2015 (10) TMI 1069 - AT - Income Tax

Addition u/s. 69B on the basis of valuation estimated by DVO - CIT(A) deleted the addition - Held that - According to assessee, the investments are declared in the books of account, which are not rejected by the AO for making reference to DVO. Neither the AO has brought on record any evidence regarding any investment made by assessee in the properties in excess of the amount mentioned in the sale deeds. The Ld. Sr. DR has not disputed these facts. Admittedly, the correctness of the figures incorporated in the books of account are not disputed by the AO, so there cannot be any reference to DVO within the premise of section 142A of the Act. This view is settled by Hon ble Supreme Court in the case of Sargam Cinema Vs. CIT (2009 (10) TMI 569 - Supreme Court of India ), wherein it is held that the AO could not have referred the matter to the DVO without rejecting the books of account. Here, in the present case also, the books of account are not rejected by AO. Hence, reference is bad in law. In the present case, the AO has not given any finding and has not brought on record any evidence to justify the undisclosed investment in the acquisition of these properties i.e. two flats. In such circumstances, we are of the view that the AO has not rightly proceeded for invocation of the provisions of section 69B of the Act. Accordingly, the unexplained investment added by the AO is without any basis and against the provisions of law. - Decided in favour of assessee.

Summary

Issues:
Appeal against deletion of addition under section 69B based on valuation by DVO.

Analysis:

Issue 1: Deletion of addition under section 69B
The case involved an appeal by revenue against the deletion of an addition made under section 69B of the Income-tax Act. The Assessing Officer (AO) had added an amount as undisclosed investment based on the valuation by the Departmental Valuation Officer (DVO) compared to the value declared by the assessee in the conveyance deeds for two flats. The AO invoked section 69B, treating the difference as deemed income. However, the Commissioner of Income Tax (Appeals) (CIT(A)) deleted the addition, stating that the AO misapplied the law by using the valuation report for estimating the investment in the purchased property. The CIT(A) emphasized that section 69B pertains to investments exceeding recorded amounts in books of accounts, not valuation discrepancies. The CIT(A) referenced legal precedents to support the decision, highlighting that section 50C deals with deeming provisions for capital gains, not undisclosed investments in the hands of purchasers. The CIT(A) concluded that the AO's addition was unjustified, and the valuation report could not be used for taxing deemed considerations in both sellers' and purchasers' hands. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO failed to establish evidence of understatements by the assessee, a prerequisite for invoking section 69B. The Tribunal dismissed the revenue's appeal, affirming the deletion of the addition.

In summary, the judgment addressed the incorrect application of section 69B by the AO, emphasizing the need for evidence of understatements before invoking such provisions. The decision clarified the distinction between valuation reports for capital gains and undisclosed investments, ultimately upholding the deletion of the addition by the CIT(A) and dismissing the revenue's appeal.