Dr S.V.Krishna Reddy, Nellore Dist. v. ACIT, Nellore

ITA 867/HYD/2010 | 2005-2006
Pronouncement Date: 29-10-2010 | Result: Dismissed

Appeal Details

RSA Number 86722514 RSA 2010
Assessee PAN AOYPS6447K
Bench Hyderabad
Appeal Number ITA 867/HYD/2010
Duration Of Justice 4 month(s) 18 day(s)
Appellant Dr S.V.Krishna Reddy, Nellore Dist.
Respondent ACIT, Nellore
Appeal Type Income Tax Appeal
Pronouncement Date 29-10-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 29-10-2010
Assessment Year 2005-2006
Appeal Filed On 11-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B' HYDERABAD BEFORE SHRI N.R.S. GANESAN JUDICIAL MEMBER AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER SR. NO. ITA NO. & A.Y. APPELLANT RESPONDENT 1. 606/HYD/2009 A.Y. 2004-05 2. 480/HYD/2009 A.Y. 2005-06 3. 371/HYD/2010 A.Y. 2006-07 ACIT CIRCLE 1 NELLORE SMT. S. VIJAYA LAKSHMI NELLORE; PAN: AOYPS6447K 4. 520/HYD/2009 A.Y. 2005-06 DCIT CIRCLE 1 NELLORE. 5. 375/HYD/2010 A.Y. 2006-07 SMT. S. VIJAYA LAKSHMI NELLORE; PAN: AOYPS6447K ACIT CIRCLE 1 NELLORE 6. 514/HYD/2009 A.Y. 2003-04 7. 515/HYD/2009 A.Y. 2004-05 8. 516/HYD/2009 A.Y. 2005-06 9. 587/HYD/2010 A.Y. 2006-07 DY. CIT CIRCLE 1 NELLORE 10. 867/HYD/2010 A.Y. 2005-06 DR. S.V. KRISHNA REDDY NELLORE; PAN: AIQPS3714H ACIT CIRCLE 1 NELLORE 11. 615/HYD/2010 A.Y. 2006-07 ACIT CIRCLE 1 NELLORE DR. S.V. KRISHNA REDDY NELLORE; PAN: AIQPS3714H 12. 519/HYD/2009 A.Y. 2005-06 SMT. S. SUDARSANAMMA NELLORE; PAN: AIQPS3713A DCIT CIRCLE 1 NELLORE. 13. 374/HYD/2010 A.Y. 2006-07 -DO- ACIT CIRCLE 1 NELLORE 14. 605/HYD/2009 A.Y. 2003-04 15. 389/HYD/2010 A.Y. 2006-07 ACIT CIRCLE 1 NELLORE SMT. S. SUDARSANAMMA NELLORE; PAN: AIQPS3713A ASSESSEES BY: SHRI A.V. RAGHU RAM REVENUE BY: SMT. VASUNDHARA SINHA & SHRI AMLAN TRIPATHY O R D E R PER BENCH: ALL THE 15 APPEALS OF THREE INDEPENDENT ASSESSEES ARE DIRECTED AGAINST THE RESPECTIVE ORDERS OF CIT(A) TIRUPATI AN D CIT(A) GUNTUR. SINCE ALL THE APPEALS ARISE OUT OF THE SEARCH AND S EIZURE OPERATION DR. S.V. KRISHNA REDDY & ORS ===================== 2 CONDUCTED ON 31.1.2006 AND COMMON ISSUES ARISE FOR CONSIDERATION IN ALL THESE APPEALS WE HEARD THE SAME TOGETHER AND A RE DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO CHIT TRANSACTION. THIS ISSUE ARISES FOR CONSIDERATION I N THE CASE OF DR. S.V. KRISHNA REDDY FOR THE A.YS. 2003-04 2004-05 AND 20 05-06 IN I.T.A. NOS. 514 515 AND 516/HYD/2009. SHRI A.V. RAGHU RA M THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT DURING THE COURSE OF SEARCH OPERATION THE REVENUE AUTHORITIES CLAIMED THAT A S PIRAL NOTEBOOK WAS FOUND WHICH CONTAINED THE DETAILS OF CHIT CONTRIBUT ION MADE TO UNREGISTERED CHITS. ACCORDING TO THE LEARNED COUNS EL FOR THE ASSESSEE THE SAID NOTEBOOK DOES NOT RELATE TO THE ASSESSEE. IT WAS SAID TO BE FOUND IN THE HOSPITAL PREMISES WHICH IS A PUBLIC PL ACE. IT IS NOT FOUND IN THE CHAMBER OF THE ASSESSEE OR ANY PARTICULAR PLACE WHERE THE ASSESSEE HAS CONTROL OVER THE PREMISES. THEREFORE ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THE SPIRAL NOTEBOO K DOES NOT RELATE TO THE ASSESSEE AT ALL. THIS WAS EXPLAINED TO THE ASS ESSING OFFICER AT THE EARLIEST POINT OF TIME. THEREFORE ACCORDING TO TH E LEARNED COUNSEL FOR THE ASSESSEE IN THE ABSENCE OF ANY MATERIAL TO CORR OBORATE THE SUBSCRIPTION TO CHIT BY THE ASSESSEE THERE CANNOT BE ANY ADDITION TOWARDS UNEXPLAINED INVESTMENT. 