2016 (2) TMI 833 - HC - Income Tax

Suppression of cost of construction - amount invested by the appellant outside its books - Held that - It clearly emerges that the disclosed cost of construction of ₹ 191.85 lacs was inclusive of ₹ 39.20 lacs of disclosure made by the assessee during the search. The Assessing Officer as well as the Tribunal at multiple places have referred to this figure inclusive of the disclosure by the Director of the assessee-Company. That being the position the Assessing Officer compared the fair value of construction cost, the expenditure disclosed by the assessee in the books of accounts which was added by a sum of ₹ 39.20 lacs admitted and disclosed by assessee during search. If this be so, the difference between two figures, namely, ₹ 40.28 lacs was justifiably added by the Assessing Officer by way of undisclosed income. Had the said figure of ₹ 191.85 lacs of cost of construction not accounted for the disclosed sum of ₹ 39.20 lacs during search, the counsel for assessee would have been justified in arguing that further addition of ₹ 40.28 lacs by way of estimation of cost of construction would amount to double taxation. That is not the case here. Appellant, however, raised an additional contention that the Assessing Officer could not have referred the cost of construction for his valuation. However, in the present appeal, we are not concerned with this controversy. The only question framed by the Court is with respect to addition of sum of ₹ 40.28 lacs when there is already a finding (in other words corresponding addition) of a sum of ₹ 39.20 lacs by way of investment by the assessee outside the books. - Decided against assessee

Summary

Issues:
1. Whether the ITAT was correct in holding that a sum of Rs. 40,28,613 was required to be confirmed as 'suppression of cost of construction' when Rs. 39,20,400 was invested outside the books by the appellant?

Analysis:
1. The appellant, a company engaged in building construction, was subjected to a search under Section 132 of the Income Tax Act. During the search, one of the directors admitted to an unaccounted receipt of Rs. 39.20 lakhs. The Assessing Officer added this sum as income. Additionally, the Assessing Officer believed the cost of construction indicated by the assessee was undervalued and referred the matter to the Department Valuation Officer. Based on the valuation officer's opinion, the Assessing Officer concluded there was an undervaluation of Rs. 40.28 lakhs in the cost of construction.

2. The assessee appealed against the addition of both Rs. 39.20 lakhs and Rs. 40.28 lakhs. The Tribunal upheld the decision of the Assessing Officer. The appellant contended that since the Assessing Officer had already added the amount invested outside the books, it was improper to estimate the cost of construction and make a further addition of Rs. 40.28 lakhs. The appellant argued that making both additions would lead to double taxation.

3. The Assessing Officer, after adding Rs. 39.20 lakhs, estimated the cost of construction at Rs. 2.32 crores and compared it to the assessee's book disclosure of Rs. 191.85 lakhs, which included the earlier disclosed Rs. 39.20 lakhs. The difference of Rs. 40.28 lakhs was considered additional income by the Assessing Officer. The Tribunal and Assessing Officer referred to the figure inclusive of the earlier disclosure while making their decisions.

4. The Court found that the Assessing Officer's addition of Rs. 40.28 lakhs was justified as the disclosed cost of construction already included the earlier disclosed amount. Therefore, the Assessing Officer's action did not amount to double taxation. The Court did not address the appellant's contention regarding the reference of cost of construction for valuation, as the only question framed was about the additional sum of Rs. 40.28 lakhs.

5. The Court ruled against the appellant and dismissed the Tax Appeal.