under reference at Rs. 6,81,169 (8,92,669-2,11,500) and 1/8th share of each of the co-owners in the unexplained investment was thus worked out at Rs. 85,146 as against Rs. 1,40,467 determined by the Assessing Officer.

4. The assessees had claimed that amount of Rs. 2.50 lakhs and Rs. 1 lakh declared by Shri Surinder Pal Verma and Smt. Neelam Verma respectively under section 132(4) should also be adjusted against the cost of construction and thereafter unexplained investment should be allocated among the co-owners in equal shares. This submissions of the assessees was rejected by the CIT(A), who held that income disclosed by Shri Surinder Pal Verma and Smt. Neelam Verma could only be available for explaining their own share of investment and not for share of investment of other co-owners. The assessees are aggrieved by the orders of the CIT(A). Hence these appeals before us.

5. The learned Counsel for the assessees, Shri S.K. Mukhi, reiterated the submissions, which were made before the authorities below. He drew our attention to the detailed objections filed by the assessee to the working of cost of construction by the DVO. He also relied on the detailed reports of the registered valuers submitted before the CIT(A). He submitted that the CIT(A) sustained high-pitched assessment and allowed insufficient relief. He also drew our attention to the rate applied for excavation work, BW foundations, BW superstructures etc., where the rate of premium applied by the DVO was contended to be on the higher side. He further submitted that the quantity of steel taken by DVO was excessive as he had taken at the rate of Rs. 112 kg./cu.m. as against Rs. 72 kg./cu.m. taken by the registered valuers of the assessees. He further submitted that the value of shutter was added twice, one in item No. 14 and another one in item No. 25 of DVO’s report on pages 68 and 76 of the paper book. He submitted that there was only one shutter. He further submitted that the DVO was not justified in adding 3 per cent to the cost for contingencies. He submitted that since the registered valuers had given detailed calculations for the cost, the CIT(A) ought to have adopted the same. He further submitted that the DVO had wrongly added a sum of Rs. 27,500 on account of cost of partition wall. He further submitted that some benefit was required to be given to the assessees as the assessees are dealers in building materials (supplier of plywood, glass and steel) and being in the same trade obtained material at discount. He further submitted that both Shri Surinder Pal Verma and Smt. Neelam Verma had disclosed an amount of Rs. 2.50 lakhs and Rs. 1 lakh respectively under section 132(4) to cover part of the cost of construction. He submitted that credit for the same was also required to be allowed while considering the total investments made by all the co-owners.

6. The learned D.R., Smt. Geet Mala, on the other hand, heavily relied on the orders of authorities below. She submitted that DVO had allowed a number of opportunities to the assessees to submit details of cost of construction along with the bills and vouchers. These were not filed. The assessees had not maintained complete bills and vouchers for cost of construction. She submitted that even the reports of the registered valuers were not submitted before the DVO. She submitted that during the course of appellate proceedings before the CIT(A), the assessees had raised several objections to the valuation report. These were confronted to the DVO, who was directed by the CIT(A) to take measurement in respect of the various items in the presence of the registered valuer and resubmit the report after taking into account the various objections raised. The DVO resubmitted the report after complying with the directions and accepting the contentions he has himself reduced the cost. He further drew our attention to pages 5 to 10 of the CIT(A)’s order in the case of Smt. Manjit Verma, where further objections raised by the assessees were duly considered and suitable relief, wherever called for, was allowed by the CIT(A). As regards amount surrendered by Shri Surinder Pal Verma and Smt. Neelam Verma, the learned D.R. submitted that credit for the same could be allowed only in their own hands to cover their share of unexplained investment and not in the hands of the other co-sharers. Thus, she submitted that respective orders of the CIT(A) did not warrant any interference.

7. We have heard both the parties at some length and given our thoughtful consideration to the rival submissions. From the facts discussed above, it is obvious that the assessees had not maintained complete record of cost of construction. Property SCO No.1 was constructed during the period from 4/87 to 3/91. The remaining two properties were constructed during the period from 4/92 to 12/92. All the co-owners had declared total cost of construction in respect of all the properties at Rs. 28,49,150. It is also a fact that assessees had not maintained complete record of cost of construction. The assessees did not furnish bills and vouchers before the DVO though he had allowed several opportunities. In his first report the DVO had estimated the cost of construction at Rs. 67 lakhs. Out of the same, cost of construction determined for the assessment year under reference was Rs. 13,35,236. As against the same, cost of construction shown was Rs. 2,11,500. It is also clear that during the course of appeal proceedings, the assessees had furnished report of the registered valuer and raised several objections to the valuation report of the DVO. These objections were referred to the DVO who was directed to reconsider his report in the light of the objections raised. He also directed to take measurement of the disputed items in the presence of registered valuer. After complying with the directions, the DVO resubmitted his report, whereby cost was reduced to 67 per cent of the original cost. Thereafter, the various objections raised by the assessees against the revised valuation report were considered by the CIT(A) who allowed further relief to the extent of 16 per cent of the cost determined by the DVO. The CIT(A) has finally determined the cost of construction of the three properties in question as under :

Thus, after taking into account relief allowed by the CIT(A), the cost per sq.ft. in respect of these properties works out to Rs. 83.79, Rs. 99.27 and Rs. 99.15 respectively. The variation in the rates is on account of reason that construction of SCO No. 1 was during the period from 4/87 to 3/91 and construction of the remaining two properties was from 4/90 to 12/92 . The cost of construction is inclusive of all items including the extra items like electric fittings, tile fittings etc. The details given in the valuation report further show that the assessees had used white glazed tiles, colour glazed tiles, grey marble tile flooring etc. Now, the question is whether cost of construction as determined by the CIT(A) could be considered fair and reasonable having regard to the quality of construction and the period during which such construction was completed? After taking into account the various submissions of the assessees and quantitative/qualitative aspects of the properties in question, we are of the considered opinion that the cost of construction adopted by the CIT(A) is fair and reasonable and does not merit any relief, more so when the assessees have not maintained complete records of cost of construction and no bills and vouchers have also been furnished.

7.1 Even otherwise, we find that the specific objections raised by the assessees are without any merit, which is clear from the following facts:

(i)The assessees have contended that the DVO wrongly added Rs. 27,500 on account of cost of partition wall. This contention is not correct in view of the observations of the Assessing Officer in the assessment order. Therefore, the claim made is incorrect.

(ii)The claim of the assessees that quantity of steel taken by the DVO at the rate of 112 kg./cu.m. was excessive is not correct in view of the reasons given by the CIT(A) in sub-para (iv) at page 8 that for load bearing norms, minimum requirement was 110 kg./cu.m. as per engineering norms. We agree with the finding of the CIT(A) that nobody would compromise with the security of the buildings by using lesser quantity of steel.

(iii)The assessees’ claim that the DVO has taken the value of two shutters instead of one is also not correct. As per item No. 14 of the DVO’s report on page 88 of the paper book, the description given is Hollock wood shutter measuring 25.23 sq.m. valued at Rs. 84 per sq.m. of the total value of Rs. 8,838. However, the item mentioned at item No. 25 is A1 shutter measuring 9.93 sq.m. valued at Rs. 816.46 per sq.m. of the value of Rs. 8,107.45. After applying the premium, the total cost is shown at Rs. 9,659. Thus both are not the same shutters. The measurement of the various items was taken in the presence of registered valuer and we have no reason to interfere with the finding of the CIT(A).

(iv)Similarly, the CIT(A) has given reasons for including 3 per cent of the cost to cover contingencies such as provisions for deployment of Chowkidar to take care of material at site, cost of detailed drawings, expenditure incurred on site visits by the proprietor and other hidden cost. Considering the fact that assessees have not maintained complete details of cost of construction, the DVO/CIT(A) was justified in rejecting the general claims made by the assessees.

(v)Similarly, there is no justification for allowing any discount for the claim that assessees being in the same line of business must have purchased material at cheaper rates. This contention is too general. The assessees have not placed any material on record to show that the materials purchased were less than the prevalent market price.

Thus, keeping in view the above facts and circumstances of the case, we are of the considered opinion that the cost taken by the CIT(A) is absolutely fair and reasonable. Therefore, the same does not merit any interference.

8. The second part of the matter, which requires to be considered by this Bench is whether, CIT(A) was justified in considering the amounts of Rs. 2.50 lakhs and Rs. 1 lakh surrendered by Shri Surinder Pal Verma and Smt. Neelam Verma respectively in their own hands or not? The impugned additions have been made under section 69 of the Income-tax Act. Section 69 refers to the unexplained investments. Section 69B refers to the amount of investments etc. not fully disclosed in the books of account. The admitted position is that all the 8 persons own 1/8th equal share in the said properties. As per provisions of the Act, unexplained investments are required to be considered in the hands of the owner. Therefore, income surrendered by Shri Surinder Pal Verma and Smt. Neelam Verma to cover unexplained investment in the aforesaid properties could first be considered against their share of investment in the properties. Moreover, we find that Shri Surinder Pal Verma had declared an amount of Rs. 2,50,000 under section 132(4) to cover part of the unexplained investment in the properties and also to explain discrepancies in the closing stock. Thus, it is not correct that he had declared entire amount of Rs. 2.50 lakhs to cover unexplained investment in the properties. In any case, he is entitled to claim set off of the amount declared under section 132(4) against his own share in the unexplained investment and not against the share of other co-owners. As regards Smt. Neelam Verma, she too had declared an amount of Rs. 1 lakh partly to cover her share of unexplained investment in the properties and partly to cover unexplained investment in jewellery. Learned CIT(A) has already adjusted an amount of Rs. 85,146 being her share in the unexplained investment in her own case. This leaves a surplus of Rs. 14,854 (1,00,000 - 85,146). As mentioned in subsequent paragraph 9, at the most, she could claim credit for the same for explaining her own share in unexplained investment in the properties for the other assessment years.

9. From the facts discussed above, it is obvious that part of the construction was completed in the earlier year and subsequent assessment years. Even after allowing effect to the CIT(A)’s orders, the total cost of construction of all the properties works out to Rs. 39,20,094 (11,71,614+13,75,080+13,73,400). As against the same, the assessees have declared cost of construction in the books at Rs. 25,00,000. Thus, there is overall difference in the cost of construction declared and as determined at Rs. 14,20,094 (39,20,094-25,00,000). Out of Rs. 14,20,094, the difference to the extent of Rs. 6,81,169 falls in the assessment year under reference. Still there is a difference of about Rs. 7.50 lakhs relating to other assessment years. In case the amount declared by a particular co-owner exceeds his share in the cost of construction, he could claim adjustment of the excess amount, if any, against his own share for other assessment years and not against the unexplained investment of other co-owners. Thus, in the light of the detailed reasons discussed above, we are of the considered opinion that learned CIT(A) was justified in treating the amount of Rs. 85,146 as unexplained investment for the assessment year under reference and liable to tax in the hands of the each co-owner. We do not find any legal or factual infirmity in the orders of the CIT(A). The same are upheld and respective grounds of assessees’ appeals are dismissed.

10. The next ground of assessee’s appeal in the case of Shri Surinder Pal Verma (ITA No. 786/95) is that the CIT(A) was not justified in adjusting an amount of Rs. 1,64,854 (wrongly mentioned as Rs. 1,64,584) out of the surrendered amount of Rs. 2.50 lakhs against the discrepancies in the stock. The facts of the case are that during the course of search operations, the authorized officer found stock worth Rs. 44,41,722, where as per books of account the stocks should have been worth Rs. 51,48,024. The assessee explained the difference attributable to calculation of the discrepancies totalling Rs. 2,29,627 and 5 bills, which had not been taken into account while working out the stock totalling Rs. 4,29,135. The Assessing Officer accepted the explanation in regard to calculation discrepancies to the extent of Rs. 61,508 and pertaining to two bills to the extent of Rs. 1,32,376. Taking into account these facts, the value of stock was arrived at Rs. 46,35,608 as against the value of stock required as per books to the extent of Rs. 51,48,024. The Assessing Officer thereby made an addition of Rs. 5,12,416 (51,48,024-46,35,608) as unexplained investment.

