1996 (10) TMI 133 - AT - Income Tax

Assessing Officer Assessment Year Cash Credits Total Income Unexplained Investments Valuation Officer Valuation Report

Summary

Issues Involved:
1. Cash credits and disallowance of interest.
2. Unexplained investments in the construction of property.
3. Authority of the Assessing Officer to refer to the Valuation Officer for cost determination.
4. Consequential depreciation due to valuation.

Detailed Analysis:

Cash Credits and Disallowance of Interest:
The assessee challenged the CIT(A)'s decision to reconsider cash credits, arguing that the onus to prove the cash credits was met through confirmation letters from creditors and an affidavit from a broker, Shri Dineshkumar Jain. The assessee contended that it was common practice for loans to be arranged by brokers, and thus, the assessee had no direct contact with the lenders. The Assessing Officer, however, was not satisfied with the creditors' statements and added Rs. 1,50,800 under Section 68 of the Income-tax Act, as the assessee failed to produce the creditors for verification. The CIT(A) set aside the assessment, directing the Assessing Officer to re-examine the genuineness of the cash credits after giving the assessee a fair opportunity to rebut the creditors' statements. The Tribunal upheld the CIT(A)'s order, emphasizing the necessity of cross-examination of witnesses to ensure fairness.

Unexplained Investments in Construction:
The assessee also contested the CIT(A)'s failure to address whether the ITO was authorized to refer the cost determination to the Valuation Officer and whether the Valuation Officer could enter the premises for such determination. The assessee argued that the building was constructed through a contractor under a fixed agreement and that the difference in cost determined by the Valuation Officer should not be added to the assessee's income. The Assessing Officer had added Rs. 65,810 as unexplained investment under Section 69, based on the Valuation Officer's report. The CIT(A) set aside this addition, directing the Assessing Officer to verify the construction agreement's genuineness. The Tribunal upheld the CIT(A)'s decision, noting the need to afford the assessee sufficient time to object to the Valuation Officer's report.

Authority to Refer to Valuation Officer:
The Tribunal examined whether the Assessing Officer could refer to the Valuation Officer under Section 55A of the Income-tax Act. The Tribunal noted conflicting judgments from various High Courts on this issue. It ultimately agreed with the Andhra Pradesh and Madras High Courts' view that the Assessing Officer could seek expert opinion for determining the fair market value of a capital asset for the purpose of Chapter IV of the Income-tax Act, which includes computation of total income. The Tribunal concluded that the Assessing Officer was empowered to make such a reference, not limited to capital gains alone.

Consequential Depreciation:
The revenue challenged the CIT(A)'s decision to allow depreciation based on the valuation of the property. The Tribunal agreed with the revenue, stating that depreciation should be computed by the Assessing Officer after reassessing the property's valuation. Consequently, the revenue's appeal was partly allowed.

Conclusion:
The Tribunal dismissed the assessee's appeal, upheld the CIT(A)'s order regarding cash credits and unexplained investments, and partly allowed the revenue's appeal concerning the computation of depreciation based on property valuation.