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TMI Blog2016 (3) TMI 1221X X X X Extracts X X X X X X X X Extracts X X X X ..... the books of account of assessment year 2007-08, therefore, no addition can be made against the assessee even in the remaining assessment years 2006-08 and 2007-08. - Decided in favour of assessee Addition on account of accretion in capital account of partners - Held that:- Since in this case the partners of the assessee firm have admitted their capital contribution in their accounts, therefore, no addition could be made in the hands of the assessee firm.We, accordingly, set aside the orders of authorities below and delete both the additions. See case of Metachem Industries [1999 (9) TMI 21 - MADHYA PRADESH High Court] - Decided in favour of assessee Addition as income from business - Held that:- No specific arguments or material have been pointed out to show that how this addition is unjustified. The Assessing Officer noted certain functions have been organized during assessment year under appeal in the premises of the assessee and the assessee in their statement also admitted arranging such functions. The Assessing Officer found certain credit entries in the bank account of the assessee. Wherever assessee was able to explain the entries, no adverse view was taken by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee firm and in the hands of his other business concern namely M/s Modern Tent House. But subsequently, vide his letter dated 31.03.2007, the said offer was retracted stating that he was forced to make the said offer of additional income during the course of survey. It was also stated in the said letter that no undisclosed income was invested either in the purchase of land for M/s Lamba Celebration Resort or in the construction. As per a diary marked as A-3 impounded during the survey action, it was noticed by the Assessing Officer that day today expenses incurred for construction of the resort were recorded in the said diary. The Assessing Officer noticed that sum of ₹ 4,15,951/- was incurred in cash on construction during the assessment year 2005-06. The Assessing Officer asked the assessee to file return of income for assessment year 2005-06. In response to the said notice, return declaring nil income was filed. During the course of assessment proceedings, the Assessing Officer duly provided copy of the document A-3 and copies of the statements received from Punjab National Bank, Paonta Sahib to the assessee. The assessee was required to explain entries related t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort of DVO estimating the cost of construction as per direction of the Assessing Officer was also supplied to the assessee. The Assessing Officer did not accept contention of the assessee objecting to the report of DVO. The Assessing Officer also noted in the assessment order that he has also not accepted the valuation report of the DVO. The Assessing Officer, as per document A-3 found that assessee has paid ₹ 4,15,951/- to different persons upto 31.03.2005 for construction of M/s Lamba Celebration Resort and accordingly addition of ₹ 4,15,951/- was made against the assessee. 7. The addition was challenged before ld. CIT(Appeals) and it was submitted that land for construction of resort was purchased during financial year 2004-05 and construction was started at the fag end of financial year 2004-05. The construction was completed in financial year 2006-07 (assessment year 2007-08) and an investment of ₹ 63,06,564/- was made in the said construction. The source of the investment was loan from the bank and withdrawals from proprietory concerns of the partners. It was submitted that Assessing Officer has referred the valuation of the resort to DVO under section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal Bank, Paonta Sahib to the suppliers for construction of the resort were also included in the total expenditure incurred by the assessee. To be fair with the assessee, Assessing Officer accepted its claim and reduced those payments recorded in document A-3 which also appeared in the confirmatory letter of the bank to the Assessing Officer and those directly paid by the bank. After giving benefit of payments directly made by the bank to the supplier, the Assessing Officer zeroed down net payment of ₹ 7,70,755/- directly made by the bank and also recorded in the impounded document A-3. The Assessing Officer recorded such details at page 3 of the assessment order. The Assessing Officer also gave benefit of withdrawals made by two partners from their proprietory concern for construction of the resort and allowed benefit of ₹ 2,50,000/-. Thus, total benefit allowed by the Assessing Officer in respect of entries of expenditure recorded in A-3 amounts to ₹ 7,70,755/- + ₹ 2,50,000/- = ₹ 10,20,755/-. The Assessing Officer also accepted the direct payments of ₹ 22,09,970/- made by the bank to suppliers as explained investment in the construction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments directly made by the Punjab National Bank, Paonta Sahib to the suppliers were to the tune of ₹ 29,85,617/-. Out of the said payments appearing in document A-3, Assessing Officer reduced an amount of ₹ 10,87,490/- directly paid by the bank and concluded total cost of construction at ₹ 1,16,97,264/- including the cost of items not found accounted for in the documents maintained by the assessee as mentioned above. Cost of construction arrived at by the Assessing Officer approximated to amount of ₹ 1.20 Cr admitted by Shri D.S. Lamba, partner of the assessee firm which was retracted later on. After taking into consideration the amount of investment of ₹ 4,15,951/- already accounted for in assessment year 2005-06 and ₹ 25,57,130/- in assessment year 2006-07, the Assessing Officer made addition of ₹ 46,12,065/- on account of investment in construction of the resort. 