2005 (7) TMI 341 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition made under Section 69C of the IT Act for unexplained investment in the building for the assessment year 1991-92.
2. Deletion of addition made under Section 69 of the IT Act for unexplained investment in the building for the assessment year 1992-93.
3. Justification of reference to the Valuation Officer under Section 131(1)(d).
4. Rejection of books of account under Section 145.
5. Allowing deduction for unexplained expenditure under Section 69C.

Detailed Analysis:

1. Deletion of Addition under Section 69C for AY 1991-92:
The Revenue appealed against the CIT(A)'s deletion of Rs. 25,51,227 added under Section 69C as unexplained investment in the building. The assessee, a construction company, did not maintain a stock register for materials consumed, making it challenging to verify the authenticity of book results. The AO rejected the books of account under Section 145 due to the absence of quantitative details and other supporting documents. The DVO assessed the cost of construction at Rs. 64,85,006, against the declared Rs. 39,33,779, leading to the addition. The CIT(A) deleted the addition, but the Tribunal partly upheld the AO's decision, sustaining an addition of Rs. 5.90 lakhs.

2. Deletion of Addition under Section 69 for AY 1992-93:
The Revenue challenged the CIT(A)'s deletion of Rs. 50,71,505 added under Section 69 as unexplained investment. The AO found discrepancies in the cost of construction declared by the assessee and that assessed by the DVO. The CIT(A) deleted the addition, arguing the AO did not follow proper procedures. The Tribunal, however, sustained an addition of Rs. 12.71 lakhs, recognizing the need for adjustments in the cost of construction recorded in the books.

3. Justification of Reference to the Valuation Officer:
The AO made a reference to the DVO under Section 131(1)(d) after rejecting the books of account. The Tribunal upheld the AO's action, noting the assessee's failure to maintain and furnish quantitative details of materials used. The Tribunal found the reference justified under the amended Section 142A, which allows for valuation estimates by the DVO for making assessments.

4. Rejection of Books of Account under Section 145:
The AO rejected the books of account under Section 145 due to the absence of quantitative details and other supporting documents. The Tribunal supported this rejection, noting significant defects, including the non-maintenance of stock registers and non-furnishing of structural drawings. These defects justified the AO's decision to reject the books and rely on the DVO's valuation.

5. Allowing Deduction for Unexplained Expenditure under Section 69C:
The Tribunal addressed the issue of allowing deductions for unexplained expenditure added under Section 69C. It recognized that for a builder, such unexplained expenditures are revenue in nature and should be allowed as deductions when computing profits from the sale of the building. The Tribunal directed the AO to increase the work-in-progress for AY 1991-92 and allow deductions in AY 1992-93, the year of sale.

Conclusion:
The Tribunal partly allowed the Revenue's appeals, sustaining additions of Rs. 5.90 lakhs for AY 1991-92 and Rs. 12.71 lakhs for AY 1992-93. It directed adjustments in the work-in-progress and allowed deductions for unexplained expenditures, ensuring a fair computation of the assessee's income.