2007 (5) TMI 276 - AT - Income Tax

Summary

Issues Involved:
1. Addition u/s 69 on account of unexplained investment.
2. Addition u/s 68 on account of unexplained cash credits.
3. Disallowance of interest on borrowed capital.

Summary:

1. Addition u/s 69 on account of unexplained investment:
The common issue in all appeals was the addition u/s 69 of the Act for unexplained investment. The assessees had purchased plots from India Motors (P) Ltd. at a declared consideration, but the properties were registered at higher values by the Sub-Registrar and DVO. The AO added the difference as undisclosed investment. The assessees contended that the addition was based on presumption without evidence, and the DVO's valuation was erroneous. The CIT(A) deleted the additions, stating that stamp duty valuation cannot be the sole basis for estimating fair market value. The Tribunal upheld the CIT(A)'s decision, citing the absence of positive evidence that the assessees paid more than the declared consideration. The appeals by the Department were dismissed, and the appeal by K.S. Apparels (P) Ltd. was allowed, directing the deletion of the sustained addition.

2. Addition u/s 68 on account of unexplained cash credits:
In the case of Swami Complex (P) Ltd., the AO added Rs. 1,26,000 as unexplained cash credits from seven persons. The assessee provided confirmations with complete addresses and PANs. The CIT(A) deleted the addition, and the Tribunal upheld this decision, noting that the AO did not verify the confirmations by summoning the creditors. The Department's appeal was dismissed.

3. Disallowance of interest on borrowed capital:
In the case of Shri Bal Mukand Parihar, the AO disallowed Rs. 2,80,340 claimed as interest on borrowed capital for purchasing land and structure, stating they were not put to use. The CIT(A) deleted the disallowance, supported by evidence of business use of the structure. The Tribunal upheld the CIT(A)'s decision, confirming the business use of the structure and allowing the interest as a business expenditure. The Department's appeal was dismissed.

Conclusion:
The appeals by the Department in the cases of Shri Bal Mukand Parihar and Swami Complex (P) Ltd. (ITA Nos. 461 and 449/Jp/2005) and K.S. Apparels (P) Ltd. (ITA No. 421/Jp/2005) were dismissed. The appeal by K.S. Apparels (P) Ltd. (ITA No. 471/Jp/2005) was allowed.