Facts of the Case

A search under section 132 was conducted on 27.08.2009, followed by assessments under section 153A for AYs 2004-05 to 2009-10. Additions were made primarily on two counts:

  1. Alleged bogus sundry creditors
  2. Unexplained investment in building based on a Departmental Valuation Officer (DVO) report

Earlier, the Tribunal had remanded these issues to the CIT(A) for fresh adjudication. After reconsideration, the CIT(A) granted partial relief but sustained certain additions, leading to the present appeals before the Tribunal.

Issues Involved

  1. Whether old balances of sundry creditors can be treated as bogus liabilities.
  2. Whether additions for new creditors are justified without supporting evidence.
  3. Whether construction-related additions based on DVO valuation are sustainable.
  4. Whether a valuation report under section 142A is binding on the Assessing Officer.

 Petitioner’s Arguments

The assessee submitted that regular books of account were maintained, audited, and accepted in earlier assessments, and the proviso to section 145(3) had not been invoked. Many creditor balances represented opening balances carried forward from prior years and therefore could not be treated as unexplained.

Regarding construction expenditure, it was contended that investments were duly recorded in the books and that reliance on a DVO report without rejecting the books was contrary to law. Judicial precedents such as Sargam Cinema vs. CIT (SC) and CIT vs. Lucknow Public Education Society (All HC) were cited in support.

 Respondent’s Arguments

The Revenue argued that the assessee failed to produce primary evidence such as bills and vouchers to substantiate creditor balances and construction expenses. Ledger accounts alone were insufficient to establish genuineness.

It was further contended that, in the absence of reliable documentation, the DVO report represented the most dependable basis for determining investment.

 Court Order / Findings (ITAT Allahabad)

The Revenue argued that earlier Tribunal orders had been set aside by the High Court, rendering the present proceedings infructuous. The Tribunal rejected this contention, holding that the High Court’s decision related only to the scope of section 153A and did not disturb remand directions on merits regarding creditors and valuation issues.

 Important Clarification

  • Opening balances cannot be taxed as unexplained liabilities without proof of falsity or cessation.
  • Valuation reports under section 142A are advisory in nature; the Assessing Officer must independently evaluate objections before relying on them.

Thus, additions in search assessments must be grounded in concrete evidence rather than presumptions or mechanical adoption of valuation reports.

Link to download the order -                       https://www.mytaxexpert.co.in/uploads/1771063022_MSKESARWANIZARDABHANDARALLAHABADVS.JCITC.CALLAHABADALLAHABAD.pdf

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