AO can rely upon valuation of DVO only after discharge of primary burden to prove under statement

Issue before court:

• Whether ITAT has rightly interpreted scope, power and jurisdiction of the Assessing Officer in block assessment proceedings and the term “undisclosed income”.

Brief facts:

• 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.
• AO after 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.
• These orders were carried in appeal to the ITAT being pertaining to the block assessment years 1986-87 to 1995-96. ITAT allowed appeal of the assessee.
• 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.

Contention of the revenue:

• In block assessment proceedings, the Revenue in effect exercised powers vested in it under Section 147/148. Once the block assessment based upon search operations is found to be valid and there are genuine reasons for the AO to suspect the veracity of a particular property transaction, the question of not referring it for proper valuation should not ordinarily arise.
• Revenue to link the material found post search or during the course of the proceedings would not necessarily be fair and if the AO in the given facts of the case had strong and good reasons to suspect undervaluation, he can as well refer the properties for valuation.

Contention of the assessee:

• The question of law as framed in the context of the present case does not arise for consideration and has since been settled by various decisions. She relied upon the decisions reported as CIT v. Abhinav Kumar Mittal, (2013) 351 ITR 20, CIT v. Naveen Gera, (2010) 328 ITR 516 and CIT v. Bajrang Lal Bansal, (2011) 335 ITR 572.
• DVO’s report could not be the sole basis for addition and that there has to be some further material on record.

Held by the court:

• 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.
• When the actual purchases were effected disclosed in the ITR he transactional value of those assets was accepted by the AO. Wealth Tax authorities too had accepted the valuation.

Conclusion:

Hon’ble court has observed that in the case of Bajrang Lal (supra) it was held that it is settled law that the primary burden to prove understatement or concealment of income is on the Revenue and it is only when such burden is discharged it would be permissible to rely upon the valuation given by the DVO.