ITAT quashes assessment reopening under section 153A as undisclosed investment falls short of Rs.50 lakh threshold

The ITAT Chandigarh quashed the reopening of assessment under section 153A for assessment years beyond six years but within ten years. The assessee's undisclosed investment was computed at Rs.45,00,000 based on a loose sheet, which fell short of the mandatory Rs.50,00,000 threshold required for extending assessment beyond six years. The tribunal held that DVO reports alone cannot constitute incriminating material without corroborating evidence, and since no difference existed between disclosed investments and DVO findings for the property, the reopening was invalid. The assessee's appeal was allowed.

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Issues Involved:
1. Legality of reopening assessments beyond six years under Section 153A based on DVO reports.
2. Validity of additions made solely on DVO reports without corroborating evidence.
3. Assessment of unexplained investments in properties.

Summary:

Issue 1: Legality of Reopening Assessments Beyond Six Years Under Section 153A Based on DVO Reports

The appeals concern the reopening of assessments beyond six years but not later than ten years under Section 153A of the Income Tax Act. The Assessing Officer (AO) issued notices for AYs 2009-10, 2010-11, and 2011-12, based on a search and seizure operation conducted on 25.10.2017, which revealed substantial unexplained investments. The AO relied on a Departmental Valuation Officer (DVO) report to estimate the value of these investments. However, the reopening beyond six years is permissible only if the AO possesses tangible evidence revealing escapement of income amounting to Rs. 50 lakhs or more. The Tribunal noted that the AO's satisfaction was based on the DVO's valuation report and a loose receipt, which indicated an unexplained investment of Rs. 45,00,000/-.

Issue 2: Validity of Additions Made Solely on DVO Reports Without Corroborating Evidence

The Tribunal emphasized that the DVO's report alone does not constitute incriminating material. It cited various judicial precedents, including the Supreme Court's decision in PCIT vs. Abhisar Buildwell P. Ltd., which held that no addition can be made in assessments under Section 153A in the absence of incriminating material found during the search. The Tribunal further noted that the DVO's report is an estimation and not conclusive evidence of investment. The AO's reliance on the DVO's report without corroborating evidence was deemed insufficient to justify the additions.

Issue 3: Assessment of Unexplained Investments in Properties

The AO's additions were based on differences in property valuations and a loose receipt indicating an investment in a property. The Tribunal found that the AO had wrongly attributed investments to the assessee in properties owned by the assessee's father. It also highlighted discrepancies in the DVO's valuation methods, such as using CPWD rates instead of State PWD rates, and the lack of evidence for certain additions made by the DVO. The Tribunal concluded that the only tangible evidence was the loose receipt indicating an investment of Rs. 45,00,000/-, which was below the Rs. 50,00,000/- threshold required for reopening assessments beyond six years.

Conclusion:

The Tribunal quashed the reopening of assessments for the relevant years, deeming it illegal due to the lack of tangible evidence of income escapement exceeding Rs. 50 lakhs. It allowed the appeals, holding that the additions made solely on the basis of the DVO's report were unsustainable without corroborating evidence.

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