2012 (9) TMI 437 - AT - Income Tax

Tax Appeals Dismissed for Unaccounted Investments & Expenses

The Revenue's appeals were dismissed regarding the deletion of additions related to unaccounted investments in the factory building, unexplained ... Addition on account of construction of building – Whether revenue can refer valuation of asset to DVO under any section other than section 55A & 269L under I.T. Act 1961 - The factory premises was referred to DVO by the ADIT – There was vast difference between the estimated cost of construction as per valuation report and the investment in construction of the factory as per the books - AO made an addition on the basis of as unaccounted investment u/s 69 – Held that:- As decided by the Hon’ble Supreme Court in the case of Smt. Amiya Bala Paul Vs CIT (2003 (7) TMI 4) held that the DVO would not have jurisdiction to give a report to the AO under the Income Tax Act except in terms of Section 55A or to Competent Authority u/s 269L. Appeal decided in favour of assessee. Addition on the basis of actual purchase consideration was more that registry rate of asset as unexplained investment u/s 69 – Assessee made investment in purchase of Land – AO found during search u/s 132 that, actual purchase consideration was higher than property registry rate - Addition was made on the basis of statements made by seller and broker that unaccounted payment received by them - Assessee contended that the statements were made under coercion which was endorsed by both the persons by retracting from their statements during cross examination - Held that:- The addition made merely on the basis of statements which allegedly given under pressure. The assessee filed sufficient material in support of retraction. There is no other material on record basis of which it can be said that on money was paid in transaction. Appeal decided in favour of assessee Addition made on account of unaccounted cash u/s 69A – During course of Search cash seized by AO from assessee residence - The assessee filed cash flow statement without supporting with evidence – The assessee could not maintain the personal book account - Held that:- No one has appeared before us even proper notice has been served on the assessee’s legal heir. Assessee submitted before the AO cash was found withdrawal made by him as a Director from the company. As per balance sheet submitted before the A.O., the assessee had shown hardly cash balances. Appeal decide in favour of revenue. Addition on account of household valuables - Assessee did not submit any explanation during the course of search u/s 132 & assessment proceeding - The assessee had not admitted the ownership of these valuable items - Held that:- It is the primary duty of the assessee to explain the source of things/valuables found during the course of search. Assessee even did not file any evidence regarding purchase of these household. Appeal decide in favour of revenue. Disallowance on account of Interest on deposit – The A.O. has noticed interest free advances whereas the assessee claims interest expenditure on deposit – Held that:- As the advance given prior to 3 years under year under consideration. In past, it appears that there was no disallowance under this head made by the A.O. Further, the A.O. has not established the nexus between interest free advances and interest bearing loans taken. Therefore appeal decides in favour of assessee. Addition on account of household expenses – Assessee had not withdrawn any amount for household purposes – Held that:- It is undisputed that he was having independent establishment for running the kitchen at his house. The assessee had not withdrawn a single penny for household purposes. There is no evidence produced by the assessee that he had received food from factory canteen. Appeal decides in favour of revenue Issues Involved:1. Deletion of additions on account of unaccounted investment in factory building for AY 1993-94 and AY 1994-95.2. Deletion of addition on account of unexplained investment in purchase of land for AY 1993-94.3. Addition on account of unaccounted cash u/s 69A for AY 1993-94.4. Addition on account of household valuables for AY 1993-94.5. Disallowance of interest expenditure for AY 1993-94.6. Addition on account of household expenses for AY 1993-94.Detailed Analysis:1. Deletion of Additions on Account of Unaccounted Investment in Factory BuildingThe Revenue appealed against the deletion of additions of Rs.12,26,132/- and Rs.11,55,287/- for AY 1993-94 and AY 1994-95, respectively, made on account of unaccounted investment in factory building u/s 69 of the IT Act. The case involved a search in the group cases of Ramdev Masala, and the DVO estimated the cost of construction of the property at Rs.81,31,106/-. The AO made the additions based on the DVO's report, which the assessee challenged by presenting valuation reports from Government Registered Valuers. The CIT(A) deleted the additions, concluding that the AO did not properly consider the valuation reports from the Government Approved Valuers and did not find any incriminating documents during the search. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO had not rejected the books of account and had relied solely on the DVO's report without further investigation.2. Deletion of Addition on Account of Unexplained Investment in Purchase of LandThe AO added Rs.7,01,600/- to the assessee's income, citing an unaccounted payment for land purchase based on statements from the seller and broker. The CIT(A) deleted the addition, noting that the statements were contradictory and unsupported by material evidence. The Tribunal upheld the CIT(A)'s decision, referencing a similar case from AY 1990-91 where the ITAT had deleted an addition based on statements without material support.3. Addition on Account of Unaccounted Cash u/s 69AThe AO added Rs.90,000/- to the assessee's income, citing unexplained cash found during a search. The CIT(A) confirmed the addition, noting that the assessee's cash flow statement was unsupported by evidence, and the assessee did not maintain personal books of account. The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee had not provided sufficient evidence to explain the cash found.4. Addition on Account of Household ValuablesThe AO added Rs.30,000/- to the assessee's income for household valuables found during the search, which the assessee failed to explain. The CIT(A) confirmed the addition, noting the lack of evidence supporting the assessee's claims about the ownership and purchase of the valuables. The Tribunal upheld the CIT(A)'s decision, emphasizing the assessee's failure to provide evidence.5. Disallowance of Interest ExpenditureThe AO disallowed Rs.42,000/- in interest expenditure, citing interest-free advances given by the assessee. The CIT(A) confirmed the disallowance, noting the lack of evidence showing the interest expenditure was utilized for earning income. The Tribunal, however, deleted the disallowance, noting that the AO had not established a nexus between the interest-free advances and the interest-bearing loans.6. Addition on Account of Household ExpensesThe AO added Rs.18,000/- to the assessee's income for household expenses, noting that the assessee had not withdrawn any amount for such purposes. The CIT(A) confirmed the addition, citing the lack of evidence for household withdrawals. The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee had not provided evidence of household expenses or alternative arrangements.Conclusion:- The Revenue's appeals in ITA Nos. 1464 & 1465/Ahd/2006 were dismissed.- The assessee's appeal in ITA No. 1536/Ahd/2006 was partly allowed.