2014 (2) TMI 1367 - AT - Income Tax

Undisclosed investment u/s 69B - assessee has paid amount more than the amount shown as apparent consideration in the registered sale deed - HELD THAT - We find that the AO had a doubt on the basis of prevailing market rate in the area which was within the range of ₹ 1,500/- to ₹ 2,000/- per square feet and that the cost of construction was ₹ 500/- per square feet, that the consideration stated in the registered sale deed was not the real consideration paid for acquiring the property by the assessee. We find that the AO has thereafter not brought any material on record by making further inquiries to show that the assessee actually paid any amount over and above the amount shown in registered sale deed for the acquisition of the property. We find in the case of K.P. Verghese Vs. ITO 1981 (9) TMI 1 - SUPREME COURT has held that the onus lies on the Department to bring material on record to show that the assessee has actually paid any amount more than the amount shown as apparent consideration in the registered sale deed. In absence of any such material brought on record, the Department is not empowered to treat any other amount as actual consideration paid by the assessee for acquiring the property and make addition on that basis. We, therefore, set aside the orders of the lower authorities on this issue and delete the addition Disallowance at the rate of 20% out of synthetic diamond powder expenses - HELD THAT - Entire purchase of synthetic powder was supported by bills and vouchers and no specific defect therein was brought on record by the Revenue. However, we do not agree with the submissions of the Ld. AR that stock of power lying with the job workers could not be taken into consideration simply because such stock was not taken into consideration in the past in case of the assessee. We agree that the value of such stock at the rate of 20% of the entire purchase during the year was without any basis and excessive. We find that the details of synthetic powder which was lying with the workers could no be furnished by the assessee before us also - it shall meet the ends of justice to estimate such stock at the rate of 10% of the entire purchases made during the year. We, therefore, restrict the disallowance to ₹ 9,43,052/- and delete the disallowance of ₹ 9,43,051/-. Thus, this ground of appeal of the assessee is partly allowed.

Summary

Issues:
1. Addition of undisclosed investment under section 69B of the Income Tax Act.
2. Disallowance of expenses on synthetic diamond powder.

Analysis:
1. Undisclosed Investment Addition:
The appeal was against the CIT(A)'s order confirming the Assessing Officer's addition of Rs. 43,28,500 as undisclosed investment under section 69B of the Act. The Assessing Officer doubted the purchase value of 4 halls acquired by the assessee, considering prevailing market rates and construction costs. The CIT(A) upheld the addition, emphasizing that the circle rate must be considered for capital gains computation. However, the assessee argued that the construction cost for halls was lower and no evidence proved payment beyond the registered sale deed amount. The Tribunal cited precedents, emphasizing the burden on the Assessing Officer to prove undisclosed investment, requiring concrete evidence beyond estimates. Relying on legal precedents, the Tribunal set aside the lower authorities' decision, stating that without concrete evidence, the addition was unjustified.

2. Disallowance of Synthetic Diamond Powder Expenses:
The Assessing Officer disallowed Rs. 18,86,103 out of Rs. 94,30,515 claimed as expenses for synthetic diamond powder. The disallowance was based on a 20% estimate due to a significant increase in expenses compared to the previous year. The CIT(A) upheld this decision. The assessee contended that all purchases were supported by bills and vouchers, and past practices were accepted by the Department. The Tribunal acknowledged the lack of defects in the bills but found the 20% disallowance excessive. Considering the lack of specific details on stock with workers, the Tribunal reduced the disallowance to 10% of total purchases, deleting Rs. 9,43,051. Ultimately, the Tribunal partly allowed the appeal, modifying the disallowance amount.

In conclusion, the Tribunal ruled in favor of the assessee regarding the undisclosed investment addition, emphasizing the necessity of concrete evidence for such claims. Additionally, the Tribunal partially allowed the appeal concerning the disallowance of synthetic diamond powder expenses, reducing the disallowance amount based on a reasonable estimate.