2024 (2) TMI 1162 - AT - Income Tax

Assessment u/s 153A - Addition based on the valuation report - completed assessment - nature of material found in the course of search which led to impugned additions - whether addition made on the completed assessment when the valuation is made purely based on the statement and view of the building made by the searched? - HELD THAT - Considering the fact that the year under assessment is a completed assessment and in a search proceeding so far as it relates to the completed assessment only the addition can only be made with any corroborative material found during the search. As it is evidently cleared from the facts recorded and discussed in the orders of the lower authority they have merely based on the outer look and the statement of Shri Bhanwar Lal Soni there is no corroborative material suggest that the assessee has invested the money beyond the cost reflected in the books of accounts. In support of so assessee submitted that the assessee himself constructed the property which is of family owned and if the rate of State PWD is considered instead of Central PWD then there is no much difference even otherwise and the objections raised by the assessee has not been considered by the lower authority and has made the addition which is nothing but on the presumption and assumption. Such type of addition cannot be made in the post search case as decided by the apex court in the case of Abhisar Buildwell P. Ltd 2023 (4) TMI 1056 - SUPREME COURT Merely the statement cannot be made base to make the addition and the decision of the apex court that in search assessment u/s 153A, AO cannot assess or reassess the total income filed under s. 153A of the Act unless some incriminating material was found during the search. Revenue has not demonstrated the nature of material found in the course of search which led to impugned additions in the absence of any incriminating material. The cost of land incurred and recorded in the books has been duly accepted and reduced from the fair value derived by the valuer in the order passed under section 154 of the Act. The sustained addition is based on the valuation report of the DVO which is also considering the CPWD rates instead of PWD rates. Thus, the addition made towards the alleged difference in cost of construction made in the order of the assessment deserves to be deleted as the addition on cost of construction is based on valuation report which is in the realm of estimations without any nexus to any incriminating documents per se. Hence, in the absence of any incriminating material found, therefore, we see no perceptible reason to confirm the addition and therefore, the same is directed to be deleted. Appeal of the assessee is allowed.

Summary

Issues Involved:

1. Legality of the reference to the Departmental Valuation Officer (DVO).
2. Validity of additions based on DVO report in absence of incriminating material.
3. Adoption of Central Public Works Department (CPWD) rates over State Public Works Department (PWD) rates.
4. Rejection of expert report and comments on DVO report.
5. Charging of interest under sections 234B and 234C of the Income Tax Act.

Summary of Judgment:

1. Legality of the Reference to the DVO:
The Tribunal noted that the appellant argued the reference to the DVO was illegal as no books of accounts were rejected before making the reference. The Tribunal upheld the CIT(A)'s finding that post the Finance Act 2014 amendment, the rejection of books of accounts is no longer a prerequisite for making a reference to the DVO under Section 142A.

2. Validity of Additions Based on DVO Report in Absence of Incriminating Material:
The Tribunal examined whether the addition based on the DVO report could be made in the absence of any incriminating material found during the search. It was highlighted that the search team did not find any incriminating material and the addition was based purely on the statement of Shri Bhanwar Lal Soni. The Tribunal relied on the Supreme Court's decision in PCIT vs. Abhisar Buildwell Pvt. Ltd., which held that in cases of completed assessments, additions can only be made based on incriminating material found during the search. Consequently, the Tribunal directed the deletion of the addition.

3. Adoption of CPWD Rates over State PWD Rates:
The appellant contended that the valuation should have been based on State PWD rates rather than CPWD rates. The Tribunal noted that if State PWD rates were considered, there would be no significant difference. It was observed that the lower authorities did not consider the objections raised by the appellant regarding the adoption of CPWD rates.

4. Rejection of Expert Report and Comments on DVO Report:
The Tribunal found that the lower authorities arbitrarily rejected the expert report and the appellant's comments on the DVO report, which was against the principles of natural justice. The Tribunal emphasized that the addition based on the DVO report was in the realm of estimations without any nexus to incriminating documents.

5. Charging of Interest under Sections 234B and 234C:
The Tribunal noted that the issue of charging interest under sections 234B and 234C is consequential in nature and did not require specific adjudication.

Conclusion:
The Tribunal allowed the appeals of the assessee, directing the deletion of the additions made based on the DVO report due to the absence of incriminating material and the improper adoption of CPWD rates. The Tribunal's decision in ITA No. 530/Jodh/2023 was applied mutatis mutandis to the other appeals (ITA Nos. 531 to 534/Jodh/2023).