2016 (3) TMI 1221 - AT - Income Tax

Addition on account of unexplained cost of construction of resort - Held that - Nothing specific have been explained as to how Assessing Officer made the above additions against the assessee. The Assessing Officer, without any justification or cause, did not place reliance upon the report of the DVO which is binding on the Assessing Officer. Since reference is made by the Assessing Officer to the DVO, therefore, Assessing Officer was bound to adopt valuation disclosed by the DVO in his report. However, the Assessing Officer merely placed reliance upon seized document which did not disclose specifically the quantum of cost of construction invested by the assessee in the resort. Therefore, the finding of the DVO in the valuation report that most of the papers are dumb documents, is relevant and admissible. The report of the DVO clearly shows that no investments in construction have been made in assessment year 2005-06. In assessment year 2006-07 we are of the view that since there is not much difference between the cost of construction reported by the DVO and disclosed by the assessee in the books of account of assessment year 2007-08, therefore, no addition can be made against the assessee even in the remaining assessment years 2006-08 and 2007-08. - Decided in favour of assessee Addition on account of accretion in capital account of partners - Held that - Since in this case the partners of the assessee firm have admitted their capital contribution in their accounts, therefore, no addition could be made in the hands of the assessee firm.We, accordingly, set aside the orders of authorities below and delete both the additions. See case of Metachem Industries 1999 (9) TMI 21 - MADHYA PRADESH High Court - Decided in favour of assessee Addition as income from business - Held that - No specific arguments or material have been pointed out to show that how this addition is unjustified. The Assessing Officer noted certain functions have been organized during assessment year under appeal in the premises of the assessee and the assessee in their statement also admitted arranging such functions. The Assessing Officer found certain credit entries in the bank account of the assessee. Wherever assessee was able to explain the entries, no adverse view was taken by the Assessing Officer. However, rest of the addition of amount of ₹ 2,33,147/-, no explanation was filed before Assessing Officer. Therefore, Assessing Officer treated the same to be income of the assessee. In the absence of any evidence or material on record, we do not find any justification to interfere with the order of the authorities below. - Decided against assessee.

Summary

Issues Involved:
1. Unexplained cost of construction of the resort.
2. Addition on account of accretion in capital accounts of partners.
3. Addition as income from business based on impounded documents.

Issue No. 1: Unexplained Cost of Construction of the Resort

In assessment year 2005-06, the assessee challenged the addition of Rs. 4,15,951/- on account of unexplained cost of construction of the resort. Similarly, for assessment years 2006-07 and 2007-08, the additions were Rs. 25,57,130/- and Rs. 15,33,972/- respectively. The case originated from a survey conducted under section 133A, where it was found that the assessee had constructed a resort with an approximate cost of Rs. 1.20 Cr. The partner admitted to this investment but later retracted the statement. The Assessing Officer (AO) found a diary (A-3) during the survey, which recorded day-to-day construction expenses. The AO made additions based on these records and statements from various persons involved in the construction.

The CIT(A) upheld the AO's additions, noting non-cooperation from the assessee and rejecting the DVO's report, which estimated the cost of construction at Rs. 65,37,000/-. The Tribunal found that the AO did not provide the assessee with an opportunity to cross-examine the statements used against them and that the DVO's report, which is binding on the AO, was not properly considered. The Tribunal concluded that the DVO's report should be adopted, and since there was no significant difference between the DVO's valuation and the assessee's declared cost, the additions were deleted for all assessment years.

Issue No. 2: Addition on Account of Accretion in Capital Accounts of Partners

For assessment year 2007-08, the AO noticed additions of Rs. 11,92,731/- and Rs. 6,80,000/- in the capital accounts of partners Shri Devinder Singh Lamba and Smt. Manmohan Kaur Lamba, respectively. The AO made additions of Rs. 9,52,731/- and Rs. 5,80,464/- after cross-verifying the sources of these funds. The CIT(A) confirmed these additions.

The Tribunal referenced decisions from the Hon'ble Punjab & Haryana High Court, which held that if a partner admits to having made deposits, the addition should be made in the partner's individual assessment, not the firm's. Consequently, the Tribunal deleted the additions in the firm's assessment but allowed the AO to take up the issue in the partners' individual cases.

Issue No. 3: Addition as Income from Business Based on Impounded Documents

For assessment year 2007-08, the AO made an addition of Rs. 2,33,147/- based on impounded document A-10, which indicated that the resort was operational and hosting functions from May 2006. The AO found credit entries in the bank account that were not explained by the assessee. The CIT(A) confirmed the addition due to the lack of evidence supporting the assessee's explanation.

The Tribunal found no justification to interfere with the CIT(A)'s order, as the assessee failed to provide specific arguments or evidence against the addition. Therefore, the addition was upheld.

Conclusion:

The Tribunal decided in favor of the assessee for issues related to the unexplained cost of construction and accretion in capital accounts, while upholding the addition related to income from business based on impounded documents. The appeals were partly allowed.