2018 (5) TMI 2096 - AT - Income Tax

Validity of Assessment u/s 153A - incriminating documents found in search or not ? - HELD THAT - In the instant case we find that there is no dispute to the fact that no incriminating material was found pertaining to assessment year 2007-08 and only the purchase documents in the shape of registered sale deed were found which were duly disclosed in the regular books of accounts. Assessing Officer could not have reopened the assessment if in case the assessment has been completed earlier u/s 143(3) of the Act for the assessment year 2007-08 but this is not so in the case of the assessee because for the assessment year 2007-08 the return of the assessee was merely processed u/s 143(1)(a) of the Act which by no canon can be accepted as regular assessment and therefore the Assessing Officer had no occasion to examine the related transactions for the assessment year 2007-08. During the course of search documents were found relating to purchase of property as well as incriminating material for undisclosed investment in construction of property which was sufficient enough for the Assessing Officer to initiate the assessment proceedings for the assessment year 2007-08 to assess the correct income of the assessee. We therefore set aside the findings of the learned Commissioner of Income Tax (Appeals) and hold that the assessment for the assessment year 2007-08 u/s 153A r.w.s. 143(3) of the Act was valid. The relevant grounds of the revenue for the assessment year 2007-08 are allowed. Addition for the undisclosed investment in land and building - HELD THAT - On the objections raised by the assessee learned Commissioner of Income Tax (Appeals) again directed for a fresh valuation. Vide Departmental Valuation Officer s valuation report dated 17.5.2016 the fair market value of the property was valued assessment Rs. 70, 05, 000/-. As a result the addition was sustained at Rs. 7, 05, 000/-. These facts clearly show that there was variation in the valuation report of the Departmental Valuation Officer. This is not the revenue s case that there was any objection by the Registrar for payment of stamp duty and the purchase consideration was also not questioned. The alleged addition is also within the range of 10% of the cost of land and building shown by the assessee. We therefore are of the considered opinion that no addition was called for towards unexplained investment in purchase of property.

Summary

Issues Involved:
1. Validity of proceedings under Section 153A in the absence of incriminating documents.
2. Addition towards unexplained investment in the cost of purchase of property.
3. Addition towards unexplained investment in construction of the property.
4. Allocation of unexplained cost of construction to different assessment years.

Detailed Analysis:

1. Validity of Proceedings Under Section 153A:
The primary issue was whether the assessment proceedings under Section 153A were valid in the absence of incriminating documents. The assessee argued that no incriminating material was found during the search for the assessment year 2007-08. The Commissioner of Income Tax (Appeals) (CIT(A)) accepted this plea, citing various judgments, including the case of Kalani Brothers and Kabul Chawla, which held that completed assessments can only be interfered with based on incriminating material found during the search. The Tribunal upheld this view, stating that no incriminating material was found for the assessment year 2007-08, and thus, the assessment proceedings under Section 153A were invalid.

2. Addition Towards Unexplained Investment in Cost of Purchase of Property:
The assessee purchased a property in FY 2006-07 for Rs. 63 lakhs. The Departmental Valuation Officer (DVO) estimated the cost at Rs. 70.05 lakhs. The CIT(A) initially dismissed this ground as infructuous due to the invalidity of the assessment proceedings. However, the Tribunal found that the assessment for the year 2007-08 was valid and thus upheld the addition of Rs. 7.05 lakhs towards unexplained investment in the cost of purchase.

3. Addition Towards Unexplained Investment in Construction of Property:
The DVO estimated the cost of construction at Rs. 214.73 lakhs, while the assessee declared a cost of Rs. 91.62 lakhs. The CIT(A) allowed a 15% deduction for CPWD/PWD rates, reducing the addition to Rs. 90.95 lakhs. The Tribunal found several discrepancies in the DVO's report, including double counting of the basement and terrace floor costs and inclusion of costs incurred in FY 2015-16. The Tribunal recalculated the total cost of construction at Rs. 119.63 lakhs, sustaining an addition of Rs. 28.01 lakhs.

4. Allocation of Unexplained Cost of Construction to Different Assessment Years:
The Tribunal noted that incriminating material related to construction was only found for FY 2011-12 (AY 2012-13). Citing judgments from the Delhi High Court and Gujarat High Court, the Tribunal held that the addition towards unexplained investment in construction should be restricted to AY 2012-13. The Tribunal directed the Assessing Officer to tax the sustained addition of Rs. 28.01 lakhs in AY 2012-13, over and above the Rs. 30 lakhs surrendered by the assessee.

Conclusion:
The Tribunal allowed the revenue's appeal and assessee's cross objection for AY 2007-08, and partly allowed the cross appeals for AY 2010-11 to 2012-13. The judgment emphasized the necessity of incriminating material for valid assessments under Section 153A and provided detailed adjustments to the DVO's valuation of construction costs.