2015 (11) TMI 75 - HC - Income Tax

Court overturns tax assessment based solely on DVO report, favors Assessees

The Court ruled in favor of the Assessees, setting aside the ITAT, AO, and CIT (A) orders regarding the addition under Section 69B of the Income Tax Act ... Addition u/s 69B - unexplained investment - estimation of value of the property - total amount spent by the three co-owners in acquiring the farm - Held that:- As regards the probative value of the report of a DVO, the settled legal position appears to be that in the absence of there being material with the AO to come to a conclusion that the Assessee had paid extra consideration for the purchase of property over and above what is stated in the sale deed, an addition under Section 69B of the Act “solely on the basis of the report of the Valuation Officer” cannot be sustained. See Commissioner of Income Tax v. Puneet Sabharwal (2010 (12) TMI 846 - Delhi High Court ) In the facts of the present case it is plain that the seized document, which raised the suspicion of the Revenue about a possible undisclosed investment made by the Assessees, did not form the basis for the additions. The statement made by the DR before the ITAT, which was accepted by the ITAT, makes it clear that the addition was sought to be sustained only on the basis of the report of the DVO. Thus the Court finds that the additions made in the hands of the Assessees, are in the facts and circumstances of the case, unsustainable in law. The question is answered in the negative i.e. in favour of the Assessees and against the Revenue. Issues:Challenging ITAT order under Section 260A of the Income Tax Act, 1961 for Assessment Year 1994-95 regarding addition under Section 69B based on DVO report.Analysis:1. The three brothers, as Assessees, appealed against the ITAT order dated 17th October 2002, challenging the addition under Section 69B of the Income Tax Act, 1961, based on a DVO report for the Assessment Year 1994-95.2. The Revenue raised a presumption of undisclosed investment based on a seized document during a search operation, leading to the AO commissioning a DVO report to determine the correct value of the property.3. The DVO report estimated the property value higher than recorded, resulting in the AO adding the undisclosed amount to the Assessees' income under Section 69B.4. The CIT (A) upheld the additions, prompting the Assessees to appeal to the ITAT, where the Revenue clarified that the addition was based on the DVO report, not the seized document.5. The Court framed the question of law on whether the ITAT was correct in applying Section 69B and sustaining the addition, leading to a detailed legal analysis.6. The Court discussed the legal position that a DVO report alone cannot justify additions under Section 69B without other supporting evidence, citing relevant case laws Commissioner of Income Tax v. Puneet Sabharwal and Commissioner of Income Tax v. Lahsa Construction Pvt. Ltd.7. It was emphasized that in this case, the addition was solely based on the DVO report, not the seized document, which was accepted by the ITAT.8. The Assessees argued that the AO's act of commissioning the DVO report was without jurisdiction, referencing a Supreme Court decision, but the Court focused on the lack of legal basis for the additions based solely on the DVO report.9. The Revenue relied on precedents to shift the burden to the Assessees once the DVO report indicates undisclosed investment, but the Court clarified that in those cases, the DVO report was corroborative, unlike in the present case.10. Ultimately, the Court found the additions unsustainable in law as the DVO report was the sole basis for the additions, ruling in favor of the Assessees and setting aside the ITAT order, along with the AO and CIT (A) orders, with no costs awarded.