2008 (3) TMI 669 - HC - Income Tax

Block assessment - Search and seizure u/s 132 - Whether Tribunal was justified in holding that where income does not fall within section 158B the same should not be brought to tax u/s 158BA even though covered u/s 158BB(c) - Report of valuation officer can be taken into consideration for block assessment by AO? - HELD THAT - In the present case Tribunal held that the details of the payment of salary and commission etc. was available as per the record of the employer for the purpose of audit under section 44AB of the Act the tax was deducted at source and the assessee also paid advance tax and even the balance amount was paid as self-assessment tax. Therefore there could be no intention on the part of the assessee for hiding the said income from the Income-tax Department. Therefore merely because the return for the AY 1995-96 could not be furnished within the specified period it cannot be said to be undisclosed income. In our opinion the finding of the Tribunal is finding of fact based on the material on record. In the case of CIT v. N. Vellaiyan 2005 (10) TMI 77 - MADRAS HIGH COURT following its earlier decision in the case of Asstt. CIT v. A.R. Enterprises 2004 (9) TMI 34 - MADRAS HIGH COURT held that the income in respect of which the advance tax has been paid cannot be said to be undisclosed income. Report of valuation officer obtained by AO cannot be taken into consideration for block assessment unless it is co-related with some seized material - HELD THAT - Tribunal held that no material was found to show that any investment has been made towards construction or renovation during the year under consideration and therefore in the absence of any material the addition on the basis of the valuer report is not justified. We are of the opinion that the view taken by the Tribunal is correct and in accordance to the law. The addition cannot be made on mere presumption. There must be some material found during the course of search to suggest any investment towards construction or renovation in the property and only on the basis of such material the matter could be referred to the Departmental Valuer. Merely on the basis of the opinion of the Departmental Valuer in the absence of any specific material it cannot be inferred that any expenditure has been incurred towards cost of construction or renovation during the period in dispute. Our view is supported by the in the case of CIT v. Ashok Khetrapal 2007 (7) TMI 36 - HIGH COURT DELHI in which it has been held that in the absence of material being found during the course of search that the assessee had made more investment in the properties than his declared value the addition was not justified. In the case of CIT v. Vinod Danchand Ghodawat 2000 (6) TMI 13 - BOMBAY HIGH COURT held that in the absence of any material being found during the course of search that any amount being spent on the construction of the bungalow no addition could be made on the basis of the report of the Departmental Valuer obtained subsequent to the order of regular assessment. It has been held that Chapter XIV-B of the Act had no application. Therefore both question Nos. 1 and 2 are answered in favour of the assessee and against the revenue. Appeal is dismissed - In favour of assessee

Summary

Issues Involved:
1. Justification of the Tribunal's decision regarding income not falling within section 158B but covered under section 158BB(c).
2. Validity of the valuation officer's report in block assessment without correlation to seized material.

Issue-wise Detailed Analysis:

1. Justification of the Tribunal's Decision Regarding Income Not Falling Within Section 158B:

The Tribunal's decision revolved around whether income that does not fall within section 158B should be taxed under section 158BA even if covered under section 158BB(c). The case involved a search and seizure operation under section 132, which led to the block assessment for the periods 1-4-1985 to 31-3-1995 and 1-4-1995 to 8-8-1995. The assessee's income from "Salary" and "Commission," house property, capital gains, and other sources for the assessment year 1995-96 was considered undisclosed by the Assessing Officer due to the late filing of the return. The Tribunal held that the details of payments were available as per the employer's records for audit under section 44AB, tax was deducted at source, advance tax was paid, and the balance was paid as self-assessment tax. Therefore, there was no intention to hide the income from the Income-tax Department. The Tribunal concluded that income not falling within the provisions of section 158B should not be brought to tax under section 158BA, even if covered under section 158BB(c), especially when the payment of advance tax and TDS was evident. The High Court upheld the Tribunal's decision, emphasizing that the intention to disclose income is crucial, and if the intention to disclose is established, it cannot be considered undisclosed income.

2. Validity of the Valuation Officer's Report in Block Assessment Without Correlation to Seized Material:

The second issue addressed the addition of Rs. 5,12,400 as unexplained investment in house property based on the Departmental Valuation Officer's (DVO) report. The Tribunal found that no material was found during the search to suggest any investment towards addition or renovation during the years 1992-93 to 1995-96. The Tribunal held that the valuation report could not be considered unless it was correlated with seized material. The High Court agreed with the Tribunal, stating that the addition could not be made on mere presumption. There must be some material found during the search to suggest any investment towards construction or renovation. The Court cited several cases, including CIT v. Ashok Khetrapal and CIT v. Vinod Danchand Ghodawat, to support the view that in the absence of specific material, the addition based on the DVO's report was not justified.

Conclusion:

The High Court dismissed the appeal, answering both questions in favor of the assessee and against the revenue. The Court emphasized that the assessment of undisclosed income must be based on the intention to disclose and supported by material evidence found during the search. The Tribunal's findings were upheld as they were based on the material on record and aligned with the legal provisions and precedents.