2003 (4) TMI 61 - HC - Income Tax

Search and seizure operation was carried out under section 132 block assessment - notice under section 158BC was issued - Emphasis has been given on the fact that evidence must have been found during the search and only thereafter the question of gathering any material information would arise based on the search inquiry. It is not disputed at the Bar, that during the search in the premises of the assessee nothing was found with regard to the investment in the house. However, it is contended by Mr. Arya that the valuation report of the Departmental Valuation Officer was obtained and was confronted to the assessee but he was not able to give any explanation and, therefore, it should be accepted as evidence. we do not find any substantial question of law involved in this appeal.

Issues:
1. Legal propriety of the order passed by the Income-tax Appellate Tribunal.
2. Interpretation of section 158BB of the Income-tax Act, 1961.
3. Application of expert reports in determining undisclosed income.
4. Consideration of evidence found during search operations.
5. Impact of Central Board of Direct Taxes Circular on block assessment of undisclosed income.

Analysis:
1. The High Court of Madhya Pradesh addressed the legal propriety of the order passed by the Income-tax Appellate Tribunal in an appeal under section 260A of the Income-tax Act, 1961. The Revenue challenged the order concerning a search and seizure operation on the business premises of the respondent-firm, focusing on the investment in construction. The Assessing Officer relied on a report from the Departmental Valuation Officer, leading to a dispute over the acceptance of the valuation report without proper explanation by the assessee.

2. The interpretation of section 158BB of the Act was crucial in this case. The Tribunal's decision to delete the addition made by the Assessing Officer was based on the absence of evidence during the search to establish higher renovation expenses than recorded in the books of account. The Revenue contended that the Assessing Officer could consider the Departmental Valuation Officer's report as information under section 158BB, supported by relevant case law. In contrast, the assessee argued that expert reports cannot be used unless directly linked to seized material, citing legal precedents and a circular from the Central Board of Direct Taxes.

3. The application of expert reports in determining undisclosed income was a key point of contention. The Tribunal's decision to delete the addition based on the Departmental Valuer's report was challenged by the Revenue, emphasizing the legal permissibility of using such reports for assessment purposes. The assessee, on the other hand, argued against expanding the scope of section 158BB to include expert reports not directly linked to seized material, drawing support from legal interpretations and circular guidelines.

4. The consideration of evidence found during search operations played a significant role in the judgment. The court analyzed the provisions of section 158BB, emphasizing the requirement for evidence discovered during the search to form the basis for determining undisclosed income. The dispute revolved around the acceptance of the Departmental Valuation Officer's report as valid evidence, given the lack of corresponding findings during the search operation at the assessee's premises.

5. The impact of the Central Board of Direct Taxes Circular on the block assessment of undisclosed income was highlighted. The circular clarified that block assessments should be based on evidence found during the search and post-search inquiries related to the search evidence. The court considered the amendment to section 158BB in 2002 and the circular's guidance in interpreting the legal provisions concerning the collection and use of information for block assessments, ultimately dismissing the appeal for lack of substantial legal questions.

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