2014 (11) TMI 213 - AT - Income Tax

Deletion of unexplained investment in hospital building Held that - The addition on account of unexplained investment in the construction of hospital building is not justified - In the course of survey, assessee did offer additional income on account of unexplained investment in the construction of the hospital building - such a declaration made was retracted within a short span of time and of course much before the due date of filing of return for the assessment order - The assessee explained that the declaration was based on a mistaken fact-situation inasmuch as the valuation report of Shri Madhukar Dhere dated 20.02.2009, which formed the basis for the declaration, was unreliable - CIT(A) has noted that the construction of the building started in the AY 2005-06 was still continuing on the date of survey and therefore it was imperative for the Valuer to take into consideration the cost of construction in the respective periods. The absence of such an approach in the report of the Valuer justifiably renders such report as unreliable in order to establish the estimated cost of construction of the building - the total investment in the hospital building was adopted by the AO which was reflected in the books of account maintained for AY 2007-08 and it did not take into consideration the expenditure incurred by the assessee for the period from 01.04.2007 upto the date of survey - CIT(A) considered the report of a Government Approved Valuer and compared the value estimated by him with the cost of construction recorded in the books of account - The CIT(A) correctly noted that the difference between the two figures was insignificant, which cannot be ruled-out because valuation report is ostensibly only an estimation - the CIT(A) was justified in deleting the addition made by the AO Decided against revenue. Unexplained investment in interior decoration Held that - The CIT(A) made no mistake in sustaining the addition on account of unexplained money spent on furniture, fixture and interior decoration - The explanation furnished by the assessee in the course of assessment proceedings has been aptly considered by the CIT(A) and found to be incorrect there was no reason to interfere with his conclusion on this aspect Decided against assessee.

Summary

Issues Involved:
1. Deletion of addition of Rs. 36,30,082/- on account of unexplained investment in the hospital building.
2. Addition of Rs. 15,210/- due to discrepancy in cash balance found during the survey.
3. Addition of Rs. 3,00,000/- on account of unexplained investment in furniture, fixture, and interior decoration.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 36,30,082/- on Account of Unexplained Investment in Hospital Building:

The Revenue appealed against the deletion of Rs. 36,30,082/- made by the Assessing Officer (AO) for unexplained investment in the hospital building. The addition was based on a declaration made by the assessee during a survey action under section 133A of the Income Tax Act, 1961. The assessee retracted this declaration, citing reasons such as being under tension during the survey and the valuation being on the higher side. The Commissioner of Income Tax (Appeals) [CIT(A)] accepted the assessee's argument and relied on a valuation report from a Government Approved Valuer, which showed a marginal difference between the estimated cost and the recorded cost in the books of account. The CIT(A) found the initial valuation report unreliable as it was not prepared by an Approved Registered Valuer and did not consider the incomplete status of the building. The Tribunal upheld the CIT(A)'s decision, noting that the addition was not justified as the initial declaration lacked substantive material support and the valuation report used by the AO was flawed.

2. Addition of Rs. 15,210/- Due to Discrepancy in Cash Balance Found During the Survey:

The assessee did not press this ground of appeal during the hearing, and hence, it was dismissed.

3. Addition of Rs. 3,00,000/- on Account of Unexplained Investment in Furniture, Fixture, and Interior Decoration:

The AO added Rs. 3,00,000/- to the income of the assessee based on a declaration made during the survey, which was later retracted by the assessee. The assessee argued that the declaration was made under a mistaken belief of facts due to incomplete books of account. However, the CIT(A) upheld the addition, noting that the declaration was specific to the new hospital building's interior decoration and furniture, whereas the assessee's evidence pertained to the rented premises. The Tribunal agreed with the CIT(A), finding no reason to interfere with the conclusion that the additional income declared was not recorded in the books of account.

Conclusion:

The Tribunal dismissed both the Revenue's and the assessee's appeals, affirming the CIT(A)'s decisions on all counts. The deletion of Rs. 36,30,082/- was upheld due to the unreliability of the initial valuation report, and the addition of Rs. 3,00,000/- was sustained as the assessee's explanation was found to be incorrect. The minor addition of Rs. 15,210/- was dismissed as it was not pressed during the hearing.