M.S. BEDI vs. THE ASST. COMMISSIONER OF INCOME TAX-VI

The three Assessees are brothers. They purchased a farm house at Asola in Delhi and the purchase price recorded in the books of accounts was Rs.8,40,000. On 12th October 1994, a search was carried out under Section 132 of the Act in the premises of Mr. R.S. Bedi and a paper was seized which had some notings purportedly disclosing the investment made in a farm to the extent of Rs.76 lakhs. According to the Revenue when the said Assessee was confronted with the said piece of paper, he was unable to explain the details given therein. A presumption was then raised regarding ownership and correctness of the said paper.

In the assessment order dated 27th March 1997, the AO noted that the value per acre shown by the Assessee for the total area of the farm house of 4.73 acres was undervalued. The AO referred the matter to the Department Valuation Cell by issuing a commission under Section 131 of the Act for finding out the correct area of the farm and also for finding out the extent of the Assessees‟ investment in the said farm.

The Department Valuation Officer („DVO‟) submitted a report estimating the value of the property at Rs.14,36, 300 per acre for 1.63 acres purchased on 29th March 1994 and at Rs.13,03,900 per acre for 3.1 acres of land purchased on 28th February 1994. The AO then adopted the report of the DVO and applying Section 69B of the Act held that a total amount of Rs.66,47,800 was spent by the three co-owners in acquiring the farm of which only Rs.8,40,000 was recorded in the books of accounts. The unrecorded amount of Rs.58,07,000 was added, one-third each, in the hands of each of the Assessee.

The CIT (A) dismissed the appeals of the Assessees by the order dated 12th September 1997. The Assessees thereafter appealed to the ITAT.

Interestingly, before the ITAT a statement was made by the Department‟s Representative („DR‟) that “additions to the income of the Assessees have been made under Section 69B of the IT Act not on the basis of any document, but on the basis of the report of the Department Valuation Officer after giving full opportunity to the Appellants.” In fact, the DR submitted Page 3 of 7 ITA Nos. 144, 145 and 146 of 2003

While admitting these appeals on 2nd May 2003, the Court framed the following question of law for determination: “Whether on the facts and in the circumstances of the case the Tribunal was correct in law in holding that the provisions of Section 69B of the Income Tax Act, 1961 were attracted in the case and in sustaining of addition and Rs.19,35,667/-, being the differential amount of unexplained investment?”

This Court has heard the submissions of Dr. Rakesh Gupta, learned counsel for the Assessees and Mr. Rohit Madan, learned Senior Standing counsel for the Revenue.

As regards the probative value of the report of a DVO, the settled legal Page 4 of 7 ITA Nos. 144, 145 and 146 of 2003

In the facts of the present case it is plain that the seized document, which raised the suspicion of the Revenue about a possible undisclosed investment made by the Assessees, did not form the basis for the additions. The statement made by the DR before the ITAT, which was accepted by the ITAT, makes it clear that the addition was sought to be sustained only on the basis of the report of the DVO.

Dr. Rakesh Gupta, learned counsel for the Assessees, drew the attention of the Court to the decision of the Supreme Court in Commissioner of Income Tax v. Smt. Amiya Bala Paul (2003) 262 ITR 407 (SC) and submitted that in terms of the said decision the very act of the AO seeking the report of the DVO by issuing a commission under Section 131 of the Act was without jurisdiction. He submitted that although following the said Page 5 of 7 ITA Nos. 144, 145 and 146 of 2003

Mr. Rohit Madan, learned Senior Standing counsel for the Revenue placed reliance on the decision of the Rajasthan High Court in Smt. Amar Kumari Surana v. CIT (1997) 226 ITR 344 (Raj) to submit that for the purposes of Section 69B of the Act the burden would shift to the Assessee once the Revenue is able to demonstrate, by way of a report of the DVO, that the value disclosed in the sale deed for the purchase of the property by way of investment was less than the market value. Reliance is also placed on the decision in Commissioner of Income-tax v. Narinder Kr. Budhiraja [2015] 56 taxmann.com 315(Delhi).

Having examined both the above decisions, the Court finds that in both instances the report of the DVO was not the sole basis for sustaining the addition. There was other material available with the Revenue to show that the investment made was not disclosed in the books of accounts. The report of the DVO in both cases was only a corroborative piece of evidence. In the present case, admittedly, the report of the DVO forms the sole basis for the Page 6 of 7 ITA Nos. 144, 145 and 146 of 2003

For the reasons discussed hereinabove, the Court finds that the additions made in the hands of the Assessees, are in the facts and circumstances of the case, unsustainable in law. The question is answered in the negative i.e. in favour of the Assessees and against the Revenue.

The impugned order dated 17th October 2002 of the ITAT and the corresponding orders of the AO and the CIT (A) are set aside. The appeals are allowed but in the circumstances with no order as to costs.