11. Aggrieved, the assessee impugned the addition in appeal before the CIT(A), who disagreed with the finding given by the Assessing Officer that there was discrepancy in stock to the extent of Rs. 5,12,416 and the amount be treated as unexplained investment. She observed that the stock actually found at the time of search being less than the stock which should have been available as per books, the discrepancy in the stock was not liable to be added as unexplained investment. However, she was of the opinion that the assessee has not been able to explain the difference in stock to the extent of Rs. 2,93,759. The reasons given by the CIT(A) in para 3.3 of her order are as under :

"3.3 I have carefully considered the submissions made before me and also made reference to the assessment records. It is observed that stock inventory during the course of search operations was prepared in the presence of the appellant and comments were also called for regarding the discrepancies. Whereas explanation regarding the two bills of Rs. 44,628 and Rs. 87,748 was furnished and accepted, no such explanation regarding the remaining three bills of Rs. 46,889, Rs. 1,65,065 and Rs. 81,805 was brought to the notice of the search party. There is no dispute that the bills had been received and were taken into account for the purpose of preparing the trading account and this fact was in the knowledge of the appellant. In case the explanation being furnished now was the real state of affairs, the appellant was bound to bring this fact to the notice of the search party. If, the stock was lying outside unloaded, it must have included in the inventory of stock prepared at the time of search. Therefore, the explanation being furnished now is not tenable. In view of these observations, the difference in stocks to the extent of Rs. 2,93,759 is held to be not satisfactorily explained."

Out of the income of Rs. 2.50 lakhs disclosed under section 132(4), the CIT(A) held that an amount of Rs. 85,146 was assessee’s share in the unexplained investment in the aforesaid property. The remaining amount of Rs. 1,64,854 was profit earned on the stock already sold but such sale had not been reflected in the books of account. Therefore, the CIT(A) held that an amount of Rs. 1,64,854 was required to be adjusted against the discrepancy in stock. The assessee is aggrieved by the order of the CIT(A) and hence this appeal before us.

12. Shri S.K. Mukhi, the learned Counsel for the assessee contended that there was no discrepancy in the stock. He submitted that the discrepancy was on account of the reason that following three bills where goods had not been received but vouchers for the same had been taken into account :

(i)Rs. 47,889

(ii)Rs. 1,65,065

(iii)Rs. 81,805

He submitted that while preparing the trading account, these purchases were taken into account as advance copy of the bills/confirmation about the dispatch of the material had already been received and were lying at the counter. The stock against two bills of Rs. 47,889 and Rs. 1,65,065 were dispatched by M/s. Sharda Plywood Industries from Assam vide bill Nos. 266 & 267 dated 30-11-1990 which reached the business premises on 11-12-1990 at about 7.00 A.M. However, before the truck could be unloaded, the search party had already reached the place. Thus the material received through the truck had not been included in the stock inventory. In order to support his submission, the learned Counsel drew our attention to a certificate issued by the Sales tax Department that the vehicle crossed the barrier at Ramgarh on 10-12-1990 at about 9/10 P.M. The learned Counsel drew our attention to a copy of letter from Bakelite Hylam Ltd. confirming that goods sent to the assessee vide challan No. 6658 dated 4-12-1990 and challan No. 6672 dated 6-12-1990 were dispatched to the assessee on 11-12-1990 and the truck took 7-8 days to reach Chandigarh and, therefore, goods were not available at the time of search. The challans were sent much in advance. While drawing the inventory of the stock, the search party wrongly included these goods having already been received. The learned Counsel also drew our attention to purchase account where the goods in respect of these bills were accounted for on the subsequent dates on 19-1-1991. It was submitted that the Assessing Officer while rejecting the explanation of the assessee relating to alleged discrepancies in stock had merely observed that stock inventory was prepared at the time of search after physical verification and all bills and goods received were taken into account at the time of search. It was submitted that part of the explanation was accepted by the Assessing Officer and on appeal by the CIT(A), which clearly showed that the position of stock was prepared in a hurry and had calculation errors. Thus he submitted that the CIT(A) was not justified in adjusting the amount of Rs. 1,64,854 against the surrendered income of Rs. 2.50 lakhs.

13. The learned D.R., on the other hand, heavily relied on the orders of authorities below. He drew our attention to the statement of Shri Surinder Pal Verma recorded under section 132(4) and as extracted by the Assessing Officer on page 5 of the assessment order. He submitted that Shri Surinder Pal Verma had surrendered the income of Rs. 2.50 lakhs to cover cost of unexplained investment in the properties and also to cover discrepancies in the stock found at the time of search. This fact confirms that there were indeed discrepancies in the stock. The learned D.R. further drew our attention to para 3.3 of the CIT(A)’s order in the case of Shri Surinder Pal Verma where the claim made by the assessee that goods covered under three bills were in fact received on a later date was rejected. Thus, she submitted that assessee has not been able to explain the difference in the stock to the extent of Rs. 2,93,759. Thus, the learned D.R. submitted that the order of the CIT(A) does not merit any interference.

14. We have heard both the parties and carefully considered their rival submissions with reference to the facts, evidence and material placed on record. From the facts discussed above, it is obvious that the dispute relates to difference of Rs. 2,93,759 i.e. the stock, which was found deficient in the books of account. The CIT(A) has recorded the finding that assessee has in fact sold the stock outside the books of account and sale proceeds thereof till the date of search had not been accounted for. If this view of the CIT(A) is accepted, the addition called for would be the entire sale proceeds i.e. cost of purchases and resultant profit earned thereon for the reason that cost of purchases has already been debited in the books of account. However, the assessee has contended that stock covered by three bills was included in the stock inventory on the basis of challans/confirmations received from the sellers in advance and the goods had not been received till the date of search. The assessee has also drawn our attention to the relevant entries in the purchase account, which show that goods received under these bills were credited to the purchase account on 19-1-1991. If the goods had been received on the subsequent date and credited to the purchase account on the subsequent date, the effect of entries made on 19-1-1991 requires to be examined to see the possible addition liable to be made on this account. It is, therefore, necessary to examine whether the claim of the assessee that items covered by these bills were included on the basis of advance copies of challans/confirmations or on the basis of regular bills showing the receipt of the same before the date of search. In case the assessee is able to furnish necessary supporting evidence in the form of clearance from the octroi or any other evidence which could prove that the contention of the assessee is correct, no addition would be liable to be made on this account. However, in case the assessee fails to prove its claim and the receipt of the goods is duly reflected in the stock register, then the addition liable to be made would be equal to the sale proceeds i.e. cost price and resultant profit earned thereon. However, we wish to mention that the CIT(A) has adjusted an amount of Rs. 1,64,854 being profit on the discrepancies in stock against income of Rs. 2.50 lakhs surrendered under section 132(4) and the Department has accepted the finding of the CIT(A). Therefore, the addition, if any, liable to be made on this account cannot exceed Rs. 1,64,854. Thus, we consider it fair and appropriate to set aside the order of the CIT(A) and restore this issue to her/his file with a direction to reconsider the matter in accordance with the provisions of law and keeping in view the observations made herein above. Needless to say both the parties shall be allowed reasonable opportunity of being heard. We order accordingly. This ground is treated as allowed for statistical purposes.

15. The next ground taken in the case of Shri Surinder Pal Verma relates to an addition of Rs. 28,936 sustained by the CIT(A) in respect of cash found at the time of search. The authorized officer at that time found cash of Rs. 1,09,434 with the assessee. Out of the amount found, Rs. 80,434 was withdrawn by the assessee from his books of account as per entry in the cash book dated 10-12-1990. The above entry was accepted by the Assessing Officer. The balance amount was claimed to be past savings of the assessee and his wife. The Assessing Officer had allowed benefit of Rs. 10,470 on account of personal savings. The balance amount of cash was treated as unexplained and addition of Rs. 49,000 was made. On appeal, the CIT(A) did not accept. He also submitted that the assessee had received Rs. 28,936 as advance from customers. The balance addition was deleted.

16. The assessee has brought the issue in appeal. There is no dispute that Rs. 80,437 were withdrawn by the assessee from the books of account and entry to that extent has been accepted to be genuine. The Assessing Officer has further allowed benefit of Rs. 10,470 from past savings to explain Rs. 28,936, which was claimed to be received as advance from the customers. However, this claim was not accepted. We are of the view that when the case of advance from customers is not accepted and Rs. 28,936 is treated as cash with the assessee, then benefit for personal savings from the past has to be allowed to the assessee as done by the Assessing Officer. Accordingly, addition of Rs. 28,936 is reduced by Rs. 10,470. The balance addition of Rs. 18,460 is confirmed. This ground of appeal is partly allowed.

17. We shall now take up the case of Smt. Chander Kanta Verma (I.T.A No. 600/Chandi/95). In this case, the main ground pertains to addition of Rs. 85,146 representing unexplained investment in construction of properties. This issue has been thoroughly discussed above and addition is confirmed. This ground is, therefore, dismissed.

18. In the next ground of appeal, the assessee has challenged the addition of Rs. 6,000 made on account of low household expenses. The Assessing Officer made an addition of Rs. 12,000 for unexplained household expenses which was reduced to Rs. 6,000. Before us, it was reiterated that assessee’s husband had filed return of more than Rs. 2 lakhs and was meeting household expenses of the family. The assessee did not spend anything on personal or hosuehold expenses. We find force in the above submissions. There is no material on record to show that the assessee made any expenditure on household and personal expenses. The addition made is directed to be deleted. This ground of appeal is allowed.

19. The assessee has further challenged the disallowance of collection charges amounting to Rs. 4,800 claimed under income from ‘house property’. The learned CIT(A) while upholding the disallowance observed that other co-owners of properties, namely, Smt. Neelam Verma and Shri Surinder Pal Verma did not claim any expenditure towards collection charges under section 24 of the Income-tax Act. She held that no collection charges were actually incurred and, therefore, disallowance of claim was justified. The assessee has brought the issue in appeal. However, no evidence is available on record to show that the view taken by the CIT(A) suffered from any legal infirmity. We, therefore, uphold the disallowance made.

20. The other grounds relating to charging of interest under section 234A, B & C were accepted to be consequential and not separately argued. We order accordingly.

21. We shall now take up the case of Smt. Manjit Verma (I.T.A. No. 601 of 1995). In this case, the only ground agitated pertains to addition made on account of unexplained investment, which was sustained by the CIT(A) at Rs. 85,146. In view of our detailed discussion in the preceding paragraphs, the addition is confirmed.

22. The other grounds raised in the memo of appeals were not pressed at the time of hearing and the same are, therefore, dismissed as such.

23. In the result, whereas the appeals of Shri Surinder Pal Verma and Smt. Chander Kanta Verma are partly allowed, the appeals of Smt. Manjit Verma and Smt. Neelam Verma are dismissed.

Vimal Gandhi, Vice President. - These four appeals have been filed by four assessees all co-owners, each having 1/8th share in S.C.O. Nos. 1, 9 and 10, Sector 11, Panchkula. As a common point relating to addition on account of un-explained investment was involved, these appeals were heard together and are being disposed of through this consolidated order for the sake of convenience.

2. The assessment year involved is 1991-92. The name of the eight co-owners who acquired above properties and made investments in the construction of 3 shop-cum-office (S.C.O.) are recorded in para 1, page 2 of the assessment order. The Assessing Officer after noting investments in the construction referred this matter to the D.V.O. who as per his letter, dated 19-1-1994 estimated the construction cost. The position of investment disclosed and difference in cost of construction determined by the Assessing Officer on the basis of the report of the D.V.O. is shown in the chart in the impugned assessment order and is as under :—

(Rs.)

3. On the basis of above figures estimated investment for the period 1-4-1990 to 31-3-1991 were worked out and undisclosed investments were taken at Rs. 7,73,736 as per the chart below :—

(Rs.)

3.1 The Assessing Officer vide his letter dated 31-1-1994, asked the assessees, co-sharers as to why difference of Rs. 7,73,736 be not added in the 8 hands as undisclosed investment. Thus, in the above show-cause notice, the Assessing Officer gave benefit of Rs. 2,50,000 and Rs. 1 lakh disclosed/surrendered by Sh. Surinder Pal Verma and Smt. Neelam Verma during the course of search in their statements under section 132(4) of the Income-tax Act.

4. The Assessing Officer has also made reference to the reply furnished by the assessee at page 4 of the assessment order in the case of Sh. Surinder Pal Verma. The Assessing Officer had noted that alongwith reply the assessees had submitted valuation report dated 16-2-1994 of Shri L.D. Puri, Chartered Engineer in respect of three properties in question. But above valuation report was not taken into account by the Assessing Officer as it was not supported by the material evidence. What is material evidence, is not disclosed in the assessment order. The Assessing Officer, therefore, felt "inclined" to add difference of Rs. 7,73,736 as unexplained investment.

