2003 (11) TMI 301 - AT - Income Tax

Validity Of Scrutiny Assessment - Unexplained investment in properties - Instructions/circulars etc. issued by the CBDT - Valuation report of the DVO - addition under the head income from undisclosed sources being undisclosed investment in the purchase of the two immovable properties. HELD THAT - As we have pointed out the ld. DR has filed before us copies of the instructions issued by the Board laying down guidelines for selection of cases for scrutiny by the field officers. Instruction No. 1917 dated 3-6-1994 pertains to selection of cases during the financial year 1994-95. For the next financial year Board has issued further instructions vide letter dated 9-3-1995. Instruction No. 1942 dated 11-7-1997 relates to the financial year 1997-98. In these instructions except for minor variations guidelines indicated by the CBDT are substantially similar. With regard to sample scrutiny cases the Board has advised the field formation to exclude inter alia non-business cases with income below Rs. 1.20 lakhs. The object and purpose in laying down the guidelines is to exclude cases from the pale of scrutiny where potential for tax evasion is minimal. However the interpretation sought to be placed on such instruction by the assessee is in our opinion entirely misconceived. Assessee has done trading in shares and has also earned income from business of commission. Merely because the assessee has shown such income in the return under the head other sources would not by itself disentitle the Assessing Officer to include the case in the random basket for sample selection of 3%. Even in the matter of interpretation of statutes literal perfectionist are fast losing ground to intention seekers and courts have increasingly opted for purposive approach as a cardinal principle of interpretation of statutes. Justice Learned Hand observed (as quoted by Allahabad High Court in CIT v. Nitro Phosphetic Fertilizer 1988 (5) TMI 22 - ALLAHABAD HIGH COURT that statutes should be construed not as theorems of Euclid but with imagination of purpose behind them. This interpretative shift towards purposive approach arises from the concern and anxiety of the judicial authorities that the purpose of the law is not defeated because the entire legislative process is influenced by consideration of justice and reason which constitute general legislative intent in every piece of legislation. If legislative intention is the primary guiding factor of interpretation of statutes this would be all the more so when we are considering the instruction issued by the executive authority. Even if such instructions are to be construed as falling under the ambit of section 119 of the Income-tax Act such instructions would necessarily be construed so as to harmonise with the spirit and letter of the law as well as the object and purpose for which the instruction has been issued by the CBDT. For these reasons we have no hesitation in holding that the Assessing Officer has selected the case for sample scrutiny in conformity with the guidelines issued by the CBDT and proceed to frame the scrutiny assessment in proper exercise of the powers conferred under sections 143(2) and 143(3). The objection of the assessee based on Board s instruction is therefore without substance and is dismissed. Ground No. 1 is therefore dismissed. Valuation report of the DVO - In the instant case the method adopted by the Valuation Officer is the comparable sales instances method. However we find that the sales instances relied upon by the DVO in his reports are in respect of property situated in far off localities which do not provide a reasonable guideline for determining the market value of the properties in question. In respect of property in Patparganj Industrial Estate the Valuation Officer has cited the sales instances of Jhilmil Colony and Kirti Nagar which are not comparable. Even the dates of such transactions have not been indicated by the Valuation Officer. What the Valuation Officer has done is the mere totalling up of sale price in the two instances cited by him and finding out the average sale price. This is not a permissible method of determining the value from sale instances. Each and every transaction of sale must be critically examined and analysed before accepting them as the base evidence regarding the market value of property in question. This has not been done by the Valuation Officer. As against this the assessee has cited sales instances of property situated in Patparganj Industrial Area wherein the property in question has been purchased by the assessee. These instances relating to property in the same locality are thus comparable with the transaction entered into by the assessee. Similarly with regard to Jagriti Enclave property we find that the Valuation Officer has cited sales instances of Sawastaya Vihar and Preet Vihar which are colonies having much better location and situation as compared with Jagriti Enclave wherein the assessee has purchased the property. Here again the DVO has taken the average of the sale consideration of the two instances which worked out to Rs. 16, 440 per sq. mtr. and Rs. 9, 036 per sq. mtr. The wide variation in the two instances appears to have been ignored by the DVO while considering these instances as comparable with that of the assessee. As against this the assessee has cited sales instances of Priyadarshni Vihar Ashok Niketan and Dayanand Vihar which are colonies contiguous to Jagriti Enclave wherein the assessee has purchased the property. Such sales instances in respect of contiguous area would provide more reliable guideline for determining the market value of the property in question. There is no rule of law nor any rule of prudence which has crystallized into a rule of law that the opinion evidence of an export has to be accepted as gospel truth. Reasons for the opinion must be carefully considered and examined and all other relevant evidence must be considered. In appropriate cases corroboration must be sought. This is particularly so because the science of valuation of properties has not attained an order of perfection and the risk of incorrect opinion is much higher. In the instant case valuation report of the DVO based on sales instances of much better situated and located colonies having no contiguity with the colonies in which the properties have been purchased by the assessee and in the light of the fact that sales instances of the same colony or contiguous colonies cited by the assessee are totally ignored by the revenue effectively demolishes the credibility of valuation report of the DVO. In our opinion revenue has not been able to adduce evidence direct or circumstantial to support or substantiate the conclusion that market value of the properties purchased by the assessee are higher than the consideration paid for their acquisition. However since the issue has not been argued from this angle and hearing has already been concluded and the impugned addition has been deleted by us as above we do not consider it necessary to dwell upon the matter any further. Thus we hold that there is no evidence on record to prove that assessee has paid consideration higher than the figure indicated in the sale documents for the purchase of the property in question. The addition sustained by the ld. CIT(A) is therefore deleted. The appeal of the assessee is therefore allowed. In the result the assessee s appeal No.1392/Del./1999 is dismissed and assessee s appeal No. 3647/Del./2002 is allowed.

