2024 (6) TMI 513 - AT - Income Tax

Unexplained investment for construction of factory premises - Addition Based on Private Valuer's Report - valuation of construction was taken into account as per the report prepared by Registered Valuer during the search proceedings in presence of the Authorized Person/Representative of the assessee - whether the assessing officer can at the time of search / survey based on the physical appearance and without rejecting the books of account make a reference to the registered valuer or not? - HELD THAT - When any reference is made by the Assessing Officer to the valuation officer us 55A, then the provisions of following sections of Wealth-tax Act, 1957, shall apply with the necessary modifications. Provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A of the Wealth-tax Act, 1957. Section 16A of Wealth- tax Act, 1957, is similar to section 55A of Income-tax Act. Section 16A of Wealth-tax Act, 1957, contains the provisions relating to making a reference to the valuation officer for making assessment under the Wealth-tax Act. Apart from the provisions of section 55A, section 142A also empowers the Tax Authorities to make a reference to a Valuation Officer. The provisions of section 142A empowers the AO for the purposes of assessment or reassessment, make a reference to a Valuation Officer to estimate the value, including fair market value, of any asset, property or investment. Valuation Officer has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957. AO may make a reference to the Valuation Officer as above whether or not he is satisfied about the correctness or completeness of the accounts of the taxpayer. The Valuation Officer, on a reference made by the Assessing Officer, shall, for the purpose of estimating the value of the asset, property or investment, have all the powers that he has u/s 38A of the Wealth-tax Act, 1957. Valuation Officer shall, estimate the value of the asset, property or investment after taking into account such evidence as the taxpayer may produce and any other evidence in his possession gathered, after giving an opportunity of being heard to the taxpayer. Valuation Officer may estimate the value of the asset, property or investment to the best of his judgment. AO may, on receipt of the report from the Valuation Officer, and after giving the taxpayer an opportunity of being heard, take into account such report in making the assessment or re-assessment. But here we note that the addition has been made by the ld. AO without any supporting evidence or material found during the search operation and the addition was made only based on the private ( registered ) valuer for which the reference was made by the DDIT at the time of search and that report was obtained on the very next date of search. CIT(A) has considered the judgement of the CIT Vs. Nishi Mehra 2015 (3) TMI 156 - DELHI HIGH COURT where in it was held that no addition can be made only on the basis of valuation report in the absence of any incriminating material or corroborative material to point out the under valuation of the property. DR did not bring any contrary judgment except relying the judgment of the Dhakeswari Cotton Mills Ltd. Vs. CIT 1954 (10) TMI 12 - SUPREME COURT for which the ld. AR has filed a distinguishing note submitting that that decision is pari materia on difference facts. In the light of the discussion so recorded we see no merits in the arguments raised by the revenue considering the facts circumstances discussed here in above the ground no. 1 2 challenging the addition stands dismissed.

Summary

Issues Involved:

1. Legality of the addition based on the valuation report of a private registered valuer.
2. Validity of the approval granted by the Additional CIT u/s 153D.
3. Maintainability of the appeal filed by the Revenue.

Summary of Judgment:

Issue 1: Legality of the addition based on the valuation report of a private registered valuer

The Revenue challenged the deletion of the addition of Rs. 1,39,76,229/- made on account of unexplained investment for the construction of factory premises. The assessee argued that the addition was based solely on a valuation report from a private registered valuer obtained during the search, without following the statutory provisions u/s 142A and 55A of the Income Tax Act. The Tribunal noted that no incriminating documents were found during the search, and the valuation report was prepared hastily within a day without consulting the assessee. The Tribunal upheld the CIT(A)'s decision to delete the addition, emphasizing that any addition based solely on a private valuer's report, without corroborative evidence, is not sustainable.

Issue 2: Validity of the approval granted by the Additional CIT u/s 153D

The assessee contended that the approval granted by the Additional CIT u/s 153D was mechanical and without application of mind, as it was granted on the same day. The Tribunal referred to the judgment of the Bombay High Court in the case of Chhagan Chandrakant Bhujbal Vs ITO, which held that approval granted on the same day does not necessarily indicate non-application of mind. The Tribunal found no evidence of non-application of mind by the Additional CIT and dismissed the assessee's ground on this issue.

Issue 3: Maintainability of the appeal filed by the Revenue

The assessee argued that the Revenue's appeal was not maintainable as it did not challenge the CIT(A)'s finding that the reference to the private valuer was without authority of law. The Tribunal agreed with the assessee, noting that the Revenue failed to dispute the CIT(A)'s decision on the illegality of the private valuer's report. Consequently, the Tribunal dismissed the Revenue's appeal as frivolous and upheld the CIT(A)'s order.

Conclusion:

The Tribunal dismissed the Revenue's appeals and allowed the assessee's cross-objections, confirming that the addition based on the private valuer's report was not justified and that the approval u/s 153D was valid. The Tribunal also emphasized the need for adherence to statutory provisions and proper application of mind in the approval process.