2005 (4) TMI 570 - HC - Income Tax

Non - maintenance of books of account - Valuation of cost of construction - Valuation Cell - discrepancies or omissions noted in the books of account - Whether, the Hon ble ITA was legally justified in deleting the addition on account of difference in the cost of construction as added by the Assessing Officer u/s 69B? - HELD THAT - If the assessee maintained books of account in the regular course of business and necessary entries relating to the expenditure towards cost of constructions are entered in the books of account, which are open to verification, and its correctness is not doubted, it should be accepted. In case of doubt, the Assessing Authority can refer the matter to the valuation Cell for determination of cost of construction and rely upon such report as an evidence, but it is open to the assessee to challenge the correctness of such valuation report and in case if it establishes that such report is not correct and reliable, expenditure shown in the construction as per the books of account is liable to be accepted. Thus, we do not find any error in the order of Tribunal. Question referred is accordingly answered in affirmative in favour of the assessee and against the revenue.

Summary

Issues involved:
Question of law referred under section 256(2) of the Income-tax Act, 1961 regarding the addition of cost of construction under section 69B for assessment year 1985-86.

Analysis:
The case involved a dispute over the cost of construction of a factory building as declared by the assessee in its books of account compared to the valuation by the Departmental Valuation Cell. The Assessing Officer treated the difference as the assessee's income, leading to an addition under section 69B. The assessee contended that all construction expenses were diligently recorded in the books of account and raised objections against the valuation report, highlighting discrepancies and factual errors. The Tribunal, upon review, found the addition unjustified, emphasizing that the valuation report suffered from material defects pointed out by the assessee, and there was no evidence to suggest actual expenditure exceeding recorded amounts. The Tribunal held that entries in regular account books carry a presumption of correctness until proven otherwise, ultimately deleting the addition.

The learned standing counsel failed to challenge the Tribunal's findings that the addition was solely based on the flawed valuation report, with no evidence of actual discrepancies in recorded expenditures. The Tribunal's decision was upheld as it correctly noted the absence of material supporting the addition and the unrebutted objections raised by the assessee against the accuracy of the valuation report. The Tribunal's conclusion that the revenue failed to demonstrate expenditure exceeding recorded amounts remained unchallenged, leading to the affirmation of the deletion of the addition.

The judgment emphasized the importance of maintaining accurate account books in the regular course of business and the presumption of correctness associated with such entries. It highlighted that while valuation reports can be used as evidence, the assessee has the right to contest their accuracy. In cases where discrepancies arise, the correctness of expenditures recorded in account books should prevail unless proven otherwise. The Tribunal's decision was upheld, affirming that in the absence of concrete evidence supporting the addition, the entries in the account books should be accepted as accurate, leading to the resolution in favor of the assessee against the revenue.