Income Tax Ordinance (XXXI of 1979)---

----Ss. 22 & 32(3)---Income from business---Construction of shops---Cost of construction---Arbitration award---Addition on basis of award ---Validity-- Assessee acquired property and constructed shops ---For assessment purpose, case was twice set aside---Add-backs were made by Assessing Officer in the original assessment ---C.I.T.(A) set aside addition for a fresh assessment-- Assessing Officer thereafter found that arbitration was made between the parties ---Aribitrator had adopted cost of construction at Rs.33,58,859 as against declared cost at. Rs.31,31,760---Assessing Officer worked out difference and added to the income of assessee---Contention was that arbitration proceedings could not make basis for making assessment---Held, it would not be wrong to rely upon what the parties stated, before arbitrator-- Appeal was disposed of by Tribunal maintaining the decision of C.I.T.(A) with regard to setting aside but with additional direction that assessment should be made in accordance with stand taken by the parties before arbitrator and consequent arbitration award.

S. Zafar Shah, C.A. for Appellant

Khalid Aziz Banth, D.R. for Respondent

Date of hearing: 8th April, 1997.

ORDER

ABDUL MALIK (ACCOUNTANT MEMBER).---In this case the assessee is in appeal against order of the CIT for the assessment years 1986-87 and 1987-88.

2. Relevant facts are that the assessee is a construction company. It has acquired property situated in New Anarkali where a commercial property has been constructed with shops etc. This case was earlier set aside by Commissioner (Appeals) and has now been again set aside.

3. The I.T.O. has found that Property No. S-64-R-6 known as 6-Anarkali, Lahore, was constructed after demolishing the old building. In the original assessment various additions were made. At that time various add-backs were made which are agitated as follows:--

(i) Expenditure up to 30-6-1986 is claimed to 'be incurred at Rs.2,91,426 up to 30-6-1986 out of which Rs.2,76,555 was capitalised and shown in the balance-sheet leaving a balance claim of Rs.14,871 against which the ITO disallowed Rs.1,96,161.

(ii) Income was assessed on account of addition to profits made at Rs.60,000 on sale proceeds of one shop sold at Rs.5,00,000. According to the assessee this addition has no basis.

(iii) Income was also assessed at Rs.50,000 on account of sale of Mulba of an old building. The main grievance of the assessee is that these additions are uncalled for and should have been deleted by the CIT instead of setting aside.

4. At the time of hearing the learned AR further pointed out that the building is situated in the vicinity of Church and a Police Station and the member of the AOP are in dispute with each other. The property could not be sold due to disputes arisen amongst the partners.

5. After setting aside the addition by the Commissioner the ITO found that one arbitration was made amongst the partner by an arbitrator. This arbitration was executed on 18-8-1991. Having found this piece of evidence, the ITO came to know that there is difference in cost of construction the arbitrator adopted cost of construction at Rs.33,58,859 whereas the assessee has declared the cost of construction at Rs.31,31,760 and thereby the difference works out to Rs.2,27,099.

6. It was also argued before the ITO as well as the CIT that arbitration proceedings cannot be made a basis for making assessment. The direction of the learned CIT are not clear, it is evident that parties have accepted the arbitration proceedings. Therefore, these constitute a valid piece of evidence. Various additions made on account of sale of Mulba and sale proceeds of shop must have been taken into consideration by the arbitrator. Therefore, it would not be wrong to rely upon what the parties stated before the arbitrator. Under these circumstances, the appeal is disposed of maintaining the direction of the CIT with regard to setting aside but with additional direction that assessment should be made in accordance with stand taken by the parties before the arbitrator and the consequent arbitration award.

C.M.S./421/Trib Order accordingly.