2017 (3) TMI 893 - HC - Income Tax

Addition u/s 69 - adopting NAV method of valuation for calculating the share market value - Held that - In the absence of any corroborative evidence establishing receipts and payments outside the regular books of Account, it cannot be alleged that investments have been made which are not recorded. Further the Revenue has in this case proceeded to hold that there is investment in shares in excess of what is shown on the basis of pure suspicion i.e. the shares purchased at a price less than its actual valuation. Therefore unless it is first established beyond doubt that there is an investment which is not recorded by the Assessee in its books, no occasion to explain about the nature and source of the investment can arise. The invocation of Section 69 of the Act before establishing investment not recorded in its books of Account, is not justified. - Decided in favour of assessee

Summary

Issues:
1. Application of Section 69 of the Income Tax Act, 1961 for undisclosed investments in shares.
2. Justification of adopting the Net Asset Value (NAV) method for share market valuation.
3. Interpretation of the law regarding additions under Section 69 without corroborative evidence.
4. Consideration of past judicial decisions and their impact on the current case.

Analysis:

Issue 1: Application of Section 69
The Revenue contended that Section 69 of the Act applied to the case, involving undisclosed investments in shares of various companies. The Assessing Officer had invoked Section 69 to tax the undisclosed investments made by the respondent assessee. However, the Commissioner of Income Tax (Appeals) deleted the additions for both Assessment Years, stating that no incriminating material supported the Revenue's claim of undisclosed investments in shares.

Issue 2: NAV Method for Valuation
The primary question raised by the Revenue was whether the Tribunal was justified in rejecting the addition under Section 69 by using the Net Asset Value (NAV) method for share market valuation. The Tribunal's decision to dismiss the Revenue's appeal was based on the lack of incriminating evidence and reliance on a previous case (M/s. Rupee Finance and Management Pvt. Ltd. v/s. ACIT) where the Tribunal's decision was upheld by the High Court.

Issue 3: Corroborative Evidence for Additions under Section 69
The High Court emphasized the necessity of corroborative evidence to establish undisclosed investments beyond a reasonable doubt. It was highlighted that without concrete proof of investments not recorded in the books of accounts, the invocation of Section 69 was not justified. Mere suspicion of shares being purchased below market value was deemed insufficient to levy additions under Section 69.

Issue 4: Judicial Precedents and Decision
The High Court referenced the previous judgment in the case of CIT v/s. M/s. Rupee Finance and Management Pvt. Ltd., where the Court upheld the Tribunal's decision regarding additions under Section 69. The Court noted that no differentiating factors were presented in the current case to warrant a distinct interpretation. The absence of concrete evidence and reliance on suspicion alone were deemed inadequate to support the Revenue's claim of undisclosed investments.

In conclusion, the High Court dismissed the appeal, stating that the proposed questions did not raise substantial legal issues for both Assessment Years. The Court upheld the Tribunal's decision and emphasized the importance of concrete evidence and legal justification before invoking provisions like Section 69 of the Income Tax Act.