2013 (10) TMI 165 - HC - Income Tax

Additions u/s 69 - unexplained investments - Reference to valuation officer - Rejection of book of accounts - whether the Tribunal was right in taking a view that in the absence of rejecting the books of account which are audited, the Assessing Officer cannot resort to estimation - Held that - Supreme Court in the case of Sargam Cinema v. CIT 2009 (10) TMI 569 - Supreme Court of India , wherein the Supreme Court has held that the assessing authority cannot refer the matter to the Departmental Valuation Officer without first rejecting the books of account - Following decision of CIT v. Lucknow Public Educational Society 2011 (3) TMI 1326 - Allahabad High Court and Sargam Cinema v. Commissioner of Income Tax 2009 (10) TMI 569 - Supreme Court of India - Decided in favour of assessee.

Summary

Issues:
1. Misdirection by the Tribunal in invoking section 142A without rejecting books of accounts.
2. Addition of unexplained investment under section 69 of the Income Tax Act, 1961.
3. Sustaining the addition made by the Assessing Officer in the Assessment year 2005-06.

Issue 1:
The appellant appealed against the Tribunal's order, challenging the misdirection in law by the Tribunal for invoking section 142A without rejecting the books of accounts. The appellant argued that the Assessing Officer had referred the valuation of the investment towards the construction of a Petrol Pump to the Assistant Valuation Officer without rejecting the books of accounts where the investment was duly recorded. The appellant relied on legal precedents such as Sargam Cinema v. Commissioner of Income Tax and CIT v. Chohan Resorts to support the contention that the action of referring the matter to the DVO without rejecting the books of accounts was incorrect. The High Court agreed with the appellant's argument, emphasizing that the assessing authority cannot refer the matter to the DVO without rejecting the books of account maintained by the assessee. The Court cited the Apex Court's decision in Sargam Cinema's case, stating that reliance on the DVO's report was misconceived when the books of account were not rejected. The Court upheld the appellant's position and ruled in favor of the assessee, allowing the appeal.

Issue 2:
The second issue pertained to the addition of Rs. 5,79,586/- in the hands of the assessee as unexplained investment under section 69 of the Income Tax Act, 1961. The Assessing Officer had made this addition based on the report of the Assistant Valuation Officer regarding the valuation of the Petrol pump building. The CIT(A) partly allowed the appeal, and the Tribunal sustained the addition. The appellant contested this addition, arguing that the valuation was done without rejecting the books of accounts and without sufficient evidence to show that the investment was understated or suppressed. The High Court, after considering the arguments, found merit in the appellant's submission. The Court reiterated that the books of account were never rejected, and as per legal precedents, the action of making the addition without rejecting the books of account was not justified. Therefore, the Court ruled in favor of the assessee on this issue as well.

Issue 3:
The final issue revolved around sustaining the entire addition of Rs. 5,79,586/- made by the Assessing Officer in the hands of the assessee in the Assessment year 2005-06. The Tribunal had partly allowed the appeal, upholding this addition. However, based on the analysis of the previous issues, the High Court found that the additions were made without proper justification and without rejecting the books of accounts. Consequently, the Court ruled in favor of the assessee, allowing the appeal and setting aside the addition made by the Assessing Officer. The judgment highlighted the importance of following due process and legal principles while making such additions under the Income Tax Act.

In conclusion, the High Court's judgment in this case addressed the issues raised by the appellant regarding misdirection by the Tribunal, addition of unexplained investment, and sustaining the said addition. The Court emphasized the significance of not referring matters to valuation officers without rejecting books of accounts and without sufficient evidence. The judgment provided clarity on the legal principles governing such assessments under the Income Tax Act, ultimately ruling in favor of the assessee and allowing the appeal.