Full Judgment Text
$~R-11-16
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% DECIDED ON: 19.02.2015
+ ITA 120-125/2000
COMMISSIONER OF INCOME TAX .... Appellant in all cases
versus
NISHI MEHRA ..... Respondent in ITA 120/2000
ARUN MEHRA ..... Respondent in ITA 121/2000
SUSHIL MEHRA ..... Respondent in ITA 122/2000
SUBHASH MEHRA ..... Respondent in ITA 123/2000
SURBHI MEHRA ..... Respondent in ITA 124/2000
MANJU MEHRA ..... Respondent in ITA 125/2000
Appearance: Mr. Nitin Gulati, Jr. Standing Counsel for
Revenue.
Ms. Kavita Jha with Ms. Shardha, Advocates for assessee.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.K. GAUBA
S.RAVINDRA BHAT, J. (OPEN COURT)
1. The sole question framed for consideration in these
appeals is as follows: -
ITA 120-125/2000 Page 1
“Whether ITAT has rightly interpreted scope, power and
jurisdiction of the Assessing Officer in block assessment
proceedings and the term “undisclosed income?”
2. All the appeals arise out of the common order made by
the ITAT. The Revenue contends that the direction of the ITAT
to delete the amounts sought to be brought to tax under Section
153A of the Income Tax Act was unjustified. The assessees
had purchased eight different properties; they are related to each
other. The search operations were conducted in the premises of
M/s Mehra Art Palace and its partners Arun Mehra, Subhash
Mehra and Sushil Mehra on 27.03.1996. Mehra Art Palace was
used to export as well as sell handicrafts in the domestic market.
The allegations made by the Revenue against the firm and its
partners were that the high profit margins enjoyed by it were
concealed and only modest amounts were disclosed in the ITRs.
After issuing notice, the AO taking into consideration the
materials brought on the record referred the properties for
valuation to the District Valuation Officer under Section 142A
of the Income Tax Act. Based upon the report received which
was considered after hearing counsel for the assessee, the AO
made additions. The AO concluded that a comparison between
declared value and the value determined (by the DVO)
disclosed serious discrepancy. He, therefore, added the
difference and brought them to tax in the block assessment
orders. These orders were carried in appeal to the ITAT being
ITA 120-125/2000 Page 2
IT (SS) Appeal Nos.75-80/(Del)/1997, pertaining to the block
assessment years 1986-87 to 1995-96.
3. The ITAT considered the submissions and concluded that
the AO could not have brought to tax the amounts that he
ultimately did merely based upon the DVO’s report in the
absence of any material pointing to under valuation. The ITAT
noted that due disclosure of the acquisition of these properties
had been made in the course of regular assessments and that
those valuations have been accepted by the income tax
authorities and wealth tax authorities as well. The ITAT
thereafter allowed the appeal on the basis of the following
reasoning: -
“5.5 After reading these provisions we find that these
provisions are not applicable on the facts of the present
case as the assessee has already declared all these
properties in dispute and all the assessments have
already been completed by the Income Tax Department
while accepting the declared rental income as well as
declared wealth by these assessees in their income-tax
and wealth-tax returns. Nowhere by the order of the
Assessing Officer or the submission of the learned DR
reveals that any fresh material was found in the course of
search or there was any material with the department to
suspect that the investment in these properties were
suppressed. After completion of the search the matter
was referred to the valuation officer just to ascertain the
value of these properties. In our considered view there
was no material in referring the matter to the Valuation
Cell. It was just to collect the evidence which is not
permissible in law. There should be any evidence or
material with the Department to suspect any transaction.
Only on the basis of the presumption the suspicion is not
ITA 120-125/2000 Page 3
tenable. The Assessing Officer in these cases made
enhancement on the basis of only valuation report.
Except this evidence there was no material or basis with
the Assessing Officer; neither any material was available
on the date of search nor there was any information with
the department. Therefore, in view of these facts and
circumstances we are of the view that the action of the
Assessing Officer was out of purview of section 158BC,
under Chapter XIV-B of the Income Tax Act.
Accordingly we hold that the additions made on account
of revaluation of these properties were invalid.
Accordingly, we quash the additions in respect of all
these properties belonging to various assessees named
above.
5.6 on merit also we find that these additions cannot
be sustained as the assessees had already declared the
value of investment by filing his/her returns of income
and wealth and they were duly accepted by the
Department and no proceedings were initiated against
those assessments passed by the then Assessing Officer.
It means that the returned incomes and returned wealth
were duly accepted by the department.
5.8 The facts in the present cases are similar to the
case decided by the Madhya Pradesh High Court (supra).
Therefore, the action of the Assessing Officer on merit
also cannot be sustained. We have also perused other
case laws, as relied upon by the learned AR and by the
learned DR and find that these additions cannot be
sustained on merit also. As we have already stated that
facts of these cases are very clear and they are not under
the purview of Chapter XIV-B of the Income Tax Act,
therefore, for this reason and for other reasons, as
discussed above, we delete the additions in all these
cases. These grounds of the assessees are allowed.”
