2012 (9) TMI 587 - HC - Income Tax

Determination to the cost of the construction - case referred to departmental Valuation Officer (DVO)- Held that - As decided in Smt. Amiya Bala Paul Versus Commissioner of Income-Tax 2003 (7) TMI 4 - SUPREME COURT having assessed the value on the basis of the seized material, the A.O. could not have referred the matter of estimation of value to the Valuation Officer. Section 55A falls in Chapter IV-Computation of Income From Capital Goods. The special procedure for assessment of search case, is provided in Chapter XIV-B. The assessment of undisclosed income as a result of search is made under Section 158BA for which procedure for block assessment is provided under Section 158BC. The A.O. can assess the undisclosed income as a result of search only on the basis of material or information as are available in the search. He is not authorised to refer the matter to the Valuation Officer under Section 55A (b) (ii) to asses the fair market value. Such an enquiry is not permissible in respect of search cases - in favour of assessee. Gift received from Nepal - Held that - It is a settled preposition of law that the AO can examine the genuineness of gift, the capacity and identity of the donor. The assessees had informed the Assessing Authority that donors are their uncles and they reside in Nepal. It cannot be believed that the assessees did not know the full address of the donors. The address given by the assessees is Krishna Nagar, Nepal. Nepal is a country which has several districts. It was not sufficient on the part of the assessees merely to show that the donors are citizens of Nepal. Hence the identity of the donors was not established. As far as the capacity of the donors is concerned, it was also not proved - Merely because the assessees have shown the receipts by demand drafts from Nepal, it cannot be presumed that the gifts are genuine - against assessee.

Issues Involved:
1. Determination of the cost of construction based on the Departmental Valuer's report versus the Assessing Authority's findings.
2. Acceptance of gifts from foreign donors as genuine and explained income.

Detailed Analysis:

Issue 1: Determination of the Cost of Construction

The primary question was whether the Assessing Authority could determine the cost of construction based on entries in a rough diary, which were found to be unreliable, instead of relying on the Departmental Valuer's report. The appellants argued that the Assessing Authority should not have traveled beyond the Departmental Valuer's report, which estimated the cost at Rs. 5,04,100/-, especially since the diary entries were not authenticated and contained duplicate entries.

The court noted that under Section 55A of the Income Tax Act, the Income Tax Officer is authorized to refer the valuation of any capital asset to the Valuation Officer to ascertain its fair market value. The court referenced several cases, including *Smt. Amiya Bala Paul v. Commissioner of Income Tax* and *CIT v. Vinod Danchand Ghodwat*, emphasizing that the Assessing Officer's jurisdiction in search cases is limited to materials found during the search and does not extend to referring the matter to the Valuation Officer under Section 55A for an independent enquiry.

The court concluded that the Assessing Authority should have relied on the Departmental Valuer's report and not on the rough diary entries, which were not authenticated. Therefore, the court decided in favor of the assessee on this issue, stating that the Assessing Officer could not determine the cost of construction based on the unreliable diary entries.

Issue 2: Acceptance of Gifts from Foreign Donors

The second issue concerned the genuineness of gifts received from donors residing in Nepal. The assessees had claimed gifts from various individuals and provided confirmatory letters, income tax assessment orders, and copies of drafts. However, they failed to produce the donors for cross-examination, their balance sheets, or their bank passbooks. The Assessing Authority, therefore, treated the gifts as unexplained money and added them to the assessees' total income.

The court highlighted that the burden of proving the genuineness of gifts lies with the assessee. The court referenced *Commissioner of Income Tax Vs. P. Mohanakala*, where the Supreme Court held that the assessee must provide a proper, reasonable, and acceptable explanation regarding the sums credited in their books. The court found that the assessees had failed to establish the identity and capacity of the donors and did not provide sufficient evidence to prove the genuineness of the transactions.

The court concluded that merely showing receipts by demand drafts from Nepal does not prove the genuineness of the gifts. The assessees did not offer a reasonable and satisfactory explanation for the alleged gifts, and thus, the Tribunal did not err in upholding the findings that the gifts were receipts of an income nature to be charged to income tax.

Conclusion:

The court decided the first issue in favor of the assessee, stating that the Assessing Officer should have relied on the Departmental Valuer's report. However, the court decided the second issue against the assessees, concluding that they failed to prove the genuineness of the gifts. Consequently, both appeals were dismissed, and all questions were decided in favor of the revenue.

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