5. The Assessing Officer then turned to the question of disclosure/surrender of Rs. 2,50,000 and Rs. 1 lakh by Sh. Surinder Pal Verma and Smt. Neelam Verma respectively in their statements under section 132(4) of the Income-tax Act. The extracts from above statements are noted in the assessment order and are reproduced below. Sh. Surinder Pal Verma is said to have answered the last question put to him by the authorized person carrying the search as under :—

"Yes, I would like to avail of the opportunity by surrendering an amount of Rs. 2,50,000 being investment in Showroom Nos. 1, 9 & 10, Sec.11, Panchkula and also variation in stocks, if any, for this current year."

5.1 Similarly, the Assessing Officer noted that Smt. Neelam Verma made surrender of Rs. 1 lakh to cover discrepancies found, value of jewellery as also investment in the property.

6. The Assessing Officer duly noted that in the returns submitted after search and statement under section 132(4), the assessees claimed benefit of surrender to explain investment in SCO Nos. 1, 9 & 10, Sector 11, Panchkula only but the above benefit, according to the Assessing Officer could not be allowed to the assessees in the light of Explanation-5 to section 271(1)(c) of the Income-tax Act. The benefit of disclosure under section 132(4) could be allowed only against a specified asset and it is not supposed to be open ended for giving facility to the assessee to connect it with any discrepancy. The Assessing Officer accordingly added Rs. 3,50,000 to Rs. 7,73,736 and took unexplained investment at Rs. 11,23,736. 1/8th share of above i.e. Rs. 1,40,467 was added in the hands of each co-owner. It is relevant to mention here that the above addition was made even in the hands of Sh. Surinder Pal Verma who had made much greater disclosure than his share of investment. No benefit of disclosure was given even in the case of Smt. Neelam Verma. This was in spite of fact that in the statement recorded under section 132(4) of the Income-tax Act, Sh. Surinder Pal Verma and Smt. Neelam Verma clearly intended to cover investment in properties besides covering other discrepancies.

7. The assessees challenged above additions in appeal and through their representatives filed objections to the proposed valuation suggested by the D.V.O. and pointed to the wide variations in D.V.O.’s report and reports of their registered valuer. The learned Commissioner of Income-tax (Appeals) on facts and circumstances of the case considered it necessary to get the revaluation of properties carried through the D.V.O. Accordingly, the revised report was submitted by the D.V.O. According to this report, the value of S.C.O. No.1 was taken at Rs. 13,87,200 against Rs. 18,40,900 earlier suggested by the D.V.O. It was agreed between the parties that the value of S.C.O. Nos. 9 and 10 would be reduced and taken on the basis of value worked out for S.C.O. No. 1. Accordingly, value of S.C.O. Nos. 9 & 10 was proportionately worked out and reduced for determining the unexplained investments by the co-sharers.

8. After the receipt of revised report from the D.V.O., the learned Commissioner of Income-tax (Appeals) again invited objections and the assessees filed detailed objections to the above report. The learned Commissioner of Income-tax (Appeals) after considering above objections allowed some relief in the case of Sh. Surinder Pal Verma. The relief allowed mainly consisted of 10 per cent for "self supervision" and Rs. 77,866 for construction carried by tenants including Rs. 10,000 for services. The learned Commissioner of Income-tax (Appeals) did not allow benefit of Rs. 3,50,000 disclosed by Sh. Surinder Pal Verma (Rs. 2,50,000) and Smt. Neelam Verma (Rs. 1 lakh). The total unexplained investments for assessment year 1991-92 were taken at Rs. 6,83,328 1/8th thereof at Rs. 85,416. The assessees are aggrieved and have come up in appeal.

9. We have heard both the parties. The learned counsel for the assessees drew our attention to the detailed objections filed by the assessees to the working of cost of construction by the D.V.O. He also relied upon detailed reports given by the Registered Valuers. It was stated that the learned Commissioner of Income-tax (Appeals) sustained high pitched assessments and allowed inadequate relief. In this connection, our attention was drawn to the rate applied for excavation work, B.W. Foundations, B.W. Superstructure etc. which were claimed to be highly excessive. We find from the report of the D.V.O. and those of registered valuers that basically same rates are applied by the two agencies i.e., HSR 1974 rates. There is, however, difference in the premium applied to the basic rates as it evident from below :—

10. The above given items are only illustrative. The total difference worked out by the assessees as per their objections filed before the learned Commissioner of Income-tax (Appeals) is more than Rs. 2 lakhs. The working is available on pages 96 & 97 of the Paper Book.

11. The learned Commissioner of Income-tax (Appeals) did not allow any relief to the assessees on account of higher premium applied by the D.V.O. We are of the view that premium applied by the D.V.O. is certainly on higher side and the assessees are entitled to some benefit on this account.

12. The next major objection raised on behalf of the assessees to the valuation of the D.V.O. pertain to the quantity of steel taken by the D.V.O. It was stated to be highly excessive. The quantity of steel was taken at the rate of 112 kg. per cubic metre as against 72 kg. taken by the registered valuer of the assessee. As per expert’s opinion made available to us, 75kg. to 100 kg. of steel should be used per cubic metre on structure depending upon the type of construction. It has been opined that use of higher than requisite quantity of steel, in fact, damages the building. We have considered above objections. We are of the view that it would have been better for the D.V.O. if this point was discussed objectively after taking into consideration the detailed report of the registered valuer and assessee’s objections.

13. It was further objected to by the assessee that the value of shutter was added twice, one in item No. 14 and other in item No. 25 of the D.V.O’s report. In fact, there was only one shutter. The learned counsel drew our attention to the objections where this point was raised. We find from record that the value of shutter has been added twice and some reduction is required to be given on this account.

14. The assessee objected to the D.V.O.’s adding 8.5 per cent against 8 per cent added by registered valuer for external electrification and for services at 12.5 per cent against 12 per cent applied by the registered valuer. The assessees have supported their case with letter dated 20-1-1987 from Engineer-in-Chief, Haryana to all engineers in Haryana involved in construction. This claim of the assessees is fully supported by evidence available on record. The assessees further objected to addition of 3 per cent for contingencies. It was argued that all items of constructions have been separately considered and added to and, therefore, this general addition is uncalled for. We find that the learned Commissioner of Income-tax (Appeals) considered this objection of the assessee and uphold the addition after detailed discussion. We do not find any error in the approach of the Commissioner of Income-tax (Appeals) except that addition made for contingencies is on the higher side.

15. The assessees have further contended that the D.V.O. wrongly added Rs. 27,500 on account of cost of partition wall. This contention is not correct in view of the observations of the Assessing Officer in the assessment order. The claim made is incorrect and is rejected. Likewise, the learned counsel for the assessee vehemently contended that the Assessing Officer did not take measurement of S.C.O. Nos. 9 and 10 and worked out the value of above building on proportionate basis. Therefore, the addition in respect of properties i.e. S.C.O. Nos. 9 and 10 was without any basis.

16. It was further submitted that no detail of measurements taken by the D.V.O. were furnished to the assessee, yet additions were wrongly made on account of measurements. The assessees further submitted that construction was started in the year 1987 when majority of investments were made. The D.V.O. inspected the site only in the year 1995. This time lag led to higher working of the cost of construction by the D.V.O. It was further submitted that some benefit was required to be given as the assessees, are dealers in building material (supplier of plywood, glass and steel) and being in same trade obtained material at discount. This contention is not without substance.

17. After Considering of objections of the assessee, relevant material on record, order of learned Commissioner of Income-tax (Appeals) and reports of the D.V.O. and registered valuer of the assessee and above discussion, I am inclined to allow some more relief to the assessees. The learned Commissioner of Income-tax (Appeals) reduced estimated value of S.C.O.No.1 from Rs. 13,87,200 to Rs. 11,71,614 with the following remarks :—

18. As recorded by the learned Commissioner of Income-tax (Appeals), the revaluation of S.C.O. No.1 was done by the D.V.O. and it was agreed that the value of S.C.O. Nos. 9 & 10 would be worked out on proportionate basis on the valuation taken for S.C.O. No.1. In this manner, the value of S.C.O. Nos. 9 and 10 was taken on the basis of agreement between the parties. It is too late in the day on the part of the assessee to contend that the value of S.C.O. Nos. 9 & 10 was fixed without any basis. In the light of agreement between the parties as clearly recorded by the learned Commissioner of Income-tax (Appeals), I do not find any substance in this objection.

19. My learned brother has held that the cost of construction as per direction of Commissioner of Income-tax (Appeals) worked out to Rs. 83.79 , Rs. 99.27 and Rs. 99.15 per sq.ft. which is quite low and, therefore, the assessees are not entitled to any further relief. I must confess that I have no personal experience of cost of construction of S.C.Os, nor am technically qualified to see whether the cost so worked out was the prevalent cost of construction. In my view, the issue is to be determined as it is arriving from the order of the Revenue authorities. The following circumstances are considered relevant.

20. The Assessing Officer referred the question of valuation of cost of construction to the Departmental Valuation Officer who determined the same at Rs. 67 lakhs as per his report dated 19-1-1994 given to the Assessing Officer. The Assessing Officer put that report to the assessees vide letter dated 31-1-1994 and asked them why addition of Rs. 7,73,736 be not made as unexplained investment representing 1/8th share of properties. At that stage, the assessees submitted objections supported by report of a Registered Valuer, Sh. L.D. Puri but the Assessing Officer rejected this valuation report as the same was not submitted to the Valuation Officer. This action of the Assessing Officer cannot be said to be in accordance with law as the objections supported by a valid report were submitted when asked to by the Assessing Officer. So when the matter was taken up before the Commissioner of Income-tax (Appeals), she had two reports of valuation of properties, one by the Departmental Valuation Officer and other by Sh. Puri. There was wide variation between the two and, therefore, the learned Commissioner of Income-tax (Appeals) directed the Departmental Valuation Officer to redetermine the value of three properties. In the fresh report, the Departmental Valuation Officer estimated the value of three properties at a much lower figure. The learned Commissioner of Income-tax (Appeals) again invited objections from the assessees on the fresh report. The assessees submitted detailed objections with calculation before the learned Commissioner of Income-tax (Appeals). The learned Commissioner of Income-tax (Appeals) noted that some construction was carried by the tenants and not by the assessee. The learned Commissioner of Income-tax (Appeals) deducted value of above construction. Besides, allowing deduction of 10 per cent for self supervision as is done in almost all other cases, no other relief was allowed except rebate of Rs. 10,000 for all the objections. Some of the objections were not considered at all. There is no rebuttal to the claim put forward by the assessees in the written objections. So the question which is required to be determined, in my view, is whether in the light of objections raised by the assessees and in the above circumstances, some further relief for various reasons noted above should be allowed. I am inclined to allow some more relief for reasons and discussion noted earlier. I estimate the value of construction in the above background and allow relief as under.

This way, the value of construction is taken as under :—

Thus, cost of construction be taken at Rs. 8,25,908 (Rs. 8,92,669-Rs.66,761).

21. I now turn to question whether benefit of Rs. 3,50,000, the amount surrendered by two co-sharers can be allowed in estimating the cost of construction. As noted earlier, the Assessing Officer first took into account Rs. 3,50,000 surrendered by co-sharers and took the unexplained investment at Rs. 7,73,736. The assessees were also called upon to explain as per letter of the Assessing Officer dated 31-1-1994 why 1/8th of above should not be treated as unexplained investment of each of the assessee. Subsequently, The Assessing Officer took a somersault and observed that even the benefit of surrender of Rs. 3,50,000 made by two co-sharers was not to be allowed to explain investment in the three properties. Therefore, for purposes of unexplained investment, he added Rs. 3,50,000 to Rs. 7,73,736 and worked out unexplained investment at Rs. 11,23,736, 1/8th of above was added in the hands of 8 co-sharers. This addition is made even in the hands of Sh. Surinder Pal Verma and Smt. Neelam Verma who admittedly made surrender of Rs. 2,50,000 and Rs. 1 lakh respectively. It is a clear case of double addition.

22. On appeal, the learned Commissioner of Income-tax (Appeals) confirmed addition of Rs. 1 lakh with the following observations :

"3.1 In this case, a disclosure of Rs. 1 lakh was made in the year under consideration on account of unexplained investment in construction of properties. The Assessing Officer observed that the amount of Rs. 1 lakh was surrendered, Rs. 50,000 in assessment year 1990-91 and Rs. 50,000 during the assessment year 1991-92 towards discrepancies found and value of jewellery. It is also mentioned in the assessment order that the assessee confirmed this fact during the recording of her statement on 11-12-1990. Therefore, no credit was allowed of the surrendered amount of Rs. 1 lakh and addition of Rs. 1,40,467 was made.