Summary

Issues Involved:
1. Legality of scrutiny assessment.
2. Addition on account of unexplained investment in properties.
3. Addition in share trading income.
4. Addition in commission income.

Summary:

1. Legality of Scrutiny Assessment:
The assessee challenged the scrutiny assessment on the grounds that it was contrary to CBDT's Instruction No. 1939 dated 17-5-1996. The assessee argued that the assessment was ab initio void as the case selection for scrutiny was in violation of the Board's instructions. The Tribunal held that the instruction cited by the assessee was not applicable as it pertained to returns filed on or after 1-4-1996, whereas the assessee filed the return on 30-6-1995. Furthermore, the Tribunal found that the case was correctly selected for scrutiny under Class B guidelines, which allowed for random sampling. The Tribunal dismissed the assessee's objection based on the Board's instruction.

2. Addition on Account of Unexplained Investment in Properties:
The Assessing Officer made an addition of Rs. 11,86,897 on account of unexplained investment in two properties, based on the valuation reports of the Valuation Officer. The Tribunal noted that the revenue failed to provide evidence of understatement of consideration in the sale documents. The Tribunal emphasized that the onus was on the revenue to prove that the assessee paid more than what was declared. The Tribunal found that the sales instances relied upon by the Valuation Officer were not comparable to the properties in question. The Tribunal concluded that the revenue did not substantiate the claim of higher consideration paid by the assessee and deleted the addition of Rs. 11,86,897.

3. Addition in Share Trading Income:
The Assessing Officer estimated the income from share trading at Rs. 90,000 as against Rs. 70,620 shown by the assessee. The CIT(A) set aside the issue for further verification and allowing proper opportunity to the assessee. The Tribunal upheld the CIT(A)'s decision to set aside the issue for fresh adjudication, noting that no arguments were advanced by the representatives on this ground.

4. Addition in Commission Income:
The Assessing Officer made an addition of Rs. 1,630 in commission income. The CIT(A) set aside the issue for further verification. The Tribunal upheld the CIT(A)'s decision to set aside the issue for fresh adjudication, noting that no arguments were advanced by the representatives on this ground.

Conclusion:
The Tribunal dismissed the appeal regarding the legality of the scrutiny assessment and upheld the CIT(A)'s decision to set aside the issues of addition in share trading and commission income for further verification. The Tribunal allowed the appeal regarding the addition on account of unexplained investment in properties, deleting the addition of Rs. 11,86,897.