In absence of incriminating material found during search, reference to DVO is invalid

Brief of the case

Delhi High Court in case of Commissioner Of Income Tax Vs. Anil Arora held that reference to DVO for valuation of a property itself was invalid ,when AO’s conclusion/reasoning was not based on any material discovered or seized during the search operations. Therefore, addition could not have been made under section 69B.

Facts of the case

• The assessee is a resident individual associated with business of Wings Pharmaceuticals Pvt. Ltd. There was search and seizure under Section 132 was carried out in the said company. The proceedings being initiated under Section 153A, against the assessee.
• In the course of proceedings, the Assessing Officer (AO), noted that assesse purchased property in Punjabi Bagh (West), New Delhi in 2007 jointly in equal shares with his three brothers for total consideration of `3.90 crores. It was noted that while two other brothers had paid Rs. 1.05 crores each, and the assessee and his other brother had paid `90 lakhs each for their respective shares.
• The AO suspected it to be a case of under- valuation and, thus, referred the matter to Departmental Valuation Officer (DVO) to ascertain the correct value of the property.
• The DVO, in his report, determined the value of the property at `6,47,72,800/-. On the basis of the said estimation, the AO concluded that the assessee had reported the value of the investment incorrectly. He found the value of the assessee’s share was higher , and on that basis, he made addition of Rs. 71,93,200/- treating it as undisclosed investment under Section 69B of the Act.
• The AO also noted that the assessee had declared rental income , of a shop which had been purchased by him for Rs. 2,55,000/- a number of years ago. The AO assessed the current rental income on the basis of 6% of the estimated present value of the shop assessed at `19 lakhs. On such conclusions, the AO made a further addition of `79,800/- to the income of the assessee under Section 23(4)(b).
• It is the case of the Revenue that during the search, cash of the value of `3,22,200/- was found at the residence of the assessee. The AO held this amount to be unexplained money and, thus, added it to the income under Section 69A.

HELD by CIT(A)

The court deleted additions made by A.O. on account of difference in market prices of properties as compared with declared values.

HELD by ITAT

The Tribunal upheld CIT (A) order.

 HELD by HIGH COURT