In a recent ruling, the division bench of the Delhi High Court quashed an Income Tax addition made solely based on the entries in loose papers holding that the same would not constitute a valid evidence for proceeding assessment against the assessee.
The bench was hearing a bunch of appeals challenging the assessment orders passed subsequent to a search conducted on a company where most of the Directors were family members.
In the relevant appeal, the search unearthed certain documents, including loose papers containing figures. The AO, based on the entries made in such papers, made an addition of Rs. 13 lakhs to the total income of the assessee, wife of Mr. Ashok Chawla, in respect of her investment in a flat.
The returns and documents field revealed that the acquisition cost of the flat was `9 lakhs. The AO was of opinion that the documents seized showed that assessee’s husband, Ashok Chawla acquired the flat through funding. During assessment proceedings, the assessee maintained that the flat was a gift- which was later altered to payment through an interest free loan from Ashok Chawla.
The assessee argued that the value finally attributed for the flat is fanciful and arbitrary since according to the valuers report, the value of property comes to only 18 lakhs.
The bench comprising of Justice S Ravindra Bhat and Justice R.K. Gauba noticed that the document seized and relevant for this purpose is a loose sheet of paper, containing figures. “Against “E-6”, the figure “22” is shown. Next to it “N-8” against which the figure “5” has been scribbled. Three other figures too have been shown. Ipso facto these mean nothing. The AO deduced that these reflected the true value of the property and went ahead to refer the matter to the valuation officer. The latter, in his report, after considering the then prevailing prices and looking at a transaction of 1996, felt that the value of the property was `18.36 lakhs.”
Refusing to accept the above papers as conclusive evidence, the bench said that “in the absence of any credible material pointing at undervaluation, the exercise was unwarranted. Worse, after having secured the valuation report, the AO proceeded in an unprincipled manner, and decided that the true value of the property was `22 lakhs, bringing the balance `13 lakhs to tax. This court is of the opinion that the material found was sketchy and insufficient to warrant a fresh valuation. In any case, the AO‟s order did not even go by the valuation report, but on an entirely different footing- not based on any principle at all.”
Read the full text of the Judgment below.
