2023 (4) TMI 555 - AT - Income Tax

Investment in purchase of property - addition on basis of valuation report - applicability of provisions of Section 142A - assessee did not offer to tax the sum declared by him at the time of survey - As per assessee declaration given at the time of survey was under pressure and confusion and to buy peace - HELD THAT - As clear from the order of the NFAC that there is no proper application of the mind. AO has made the addition u/s 69 of the Act. A careful perusal of the provision divulges that in order to invoke this provision, it is sine qua non that the assessee must have made investments which are not recorded in the books of account. The factum of the assesses having made investment should be first proved by the AO, only then the burden shifts on the assessee to prove the source of investment. Such investment outside the books of account must be positively proved by the AO and not only inferred from the attending facts. If such an investment outside the books is not proved, the assessee cannot be called upon to prove the source of such a hypothetical investment. Adverting to the facts of the instant case, we find that apart from relying on the DVO's report, the AO has not brought anything on record or any other material to indicate that the assessee did make investment in purchase of property over and above that declared in the books of account. Addition made by the OA and confirmed by the NFAC is unsustainable - Also provisions of section 142A of the Act are applicable only when the assessee has made investment in construction. In the present case, the assessee purchased a ready built house and therefore the provisions of section 142A of the Act are not attracted to the facts and circumstances of the present case. Hence, reference to the DVO by the AO was not valid and consequently, the addition made by the AO on the report of the DVO cannot be sustained. The same is directed to be deleted and the appeal of the Assessee is allowed.

Summary

Issues:
1. Addition of Rs.5,90,900/- on the total income of the assessee.
2. Validity of invoking Section 142A of the Income Tax Act, 1961.
3. Application of Section 69 of the Act in the assessment.

Analysis:
1. The only issue in this appeal was the addition of Rs.5,90,900/- to the total income of the assessee. The assessee, engaged in outdoor catering, voluntarily declared this amount during a survey but later retracted the declaration, claiming it was made under pressure. The Assessing Officer (AO) added this amount based on a report by the District Valuation Officer (DVO), considering it unexplained income under section 69 of the Act. The assessee challenged this addition before the CIT(A) (NFAC), arguing that the provisions of Section 142A did not apply to a purchased house and the AO's invocation of this section was incorrect. The NFAC upheld the AO's decision, relying on the DVO's report. However, the ITAT held that the AO failed to prove any investment outside the books of account, making the addition unsustainable. The ITAT concluded that the provisions of Section 142A were not applicable to a purchased house, directing the deletion of the addition and allowing the assessee's appeal.

2. The assessee contended that the AO wrongly invoked Section 142A of the Act, which allows reference to a Valuation Officer for estimating the value of investments. The ITAT clarified that Section 142A applies to investments in construction, not to purchased properties like in this case. The ITAT emphasized that the AO's reference to the DVO was invalid, as the provisions of Section 142A did not align with the circumstances of the case. Consequently, the addition based on the DVO's report was deemed unsustainable and was directed to be deleted.

3. Regarding the application of Section 69 of the Act, the ITAT highlighted that for invoking this provision, it is essential to prove that the assessee made investments not recorded in the books of account. In this case, the AO solely relied on the DVO's report without providing any evidence of unrecorded investments by the assessee. The ITAT emphasized that the burden of proving such investments lies with the AO, and without concrete proof, the addition based on hypothetical investments cannot be sustained. The ITAT concluded that the addition made by the AO was unsustainable under Section 69, as there was no valid evidence of unrecorded investments by the assessee.

In conclusion, the ITAT allowed the appeal of the assessee, directing the deletion of the addition of Rs.5,90,900/- to the total income. The ITAT emphasized that the provisions of Section 142A were not applicable to a purchased house, and the AO failed to provide evidence of unrecorded investments, rendering the addition under Section 69 unsustainable.