Tribunal invalidates AO's valuation, upholds cash credit addition under section 68 of the Act

The Tribunal held that the reference to the Valuation Cell by the AO was invalid, and the addition of Rs. 2,50,823 on account of assumed cost of acquisition was deleted. Regarding the addition of Rs. 36,870 made under section 68 of the Act for cash credits from two parties, the Tribunal upheld the addition as the assessee failed to establish the necessary conditions under section 68. The appeal was partly allowed, sustaining the addition under section 68.

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Issues Involved:
1. Confirmation of addition of Rs. 2,50,823 on account of assumed cost of acquisition.
2. Sustenance of addition of Rs. 36,870 made u/s 68 of the Act.

Summary:

1. Confirmation of addition of Rs. 2,50,823 on account of assumed cost of acquisition:

The primary issue was whether the reference to the Valuation Cell by the AO was valid. The assessee declared a loss of Rs. 61,000 under "Capital gain" with the sale proceeds of shops at Rs. 25,84,000 and cost of construction at Rs. 26,45,100. The AO, doubting the cost of construction, referred the matter to the DVO, who valued the property at Rs. 47,86,849. The AO adopted a proportionate cost of construction at Rs. 23,33,177 based on the DVO's report, resulting in a short-term capital gain of Rs. 2,50,823. The assessee contested this, citing the Supreme Court decision in Smt. Amiya Bala Paul vs. CIT and provisions of s. 142A, arguing the reference was invalid. The Tribunal noted that s. 50C was not applicable for the assessment year in question and that s. 142A, inserted retrospectively, did not apply as the assessee had shown a higher investment. The Tribunal concluded that the reference to the DVO was void ab initio and the cost of acquisition declared by the assessee did not warrant interference. The addition was ordered to be deleted.

2. Sustenance of addition of Rs. 36,870 made u/s 68 of the Act:

The assessee had shown cash credits from three parties, but the AO made an addition u/s 68 for two creditors, Shri Ananada Ram and Smt. Kamla Kacchawaha, totaling Rs. 36,870, as their confirmations were not provided. The Tribunal upheld the addition, noting that the assessee failed to establish the identity, capacity, and genuineness of the transactions, which are requisite conditions under s. 68. The appeal was partly allowed, with the addition u/s 68 being sustained.

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