2011 (7) TMI 1396 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition made by AO on account of difference in purchase consideration and value ascertained by DVO u/s 142A.
2. Validity and jurisdiction of reference made u/s 142A by AO.
3. Justification of AO's reliance on DVO's report based on district circle rates.
4. Consideration of negative factors affecting property value.
5. Burden of proof on revenue to prove understatement of investment.

Summary:

1. Deletion of Addition Made by AO:
The revenue appealed against the CIT(A)'s order deleting the addition of Rs.11,21,476/- made by the AO due to the difference in purchase consideration shown by the assessee and the value determined by the Departmental Valuation Officer (DVO) u/s 142A of the Income-tax Act, 1961. The AO had issued a show cause notice to the assessee regarding the difference in values, which the assessee explained by highlighting various negative factors affecting the property values and providing valuation reports from M/s. R.S. Yadav & Associates.

2. Validity and Jurisdiction of Reference Made u/s 142A:
The learned DR contended that the reference made u/s 142A was valid and legal, and it was not necessary for the AO to bring on record any material to justify the understatement of purchase consideration. The CIT(A) found that the AO did not justify the need for the valuation report without making any enquiry from the purchaser or seller and without bringing any material on record to prove that the purchase consideration declared by the assessee was understated.

3. Justification of AO's Reliance on DVO's Report:
The AO relied on the DVO's report, which was based on district circle rates. The CIT(A) observed that the DVO did not independently determine the fair market value but simply adopted the district circle rates. The assessee's valuation report, which considered comparative sale instances, was ignored by the AO. The CIT(A) held that the AO was not justified in making the addition based on the DVO's report.

4. Consideration of Negative Factors Affecting Property Value:
The assessee pointed out various negative factors affecting the property values, which were not considered by the DVO. The AO rejected these contentions, stating that district circle rates account for all relevant factors. However, the CIT(A) noted that district circle rates are fixed for a specified area and do not consider the specific negative factors affecting individual plots. The CIT(A) found that the AO did not dispute the existence of these negative factors.

5. Burden of Proof on Revenue:
The CIT(A) and ITAT noted that the AO did not make any enquiry from the seller to determine if any amount over and above the declared amount was paid. The AO's addition was solely based on the DVO's report, which was not based on a scientific method of valuation. The ITAT upheld the CIT(A)'s order, citing various case laws that the burden is on the revenue to prove that the real investment exceeds the investment shown by the assessee.

Conclusion:
The ITAT upheld the CIT(A)'s order, deleting the addition of Rs.11,21,476/- made by the AO, and dismissed the revenue's appeal. The decision emphasized the need for independent and scientific valuation methods and the burden of proof on the revenue to establish understatement of investment.