2014 (7) TMI 431 - HC - Income Tax

Reference made to DVO - Deemed income u/s 69B of the Act Unexplained investment and levy of penalty u/s 271(1)(c) of the Act Held that - CIT (Appeals) had correctly appreciated the facts and the applicable law - the only reason given by the assessee was that he was suffering from high fever and had signed the papers without properly applying his mind or appreciating the contents or issue the letter was disbelieved by the AO as well as by the CIT(A) - the value assessed by the DVO pointed out towards the truthfulness of the disclosure made - there was no infirmity in the approach of the CIT (A) - The difference in the disclosed consideration and the value as estimated by the DVO is so large that even if the valuation was not considered accurate, it nonetheless indicated that the recorded consideration was understated and the DVO s report could be relied upon to corroborate the statement of the assessee, that he had paid an additional sum of ₹ 55 lacs in cash. The statement had been made by the assessee and not by any third party - the statement made by the assessee had been held to be voluntary and without any undue influence, both by the AO and the CIT (A) thus, the Tribunal erred in holding that the DVO s report did not corroborate the statement made by the assessee before the Income Tax Authorities The order of the CIT (A) made in penalty proceedings had given effect to the Tribunal s order in the substantive proceedings - The rights and contentions of the parties in respect of the penalty shall be gone into independently in accordance with law by the CIT (A) - Decided in favour of Revenue.

Summary

Issues Involved:
1. Addition of deemed income under Section 69B of the Income Tax Act as unexplained investment.
2. Levy of penalty under Section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Addition of deemed income under Section 69B of the Income Tax Act as unexplained investment:

The controversy centers around the addition of Rs. 55,00,000 as deemed income under Section 69B of the Act, which was considered unexplained investment. The assessee had purchased a property for Rs. 20,00,000, as per the registered conveyance deed, but later admitted in a statement before the Income Tax Authorities that the actual purchase value was Rs. 75,00,000, with Rs. 55,00,000 paid in cash from undisclosed income. The assessee retracted this statement, claiming it was made under duress and due to illness. However, the Assessing Officer (AO) and CIT (Appeals) did not accept the retraction, considering it an afterthought. The AO referred the property valuation to the District Valuation Officer (DVO), who valued it at Rs. 98,75,400. The AO, thus, added Rs. 78,75,400 as deemed income, which the CIT (Appeals) reduced to Rs. 55,00,000, based on the assessee's initial admission.

The Tribunal, however, held that a retracted confession without corroborative evidence was not reliable and dismissed the addition, questioning the DVO's valuation methodology. The Tribunal's decision was challenged by the Revenue, and the High Court found merit in the Revenue's appeal, noting that the DVO's valuation, although based on a nearby locality's auction, still indicated a significant understatement of the property's value. The High Court emphasized that the Indian Evidence Act does not apply to assessment proceedings, allowing the AO to rely on other material evidence. The Court concluded that the Tribunal erred in dismissing the DVO's report and reinstated the addition of Rs. 55,00,000 as deemed income.

2. Levy of penalty under Section 271(1)(c) of the Income Tax Act:

The penalty issue arose from the AO's imposition of Rs. 18,52,435 as a penalty for the undisclosed income of Rs. 55,00,000, which was upheld by the CIT (Appeals). However, the Tribunal set aside the penalty, following its decision to dismiss the addition of income. The Revenue's appeal against the Tribunal's decision was admitted, and the High Court remitted the matter back to the CIT (Appeals) to reconsider the penalty in light of the substantive proceedings' outcome. The High Court instructed the CIT (Appeals) to independently evaluate the assessee's submissions regarding the penalty, ensuring a fair reassessment in accordance with the law.

Conclusion:

The High Court allowed the Revenue's appeal (ITA 1095/2011), reinstating the addition of Rs. 55,00,000 as deemed income under Section 69B, and remitted the penalty matter (ITA 444/2012) back to the CIT (Appeals) for independent reconsideration. The Court's decision underscores the importance of corroborative evidence in retracted confessions and the flexibility of assessment proceedings concerning evidence rules.