3. ON THE CONTRARY SMT. VASUNDHARA SINHA THE LEAR NED DR SUBMITTED THAT ADMITTEDLY THE SPIRAL NOTEBOOK WAS F OUND IN THE PREMISES OF THE HOSPITAL. THE ASSESSEE AT THE EARL IER POINT OF TIME ADMITTED THAT THE DETAILS CONTAINED IN THE SPIRAL N OTEBOOK WERE WRITTEN BY HIS WIFE. SUBSEQUENTLY HE RETRACTED BY SAYING THAT IT WAS NOT HIS WIFE'S HANDWRITING. ACCORDING TO THE LEARNED DR IF A HUSBAND COULD NOT RECOGNISE HIS WIFE'S HANDWRITING NOBODY CAN RECOGNI SE IT. THE ASSESSEE BEING HUSBAND OF SMT. VIJAYA LAKSHMI KNOWN BETTER THAN ANYBODY ELSE WHETHER IT WAS HER HANDWRITING OR ELSE . ON A QUERY FROM THE BENCH WHEN THE ASSESSEE ADMITTEDLY HAS THREE CH ITS WITH SHRIRAM CHITS WHETHER ANY ATTEMPT WAS MADE BY THE DEPARTME NT TO VERIFY DR. S.V. KRISHNA REDDY & ORS ===================== 3 THROUGH CHIT COMPANY AS TO WHETHER THE ASSESSEE HAS ACTUALLY INVESTED IN THE UNRECORDED CHIT TRANSACTIONS THE LEARNED DR HAS VERY FAIRLY CONCEDED THAT THE DEPARTMENT HAS NOT VERIFIED WITH ANY OF THE CHIT FUNDS INCLUDING SHRIRAM CHITS. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE MATERIAL ON RECORD. A SPIRAL NOTEBOOK WAS SAID TO BE FOUND IN THE HOSPITAL PREMISES DURING THE COURSE OF SEARCH OPERATION. THOUGH THE DEPARTMENT CLAIMED THAT THE SPIRAL NOTEB OOK CONTAINED THE DETAILS OF UNRECORDED CHIT TRANSACTIONS THE ASSESS EE DENIED THE TRANSACTIONS BY SAY THAT IT DOES NOT RELATE TO HIM AT ALL. NO DOUBT AT THE EARLIER POINT OF TIME THE ASSESSEE HAS ADMITTED THA T IT WAS WRITTEN IN HIS WIFE'S HANDWRITING. HOWEVER SUBSEQUENTLY THE ASS ESSEE CLARIFIED THAT IT DOES NOT RELATE TO THE ASSESSEE AT ALL AND THE H ANDWRITING WAS NOT OF HIS WIFE. WHEN THE ASSESSEE DENIES THAT THE DETAIL S CONTAINING IN THE SPIRAL NOTEBOOK DO NOT RELATE TO HIM AND IT WAS NOT WRITTEN BY HIS WIFE THE BURDEN OF PROOF SHIFTS ON THE SHOULDERS OF THE REVENUE TO SHOW THAT THE DETAILS CONTAINED IN THE SPIRAL NOTEBOOK RELATE TO THE ASSESSEE. IN THIS CASE AS SUBMITTED BY THE LEARNED DR THE DEPAR TMENT HAS NOT TAKEN ANY PAINS TO CORROBORATE THE DETAILS CONTAINE D IN THE SPIRAL NOTEBOOK BY MAKING ENQUIRY WITH THE CONCERNED CHIT COMPANIES. HAD THE ASSESSING OFFICER ENQUIRED THE MATTER WITH THE CONCERNED CHIT COMPANIES THE TRUTH OF THE MATTER WOULD HAVE COME TO THE LIGHT. SINCE THE REVENUE AUTHORITIES HAD NOT TAKEN SUCH PAINS TO MAKE ENQUIRY TO FIND OUT WHETHER IN FACT THE ASSESSEE HAS SUBSCRIBE D TO THE UNRECORDED CHIT TRANSACTIONS IN OUR OPINION THERE CANNOT BE ANY ADDITION ON THE BASIS OF THE DETAILS CONTAINED IN THE SPIRAL NOTEBO OK. THEREFORE THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN MAKING SUCH AN ADDITION IN THE ABSENCE OF ANY OTHER MATERIAL TO CORROBORATE THE DE TAILS CONTAINED IN THE SPIRAL NOTEBOOK. ACCORDINGLY WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DELETE THE ADDITION WITH REGARD TO UNRECORDED CHIT TRANSACTIONS. DR. S.V. KRISHNA REDDY & ORS ===================== 4 5. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DIFFE RENCE IN THE COST OF CONSTRUCTION DECLARED BY THE ASSESSEE AND ESTIMA TED BY THE DEPARTMENTAL VALUATION OFFICER (DVO). THIS ISSUE A RISES FOR CONSIDERATION IN DR. S.V. KRISHNA REDDY'S CASE FOR A.Y. 2005-06 IN ITA NO. 516/H/09 AND FOR A.Y. 2006-07 IN ITA NO. 587/H/ 2010 AND DEPARTMENTAL APPEAL IN ITA NO. 615/H/2010. THE VER Y SAME ISSUE ARISES FOR CONSIDERATION IN THE CASE OF SMT. S. VIJ AYA LAKSHMI IN ITA NO. 520/H/2009 AND THE DEPARTMENTAL APPEAL ITA NO. 480/H/2009. SIMILARLY FOR THE A.Y. 2006-07 THE VERY SAME ISSUE ARISES FOR CONSIDERATION IN ITA NO. 375/H/2010 AND THE DEPARTM ENT APPAL IN ITA NO.371/H/2010. IN THE SAME OF SMT. S. SUDARSANAMMA THIS ISSUE ARISES FOR CONSIDERATION IN A.Y. 2003-04 AND 2006-0 7 IN DEPARTMENT APPEAL IN ITA NO. 605/H/2009 AND ITA NO. 389/H/2010 . SIMILARLY IN THE ASSESSEE'S APPEAL IN ITA NO. 519/H/2009 AND ITA NO. 374/H/2010 THE VERY SAME ISSUE ARISES FOR CONSIDERATION. 