2016 (9) TMI 1598 - AT - Income Tax

Assessment u/s 153A - search proceedings - evaluation of value of building - AO had referred the valuation of building to the DVO - HELD THAT - As assessee was searched and during search operation no incriminating material was found. Subsequent to search AO initiated the proceedings u/s 153A. During the assessment proceedings he noticed that the assessee has constructed building along with other persons. To evaluate the value of the building he referred to the Valuation Officer and the same was adopted to complete the assessment u/s 143(3) r.w.s. 153A . The assessment proceedings are subsequent to the search proceedings. In the search there was no incriminating material found and the same was not disputed by the AO. Since there is no incriminating material found the addition cannot be made other than what was found in the search. AO can substantiate the material found and cannot bring anything in the assessment. As we are aware block assessment is a special assessment the material found in the search alone can be assessed or it can be substantiated based on the material found in the search. In case no material found the block assessment itself bad in law. No doubt AO can refer to the DVO to complete the pending assessment. But in the given case there is no adverse material to substantiate the assessment therefore there is no room for the AO to refer something which is not found during the search. Hence in our view the addition made was not proper and needs to be annulled. Accordingly findings of the CIT(A) is upheld and ground raised by the revenue is rejected.

Summary

Issues:
- Discrepancy in cost of construction disclosed by the assessee and estimated by the Valuation Officer.
- Validity of reference made to the District Valuation Officer (DVO) by the Assessing Officer.
- Application of section 153A in the absence of incriminating material.
- Competence of the Assessing Officer to refer to the DVO under section 142A.
- Legality of the assessment proceedings under section 143(3) r.w.s. 153A.

Analysis:

1. Discrepancy in cost of construction:
The appellant, along with others, constructed a building where the Assessing Officer referred the property to the DVO for valuation. The DVO estimated the cost higher than what the appellant had disclosed. The appellant argued that the DVO's method was flawed and that he had paid the market rates for construction. The CIT(A) held that the reference to the DVO was unjustified as no incriminating material was found during the search. The addition made by the Assessing Officer based on the DVO's estimation was deemed not justified, and the addition was deleted.

2. Validity of reference to DVO:
The Assessing Officer referred the valuation to the DVO without rejecting the books of the assessee. The CIT(A) found this action to be improper as it should have been done after rejecting the books. The reference to the DVO was considered without any valid reason, leading to the assessment being deemed not justified.

3. Application of section 153A without incriminating material:
The Assessing Officer initiated proceedings under section 153A post a search where no incriminating material was found. The CIT(A) held that since there was no incriminating material, the assessment proceedings under section 153A were not valid. The assessment was considered bad in law as no additional income/investment was found during the search.

4. Competence of Assessing Officer under section 142A:
The revenue contended that the Assessing Officer had the discretion to refer to the DVO under section 142A. However, the CIT(A) and the Tribunal found the reference to the DVO unjustified due to the lack of incriminating material and the improper assessment proceedings.

5. Legality of assessment proceedings under section 143(3) r.w.s. 153A:
The Tribunal upheld the CIT(A)'s decision to delete the addition made by the Assessing Officer based on the DVO's estimation. The Tribunal emphasized that in the absence of incriminating material, the assessment proceedings under section 153A were not valid, and the addition made by the Assessing Officer was deemed improper. The appeal of the revenue was dismissed, affirming the CIT(A)'s decision.