2023 (11) TMI 1143 - AT - Income Tax

Assessment u/s 153A - undisclosed investments - reopening of assessment u/s 153A beyond six years but not more than ten years - relevant assessment years - evidence available to the AO was relating to the loose sheet whereby the unexplained investment of the assessee has been taken by the AO at Rs.45,00,000/- - Whether any incriminating material found during the search action? - HELD THAT - The provisions of section 153A are in itself is separate code. After the search action u/s 132 of the Act, the assessment/reassessment is reopened for the six years preceding the date of search. However, as laid down in case of Abhisar Buildwell P Ltd 2023 (4) TMI 1056 - SUPREME COURT no addition can be made in respect of completed/unabated assessment years in assessments carried out u/s 153A in the absence of any incriminating material found during the search action. The assessment years beyond six years but not more than ten years can be reopened u/s 153A of the Act only if the AO is in possession of evidence depicting the escapement of income of aggregating Rs.50,00,000/- or more in such relevant assessment years beyond six years from the date of search. These provisions extending the assessment beyond six years and upto ten years put a stringent condition of possession of evidence with the AO of escapement of income of Rs.50,00,000/- or more. Such provisions extending the scope of assessment beyond six years from the date of search has to be construed strictly and the evidence relied upon by the AO in such assessments of extended period must be a tangible evidence. As noted above, it has been held time and again by various courts of law that the DVO's report on standalone basis without any corroborating material cannot be construed as incriminating material and hence the additions solely on the basis of the DVO's report are not sustainable. In the case of the assessee, even there is no difference found out between the investment disclosed by the assessee in the books of account as compared to the DVO's report in respect of property at Leela Bhawan Chowk, Patiala. Under the circumstances, since the evidence relating to the undisclosed investments in respect of relevant assessment years as defined in Explanation 1 to 4th Proviso of section 153A(1) was less than Rs.50,00,000/-, therefore, the reopening of the assessment of the relevant years was bad in law and the same is hereby quashed. Assessee appeal allowed.

Summary

Issues Involved:
1. Legality of reopening assessments beyond six years under Section 153A based on DVO reports.
2. Validity of additions made solely on DVO reports without corroborating evidence.
3. Assessment of unexplained investments in properties.

Summary:

Issue 1: Legality of Reopening Assessments Beyond Six Years Under Section 153A Based on DVO Reports

The appeals concern the reopening of assessments beyond six years but not later than ten years under Section 153A of the Income Tax Act. The Assessing Officer (AO) issued notices for AYs 2009-10, 2010-11, and 2011-12, based on a search and seizure operation conducted on 25.10.2017, which revealed substantial unexplained investments. The AO relied on a Departmental Valuation Officer (DVO) report to estimate the value of these investments. However, the reopening beyond six years is permissible only if the AO possesses tangible evidence revealing escapement of income amounting to Rs. 50 lakhs or more. The Tribunal noted that the AO's satisfaction was based on the DVO's valuation report and a loose receipt, which indicated an unexplained investment of Rs. 45,00,000/-.

Issue 2: Validity of Additions Made Solely on DVO Reports Without Corroborating Evidence

The Tribunal emphasized that the DVO's report alone does not constitute incriminating material. It cited various judicial precedents, including the Supreme Court's decision in PCIT vs. Abhisar Buildwell P. Ltd., which held that no addition can be made in assessments under Section 153A in the absence of incriminating material found during the search. The Tribunal further noted that the DVO's report is an estimation and not conclusive evidence of investment. The AO's reliance on the DVO's report without corroborating evidence was deemed insufficient to justify the additions.

Issue 3: Assessment of Unexplained Investments in Properties

The AO's additions were based on differences in property valuations and a loose receipt indicating an investment in a property. The Tribunal found that the AO had wrongly attributed investments to the assessee in properties owned by the assessee's father. It also highlighted discrepancies in the DVO's valuation methods, such as using CPWD rates instead of State PWD rates, and the lack of evidence for certain additions made by the DVO. The Tribunal concluded that the only tangible evidence was the loose receipt indicating an investment of Rs. 45,00,000/-, which was below the Rs. 50,00,000/- threshold required for reopening assessments beyond six years.

Conclusion:

The Tribunal quashed the reopening of assessments for the relevant years, deeming it illegal due to the lack of tangible evidence of income escapement exceeding Rs. 50 lakhs. It allowed the appeals, holding that the additions made solely on the basis of the DVO's report were unsustainable without corroborating evidence.