6. SHRI RAGHU RAM THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT IN THE ABSENCE OF ANY MATERIAL THE V ERY REFERENCE TO THE VALUATION OFFICER IS BAD IN LAW. REFERRING TO SECT ION 142A OF THE INCOME- TAX ACT THE LEARNED COUNSEL FOR THE ASSESSEE SUBMIT TED THAT FOR THE PURPOSE OF MAKING A REFERENCE TO THE VALUATION OFFI CER IT IS REQUIRED TO MAKE AN ESTIMATION OF THE INVESTMENT MADE BY THE AS SESSEE. IN THIS CASE ACCORDING TO THE LEARNED COUNSEL FOR THE ASSES SEE THERE IS NO REQUIREMENT FOR ESTIMATION OF THE INVESTMENT. ACCO RDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THE ASSESSEE IS MAINTAININ G THE BOOKS OF ACCOUNT FOR THE PURPOSE OF CONSTRUCTION AND ALL THE TRANSACTIONS ARE RECORDED IN THE BOOKS OF ACCOUNT. THEREFORE THERE IS NO REQUIREMENT AT ALL FOR MAKING ANY REFERENCE TO THE VALUATION OF FICER FOR THE PURPOSE OF ESTIMATING THE COST OF CONSTRUCTION. THEREFORE ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THE VERY REFERENCE TO THE VALUATION OFFICER IS NO JUSTIFIED. THEREFORE THE ASSESSING OFFICER CANNOT MAKE ANY ADDITION ON THE BASIS OF THE REPORT OF THE VALU ATION OFFICER. THE LEARNED COUNSEL FOR THE ASSESSEE PLACING RELIANCE O N THE UNREPORTED DECISION OF THE VIZAG BENCH OF THIS TRIBUNAL IN I.T .A. NO. 396/VIZAG/03 DR. S.V. KRISHNA REDDY & ORS ===================== 5 IN ACIT VS. SASI EDUCATIONAL INSTITUTES DATE 31.3.2 008 AND SUBMITTED THAT UNDER IDENTICAL CIRCUMSTANCES THE VIZAG BENCH OF THIS TRIBUNAL HELD THAT THE REFERENCE TO VALUATION OFFICER IS BAD IN LAW IN THE ABSENCE OF REJECTION OF BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. IN THIS CASE ALSO THE LOWER AUTHORITIES HAVE NOT REJECTED T HE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. THEREFORE ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THE REFERENCE TO THE VALUA TION OFFICER IS NOT JUSTIFIED AT ALL. 7. EVEN ON MERIT ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THE ADDITION MADE BY THE LOWER AUTHORITIES IS NOT JUSTIFIED. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE I N HALL TYPES OF CONSTRUCTION 15% REDUCTION HAS TO BE GIVEN. MOREOV ER THE LOWER AUTHORITIES ARE EXPECTED TO GIVE 15% FURTHER REDUCT ION ON THE RATE ESTIMATED ON THE BASIS OF CPWD RATE. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THERE IS A RATE DIFFERENCE BETWEEN CPWD AND STATE PWD. THEREFORE THIS TRIBUNAL IN NORMAL CIRC UMSTANCES GRANTS 15% REDUCTION DUE TO DIFFERENCE IN THE COST. MORE OVER THE ASSESSEE IS ALSO ENTITLED FOR REDUCTION DUE TO PERSONAL SUPERVI SION. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THE ASSESSEE'S PERSONAL FRIEND WHO RECENTLY RETIRED FROM GOVERNMENT SERVICE HAD PE RSONALLY SUPERVISED THE CONSTRUCTION. THEREFORE THE ASSESS EE IS ENTITLED TO GET THE BENEFIT OF PERSONAL SUPERVISION. THE LEARNED C OUNSEL FOR THE ASSESSEE PLACED HIS RELIANCE ON THE DECISIONS REPOR TED IN 200 ITR 288 246 ITR 351 258 ITR 82 (AT) 63 ITD 235. THE LEAR NED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THE FIRST VALUATION REPORT FILED BY THE VALUATION OFFICER WAS REJECTED BY THE CIT(A) HIMSEL F AND THE SECOND VALUATION REPORT WAS PREPARED ON THE BASIS OF THE A SSESSEE'S BOOKS OF ACCOUNT. THEREFORE THERE IS NO QUESTION OF MAKING ANY REFERENCE TO THE VALUATION OFFICER. IN THE ABSENCE OF REJECTION OF BOOKS OF ACCOUNT THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING AN Y REFERENCE TO THE VALUATION OFFICER. DR. S.V. KRISHNA REDDY & ORS ===================== 6 8. ON THE CONTRARY THE LEARNED DR SUBMITTED THAT T HE VALUATION OF THE BUILDING WAS REFERRED TO THE VALUATION OFFICER TO FIND OUT THE COST OF CONSTRUCTION. THE VALUATION OFFICER ESTIMATED THE COST OF CONSTRUCTION AS ON 18.9.2005 AT RS.3 22 22 000. THE DIFFERENCE IN THE COST OF CONSTRUCTION WAS RS.1 38 34 240. THIS WAS APPORTIO NED IN THE HANDS OF THREE ASSESSEES. ACCORDING TO THE LEARNED DR TH E VALUATION WAS MADE PROPERLY EVEN THOUGH THE BOOKS OF ACCOUNT WERE NOT REJECTED. THE LEARNED DR PLACED RELIANCE ON THE JUDGEMENT OF MADHYA PRADESH HIGH COURT IN CIT VS. TOLARAM HASSOMAL (2008) 298 I TR 22 AND SUBMITTED THAT THE VALIDITY OF REFERENCE TO THE VAL UATION OFFICER WAS RAISED BEFORE THIS TRIBUNAL FOR THE FIRST TIME AND THEREFORE IF THE TRIBUNAL FINDS THAT THE ASSESSING OFFICER IS NOT JU STIFIED IN MAKING ANY REFERENCE THE MATTER MAY BE REMANDED BACK TO THE C IT(A) FOR CONSIDERATION OF THIS ISSUE. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE MATERIAL ON RECORD. THE FIRST QUESTION THAT ARISES FOR CONSIDERATION IS WHETHER THE ASSESSING OFFICER IS J USTIFIED IN MAKING ANY REFERENCE TO THE VALUATION OFFICER FOR THE PURP OSE OF ESTIMATING THE COST OF CONSTRUCTION. ADMITTEDLY THE BOOKS OF ACCO UNT MAINTAINED BY THE ASSESSEE WERE NOT REJECTED. THE REVENUE AUTHOR ITIES COULD NOT POINT OUT ANY DEFECT IN THE BOOKS OF ACCOUNT MAINTA INED BY THE ASSESSEE. IN FACT THE ASSESSEE PRODUCED THE BOOKS OF ACCOUNT BEFORE THE REVENUE AUTHORITIES DURING THE COURSE OF SEARCH OPERATION. THE ASSESSING OFFICER IN FACT OBSERVED AS FOLLOWS IN THE ASSESSMENT ORDER: 'DURING THE YEAR OF ACCOUNT RELEVANT TO THE ASSESSM ENT YEAR THE ASSESSEE ALONG WITH HIS WIFE SMT. S. VIJA YA LAKSHMI AND MOTHER SMT. S. SUDARSANAMMA HAS STARTED CONSTRUCTION OF NURSING SCHOOL BUILDING AT VAVILETI PADU VILLAGE. THE CONSTRUCTION WAS IN PROGRESS AT THE T IME OF SEARCH ON 03.11.2004 AND WAS SUBSEQUENTLY COMPLETED IN MARCH 2006. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE FURNISHED THE CONSTRUCTIO N ACCOUNT AS PER WHICH THE TOTAL INVESTMENT TOWARDS CONSTRUCTION OF THE BUILDING IS RS.1 11 29 430/- AS ON 31.03.2005 AND RS.2 23 01 722/- AS ON 31.03.2006. IN ORDER TO ASCERTAIN THE COST OF CONSTRUCTION OF THE NURSING SCHOOL BUILDING THE ISSUE WAS REFERRED TO SUPERINT ENDING DR. S.V. KRISHNA REDDY & ORS ===================== 7 ENGINEER VALUATION CELL HYDERABAD BY ADIT (INV) V IDE HIS LETTER DATED 31.01.2005. THE SE VALUATION CEL L HAS ESTIMATED THE COST OF CONSTRUCTION AT RS.3 22 22 00 0/- AS ON 18.09.2005 (TILL THE DATE OF INSPECTION BY THE S .E. VALUATION CELL). AS AGAINST THE SAME THE INVESTME NT DEBITED IN THE BOOKS BY THE ASSESSEE UP TO 18.09.20 05 AMOUNTED TO RS.1 83 87 760/-.' 