ITA 120-125/2000 Page 4
4. Counsel for the Revenue urged that the impugned order
should not be sustained, and that in block assessment
proceedings, the Revenue in effect exercised powers vested in it
under Section 147/148. Once the block assessment based upon
search operations is found to be valid and there are genuine
reasons for the AO to suspect the veracity of a particular
property transaction, the question of not referring it for proper
valuation should not ordinarily arise. Learned counsel
highlighted that requiring the Revenue to link the material
found post search or during the course of the proceedings would
not necessarily be fair and if the AO in the given facts of the
case had strong and good reasons to suspect undervaluation, he
can as well refer the properties for valuation and, depending
upon the report received, adopt the same, of course, after giving
due notice and hearing the submissions of the assessee.
5. Counsel for the assessee, on the other hand, urged that the
question of law as framed in the context of the present case does
not arise for consideration and has since been settled by various
decisions. She relied upon the decisions reported as CIT v.
Abhinav Kumar Mittal, (2013) 351 ITR 20, CIT v. Naveen
Gera, (2010) 328 ITR 516 and CIT v. Bajrang Lal Bansal,
(2011) 335 ITR 572. Reliance was also placed upon the
Division Bench ruling in CIT v. Lahsa Constructions (P) Ltd.
(2013) 357 ITR 671 to say that DVO’s report could not be the
sole basis for addition and that there has to be some further
material on record. To the same effect, CIT v. S.K.
ITA 120-125/2000 Page 5
Construction Company, ( 2008) 167 Taxman 171 was also relied
upon. Decisions of other High Courts too were relied upon for
this proposition.
6. We have considered the submissions. As apparent from
the factual narrative, the materials collected in the search
operations impelled the AO to complete the block assessment in
this case. Conspicuously, however, there was no material in the
course of the search or collected during the proceedings post
search, pointing to under valuation of the assessees’ properties
which were ultimately held to have been the subject of under
valuation. Again, significantly the assessees had at relevant
time when the actual purchases were effected disclosed the
transactional value of those assets; the AO has then
unreservedly accepted them. Wealth Tax authorities too had
accepted the valuation. In almost identical circumstances, this
Court in Navin Gera (supra) recollected the previous rulings -
including the judgment of the Supreme Court in K.P. Varghese
v. ITO, (1981) 131 ITR 597 (SC) and held as follows: -
“9. We do not find merit in the submission made by
Ms. Suruchi Aggarwal that the concealed income was
detected during the course of search or any evidence was
found which would indicate such concealment. The
seized material containing the sale deeds of the
properties, which have been relied upon to make
reference to the DVO, had already been declared to the
Revenue by the respondent-assessee under the VDIS. We
are also in agreement with the submission made by Mr.
Piyush Kaushik that it is settled law that in the absence of
any incriminating evidence that anything has been paid
ITA 120-125/2000 Page 6
over and above than the stated amount, the primary
burden of proof is on the Revenue to show that there has
been an understatement or concealment of income. It is
only when such burden has been discharged, would it be
permissible to rely upon the valuation given by the DVO.
Further, the opinion of the DVO, per se, is not an
information and cannot be relied upon in the absence of
other corroborative evidence (See K.P. Varghese v. ITO
(1981) 131 ITR 597 (SC), Civil Appeal No.9468 of 2003
(Asstt. CIT v. Dhariya Construction Co. (2010) 328 ITR
5151 (SC) decided by the apex court on February 16,
2010, CIT v. Shakuntala Devi (2009) 316 ITR 46 (Delhi),
CIT v. Ashok Khetrapal (2007) 294 ITR 143 (Delhi) and
CIT v. Manoj Jain (2006) 287 ITR 285 (Delhi).”
7. Likewise in Bajrang Lal (supra), too it was held that “it
is settled law that the primary burden to prove understatement
or concealment of income is on the Revenue and it is only when
such burden is discharged it would be permissible to rely upon
the valuation given by the DVO.”
8. The decision in Lahsa Constructions (supra) , which is of
more recent vintage also rules to the same effect: -
“Whether an addition can be made solely and on the
basis of the report of the Departmental Valuation Officer,
is no longer res integra and is covered by the decisions of
this court in CIT v. S.K. Construction Co. (2008) 167
Taxman 171, CIT v. Navin Gera (2010) 328
ITR516/(2011) 198 Taxman 93 (Delhi), CIT v. Smt. Suraj
Devi, (2010) 328 ITR 604/(2011) 197 Taxman 173
(Delhi) (Mag.), and CIT v. Bajrang Lal Bansal (2011)
335 ITR 572/200 Taxman 188 (Mag.)/12 Taxmann 88
(Delhi). It has been repeatedly held that addition cannot
be justified solely relying upon the valuation report.
Decision of the Supreme Court in the case of K.P.
ITA 120-125/2000 Page 7
Varghese v. ITO (1981) 131 ITR 597/7 Taxman 13 has
been followed.
9. In view of the above decisions, it is held that the question
of law formulated has to be answered against the Revenue and
in favour of the assessees.
10. The appeals have to be and are accordingly dismissed.
S. RAVINDRA BHAT
(JUDGE)
R.K. GAUBA
(JUDGE)
FEBRUARY 19, 2015
/vikas/
ITA 120-125/2000 Page 8