ITA. SAKTHI TOURIST HOME vs. 4HE COMMISSIONER OF INCOMETAX
What did the High Court hold?
The High Court held that the issue of valuation of the asset, leading to the addition under Section 69B, is a pure factual issue and does not involve a substantial question of law, thus not maintainable under Section 260A. The Court noted that the valuation made by the department was substantially reduced by the CIT(A) and accepted by the Tribunal. Regarding the claim for spreading over the unexplained investment, the Court held that Section 69B mandates treating unexplained investment as income of the year in which the investment is made. The assessee failed to provide evidence regarding the stage of construction or the period during which additions were made, which is necessary to grant a spread-over. Furthermore, this claim was raised for the first time before the Tribunal. Consequently, the High Court dismissed the appeal.
What were the facts?
The assessee, M/s. Sakthi Tourist Home, engaged in running a tourist home, is in appeal against an order of the Income Tax Appellate Tribunal (ITAT). During a search on October 9, 1987, the department noted an asset in the form of a building constructed by the assessee. The assessee accounted for an investment of approximately Rs. 23 lakhs, but the department's valuation was over Rs. 49 lakhs. The Assessing Officer (AO) refixed the value at Rs. 45,82,327/- and made an addition of Rs. 22,77,068/- as unexplained investment under Section 69B. The CIT(A) reduced this addition to Rs. 8,44,475/-. Both the assessee and the department appealed to the ITAT, which dismissed both appeals, upholding the CIT(A)'s order.
What were the issues?
1. Whether the Tribunal erred in not treating the addition sustained under Section 69B as a substantial question of law, given that it pertains to the valuation of an asset? 2. Whether the Tribunal erred in rejecting the assessee's claim for spreading over the unexplained investment over several years? Assessee's contentions: The assessee argued that the issue of valuation of the asset, which led to the addition, involved a substantial question of law. The assessee also contended that the unexplained investment should be allowed to be spread over several years, implying that the investment was made over a period. Revenue's contentions: The revenue did not explicitly record arguments in the judgment. However, the judgment implies the revenue's stance by discussing the Tribunal's findings.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
JUDGMENT Ramachandran Nair, J. This is an appeal filed by the assessee challenging the addition sustained by the Tribunal under Section 69B of the Income Tax Act. Assessee is a firm which was engaged in running of a tourist home. During search conducted on 9.10.1987, the department noticed creation of asset in the form of a building constructed by the assessee. The investment accounted by the assessee for the building was only Rs.23 lakhs and odd. However, department got the same valued at above Rs.49 lakhs. After giving some deductions, the Assessing Officer refixed the value at Rs.45,82,327/-. After taking into account the amount of investment accounted by the assessee, the Assessing Officer made addition of Rs.22,77,068/- as income in the form of unexplained investment under Section 69B of the Act. However, in first appeal, the C.I.T.(Appeal) accepted explanation offered by the assessee and reduced the addition to Rs.8,44,475/-. Even though assessee as well as department filed separate appeals to the Tribunal against the order of C.I.T.(Appeal), the Tribunal
2 dismissed both the appeals leading to finality of order of C.I.T.(Appeal).
Even though assessee has raised several questions of law, we do not think any question raised is a substantial question of law on which only appeal is maintainable under Section 260A of the Income Tax Act. The unexplained investment is deemed income of the year in which ivnestment is made as provided under Section 69B of the Act. The issue raised in this case only involves the actual amount of investment which is a matter of valuation. In fact it is seen that the valuation made by the department valuer is substantially reduced by the C.I.T.(Appeal) which found acceptance by the Tribunal. We do not find we have any authority to enter into the controversy on valuation of assests which is a pure factual issue. Therefore, there is no question of law involved so far as valuation of asset is concerned, which led to specific addition reduced by the C.I.T.(Appeal). So far as the next aspect of the question raised i.e. assessee's request for spreading over of unexplained investment for several years, we do not think the same is permissible because Section 69B specifically states that the unexplained investment should be treated as the income of the year in which investment is made. There is nothing on record to prove the stage of construction of the building at the time of acquisition by the firm and the period during which subsequent additions to the building was made. The 3 claim for spreading over of the investment for several years can be granted only if it is proved that the investment is made in several years. There is no such evidence in this case. Therefore, the Tribunal rightly rejected the claim of spreading over. Further, the assessee has raised this question for the first time before the Tribunal and therefore, we do not find any ground to interfere with the order in appeal on this issue also. The appeal is consequently dismissed. C.N.RAMACHANDRAN NAIR Judge V.K.MOHANAN Judge pms
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