10. THE CIT(A) HAS CONSIDERED THE OBJECTION RAISED BY THE ASSESSEE AND FOUND THAT SINCE THE REDUCTION HAS BEEN GIVEN O N THE BASIS OF OBJECTION RAISED BY THE ASSESSEE THERE IS NO NEED F OR REDUCTION OF HIRE CHARGES AND OTHER MISCELLANEOUS ITEMS CLAIMED BY TH E ASSESSEE. THEREFORE IT IS OBVIOUS THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ARE NOT REJECTED. IN FACT THE ASSESSEE P RODUCED THE BOOKS OF ACCOUNT MAINTAINED BEFORE THE REVENUE AUTHORITIE S DURING THE SEARCH OPERATION. NO MISTAKE WHATSOEVER WAS POIN TED OUT BY THE REVENUE AUTHORITIES IN THE BOOKS OF ACCOUNT MAINTAI NED BY THE ASSESSEE. THEREFORE AS RIGHTLY SUBMITTED BY THE L EARNED COUNSEL FOR THE ASSESSEE THERE MAY NOT BE ANY REQUIREMENT FOR THE ASSESSING OFFICER TO REFER THE MATTER TO THE VALUATION OFFICE R FOR ESTIMATING THE COST OF CONSTRUCTION. UNDER IDENTICAL SITUATION A CO-OR DINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SASI EDUCATIONAL INSTITUTES (SUPRA) CONSIDERED THIS ISSUE AND AFTER REFERRING TO ITS EARLIER ORDER THE VIZAG BENCH OF THIS TRIBUNAL HELD THAT REFERENCE TO THE VALUATION OFFIC ER IS BAD IN LAW SINCE SPECIFIC DEFECTS WERE NOT POINTED OUT BY THE ASSESS ING OFFICER. A SIMILAR VIEW WAS TAKEN BY THE RAJASTHAN HIGH COURT IN CIT VS. HOTEL JOSHI (2000) 242 ITR 478. THE OBJECTION OF THE LEA RNED DR IS THAT SINCE THE CIT(A) HAS NO OCCASION TO CONSIDER THE RE FERENCE TO THE VALUATION OFFICER THE MATTER MAY BE REMANDED BACK T O THE FILE OF THE CIT(A) TO CONSIDER THIS ISSUE IN VIEW OF THE JUDGEM ENT OF THE MADHYA PRADESH HIGH COURT IN TOLARAM HASSOMAL (SUPRA). FR OM THE ORDER OF THE CIT(A) THE ASSESSEE SPECIFICALLY RAISED THE OBJ ECTION THAT THE VALUATION OFFICER HAS NOT VALUED THE PROPERTY ON TH E BASIS OF THE BOOKS OF ACCOUNT. IN OTHER WORDS THE VALUATION OFFICER IGNORED THE BOOKS OF ACCOUNT WHILE FINALISING THE VALUATION REPORT. THE REAFTER THE CIT(A) CALLED FOR ANOTHER REPORT AFTER CONSIDERING THE BOO KS OF ACCOUNT. THE DR. S.V. KRISHNA REDDY & ORS ===================== 8 FACT REMAINS IS THAT THE BOOKS OF ACCOUNT OF THE AS SESSEE WERE NOT REJECTED NO ERROR OR MISTAKE WAS POINTED OUT BY TH E LOWER AUTHORITIES OR THE VALUATION OFFICER IN THE BOOKS OF ACCOUNT MAINT AINED BY THE ASSESSEE. IN FACT THE CIT(A) HAS OBSERVED AS FOLL OWS AT PARA 6.3 OF HIS ORDER: '6.3 SINCE THE APPELLANT'S OBJECTIONS AS REFERRED TO ABOVE GIVE INDICATION TOWARDS THE FACT THAT THE BO OKS OF ACCOUNT WERE IGNORED WHILE FINALISING THE VALUATION REPORT THE DEPARTMENTAL VALUATION CELL WAS REQUESTED TO CA LL FOR THE BOOKS OF ACCOUNT FROM THE APPELLANT AND RE-FRAM E THE VALUATION OF THE IMPUGNED PROPERTY. THE VALUATION CELL IN RESPONSE SUBMITTED ITS REPORT VIDE LETTER RECEI VED IN THIS OFFICE ON 27.12.2008.' 11. FROM THE ABOVE IT IS OBVIOUS THAT THE ASSESSEE NOT ONLY OBJECTING THE METHOD OF VALUATION OF THE VALUATION OFFICER BUT ALSO THE VERY REFERENCE TO THE VALUATION OFFICER. THEREFORE IT MAY NOT BE CORRECT TO SAY THAT THE ASSESSEE IS RAISING THE ISSUE OF VA LUATION FOR THE FIRST TIME BEFORE THIS TRIBUNAL. RIGHT FROM THE ASSESSIN G OFFICER LEVEL THE ASSESSEES CLAIMED THAT THEY MAINTAINED THE BOOKS OF ACCOUNT. THEREFORE REFERENCE TO THE VALUATION CELL MAY NOT BE REQUIRED. THEREFORE IN OUR OPINION JUDGEMENT OF THE MP HIGH COURT MAY NOT BE ANY ASSISTANCE TO THE REVENUE IN THE FACTS OF THIS CASE. SINCE ADMITTEDLY THE BOOKS OF ACCOUNT WERE NOT REJECTED A ND NO SPECIFIC DEFECTS WAS POINTED OUT IN OUR OPINION IT MAY NOT BE REQUIRED TO MAKE ANY REFERENCE TO THE VALUATION CELL FOR ESTIMATING THE COST OF CONSTRUCTION. REFERENCE TO VALUATION