The issue regarding extent of unexplained investment in construction of properties stands already discussed vide my order of date in Appeal No. 74/P-27/94-95 in the case of another co-owner of the property, namely Smt. Manjit Verma for the assessment year 1991-92, wherein unexplained investment has been upheld to the extent of Rs. 85,416. Accordingly, the appellant’s share in unexplained investment works out to Rs. 85,416 as against Rs. 1,40,467 made by the Assessing Officer."

22.1 As regards surrender of Rs. 2,50,000 by Sh. Surinder Pal Verma, the learned Commissioner of Income-tax (Appeals) observed as under :—

"2.2 The counsel for the appellant submitted that apart from the fact that there was no unexplained investment in construction of said showrooms, the other relevant fact is that the Assessing Officer has not allowed benefit of surrendered amount of Rs. 2,50,000. This surrender was made during the course of search operations. The appellant stated that surrender of Rs. 2,50,000 was being investment in S.Room Nos. 1, 9 & 10, Sector 11, Panchkula and also on account of variation in stock, if any, for the year under consideration. In this view of the matter, no addition was called for on account of any unexplained investment in the construction of properties.

2.3 This issue stands discussed in detail vide my order dated 28-2-1995 in Appeal No. 74/P-27/94-95 in the case of another co-owner of the property namely Smt. Manjit Verma for the assessment year 1991-92 wherein addition on account of unexplained investment in the construction of said properties to the extent of Rs. 85,416 has been upheld. It is further observed that though the surrender of Rs. 2,50,000 has been made, the Assessing Officer has not made any separate addition of this amount. In this view of the matter and in consonance with my order dated 28-2-1995, cited supra, the addition on account of unexplained investment to the extent of Rs. 85,416 is confirmed and the appellant is allowed relief to the extent of Rs. 55,031 on this account."

22.2 In the case of Smt. Manjit Verma, the CIT(A) observed as under :—

"I have carefully considered the rival submissions and also made reference to the assessment records of Sh. Surinder Pal Verma as well as Smt. Neelam Verma. No doubt the surrender of Rs. 2,50,000 & Rs. 1 lakh had been made by the above said two persons, but such amount could only be available against their own share of investment in showroom and not for share of investment of other co-owners. The surrenders were made on account of their own investment in the showrooms as well as other discrepancies and can only be considered in personal hands of both of them. In view of these observations, as well as reasons given by the Assessing Officer in the assessment order, it is held that the Assessing Officer was not justified in not considering this amount of Rs. 3,50,000 as available for construction in the showroom."

23. Sh. Mukhi, learned counsel for the assessee vehemently contended that Rs. 3,50,000 surrendered towards investment for construction should have been considered while determining whether if there was any un-explained investment. The relevant question that was to be determined was as to what was the total investment made by the co-owners in the construction of the buildings. Only in case any un-explained investment was found, the same could be assessed in the hands of co-sharers as per their shares in the properties. The Revenue has treated the construction of 3 S.C.Os. by 8 co-owners as one unit. Therefore, the investment and unexplained investment if any, has to be taken at one place. He also argued that there would be anomaly of Rs. 3,50,000 admittedly contributed by the co-sharers towards investment is not taken into account for purposes of total investment. As per admitted position, the investment has been made by all co-sharers. How and in what proportion, these co-sharers made investment, is not of much concern of the Revenue. The agreement governing the mutual relationship of the co-sharers is private agreement among co-sharers.

24. The learned Departmental Representative opposed above submissions and relied upon the orders of the Revenue authorities. It was stated that surrender was made by two co-sharers in their own hands and, therefore, benefit, if any, from the above surrender, is to be given in the respective hands of the co-sharers.

25. I have given careful thought to the rival submissions of the parties on this issue. I find substance in the submission advanced on behalf of the assessees. In my considered opinion, it does not make any difference whether investment by co-sharers is disclosed in the return or is otherwise surrendered during the course of search and in statement under section 132(4) of the Income-tax Act. All amounts contributed by the co-sharers are to be taken into account to find out total disclosed/un-disclosed investment in the construction of the buildings. By not giving credit of Rs. 3,50,000 disclosed by co-sharers, the Revenue’s point of view in my considered opinion, reflects a contradiction and is erroneous. The total investment disclosed by co-sharers, including Rs. 3,50,000 surrendered is to be taken into account to find out un-disclosed investments in buildings jointly constructed by all the co-owners as a unit. At this stage, it would be relevant to refer to provision of section 26 of the Income-tax Act which says that where a building is owned by two or more persons and their respective shares are definite and ascertainable then such person shall not be assessed as a association of persons (A.O.P.) but the share of each such person shall be assessed under the head "house property".

25.1 Thus, above section makes it clear that even when property is jointly constructed, it is not assessable as one single unit. The property income is to be assessed on the basis of specified shares of the co-owners. In other words, the question of investments in the property is to be considered in the hands of the individual owner and in case there is any undisclosed investment, the same has to be surrendered in the hands of the co-owners only, the joint property not being separate assessable unit. All the same, the construction being jointly made without physically marked share of construction, the total value of construction was required to be determined first to find disclosed and undisclosed investment.

26. The next important provision to be considered is section 69 of the Income-tax Act which says that where in any financial year the assessee has made investment, which is not recorded in the books of account and the assessee offers no explanation about the "nature and source of investment" to the satisfaction of the Assessing Officer, the investment may be treated as deemed income of the assessee of the financial year. It is evident from above section that before any investment is treated as deemed income, the assessee has to be allowed an opportunity to explain "nature and source of investment."

26.1 I may also refer to section 132(4) of the Income-tax Act under which a person authorized to carry on search and seizure, may examine any person who is found in possession and control of any books of account, documents, money, bullion, jewellery or other valuable articles or things. As per Circulars and Instructions of the CBDT, the authorized person carrying on the search is required to ask the person subjected to the search whether he intends to make a surrender in terms of Explanation-5 to section 271(1)(c) of the Income-tax Act. Accordingly, statements of two co-owners were recorded. The relevant portions of the statements have been extracted above.

27. It is an accepted position that Sh. Surinder Pal Verma and Smt. Neelam Verma surrendered Rs. 2,50,000 and Rs. 1 lakh to cover investments. The investment in building is specifically covered although at that time these persons tried to cover some other discrepancies in stock and jewellery. However, in their returns, it was specifically stated that the surrendered amount of Rs. 3,50,000 was surrendered to cover only investment in the building. The reasons given by the Revenue authorities for not allowing benefit of Rs. 3,50,000 for explaining cost of construction of the properties have also been noted above.

28. After considering rival submissions of the parties, I am unable to accept that the Revenue authorities are justified in not considering Rs. 3,50,000 as part of explained investment in the construction of the properties. In this connection, the following points arise for consideration :—

(i)Whether option to earmark the item sought to be covered by the surrendered amount is with the assessee or with that of the Assessing Officer. In my view, it is clearly with the assessee particularly when the intention to cover investment through surrender was made absolutely clear in the return. The claim could not be denied on the ground that at the time of making of statement under section 132(4), the assessee also tried to cover some other items like discrepancies in stock, jewellery etc. The assessee had paid tax on the surrendered amount and is, therefore, entitled to cover any item of investment to the extent of the amount surrendered. If any investment is not covered by the surrender, the Revenue is entitled to treat it as deemed income under section 69 of the Income-tax Act.

(ii)That as in the case of Sh. Surinder Pal Verma, the disclosure made is more than his share of investment. In these circumstances, is it possible to direct that the benefit of unadjusted disclosure would be given in some other assessment year? In my view, we are dealing with the cases of assessment year 1991-92 only and, therefore, no direction for any other year can be given because the same is not subject-matter of the appeal.

29. The learned counsel for the assessee had vehemently argued that no addition was made in other assessment years involved in the construction and, therefore, no addition should be made in the year under appeal. The learned Departmental Representative, on the other hand, held that proceedings for other years have been re-opened to make addition of unexplained investment which fact was stoutly challenged by the assessee. No clear evidence of what has happened in other assessment years on the question of investment in building is available on record. In the above circumstances and for reasons discussed below, I am of the view that the Tribunal is competent to issue directions only for assessment year 1991-92 and not for any other assessment year.

30. In this connection, I may refer to decision of Hon’ble Supreme Court in the case of Income Tax Officer, A Ward, Sitapur v. Murlidhar Bhagwan Das [1964] 52 ITR 335 wherein their Lordships have observed as under :—

"The decision of an Income-tax Officer given in a particular year did not operate as res judicata in the matter of assessment of the subsequent years. The jurisdiction of the Tribunals in the hierarchy created by the Act was no higher than that of the Income-tax Officer : it was also confined to the year of assessment. That the jurisdiction of the Appellate Assistant Commissioner under section 31 was strictly confined to the assessment order of the particular year under appeal."

Their Lordships further quoted the following two decisions :—

"The Judicial Committee in Commissioner of Income-tax v. S.M. Chitnavis pointed out :

For the purpose of computing the yearly profits and gains, each year is a separate self-contained period of time, in regard to which profits earned or losses sustained before its commencement are irrelevant."

This court in Kikabhai Premchand v. Commissioner of Income-tax accepted this legal position when it said :

"...for income-tax purposes, each year is a self-contained accounting period and we can only take into consideration income, profits and gains made in that year and are not concerned with potential profits which may be made in another year any more than we are with losses which may occur in the future."

30.1 I am, therefore, of the opinion that no directions for any other assessment year than one involved in the appeal can be given. It may also not be just and fair to the assessee to say that although he had made disclosure and surrender in assessment year 1991-92, paid tax thereon, yet the benefit of the same shall be allowed in subsequent year.

31. Under section 69 as noted above, before treating unexplained investment as deemed income, the assessee is to be provided an opportunity to explain "nature and source of the investment". In the present case, the six co-owners (other than Sh. Surinder Pal Verma and Smt. Neelam Verma) or all of them when asked to explain investment in properties explain that Rs. 3,50,000 were invested by Sh. Surinder Pal Verma and Smt. Neelam Verma and these two persons accepted above to be unexplained investment and covered the same by surrendering above amount in their statements under section 132(4) of the Income-tax Act. These persons returned surrendered amount in their returns as income and paid tax thereon. Even during the course of the assessment proceedings, above two co-owners accepted that the surrendered amount was to cover investments in the buildings. The Assessing Officer does not dispute that these persons made surrender to cover undisclosed investment in the construction.

31.1 I do not know how the above explanation of the co-owners can be rejected relating to "nature and source of investment" in the construction of the building. It can certainly not be rejected on flimsy and unsound reasons given by the Revenue authorities. The amount has been surrendered and taxes paid thereon to cover investment and, therefore, there is no question of treating as unexplained investment merely because in the statement under section 132(4), these persons had stated that the surrender made was to cover investment in construction and discrepancies in jewellery and stock also. In the above circumstances and on account of clear evidence and stand of Sh. Surinder Pal Verma and Smt. Neelam Verma in their returns, Rs. 3,50,000 added during the course of assessment had to be treated as explained investment. It could not be treated as unexplained investment. Having exercised the choice if any discrepancy was found in jewellery or in stock, the Revenue authorities were/are fully justified in making addition for those discrepancies as income or gains liable to be charged to tax.

31.2 In the light of above discussion, I am of considered opinion that credit for Rs. 3,50,000 has to be given and above investment cannot be treated as unexplained. The position, therefore, emerges as under :—

31.3 The other connected question that arises is whether the above unexplained investment is to be added in the hands of 8 joint co-owners? If section 69 is strictly construed then one possible view can be that it is to be added in the hands of all the co-owners. The co-owners are the owners of the buildings and, therefore, owners of both, the explained and unexplained investments. But this approach would lead to anomalous results. Additions in the hands of Sh. Surinder Pal Verma and Smt. Neelam Verma who admittedly surrendered more than their share of investments would look absurd. Further the Commissioner of Income-tax (Appeals) deleted addition from their hands and there is no appeal against the above finding by the Revenue. In the above circumstances, the above unexplained investment is to be added in the hands of 6 co-owners (other than Sh. Surinder Pal Verma and Smt. Neelam Verma). To the above extent, the order of the learned Commissioner of Income-tax (Appeals) is modified and appeals of the assessees are allowed.

