2006 (3) TMI 212 - AT - Income Tax

Tribunal Upholds Reopening of Tax Assessment but Calls for Fresh Property Valuation; Partly Allows Appeal for Reassessment.

Hanemp Properties (P.) Limited. Versus Assistant Commissioner Of Income-tax, Ward 12 (3).

The ITAT dismissed the assessee's challenge against the initiation of proceedings under section 147 of the Income Tax Act, affirming the validity of the ... Income Escaping Assessment - initiation of proceedings u/s 147 - search operations - block assessment order u/s 158BC determining disclosed income - fair market value - valuation of the properties - limitation of time - HELD THAT:- In the instant case according to the revenue while the fair market value of the property on the material date was Rs. 19,45,300 and Rs. 28,38,500, the assessee claimed to have purchased these two properties for Rs. 1,50,000 and Rs. 4,50,000 only. It is not correct proposition in law that no matter what the fair market value of the property is, even the ridiculous consideration shown in the agreement between the parties is binding upon the department unless and until there is prima facie evidence in possession of the department of some thing over and above the disclosed consideration having exchanged hands between the parties. To hold such a view would be nothing short of rendering the task of laundering black money very simple and easy. For example, some one may purchase diamonds worth Rs. one crore entirely out of his black money and get away by saying that he purchased diamonds for Rs. 5,000 only. To say that difference between the market value and disclosed consideration is no evidence at all and the department must have primary evidence of on money having exchanged hands is to put a burden on the revenue obviously most unlikely to be discharged. In the same vein the verdict of Hon'ble Supreme Court in the case of C.B. Gautam [1992 (11) TMI 1 - SUPREME COURT] is that where there is significant under-valuation of the property in the consideration as disclosed in the agreement between the parties and there is no plausible explanation for that under-valuation, the same would lead to the inference of evasion of tax or in other words the under-statement of consideration also. We are, therefore, unable to accept the contention of the learned counsel of the assessee that in the absence of direct evidence the valuation report made by the departmental valuer cannot lead to the assessment of any undisclosed investment within the meaning of sections 69, 69A, 69B and 69C of the Act. We may also state here that in our opinion the reference made by the learned Assessing Officer to the Departmental Valuation Cell cannot be held to be bad in law, in view of the provisions of section 142A of the Act inserted by the Finance (No. 2) Act, 2004 with retrospective effect from 15-11-1972. We find the judgment of Hon'ble Delhi High Court in the case of K. M. Sharma v. ITO [1996 (5) TMI 68 - DELHI HIGH COURT] has been given in some what different context, i.e., enlargement of the scope of provisions of section 150 by including an order passed by a court in any proceedings under any other law. However, it is clear from the judgment of Hon'ble Delhi High Court relied upon by the learned DR that it is the consequence of the order specified in section 150(1) that is material. The consequence of the order of the Tribunal in the case of the assessee is that the assessment should be made under the provisions of regular assessment and not block assessment. We, therefore, agree with the contention of the revenue that provisions of section 150(1) having been attracted, no limitation of time applied. Thus, we do not accept the contentions of the assessee challenging initiation of proceedings u/s 147 and accordingly, the assessee's grounds of appeal in this behalf are rejected. On consideration of the matter we are of the view that this aspect of the matter requires reconsideration. The learned Assessing Officer has in the assessment order merely stated that the assessee's objections have been considered and instead given his reasons in support of the valuation as made by the Departmental Valuer. The learned Assessing Officer has not met point by point various objections of the assessee to the departmental valuation. In the impugned order of the learned CIT (Appeals) also while importance is attached to the fact that the Departmental Valuer was appointed by the Government, various objections of the assessee to the Departmental Valuer's report have not been considered point by point based on facts and circumstances of the case. We, therefore, restore this issue to the file of the learned Assessing Officer with the directions that he should forward various objections of the assessee, including the report of the assessee's valuer to the Departmental Valuation Officer and obtain a fresh valuation report from him after considering the objections of the assessee, report of the assessee's valuer and after giving opportunity of being heard to the assessee and/or his valuer. Thereafter he should give adequate opportunity to the assessee to have his submissions on the revised valuation as done by the Departmental Valuer. The learned Assessing Officer should determine the value of the properties afresh after passing a reasoned order and make assessment of undisclosed income only if there is significant under-valuation of the properties for which the satisfactory explanation is not given by the assessee. For statistical purposes this appeal shall be treated as partly allowed. Issues Involved:1. Initiation of proceedings under section 147 of the Income Tax Act.2. Merits of the valuation of two properties made by the Departmental Valuer.Detailed Analysis:1. Initiation of Proceedings under Section 147:The appeal was filed by the assessee against the order of the CIT (Appeals) related to the assessment year 1997-98. The primary contention was against the initiation of proceedings under section 147. The case involved search operations under section 132, leading to a block assessment under section 158BC, where undisclosed income was determined based on the valuation of two properties. The Tribunal had previously ruled that the addition was unwarranted in the block assessment, suggesting that any addition should be made in regular assessment.The assessee argued that the notice under section 148 was issued beyond the four-year limit from the end of the assessment year, and there was no failure on their part to disclose material facts. The valuation reports were already available during the original assessment under section 143(3). The reopening was seen as a mere change of opinion, supported by the judgment in CIT v. Kelvinator of India Ltd.The Tribunal, however, found that the Assessing Officer had not accepted the purchase price at the time of the original assessment but had assessed the undisclosed income under section 158BC. The jurisdiction under sections 158BC and 143(3) is separate, and there was no change of opinion. The Tribunal also addressed whether the difference between the fair market value and the apparent consideration could infer undisclosed income. Citing judgments from K.P. Verghese and C.B. Gautam, it was held that significant under-valuation could lead to a rebuttable presumption of tax evasion.The Tribunal further discussed the applicability of section 150, which allows reopening based on a Tribunal's order. The Tribunal's order indicated that the income should be assessed under regular assessment and not block assessment, thus attracting section 150 and extending the time limit for issuing notice under section 148.Ultimately, the Tribunal rejected the assessee's grounds challenging the initiation of proceedings under section 147.2. Merits of the Valuation of Two Properties:The appeal also contested the valuation of the properties by the Departmental Valuer. The assessee argued that the valuation reports were merely opinions and not conclusive evidence of undisclosed income. The Tribunal, however, upheld the admissibility of expert opinions as evidence. The significant under-valuation could indicate under-statement of consideration unless satisfactorily explained by the assessee.The assessee pointed out that the properties were unauthorized constructions, which should affect their valuation. The Departmental Valuer had granted a rebate but not adequately considered the unauthorized status. The Tribunal found merit in this argument and noted that the Assessing Officer had not addressed the assessee's objections point by point.Consequently, the Tribunal directed the Assessing Officer to reconsider the valuation by forwarding the objections and the assessee's valuer's report to the Departmental Valuer. A fresh valuation report should be obtained after considering these objections, and the assessee should be given an opportunity to respond. The Assessing Officer should then determine the value afresh and assess undisclosed income only if significant under-valuation remains unexplained.For statistical purposes, the appeal was treated as partly allowed.