Facts of the Case

The assessee company was engaged in the business of operating a cinema hall. During scrutiny assessment proceedings under Section 143(3), the Assessing Officer examined investments made in the cinema project.

Based on statements recorded and certain information gathered during inquiry proceedings under Sections 131 and 133(6), the Assessing Officer concluded that the assessee had made additional investments not recorded in the books of account.

Issues Involved

  1. Whether the Assessing Officer was justified in treating the alleged excess investment as unexplained under Section 69.
  2. Whether additions based primarily on statements without corroborative evidence were sustainable.
  3. Whether proper opportunity and verification were provided during assessment proceedings.

Petitioner’s (Assessee’s) Arguments

  • The addition was made solely on the basis of statements without supporting documentary evidence.
  • No independent verification establishing unaccounted investment was carried out.
  • The assessment violated principles of natural justice.

 Respondent’s (Revenue’s) Arguments

  • Statements recorded during inquiry proceedings indicated higher investment than disclosed.
  • The assessee failed to satisfactorily explain discrepancies noted by the Assessing Officer.
  • Therefore, addition under Section 69 was justified.

 Court Order / Findings (ITAT)

  • The addition was primarily based on statements and assumptions.
  • No reliable corroborative evidence was produced to establish actual unexplained investment.
  • Documentary records maintained by the assessee were not disproved.

Important Clarification by the Tribunal

  • Additions under Section 69 require concrete evidence of undisclosed investment.
  • Statements recorded during inquiry must be supported by documentary proof.
  • Suspicion or inference cannot substitute proof in taxation proceedings.
  • Proper evaluation of books of account is essential before making additions.

Link to download the order - https://itat.gov.in/public/files/upload/1654151444-KN%20International%20Lmt.%20Cinema.pdf

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