32. I now proceed to consider the question of addition of Rs. 1,64,584 made on account of discrepancies in the stock found at the time of search. The Assessing Officer made addition of Rs. 5,12,460 with the following observations :—

"During the course of search operation in the business premises of the assessee at serial No. 1, Sector 11, Panchkula physical inventory of stock was prepared and value of stock has been worked out at Rs. 47,21,245 by including two bills for Rs. 44,628 and Rs. 87,748 stocks of which was received on 11-12-1990 and was still to be unloaded from trucks. On 12-12-1990 stock was revalued as per annexure ‘P’ at Rs. 45,74,098 including two bills for Rs. 44,628 and Rs. 87,748 as certain discrepancies were pointed out by the assessee. Against this the value of stock has been worked out at Rs. 51,48,024 by preparing trading account as on 11-12-1990 as per annexure ‘P’ of Panchnama dated 11-12-1990. The assessee was asked to reconcile the discrepancy in the valuations of stock. Vide his written submission dated 22-3-1994, the assessee has reconciled the discrepancies by adding the following 5 bills as under :—

Regarding the balance of Rs. 2,79,167, the assessee stated that there were certain calculation discrepancies in the stock inventory prepared on 11-12-1990 which were pointed out to the Dy. Director of Income- tax, (Investigation) on 26-3-1991. Total difference on account of these discrepancies were to this bill of Rs. 2,76,993. The assessee has submitted that these discrepancies are in respect of serial Nos. 13, 14, 60, 63, 77, 80, 85, 87, 93, 119, 120, 124 of Annexure ‘D’ and 42, 51, 63, 67, 80 in respect of basement. From the perusal of these entries as shown by the assessee, it is found that there is a difference of Rs. 61,508 only in the value of stock against Rs. 2,76,993 shown by the assessee per annexure attached with his reply. After giving credit of Rs. 61,508 difference remains at Rs. 2,17,660, which the assessee could not reconcile. Thus the stock of value works out to Rs. 44,41,722 + Rs. 61,508 = Rs. 45,03,230. From the perusal of Panchnama, it is seen that out of the 5 bills added by the assessee for valuation of stock, bills existing to Rs. 44,628 from Allied Timber Traders & Rs. 87,748 of HP Forest Corporation were added to the value of stocks as these were received during the course of search. Thus by adding these two bills to the value of stock works out to Rs. 45,03,230 + Rs. 44,628 + Rs. 87,748 = Rs. 46,35,608. The assessee has further added these bills amounting to Rs. 47,889, Rs. 1,65,065 + Rs. 81,805. According to the assessee, these are added because bills were not accounted for earlier. While preparing the trading account as on 11-12-1990, these bills have rightly been taken into consideration as these have not been included while preparing the trading account on 11-12-1990. While preparing the physical inventory, the value of the stock has been taken into account as the goods were already received and lying in the premises of the assessee. In case the goods were not received upto the date of search, these bills cannot found place while preparing trading account on 11-12-1990. In view of these facts, difference in value of stock amounting to Rs. 5,12,416 is added to the income of the assessee being unexplained investment in stock."

32.1 Though not absolutely clear, yet addition of Rs. 5,12,416 appears to be addition made on account of some discrepancies in the two statements, one prepared with reference to purchases shown in books and found in bills etc. and other representing value of stock which was actually found at the time of search was less. The plea of the assessee that certain bills have been wrongly included in the stock as goods in respect of those bills had not yet arrived, was rejected by the Assessing Officer in a summary manner. But how difference or discrepancies would be income is not spelt out in the assessment order. The five bills which led to the difference and discrepancies are noted in the assessment order.

33. The assessee impugned above addition in appeal before the Commissioner of Income-tax (Appeals) and contended that there was totally error of Rs. 2,77,993 in the computation made by the search party. This plea was accepted by the learned Commissioner of Income-tax (Appeals). She ultimately found discrepancies to the extent of Rs. 3,47,832 and confirmed addition to the extent of Rs. 1,64,584 with the following observations :—

"In fact, stocks available as per trading account as on 11-12-1990 prepared on the basis of books of account were of the value of Rs. 51,48,024 whereas stocks physically found as per inventory prepared at that point of time were of the lower value. Thus, there could not be any unexplained investment in the stocks, stocks found at the time of search operations being less than stocks available as per books of account. However, the explanation furnished in this regard at least in part is not satisfactory and tenable. In my opinion, the only inference which can be drawn is that some stocks had been sold outside the books of account and sales till the date of search had not been accounted for. In this view of the matter, this fact could not be relevant for rejection of the books results and for assessing profits with reference to unexplained sales of the said stocks. The Assessing Officer herself in the case of M/s. T.L. Verma & Company in the A.Year 1991-92 has taken this view and made addition to the extent of margin of profit on such sales only. Again, the fact that a sum of Rs. 2,50,000 had been disclosed on account of unexplained investment in construction of the showrooms and discrepancy in the stocks needs consideration. The appellant’s share in unexplained investment in construction of the showrooms had been determined at Rs. 85,416. Thus, out of the surrendered amount of Rs. 2,50,000 a sum of Rs. 85,416 could be treated towards unexplained investment in showroom and the balance amount of Rs. 1,64,584 (i.e. Rs. 2,50,000-85,416) towards the discrepancy in the stocks. In my opinion, this amount of Rs. 1,64,584 would cover income arising on account of sales relatable to discrepancy in the stocks. In this view of the matter, the addition on this account only to the extent of Rs. 1,64,584 is confirmed having been surrendered by the appellant himself and relief to the extent of Rs. 3,47,832 (i.e. Rs. 5,12,416-1,64,584) on this account. This ground of appeal is therefore, partly allowed." [Emphasis supplied]

34. The assessee is aggrieved and has brought the issue in appeal. Sh. Mukhi, the learned counsel for the assessee contended that there was no discrepancy in stock. The alleged discrepancy was based on miscalculations and as goods in respect of the following bills were not received, but on the basis of vouchers were taken into account in working out the stock :—

1.Rs. 47,889

2.Rs. 1,65,065

3.Rs. 81,805

34.1 The claim in respect of other two bills of value of Rs. 44,628 and Rs. 87,748 earlier added in working of stock at search was subsequently accepted by the Revenue. Vouchers of goods referred to above were received in advance and accordingly taken into account. Goods pertaining to above bills were received much later and, therefore, not available and considered at the time of search. In this connection, the learned counsel for the assessee drew our attention to copy of letter from Bakelite Hylam Limited confirming that the goods sent to the assessee vide challan No. 6658, dated 4-12-1990 and challan No. 6672, dated 6-12-1990 were dispatched to the assessee on 11-12-1990 and the trucks took 7-8 days to reach Chandigarh and, therefore, goods were not available at the time of search. The challans were sent much in advance and on the basis of challans, the value of these goods was added. The learned counsel for the assessee also referred to purchase account where the goods in respect of 5 bills were accounted for and accepted by the Assessing Officer. It was submitted that the Assessing Officer while rejecting the explanation of the assessee relating to alleged discrepancies in stock has merely observed that the stock inventory were prepared at the time of search after physical verification and all bills and goods received were taken into account at the time of search. It was submitted that part of the explanation was accepted by the Assessing Officer and on appeal by the Commissioner of Income-tax (Appeals), which clearly showed that position of stock was prepared in a hurry and had calculation error. It was accordingly argued that there was no discrepancy and the alleged addition for such discrepancy was totally un-called for.

35. The learned Departmental Representative on the other hand, supported the impugned orders of the Assessing Officer.

36. Observations of the Assessing Officer as stated earlier are not clear and do not spell out how the so-called discrepancy is assessable income of the assessee. On further appeal, the learned Commissioner of Income-tax (Appeals) has restricted the addition to Rs. 1,64,584 on the basis of alleged surrender of the assessee. I have already held that surrender was made to explain investment in buildings and credit for the surrender is accordingly given. There is no justification for adjustment of any surrender is stock when the assessee has taken a clear stand in the return that the benefit of surrender be given in investment of property. If there is any income on account of discrepancies in stock, the same has to be separately added.

36.1 It is evident from the order of learned Commissioner of Income-tax (Appeals) that the stock found recorded in the books of account is more than the stock actually found at the time of search. Therefore, some goods have been held to be sold outside the books of account. The profit on goods sold of value of Rs. 2,93,759 has been taken at high figure of Rs. 1,64,584. In my view, there is absolutely no justification for assuming so much of profit. In fact, there is no justification to sustain any addition discussed in the following paragraph.

37. At this stage, I would like to refer to the primary evidence as to how position of stock was taken by the authorised officer at the time of search. This is available in annexure-’P’ prepared at the time of search which is reproduced below :—

"Trading A/c of T.L. Verma & Co. Prop. Sh. S.P. Verma prepared at the time of search under section 132 of the Income-tax Act on 11-12-1998.

Tax Paid A/c

Closing stock as on 11-12-1990

In regard of challan dated 24-11-1990, products limited vide which 405 sheets of walls proof commercial ply were received. It was stated in the statement that Bill of this was not yet recd. While the goods have been received. But now I have gone through the records, the bill was received on 24-11-1990 itself and was attached in the purchase accounts."

38. Having regard to the order of learned Commissioner of Income-tax (Appeals), it is now clear that the alleged discrepancy is on account of the following three purchases allegedly claimed in the purchase account when no corresponding goods of these purchases were actually found at the time of search. The following 3 purchases are disputed :—

38.1 The first two are purchases from M/s. Sharda Plywood Inds. Ltd. and the third purchase of Rs. 81,805 is from Bakelite Hylam. The later company has specifically certified as per certificate at page 50 of the Paper Book that the goods of Challan Nos. 6658 and 6672 were dispatched by them from their factory at Hyderabad only on 11-12-1990. There is no question of above goods reaching Chandigarh by the time the search took place in the morning of 11-12-1990. In respect of goods purchased from M/s. Sharda Plywood Inds. Ltd., the assessee as per purchase account debited these goods in purchase account in books on 19-1-1991. Those entries have been accepted by the Assessing Officer. In fact, during the course of regular assessment proceedings, the assessee prepared month to month trading account and reconciled all purchases and such account has been duly accepted. The income has been computed with reference to profit disclosed by the assessee. In the above circumstances, there is no justification to make any addition.

39. The primary evidence would further convince that these alleged purchases were not debited in the purchase account in the regularly maintained accounts when the premises of the assessee were subjected to search on 11-12-1990. The narrations before purchases of Rs. 47,889 and Rs. 1,65,065 in annexure ‘P’ clearly show that the amount of Bill No. 267 and that of Advice No. 246 were "yet to be posted in purchase account". Likewise, only on the basis of a challan from M/s. Bakelite Hylam addition of goods of value of Rs. 81,085 was made with clear narration, "bills yet to be received". It is clear from above primary evidence that these three amounts were not debited to the purchase account. There is absolutely no material on record to show that above goods were received and sold outside the books of account. The value of the goods have been added on the basis of advice and challans which are received in advance. The value of these goods have been added in the purchase account without bothering to see that the assessee had not debited these goods in the purchases. Even the primary evidence does not support the version of the Revenue that goods were taken in purchases. These were debited in purchase account much later on 16-1-1991 as per evidence on record. These accounts have duly accepted. Thus, when goods are not debited in the purchase account, these were not physically found at the time of search, then on what basis addition in assessable income has been made? Besides, the above, the raiding party committed several other errors including totalling errors, these were subsequently admitted and rectified. No evidence whatsoever, oral or documentary has been found to show that the assessee carried on any unaccounted for transaction. The margin of profit to the assessee is admittedly 5 per cent to 6 per cent. There is no dispute of that huge investment of several lakhs admittedly made is fully explained by the assessee. Even the finding of the learned Commissioner of Income-tax (Appeals) that it is not a case of any unexplained investment, has attained finality. In such circumstances and without any material, merely on assumption and presumption, the addition cannot be held to be justified. I, therefore, delete the addition made for the alleged discrepancies.

39.1 On issues other than discussed above, I agree with the order proposed by the learned Accountant Member.

REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT

On account of difference between the Members hearing the appeals, the following questions are referred to the Hon’ble President, ITAT for appropriate action under the above referred to provision :

"1. Whether on the facts and in the circumstances of the case, there is justification to allow further relief of Rs. 66,761 in estimating the cost of construction of S.C.Os. at Panchkula in assessment year 1991-92?

2. Whether on the facts and in the circumstances of the case, there is justification to allow relief of Rs. 3,50,000 for explaining investment in the construction of S.C.Os. disclosed by the co-owners, Sh. Surinder Pal Verma (Rs. 2,50,000) and Smt. Neelam Verma (Rs. 1 lakh) in statements under section 132(4) of the Income-tax Act and in their returns of income?

3. Whether on the facts and in the circumstances of the case, benefit of portion of Rs. 3,50,000 referred to in question No.2 could be allowed to explain investment in assessment year other than in assessment year 1991-92?

