ABRAR HUSSAIN NAQVI J.M.- (1) These are two appeals filed by an individual deriving no income from any source, and relate to the assessment year 1986-87. One appeal is directed against the assessm ent proper while the other pertains to the penalty imposed under section 111 of the Income Tax Ordinance, 1979 (hereinafter referred to as the 'Ordinance'). The assessee declared nil income but the Income-Tax Officer assessed the income at Rs. 3,40,155/- on account of addition made under section 13(1) (d) of the Ordinance.
2. The facts of the case are that the assessee purchased a plot of land measuring 2 kanals 4 marlas in Abubakar Block in Garden Town, Lahore, in the year 1983, for an ostensible price of Rs.
2,50,000/-. Subsequently the construction was started on this plot in the assessment year 1984-85 and the house was completed in the assessment year under consideration. The total cost of construction declared by the assessee was at Rs. 6,81,705/- which works out at the rate of Rs. 120/- per sqr. Ft. The Income Tax Officer considering the cost of construction as low, estimated the cost of construction at Rs. 180/- per sqr. Ft. And the total cost of construction was worked out at Rs.
10,21,860/-. After deducting the declared cost of construction the balance amount of Rs. 3,40,155/- was added as unexplained investment under section 13(l)(d) of the Ordinance.
3. On appeal, the learned Commissioner of Income Tax (Appeals) reduced the cost of construction to Rs. 165/- per sqr. Ft. Which resulted in the total cost of construction at Rs. 9,36,705/- and the balance for addition was Rs. 2,55,000/-. The total covered area is 5,677 sqr. Ft.
4. The learned counsel for the assessee raised three contentions. Firstly, that the cost of construction adopted even by the learned Commissioner of Income Tax (Appeals) is excessive inasmuch as the cost of construction declared by her was substantiated through documentary evidence. It was submitted that the house was got constructed through a Contractor and a written agreement deed in this respect was executed by the assessee which is dated 20th June, 1983. This agreement was produced before the Income Tax Officer. According to this agreement the contract was awarded at the rate of Rs. 115/- per sqr. Ft. The Income Tax Officer made no efforts to verify even by issuing a notice under section 148 of the Ordinance to Sh. Tanveer Ahmed, the Contractor, who constructed the house. It was further submitted that the total payments made to the contractor up to 20th August, 1983 were to the tune of Rs. 6,52,855/- which was duly acknowledged by the contractor and the receipt of which was given by him on the back of agreement.
5. The contention of the learned counsel for the assessee was that the assessee had sold a house in Ahmad Block measuring 1 kanal 7 marlas for an ostensible sale deed of Rs. 4,50,000/- but the gain tax authorities had estimated the sale price of the house at Rs. 10,50,000/-. It was, therefore, submitted that the assessee had a surplus of Rs. 6,00,000/- available with her, if the assessment of gain tax authorities was accepted. The learned counsel contended that while in regard to the purchase of plot registered sale deed is not accepted by the Income Tax authorities but in the case of sale of the house the Income-tax authorities have confined themselves to the sale deed. It was submitted that it is a common practice that in the sale deeds true sale price is not indicated and it is invariably unrealistic. It is for this reason that the Income Tax authorities do not accept the price shown in the registered sale deeds. It was, therefore, contended that if the sale price as adopted by the gain tax authorities is taken into account, a surplus amount of Rs. 600,000/- would be available to the assessee which would be sufficient to explain the difference between the cost of construction adopted by the learned Commissioner of Income Tax (Appeals) and the one declared by the assessee. It was submitted that the same principle was adopted in the assessee's own case by the learned Commissioner of Income Tax, Zone (A) Lahore while deciding the revision petition of the assessee under section 138(1) of the Ordinance, for the assessment year, 1981-82. What happened in that case was that the assessee had purchased a house in Ahmad Block at the ostensible price given in the sale deed at Rs. 3,50,000/- which was estimated by the assessing officer at Rs. 7,20,000/-. The assessee had also shown that she had sold her house in Shadman for Rs. 6 lac as shown in the sale deed.
The Income Tax Officer accepted the value shown in the registered sale deed at Rs. 6,00,000/-while the Excise & Taxation authorities finally fixed the value of the house sold by the assessee in Shadman at Rs. 10,50,000/-. Consequently, the learned Commissioner of Income-tax (Revision) observed in his order:- "After considering the arguments and evidence tendered by the learned counsel, I feel persuaded to believe that the assessing officer is not meet out the same treatment for the sale of the house as for the purchase of the property, It is evident that if the price (as enhanced by the ITO and by the Excise & Taxation Department) are made a basis the position would emerge as under:- After giving the details of surplus worked out, the learned Commissioner of Income Tax further observed:- "Obviously, the surplus from sale of Shadman house, being more than the intended addition for difference in the purchase price, no addition could be made. I, therefore, delete the same".
