AI Drafter 
TaxTMI 
TaxTMI 
2021 (7) TMI 671
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....9 are taken as lead case and the result will be followed in all the other appeals. 2. The revenue has challenged the merits of the addition deleted by the Ld. CIT(A) in all the appeals [AY's 2008-09 to 2014-15] whereas the assessee has challenged in its cross-appeal the legal issue as to whether any addition could have been made u/s. 153A of the Income-tax Act, 1961 (hereinafter referred to as the "Act") without any incriminating material unearthed during search qua the assessee trust in the assessment years which were not pending before the AO on the date of search u/s. 132 of the Act on 13.03.2014 viz., (AYs 2008-09 to 2012-13). 3. Coming to the revenue appeal, the first ground of appeal of the revenue for AY 2008-09 reads as under: "1. Whether Ld. CIT(A) is justified in deleting addition of Rs. 5,21,77,760/-, when AO had made the addition as unexplained investment u/s. 69 of the I. T. Act, on basis of valuation report of the District Valuation Officer (DVO)." 4. Brief facts of the case as noted by the AO are that the assessee (Educational Trust) had filed original return of income for AY 2008-09 on 30.09.2008 disclosing total income of Rs. Nil. The AO notes tha....
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....in valuation of property as determined by the DVO vide valuation report dated 18.12.2014, (initial DVO Report) added back to the total income of the assessee the following amount for the respective assessment years as under: Asst. Year Amount 2008-09 Rs. 5,21,77,760/- 2009-10 Rs. 2,87,89,161/- 2010-11 Rs. 2,77,39,383/- 2011-12 Rs. 55,93,03,791/- 2012-13 Rs. 13,32,39,202/- 2013-14 Rs. 11,38,09,959/- 2014-15 Rs. 6,20,26,850/- 6. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) wherein the assessee had challenged the validity of the DVO report which was the only basis on which the additions were made by the AO by raising an additional ground as under for all assessment years: "For that the Valuation Officer to whom the reference was made by the AO for determination of cost of construction u/s. 142A of the Act, having not sent a copy of the report of the estimate made under sub-section (4) if sub-section (5), as the case may be within a period of six months as provided u/s. 142A(6) the reference so made becomes infructuous." 7. The aforesaid additional ground which was legal in nature was admitted by the Ld....
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....O while framing the re-assessment u/s. 153A of the Act could have made any addition without the aid of any incriminating material unearthed during search qua the assessee qua the respective unabated assessment years ?. According to Ld. A.R, this question of law is no longer res-integra and the AO while framing assessment u/s 153A of the Act could not have made any additions without the aid of any incriminating material unearthed during search qua the assessee qua the respective unabated assessment years. And since the Ld. CIT(A) has not accepted/allowed the legal issue raised by it, therefore, the assessee trust has preferred these cross appeals challenging this impugned action of the Ld. CIT(A). 9. First we will deal with the Revenue appeal. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the Ld. CIT(A) by allowing the additional ground of appeal (supra) has held that the initial DVO report [pursuant to the reference made by DDIT/ADIT(Inv)] on the basis of which the AO has made the impugned additions in all the assessment years were non-est, resulting in deletion of all the impugned additions made by the AO, which has be....
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....sing identical grounds which were numbered as IT(SS)A Nos. 42 to 47/Kol/2020 AT 2008-09 to 2013-14 (Revenue Appeal) and assessee preferred the cross appeals i.e. IT(SS)A Nos. 07 to 12/Kol/2020, AYs. 2008-09 to 2013-14 which were heard by this Tribunal "A" Bench on 19.01.2021 and the order was pronounced on 05.02.2021 wherein the Tribunal has dismissed the Revenue appeals (Para 22 of that order, infra) and allowed the legal issue raised by the assessee(refer Para 28 of that order, infra) (in respect of assessee's legal claim that without the aid of any incriminating material unearthed during search, no addition was legally permissible in unabated proceedings i.e. for AYs. 2008-09 to 2012-13. 12. In that case i.e. Narula Educational Trust (group case) the assessee's legal issue raised for AYs 2013-14 since it does not survive because it is an abated assessment. Therefore, cross appeal preferred by the assessee for AY2013-14 was dismissed on the legal issue. 13. Thus in the Narula Educational Group Trust case, the revenue appeals pertaining to AYs 2008-09 to 2013-14 were dismissed and assessee's appeal pertaining to AY 2013-14 was dismissed and the appeals pertaining to the a....