CELL MAY BE R EQUIRED IN CASE THE ASSESSEE HAS NOT MAINTAINED THE BOOKS OF ACCOUNT FO R THE PURPOSE OF CONSTRUCTION OR THE BOOKS OF ACCOUNT WERE NOT PROPE RLY MAINTAINED AND THE SAME WERE REJECTED BY THE ASSESSING OFFICER. I N THE CASE BEFORE US SINCE THE BOOKS OF ACCOUNT WERE NOT REJECTED THE VERY REFERENCE TO THE VALUATION CELL IN VIEW OF THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SASI EDUCATIONAL INSTI TUTES (SUPRA) IS NOT REQUIRED. IN FACT THE RAJASTHAN HIGH COURT IN THE CASE OF HOTEL JOSHI (SUPRA) HAS OBSERVED AS FOLLOWS AT PAGE 483 OF THE ITR: 'IF THE ACCOUNT OF THE EXPENSES OF THE CONSTRUCTION OF THE ASSET ARE MAINTAINED REGULARLY IN THE BOOKS OF ACCO UNT DR. S.V. KRISHNA REDDY & ORS ===================== 9 AND AN ASSESSEE ALSO PRODUCES THE VOUCHERS THERE SHOULD BE NO REASON NOT TO ACCEPT THE SAME FOR ASSESSING THE VALUE OF THE ASSETS. IT IS UNFAIR AN D AGAINST PUBLIC POLICY TO PROCEED ON THE ASSUMPTION THAT THE ASSESSEE IS DISHONEST AND HE MUST HAVE SUBMITTED TH E INCORRECT ACCOUNT OF EXPENSES. IN CASE THE ASSESS EE HAS NOT MAINTAINED THE REGULAR BOOKS OF ACCOUNT OF THE CONSTRUCTION OF ASSET AND HE RELIES UPON THE REPORT S OF THE REGISTERED VALUER IT WILL BE OPEN FOR THE ASSESSIN G OFFICER UNDER THE PROVISIONS OF SECTION 55A OF THE ACT TO R EFER TO THE DISTRICT VALUATION OFFICER FOR VALUATION OF THE ASSET. IN THAT EVENT ALSO THERE CANNOT BE A STRAITJACKET FOR MULA THAT IT IS ONLY THE REPORT OF THE DISTRICT VALUATION OFF ICER BASED ON THE CPWD RATES WHICH SHOULD BE ACCEPTED OR IT I S ONLY THE REPORT OF THE REGISTERED VALUER BASED ON T HE RATES PROVIDED BY THE PUBLIC WORKS DEPARTMENT OF THE STAT E WHICH SHOULD BE PREFERRED. THE COST OF CONSTRUCTIO N VARIES FROM PLACE TO PLACE DEPENDING UPON THE LOCAL CONDITIONS. THE ASSESSING OFFICER IS REQUIRED TO A SSESS THE VALUE OF THE ASSET ON APPRECIATION OF MATERIAL BEFORE HIM. IT MAY BE POINTED OUT THAT THE CPWD RATES ARE BASED ON INSTRUCTION NO. 1671. PARA 4 OF THE INSTR UCTION SAYS THAT THE DATA COLLECTED BY THE VALUATION CELL IS IN THE NATURE OF BROAD GUIDELINES AND IN ITS APPLICATION T O INDIVIDUAL CASES MAY VARY ON THE FACTS OF A PARTIC ULAR CASE. THUS IT IS ULTIMATELY FOR THE ASSESSING OFF ICER TO APPRECIATE THE MATERIAL ON RECORD AND SATISFY HIMSE LF AS TO THE CORRECT VALUATION OF THE ASSET. A REFERENCE TO THE DISTRICT VALUATION OFFICER WOULD ARISE ONLY IN A CA SE WHERE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE ACC OUNT OF CONSTRUCTION PRODUCED BY THE ASSESSEE OR WHERE SUCH ACCOUNT IS KEPT AND THE ASSESSEE RELIES ON THE VALU ATION REPORT OF THE REGISTERED VALUER. IN CASE WHERE THE ASSESSING OFFICER DOES NOT AGREE WITH THE AMOUNT SUBMITTED BY THE ASSESSEE WITH RESPECT TO THE COST OF CONSTRUCTION THERE MUST EXIST SOME STRONG REASONS TO DISAGREE.' 12. AS OBSERVED BY THE CO-ORDINATE BENCH IN SASI ED UCATIONAL INSTITUTES (SUPRA) THE PRINCIPLE LAID DOWN BY THE R AJASTHAN HIGH COURT IS EQUALLY APPLICABLE EVEN AFTER INTRODUCTION OF SECTI ON 142A OF I.T. ACT. THEREFORE REFERENCE TO VALUATION CELL IS BAD IN LA W. 13. EVEN ON MERIT THIS TRIBUNAL IN THE CASE OF G. P ULLA REDDY FOUND THAT 15% REDUCTION SHOULD BE GIVEN IN RESPECT OF HA LL TYPES OF CONSTRUCTION. FIFTEEN PER CENT REDUCTION SHALL BE GIVEN FOR RATE DR. S.V. KRISHNA REDDY & ORS ===================== 10 DIFFERENCE AND ANOTHER 15% FOR SELF-SUPERVISION. I N THIS CASE THE CIT(A) HAS GRANTED 6% REDUCTION