2017 (12) TMI 310 - HC - Income Tax

Addition u/s 69C - books of account seized during the search - rejection of books of accounts - Held that - The amounts in question have been found to be entered in the regular books of account of the assessee. Therefore, inquiry, if any, in respect of valuation of the building Dhanranjni was permissible in the course of regular assessment proceedings. The findings recorded by the Tribunal, therefore, are in consonance with the principles propounded in the above referred decisions of this court. Consequently, it cannot be said that the impugned order of the Tribunal suffers from any legal infirmity giving rise to a question of law, much less a substantial question of law, warranting interference. The appeal, therefore, fails and is accordingly, summarily dismissed.

Summary

Issues:
1. Justification of deletion of additions made by the AO under section 69C of the Income Tax Act.
2. Justification of deletion of additions based on lack of evidence found during search proceedings.

Analysis:
1. The appellant revenue challenged the order of the Income Tax Appellate Tribunal (ITAT) in IT(SS)A No.21/ RJT/ 1988 for the block period 1987-88 to 24.12.1996, questioning the deletion of additions under section 69C of the Income Tax Act. The respondent, engaged in construction business, had a search conducted in an associate firm's case, leading to the initiation of proceedings under section 158BC of the Act. The Assessing Officer rejected the books of account due to irregularities and referred the case to the Valuation Cell to determine the fair market value of a building constructed by the respondent. The AO added the difference between the valuation by the Valuation Officer and the cost shown by the assessee as undisclosed income under section 69C.

2. The Tribunal found that the addition was solely based on the valuation report without any seized material or evidence from the search. It noted the absence of incriminating material to support the addition and emphasized that Chapter XIV-B of the Act requires undisclosed income to be a result of the search. As no undisclosed income was detected during the search, the Tribunal set aside the addition. The revenue contended that the books were not maintained properly, justifying the rejection and valuation referral. However, the High Court held that since the amounts in question were in the regular books of account, any inquiry regarding valuation should be part of regular assessment proceedings, in line with established legal principles.

In conclusion, the High Court dismissed the appeal, stating that the Tribunal's findings aligned with legal precedents and the essence of Chapter XIV-B of the Act. The Court emphasized that the special provisions for undisclosed income should operate separately from regular assessments, and since the amounts in question were part of regular books of account, any inquiry should be conducted in regular assessment proceedings. Therefore, the Tribunal's decision to set aside the addition was upheld, and the appeal was summarily dismissed.