2024 (9) TMI 1438 - AT - Income Tax

Assessment u/s 153A - incriminating material found during the search action or not? - Validity of additions based on the Departmental Valuation Officer (DVO) report - HELD THAT - 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. 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.

Issues Involved:
1. Condonation of Delay in Filing Appeals
2. Validity of Assessment Proceedings under Section 153A
3. Incriminating Material and DVO Report as Basis for Additions
4. Additions Based on Valuation Differences
5. Legal Precedents on Use of DVO Reports for Additions

Issue-Wise Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The Tribunal noted a one-day delay in filing the appeals. The Assessee attributed the delay to the time taken for document signing by the local Counsel, CA Summit B Nagpal, supported by an affidavit. The Tribunal found the reasons genuine, and with no objections from the Departmental Representative (DR), the delay was condoned.

2. Validity of Assessment Proceedings under Section 153A:
The assessment proceedings were initiated following a search and seizure operation under Section 132 of the Income Tax Act, which revealed substantial unexplained investments. The Assessing Officer (AO) issued notices under Section 153A for assessment years beyond six years but not later than ten years, based on evidence suggesting escapement of income amounting to fifty lakh rupees or more. The Tribunal emphasized that reopening under Section 153A beyond six years is permissible only if the AO possesses tangible evidence of such escapement.

3. Incriminating Material and DVO Report as Basis for Additions:
The Tribunal scrutinized whether any incriminating material was found during the search. The only significant document was a loose sheet indicating an unaccounted investment of Rs. 45,00,000 in a property, which was less than the prescribed limit of Rs. 50,00,000 for reopening assessments beyond six years. The Tribunal highlighted that the DVO's report, obtained post-search, does not qualify as incriminating material under Section 153A.

4. Additions Based on Valuation Differences:
The AO made additions based on the DVO's valuation report, which estimated higher values for properties than those declared by the Assessee. However, the Tribunal noted discrepancies in the DVO's methodology, such as using CPWD rates instead of State PWD rates and adding amounts for builder's efforts without evidence. The Tribunal found that the DVO's estimates were not conclusive evidence of investment and emphasized that the AO should have considered deductions for self-supervision and material purchase.

5. Legal Precedents on Use of DVO Reports for Additions:
The Tribunal referred to several legal precedents, including the Supreme Court's decision in PCIT vs. Abhisar Buildwell P. Ltd., which held that no additions can be made in the absence of incriminating material found during the search. Other cases cited reinforced that DVO reports alone cannot justify additions without corroborating evidence. The Tribunal concluded that the AO's reliance on the DVO report without tangible evidence was insufficient for reopening assessments beyond six years.

Conclusion:
The Tribunal quashed the reassessments for the relevant assessment years, finding that the evidence of undisclosed investments was less than Rs. 50,00,000, making the reopening of assessments beyond six years legally untenable. The appeals of the Assessees were allowed, and the additions made by the AO were not sustained.

Order Pronounced on 12.08.2024:
The Tribunal allowed all the captioned appeals of the Assessees, quashing the impugned assessments and confirming that the reopening of assessments was not justified based on the evidence presented.

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