FOR SELF-SUPERVISIO N. THE CLAIM OF THE ASSESSEE IS THAT HIS PERSONAL FRIEND WHO IS RECENTL Y RETIRED FROM GOVERNMENT SERVICE HAS SUPERVISED THE CONSTRUCTION PERSONALLY. THIS FACT IS NOT IN DISPUTE. IT IS ALSO NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS PAID ANY AMOUNT FOR SUPERVISION. ONCE THE CIT(A) FOUND THAT THE ASSESSEE'S FRIEND SUPERVISED THE CONSTRUCT ION THE REDUCTION 15% SHALL BE GIVEN ON THE CONSTRUCTION INSTEAD OF 6 %. THE MATTER WOULD BE ENTIRELY DIFFERENT IF THE REVENUE FOUND SO ME MATERIAL TO SHOW THAT ASSESSEE'S PERSONAL FRIEND WAS NOT SUPERVISING THE CONSTRUCTION. IN THIS CASE THE PERSONAL SUPERVISION WAS NOT IN DI SPUTE. AS OBSERVED BY THE RAJASTHAN HIGH COURT IN THE CASE OF HOTEL JO SHI (SUPRA) THE CPWD INSTRUCTIONS ARE BROAD GUIDELINE AND ITS APPLI CATION TO INDIVIDUAL CASES MAY VARY ON FACTS OF THE PARTICULAR CASE. M OREOVER THE CIT(A) WAS EXPECTED TO GIVE FURTHER REDUCTION OF 15% ON TH E COST DIFFERENCE BETWEEN THE CPWD RATE AND THE STATE PWD RATE FOR AL L MATERIAL USED IN THE CONSTRUCTION. IN THIS CASE THE CIT(A) HAS G RANTED 15% REDUCTION ONLY IN RESPECT OF WOOD AND SANITARY WARE. IN VIEW OF THE ABOVE WE DO NOT FIND ANY JUSTIFICATION FOR MAKING ADDITION TOWA RDS COST OF CONSTRUCTION. HOWEVER IT APPEARS FROM THE ORDER O F THE ASSESSING OFFICER THAT A VOUCHER FOR RS.2 03 184/- WAS FOUND DURING THE COURSE OF SEARCH AND IT WAS NOT RECORDED IN THE BOOKS OF ACC OUNT. THEREFORE AT THE BEST THE ADDITION OF RS.2 03 184/0 MAY BE JUST IFIED. IN VIEW OF THE JUDGEMENT OF THE RAJASTHAN HIGH COURT IN HOTEL JOSH I (SUPRA) NO ADDITION COULD BE MADE ON THE BASIS OF THE VALUATIO N REPORT WITHOUT REJECTING THE BOOKS OF ACCOUNT. ACCORDINGLY WE SE T ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DIRECT THE ASSESSING OFFI CER TO MAKE AN ADDITION OF RS.2 03 184/- TOWARDS COST OF CONSTRUCT ION. 14. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DISA LLOWANCE OF EXEMPTION U/S. 54F OF INCOME-TAX ACT 1961. THIS I SSUE ARISES FOR CONSIDERATION FOR A.YS. 2005-06 AND 2006-07 IN THE CASE OF DR. S.V. KRISHNA REDDY. WE HEARD THE LEARNED COUNSEL FOR TH E ASSESSEE AND THE LEARNED DR. THE ASSESSEE CLAIMED EXEMPTION U/S . 54F IN RESPECT DR. S.V. KRISHNA REDDY & ORS ===================== 11 OF A HOSTEL BUILDING. IT IS NOT THE CASE OF THE AS SESSEE THAT ANY RESIDENTIAL HOUSE WAS CONSTRUCTED. WE HAVE CAREFUL LY GONE THROUGH THE PROVISIONS OF SECTION 54F. SECTION 54F CLEARLY SAYS THAT THE CAPITAL GAIN ARISING FROM THE TRANSFER OF A LONG TERM CAPIT AL ASSET NOT BEING A RESIDENTIAL HOUSE SHALL EXEMPT IF THE ASSESSEE WIT HIN A PERIOD OF ONE YEAR BEFORE OR TWO YEARS AFTER THE DATE ON WHICH TH E TRANSFER TOOK PLACE PURCHASES OR SHALL WITHIN A PERIOD OF THREE YEARS A FTER THAT DATE CONSTRUCTED A RESIDENTIAL HOUSE THE WHOLE OF SUCH CAPITAL GAIN IN CASE THE COST OF NEW ASSET IS NOT LESS THAN THE NET CONS IDERATION OF THE ORIGINAL ASSET. THEREFORE THE PRINCIPAL REQUIREME NT FOR CLAIMING THE EXEMPTION OF THE CAPITAL GAIN FROM TAXATION IS THAT THE ASSESSEE HAS TO INVEST THE CAPITAL GAIN IN A RESIDENTIAL HOUSE. IN THIS CASE ADMITTEDLY THE ASSESSEE CONSTRUCTED A HOSTEL BUILDING FOR NURS ERY SCHOOL. A HOSTEL BUILDING FOR STUDENTS CANNOT BE CONSIDERED AS A RES IDENTIAL HOUSE. A RESIDENTIAL HOUSE MEANS A BUILDING WHERE PEOPLE INT ENDED TO STAY FOR UNLIMITED PERIOD WHEREAS A HOSTEL/HOTEL WOULD BE US ED FOR TEMPORARY ACCOMMODATION