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....nding before the AO on the date of search u/s. 132 of the Act on 13.03.2014 viz., (AYs 2008-09 to 2012-13). 3. Coming to the revenue appeal, the first ground of appeal of the revenue reads as under: "1. Whether Ld. CIT(A) is justified in deleting addition of Rs. 3,50,39,665/-, when AO had made the addition as unexplained investment u/s. 69 of the I. T. Act, on basis of valuation report of the District Valuation Officer (DVO)." 4. Brief facts of the case as noted by the AO are that the assessee (educational Trust) had filed original return of income for AY 2008-09 on 30.09.2008 disclosing total income of Rs. Nil. The AO notes that a search and seizure operation u/s. 132(1) of the Act was conducted at office/residence of assessee trust along with other assessee's of JIS Group on 13.03.2014 and on subsequent dates. Thereafter, AO notes that pursuant to notice issued by him on 20.10.2014 u/s. 153A(1) of the Act and the assessee trust filed return of income on 19.02.2015 disclosing total income at Rs. Nil. The AO acknowledges in the assessment order that the Ld. AR of the assessee had appeared before him and had furnished the relevant documents and accounts. ....
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.... by the AO by raising an additional ground as under for all assessment years: "For that the Valuation Officer to whom the reference was made by the AO for determination of cost of construction u/s. 142A of the Act, having not sent a copy of the report of the estimate made under sub-section (4) if sub-section (5), as the case may be within a period of six months as provided u/s. 142A(6) the reference so made becomes infructuous." 7. The aforesaid additional ground which was legal in nature was admitted by the Ld. CIT(A) and after having called upon from the AO a remand report on this issue, the Ld. CIT(A) took up on himself the exercise to call for the DVO report in which he failed, (i.e. DVO did not furnish the report) the Ld. CIT(A) has allowed the additional ground of appeal and held as under: "12. In view of the above discussion, I agree with the contention of the assessee that the DVO had statutory duty to submit a valuation report within six months from the end of the month when reference was first made by the AO as mandated by the section 142A(6) and non-submission of the report by the Valuation Officer within statutory period makes earlier report o....
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....e the impugned additions in all the assessment years were non-est, resulting in deletion of all the impugned additions made by the AO, which has been challenged by the department by raising the following grounds of appeal which are as follows: "1. Whether Ld. CIT (A) is justified in deleting addition of Rs. 3,50,39,665/-, when A.O. had made the addition as unexplained investment u/s 69 of the IT. Act., on basis of valuation report of the District Valuation officer(DVO)? 2. Whether Ld. CIT (A) is justified in accepting assessee's contention that before introduction of section 132(9D) of the Act., the DDIT (Inv.) had no authority to refer the matter relating to valuation of immovable properties, before DVO? 3. Whether Ld. CIT (A) is justified in accepting assessee's Additional Ground of Appeal that as per section 142A(6) of the I.T. Act, valuation report is to be completed within 6 months when the reference was not made for first time, and same was only for reconsideration of earlier report of DVO? 4. Whether Ld. CIT (A) is justified in accepting assessee's Additional Ground of Appeal that non submission of report within statutory perio....
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....since this power was conferred on the DDIT (Inv) by inserting sub-section (9) in section 132 of the Act on 01.04.2017 and in this case [DVO on reference of DDIT(Inv) dated 11.07.2014, who in turn submitted the valuation report on 18.12.2014 makes it clear that DDIT(Inv) had made reference before 01.04.2017]. When this objection that in the year 2014 (i.e. on 11.07.2014), the DDIT (Inv) lacked powers / jurisdiction to call for valuation report from DVO, the AO in his wisdom realizing the error in order to correct it had called for the valuation report vide letter dated 22.01.2016. However the AO acknowledges that pursuant to his reference dated 22.01.2016, the DVO did not furnish the Valuation Report till the date on which the re-assessment order u/s. 153A/143(3) of the Act has been passed on 30.03.2016. The AO taking into consideration the interest of revenue, and the fact that the assessment was getting time barred, passed the assessment order on 30.03.2016 by making addition based on the difference in valuation of properties as submitted by DVO dated 18.12.2014 (initial DVO report) made on the reference by DDIT(Inv). 12. We find from perusal of the assessment order relat....
