2017 (12) TMI 1389 - AT - Income Tax

Revenue's Appeals Dismissed for Low Tax Effect

The Revenue's appeals for AYs 1998-99 and 1999-2000 were dismissed due to low tax effect. The additions under Section 69C for unexplained expenditure were ... Addition in respect of cost of construction of the property/building u/s 69C - whether addition made u/s 69C towards cost of construction on the basis of DVO report is allowable as deduction u/s 37(1) as business expenditure? - Held that:- Assessing Authority could not have referred the matter to the DVO without books of accounts being rejected. In the instant appeal, we find from the perusal of the assessment order that the Assessing Authority has not given any finding in order to reject the books of accounts of the assessee. This fact has not been disputed at any stage during the course of proceedings before the lower authorities as well as before us. Therefore in the given facts and circumstances of the case, are of the view that the action of the Assessing Officer of making reference to the DVO is invalid as the books of accounts were not rejected by him. We, therefore, hereby delete the addition of ₹ 1,22,980/- for Assessment Year 1999- 2000 also and accordingly allow this ground of appeal of the assessee. Issues Involved:1. Dismissal of Cross-Objections by the Assessee.2. Dismissal of Revenue's Appeals due to Low Tax Effect.3. Addition under Section 69C of the Income Tax Act for Unexplained Expenditure on Construction.Detailed Analysis:1. Dismissal of Cross-Objections by the Assessee:At the outset, the assessee did not press the cross-objections bearing CO Nos. 25 & 26/Rjt/2011. Consequently, these cross-objections were dismissed as not pressed.2. Dismissal of Revenue's Appeals due to Low Tax Effect:The appeals of the Revenue for AYs 1998-99 and 1999-2000 were dismissed on account of low tax effect. The learned counsel for the assessee pointed out that the tax effect was below the limit prescribed by CBDT Circular No. 21/2015 dated 10th December 2015, which states that appeals should not be filed before the Tribunal if the tax effect is below Rs. 10 lacs. The learned Departmental Representative admitted this fact. The Tribunal found that the present cases did not fall within the exemption clause of the Circular, and since the tax effect was less than Rs. 10 lacs, the appeals were not maintainable and were dismissed in limine.3. Addition under Section 69C of the Income Tax Act for Unexplained Expenditure on Construction:The sole issue remaining was the addition confirmed by the CIT(A) regarding the cost of construction of the property/building under Section 69C for AYs 1998-99 and 1999-2000. The case was reopened under Section 148 because the Department's Valuation Officer (DVO) estimated the construction cost of 'Sagar Tower' at a higher figure. The Assessing Officer made an addition of Rs. 34,65,454/- for AY 1998-99 and Rs. 3,72,732/- for AY 1999-2000 as unexplained expenditure under Section 69C.Upon appeal, the CIT(A) restricted the addition to Rs. 12,41,579/- and Rs. 1,22,980/- for AYs 1998-99 and 1999-2000 respectively, after considering deductions for State PWD rates and architecture fees.The assessee further appealed, arguing that the addition under Section 69C for AY 1998-99 should be allowed as a deduction under Section 37(1) as business expenditure. The Tribunal considered judgments from Krishna Textiles vs. CIT and Amit Estate Organizer vs. ITO, which supported the assessee's claim that unexplained expenditure related to business should be allowed as a deduction. The Tribunal found that the proviso to Section 69C, which disallows such deductions, was applicable from 01.04.1999, and therefore, for AY 1998-99, the assessee was eligible to claim the deduction. Consequently, the Tribunal deleted the addition of Rs. 12,41,579/- for AY 1998-99.For AY 1999-2000, the addition of Rs. 3,72,732/- made by the Assessing Officer was sustained to Rs. 1,22,980/- by the CIT(A). The Tribunal noted that the Assessing Officer did not reject the books of accounts before referring the matter to the DVO, which was a prerequisite as per the judgments in Sargam Cinema vs. CIT and Goodluck Automobiles (P) Ltd vs. ACIT. Since the books were not rejected, the reference to the DVO was invalid. Therefore, the Tribunal deleted the addition of Rs. 1,22,980/- for AY 1999-2000.Conclusion:The appeals of the Revenue for both assessment years were dismissed due to low tax effect, and the additions under Section 69C for unexplained expenditure were deleted for both AY 1998-99 and AY 1999-2000. The cross-objections filed by the assessee were dismissed as not pressed.Order pronounced in the Court on 5th October 2017 at Ahmedabad.