Case Law Details
All the appeals arise out of the common order made by the ITAT. The Revenue contends that the direction of the ITAT to delete the amounts sought to be brought to tax under Section 153A of the Income Tax Act was unjustified. The assessees had purchased eight different properties; they are related to each other. The search operations were conducted in the premises of M/s Mehra Art Palace and its partners Arun Mehra, Subhash Mehra and Sushil Mehra on 27.03.1996. Mehra Art Palace was used to export as well as sell handicrafts in the domestic market. The allegations made by the Revenue against the firm and its partners were that the high profit margins enjoyed by it were concealed and only modest amounts were disclosed in the ITRs. After issuing notice, the AO taking into consideration the materials brought on the record referred the properties for valuation to the District Valuation Officer under Section 142A of the Income Tax Act. Based upon the report received which was considered after hearing counsel for the assessee, the AO made additions. The AO concluded that a comparison between declared value and the value determined (by the DVO) disclosed serious discrepancy. He, therefore, added the difference and brought them to tax in the block assessment orders.
Held by ITAT
The ITAT considered the submissions and concluded that the AO could not have brought to tax the amounts that he ultimately did merely based upon the DVO’s report in the absence of any material pointing to under valuation.
Held by Hon’ble High Court
We have considered the submissions. As apparent from the factual narrative, the materials collected in the search operations impelled the AO to complete the block assessment in this case. Conspicuously, however, there was no material in the course of the search or collected during the proceedings post search, pointing to under valuation of the assessees’ properties which were ultimately held to have been the subject of under valuation. Again, significantly the assessees had at relevant time when the actual purchases were effected disclosed the transactional value of those assets; the AO has then unreservedly accepted them. Wealth Tax authorities too had accepted the valuation. In almost identical circumstances, this Court in Navin Gera (supra) recollected the previous rulings – including the judgment of the Supreme Court in K.P. Varghese v. ITO, (1981) 131 ITR 597 (SC) and held as follows: –
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