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....it a copy of report to him. (2) The Assessing Officer may make a reference to the Valuation Officer under sub-section (1) whether or not he is satisfied about the correctness or completeness of the accounts of the assessee. (3) The Valuation Officer, on a reference made under sub-section (1), shall, for the purpose of estimating the value of the asset, property or investment, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957). (4) The Valuation Officer shall, estimate the value of the asset, property or investment after taking into account such evidence as the assessee may produce and any other evidence in his possession gathered, after giving an opportunity of being heard to the assessee. (5) The Valuation Officer may estimate the value of the asset, property or investment to the best of his judgment, if the assessee does not co-operate or comply with his directions. (6) The Valuation Officer shall send a copy of the report of the estimate made under sub-section (4) or sub-section (5), as the case may be, to the Assessing Officer and the assessee, within a period of six months from the end of the ....
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....fficer was made from Finance Act, 2004 by the introduction of section 142A by Finance Act, 2004. Before that, the power of the AO to refer to Valuation Officer was confined to ascertain the fair market value of capital asset in respect of computation of capital gains under section 55A of the Act [which was inserted by the Taxation Laws (Amendment) Act, 1972 w.e.f. 01.01.1973]. It is noted that section 142A was brought in specifically to enable the AO to refer valuation to the DVO of assets, property etc since before that in the case of Smt. Amiya Bala Paul Vs. CIT 262 ITR 407 (SC), the Hon'ble Supreme Court held that AO did not had power to refer to DVO for valuation in respect of assets, properties etc other than for the specific purpose u/s 55A of the Act (i.e. for ascertaining the fair market value of capital asset for computation of capital gain). In this context, it would be gainful to refer to the decision in Smt. Amiya Bala Paul Vs. CIT (supra) wherein the Hon'ble Supreme Court took note of the facts in that case which is re-produced as under: "The assessee built a house in a suburb of Kolkata between the years 1981 to 1983. She filed a return in respect of the asse....
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....ered in the affirmative and against the assessee. In the appeal before us, it was contended on behalf of the assessee that a reference to a Valuation Officer could only be made strictly in terms of section 55 A of the Act and that if the circumstances justifying the reference under that Section were not prevailing, the Assessing Officer did not have the jurisdiction to otherwise refer the matter to the Valuation Officer. It was further pointed out that Section 55 A of the Act only allows for reference to the Valuation Officer for the purposes of computing the market value of property in connection with the computation of capital gains. It was also submitted that reference to the Valuation Officer had been specifically provided for under Section 55A and that this implied that a reference to the Valuation Officer could not be made under any of the other provisions which generally empowered the Assessing Officer to ascertain the income of the assessee. The submission of the appellant was that if the power to refer the determination of the cost of construction to the Valuation Officer was otherwise available to the Assessing Officer under the other provisions of the Act, it wa....
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....uation to the Valuation Officer inserted sub-section (9B) in section 132 of the Act by Finance Act, 2017 i.e. w.e.f. 01.04.2017. Sub-section (9B) of section 132 of the Act reads as under: "Search and Seizure S.132. (9).......... (9A)......... (9B) ........ (9C)...... (9D) The authorized officer may, during the course of the search or seizure or within a period of sixty days from the date on which the last of the authorizations for search was executed, make a reference to a Valuation Officer referred to in section 142A, who shall estimate the fair market value of the property in the manner provided under that section and submit a report of the estimate to the said officer within a period of sixty days from the date of receipt of such reference." 18. Thus, from the aforesaid legislative history it can be noted that the authorized officer of the search DDIT (Inv.)/ADIT (Inv.) has been empowered to make reference to the Valuation Officer only after 01.04.2017 and not before that date. Here in this case, admittedly the search has taken place on 13.03.2014 and on a perusal of the valuation report dated 18.12.2014, it....
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....t any regard to the statutory limited time prescribed by the statute and it would vitiate the action of DVO. In this case, we found that on 13.03.2014 the search happened and the reference was made by the DDIT (Inv.) on 11.07.2014 and the DVO sent the valuation report on 18.12.2014 (initial DVO report) which we have already found that the DDIT/ADIT (Inv.) did not had the power/jurisdiction to make the reference to the Valuation Officer. Therefore, the action of Ld. CIT(A) allowing the appeal on merits cannot be said to be legally erroneous is in line with the ratio of the decision of the Hon'ble Supreme Court in Smt. Amiya Bala Paul (supra), since DDIT (Inv) did not had the power to refer to DVO valuation of construction of buildings. Even though the AO in the assessment order states that when the assessee objected to the DVO report dated 18.12.2014, he requested the DVO to re-value the properties, which action of AO can be termed as an action to correct the error of DDIT (Inv.) and so the AO by making a request for re-valuation on 22.01.2016 can be termed as a valid requisition/reference to the DVO and for reasons best known to the DVO, he did not file any report. Even at the appe....
