2005 (2) TMI 95 - HC - Income Tax

Undisclosed income - Genuineness of the transaction - Deposit against tenancy - typographical mistake. Whether the Appellate Tribunal was justified in holding that in respect of deposit against tenancy the assessee was only required to prove the identity of the depositors and that the deposit was made by the tenants? - HELD THAT - We are of the view that where the tenancy is established and the tenant is actually in occupation of the premises and a lease deed or tenancy agreement is produced showing the amount agreed to be paid as deposit and the deposit is paid by cheque or demand draft and is duly accounted in the books of account of the assessee as also the tenant it should be held that the assessee has discharged his burden u/s 68 of the Act. If the Assessing Officer still wants to treat such amount as unexplained income of the assessee then the burden lies on the Revenue to establish that the deposit was not really a deposit by the tenant but the unexplained income of the assessee channelised through the tenant . The first question is therefore answered in the affirmative. It is however clarified that the identity of the depositor and the genuineness of the deposit have to be established by showing that the person making the deposit is in occupation of the assessee s premises as a tenant or had occupied the premises for a considerable time and the deposit was paid by cheque/bank draft and borne out by the books of account of both the assessee and the tenant and by the lease agreement wherever such lease agreement exists. Whether the Appellate Tribunal was justified in holding that the assessee had discharged the burden in respect of deposits of Rs. 2, 70, 000 Rs. 1, 05, 000 and Rs. 85, 000 received from tenants during the accounting years relevant to the assessment years 1989-90 1990-91 and 1991-92? - We find that the Tribunal has not given any reason to disagree with the finding of fact recorded by the Assessing Officer and the appellate authority nor assigned any reason to hold the transaction relating to Rs. 40, 000 as genuine. We agree that the said sum of Rs. 40, 000 will have to be added to the income of the assessee. We therefore hold that the Tribunal was justified in holding that the assessee had discharged the burden in respect of deposits aggregating to Rs. 2, 55, 000 Rs. 1, 05, 000 and Rs. 85, 000 respectively received from the tenants during the accounting years relevant to the assessment years 1989-90 1990-91 and 1991-92. The second question is answered accordingly. Whether the Appellate Tribunal was justified in holding that reference to the DVO u/s 131(1)(d) can be made only during the pendency of assessment proceedings and neither earlier nor subsequent? - We respectfully agree with the observations in Jamnadas Madhavji and Co. v. J. B. Panchal 1986 (3) TMI 43 - BOMBAY HIGH COURT . In this case as no proceeding in regard to the assessment year 1990-91 was pending before him on November 29 1989 obviously he could not have issued the commission u/s 131(1)(d). The third question is answered accordingly in the affirmative. Whether the Appellate Tribunal was justified in rejecting the valuation report of the DVO and directing the Assessing Officer to make the addition as per the valuation made by the approved valuer? - In view of our answer to question No. (3) it follows that issue of a commission by the Assessing Officer on November 29 1989 prior to the initiation of the assessment proceedings relating to the assessment year 1990-91 was not valid and consequently the valuation report of the DVO received in pursuance of the invalid commission cannot be made use of. If the same is excluded what was available was the valuation report of the approved valuer which showed the value of the commercial complex as Rs. 8, 50, 000 as against Rs. 8, 00, 000 declared by the assessee and the other two owners. Therefore question No. (4) is also answered in the affirmative. The reference is disposed of accordingly.

Summary

Issues involved:
1. Justification of ITAT's holding regarding deposit against tenancy.
2. Discharge of burden in respect of deposits received from tenants.
3. Validity of reference to the DVO u/s 131(1)(d) during the pendency of assessment proceedings.
4. Rejection of the DVO's valuation report and direction to the AO to use the approved valuer's report.

Re. Question No. (1): The court examined Section 68 of the Income-tax Act, 1961, which stipulates that any sum found credited in the books of an assessee for which no satisfactory explanation is provided may be charged as income. The Revenue argued that the assessee must establish the identity, capacity, and genuineness of the depositor. However, the assessee contended that for tenancy deposits, it is sufficient to prove the identity and genuineness of the transaction. The court agreed with the assessee, stating that proving the capacity of the tenant to make the deposit is unnecessary when the tenancy and the tenant's occupation are established. The court held that the ITAT was justified in its decision and answered the first question in the affirmative.

Re. Question No. (2): The assessee and his brother constructed a shopping complex and received deposits from tenants. The AO added these deposits as unexplained income u/s 68, but the ITAT found that the deposits were received by cheques, confirmed by tenants, and supported by rental agreements. The court noted that once the identity of the tenant and the genuineness of the transaction are established, the onus shifts to the Revenue. The court upheld the ITAT's decision except for one tenant (Sanjay Enterprises) where no documentary evidence was provided, thus adding Rs. 40,000 to the assessee's income. The second question was answered accordingly.

Re. Question No. (3): The AO referred the cost of construction to the DVO before the assessment proceedings began. The ITAT held that a commission u/s 131(1)(d) can only be issued during pending assessment proceedings. The court agreed, citing precedents that powers u/s 131(1) can only be exercised if a proceeding is pending. The third question was answered in the affirmative.

Re. Question No. (4): Following the answer to question No. (3), the court held that the DVO's valuation report, obtained through an invalid commission, cannot be used. The valuation report of the approved valuer, which showed the cost of construction as Rs. 8,50,000, was accepted. The fourth question was answered in the affirmative.

Conclusion: The reference was disposed of accordingly, with the court affirming the ITAT's decisions on all issues except for the addition of Rs. 40,000 related to Sanjay Enterprises.