2022 (7) TMI 1145 - AT - Income Tax

Assessment u/s 153C - Whether no incriminating material was seized? - HELD THAT - The objections of the assessee regarding assessment u/s 153C of the Act are that the assessment is not based upon any incriminating material recovered during the course of search. AO has not brought any material in support of his allegation regarding higher fair market value of the property. It is stated that both Stamp Valuation Authority as well as the DVO have assessed the fair market value of the property much lower than the value as disclosed in the Sale Deed. Moreover, the Valuation Report pertained to a date much prior to registration of Sale Deed. AO has not brought any material in support except the Valuation report. The Valuation Report is merely an opinion. It cannot be equated with a document as envisaged u/s 153C(b). In the present case, it is not the case where no material was available with the AO. During the course of search, a valuation report was found at the premises of third party wherein the fair market value of the property was assessed at higher value than what was disclosed by the assessee. There was a reasonable cause for the AO to initiate proceedings u/s 153C of the Act. The assessee stated that adopting of a higher fair market value by the approved valuer was for obtaining a loan from the bank. Moreover, the Stamp Valuation Authority and the DVO assessed fair market value much lower than what assessee has disclosed in the Sale Deed. AO has not brought on record any other material suggesting that the valuation adopted by the Stamp Valuation Authority or the DVO was not correct. AO has also not brought any other comparative sale instances of similarly situated property to rebut the claim of the assessee. Therefore, there is no material to accept the valuation report by the approved valuer which was obtained much prior to the assessment year under consideration for sustaining the addition. So far the decision of CIT(A) for deleting the addition is justified as the AO has not brought any evidence supporting the valuation report. We do not see any reason to disturb the conclusion drawn by the Ld.CIT(A) regarding merit of the case. However, we are of the considered view that the AO was justified for initiation the proceedings u/s 153C of the Act when he was in possession of certain valuation report related to the property which was sold during the year under consideration. The appeal of the Revenue is partly allowed.

Summary

Issues:
1. Validity of assessment framed under section 153C of the IT Act, 1961.
2. Consideration of incriminating material for assessment.
3. Quashing of assessment order by Ld. CIT(A).
4. Deletion of addition on account of capital gain on the sale of property.

Issue 1: Validity of assessment under section 153C:
The appeal pertains to the Revenue challenging the assessment order for the assessment year 2008-09 under section 153C of the IT Act. The Revenue contended that the assessment was based on incriminating material found during a search operation, specifically a valuation report indicating a higher fair market value of the property. The Revenue argued that the AO was justified in making additions based on this report, as it revealed discrepancies between the disclosed sale consideration and the assessed value. The Ld. Counsel for the assessee, on the other hand, argued that the valuation report was antidated and not relevant to the assessment year under consideration. The Ld. CIT(A) quashed the assessment, stating that the report did not pertain to the relevant assessment year, leading to the deletion of the addition.

Issue 2: Consideration of incriminating material:
The crux of the dispute revolved around the presence of incriminating material for framing the assessment under section 153C. The Revenue argued that the valuation report, though not directly incriminating, provided crucial evidence of undervaluation in the property sale. On the contrary, the assessee contended that no incriminating material related to the assessment year was found during the search. The Ld. CIT(A) emphasized the need for incriminating material specific to the assessment year under consideration, ultimately leading to the quashing of the assessment.

Issue 3: Quashing of assessment order by Ld. CIT(A):
The Ld. CIT(A) played a pivotal role in the case by quashing the assessment order on the grounds of lack of incriminating material directly linked to the assessment year in question. The Ld. CIT(A) highlighted the importance of adhering to the legal requirement of having relevant incriminating material for invoking section 153C. By emphasizing the temporal relevance of the seized documents and their connection to the assessment year, the Ld. CIT(A) provided a legal basis for overturning the assessment.

Issue 4: Deletion of addition on capital gain:
Another significant aspect of the case involved the deletion of an addition of Rs. 15,24,52,659 on account of capital gain arising from the sale of property. The AO had made this addition based on discrepancies between the disclosed sale consideration and the valuation report's assessment. However, the Ld. CIT(A) found insufficient evidence to support the valuation report's validity, leading to the deletion of the addition. The Tribunal partly allowed the Revenue's appeal, acknowledging the AO's justification for initiating proceedings under section 153C but upholding the deletion of the addition due to lack of supporting evidence.

In conclusion, the judgment addressed key issues related to the validity of assessments under section 153C, the necessity of incriminating material, the role of the Ld. CIT(A) in quashing assessment orders, and the deletion of additions based on capital gains. The decision provided clarity on the legal requirements for invoking section 153C and emphasized the importance of substantiating additions with relevant and incriminating evidence specific to the assessment year under consideration.