The Visakhapatnam bench of the Income Tax Appellate Tribunal (ITAT) held that a mere estimate of cost by the Departmental Valuation Officer (DVO) doesn’t constitute material to concealment and hence deleted penalty imposed on account of difference of valuation.
A survey operation under Section 133A of the Income Tax Act was carried out in the case of the assessee. During the course of the survey operations, it was noticed that Sri Ginjala Simhadri Raju along with his daughter sold land and buildings. The assessee filed a return of income admitting business income of Rs. 3,18,120/- and capital gains at Rs. NIL.
The assessee during the course of the survey operations submitted that he has erroneously considered the sale consideration and the cost of acquisition and hence correct long-term capital gains could not be admitted in his return of income.
The Assessing Officer observed that the income chargeable to tax has escaped income and the case was reopened under Section 148 of the Income Tax Act by issuing a notice which was served on the assessee.
The assessee had constructed semi-finished buildings admeasuring 35,166 sq ft in his share of land during the FY 2004-05 and leased out the said semi-finished structures to an Educational Society by the name M/s. Simhadri Educational Society, vide lease deed.
A copy of the sale agreement was found and impounded during the survey proceedings where the assessee and his daughter agreed to sell their land and buildings for an agreed amount of Rs. 8,15,00,000/- to Sri G. Narayana Rao.
The Assessing Officer did not accept the cost of acquisition claimed by the assessee based on his valuation reports, and the matter was referred to the Valuation Cell of the Department. The Assessing Officer observed that the assessee did not cooperate with the Valuation Officer and thereafter issued a show cause notice to furnish his objections, if any, for the proposed assessment of long-term capital gains.
The assessing officer considered it as unexplained money received and assessed it as income from other sources in the hands of the assessee and initiated penalty proceedings under Section 271(1)(c).
The Authorized Representative stated that on the issue of computation of capital gains, the assessee has bonafidely relied on the Valuation Certificate provided by the independent valuer and has computed the long-term capital gains while filing the return of income.
It was further argued that there is no concealment of income by the assessee but the assessee has bonafidely believed the independent valuer’s report and a penalty cannot be levied on the estimate made by the assessing officer.
The Madras High Court in the case of CIT vs. Apsara Talkies has clearly held that “mere estimate of cost by Departmental Valuer could not constitute material to concealment and therefore levy of penalty is not valid”.
The two-bench member comprising of Duvvuru RL Reddy (Judicial member) and S Balakrishnan (Accountant member) by referring to the case of CIT vs. Apsara Talkies deleted the proportionate penalty levied on account of the difference in the valuation by the DVO. Thus, the appeal of the assessee is partly allowed
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