“investment not recorded in books”
The decision most relied on for investment not recorded in books is Tata Chemicals Ltd. v. CIT (256 ITR 395), cited in 86 judgments on BharatTax.
Leading authorities on investment not recorded in books
Interest on borrowings for business purposes is an allowable deduction under section 36(1)(iii) even if capitalized in the books of account. Modifications in business records for accurate accounting do not automatically imply fraudulent intent.
Disallowance under Section 14A cannot exceed the actual exempt income earned, and only investments that have yielded or are capable of yielding exempt income are considered for Rule 8D computation. The Assessing Officer must record objective satisfaction before rejecting the assessee's disallowance and applying Rule 8D, a principle also applicable to Section 115JB.
An appellate authority can admit additional grounds of appeal, especially when they are legal in nature, and allows for filing cross-objections before the Tribunal where facts are on record.
The Assessing Officer must record objective satisfaction with the assessee's accounts before invoking Rule 8D for computing disallowance under Section 14A. Disallowance of interest expenditure under Section 14A is not warranted if the assessee possesses sufficient interest-free funds to make investments yielding exempt income.
For Section 69 to be applied, the Assessing Officer must first establish that the assessee made investments not recorded in the books of account, then seek an explanation, and only if unsatisfactory, can the investment be added as income.
Under Sections 69 and 69B of the Income-tax Act, the burden of proof to establish that an assessee has made investments not recorded in the books of account lies with the Revenue. The Assessing Officer must first prove that such investments were made before requiring the assessee to explain their source; unsubstantiated material from third parties is not conclusive.
The revenue bears the burden to prove that an assessee's real investment exceeded the investment recorded in their books. Uncorroborated evidence alone is insufficient to empower the Assessing Officer to make an addition under Section 69B.
Additions to income are unwarranted if they are based on a flawed Departmental Valuation Officer (DVO) report and ignore properly recorded book investments that have not been doubted. The assessment should consider Supreme Court and High Court decisions on the matter.
