IN 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. 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 Assessing Officer in block assessment proceedings and term undisclosed income? 2. All appeals arise out of common order made by ITAT. Revenue contends that direction of ITAT to delete amounts sought to be brought to tax under Section 153A of Income Tax Act was unjustified. assessees had purchased eight different properties; they are related to each other. search operations were conducted in 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 domestic market. allegations made by Revenue against firm and its partners were that high profit margins enjoyed by it were concealed and only modest amounts were disclosed in ITRs. After issuing notice, AO taking into consideration materials brought on record referred properties for valuation to District Valuation Officer under Section 142A of Income Tax Act. Based upon report received which was considered after hearing counsel for assessee, AO made additions. AO concluded that comparison between declared value and value determined (by DVO) disclosed serious discrepancy. He, therefore, added difference and brought them to tax in block assessment orders. These orders were carried in appeal to ITAT being ITA 120-125/2000 Page 2 IT (SS) Appeal Nos.75-80/(Del)/1997, pertaining to block assessment years 1986-87 to 1995-96. 3. ITAT considered submissions and concluded that AO could not have brought to tax amounts that he ultimately did merely based upon DVO s report in absence of any material pointing to under valuation. ITAT noted that due disclosure of acquisition of these properties had been made in course of regular assessments and that those valuations have been accepted by income tax authorities and wealth tax authorities as well. ITAT thereafter allowed appeal on basis of following reasoning: - 5.5 After reading these provisions we find that these provisions are not applicable on facts of present case as assessee has already declared all these properties in dispute and all assessments have already been completed by Income Tax Department while accepting declared rental income as well as declared wealth by these assessees in their income-tax and wealth-tax returns. Nowhere by order of Assessing Officer or submission of learned DR reveals that any fresh material was found in course of search or there was any material with department to suspect that investment in these properties were suppressed. After completion of search matter was referred to valuation officer just to ascertain value of these properties. In our considered view there was no material in referring matter to Valuation Cell. It was just to collect evidence which is not permissible in law. There should be any evidence or material with Department to suspect any transaction. Only on basis of presumption suspicion is not ITA 120-125/2000 Page 3 tenable. Assessing Officer in these cases made enhancement on basis of only valuation report. Except this evidence there was no material or basis with Assessing Officer; neither any material was available on date of search nor there was any information with department. Therefore, in view of these facts and circumstances we are of view that action of Assessing Officer was out of purview of section 158BC, under Chapter XIV-B of Income Tax Act. Accordingly we hold that additions made on account of revaluation of these properties were invalid. Accordingly, we quash 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 assessees had already declared value of investment by filing his/her returns of income and wealth and they were duly accepted by Department and no proceedings were initiated against those assessments passed by then Assessing Officer. It means that returned incomes and returned wealth were duly accepted by department. 5.8 facts in present cases are similar to case decided by Madhya Pradesh High Court (supra). Therefore, action of Assessing Officer on merit also cannot be sustained. We have also perused other case laws, as relied upon by learned AR and by 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 purview of Chapter XIV-B of Income Tax Act, therefore, for this reason and for other reasons, as discussed above, we delete additions in all these cases. These grounds of assessees are allowed. ITA 120-125/2000 Page 4 4. Counsel for Revenue urged that impugned order should not be sustained, and that in block assessment proceedings, Revenue in effect exercised powers vested in it under Section 147/148. Once block assessment based upon search operations is found to be valid and there are genuine reasons for AO to suspect veracity of particular property transaction, question of not referring it for proper valuation should not ordinarily arise. Learned counsel highlighted that requiring Revenue to link material found post search or during course of proceedings would not necessarily be fair and if AO in given facts of case had strong and good reasons to suspect undervaluation, he can as well refer properties for valuation and, depending upon report received, adopt same, of course, after giving due notice and hearing submissions of assessee. 5. Counsel for assessee, on other hand, urged that question of law as framed in context of present case does not arise for consideration and has since been settled by various decisions. She relied upon 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 Division Bench ruling in CIT v. Lahsa Constructions (P) Ltd. (2013) 357 ITR 671 to say that DVO s report could not be sole basis for addition and that there has to be some further material on record. To 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 submissions. As apparent from factual narrative, materials collected in search operations impelled AO to complete block assessment in this case. Conspicuously, however, there was no material in course of search or collected during proceedings post search, pointing to under valuation of assessees properties which were ultimately held to have been subject of under valuation. Again, significantly assessees had at relevant time when actual purchases were effected disclosed transactional value of those assets; AO has then unreservedly accepted them. Wealth Tax authorities too had accepted valuation. In almost identical circumstances, this Court in Navin Gera (supra) recollected previous rulings - including judgment of Supreme Court in K.P. Varghese v. ITO, (1981) 131 ITR 597 (SC) and held as follows: - 9. We do not find merit in submission made by Ms. Suruchi Aggarwal that concealed income was detected during course of search or any evidence was found which would indicate such concealment. seized material containing sale deeds of properties, which have been relied upon to make reference to DVO, had already been declared to Revenue by respondent-assessee under VDIS. We are also in agreement with submission made by Mr. Piyush Kaushik that it is settled law that in absence of any incriminating evidence that anything has been paid ITA 120-125/2000 Page 6 over and above than stated amount, primary burden of proof is on Revenue to show that there has been understatement or concealment of income. It is only when such burden has been discharged, would it be permissible to rely upon valuation given by DVO. Further, opinion of DVO, per se, is not information and cannot be relied upon in 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 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 primary burden to prove understatement or concealment of income is on Revenue and it is only when such burden is discharged it would be permissible to rely upon valuation given by DVO. 8. decision in Lahsa Constructions (supra), which is of more recent vintage also rules to same effect: - Whether addition can be made solely and on basis of report of Departmental Valuation Officer, is no longer res integra and is covered by 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 valuation report. Decision of Supreme Court in 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 above decisions, it is held that question of law formulated has to be answered against Revenue and in favour of assessees. 10. 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 Commissioner of Income-tax v. Nishi Mehra