2015 (9) TMI 330 - HC - Income Tax

High Court upholds Tribunal decision on undisclosed investment, rejects valuation difference explanations.

SAROJ CERAMIC INDUSTRIES Versus INCOME TAX OFFICER

The High Court dismissed the Tax Appeal, upholding the Tribunal's decision to add the undisclosed investment in the construction of a factory building to ... Undisclosed investment - Addition of difference in the cost of construction of the factory building - non rejection of books of accounts - Held that:- No question of law arises. The Assessing Officer proceeded to examine the report of valuer supplied by the assessee itself. This was not a case where the Assessing Officer was relying on DVO’s estimation of the cost of the building before the Assessing Officer. The assessee never took the stand before the Assessing Officer that the report may have been inflated since it was prepared primarily for the purpose of seeking bank loan. The assessee also did not raise any contention about the report being inaccurate since the same took into account the entire valuation of the brick kiln also. In fact, as already noted, the contentions of the assessee before the Assessing Officer was that the valuation was erroneous. He raised several grounds in support thereof. He contended that the construction was made through cost effective measures and the report, therefore, was not accurate. To our mind, such question cannot be examined as part of the requirement of substantial question of law. The valuer had also, as noted by the Assessing Officer, full material at his command. Taking into account the nature of construction and the manner in which the same was carried out, simply by suggesting that the valuer committed serious error in accepting the correct valuation of the construction was not sufficient. The contention that the Tribunal had not given sufficient reasons also did not appeal to us. The Tribunal has, as already noted, given its reasons for reinstating Assessing Officer’s orders. As rightly observed by the Tribunal from the facts, the Assessing Officer found that the valuation shown in the books for the cost of the building was much lower than the valuer’s report, and when the Assessing Officer accepted such valuation in preference to the valuation shown in the books by giving cogent reasons, obviously, he was rejecting the book entries made by the assessee for such purpose. - Decided against assessee. Issues:1. Discrepancy in valuation of factory building construction.2. Rejection of books of accounts by Assessing Officer.3. Applicability of Sections 69/69B of the Income-tax Act.Issue 1: Discrepancy in valuation of factory building constructionThe Assessing Officer made additions to the assessee's income due to an alleged undisclosed investment in the construction of a factory building. The valuations provided by the assessee and the valuer differed significantly. The assessee explained the difference by citing low-cost construction methods and unique design elements. However, the Assessing Officer rejected this explanation, leading to the addition of the undisclosed investment to the total income.Issue 2: Rejection of books of accounts by Assessing OfficerThe CIT(Appeals) reversed the Assessing Officer's decision, accepting the assessee's contentions that the valuation report included both the factory building and a brick kiln, and the valuation was inflated for a bank loan. However, the Tribunal overturned the CIT(Appeals) decision, stating that the assessee's own valuation report was the basis for the undisclosed investment addition. The Tribunal found the books unreliable and incomplete due to the alleged understatement of investment, applying Sections 69/69B of the Income-tax Act.Issue 3: Applicability of Sections 69/69B of the Income-tax ActThe Tribunal upheld the Assessing Officer's decision, emphasizing that the assessee's valuation report formed the basis for the undisclosed investment addition. The Tribunal found the CIT(Appeals)'s reasoning for confirming the addition in line with the provisions of Sections 69/69B of the Income-tax Act. The Tribunal concluded that the Assessing Officer was justified in rejecting the book entries made by the assessee and confirmed the addition of the undisclosed investment.In summary, the High Court dismissed the Tax Appeal, stating that no question of law arose. The Court found that the Assessing Officer had valid reasons for relying on the valuer's report, rejecting the book entries made by the assessee. The Court upheld the Tribunal's decision regarding the undisclosed investment addition, emphasizing the applicability of Sections 69/69B of the Income-tax Act in such cases.