2010 (8) TMI 65 - HC - Income Tax

Burden on Revenue: Additions u/s 69B cannot rest solely on post-search valuation without incriminating material

HC upheld deletion of additions made u/s 69B based solely on a post-search valuation report, where no incriminating material was found during search to ... Addition u/s 69B based on valuation report - Unexplained cash - burden of proof to prove - during the search, no evidence was found suggesting a higher valuation for the property - CIT(A) and ITAT deleted the additions stated that additions on account of valuation difference cannot be made in the absence of any evidence found in the course of search because undisclosed income in the block assessment is to be computed on the basis of material found in the search proceedings and the valuation report was admittedly not during the course of the search and was obtained as by the department subsequent thereto. HELD THAT:- It is settled law that the primary burden of proof to prove understatement or concealment of income is on the revenue and it is only when such burden is discharged that it would be permissible to rely upon the valuation given by the DVO. No evidence much less incriminating evidence was found as a result of the search to suggest that the respondent-assessee had made any payment over and above the consideration mentioned in the return of the respondent-assessee. No substantial question of law arises in the present appeal, which is dismissed in limine. Issues:Challenge to Income Tax Appellate Tribunal's order under Section 260A for block period, Addition under Section 69B based on valuation report, Deletion of addition by Commissioner of Income Tax (Appeals), Tribunal's decision upholding deletion, Revenue's contention on deletion, Burden of proof on revenue, Reliance on valuation by Departmental Valuation Officer (DVO), Supreme Court's rulings on reliance on DVO's opinion, Lack of incriminating evidence post search.Analysis:The appeal filed under Section 260A of the Income Tax Act, 1961 challenges the Income Tax Appellate Tribunal's order for the block period from 1st April, 1989 to 17th December, 1999. A search at the respondent-assessee's residence revealed unexplained cash and FDR, but no evidence supported a higher valuation for a property. The Assessing Officer added an amount under Section 69B based solely on the District Valuation Officer's report, which the Commissioner of Income Tax (Appeals) later deleted, citing the Supreme Court decision in K.P. Varghese Vs. ITO, 131 ITR 597.The Tribunal upheld the deletion, emphasizing that undisclosed income in block assessment must be based on material found during the search proceedings. The Tribunal noted that the valuation report was obtained post-search and could not be used without evidence found during the search. The revenue contended that the Tribunal erred in deleting the addition as undisclosed income under Section 69B. It is established that the burden of proof to show understatement or concealment of income lies with the revenue, and reliance on the DVO's valuation requires the rejection of books of account.The Supreme Court rulings emphasized that the DVO's opinion alone is not sufficient information for assessment or reassessment. In cases where books of account are not rejected, reliance on the DVO's report is deemed misconceived. The lack of incriminating evidence post-search regarding additional payments by the respondent-assessee further weakened the revenue's case. Ultimately, the court found no substantial question of law in the appeal and dismissed it summarily.