FOR LIMITED PERIODS FOR A PARTICULAR PURPOSE. THE STUDENTS USE THE HOSTEL TEMPORARILY FOR A PERIOD OF ONE OR TWO YEARS SO LONG AS THEY PURSUE THEIR EDUCATION IN THE PARTICUL AR EDUCATIONAL INSTITUTION. THEREFORE A PLACE FOR TEMPORARY ACCO MMODATION FOR THE STUDENTS DURING THE COURSE OF THEIR ACADEMIC PERIOD CANNOT BE CONSTRUED AS A RESIDENTIAL HOUSE. THEREFORE IN OU R OPINION THE ASSESSEE IS NOT ENTITLED FOR ANY EXEMPTION U/S. 54F OF THE INCOME-TAX ACT. IN VIEW OF THE ABOVE THE LOWER AUTHORITIES H AVE RIGHTLY DISALLOWED THE CLAIM OF THE ASSESSEE AND ACCORDINGLY THE SAME IS CONFIRMED. 15. THE NEXT ISSUE ARISES FOR CONSIDERATION IS UNRE CORDED INVESTMENT. THIS ISSUE ARISES FOR CONSIDERATION IN THE DEPARTMENTAL APPEAL IN THE CASE OF S. VIJAYA LAKSHMI FOR A.Y. 20 04-05 IN THE CASE OF S. SUDARSANAMMA FOR A.Y. 2003-04. WE HEARD THE LEA RNED DR. THE LEARNED DR SUBMITTED THAT SHE IS PLACING RELIANCE O N THE GROUNDS OF APPEAL AND THE OBSERVATION OF THE ASSESSING OFFICER . ON THE CONTRARY THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT HE IS PLACING RELIANCE ON THE OBSERVATIONS MADE BY THE CIT(A). DR. S.V. KRISHNA REDDY & ORS ===================== 12 16. FROM THE ORDER OF THE LOWER AUTHORITIES IT APPE ARS PROMISSORY NOTES TO THE EXTENT OF RS.14.5 LAKHS WERE FOUND DUR ING THE COURSE OF SEARCH OPERATION. THE CIT(A) AFTER REFERRING TO TH E SUIT FILED BY THE ASSESSEE BEFORE THE LEARNED DISTRICT JUDGE AT NELLO RE CAME TO THE CONCLUSION THAT IT MAY NOT BE A SELF-SERVING AGREEM ENT WITH THE HELP OF SMT. DARSANAMMA. THE CIT(A) ALSO FOUND THAT THE PR OMISSORY NOTE TO THE EXTENT OF RS.14.5 LAKHS CANNOT BE DELINKED TO T HE PRO-NOTE OF RS.18.5 LAKHS DRAWN ON 16.202001 FOR THE VERY SAME DEBTOR. ALL THE PRO-NOTES WERE ADMITTEDLY PRECEDING THE DATE OF SEA RCH. THEREFORE AS RIGHTLY OBSERVED BY THE CIT(A) IT CANNOT BE CREATED . IN VIEW OF THE FINDING RECORDED BY THE CIT(A) THAT THE INVESTMENTS AND SOURCES WERE EXPLAINED AND RECORDED IN THE BOOKS OF ACCOUNT THE SAME CANNOT BE TREATED AS UNEXPLAINED INVESTMENT. THE DEPARTMENT COULD NOT BRING ANY CONTRARY MATERIAL TO SHOW THAT THE FINDING RECO RDED BY THE CIT(A) IS CONTRARY TO THE MATERIAL AVAILABLE ON RECORD. IN T HE ABSENCE OF ANY MATERIAL ON RECORD WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND ACCORDINGLY THE SAME IS CONFIRMED. 17. IN THE RESULT ITA NOS. 514 515 & 516/HYD/2009 ARE ALLOWED; ITA NO. 587/HYD/2010 IS PARTLY ALLOWED ITA NO.615/ HYD/2010 ITA NO. 480/HYD/2009 ITA NO. 371/HYD/2010 AND ITA NO. 389/ HYD/2010 ARE DISMISSED; ITA NOS. 520 375 519/HYD/2009 AND ITA NO. 374/HYD/ 2010 ARE ALLOWED AND ITA NO.867/HYD/2010 ITA NO.60 6/HYD/2009 AND ITA NO.605/HYD/2009 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29TH OCTOBER 2010. SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER SD/- (N.R.S. GANESAN) JUDICIAL MEMBER HYDERABAD DATED 29TH OCTOBER 2010 TPRAO DR. S.V. KRISHNA REDDY & ORS ===================== 13 COPY FORWARDED TO: 1. SMT. S. VIJAYA LAKSHMI 16/1727 RAMAMURTHY NAGA R POGATHOTA NELLORE DIST. AP. 2. DR. S.V. KRISHNA REDDY 16/1727 RAMAMURTHY NAGA R POGATHOTA NELLORE DIST. AP. 3. SMT. S. SUDARSANAMMA 16/1727 RAMAMURTHY NAGAR POGATHOTA NELLORE DIST. AP. 4. ACIT CIRCLE 1 24-2-438 DARGAMITTA NELLORE. 5. DCIT CIRCLE 1 NELLORE 6. DCIT CIRCLE 1 HYDERABAD 7. THE CIT(A) TIRUPATI 8. THE CIT(A) GUNTUR 9 THE CIT GUNTUR CHARGE GUNTUR 10. THE DR B BENCH ITAT HYDERABAD