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....T (Inv.)] did not had the power to make the reference to the DVO which power he acquired as noted above only on 01.04.2017 by Finance Act, 2017 u/s. 132(9D) of the Act. And it has also been noted that neither the DVO filed the valuation report pursuant to the AO's reference dated 22.01.2016 nor the DVO filed the valuation report pursuant to the Ld. CIT(A)'s reference through the AO by letter dated 29.01.2019. Thus, we note that the addition has been made only on the basis of the initial valuation report dated 18.11.2014 which was pursuant to the DDIT(Inv.)'s reference which he [DDIT (Inv)] had no power to do call for; and that during assessment proceedings when the AO show caused the assessee with the valuation report as contemplated in sub-section (7) of section 142A of the Act, the assessee contested/challenged, inter alia, the method of valuation adopted by the Valuation Officer, which prompted the AO to call for the reference of the Valuation Officer since DDIT (Inv.) had no power to call for the valuation report. And we have noted thereafter the DVO did not submit any report called for by AO or Ld. CIT(A). 22. In the aforesaid facts and circumstances, we hold that the....
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.....2014 (initial DVO report), so this DVO report is fragile for violation of natural justice and resultantly bad in law and could not have been the sole basis for addition Consequently, when we keep aside the initial valuation report of the DVO dated 18.12.2014 for the legal infirmities discussed (supra) and on the reasoning/ratio of the decision of the Hon'ble Supreme Court in Smt. Amiya Bala Paul (supra), we find there is no other evidence to support the addition, so the addition made by the AO in all the assessment years from AY 2008-09 to AY 2013-14 has to be deleted and Ld. CIT(A)'s action cannot be faulted and we confirm it on the reasons given supra and dismiss all the Revenue Appeals. 23. Now coming to the legal issue raised by the assessee, we proceed to answer the question. Whether in absence of any incriminating material found in the course of search at the premises of the assessee trust (administrative office only), the additions made in the assessments of the assessee trust which were unabated [since assessment of AY 2008-09 to AY 2012-13 was non-pending] on the date of search 13.03.2014, could be held to be sustainable on facts and in law? 24. We note ....
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....sments, the AO is free to frame the assessment in regular manner and determine the correct taxable income for the relevant year inter alia including the undisclosed income un-earthed during search, having regard to the provisions of the Act. However, in relation to unabated assessments (AYs), which were not pending on the date of search, there is a restriction on the powers of the AO. In case of unabated assessments, the AO can re-assess the income only to the extent and with reference to any incriminating material which the Revenue has unearthed in the course of search. Merely because an assessee is subjected to search, he cannot be placed on a different pedestal or put in a more disadvantageous position than an assessee who is not subjected to search unless in the course of search some incriminating documents or evidence or information or material is gathered by the Investigating authorities so as to vest the AO with the necessary powers to make additions to the total income in relation to assessments which did not abate on account of search. Considering these aspects the Hon'ble Delhi High Court in the case of CIT vs Kabul Chawla reported in (2016) 380 ITR 573 (Del) held as ....
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....sment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment." 38. The present appeals concern AYs 2002-03, 2005-06 and 2006-07, on the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed." The Hon'ble Apex court in the case of CIT v. Sinhgad Technical Education Society 397 ITR 344 in the context of section 153C of the Act has held as under: "18) In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any corelation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provi....
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....of CIT[A] vs. Kabul Chawla in ITA No.707/2014 dated 28th August, 2014. The aggrieved Revenue has come up in appeal. Mr. Bagaria, learned Advocate appearing for the assessee, submitted that more or less an identical view was taken by this Bench in ITA 661/2008 [CIT vs. Veerprabhu Marketing Ltd.] wherein the following views were expressed - "We are in agreement with the views expressed by the Karnataka High Court that incriminating material is a pre- requisite before power could have been exercised under section153C read with section 153A. In the case before us, the assessing officer has made disallowances of the expenditure, which were already disclosed, for one reason or the other. But such disallowances were not contemplated by the provisions contained under section 153C read with section 153A. The disallowances made by the assessing officer were upheld by the CIT(A) but the learned Tribunal deleted those disallowances." In that view of the matter, we are unable to admit the appeal. The appeal is, therefore, dismissed." 27. Considering the judicial precedents (supra) on the subject, particularly the decision of the Hon'ble jurisdict....