4. Whether on the facts and in the circumstances of the case and having regard to the primary material, addition of Rs. 1,64,584 for alleged discrepancies in stock is to be deleted or matter remanded for reconsideration of the issue?"

2. We request that the aforesaid questions may kindly be considered under SECTION 255(4) OF THE INCOME-TAX Act.

THIRD MEMBER ORDER

Shri B.M. Kothari, A.M. - There was a difference of opinion between the then learned Vice President and learned Accountant Member, who heard these appeals and the following points of difference were referred by them to the Hon’ble President, Income-tax Appellate Tribunal under SECTION 255(4) OF THE Income-tax Act, 1961 :—

"1.Whether on the facts and in the circumstances of the case, there is justification to allow further relief of Rs. 66,761 in estimating the cost of construction of S.C.Os. at Panchkula in assessment year 1991-92 ?

2.Whether on the facts and in the circumstances of the case, there is justification to allow relief of Rs. 3,50,000 for explaining investment in the construction of S.C.Os. disclosed by the co-owners, Sh. Surinder Pal Verma (Rs. 2,50,000) and Smt. Neelam Verma (Rs. 1 lakh) in statements under section 132(4) of the Income-tax Act and in their returns of income ?

3.Whether on the facts and in the circumstances of the case and having regard to the primary material, addition of Rs. 1,64,584 for alleged discrepancies in stock is to be deleted or matter remanded for reconsideration of the issue ?

4.Whether on the facts and in the circumstances of the case and having regard to the primary material, addition of Rs. 1,64,584 for alleged discrepancies in stock is to be deleted or matter remanded for reconsideration of the issue ?"

2. The Hon’ble President has nominated my name as Third Member to hear these appeals under section 255(4) in relation to the aforesaid points of difference.

3. The aforesaid appeals were accordingly heard on 5-1-2004.

4. S/Sh. P.C. Jain and Pankaj Jain, the learned Advocates represented the assessees. Smt. Geet Mala and Sh. A.P. Kackria, the learned Sr. Departmental Representatives represented the department.

5. The learned counsels appearing for the assessees submitted that the learned Vice President has rightly granted a further relief of Rs. 66,671 in estimating the cost of construction of three shop-cum-office (S.C.O.) at Panchkula in assessment year 1991-92. The learned counsel submitted that the Assessing Officer had referred the matter relating to determination of cost of construction to the D.V.O. The D.V.O. originally valued the property of three S.C.Os. at Rs. 67 lakhs as against the total investment shown in the construction by all the eight co-owners to the tune of Rs. 28,99,150. Out of the total cost of construction, the D.V.O. estimated the cost of construction of these three S.C.Os. at Rs. 13,35,236 pertaining to assessment year 1991-92, the year under consideration, as against investment shown by the co-owners amounting to Rs. 5,61,500 including the amount of Rs. 2,50,000 and Rs. 1 lakh disclosed/surrendered by Sh. Surinder Pal Verma and Smt. Neelam Verma during the course of search. The assessees gave detailed objections against such valuation made by the D.V.O. before the Assessing Officer alongwith a report from the registered valuer. The Assessing Officer brushed aside the said report of the registered valuer and made the additions on the basis of D.V.O’s report. The Assessing Officer did not grant the benefit of Rs. 3,50,000 surrendered by Sh. Surinder Pal Verma and Smt. Neelam Verma. The assessee submitted detailed objections against such addition made by the Assessing Officer on the basis of D.V.O’s report before the Commissioner of Income-tax (Appeals). The learned Commissioner of Income-tax (Appeals) directed the D.V.O. to make a fresh valuation after taking into consideration the report of the registered valuer and the various other objections submitted on behalf of the assessee. The D.V.O. submitted a revised report on the basis of measurement etc. taken in the presence of appellants as well as their registered valuer. The revised estimate of the cost of construction of S.C.O. No. 1 was made at Rs. 13,17,800 as against Rs. 18,40,900 originally made by him. The learned Commissioner of Income-tax (Appeals) thereafter considered the various objections submitted on behalf of the assessee. The Commissioner of Income-tax (Appeals) determined the value of S.C.O. No. 1 at Rs. 11,71,614 as against the original valuation estimated by the D.V.O. at Rs. 18,40,900. This works out to 67.34% of the cost of construction as per first report of the D.V.O. All these facts were pointed out with a view to show that the D.V.O. had made an arbitrary and excessive estimate of cost of construction. The learned counsel submitted that various objections raised before the D.V.O., as well as before the Commissioner of Income-tax (Appeals), were not dealt with by the learned Commissioner of Income-tax (Appeals), which have been elaborately pointed out in para 14 to para 16 of the order proposed by the learned Vice President. After a deep and thoughtful consideration over such objections, the learned Vice President has granted a further relief to 5%, which by no stretch of imagination be treated as un-reasonable and excessive. The learned counsel also pointed out that the various objections, in respect of which no relief was granted by the Commissioner of Income-tax (Appeals), were duly supported by various documentary evidence submitted before the learned Departmental Authorities. The learned counsel invited my attention to para 9 of the order in which it was pointed out that the rate of premium applied by the D.V.O. in relation to various items contained in his valuation report was substantially higher than the premium applied by registered valuer. He pointed out that the item-wise difference on account of application of higher premium was submitted in a detailed chart placed at pages 96 to 99 of the compilation. The total difference on account of this one factor was more than Rs. 2 lakhs. The fact stated in paras 9 and 10 of the order proposed by the learned Vice President is fully supported by such comprehensive details placed at pages 96 to 99 before the learned Departmental Authorities as well as before the Tribunal. Likewise as regards the next major objection relating to quantity of steel taken by the D.V.O. as compared to the quantity estimated by the Registered Valuer, an expert opinion was also submitted before the learned Departmental Authorities, which sup- ports the estimate of the Registered Valuer. It was also pointed out before the learned Departmental Authorities that the assessees are dealers in building material (supplier of plywood, glass and steel) and being in the same trade, the assessee could obtain the material at discount. All such objections were raised before the learned Departmental Authorities as well as before the learned Commissioner of Income-tax (Appeals) but some of such vital objections were not considered by the learned Commissioner of Income-tax (Appeals). It was, therefore, necessary for the Tribunal to grant some further relief. The further relief of 5% granted by the learned Vice President is lower if various other factors are properly taken into consideration. The learned counsel pointed that the assessee consistently submitted before the learned Departmental Authorities as well as the D.V.O. that local P.W.D. rates of Haryana should be applied instead of applying the CPWD rates. He placed reliance on judgment in Commissioner Of Income-Tax v. Raj Kumar. [1990] 182 ITR 436 (All.), Sheikhar Chand Jain & Sons v. IAC [1988] 32 TTJ (Delhi) 570¹ and Maheshwari Dying Works v. ITO [1987] 60 CTR (Jp.) (Trib.) 87 to support this contention. If this contention of the assessee is accepted, further substantial relief of more than 5% would be justified.

6. The learned counsel further contended that additions based on the report of the D.V.O. is patently wrong and unjustified. He placed reliance on the judgment of Hon’ble Apex Court in the case of Amiya Bala Paul v. Commissioner Of Income Tax, Shillong [2003] 262 ITR 407². In this case, the Income-tax Officer made the addition of Rs. 2,79,000 in assessment year 1982-83 and Rs. 1,77,000 in respect of assessment year 1983-84 as undisclosed investment in the construction of the house on the basis of report given by the Valuation Officer. The Tribunal held that the Assessing Officer could not have referred the question of cost of construction of the assessee’s house to the Valuation Officer. The Hon’ble Supreme Court in the aforesaid judgment has held that the Valuation Officer cannot be called upon, nor he has jurisdiction to give a report to the Assessing Officer under the Income-tax Act except when a reference is made under and in terms of section 55A or to competent authority under section 269L. The assessee’s appeal was allowed and decision of the High Court was set aside. The learned counsel on the strength of this judgment vehemently contended that the entire addition made in the declared cost of construction should be deleted but as the scope of powers of Third Member is limited to chose one of the two dissenting views, he will not urge for deletion of the total addition made in the declared cost of construction. But the aforesaid judgment of Hon’ble Supreme Court fully supports the further relief of 5% granted by the learned Vice President. The learned counsel also placed reliance on judgment of Hon’ble Rajasthan High Court in CIT v. Pratapsingh Amrosingh Rejendra Singh & Deepak Kumar [1993] 200 ITR 788 ¹ to support his contention.

7. As regards the next point of difference mentioned in paras 2 and 3 of questions referred under section 255(4), the learned counsel submitted that Sh. Surinder Pal Verma surrendered a sum of Rs. 2,50,000 in his statement recorded under section 132(4) and also in the return of income furnished by him. Likewise, Smt. Neelam Verma had also surrendered a sum of Rs. 1 lakh in her statement under section 132(4) as well as in the return of income furnished by her for assessment year 1991-92. The aggregate amount of Rs. 3,50,000 was surrendered by these co-owners out of 8 co-owners, towards cost of construction of these three S.C.Os. Such disclosure of income was not made in relation to their respective 1/8th share in the said property but the same was disclosed qua the property, as a whole. The learned counsel submitted that the learned Accountant Member has observed in his order that the disclosure is attributable to the respective co-owners only and any surplus disclosure after adjusting their share in unexplained cost of construction can be adjusted against future years. Such a choice is not with the learned Departmental Authorities but the choice lies with the assessee to explain the manner of utilization of income surrendered/offered for tax. It is true that while giving statement during the search under section 132(4), Shri Surinder Pal Verma has stated that an amount of Rs. 2,50,000 is being surrendered for meeting the unexplained cost of construction of these S.C.Os. and unexplained stock, if any. Subsequently when the return of income was filed, he has clearly stated that such disclosure of income to the tune of Rs. 2,50,000 was made in relation to unexplained cost of construction of these three S.C.Os. for assessment year 1991-92. It is clear from the observations made by the Assessing Officer on page 5 of the assessment order, wherein he has inter alia observed as under :—

"While filing the return for assessment year 1991-92, Shri Surinder Pal Verma has shown surrender of Rs. 2,50,000 towards investment in SCO Nos. 1, 9 & 10, Sector 11, Panchukla."

8. The assessee consistently stated before the learned Departmental Authorities that the amount of Rs. 2,50,000 has been offered for tax towards unexplained cost of construction of the three SCOs. The learned Departmental Authorities were, therefore, not justified in not accepting this contention. The learned counsel relied upon the elaborate discussion made in the order proposed by the learned Vice President in relation to aforesaid point. He submitted that the learned Vice President has rightly directed the Assessing Officer to adjust the said sum of Rs. 3,50,000 for working out the unexplained cost of construction to be allocated between the remaining co-owners of the property. He also relied upon the decision in Radhakishan Ramniranjan v. CIT [2003] 132 Taxman 204 (Raj.). The learned counsel thus, strongly supported the order proposed by the learned Vice President in relation to this point also.

9. The next point relates to addition of Rs. 1,64,584 for alleged discrepancy in the stock found during the search. The learned counsel contended that the Commissioner of Income-tax (Appeals) has held that the difference in stock to the extent of Rs. 2,93,759 has not been satisfactorily explained by the assessee. The aforesaid sum consists of the following items noted in annexure ‘P’ of Panchnama dated 11-12-1990 prepared at the time of search :—

10. The remaining explanation given before the learned Departmental Authorities to reconcile the difference between the stocks found during the search and the stocks as per books of account was accepted by the learned Commissioner of Income-tax (Appeals). The Revenue has accepted the order of the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) has observed that since the stocks found during the search were less than the stock as per books of account, it is not a case where any unexplained investment in stock was found at the time of search. But the only inference which can be drawn is that some stock has been sold outside the books of account and such unaccounted sales had not been accounted for till the date of search. He further observed that Shri Surinder Pal Verma has surrendered an amount of Rs. 2,50,000 out of which the unexplained cost of construction of SCOs of his 1/8th share, comes to Rs. 85,416 which leaves a balance of Rs. 1,64,584. The balance amount, so offered for tax to the tune of Rs. 1,64,584 included in the surrender of Rs. 2,50,000 will cover the income arising on account of sales relatable to discrepancies in the stock.

11. The learned counsel submitted that the assessee had fully reconciled the difference between the stock as per books of account and the stock physically found during the search. These three invoices/challans were found during the search but the material represented by these three invoices had not been included in the physical inventory of stock prepared during the search either because the goods in question had not been received till the date of search or because the goods were received on the date of search and were not included in the physical inventory. He brought to my notice a certificate placed at page 49 of the Paper Book. This certificate has been issued by Asstt. Excise & Taxation Officer, Sales Tax Check Barrier, Ramgarh (Ambala) on 28-3-1994. The contents of the said certificate is reproduced below :—

"This is certified that truck No. AMK 3764 carrying plywood from Assam to Panchkula had crossed S.T.C.B., Ramgarh on 10-12-1990 between 9 to 10 P.M. and stand entered in non-taxable register of this barrier. The goods had been declared at first entry barrier of Haryana State and the form ST 38 was submitted there."

