2013 (11) TMI 1825 - AT - Income Tax

Summary

ISSUES:

Whether the addition under section 68 of the Income Tax Act, 1961, treating unsecured loans as deemed income, is justified when the assessee fails to establish the creditworthiness of the lenders.Whether reopening of assessments under section 148 without issuing notice under section 143(2) and without filing return in response to notice under section 148 is valid.Whether addition on account of unexplained investment due to difference in valuation of school building under section 69B of the Income Tax Act is justified.Whether the difference in valuation of property less than 10% should be ignored for addition under section 69B.Whether addition on account of unexplained source of capital investment is justified when the assessee fails to establish the source of capital introduced.Whether addition on account of excess claim of expenditure on salary and wages is justified when the assessee fails to produce evidence supporting the claim.Whether addition on account of difference in valuation of property/building as estimated by the Departmental Valuation Officer (DVO) vis-à-vis the value declared by the assessee is justified.Whether addition on account of failure to record receipts is justified without rejection of books of account.Whether the Assessing Officer's use of CPWD rates instead of State PWD rates for valuation affects the addition under section 69B.

RULINGS / HOLDINGS:

The addition under section 68 is upheld where the assessee fails to establish the creditworthiness of cash lenders, and the genuineness of transactions is not proved; "the onus is upon the assessee to explain each and every credit entry" and failure attracts provisions of section 68.The ground challenging reopening without notice under section 143(2) and without filing return in response to notice under section 148 was not pressed and dismissed.Addition under section 69B on account of unexplained investment due to difference in valuation of school building is not justified where the difference is marginal and less than 10%, and the Assessing Officer is directed to delete the addition.The court held that differences in valuation less than 10% should be ignored, applying the principle that marginal differences do not warrant addition under section 69B.Addition on unexplained source of capital investment is upheld where the assessee fails to establish the source of capital introduced, despite claims of rent income and internal accruals.Addition on excess claim of salary and wages is partly allowed; the assessee's failure to produce evidence justifies a disallowance, but a reduced amount is upheld in the interest of justice.Additions based on difference in valuation by DVO versus declared value by assessee are disallowed where the valuation differences are marginal and explanations regarding rates applied are accepted.Addition on account of failure to record receipts is not pressed and dismissed.The use of CPWD rates instead of State PWD rates for valuation was found to affect the addition, and the plea of the assessee on this ground was accepted, leading to deletion of addition.

RATIONALE:

The court applied the statutory provisions of the Income Tax Act, 1961, specifically sections 68 (cash credits), 69B (unexplained investments), 143(2), and 148, emphasizing the burden of proof on the assessee to establish identity, creditworthiness, and genuineness of transactions.The principle that "where the difference between the value declared by the assessee and the value estimated by the DVO is less than 10%, the same should be ignored" was applied consistently across assessment years concerning valuation disputes.The court relied on documentary evidence, statements of creditors, and valuation reports by the Departmental Valuation Officer to assess the credibility of claims and valuations.The court recognized the importance of correct valuation rates (State PWD vs. CPWD) in determining the fair value of constructed property for tax purposes.There was no doctrinal shift; the court adhered to established principles that additions under sections 68 and 69B require the assessee to prove the source and genuineness of credits and investments.No dissenting or concurring opinions were noted in the judgment.