2013 (11) TMI 313 - AT - Income Tax

Addition of Rs.72,50,000/- on account of undisclosed cash credit u/s 68 of the Income Tax Act - Noted by the AO in the assessment order that the assessee has shown cash deposit in its bank account with Dena Bank in SB account no.425320 during in the period from 11.12.2008 to 9.3.2009 of Rs.72,50,000/- Held that - Assessee has furnished copy of profit & loss account of the assessee for the present year, as per which, the assessee has shown sale of Rs.69,96,200/- and against such sale, the assessee has not claimed any expenditure on account of purchase or opening stock. Hence, it is seen that this sale of Rs.69.90 lakhs is in fact offered to tax by the assessee in the present year, and even if, there was no disclosure in survey in present case on account of excess stock, then also it has to be accepted that the assessee has declared an amount of Rs.69.96 lakhs in the present year, as income on account of sale without claiming any deduction on account of purchase or opening stock. The cash generated on account of this sale explains the source of cash deposited in bank, and therefore, the addition made by the AO on account of such cash deposits is deleted Decided against the Revenue. Addition of R. Rs.1,17,04,500/- made u/s.68 of the IT Act as the assessee failed to furnish satisfactory proofs regarding the source of investment in RBI bonds Held that - Investment was made in the financial year 2003- 2004 relevant to the asstt.year 2004-2005, and such investment was duly disclosed by the assessee in the balance sheet filed along with return of income of all earlier years, and therefore, even if the assessee is not able to explain the source of investment in the year of investment, then also no addition is justified in the present year. However, the AO is well within its power to reopen the assessment of the year of investment, if he has material in his possession that such investment is out of income which had escaped assessment. The AO may take suitable action in that year as per the provision of law, but in any case, no addition is justified in the present year, and therefore, the ground of the Revenue is rejected Decided against the Revenue. For computation of capital gains, the value stated in the Balance sheet or the value determined by DVO to be taken - Deleting the addition as the facts that the cost of acquisition shown in the balance sheet and in the computation of income as well as the value determined by the valuation officer is contradictory and the report of the DVO was received after the assessment was completed and the AO did not get opportunity to examine the same Held that - As per the valuation done by Sub-Registrar of Sanand, total market value in the present year was worked out at Rs.34.92 lakhs, as against the sale proceeds declared by the assessee at Rs.55 lakhs. When the sale proceedings in the present year is higher by substantial amount, as compared to the valuation done by Sub-Registrar, Sanand, the cost of acquisition can also be higher, and moreover, there is no basis of adopting backward indexation to work out the cost of acquisition when the cost of acquisition is duly declared by the assessee in the year of acquisition, and in subsequent years. No specific defect is pointed out by the AO in the claim of the assessee about cost of construction shown by the assessee and the AO was proceeded to estimate such cost without establishing any defect in the cost declared by the assessee. This is without basis and hence, cannot be sustained. This allegation is also not acceptable that in the year of acquisition or in the subsequent year, the assessee claimed or declared higher value of cost of construction in order to claim higher deduction in the year of sale, because at that point of time, it is not known to the assessee as to when he will sell the property Decided against the Revenue.

Summary

Issues involved:
1. Addition of unexplained cash credits under section 68 of the IT Act.
2. Addition of investment in RBI bonds without satisfactory proofs.
3. Contradictory valuation of property leading to long term capital gain addition.

Analysis:
1. The first issue pertains to the addition of Rs.72,50,000 under section 68 of the IT Act regarding unexplained cash credits. The AO had made this addition based on cash deposits in the bank account of the assessee. However, the CIT(A) deleted the addition, noting that the cash deposits were explained as proceeds from the sale of excess stock declared during a survey. The CIT(A) found that the source of cash deposits was accounted for in the income of the assessee. The ITAT upheld the CIT(A)'s decision, stating that the addition amounted to double counting of income and was not justified.

2. The second issue involved the addition of Rs.1,17,04,500 related to investment in RBI bonds without satisfactory proofs. The AO made this addition as the source of investment in the financial year 2003-2004 was not explained. However, the CIT(A) held that since the investment was disclosed in earlier balance sheets, no addition was warranted in the current year. The ITAT agreed with the CIT(A), emphasizing that the AO could reassess the year of investment if there was income escaping assessment. Therefore, the addition in the present year was deemed unjustified.

3. The final issue concerned the contradictory valuation of a property leading to the addition of long term capital gains. The AO added Rs.20,13,387 as long term capital gains for each co-owner based on a reworked indexed cost of the property. However, the CIT(A) found the AO's estimation arbitrary and lacking basis. The ITAT concurred, noting that the AO did not establish any defects in the declared cost of construction. The ITAT emphasized that the valuation by the Sub-Registrar differed significantly from the sale proceeds, indicating a higher acquisition cost. Therefore, the addition of long term capital gains was deemed unwarranted.

In conclusion, all three appeals by the Revenue were dismissed by the ITAT, upholding the decisions of the CIT(A) in each case. The ITAT found no justification for the additions made by the AO in the respective issues discussed.