12. He also brought to my notice certificate issued by Bakelite Hylam Limited, placed at page 50 of the Paper Book which is reproduced below :—

"This is to certify that material dispatched from our factory premises at Hyderabad for Chandigarh and its surroundings reach within a period of 7 to 8 days through trucks. This is further certified that goods in r/o advance challan No. 6658 dated 4-12-1990 and challan No. 6672 dated 6-12-1990, sent to M/s. T.L. Verma & Co., Panchkula were dispatched to them on 11-12-1990 after receiving the same from our factory at Hyderabad. The challans are sent to the party in advance in confirmation of their order."

13. The truck No. AMK 3764 carrying plywood from Assam to Panchkula represents the purchase price of material purchased by the assessee from M/s. Sharda Plywood Industries, Assam for Rs. 47,889 and Rs. 1,65,065 respectively. Copies of both these bills indicate that the truck No. AMK 3764 has been mentioned both in invoice Nos. 266 and 267 dated 30-11-1990. This shows that this certificate relate to two items of purchases made by the assessee from M/s. Sharda Plywood Industries, Assam. The goods in question were cleared at the check post at 10 p.m. on 10-12-1990. The said material, therefore, could not reach the assessee’s factory at the time of commencement of search on 11-12-1990 which commenced at 8 a.m. Therefore, the said material was in transit or was kept outside the factory premises and was not included in the physical inventory. The learned counsel also invited my attention to a certificate issued by M/s. Bakelite Hylam Limited from whom the goods worth Rs. 81,805 were purchased by the assessee vide challan Nos. 6658 & 6672, dated 4-12-1990 and 6-12-1990. The aforesaid party has confirmed that the goods sent }vide these two challans were dispatched from their factory at Hyderabad on 11-12-1990. This clearly shows that the material purchased vide these two challans from the aforesaid party was not physically available at assessee’s factory premises on the date of search, namely on 11-12-1990. The entries relating to purchase from these parties has been accounted for in the books of account on 16-1-1991. The entry relating to purchases made from M/s. Sharda Plywood Industries, Assam have been made in the books of account on 19-1-1991. The learned counsel further stated that the Assessing Officer has not doubted the correctness of opening stock and closing stock shown by the assessee. He has also not doubted the correctness of the declared figure of sales. The learned Accountant Member has set aside the aforesaid issue for further verification such as examining the relevant documents like octroi receipts etc. The learned counsel submitted that there is no octroi in Panchkula. The assessee had produced entire relevant material before the Assessing Officer. The Assessing Officer did not examine any of those suppliers, nor examined any person, nor has brought any material on records to doubt the correctness of the aforesaid submissions made on behalf of the assessee. The matter should not, therefore, be restored back to the Assessing Officer after a period of more than 12 years as proposed by the learned Accountant Member. The learned counsel thus, strongly supported the order proposed by the learned Accountant Member in this regard also.

14. Smt. Geet Mala, the learned Sr. Departmental Representative strongly supported the order proposed by the learned Accountant Member and also relied upon the elaborate reasons recorded in the orders of the learned Departmental Authorities. She drew my attention to para 5 of the order passed by the Commissioner of Income-tax (Appeals) in the case of Smt. Manjit Verma. It has been observed by the learned Commissioner of Income-tax (Appeals) that the counsel of the appellant, as well as Registered Valuer raised no objection regarding measurement, rates applied etc. Thereafter, the Commissioner of Income-tax (Appeals) has considered other objections raised by the assessee in relation to the revised Valuation Report submitted by the D.V.O. She contended that the learned Commissioner of Income-tax (Appeals) has adopted a detailed procedure relating to determination of fair estimate of the cost of construction. He asked the D.V.O. to submit a revised Valuation Report after taking into consideration the report of the Registered Valuer and after inspecting the property once again in the presence of the Registered Valuer so that there remains no further debate about the measurement and other points relating to valuation. The learned Sr. Departmental Representative further pointed out that the Commissioner of Income-tax (Appeals) has considered all the objections raised on behalf of the assessee in a very just and fair manner. No further relief is, therefore, warranted on the facts of the present case, as has been held by the learned Accountant Member. She strongly supported the order proposed by the learned Accountant Member in relation to this point.

15. The learned Sr. Departmental Representative also supported the order of the learned Accountant Member with regard to denial of benefit of Rs. 3,50,000 surrendered by Shri Surinder Pal Verma and Smt. Neelam Verma. She submitted that surrender of income was made by these two persons only in respect of their respective shares in the property as well as to cover the discrepancies in the stock or jewellery etc. The said sum of Rs. 3,50,000 cannot be treated as a source for total cost of construction of the said property incurred in assessment year 1991-92. The excess amount of income surrendered by Shri Surinder Pal Verma and Smt. Neelam Verma can be considered towards their unexplained investment in the said property in future years, if any. The learned Sr. Departmental Representative placed reliance on the decision in Jaikishan R. Agarwal v. Asstt. CIT [2000] 66 TTJ (Pune) 704 ¹ and Kunhambu v. Commissioner Of Income Tax [1996] 219 ITR 235² (Ker.). She submitted that the assessment based on the statement of the assessee recorded in the course of search must be upheld as the statement being the voluntary one, there is no scope for the assessee to change the facts stated in the said statement. The learned Sr. Departmental Representative thus, strongly supported the order of the learned Accountant Member in relation to this point also.

16. As regards the third point of difference relating to discrepancy in the stock found in search, the learned Sr. Departmental Representative submitted that the learned Accountant Member has rightly set aside the issue back to the Commissioner of Income-tax (Appeals) for making further enquiries. The assessee at the time of search did not raise this point that the goods purchased vide the three bills in question were not actually received till the time of search and were not included in the physical inventory of stock prepared during search, in spite of the fact that these bills were specifically included for determining the stock as per books of account maintained by the assessee. The explanation given by the assessee is, therefore an after thought and has rightly been rejected by the learned Commissioner of Income-tax (Appeals). She submitted that she has no choice after dissenting orders have been proposed by the two learned Members except to support the order of the learned Accountant Member to set aside the matter back to the Commissioner of Income-tax (Appeals). She however, submitted that it is a strong case where addition confirmed by the Commissioner of Income-tax (Appeals) ought to have been upheld by the Tribunal.

17. In rejoinder, the learned counsel appearing for the assessee submitted that the Commissioner of Income-tax (Appeals) in assessment year 1990-91 has quashed the proceedings initiated under section 148 and no action was taken by the Assessing Officer for assessment year 1989-90. Thus the declared cost of construction made in preceding year has been accepted by the Department. It was also submitted by the learned counsel that in a case where stocks are found short, the Assessing Officer can charge tax only on the normal profits derived on such undisclosed sales. In the present case, the GP rate ranges between 5% to 7% and the profit on alleged difference of Rs. 2,94,759 will hardly work out to Rs. 20,000. This submission was made without prejudice to the main submission that the goods purchased vide three bills aggregating to Rs. 2,94,759 were in transit and the same were not included in the physical inventory of stock prepared at the time of search.

18. I have carefully considered the rival submissions made by the learned representatives. I have also gone through detailed orders passed by the learned Departmental Authorities. I have carefully perused the orders proposed by the learned Vice President and learned Accountant Member. Both of them have passed very elaborate orders and the views proposed by both of them are supported by equally convincing reasons.

19. After repeated reading of the orders proposed by the learned Vice President and learned Accountant Member and after giving my deep and thoughtful consideration to the entire relevant material I am of the view that the various points of difference are not so substantial as it appears from a perusal of the details orders passed by the Departmental Authorities and the elaborate orders proposed by the learned Vice President and learned Accountant Member. Shri Surinder Pal Verma has offered an amount of Rs. 2,50,000 as the income surrendered during search in addition to his other normal income, in the return of income filed by him. The Assessing Officer did not include this amount of Rs. 2,50,000 while computing taxable income of the assessee in the assessment order because he had made a separate addition on account of unexplained investment in property to the tune of Rs. 1,40,467 and addition on account of unexplained investment in the stock to the tune of Rs. 5,12,460. The Assessing Officer on page 9 of the assessment order specifically mentioned that no separate addition of Rs. 2,50,000 is made on account of disclosure of income shown in the return in view of the aforesaid addition made by him. The Commissioner of Income-tax (Appeals) reduced addition on account of unexplained investment in the property to the tune of Rs. 85,416. He also sustained an addition to the extent of Rs. 1,64,584 being income arising on account of undisclosed sales relatable to discrepancy in the stock. The Commissioner of Income-tax (Appeals) specifically mentioned that both these additions sustained by him aggregating to Rs. 2,50,000 are covered by the amount of income surrendered by Shri Surinder Pal Verma to the tune of Rs. 2,50,000 in his return of income. Thus, the two additions partly confirmed by the Commissioner of Income-tax (Appeals) were held to be covered by the disclosure of income of Rs. 2,50,000 made by the assessee in the return of income. The Revenue has accepted such order of the Commissioner of Income-tax (Appeals). The net effect of the order of the Commissioner of Income-tax (Appeals) accepted by the Revenue is that both the additions so made by the Assessing Officer have been deleted by the Commissioner of Income-tax (Appeals) as the part additions sustained by him are fully covered by the amount of Rs. 2,50,000 shown by the assessee himself in the return of income. The Assessing Officer is, therefore, only required to include the said sum of Rs. 2,50,000 while computing taxable income of the assessee, as was declared by the assessee in the return of income. No addition beyond what was declared by the assessee has been confirmed. Likewise, the addition of Rs. 85,416 confirmed in respect of unexplained cost of construction has been held to be adequately covered by the income of Rs. 1 lakh surrendered by her in the statement recorded during the search as well as in her return of income. The Assessing Officer in her assessment order has also observed that no separate addition of Rs. 1 lakh offered for tax in the return of income is being made as the addition of Rs. 1,40,467 was made by the Assessing Officer in respect of unexplained investment in the said property. Thus, the addition partly sustained by the Commissioner of Income-tax (Appeals) has been held to be covered by the income of Rs. 1 lakh already shown by the assessee in her return of income pursuant to the statement recorded in search. No addition has thus been sustained, in substance, in her case also. The only effective additions which have been sustained by the Commissioner of Income-tax (Appeals) in the remaining two cases, one of Mrs. Chander Kanta Verma and Mrs. Manjit Verma relate to addition of Rs. 85,416 in each of these two cases on account of unexplained investment in the property. The learned Vice President in para 31.2 of his proposed order has observed that the total unexplained investment in the said property should be worked out at Rs. 2,64,208, which should be added in the hands of six co-owners, other than in the hands of Shri Surinder Pal Verma and Smt. Neelam Verma. The amount of unexplained investment liable to be included in the hands of these two persons will accordingly work out to Rs. 44,068 each (Rs. 2,64,408 divided by 6). They only effective point of difference is, therefore, as to whether the addition on account of unexplained investment in the case of Mrs. Chandra Kanta Verma and Mrs. Manjit Verma should be Rs. 85,416 as confirmed by the learned Commissioner of Income-tax (Appeals) and approved by the learned Accountant Member or it should be reduced to Rs. 44,068 as proposed by the learned Vice President in his order. However, since separate points of difference have been referred under section 255(4) and elaborate arguments have been advanced by the learned representatives, I would deal with all those points in the following paragraphs.

20. I will first deal with point of difference relating to grant of further relief @ 5% amounting to Rs. 66,761 allowed by the learned Vice President for estimating the cost of construction of SCOs at Panchkula in the year under consideration, namely in assessment year 1991-92. It is true that the learned Commissioner of Income-tax (Appeals) has adopted a detailed procedure in order to arrive at a fair and reasonable estimate of cost of construction. He has required the D.V.O. to submit a revised report after taking into consideration the report of the Registered Valuer and after inspection of the property once again in the presence of the Registered Valuer. The revised report submitted by the D.V.O. itself shows that the original valuation made by him was extremely arbitrary and excessive. The revised report so submitted by the D.V.O. has resulted in reduction of estimate of cost of construction to 66.34% of the cost of construction as per first report. The Commissioner of Income-tax (Appeals) thereafter has granted relief in respect of self supervision @ 10% and relief on account of service charges to the tune of Rs. 10,000. The Commissioner of Income- tax (Appeals) has also accepted assessee’s contention that part of the cost of construction to the tune of Rs. 67,866 was met by the tenants. The learned Commissioner of Income-tax (Appeals) has not granted any relief in relation to other objections raised by the assessee in respect of the revised Valuation Report submitted by the assessee. Some of the objections raised by the assessee have not properly or specifically been discussed in the order of the Commissioner of Income-tax (Appeals).