11. The said addition was challenged before ld. CIT(Appeals). The ld. CIT(Appeals) followed his findings given for assessment year 2005-06 in respect of unexplained investment in construction of the resort on the basis of A-3. The ld. CIT(Appeals) also justified action of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... papers, it is found that most of the papers are dumb documents and no reliance can be placed on these papers. The DVO alongwith his team had physically verified each and every item of work of Lamba Resort and on that basis he had prepared the detailed valuation report, which is in order and thus should be treated as correct . The report of the DVO shows that reference was made to him under section 142A of the Income Tax Act. It is also mentioned in the said report that assessee submitted details of vouchers/bills of materials purchased. The Distt. Valuation Officer assessed the cost of valuation at ₹ 65,37,000/- and the same was assessed year-wise as under : S.No. F.Y. A.Y. Assessed Value 1. 2005-06 2006-07 ₹ 29,55,372/- 2. 2006-07 2007-08 ₹ 34,61,169/- 3. 2007-08 2008-09 ₹ 1,20,459/- ₹ 65,37,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance could be placed on the same. Due to this reason, even during the course of arguments, ld. DR sought time to discuss the seized papers with the Assessing Officer to point out the basis of the additions made in all the assessment years. But nothing specific have been explained as to how Assessing Officer made the above additions against the assessee. The Assessing Officer, without any justification or cause, did not place reliance upon the report of the DVO which is binding on the Assessing Officer. Since reference is made by the Assessing Officer to the DVO, therefore, Assessing Officer was bound to adopt valuation disclosed by the DVO in his report. However, the Assessing Officer merely placed reliance upon seized document which did not disclose specifically the quantum of cost of construction invested by the assessee in the resort. Therefore, the finding of the DVO in the valuation report that most of the papers are dumb documents, is relevant and admissible. The report of the DVO clearly shows that no investments in construction have been made in assessment year 2005 06. The ld. CIT(Appeals), however, noted that assessee admitted that construction started at the fag end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bank and ₹ 2,50,000/- contributed by the partners and gave benefit to the assessee for a sum of ₹ 10,20,755/-. The assessee has submitted a bank certificate to show that bank has certified that loan of ₹ 35 lacs was granted in favour of M/s Lamba Celebration Resort. The ld. counsel for the assessee explained that as per assessee the total value was ₹ 26,90,702/- out of which bank loan was of ₹ 24,40,435/- and if the same is reduced, same would left to ₹ 2,50,267/- which is contributed by the partner in a sum of ₹ 2,50,000/-. The ld. counsel for the assessee also explained that in assessment year 2007 08, total value was ₹ 31,17,441/-. If the bank loan of Punjab National Bank in a sum of ₹ 10,86,991/- and State Bank of India of ₹ 2,01,044/- are reduced to balance would be ₹ 18,29,406/- which is sufficient as against partner s capital of ₹ 18,72,731/-. The Assessing Officer has also given benefit of bank loan to the assessee, therefore, the explanation of the assessee is acceptable that since valuation of cost of construction have been shown in a sum of ₹ 63,06,564/- upto assessment year 2007-08 in the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities below in assessment year 2006-07 and 2007-08 as well and delete the addition of ₹ 25,57,130/- and ₹ 15,33,972/-. 17. In the result, issue No. 1 is decided in favour of the assessee in all the assessment years. Issue No. 2 18. On ground No. 5 and 6 in assessment year 2007 08, the assessee challenged the addition of ₹ 9,52,731/- on account of accretion in capital account of partner Shri Devinder Singh Lamba and addition of ₹ 5,80,464/- on account of accretion in capital account of the partner Smt. Manmohan Kaur Lamba. It was noticed by the Assessing Officer that there was an addition of ₹ 11,92,731/- in the account of Shri D.S.Lamba and of ₹ 6,80,000/- in the account of Smt. Manmohan Kaur Lamba, two partners of the assessee firm when confronted, it was submitted that addition in the capital account of Shri D.S. Lamba was on account of drawings from his capital account with M/s Modern Tent House, M/s Glass Palace and from current account of M/s Modern Tent House. On cross verification from balance sheet/capital account of the said business concern, it was discovered by the Assessing Officer that Shri D.S.Lamba had duly wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxed by treating the said amount as undisclosed income even if the claim of gift said to have been received by him is rejected. 19(i) The ld. counsel for the assessee also relied upon decision of the Hon'ble Punjab Haryana High Court in the case of CIT Vs Rameshwar Dass Suresh Pal Cheeka 208 CTR 459 in which it was held as under : Once a partner of the firm has accepted having advanced amount to the firm, no addition could be made in the hands of firm under s. 68 . 20. Since in this case the partners of the assessee firm have admitted their capital contribution in their accounts, therefore, no addition could be made in the hands of the assessee firm. The above decisions of the Hon'ble Punjab Haryana High Court squarely apply in favour of the assessee. Further, Hon'ble Madhya Pradesh High Court in the case of Metachem Industries 245 ITR 160 similarly held that, On account of capital contribution, no addition could be made in the hands of the assessee firm . We, accordingly, set aside the orders of authorities below and delete both the additions. However, the Assessing Officer is at liberty to take up this issue in the individual cases of both the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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