2017 (5) TMI 1600 - HC - Income Tax

Rejecting the books of accounts of the assessee u/s 145(3) - assessee has failed to maintain quantitative and qualitative stock registers and vouch the expenses incurred by it and on money received by it has not been disclosed - Held that - Addition has been made merely on the basis of the DVO s report and considering that the assessee has not fully explained the investment and/or there is unexplained expenditure. No document or evidence have been brought on record to establish that the assessee has paid any amount over and above the amount entered in the books of account to purchase the said land presently known as Unique Destination. It is a fact that onus is on the department for making any addition u/s 69, Section 69B or Section 69C of the Act that there is understatement of investment or unexplained expenditure/investment. Only when such burden is discharged by the revenue, the onus shift on the assessee to prove that there is no unexplained expenditure/investment. Hon ble Delhi High Court in the cases of CIT Vs. Naveen Gera 2010 (8) TMI 194 - DELHI HIGH COURT and case of CIT Vs. Smt. Suraj Devi 2010 (8) TMI 217 - DELHI HIGH COURT have held that in absence of any incriminating material, the actual consideration asper agreement has to be accepted and no addition can be made in the case of buyer because of difference between stamp duty valuation of the property and actual consideration as per the agreement. Primary burden of proof to prove understatement or concealment of income is on the revenue and it is only when such burden is discharged, it would be permissible to rely upon the valuation given by the Valuation Officer. - Decided in favour of assessee

Issues Involved:
1. Rejection of books of accounts under Section 145(3) of the Act.
2. Application of percentage completion method by the Assessing Officer (AO).
3. Acceptance of 'on money' and involvement of partners in sister concerns.
4. Acceptance of the District Valuation Officer (DVO) report.

Detailed Analysis:

1. Rejection of Books of Accounts under Section 145(3) of the Act:
The Tribunal held that the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] erred in rejecting the books of accounts of the assessee. The Tribunal reversed the findings of the AO and CIT(A), noting that the assessee failed to maintain quantitative and qualitative stock registers and did not vouch for the expenses incurred. The Tribunal emphasized that the primary burden of proof to show understatement or concealment of income lies with the revenue. This burden must be discharged before relying on the valuation given by the Valuation Officer. The Tribunal cited the Delhi High Court cases of CIT Vs. Naveen Gera and CIT Vs. Smt. Suraj Devi, which held that in the absence of incriminating material, the actual consideration as per the agreement must be accepted.

2. Application of Percentage Completion Method by the AO:
The Tribunal rejected the AO's application of the percentage completion method, which implied acceptance of loss returns by the assessee engaged in construction and sale of residential/commercial projects. The Tribunal found this approach contrary to Accounting Standard-7 and Accounting Standard-9 issued by ICAI. The Tribunal's view was supported by the Supreme Court decision in Sargam Cinema vs. CIT, which held that referring the matter to the DVO without rejecting the books of account was misconceived.

3. Acceptance of 'On Money' and Involvement of Partners in Sister Concerns:
The Tribunal ignored the fact that the two brothers, who were partners, were actively engaged in the business of sister concerns of the assessee firm. The Tribunal did not consider the acceptance of 'on money' and specific seized documents as sufficient for intervention. The Tribunal's stance was supported by several cases, including Commissioner of Income Tax vs. Pratap Singh Amro Singh Rajendera Singh, which emphasized the reliability of properly maintained books of account over valuation reports.

4. Acceptance of the DVO Report:
The Tribunal did not accept the DVO report, which took the Stamp Duty Authority valuation of land. The Tribunal noted that the addition of ?76,93,120/- was made merely on the basis of the DVO’s report without any supporting documents or evidence. The Tribunal cited multiple cases, including Deputy Commissioner of Income Tax vs. Ravi Builders and Principal Commissioner of Income Tax vs. J. Upendra Construction (P.) Ltd., which held that additions based solely on the DVO's report, without other tangible material, were not permissible. The Tribunal reiterated that the DVO's report alone cannot form the basis for any addition in the absence of positive evidence.

Conclusion:
The Tribunal's observations were deemed just and proper, leading to the dismissal of the appeals. The issues were answered in favor of the assessee and against the department. The judgment emphasized the importance of maintaining proper books of accounts and the inadequacy of relying solely on DVO reports for making additions. The appeals were dismissed, and a copy of the judgment was ordered to be placed in each file.

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