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

• It is fairly conceded (at bar) by the Revenue that the reference to DVO for estimation of the market value of the property in Punjabi Bagh, New Delhi was not based on any material discovered or seized during the search operations. The counsel, however, referred to the case of another property in District Baddi (Himachal Pradesh), in respect of which documentary evidence indicated unaccounted consideration paid by the assessee, referred to by the AO. At the same time, learned counsel also conceded that no addition to the tax liability of the assessee on account of the said other property has been made. There is no nexus between the property in Baddi (Himachal Pradesh) and the property in Punjabi Bagh (West). There is undoubtedly no material available to even remotely reflect that consideration over and above what was shown to be paid in the registered sale deed of the West Punjabi Bagh property was made over to the seller. In these circumstances, it was not fair in the first place to refer the said property for estimation of its market value by DVO.
• The assessment of the value by DVO cannot hold primacy over the consideration for which the property was actually acquired. If there is any difference in the shares in consideration borne by the four brothers, it is a matter of their inter se understanding. Doubts as to the real value cannot arise from such fact alone.
• The shop in Bhagirath Place is the property of the assessee. It has been found, as a fact, by the CIT(Appeals) that the shop had remained vacant throughout the AY. No evidence was gathered by the AO to refute the claim of the assessee to such effect or to show that rent over and above what was declared was realized. The conclusion of the CIT(Appeals) to the contrary was affirmed by ITAT. Both the said authorities have also found, on factual inquiry, that the assessee had explained the recovery during the search with the help of books of accounts of Wings Pharmaceuticals Pvt. Ltd. There is nothing brought by the Revenue to demonstrate that these pure findings of fact are perverse.