2012 (3) TMI 28 - AT - Income Tax

Validity of reference to Valuation Officer under section 142A - No incriminating material found in Search - No material on record that value of the property was under-stated OR investment exceeded the amount recorded in the registered sale deed - Held That - Assessing Officer cannot make a reference u/s 142A for making roving and fishing enquires. Reference to DVO can only be made after rejecting books of account when books are not rejected Assessing Officer has no power to straightaway jump to the next step of making an estimate. Relaince placed on CIT vs Mahesh Kumar (2010 - TMI - 78245 - DELHI HIGH COURT) CIT vs Ramesh Kakkar (2010 - TMI - 79050 - DELHI HIGH COURT) CIT vs Manoj Jain (2005 - TMI - 9979 - DELHI High Court).

Summary

Issues Involved:
1. Validity of reference to the Valuation Officer under section 142A of the Income Tax Act, 1961.
2. Deletion of addition towards unexplained investment in land and construction based on the DVO's valuation report.

Issue-wise Detailed Analysis:

1. Validity of Reference to the Valuation Officer under Section 142A:

The assessee challenged the validity of the reference made by the Assessing Officer (AO) to the Valuation Officer (DVO) under section 142A of the Income Tax Act, 1961. The argument was that no incriminating documents were found during the search operation that suggested the value of the property was understated in the sale deed. The AO's reference to the DVO was based on his subjective feeling that the declared price was lower than the market value, without any supporting evidence or document. The legal principle established in various cases, including CIT vs. Pratap Singh Amro Singh and CIT vs. Bajrang Lal Bansal, is that the primary burden to prove understatement or concealment of income lies with the revenue. The AO must have objective evidence before making a reference to the DVO. The CIT (A) and ITAT concluded that the AO did not follow the basic steps required for making such a reference, making the reference invalid. The CIT (A) emphasized that the AO did not reject the books of account, which is a prerequisite for making a reference under section 142A. The reference was thus deemed to be without any objective basis and material on record, rendering it bad in law.

2. Deletion of Addition towards Unexplained Investment:

The AO made an addition of Rs.60,79,673/- based on the DVO's valuation report, which was contested by the assessee. The CIT (A) granted relief by relying on the decision of ITAT in Dinesh Jain vs. DCIT and the jurisdictional High Court in CIT vs. Prem Nath Nagpal, which held that no addition could be made solely on the basis of the DVO's report without any incriminating evidence found during the search. The CIT (A) found that the AO relied on a single sale instance for land valuation, which was not comparable to the property in question. The registered valuer's report, which considered multiple sale instances and adjusted for time and location, was deemed more reliable. The CIT (A) also found that the AO did not provide a reasoned order for rejecting the assessee's explanations regarding self-supervision, marble flooring, and other construction costs. The ITAT upheld the CIT (A)'s findings, emphasizing that the AO must have objective evidence of understatement before relying on the DVO's report. The ITAT also noted that the AO did not reject the books of account, which recorded the investment in the property. The consistent legal precedent requires that the primary burden of proof regarding understatement or concealment of income is on the revenue, and without discharging this burden, reliance on the DVO's report is impermissible. Consequently, the ITAT dismissed the revenue's appeal and allowed the assessee's cross-objection, affirming that the addition based on the DVO's report was not justified in the absence of any incriminating evidence.

Conclusion:

The appeal by the revenue was dismissed, and the cross-objection by the assessee was allowed. The ITAT concluded that the reference to the DVO under section 142A was invalid and the addition based on the DVO's report was not justified due to the lack of incriminating evidence and the AO's failure to reject the books of account. The decision reinforced the principle that the burden of proof lies with the revenue to establish any understatement or concealment of income before making additions based on valuation reports.