INCOME TAX OFFICER Vs. MAHAVIR BUILDERS

JUDGEMENT

(1.) THESE twelve tax appeals are filed by the ITO, Rajkot, for challenging the common judgment and order dt. 29th Sept., 2001, passed by the Income tax Tribunal, Rajkot, in one group of six appeals filed by M/s Tirupati Builders and the other group of six appeals filed by M/s Mahavir builders in respect of asst. yrs. 1985 86, 1986 87 and 1987 88. Since in all these appeals common questions of fact and law are involved, the same are being disposed of by this common judgment.

(2.) THE respondent assessees i.e., M/s Tirupati builders and M/s Mahavir builders are two separate partnership firms engaged in the business of construction and selling of flats. M/s Tirupati builders constructed the property known as Ajanta Apartments at Rajkot. The construction was commenced in the year relevant to asst. year 1985 86 and it continued up to the year relevant to asst. year 1987 88. The assessee had declared the cost of construction in the books of account maintained by the firm. While framing the assessment order for asst. year 1986 87 the AO noted that the assessee had understated the cost of construction and, therefore, the matter was referred for determination of the cost of construction to the Departmental Valuation Officer (DVO) under S. 131(1)(d) of the Act. The DVO submitted his report dt. 28th March, 1988, after inspection of the property and after taking into consideration the relevant material and on that basis, the AO reopened the assessment under S. 147(b) of the IT Act for asst. yrs. 1985 86 and 1987 88. The AO estimated that cost of construction at Rs. 1,531 per sq. mt. against the cost declared by the assessee at Rs. 1,117 per sq. mt. The AO made addition of the difference of the cost and was of the view that the assessee must have earned profit on unexplained income and, therefore, he added 10 per cent of the unexplained income as profit.

(3.) AGGRIEVED by the aforesaid orders passed by the AO, both the assessees went in separate appeals before the CIT(A). The CIT(A) allowed the appeals of the assessees and held that the proceedings initiated under S. 147(b) for asst. yrs. 1985 86 and 1987 88 in both the cases were invalid and cancelled the reassessments for the asst. yrs. 1985 86 and 1987 88 and deleted the entire amount of addition made on account of unexplained cost of construction and also deleted the further addition of 10 per cent made by the AO on such unexplained cost of construction. However, the CIT(A) enhanced the profit to 15 per cent as against 10 per cent declared by the assessees. This profit has been enhanced on the actual cost of construction declared by the assessee in their books of accounts.