2012 (9) TMI 1037 - AT - Income Tax

Eligibility for benefit u/s 11 - unexplained investment in building - In respect of unexplained expenditure in the form of difference in building as per assessee s books of accounts and as per estimate made by the Valuation Officer, we observe that the difference is very small and it cannot be considered for making addition because 10% of difference is always justified between physical valuation of a building and the amount appearing the books of accounts of the assessee. Therefore, we hold that Ld CIT(A) had rightly deleted the additions and we do not find merits in the appeal of revenue.

Issues Involved:
1. Deletion of addition regarding donations amounting to Rs. 80,00,000.
2. Deletion of addition regarding unexplained investment in building construction amounting to Rs. 2,59,274.

Issue-wise Detailed Analysis:

1. Deletion of Addition Regarding Donations Amounting to Rs. 80,00,000:

The revenue challenged the deletion of the addition made by the Assessing Officer (AO) amounting to Rs. 80,00,000 in respect of donations. The AO questioned the genuineness of these donations due to frequent changes in the names of the donor companies and discrepancies in the provided PAN numbers and details of the Assessing Officers. The AO suspected that the transactions were not genuine and believed that the assessee had converted its black money into white money through these donations.

The AO issued letters under section 133(6) to verify the donations from 25 parties. Out of these, eight parties did not respond, and five provided incomplete replies. The AO used the Ministry of Corporate Affairs' website to verify the donors' credentials and found discrepancies, including differences in PAN numbers and donation amounts. Consequently, the AO added Rs. 80,00,000 under section 115BBC of the Income Tax Act, 1961.

The assessee, a society registered under the Registrar of Societies of Uttar Pradesh and enjoying exemptions under sections 12AA and 80G of the Income Tax Act, filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee argued that the AO had not correctly computed the income chargeable to tax under sections 11 and 12 and had made the addition without proper appreciation of facts or giving the assessee an opportunity to explain. The assessee also contended that the donations were applied for the society's purposes, and even if considered unexplained, they should not be added as undisclosed income.

The CIT(A) obtained a remand report from the AO and comments from the assessee's Authorized Representative (AR). The CIT(A) found that the donations were genuine based on the balance sheets, profit and loss accounts, and bank statements provided. The CIT(A) observed that the major donations of Rs. 40,00,000 were received from two parties, which were adequately covered in the investigation. Therefore, the CIT(A) deleted the addition of Rs. 80,00,000.

The revenue appealed to the Tribunal, arguing that the AO had found discrepancies in the donors' financial statements and PAN numbers. The revenue contended that the CIT(A) had taken a generic view and discussed only three cases to allow the appeal.

The Tribunal reviewed the submissions and found that the assessee society had incurred a deficit even after considering the donations as income. The Tribunal noted that the CIT(A) had thoroughly investigated the accounts of the major donors and found no merit in the revenue's appeal. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 80,00,000.

2. Deletion of Addition Regarding Unexplained Investment in Building Construction Amounting to Rs. 2,59,274:

The AO observed a difference of Rs. 24,03,636 between the investment declared by the assessee in its books and the valuation done by the Departmental Valuation Officer (DVO) for the construction of a building. For the assessment year under consideration, the difference was Rs. 5,18,547. The AO made an addition of Rs. 2,59,274, being 50% of the difference, as unexplained investment.

The assessee argued before the CIT(A) that the valuation report was merely an estimate and lacked evidentiary value. The assessee also maintained complete books of accounts, which the AO did not find fault with. The CIT(A) observed that the difference between the declared value and the estimated value was insignificant, around 2.5%, and deleted the addition.

The revenue appealed to the Tribunal, but the Tribunal found that the difference was minimal and within acceptable limits for valuation discrepancies. The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 2,59,274, noting that the AO had not made any addition for unexplained investment in the subsequent assessment year for the same building.

Conclusion:

The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions to delete the additions regarding donations amounting to Rs. 80,00,000 and unexplained investment in building construction amounting to Rs. 2,59,274. The Tribunal found no merit in the revenue's arguments and concluded that the CIT(A) had rightly deleted the additions based on the evidence and facts presented.

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