2009 (8) TMI 256 - HC - Income Tax

Unexplained expenditure - (a) Whether Tribunal was correct in law in deleting the addition of Rs. 19, 69, 881 made by the Assessing Officer and adopting the figure of cost of construction of Yusuf Sarai Project at Rs. 19, 99, 559 as against rs. 39, 69, 440 declared by the assessee? - (b) Whether Tribunal was correct in law in holding that the reference made by the Assessing Officer to the DVO for determining the cost of construction was not justified even after insertion of section 142A by the Finance (No. 2) Act 2004 with retrospective effect from November 15 1972? - In the present case except the report of the DVO on which the Assessing Officer relied upon there was nothing on record to suggest that there was any other evidence to disbelieve the expenditure shown by the assessee. In fact during the course of arguments learned counsel for the asses see produced the assessment order which clearly demonstrates that the expenditure shown by the assessee from the time when it was an on going project was examined and accepted by the Assessing Officer. Held that AO for the purpose of getting himself satisfied about the purported unexplained expenditure under section 69C powers under section 142A could not be invoked. - Held that tribunal was justified in deleting the additions made by by AO on basis of valuation report

Summary

Issues:
1. Whether the Income Appellate Tribunal was correct in deleting the addition made by the Assessing Officer and adopting a different figure for the cost of construction.
2. Whether the reference made by the Assessing Officer to the Departmental Valuation Officer (DVO) for determining the cost of construction was justified.

Analysis:

Issue 1:
The appellant, a construction company, completed the Yusuf Sarai Project during the assessment year in question and declared profits. The Assessing Officer referred the matter to the DVO to determine the cost of construction, resulting in a lower figure than declared by the assessee. The Income-tax Appellate Tribunal reversed the decision, stating that the reference to the DVO was not justified. The Tribunal held that the provision inserted by the Finance (No. 2) Act, 2004, did not allow for such references for unexplained expenditure under section 69C of the Act. The High Court agreed with the Tribunal's interpretation, emphasizing that the powers under section 142A did not extend to estimating unexplained expenditure under section 69C. The court found no evidence to disbelieve the expenditure shown by the assessee, ultimately ruling in favor of the appellant.

Issue 2:
Section 142A of the Income-tax Act allows the Assessing Officer to require the Valuation Officer to estimate the value of specific investments or valuable articles. In this case, the Assessing Officer doubted the expenditure on the project but referred to the DVO under section 142A, which did not cover unexplained expenditure under section 69C. The court rejected the argument that expenditure could be considered as an "investment" under section 69B, highlighting the distinct provisions of section 69C dealing with unexplained expenditure. The court emphasized that the Legislature specifically excluded section 69C from section 142A, applying the principle of casus omissus. The court concluded that the intention behind section 142A did not encompass unexplained expenditure as in section 69C, as evidenced by the legislative history and circulars. The court dismissed the appeal, ruling against the Revenue's contentions and upholding the Tribunal's decision.

This detailed analysis of the judgment provides a comprehensive overview of the legal issues involved, the arguments presented, and the court's reasoning leading to the final decision.