2014 (1) TMI 1359 - AT - Income Tax

Variation in valuation of land - Held that - The AO was satisfied with the explanation with regard to source of investment - The CIT(A) held that that the subject transaction does not yield to any income chargeable to Income tax - The transaction affects only the work-in-progress - He directed the AO to reduce the work-in-progress to be carried forward by an amount of Rs. 38.40 lakhs - Decided against Revenue.

Summary

Issues:
Appeal against deletion of addition made by Assessing Officer regarding inflated cost of land purchase.

Analysis:
The case involved an appeal by the Revenue against the deletion of an addition of Rs. 38,40,000 made by the Assessing Officer concerning the cost of land purchase. During a survey, incriminating material was found, leading to the assessee filing a revised return offering additional income. The Assessing Officer noted a variation in the value of land purchased by the partners of the firm, leading to the addition. The CIT(A) observed that the transaction did not yield income chargeable to tax, but the cost of acquisition was not conclusively proved. The CIT(A) directed the reduction of work-in-progress by the disputed amount.

The Revenue contended that the assessee failed to provide corroborative evidence supporting the cost of land claimed in the Books of Account. The absence of such evidence rendered the claim untenable. The Revenue highlighted the inability of the assessee to produce the vendor for verification, emphasizing the importance of cross-verification. Documents from the Sub Registrar were deemed more reliable than the figures in the assessee's records.

The Revenue argued that the addition made by the Assessing Officer was not under sections 68 or 69 of the IT Act but was based on the inflated cost of land, impacting the profits. The Revenue emphasized that the Assessing Officer's action was valid, even if the section was not explicitly mentioned in the assessment order. The Revenue maintained that the addition was justified and needed to be upheld.

The Tribunal upheld the CIT(A)'s decision, stating that the addition was not made under section 69 of the Act but due to inflated land purchase cost affecting work-in-progress. The Tribunal found no fault in the CIT(A)'s order and dismissed the Revenue's grounds. The Tribunal directed the reduction of work-in-progress by the disputed amount, affirming the decision of the lower authorities.

In conclusion, the appeal of the Revenue was dismissed, and the decision of the CIT(A) and Tribunal to reduce the work-in-progress by Rs. 38.40 lakhs stood. The judgment highlighted the importance of providing corroborative evidence, cross-verification, and the impact of inflated expenditure on financial assessments.