2012 (10) TMI 1103 - AT - Income Tax

Tribunal overturns Assessing Officer's additions, rules in favor of assessee on unexplained investments and income source.

Shri Kamal Kishore Baheti Prop. M/s. Vraj Tractor Industries Versus The DCIT Central Circle- 2 Jodhpur

The Tribunal allowed the appeal, deleting the additions made by the Assessing Officer and upheld by the CIT(A). In the first issue, the Tribunal held that ... - Issues Involved:1. Confirmation of addition of Rs. 55,952/- made by the Assessing Officer on account of alleged unexplained investment in factory building.2. Confirmation of addition of Rs. 4.15 lacs made by the Assessing Officer u/s 68 of the Act.Summary:Issue 1: Confirmation of addition of Rs. 55,952/- for unexplained investment in factory buildingThe assessee made phased construction at its factory building from Financial Year 1994-95 to 2006-07, declaring a cost of Rs. 25,56,339/- in books for FY 2006-07. The Assessing Officer referred the property to the DVO, who estimated the cost at Rs. 48.60 lacs, resulting in a difference of Rs. 1,00,931/- for the year under consideration. The Assessing Officer treated this amount as undisclosed investment and made an addition.The assessee argued before the CIT(A) that for any addition u/s 69B, the Assessing Officer must establish that the amount expended was more than recorded in the books. The assessee maintained complete books and provided all bills/vouchers, which were not found defective by the Assessing Officer or DVO. The CIT(A) adjusted the valuation using Rajasthan PWD rates and a higher deduction for self-supervision, reducing the difference to Rs. 55,952/- for the year under consideration.The Tribunal, referencing the Supreme Court's decision in Sargam Cinema vs CIT (2010) 328 ITR 513, held that the Assessing Officer could not refer the matter to the DVO without rejecting the books of accounts. Since the books were never rejected, the reliance on the DVO's report was misconceived. The addition sustained by the CIT(A) was deleted.Issue 2: Confirmation of addition of Rs. 4.15 lacs u/s 68 of the ActThe Assessing Officer noticed that the assessee received Rs. 90,000/- from Shri Tara Chand and Rs. 3.25 lacs from Shri Khiya Ram, both employees, through account payee cheques. The Assessing Officer treated these credits as unexplained due to immediate cash deposits in the creditors' bank accounts before issuing cheques to the assessee.The assessee contended before the CIT(A) that both creditors admitted to giving loans and explained their sources, including salary, stitching income, and agricultural income. The CIT(A) observed that no evidence of past savings or agricultural income was furnished and confirmed the addition, suspecting the bank accounts were used to route unexplained income.The Tribunal found that the creditors had explained their sources and the transactions were through banking channels. The Assessing Officer did not substantiate that the creditors were incapable of providing the loans. The Tribunal held that the assessee proved the identity, creditworthiness, and genuineness of the transactions. The addition confirmed by the CIT(A) was deleted.Conclusion:The appeal filed by the assessee was allowed, and the additions made by the Assessing Officer and sustained by the CIT(A) were deleted.