2013 (9) TMI 809 - HC - Income Tax

Addition on the basis of loose papers expenditure towards building construction have already been made on account of loose papers - Held that - The admitted facts of the case are that seized/impounded loose papers found at the time of survey were recorded in the books of account and no incorrectness was found in respect of recording such transaction in books of account. Only grievance of the Revenue was that at the time of survey books of account was not found maintained upto the date - The A.O himself admitted before the CIT (A) that all the entries in the loose papers were found duly incorporated in the books of account - A.O made addition on the basis of loose paper which has been incorporated in the books of account and no defect otherwise has been found that those loose paper entries were recorded incorrectly - No addition is warranted Decided against the Revenue. Difference of Rs.5,05,769/- as unexplained - Error made by Valuation Officer Held that - Apart from the technical objections, the CIT (A) found that the difference in C.P.W.D. and P.W.D. rates were well explained which is upto 10% value. It has also been recorded by the CIT (A) that some of the items of expenditure towards building construction have already been made on account of loose papers of which addition of Rs.40,85,115/- has been deleted, that to the extent there is explanation from the assessee - Deleted the addition of Rs.11,83,249/- - Decided against the Revenue. Exemption u/s 10(23C) of the Income Tax Act Held that - There is no provision under the Act that if the books of account are not found at the time of survey, the exemption under section 10 (23C) will be withdrawn. When finally at the time of assessment and before the CIT (A) the books of account was found in order, even otherwise also exemption under section 10 (23C) does not depend upon books of account but it depends upon relevant provisions of the Act Reliance has also been placed upon the judgment in the case of Kedarnath Jute Mfg. Co. Ltd vs. CIT 1971 (8) TMI 10 - SUPREME Court - Records were not available at the time of survey and some loose papers were found, the assessee had made a statement on specific question regarding maintenance of books of accounts that books of accounts are with the auditor. The AO did not make any effort to get these books of account. After the books of account were produced, no defects or discrepancies were found Decided against the Revenue.

Summary

Issues:
1. Application of doctrine of "res-judicata" in tax proceedings
2. Deletion of addition on account of alleged income, unaccounted expenses, and investment
3. Valuer's report and opportunity given to valuation officer
4. Exemption under Section 10 (23C) of the Income Tax Act
5. Maintenance of books of account and exemption granted in previous years

Analysis:

1. The first issue pertains to the application of the doctrine of "res-judicata" in tax proceedings. The ITAT erred in giving relief to the Assessee based on this doctrine, which is not typically applicable in tax matters. The High Court analyzed the findings of the AO, CIT (A), and ITAT regarding the maintenance of books of account and the defects identified. The ITAT considered the loose papers found during a survey, which were later incorporated into the books of account. The High Court confirmed the CIT (A)'s decision to delete the addition based on these findings, emphasizing that no addition was warranted in this case.

2. The second issue involves the deletion of an addition of Rs.31,05,967 on account of alleged income, unaccounted expenses, and investment. The ITAT had to consider whether the Assessee society, which was not maintaining books of account in the regular course of business, was entitled to exemption under Section 10 (23C) of the Act, 1961. The High Court reviewed the valuation of the building under construction and the withdrawal of exemption, ultimately upholding the CIT (A)'s decision to delete the addition.

3. The third issue concerns the deletion of an addition of Rs.11,83,249 based on the valuer's report. The High Court noted that the CIT (A) had considered all aspects and explanations provided by the Assessee. The CIT (A) found discrepancies in the valuation officer's report and technical objections raised by the Assessee. The High Court confirmed the CIT (A)'s decision to delete the addition after a thorough examination of the matter.

4. The fourth issue revolves around allowing the exemption under Section 10 (23C) of the IT Act. The High Court reiterated that the exemption does not depend on the maintenance of books of account but on the relevant provisions of the Act. Citing the judgment in Kedarnath Jute Mfg. Co. Ltd v. CIT, the High Court upheld the CIT (A)'s decision to allow the Assessee's claim under Section 10 (23C) of the Act.

5. The fifth issue addresses the maintenance of books of account and the exemption granted in previous and subsequent years. The High Court found that the ITAT had considered the facts regarding the records not being available at the time of the survey and the subsequent production of books of account without any defects or discrepancies. The CIT (A) had verified the entries and confirmed that the majority of expenses were duly recorded, leading to the deletion of the addition. The High Court upheld the ITAT's decision on this matter.

In conclusion, the High Court dismissed the Income Tax Appeal, finding no error in the ITAT's judgment and no substantial question of law to be considered.