2023 (4) TMI 208 - AT - Income Tax

Tax Appeals: Key tribunal decisions on DVO reference, incriminating material, and unexplained expenditures

DCIT (Central) -1, Bhopal Versus M/s. Vidya Niketan Samiti, Bhopal

The revenue's appeal for AY 2008-09 was dismissed, and the assessee's cross-objection was allowed. For AY 2009-10, the revenue's appeal was partly ... Unexplained investment - AO observed that the assessee has made investments in construction of certain colleges - reference made u/s 142A - AO observed that the valuation shown by DVO was higher than the investment recorded by assessee in its books of account - Assessee argued AO made reference u/s 142A dated 24.09.2014 to DVO without rejecting books of accounts of assessee - HELD THAT:- As observed that the Ld. AO has not rejected books of assessee. We further observe that the Ld. AO made reference to DVO on 24.09.2014 and the DVO submitted report on 04.03.2015. Thus, the event of making reference to DVO had taken place before 01.10.2014 and that too without rejecting books of account. In such a situation, we suffice it to say that the Ld. AO was not justified to make a reference in the light of decision of Sargam Cinema [2009 (10) TMI 569 - SC ORDER] and the provision of sub-section (2) of section 142A. Assessment u/s 153A - Addition has been made in an unabated assessment year without having incriminating material, hence the same is not sustainable - HELD THAT:- As respectfully following the decision of Hon’ble jurisdictional in Gahoi Dal & Oil Mills [2019 (7) TMI 1050 - MADHYA PRADESH HIGH COURT] we find merit in the submission of Ld. AR that the addition made by Ld. AO without having any kind of incriminating-material is unsustainable. Decided in favour of assessee. Exemption u/s 11 - Denial of claim as activities of assessee were not genuine - HELD THAT:- We find merit in the submission of Ld. AR that the Ld. AO has not made any comment in the assessment-order for assessee’s ineligibility to exemption. CIT(A) has called for a specific remand-report from AO on this issue but the Ld. AO has not made any reporting on this issue, which clearly showed that there was nothing to justify denial of exemption. Weightage in the submission of Ld. AR that there is neither any kind of illegality in the working of society observed by revenue-authorities nor any kind of infringement of section 11 or 13 is available on record. Faced with such situation, we are of the considered view that the assessee was entitled to exemption u/s 11 and the Ld. CIT(A) has rightly directed the Ld. AO to grant the same. Unexplained investment - As per AO impugned land had been purchased/registered which was below the “prevailing market price” of land in that area and hence the assessee must have paid on-money @ 110% - HELD THAT:- Firstly, we observe that the Ld. AO had no evidence or material to establish the factum of payment of on-money. He has simply framed a view that the assessee must have paid on-money and such view was framed on the basis of so-called “prevailing market price”. Secondly, we note that the Ld. AO had no basis to estimate the “prevailing market price”. He has simply presumed on-money payment @110% and thereby made a mathematical working of prevailing market price - Thus, we fully agree with the findings made by Ld. CIT(A) that the Ld. AO has made addition on the basis of mere presumption, conjecture and guesswork. Needless to mention that there is no provision in Income-tax Act, 1961 which authorizes the AO to make such hypothetical addition. Being so, we have no hesitation in holding that the Ld. CIT(A) has rightly deleted the addition. Unexplained expenses - Assessee strongly claims that the impugned excel-sheet was not found from the hard disc of assessee as alleged by Ld. AO and despite repeated request of assessee, the source of excel-sheet had not been provided - HELD THAT:- On a careful scrutiny of assessment-order, we also observe that the Ld. AO has himself mentioned in Para 12.1 “The excel sheet does not contain the year wise breakup. A reasonable estimate of these year wise is as under”. This categorical mention by Ld. AO clearly admits that there was no basis for attributing the transactions to AY 2009-10 under consideration. CIT(A) has also held that there is no corroborative evidence qua the alleged transactions noted in the excel-sheet. Thus, there are serious infirmities in the addition made by Ld. AO. CIT(A) has considered those infirmities in the light of decided rulings and thereafter taken a conscious view to delete the addition. We do not find anything wrong in the action of Ld. CIT(A). Therefore, this ground of revenue is also dismissed. Issues Involved1. Deletion of additions on account of unexplained investment.2. Granting of exemption under section 11 of the Income-tax Act, 1961.3. Addition based on the difference in valuation determined by the Departmental Valuation Officer (DVO) and the assessee.4. Addition based on alleged unexplained expenditure.5. Addition based on alleged on-money payment for land purchase.Issue-wise Detailed Analysis1. Deletion of Additions on Account of Unexplained InvestmentThe primary issue revolves around the addition of Rs. 1,89,52,017/- for AY 2008-09 and Rs. 98,52,368/- for AY 2009-10 made by the AO on account of unexplained investment. The AO referred the matter to the DVO without rejecting the assessee's books of accounts, which was deemed invalid as per the Supreme Court's decision in Sargam Cinema vs. CIT. The Tribunal upheld the CIT(A)'s decision to grant relief, emphasizing that the reference to the DVO was made before the amendment effective from 01.10.2014, which allowed such references without rejecting the books of accounts. Additionally, no incriminating material was found during the search to justify the additions for the non-abated assessment years, aligning with the jurisdictional High Court's decision in PCIT vs. Gahoi Dal & Oil Mills.2. Granting of Exemption Under Section 11 of the Income-tax Act, 1961The AO did not grant exemption under section 11 while computing the total income, despite the assessee being a registered society under section 12A. The CIT(A) directed the AO to allow the exemption, noting that there were no adverse comments or evidence to deny it. The Tribunal upheld this decision, finding no illegality in the society's operations or any infringement of sections 11 or 13.3. Addition Based on the Difference in Valuation Determined by the DVO and the AssesseeThe AO made additions based on the DVO's valuation, which was higher than the investment recorded by the assessee. The CIT(A) granted partial relief by adjusting the valuation difference based on CPWD and State PWD rates and self-supervision. The Tribunal found the AO's reference to the DVO without rejecting the books of accounts invalid and deleted the remaining addition, emphasizing the lack of incriminating material for the non-abated assessment year.4. Addition Based on Alleged Unexplained ExpenditureThe AO added Rs. 2,00,00,000/- for AY 2009-10 based on an excel sheet seized during the search, which allegedly recorded unaccounted cash expenditures. The CIT(A) deleted the addition, observing that the excel sheet was a 'dumb document' without any corroborative evidence or specific details linking it to the assessee. The Tribunal upheld this decision, noting the lack of independent evidence and the AO's reliance on assumptions and guesswork.5. Addition Based on Alleged On-Money Payment for Land PurchaseThe AO made additions of Rs. 82,50,000/- and Rs. 19,01,500/- for AY 2009-10 based on presumed on-money payments for land purchases. The CIT(A) deleted these additions, finding them based on mere presumption and without any material evidence. The Tribunal upheld the deletion of Rs. 82,50,000/- but partially reversed the deletion of Rs. 19,01,500/-, upholding the addition to the extent of Rs. 3,39,000/- where the actual consideration shown in the registry was lesser than that revealed by the agreement.ConclusionFor AY 2008-09, the revenue's appeal was dismissed, and the assessee's cross-objection was allowed. For AY 2009-10, the revenue's appeal was partly allowed, and the assessee's cross-objection was allowed. The Tribunal's decisions were based on the invalidity of the DVO reference without rejecting the books of accounts, the lack of incriminating material for non-abated years, and the absence of corroborative evidence for the alleged unexplained expenditures and on-money payments.