2016 (9) TMI 1072 - AT - Income Tax

Proceeding of assessment u/s 153A - income from house property - Held that - CIT(A) has mentioned in para 4.4 of his order that certain loose papers relating to house property under consideration showing details of map of each room, doors and windows were found and seized. Therefore, the assumption of jurisdiction by the AO u/s 153A of the Act is in accordance with law, which is also supported by the land mark decision in the case of CIT vs. Kabul Chawla, (2015 (9) TMI 80 - DELHI HIGH COURT) wherein it was held that completed assessment can be interfered with by the AO while making the assessment u/s 153A only on the basis of some incriminating material un-earthed during the course of search or requisition documents for undisclosed income or property discovered in the course of search, which were not produced or not already disclosed or made known in the course of original assessment. Since in the case of assessee, the renovation/construction of house was undertaken during the course of assessment year under consideration, therefore, assumption of jurisdiction u/s 153A by the AO is justified. Addition being the difference of valuation report and the investment shown in the books of accounts - Held that - As it is seen that the DVO/A.O. has not provided proper opportunity to the assessee as only one day for filing the objection was allowed, which was also ignored by the AO and made ad hoc addition as per his whims. Since the report of Valuation Officer is also an estimate, though it is by technical person, it is noticed that the DVO has applied PAR 1992 rates as per C.B.D.T. Instruction No. 1671, which is claimed to be duly adjusted for Bhopal. However, the assessee has not been supplied with any working paper to verify the claim of the DVO. It is also noticed that PAR 1992 rates are relevant for very high class building in New Delhi or Metro areas, where cost of construction is 30% higher than the cost of material and labour in the small town like Bhopal. It has been held in several judicial cases that where the State PWD rates are published those rates should be applied in preference to PAR rates. The actual construction are awarded at rates 20 % to 30% below PAR rates. We are of the considered opinion that the addition can be made solely on estimated basis based on DVO s report is not justified and proper. Therefore, in the interest of justice and fair play, it would be reasonable to restrict the addition of ₹ 5,61,761/- to ₹ 2,00,000/- for assessment year 2005-06 and addition of ₹ 4,43,473/- to ₹ 1,50,000/- for assessment year 2006-07, which was pronounced in the open court. Appeal decided partly in favour of assessee

Summary

Issues Involved:
1. Jurisdiction of assessment proceedings under Section 153A.
2. Addition towards unexplained investment in the construction of a residential house.

Issue-Wise Detailed Analysis:

1. Jurisdiction of Assessment Proceedings under Section 153A:
The assessee contested that the proceedings under Section 153A were without jurisdiction as no incriminating documents were found during the search. The assessee argued that since the original assessments for the years in question were completed and not pending on the date of the search, no additions could be made without specific incriminating material. The CIT(A) held that the AO had validly assumed jurisdiction under Section 153A because certain documents related to the construction of the house were found during the search, including maps and purchase lists. The Tribunal upheld this view, noting that the AO is mandated to assess or reassess the total income for six preceding assessment years in case of a search, irrespective of whether the original assessments were pending. The Tribunal cited the case of CIT vs. Kabul Chawla, emphasizing that completed assessments can be interfered with only based on incriminating material found during the search.

2. Addition towards Unexplained Investment in Construction of Residential House:
The AO made additions of ?15 lakhs for AY 2005-06 and ?10 lakhs for AY 2006-07 based on the valuation report, which showed higher investment in the house than declared by the assessee. The CIT(A) reduced these additions to ?5,61,761 and ?4,33,473 respectively, aligning them with the difference between the valuation report and the assessee's declared investment. The assessee argued that no addition could be made solely based on the DVO's valuation report without proper opportunity to contest it. The Tribunal noted that the DVO's report was an estimate and that the AO did not provide adequate time for the assessee to file objections. The Tribunal found that applying PAR 1992 rates, which are higher and relevant for metro areas, was inappropriate for Bhopal. Consequently, the Tribunal further reduced the additions to ?2,00,000 for AY 2005-06 and ?1,50,000 for AY 2006-07, deeming these amounts reasonable and justified.

Conclusion:
The Tribunal concluded that the AO had validly assumed jurisdiction under Section 153A due to the discovery of documents during the search. However, it found the additions based on the DVO's report excessive and reduced them to more reasonable amounts. The appeals were thus partly allowed, with the jurisdictional issue dismissed and the quantum of additions partly upheld and partly reduced.