2009 (6) TMI 600 - AT - Income Tax

Income from Undisclosed Sources valuation - books of account of the assessee were not complete - return of income filed, the assessee nowhere indicated that books of account for consideration have been maintained by him nor that the balance sheet enclosed with the return of income is shown to have been drawn from the books or account maintained - CIT(A) is, thus found to have misdirected himself in annulling the reference and thereby erred in deleting the addition - appeal of the Revenue allowed

Summary

Issues:
1. Addition under section 69 of the Income Tax Act based on valuation report.
2. Legality of reference to the Valuation Officer.
3. Justification of addition made by the Assessing Officer.
4. Challenge to the order of the Commissioner of Income Tax (Appeals).

Analysis:

Issue 1: Addition under section 69 of the Income Tax Act based on valuation report
The case involved an appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals) regarding the addition of Rs. 14,26,415 made under section 69 of the Income Tax Act based on a valuation report. The assessee, a retail trader in cloth, had incomplete books of account and admitted to unaccounted sales during a survey. The Assessing Officer made various additions including unexplained investment in construction. The Valuation Officer determined the investment in construction to be higher than what the assessee disclosed. The Commissioner of Income Tax (Appeals) deleted the addition, citing lack of justification for the reference to the Valuation Officer and reduced the addition on merit.

Issue 2: Legality of reference to the Valuation Officer
The assessee challenged the legality of the reference to the Valuation Officer, arguing that the Assessing Officer did not reject the books of account before making the reference. The Commissioner of Income Tax (Appeals) found the reference to be invalid as the Assessing Officer did not follow proper procedures. The Revenue contended that the reference was within the assessing authority's competence and cited a judgment supporting their position. However, the learned counsel for the assessee supported the decision of the Commissioner of Income Tax (Appeals) based on adherence to the legal requirements laid down by the High Court.

Issue 3: Justification of addition made by the Assessing Officer
The Assessing Officer made additions based on discrepancies found during the survey, including unaccounted sales and unexplained investment in construction. The Revenue argued that the Assessing Officer's actions were justified due to incomplete books of account and discrepancies in the construction account. The Commissioner of Income Tax (Appeals) reduced the addition on merit, considering the objections raised by the assessee and the documents submitted during the assessment proceedings.

Issue 4: Challenge to the order of the Commissioner of Income Tax (Appeals)
The Revenue appealed against the decision of the Commissioner of Income Tax (Appeals) to delete the addition based on the Valuation Officer's report. The Tribunal found that the assessing authority acted within his competence in making the reference to the Valuation Officer under section 142A of the Income Tax Act. The Tribunal set aside the decision of the Commissioner of Income Tax (Appeals) to delete the addition, stating that the legal criteria cited by the High Court in a previous judgment were not applicable in this case. The appeal of the Revenue was allowed, upholding the addition made by the Assessing Officer.