2015 (3) TMI 156 - HC - Income Tax

Scope, power and jurisdiction of AO in block assessment proceedings and the term undisclosed income - AO concluded a comparison between declared value and the value determined by the DVO disclosed serious discrepancy and added the difference and brought them to tax in the block assessment orders - ITAT 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 that - As decided on CIT Versus. Naveen Gera 2010 (8) TMI 194 - Delhi High Court it is settled law that in the absence of any incriminating evidence that anything has been paid over and above than the stated amount, the primary burden of proof is on the Revenue to show that there has been an understatement or concealment of income. It is only when such burden has been discharged, would it be permissible to rely upon the valuation given by the DVO. 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. - Decided in favour of assessee.

Summary

Issues:
Interpretation of scope, power, and jurisdiction of Assessing Officer in block assessment proceedings and the term "undisclosed income".

Analysis:
1. The appeals before the Delhi High Court arose from a common order made by the ITAT regarding block assessment proceedings under Section 153A of the Income Tax Act. The Revenue challenged the deletion of amounts brought to tax by the AO based on the DVO's valuation report. The search operations were conducted in the premises of a firm engaged in exporting and selling handicrafts. The Revenue alleged that high profit margins were concealed, leading to under-valuation of properties purchased by related parties. The AO referred the properties for valuation, and based on the DVO's report, made additions to the block assessment orders for various years.

2. The ITAT held that the AO could not tax the amounts solely based on the DVO's report without evidence of under-valuation. It noted that the properties were disclosed during regular assessments, accepted by tax authorities. The ITAT emphasized that there was no fresh material post-search to suspect under-valuation, and the AO's actions were beyond the scope of Section 158BC. Consequently, the additions on revaluation were deemed invalid, and the ITAT quashed them for all properties.

3. The Revenue contended that in block assessment proceedings, powers under Section 147/148 should be exercised to prevent under-valuation suspicions. They argued that the AO, if suspecting undervaluation, could refer properties for valuation based on strong reasons, even without post-search material. Conversely, the assessee's counsel cited precedents to support the position that the DVO's report alone cannot justify additions, emphasizing the need for additional incriminating evidence.

4. The High Court analyzed the facts and legal principles, noting that the search did not reveal evidence of under-valuation and that the disclosed transactional values were accepted by tax authorities. Citing previous judgments, the Court reiterated that the burden to prove understatement or concealment of income lies with the Revenue. The Court highlighted that the DVO's report alone is insufficient without corroborative evidence, following established legal precedents.

5. Referring to various decisions, including those by the Supreme Court and other High Courts, the Court upheld that additions cannot be solely based on the DVO's report. The Court dismissed the appeals, ruling in favor of the assessees based on settled legal principles and precedents, emphasizing the necessity of concrete evidence to support tax additions in block assessment proceedings.