2002 (8) TMI 38 - HC - Income Tax

Search And Seizure - Block Assessment - Cash Credits - valuation of the constructed building - Whether the learned Income-tax Appellate Tribunal was right in its wisdom to apply the Rajasthan PWD rates for working out the cost of construction of the said property for income-tax purpose instead of CPWD rates? - Whether the learned Income-tax Appellate Tribunal was right in deleting the addition of Rs. 41, 400 by holding that when entries find place in the regular cash book then no addition can be made in the block assessment until there is evidence to the contrary? - Whether the addition on the basis of examination of the regular books of account seized during the course of search is out of the purview of the block assessments? - the appeal is partly allowed

Summary

Issues:
1. Whether the judgment passed by the Income-tax Appellate Tribunal is perverse?
2. Whether the Tribunal was correct in applying Rajasthan PWD rates instead of CPWD rates for construction cost?
3. Whether the addition of Rs. 41,400 should be deleted based on entries in the cash book?
4. Whether the addition based on examination of seized regular books of account is within block assessments' purview?

Analysis:
1. The case involved a search and seizure operation at the director's premises, leading to the issuance of notices under section 158BC(b) of the Income-tax Act, 1961. The assessee filed returns showing "nil" income for the block period. The Assessing Officer made additions based on seized incriminating documents. The Tribunal deleted an addition of Rs. 41,400, which was upheld as undisclosed income by the Assessing Officer. The Tribunal's decision was challenged on grounds of undisclosed income determination.

2. The dispute regarding construction investment valuation centered on whether to use PWD or CPWD rates. The Revenue argued for CPWD rates, while the assessee contended that the Tribunal's use of PWD rates was justified. The Tribunal's decision to apply PWD rates was supported by the assessee, emphasizing the Tribunal's factual findings and justifiability. The court noted the absence of a fixed formula for valuation, considering factors like location and materials used.

3. The addition of Rs. 41,400 was contested as undisclosed income due to unproven cash credits found in the regular cash books. The Tribunal's deletion of this addition was challenged, arguing that undisclosed income should be assessed as per Chapter XIV-B of the Income-tax Act. The court held that the Tribunal erred in not treating the unexplained cash credits as undisclosed income, emphasizing the statutory provisions for undisclosed income assessment.

4. The issue of undisclosed income based on seized books of account was examined in light of Chapter XIV-B provisions. The court clarified that undisclosed income discovered during a search should be assessed as per the special assessment provisions. The Tribunal's decision to delete the addition based on seized books was deemed contrary to the Act's scheme. The court upheld the statutory framework for undisclosed income assessment during search operations.

In conclusion, the court partially allowed the appeal, maintaining the Tribunal's decision on construction investment valuation while overturning the deletion of the addition of Rs. 41,400 as undisclosed income. The judgment emphasized adherence to statutory provisions for undisclosed income assessment and the absence of a fixed formula for construction valuation.