It therefore, appears that the department has also accepted this position and this is also reasonable and fair. The department cannot blow hot and cold in the same breath as in the case of purchase of property the department ignores the sale deed but in the case of sale of property it accepts the sale price given in the sale deed.
6. The last contention of the learned counsel for the assessee was that the Income-tax department has failed to allocate the total cost of construction to various assessment years. Admittedly, the assessee had started construction in the assessment year 1984-85. Therefore, the cost of construction as adopted by the officer below should have been reasonably allocated to the earlier assessm ent years and the entire estimated investment could not be held to have been made in the assessm ent year under consideration.
7. We have considered the arguments of the learned counsel for the assessee. So far as the cost of construction is concerned, there was documentary evidence with the assessee which was duly produced before the Income-tax Officer. However, the assessing officer has brushed aside the written agreement solely on the ground that the cost of construction declared at Rs. 115/- per sqr. Ft. Was low even in the year 1984. This, he did, without even calling the contractor under section 148 of the Ordinance.
The learned counsel for the assessee has also stated that the Inspector was deputed to make an enquiry in regard to the cost of construction who reported the cost of construction at the rate of Rs.
125/- per sqr. Ft. Which has been ignored by the assessing officer. Even if the written agreement is to be ignored then the cost of construction as reported by the Inspector should have been adopted by the assessing officer unless he rejected the report of the Inspector giving sound reasons. We, find that the cost of construction declared by the assessee has been rejected without any cogent reasons or without any basis. Mere lowness of cost of construction declared by the assessee is not sufficient to discard the declared version as the parallel cases are certainly not a safe- guide because of the fact that no two houses can be compared for cost of construction. It depends on number of factors. The types of construction, fittings and fixtures, nature of bath rooms, wood work and It of other factors have to kept in view. This can only be done either through an expert opinion or through a spot inspection by the assessing officer or his nominee. In the present case, the assessing officer has neither visited the spot himself nor has he relied upon the Inspector's report and he enhanced the cost of construction mainly on the basis of parallel cases which may not, in fact, be parallel cases.
8. The contention of the learned counsel that the assessee had sold the house in Ahmad Block for an ostensible sale price of Rs. 4,50,000/- which was assessed to tax by the gain tax | authorities at Rs. 10,50,000/- is not without force. It may be H stated here that in the assessment year 1981'82 for the purchase of the same house even the assessing officer estimated the value at Rs. 7,20,000/-. It is, therefore, evident that a house which was valued by the Income Tax Officer himself in the year 1981-82 at Rs. 7,20,000/- could safely be sold after a period of three years (with assessment year 1984- 85) for Rs. 10,00,000/-. Therefore, the contention of the assessing officer that the assessment made by the gain tax authorities is not binding on him loses much of its ground. No doubt the assessm ent made by the gain tax authorities is not binding on an Income-tax Officer, as he has to come to his own conclusion. However, the assessment made by the gain tax authorities and by the assessing officer himself three years earlier are the factors which cannot be lightly ignored.
Keeping these two factors in view alone, it cannot be said that the house had been sold for an amount of Rs. 4,50,000/- which was written in the registered sale deed as this sale deed had been rejected by the assessing officer himself in the assessment year 1981-82. Therefore, even if the value of the house sold by the assessee is taken at Rs. 10,00,000/- even then the assessee had a surplus amount of Rs. 5,50,000/- available with her which could be utilized in the construction of the house in Abubakar Block. Therefore, the amount of Rs. 2,55,000/- is certainly explainable.
9. The third ground taken by the learned counsel for the assessee has also considerable force.
Under section 13 of the Ordinance, any investment made by an assessee has to be taxed in the income year in which the amount had been invested. Therefore, the total cost of worked out by the assessing officer, even if it was correct, is had to be allocated to the earlier assessment years as well and could not be taxed in one year alone.
10. Considering all these facts in view, we are satisfied that the assessee's cost of construction declared by her being reasonable, was to be accepted and in any case the cost of construction even as estimated by the learned Commissioner of Income Tax (Appeals) was explainable and was satisfactorily explained. We, therefore, direct that the addition should be deleted.
11. Penalty appeal: Since we have already accepted the assessee's appeal and even otherwise there was no element of concealment and the penalty has been imposed mainly on account of under-statement of the value which could not be regarded as concealment of income, this was a difference of opinion. Mere fact that the assessing officer did not agree with the cost of construction shown by the assessee does not amount to concealment. In order to show that the concealment had been made by the assessee, the burden of proof was on the assessing officer.
No element of concealment being involved in this case. We, therefore, cancel the penalty.
12. As a result of the above discussion, both the appeals filed by the assessee succeed to the extent indicated above.