21. It may, therefore, be imperative to examine some of the objections raised by the assessee, which have not been specifically considered by the Commissioner of Income-tax (Appeals). The assessee inter alia contended before the D.V.O. that the premium applied by the D.V.O. while valuing the various items is excessive as compared to the corresponding ratio of premium applied by the Registered Valuer. The learned Vice President in para 9 of his order has given three illustrations from the report of the D.V.O. and the report given by the Registered Valuer. I have gone through the chart submitted by the assessee placed at pages 95 to 98 of the Paper Book in which itemwise difference in the valuation made by the D.V.O. as compared to corresponding valuation made by the Registered Valuer have been given. For instance, the D.V.O. has determined the cost of "reinforcement" in the basement at Rs. 74,757. While determining this, he has adopted the premium at 245%. The D.V.O. has taken the quantity at 86.33 and rate at Rs. 251 per qtl. As against this, the report of the Registered Valuer indicate the quantity at 56.44. The rate adopted by him is Rs. 221 per qtl. and the rate of premium applied by him is 220%. It has also been mentioned in the said chart that the details of steel have not been given by Valuation Officer in his report. The Registered Valuer has determined the value of such reinforcement in the basement at Rs. 44,667. Thus, there is a difference of opinion between the two experts in relation to this one item to the tune of Rs. 30,090. Similarly, there is a difference in the estimate of "steel reinforcement" used in ground floor, 1st floor and second floor to the tune of Rs. 89,540 between the report of the D.V.O. and the Registered Valuer. The learned Commissioner of Income-tax (Appeals) has also not given any relief on account of the fact that the assessee is a dealer of building material and was in a position to acquire other building material at discounted rates. The assessee has submitted itemwise difference between the report of the D.V.O. and the Registered Valuer. The learned Commissioner of Income-tax (Appeals) has not given any relief in relation to the major items of differences indicated in the said chart which relate to the cost of steel reinforcement, the percentage of premium applied by the D.V.O. at substantially higher figure in relation to number of items shown in the chart at pages 96 to 98 lying in ITA No. 601/Chandi/95 as compared to the premium rate applied by the Registered Valuer. The matter relating to estimation of the cost of construction is a guess work. The Hon’ble Supreme Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597¹ at page 615 has observed as under :—

"The object of imposing the condition of difference of 15% or more between the fair market value of the capital asset and the consideration declared in respect of the transfer clearly is to save the assessee from the rigour of sub-section (2) in marginal cases where difference in subjective valuation by different individuals may result in an apparent disparity between the fair market value and the declared consideration. It is a well-known fact borne out by practical experience that the determination of fair market value of a capital asset is generally a matter of estimate based to some extent on guess work and despite the utmost bona fides, the estimate of the fair market value is bound to vary from individual to individual."

22. In view of the aforesaid facts and discussion, I am of the considered opinion that the further relief of 5% worked out at Rs. 66,761, granted by the learned Vice President is most reasonable and justified. It may also be relevant here to refer to the judgment of Hon’ble Supreme Court in the case of Smt. Amiya Bala Paul (supra), where the Hon’ble Supreme Court has held that the Valuation Officer cannot be called upon, nor would he have the jurisdiction to give a report to the Assessing Officer under the Income-tax Act except where a reference is made in terms of section 55A or 269L. It is true that the report of the Valuation Officer may be considered by the Assessing Officer as a piece of evidence but when there is a bona fide difference of opinion between the reports of the two experts, a reasonable and fair estimate has to be made after taking into consideration both such reports. The view proposed by the learned Vice President is, therefore, held to be more appropriate on the facts and circumstances of the present case.

23. As regard the second point contained in paras 2 and 3 of the question referred under section 255(4) relating to relief of Rs. 3,50,000 for explaining investment in the construction of SCOs being the amount disclosed by Shri Surinder Pal Verma and Smt. Neelam Verma, is concerned, it is clear from the facts elaborately discussed in the order proposed by learned Vice President and learned Accountant Member that Shri Surinder Pal Verma had surrendered an amount of Rs. 2,50,000 towards unexplained cost of construction of these three SCOs and for difference in his stock, if any, in the statement recorded during search. However, at the time of filing of the return of income, Shri Surinder Pal Verma had disclosed the income of Rs. 2,50,000 surrendered during search and explained its utilization towards construction of the aforesaid properties. Shri Surinder Pal Verma has not retracted from his statement recorded during the course of search while filing the return of income. He had shown the said sum of Rs. 2,50,000 as his own and has also paid tax thereon. He has only clarified/modified the manner of utilization of the said amount of Rs. 2,50,000 offered during the search. In the statement recorded during search, it was clearly indicated that this surrender of Rs. 2,50,000 is being made for investment in the construction of SCOs and for difference in stock, if any. It should be appreciated that the statement during search was made without the assistance of his accounts or relevant records and details for his ready information. The assessee is clearly entitled to modify or clarify the manner of its utilization after necessary verification of the relevant facts from his accounts and other relevant records. Similarly, Smt. Neelam Verma had declared an aggregate amount of Rs. 1 lakh in her statement recorded during the search. It is true that she had originally disclosed an income Rs. 50,000 in each of the two years, namely, assessment years 1990-91 and 1991-92. She however, modified her statement while filing the return of income for assessment year 1991-92 and stated that the surrender of amount of Rs. 1 lakh relates to assessment year 1991-92 and the same has been utilized in construction of the three SCOs in the year under consideration. She has not retracted from her statement recorded during the search offering Rs. 1 lakh as income liable to tax. She has included such income in assessment year 1991-92 and duly paid tax thereon.

24. It is well known fact that confessional statements made during the search are often vulnerable on the ground that the persons giving such statements remain under a great mental stress and strain. They also do not have the availability of relevant details, documents and books of account at the time of giving such statements in the absence of which precise information relating to the mode of utilization of such income and the year of such investment cannot be correctly furnished. The assessees are, therefore, entitled to modify/clarify the statements after verifying the necessary details from the relevant records at a later point of time. Smt. Neelam Verma had consistently taken the same stand from the stage of filing of the return that the sum of Rs. 1 lakh has been utilized in construction of these three SCOs.

25. The learned Accountant Member in the order proposed by him has inter alia observed that the amount surrendered by Shri Surinder Pal Verma and Smt. Neelam Verma could be adjusted only against 1/8th share of unexplained investment of these two persons and the amount so surrendered by these two co-owners cannot be adjusted against unexplained investment of other co-owners. The learned Accountant Member however, observed that the surplus amount of income surrendered after adjusting their 1/8th share in the cost of construction of the year under consideration, may be adjusted against their shares in unexplained investment of the said property in other assessment years. On the other hand, the learned Vice President observed that the option to earmark the utilization of such income surrendered by them lies with the persons who have so surrendered the income liable to tax. In the present case, both, Shri Surinder Pal Verma and Smt. Neelam Verma have clearly and categorically stated in the returns as well as in the assessment proceedings that the amount of Rs. 2,50,000 and Rs. 1 lakh surrendered by both of them should be treated as invested in construction of the three SCOs. The learned Vice President has discussed this point elaborately and very thoroughly in para 21 of page 11 to para 31.1 of page 19 of his order. He has given convincing reasons to support his conclusion that the aggregate amount of Rs. 3,50,000 offered for tax by Shri Surinder Pal Verma and Smt. Neelam Verma should be adjusted against the cost of construction of three SCOs incurred in assessment year 1991-92 and only the balance amount of Rs. 2,64,408 should be treated as unexplained investment, which should be added in the hands of the remaining six co-owners (other than Shri Surinder Pal Verma and Smt. Neelam Verma). After giving a very deep and thoughtful consideration to the entire relevant facts, I am of the considered opinion that the view taken by the learned Vice President is more appropriate, reasonable and justified. I am, therefore, inclined to agree with the learned Vice President in relation to this point also.

26. Now, I will consider the last point of difference relating to addition of Rs. 1,64,584 for alleged discrepancies in the stock found in search. This addition relates to the case of Shri Surinder Pal Verma. I have already stated here-in-before that while confirming the addition of Rs. 1,64,584 in the case of Shri Surinder Pal Verma, the learned Commissioner of Income-tax (Appeals) had observed that this amount will be covered by income of Rs. 2,50,000 surrendered by him in the return of income. The addition, in substance, has thus, been deleted by the Commissioner of Income-tax (Appeals). The Revenue has accepted the said decision. The fact relating to addition of Rs. 1,64,584 confirmed by the Commissioner of Income-tax (Appeals), though held to be covered by income of Rs. 2,50,000 declared by Shri Surinder Pal Verma, is relevant only for the purpose of ascertaining as to whether the income of Rs. 2,50,000 surrendered by Shri Surinder Pal Verma was partly available for meeting the unexplained investment by other co-owners towards the construction of three SCOs.

27. The assessee submitted detailed explanation before the Assessing Officer in which it was pointed out that the goods purchased from M/s. Sharda Plywood Industries, Assam were cleared by Sales Tax Check Post Authorities at 10 p.m. on 10-12-1990 and the said material did not reach the premises of the assessee till the commencement of search at 8 a.m. on the next day i.e. 11-12-1990. The goods so purchased were, therefore, in transit and were not included in the stock inventory prepared by the authorized officers on 11-12-1990. Similarly, the assessee also submitted confirmation from M/s. Bakelite Hylam Limited, Hyderabad confirming that the goods were dispatched on 11-12-1990 from Hyderabad. The authorized officer had included the amount of purchases so made from M/s. Sharda Plywood Industries, Assam and M/s. Bakelite Hylam Limited on the basis of advance copies of challan/bills received by the assessee which were available at the time of search. However, the goods represented by the aforesaid three transactions of purchases were in transit and have not been included in the physical inventory prepared during the course of search. After submission of these documents, the Assessing Officer did not examine any connected person, nor examined the sup- pliers, nor brought any material on records to disprove the correctness of the aforesaid facts. The contention of the assessee that the goods purchased from M/s. Sharda Plywood Industries, Assam did not reach the assessee’s premises till the commencement of the search and the same were not included in the physical inventory of the stock, is probable as the said material had been cleared by the Sales Tax Check Post, Ramgarh at 10 p.m. on 10-12-1990. Likewise, the confirmation of M/s. Bakelite Hylam Limited also clearly proves that the goods were dispatched from Hyderabad on 11-12-1990. Therefore, the question of their inclusion in the physical inventory of stock does not arise. The Assessing Officer has not brought any material on record in rebuttal of the aforesaid submission made on behalf of the assessee.

28. It is well settled law that the powers of remand should be used sparingly and only in cases where the Tribunal, after examination of material already placed on record by way of evidence, takes a view that it is not possible for it to make a just order without the assistance of further evidence. In the present case a period of more than 12 years has passed. The assessee furnished documentary evidence in support of the explanation given for reconciling the difference in the stock. Such an explanation has been disbelieved by the learned Departmental Authorities. The learned Vice President has given elaborate reasons while accepting the correctness of the aforesaid explanation. In view of the aforesaid facts and circumstances, I am of the considered opinion that it will not be just and appropriate to restore back the issue to the Commissioner of Income-tax (Appeals) after a gap of more than 12 years. It may also be relevant here to mention that in a case where stocks are found short as compared to stock as per books, the Revenue can charge tax only on income of such undisclosed sales. Such a view is supported by the judgment of Hon’ble Gujarat High Court in the case of CIT v. President Industries [2002] 258 ITR 654¹. In the present case, the GP rate ranges between 6% to 7% and the profit on sale of goods costing Rs. 2,94,759 will hardly come to Rs. 20,000. I am however, of the view that the assessee has adequately discharged the burden of explaining the difference between the stock as per books and the stock physically found at the time of search by producing the documentary evidence in relation to three purchases invoices from M/s. Sharda Plywood Industries, Assam and M/s. Bakelite Hylam Limited. The learned Vice President has given elaborate and convincing reasons while deleting the said addition of Rs. 1,64,584. I am inclined to agree with the view taken by the learned Vice President in relation of this point also.

29. In view of the aforesaid facts and discussions, I agree with the view taken by learned Vice President in relation to all the points of difference. The matter will now go back to the regular Bench for passing order according to the majority view.

35/39