2014 (1) TMI 491 - HC - Income Tax

Undisclosed investment - Held that - As per section 142A(1) inserted by Finance (No.2) Act, 2004 with retrospective effect from 15.11.1972 - Assessing Officer wherever considers fit to estimate the value of any investment referred to in Section 69 or Section 69B or the value of any bullion, jewellery or other valuable article referred to in Section 69A or Section 69B may require the Valuation Officer to make an estimate of such value and report the same to him - Section 142A of the Act, cannot be invoked where valuation of the cost of construction is bonafide and based on books of account which has not been rejected - The report of the DVO would be dealt with by the Assessing Officer under sub section (3) of Section 142A of the Act - There is logic and reasoning for adopting the aforesaid view - There appears to be no occasion for the revenue not to accept the valuation of the cost of construction of an asset without rejecting the books of account maintained by the assessee. In the present case, it was only during the search when the assessee had no other option that the amount was surrendered on account of unaccounted amount of Rs. 22 lacs utilised by him - The only inference in such circumstances would be that the cost of construction shown in the books of account was due to the fact that they were not properly maintained - The reference by the Assessing Officer to the DVO was justified and cannot be faulted - The aggregate difference, duly accredited to A.Y.2007-08 comes to Rs.32,01,325/-, against Rs.22,00,000/- which has been disclosed - The balance of Rs.10,01,325/- is assessee s unexplained investment in construction of building which is added to his total income - The assessee failed to maintain quantitative details of major building material used in the construction of the building - In view of the cost of construction disclosed by the assessee in the regular books of account vis-a-vis the cost of construction determined by the DVO, the variance was not within the range of 15% - The Tribunal was right in sustaining addition - Decided against assessee.

Issues Involved:
1. Whether the Tribunal erred in law by failing to consider the disclosure of Rs. 22 lacs made by the assessee during search and seizure proceedings.
2. Whether the Tribunal was correct in sustaining the substitution of the impugned difference/deficit calculated by the Assessing Officer.
3. Whether the Tribunal overstepped its jurisdiction by dismissing the appeal on a ground not raised by the assessee or revenue.
4. Whether the Tribunal failed to appreciate that the difference in investment was below 15%, and thus no adverse inference should have been drawn.

Issue-wise Detailed Analysis:

1. Disclosure of Rs. 22 Lacs:
The Tribunal did not err in law by failing to consider the disclosure of Rs. 22 lacs made during search and seizure proceedings. The assessee had surrendered this amount on account of unaccounted investment in the construction of the hospital. The Assessing Officer referred the valuation of the hospital premises to the Valuation Cell, which estimated the investment at Rs. 66,73,500/- against the disclosed Rs. 58,97,241/-. The difference of Rs. 7,76,259/- was raised to Rs. 10,01,325/- by applying the Cost Inflation Index. The Tribunal upheld this addition, as the surrender was not voluntary but under compulsion, indicating that the books of account were not properly maintained.

2. Substitution of Difference/Deficit:
The Tribunal was correct in sustaining the substitution of the impugned difference/deficit calculated by the Assessing Officer. The Assessing Officer had applied the Cost Inflation Index to the difference of Rs. 7,76,259/-, raising it to Rs. 10,01,325/-. The Tribunal found that the assessee had failed to maintain proper books of account and did not agitate the issue of builder's efforts and rebate for self-supervision. The Tribunal's decision was based on the factual matrix and the legal provisions under Section 142A of the Income Tax Act, which allows for such estimations and adjustments.

3. Tribunal's Jurisdiction:
The Tribunal did not overstep its jurisdiction by dismissing the appeal on a ground not raised by the assessee or revenue. The High Court clarified that it could consider substantial questions of law even if not raised before the Tribunal. The Tribunal's decision was based on the factual circumstances and the legal provisions applicable, and it did not place the assessee in a worse situation than before the appeal.

4. Difference Below 15%:
The Tribunal did not fail to appreciate that the difference in investment was below 15%. The Tribunal found that the difference was not within the 15% marginal limit when considering the cost of construction disclosed in the books of account vis-a-vis the cost determined by the DVO. The Tribunal upheld the addition of Rs. 10,01,325/- as unexplained investment, rejecting the assessee's contention that the variance was within permissible limits. The Tribunal's decision was based on the factual findings and the legal provisions under Section 142A of the Act.

Conclusion:
The High Court dismissed the appeal, finding no merit in the arguments presented by the assessee. The Tribunal's decisions on all four issues were upheld, and the addition of Rs. 10,01,325/- as unexplained investment in the construction of the hospital building was sustained.

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